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)