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Massive layoffs inevitable in Indonesia's manufacturing, service sectors

Publication Date : 22-02-2013


Extensive layoffs in Indonesia’s manufacturing and service sectors are growing inevitable as the businesspeople’s appeal to the government to suspend the rise in minimum wages goes unheeded, a senior businessman says.

Indonesian Employers Association (Apindo) chairman Sofjan Wanandi said that at least 500,000 workers in about 1,500 companies across the country might lose their jobs in March as the companies were no longer able to pay their workers in accordance with the new minimum wages.

“I think half a million is the smallest figure we are going to see next month and I am afraid the layoffs will be done secretly. Most of [the layoffs] will occur in Jakarta, Banten and West Java,” Sofjan told The Jakarta Post on the sidelines of an Apindo National Leadership Council (DPN) gathering in Jakarta.

The affected workers mostly work in the food and beverage, tobacco, textile, footwear and leather, toys and furniture industries.

At least 26 provinces have set their respective minimum wages for this year, with Bogor, West Java making the highest increase of 70.5 per cent to 2 million Indonesian rupiah (US$208), from 1.17 million rupiah in 2012.

Purwakarta, also in West Java, recorded the second-highest increase of 61.6 per cent to 1.69 million rupiah from 1.04 million rupiah last year. Meanwhile, the capital city saw a 44 per cent hike in its minimum wage from 1.5 million rupiah to 2.2 million rupiah this year.

“Businesspeople are facing tough times and the new wage increases have forced them to lay off workers due to rising costs,” he said.

The wage hikes were estimated to increase production costs in the manufacturing industry by between 4 to 9 per cent this year.

He also said that the Manpower and Transmigration Ministry was reluctant to review manpower ministerial decree No. 231/2003, which states that the postponement of the minimum wage increases could only be done if the companies had suffered loss for two years in a row.

Apindo was afraid that the high wage problem would also contribute to the worsening of the country’s trade balance as more companies would prefer to import products from China, Thailand, Vietnam or Cambodia, which are cheaper than local goods.

“We have seen the tendency [of importing goods] lately,” he continued.

Contacted separately, Manpower and Transmigration Ministry spokesman Suhartono said that the government was optimistic that massive layoffs could be avoided.

“We have not received any reports from the manpower and transmigration office saying that companies will layoff their workers. Besides, we are continuing to work with related parties and stakeholders to find the best solutions on this matter,” Suhartono told the Post.

If the ministry knew of any company laying off workers without informing manpower offices in their respective regions, the ministry would have summoned the companies and called on them to pay severances according to the law, he said.

Regarding the possibility of the suspension of the ministerial decree on the new minimum wage, he said that the ministry had remained in talks with senior officials at the gubernatorial level.

According to Apindo, a number of foreign companies particularly from South Korea and India, have left Indonesia and relocated their businesses to other Asian countries since the end of last year.

US$1=9727.62 Indonesian rupiah


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