Wage hikes may force companies to relocate

Moch. N. Kurniawan and Ahmad Junaid, The Jakarta Post, Jakarta

The textile and footwear sectors, which employ millions of workers in the Greater Jakarta area, will slide further into the doldrums following the local administration's decision to increase the minimum wage by a whopping 38 percent next year.

The Indonesian Textile Association (API) said on Friday that the wage hike would speed up bankruptcies in the textile industry, which has already been heavily battered by the global economic slowdown, while the Indonesian Footwear Association (Aprisindo) said some members were planning to relocate their factories to other provinces which offered better incentives.

"We can't cope with it any longer. The demise of many textile companies is imminent," API's executive director Indra Ibrahim told The Jakarta Post.

He said that as a result of the pay hike, labor costs would skyrocket to an unsustainable level for many companies.

"Don't blame us if unemployment jumps up quickly," he said.

The association had earlier said that as many as 100,000 people out of 1.2 million workers in the textile industry would lose their jobs in the industry next year due to sluggish world demand and the unfavorable domestic situation.

The minimum wage increase could speed up the layoff of workers, he said.

Jakarta's Governor Sutiyoso issued a decree on Nov. 2 raising the monthly minimum wage for 2002 to Rp 591,600 (less than US$60) from the current Rp 426,500.

The move has been followed by other regions, including West Java, Jambi, East Kalimantan, Central Sulawesi and Southeast Sulawesi, which increased their minimum wages by between 4 percent and 66 percent. Other provinces are expected to follow in the next few days.

Aprisindo secretary-general Djimanto said that some members would go ahead with their plans to relocate their plants should the wage hike not be compensated for by other incentives such as lower interest rates, lower insurance premiums and the elimination of red tape.

"Without such changes, our industry will become history in Greater Jakarta," he told the Post.

He hoped, for example, that interest rates would fall to about 12 percent from the current 20 percent to help reduce companies' costs.

Djimanto said that some members were now eying new locations, including Cilacap in Central Java, Banyuwangi in East Java, and Lampung.

At present, the footwear industry employs about 500,000 workers in the Greater Jakarta area.

Separately, Governor Sutiyoso rejected businessmen's demands that he review next year's monthly minimum wage for Jakarta workers.

"I won't review it because the decision was made by many parties," he told reporters in Jakarta on Friday.

However, Sutiyoso added that companies which could not pay the increase could submit their objections to the administration.

The administration would facilitate tripartite discussions involving the trade unions so as to find the best solution.

If employers really were in trouble, Sutiyoso said he was sure the labor unions would understand if their members were not paid in accordance with the minimum wage.