Wage hike may lead to small firms' bankruptcy

Wage hike may lead to small firms' bankruptcy

JAKARTA (JP): This month's 10.6 percent raise in the minimum
regional wage level poses a heavy financial burden that may lead
small and medium-sized businesses to declare bankruptcy, a tycoon
warned yesterday.

Sofyan Wanandi of the Gemala Group said that the regulation is
being enforced at a time when the labor-intensive sector,
comprised mainly of garment, textile and footwear factories, is
in financial trouble.

"I am afraid small and medium-scale companies will crumble if
the government insists on strictly enforcing the regulation," he
told The Jakarta Post.

Besides enforcing the minimum regional wage standard, the
government also intends to require employers to pay their
contract workers 30 days' wages, instead of the present 25 days'
wages, per month.

The government has also declared it mandatory for employers to
grant permanent employment status to workers who have
successfully completed their three-month probation period.

On Monday, Minister of Manpower Abdul Latief said that the
government would no longer tolerate companies who employ pay-by-
day workers for up to 20 years.

About 300 entrepreneurs who object to the government's policy
plan to seek postponement of the implementation of the
controversial regulation. They are considering bringing the case
to the State Administrative Court.

Sofyan said he personally hails any efforts to improve
workers' well-being, but stressed that the government should
carefully weigh the possible consequences.

At the moment, labor-intensive companies are embroiled by
financial troubles, as their products are losing their
competitive edge due to bureaucratic red tape.

"The government's uncompromising stand on the minimum wage
level policy will only spark confrontation between employers and
workers, who feel they are entitled to a wage increase," he said.

This month, waves of demonstrations hit factories in West
Java, Jakarta and North Sumatra. The workers demanded pay hikes
and better treatment.

Sofyan warned that the collapse of small and medium-sized
companies would worsen the unemployment problem, because the weak
firms would have to sack their employees in order to achieve
efficiency.

"How will the 2,500 people entering the work force every year
be accommodated?" he said.

The new labor ruling, according to Sofyan, has prompted a
number of companies to consider relocating abroad, where
production costs are cheaper.

He proposed that employers should be given one to two years to
put their houses in order before the ruling is enforced.

Sofyan suggested that Minister Latief should have thought more
about the new policy's effect on the Indonesian economy as a
whole before he went ahead with enforcement of the regulation.

The government's move to cut illegal levies as a way to combat
the so-called high-cost economy, according to Sofyan, hardly
means anything, because it addresses only the small grease money.

Business sources said that the biggest portion of levies that
companies have to pay involve the numerous contributions to
government-sponsored programs.

In Padang, West Sumatra, Minister Latief said that the
government is determined to continue scrapping more levies in an
effort to reduce Indonesia's high-cost economy and make
Indonesian products competitive in the world market.

The Indonesian government, he said, is aware that investors
will make commitments in countries where barriers such as levies
are at a minimum.

"They will not set up business in Indonesia if the conditions
are not conducive enough for development," he said.

Latief and Chief of the Indonesian Chamber of Commerce and
Industry Aburizal Bakrie were in Padang to discuss the scrapping
of illegal levies in order to improve the business climate in the
province.

West Sumatra has slashed illegal levies from 51 to 22 in a
move that minister Latief hopes will be followed by other
provinces in order to woo investors.

The province's economic growth of 9.7 percent is among the
fastest of Indonesia's developing areas. It is determined to
maintain this growth level for the next three years.

Governor Hasan Basri Durin said that the shorter list of
levies will lead to a decrease in the local administration's
income by Rp 1 billion ($440,000) a year.

The governor also pledged to intensify combat against illegal
levies, which costs local businesses a loss of about Rp 5 billion
every year.

"Businessmen should report illegal levies to me. Officials
who extort businessmen will be harshly dealt with," he said.
(pan/rms)