Investors watch handling of riot, warn businessmen and analysts

By Hidayat Jati

JAKARTA (JP): Leading businessman and economic analysts, skeptical about the government's handling of the recent riots in Medan, North Sumatra, warn that the incident might deter foreign businessmen from investing in Indonesia.

Sofjan Wanandi, owner of the Gemala Group and spokesman for some of Indonesia's largest Chinese conglomerates, said the Medan riots have already scared off potential investors.

"I know some Japanese and American business people have had second thoughts about investing here since the riots broke out," he told The Jakarta Post here on Saturday.

Christianto Wibisono, the president of the Business Information Center (PDBI), said potential investors from Japan, Taiwan and Hong Kong are closely monitoring developments related to the riots.

Christianto said international mass media have already set their eyes on the handling of the riots. "Investors will base their business decisions on their reports," he said.

The government's reactionary stance is viewed with skepticism by analysts and big businesses, he said.

Medan, the biggest city in Sumatra, was rocked last month by workers' protests and ethnic violence in which a Chinese businessman was killed. The riots have been judged by some analysts as an outburst of long suppressed, complicated problems of workers' rights, uneven distribution of income and ethnic conflicts.

The biggest corporations in Indonesia, one of the fastest growing economies in the world, are primarily controlled by the ethnic Chinese, who barely make up 3.5 percent of Indonesia's 183 million population.

One union

Adding to the tension is the fact that the government only recognizes one union representing the workers, the SPSI (All- Indonesia Labor Union) which is lead by an appointee of the Ministry of Manpower.

This policy has been the source of mounting foreign pressure on the Indonesian government. The United States has given Jakarta until August to improve workers' rights before deciding whether to revoke GSP (Generalized System of Preferences) trade privileges.

As a result of the American threat, the government quickly adopted new labor policies that raised the minimum wage by 46 percent, abolished military intervention in labor disputes and allowed SPSI to adopt a federation system aimed at increasing the workers' bargaining positions.

Unfortunately, these measures have not been sufficient to silence the workers' frustrations, as was evident in Medan.

The country's leaders, always anxious to maintain Indonesia's investment lure, have stated that the riots will be dealt with "thoroughly." They have also rejected the workers' demand for the establishment of an independent union.

Some executives of an unofficial union, SBSI (the Prosperous Labor Union of Indonesia), were immediately arrested after the riots broke out. The rebel union's Medan branch chairman, was handed over to the Armed Forces last Thursday by his own colleagues after they received guarantees he would not be mistreated.

Christianto expressed disappointment that the government, especially local administrations, reacted too defensively in handling the riots.

"I read a Japanese report stating their reporters were barred from entering Medan," he said. "This will only make the international press more suspicious."

The business analyst, who is ethnic Chinese, also criticized the government's stance on allowing just one union. "This will only encourage frustrations that can easily turn violent," he said.

Sofjan, who was a student activist in the 1960's, blamed the conflict on the current "defensive psychology" he believes is plaguing the government and the local press.

"We always look for scapegoats and not real solutions," Sofjan said. "One day we blame the big business; the next we blame the labor activists."

"The labor issue is important," he said. "Numerous mid-sized companies in this country are dependent on cheap labor, especially in assembling."

"Sadly, many of these companies totally view labor interests and unions from a negative point of view," Sofjan said.

The solution, he said, lies in "open and healthy communication" between the management and the workers.

"It is obvious that the SPSI fails to represent the workers," Sofjan said bluntly. "This must be changed."

The tycoon, who is an ethnic Chinese, also believes the government's labor polices could be better coordinated.

"It's fine for the government to instruct conglomerates to increase workers' minimum wages, but please, do not shock the business community," he said.

The government should warn capital owners in advance of plans to increase wages, he said. "They should also give the business sector some limited time to adjust to the new wage."

Too early

Meanwhile, noted economist Hadi Soesastro from the Center for Strategic and International Studies (CSIS), who is also an ethnic Chinese, told the Post that it is too early to tell whether the Medan riots have damaged business confidence and affected foreign investment.

"If there have been any cancellations of investment plans, they have probably been just an immediate reaction," he said. "It is too early to say that the riots have caused a certain economic trend."

The economist said that because international capital movement in the world economy today is "very volatile," the government must assure investors of Indonesia's attractiveness.

Hadi also said that to improve labor conditions, the government must adopt new policies to "overhaul the whole Indonesian labor organization."

"It is clear that the official union (SPSI) does not function," he commented.

"We cannot deny that working conditions in some companies, including some foreign joint ventures, are just preposterous," Hadi said.

The analysts also criticized the government for immediately singling out a "mastermind" in all labor disputes.

"Of course there is a mastermind," Hadi added. "But he or she will get nowhere if the soil is not fertile."

Minister of Manpower Abdul Latief, a former retail tycoon, has persistently tried to promote the government's concerns for the workers.

Latief has rejected charges made by the International Confederation of Free Trade Unions (ICFTU) that the Indonesian government has "pressured workers."

"I think the ministry of manpower has been at the forefront in fighting for the workers' interests," the minister said.

Latief also stated that he will not disband SBSI because he never recognized its existence in the first place.