In the latest and most authoritative warning about a new region-wide free-trade agreement with China, an executive with the state social security provider PT Jamsostek predicts that as many to two million Indonesians will be laid off because their firms canâ€™t outperform their Chinese rivals.
â€śFree trade will affect local companiesâ€™ performance, but it is unavoidable because the Asean-China Free Trade Area [ACFTA] has been agreed to for a long time, so we have to abide by the agreement,â€ť warned Ahmad Ansyori, Jamsostekâ€™s operational director.
The trade pact, which came into effect on New Yearâ€™s Day, removed tariffs on thousands of products between China and members of the Association of Southeast Asian Nations, creating the worldâ€™s third-largest free-trade area overnight.
Ahmad said there were a number of studies on the agreementâ€™s impact on Indonesiaâ€™s domestic industries and most concluded it would directly harm workers.
Several, he said, predicted that about 2.5 million workers could face layoffs, notably in industries such as leather processing, clothing production, textiles and steel.
Hundreds of labor-intensive and small companies would bare the brunt of the downturn, he said. â€śI donâ€™t think the figure will be that high, but it will be about 1.8 million,â€ť Ansyori said.
Others have made more alarming predictions. Last month, Djimanto, a senior official at the Indonesian Employers Association (Apindo), warned of layoffs for as many as 7.5 million workers - about a quarter of the nationâ€™s 30 million-strong formal sector workforce. He also feared many factories would close outright because they couldnâ€™t compete with cheaper Chinese products.
Based on some of the studies, Ahmad predicted that layoffs would begin gradually in about eight monthsâ€™ time.
â€śI am sure the government will formulate a policy with regard to this matter if the free-trade area massively weakens local industries,â€ť he said. â€śProbably, the government would provide incentives … as well as expand infrastructure projects and agribusiness development.â€ť
Indonesia last week asked Asean to delay the removal of 228 tariff categories in eight industrial sectors.
On Sunday, Yanuar Rizky, president of the Indonesian Workers Association, said that regardless of the trade pact, the nation has been unable to compete with Chinaâ€™s cheaper production costs because of high costs here associated with bureaucracy, old machinery and steep interest rates on working capital loans.
â€śACFTA is just a catalyst to show that we are far less competitive compared to other countries in the region, and that the government has no clear vision about the countryâ€™s manufacturing sector development. The threat of massive layoffs is real unless the government decides to shut the door on ACFTA, because we are not ready,â€ť Yanuar said.
Although analysts have said Indonesia would face Chinaâ€™s wrath for reneging on the free-trade agreement, Industry Ministry officials have proposed maintaining import tariffs on more than 200 items in sectors where Indonesia is believed to be vulnerable to Chinese imports, including textiles, electronics, furniture, footwear, cosmetics and herbal medicine.