Korean businesses threaten mass exodus

Rendi A. Witular, The Jakarta Post, Jakarta

The Korean Chamber of Commerce (KOCHAM) warned the government of Indonesia that more South Korean investors would pull out of Indonesia if it failed to quickly address the various problems hurting their businesses here.

"An unfavorable labor policy, an irrational increase of (labor) wages, poor worker productivity, labor strikes and poor law enforcement are the major factors that are hampering the prospects of our businesses in this country," KOCHAM representative in Jakarta C.K. Song told The Jakarta Post late on Wednesday.

He said that in the one-year period ending in June 2002, some 36 South Korean garment and bag manufacturers had shut down and relocated their operations to other countries like Myanmar and Vietnam, which offered a better investment climate. The shut downs have left at least 32,000 local workers jobless.

Song said that five toy makers were also preparing to close their operations here, and 13 stuffed animal makers were also considering relocating their businesses to other countries.

He said that the above companies were export-oriented companies, employing huge numbers of workers.

He explained that the lingering labor conflicts and unfavorable government labor policy had made their products less competitive in overseas markets.

The warning is the latest alarm bell for the government to improve the investment climate at home to help prevent investors from leaving the country as well as to bring in badly needed new investors.

During the first half of this year, foreign direct investment approvals plunged by 42 percent to US$2.5 billion from the same period last year mainly due to the same problems Song complained of.

Experts have also said that the poor business climate, particularly the continuing labor conflict, was one of the prime reasons for the country's dismal export performance during the past several months.

The steady exodus of foreign investment firms, particularly labor-intensive companies, will continue to create more unemployment, which, according to independent experts has now reached a staggering figure of over 40 million.

Currently, there are some 570 South Korean companies still operating in the country, employing at least 500,000 workers or around 0.6 percent of the country's total labor force.

Their total investment in the country has reached US$10 billion with annual exports of $4.5 billion per year.

The Investment Coordinating Board (BKPM) ranks South Korea as the seventh largest foreign investor here.

Song said that a decree issued in 2000 by the labor ministry was hurting the business prospects of labor-intensive manufacturers.

"The policy is seen as giving them more difficulties," he said.

Three points in the policy which were strongly criticized by the Korean investors included the inordinate increase in the minimum wage, the overtime pay and dismissal compensation.

Minister of Manpower and Transmigration Jacob Nuwa Wea has proposed a new labor bill to replace the above ministerial decree, but businessmen have also criticized the new bill as overly favorable to workers at the expense of employers. If the bill is passed, economists have all but guaranteed that hundreds more companies will quickly pull out of Indonesia.

Song said that KOCHAM planned to meet with the minister on Sept. 2 to seek ways to resolve the problems faced by the Korean businesses.

"We'd love to stay here. We don't want to relocate (our businesses). But the situation is getting worse, we can no longer survive," said Song.

K.S. Kim, an official at KOCHAM who heads the garment section at the Korean Chamber of Commerce, said the minimum wage increases during the past two years had forced investors to increase the prices of their exports, making them less competitive in the international market.

"The overtime compensation is so high, but the workers' productivity here is so low, compared to those in other countries," he said.

The garment industry has been the hardest hit by the labor policies here since competition in the international market in this sector is stiff, which in turn requires a very competitive pricing policy, according to Kim.

KOCHAM predicted that this year's exports of garments would decline a whopping 85 percent to $150 million from last year's $1 billion. The Korean businesses accounted for 15 percent of Indonesia's total textile exports.

Investor -- Page 2

Eye Box

Comparison of labor situation in four countries

Indonesia Vietnam Myanmar Bangladesh

Working 40 hours 48 hours 44 hours 48 hours hour per week

Minimum wage (US$/month) 66 40 15 18

Overtime compensation (60hrs/week, in US$/month) 127 55 23 23

Source: KOCHAM