Boom to bust in three years

THE FINANCIAL CRISIS & THE ASIAN HEARTLAND: INDONESIA

This is the second of a two-part series of articles by our reporter DERWIN PEREIRA on how North Sumatra is coping with the economic crisis. Today he looks at the differing fortunes of the construction and agriculture sectors.

HALF-finished buildings in Medan greet visitors.

Several real-estate and property projects in this North Sumatran capital have been shelved temporarily because of the crisis.

According to figures obtained from the Statistics Board here, the construction industry was booming at about 13 per cent two years ago.

Now it is expected to drop by 30 per cent at the end of this year and large-scale unemployment of workers is expected.

North Sumatran Governor Rizal Nurdin acknowledged there were problems in the industry, and said several projects would be postponed.

“Projects that are costly and a burden to society will have to be delayed,” he said.

He could not, however, provide details as to the number and type of projects that have been affected by the downturn.

Industry sources said that both public- and private-sector property were affected equally.

They blamed the delays and cancellations on the rising prices of building materials such as wood and cement which have risen by as much as 200 per cent in six months.

Some developers complained of difficulty in getting bank loans.

And even if they secured loans, some doubted they could repay them, given the high interest rates.

Developer Kasrul Basri of PT Gratama Karya Indah said work on a two-storey shopping-cum-housing complex in Amplas Raya in Medan had slowed down in recent months because contractors were unwilling to buy materials now given the high costs.

“They prefer to wait until the prices drop,” he added.

“No one wants to make losses but it could delay construction work by months.”

Property sales agent Lily Chao of PT Graha Sukses Mandiri noted that all contractors were given a time frame to finish their projects.

“Some with a one- or two-year schedule can afford to delay their projects because of rising costs now,” she said.

“But they are bound legally to finish them in that specified time.”

Tiara Hotel began construction work in 1996 on a new 13-storey wing adjoining the existing building.

Work stopped in April this year.

Tiara’s public relations officer Henny Octaviani said the hotel management expected construction to restart next June and the building to be completed by the end of the year.

“It took six years of planning to decide on building a new wing for the hotel,” she said.

“We are now being held back by the crisis.”

Analysts said that the cancelled projects would result in a growing number of unemployed workers in Medan.

Many are turning to the informal sector and becoming small traders and “becak” drivers.

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