Indonesia capital raises minimum wage by 11 per cent amid tepid call for more

Indonesia capital raises minimum wage by 11 per cent amid tepid call for more

Friday, Nov 01, 2013

Reuters

JAKARTA – Indonesia’s capital raised its minimum wages by 11 per cent on Friday, far below demands for a 50 per cent rise during a two-day strike that failed to draw the millions hoped for by labour unions. Police put Friday’s turnout on the streets of Jakarta and neighbouring industrial areas in the thousands only, with two of the three major unions staying at work, saying a repeat of last year’s 44 per cent increase could jeopardise jobs at the time when growth is slowing.Only about seven million workers across the country, with a population of 240 million, are union members. Most are part of the informal sector in a country where 40 per cent of the population survives on around US$2 (S$2.48) a day.

“The wage hike isn’t that big and that might have an effect on domestic consumption … but on the whole, the impact on the economy would be much worse if businesses were forced to close because of unsustainable labour costs,” said Destry Damayanti, chief economist at Bank Mandiri.

“When workers ask for a 50 per cent increase in wages, that doesn’t reflect a rise in productivity. So that’s really bad for labour-intensive companies and for the economy as a whole. This year the increase in minimum wage (in Jakarta) is in line with inflation so I think it’s reasonable.”

Inflation in Southeast Asia’s biggest economy hit 4-1/2 year highs of over eight per cent after June’s sharp increase in fuel prices.

Asep Kusno, of PT KMI Wire and Cable, a Jakarta-based cable manufacturer, welcomed the wage increase.

“We were expecting an increase of about 20 per cent so we had factored it into our budget for next year,” Kusno, corporate secretary of the company, told Reuters via SMS. “So we won’t feel the effect of the wage hike so much this year.”

Manufacturers have repeatedly warned that any big wage increases would eat away at Indonesian competitiveness.

Jakarta, which is seen as a benchmark for neighbouring industrial districts, raised the monthly minimum wage in the capital to 2.4 million rupiah (US$211), to take effect in January.

The announcement was made by Jakarta’s hugely popular governor Joko “Jokowi” Widodo who opinion polls show would easily win next year’s presidential election if he runs.

He has not yet been nominated but there is widespread speculation the opposition PDI-P party will choose him as its candidate.

“It shows Governor Jokowi is not as populist as some in the business community had feared earlier,” Standard Chartered chief economist Fauzi Ichsan said.

Indonesia’s economy, which has grown at an average annual 6 per cent in recent years, stumbled this year because of troubles in the global economy and slowing domestic demand.

Last year, labour unions mobilised hundreds of thousands of workers to push the government to raise minimum wages by an average of 44 per cent in greater Jakarta to 1.9 million rupiah (US$167) a month.

 

Joko Sets Jakarta Minimum Wage at Rp 2.4m

By Arientha Primanita, SP/Deti Mega Purnamasari & Lenny Tristia Tambun on 12:20 pm November 1, 2013.
Jakarta Governor Joko Widodo on Friday set the capital’s minimum wage for 2014 at Rp 2.4 million ($213) per month, a far cry from the Rp 3.7 million previously demanded by the city’s workers.

“The [wage] has been decided at Rp 2,441,301.74,” Joko told reporters at City Hall. “That is the agreement, and I have signed it.”

He said that he agreed on the new minimum wage after balancing the country’s economic growth with the cost of living for its low-paid workers. The increase will, however, be wiped out in real terms by inflation.

On Thursday, the Jakarta Wage Council — a body made up of city administrators, employers and workers — held a meeting and proposed two options for the 2014 wage. Employers suggested Rp 2,299,860.33, while city administration officials suggested Rp. 2,441,301.74. Afterwards they forwarded both recommendations to Joko in order for him to determine the best option.

The new figure represents a 10 percent increase from last year’s minimum wage, which was set at Rp 2.2 million. The number, though, is still far lower than the Rp 3.7 million the nation’s laborers had been calling for widespread during strikes on Thursday and Friday.

Regarding his decision, Joko said he is ready to face protests and potential legal suits filed against him by labor unions.

“Last year we increased the wage nearly 50 percent and I was still protested,” Joko said. “I think all decisions have risks. Whatever that is, we have made a decision based on the wage council meeting.”

The workers representatives, however, did not attend the meeting.

Once set, companies must oblige with the new wage based on the 2003 Law on Manpower.

Sarman Simanjorang, the deputy head of the Jakarta branch of the Indonesian Chamber of Commerce and Industry (Kadin), said that employers will respect the city administration’s decision, even though many labor-intensive industries had requested no minimum wage increase for 2014.

“We will follow through with what the government has decided,” Sarman told the Jakarta Globe. “Maybe capital-intensive industries like service, banking and telecommunication sectors will not have any problems. But labor-intensive sectors such as the garment, textile and shoe industries — they will be affected. The increase is still normal.”

Companies that could not afford the increase, Sarman said, will ask the government for a postponement of the implementation based on their abilities to pay the workers.

He added that even though the workers did not attend the wage meeting, the new number will stand. Sarman referred to Presidential Instruction No. 9 on Minimum Wage, a regulation issued in 2013 which states that all provinces must announce a minimum wage on Nov. 1

Last year, when the 44 percent wage increase was determined, the employers did not attend the council meeting.

Meanwhile, Said Iqbal, chairman of the Confederation of Indonesian Workers (KSPI), said that the city’s unions rejected the new minimum wage.

“If Joko really approved that wage, that means that he does not side with the poor,” he told the Globe. “It means that he defends the employers’ interests.”

Said said the workers will file a legal suit to challenge the wage at the State Administrative Court (PTUN).

Meanwhile, thousands of workers from Jakarta, Bogor, Bekasi, Karawang, Purwakarta, Sukabumi, Semarang, Batam and Medan are set to continue their two-day strike on Friday. Some will still protest at industrial areas, while workers in Jakarta will concentrate their demonstrations at City Hall.

He added that workers in Bekasi will also protest at the National Police regarding the brawl they had with paramilitary youth organization Pemuda Pancasila that left eight people injured and 18 motorcycles destroyed in South Cikarang on Thursday morning.

Indonesia Governors Boost Minimum Wage

Measures Follow Labor Protests, Raise Concern Investors May Be Scared Away

I MADE SENTANA and LINDA SILAEN

Nov. 1, 2013 2:06 p.m. ET

JAKARTA, Indonesia—A dozen governors across Indonesia on Friday boosted the minimum wage in their localities by an average 19% in the wake of a two-day strike, prompting concern among business groups that the step may scare investors away from a country already losing some of its appeal.

The popular Gov. Joko Widodo of Jakarta was the first to announce an increase in the capital city. The 11% boost would mean workers would have to make at least 2.4 million rupiah [$215] per month starting on Jan. 1. That follows a 42% increase last year.

“We decided that the wage will be 2.4 million rupiah, which was the amount recommended by the wage panel,” Mr. Widodo said. “Companies recommended 2.3 million rupiah. We hope there will be no more protests.”

Later on Friday, 11 other governors announced wage increases, which ranged from 10% to 45%. The biggest increase was granted by the governor of Sumatra’s province of Bengkulu, which would bring local minimum wages to 1.4 million rupiah.

Some labor unions were unhappy with the wage increases. They had demanded a 50% increase and threatened to continue protests in coming days.

The 21 remaining Indonesian governors are expected to reveal their plans soon, with every one of them expected to raise minimum wages. Analysts said governors are more concerned about the potential political fallout of workers upset about rising fuel prices and inflation than foreign investors deciding to move their money elsewhere.

“I think foreign investors will see it as a bad development, as they will find it difficult to predict the wage increase in the future,” said Tio Nugroho, the owner of event-organizing company PT Taranggana Nata Asia. Mr. Nugroho said his company’s income declined around 30% during the first nine-months of the year as many of his clients had to cut promotional events to pay higher wages.

Last week Indonesia’s Investment Coordinating Board reported that foreign direct investment in Indonesia fell to $6.9 billion in the third quarter of the year from $7.2 billion the quarter before.

Friday’s moves to boost wages were on top of the average 30% increase in the minimum wage that already went into effect at the beginning of this year.

Many of the governors ignored the call by the central government recently for them not to increase their local minimum wage by more than 14% for the labor-intensive industries.

That they ignored the central government, analysts said, highlighted the inability of President Susilo Bambang Yudhoyono’s administration to influence provincial leaders, who are elected directly by voters in their respective localities. Local leaders will likely continue to be under pressure to meet workers’ demand all the way until the presidential election in June, analysts said, adding to uncertainties about doing business in the country.

Roni Febrianto, a spokesman for a coalition of labor unions, said he’ll keep pushing for higher wages.

“The increase is way below our demand,” Mr. Febrianto said while protesting outside the Jakarta City Hall with thousands of other workers. “We will continue to put pressure on the government until they meet our demand.”

Mr. Febrianto claimed that around 1.5 million workers in 20 provinces joined the second day of the strike, but there was no independent confirmation.

While a business group said it accepted the increase set in Jakarta, it was concerned with the large increases in some other provinces.

“Jokowi’s decision shows his quality as a good leader, who is not bent by any pressures. But [I don’t see] such quality in other provincial leaders,” said Ade Sudrajat, the chairman of the Indonesian Textile Manufacturers’ Association. Textile and footwear companies are typically hit hard by minimum wage increases because they tend to employ many low-wage workers.

Foreign investors, especially those in the labor-intensive industries, may move to neighboring countries—such as Cambodia and Myanmar—if local governments again bow to demands for a sharp pay increase, business groups warned.

“It’s not getting easier to do business here,” said Sofjan Wanandi, the chairman of the Indonesian Employers’ Association, one of Indonesia’s large business associations.