Decree to cap wages to help firms

Rendi A. Witular and Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Mon, 10/27/2008 11:32 AM  |  Headlines

A joint ministerial decree limiting wage rises is expected to help labor-intensive manufacturing companies weather the impact of the global economic slowdown and prevent massive layoffs, stakeholders say.

Chairman of the Indonesian Employers Association Sofjan Wanandi said the decree was expected to discourage local administrations from raising regional minimum wages beyond the capabilities of manufacturing firms.

"We are hoping local administrations can help the manufacturing firms cope with the global economic slowdown by not issuing policies that may burden the sector," he said.

Manpower and Transmigration Minister Erman Suparno, Trade Minister Mari Elka Pangestu, Industry Minister Fahmi Idris and Internal Affairs Minister Mardiyanto on Friday inked the joint decree, which also stipulates other efforts designed to empower the local economy against fallout from the global crisis.

Minister Fahmi said Friday the decree would not forbid wage increases agreed to during negotiations between companies and workers.

Existing regulations emphasize the role of local administrations in determining adjustments to the minimum wage, meaning companies are not at liberty to set the mark based on their financial capabilities.

Sofjan said the new decree had been prompted by fears raised by business communities that certain local administrations were planning to increase minimum wages by up to 30 percent.

"It would be best if companies could directly negotiate with workers to set the wage because not all companies have similar performances. In a booming sector, I believe they could pay the workers more," he said.

The Bekasi administration plans to increase the minimum wage by 30 percent next year, while the Semarang administration has proposed a 15-percent increase and Balikpapan a 20-percent rise.

The Indonesian Textile Association has estimated next year will see 120,000 temporary layoffs due to a possible sluggish demand from the United States -- the world's largest economy and main buyer of Indonesia's textile products.

The association has demanded the government take measures to reduce production costs, including by reducing import tariffs on raw materials and preventing wage rises.

One textile manufacturer and a number of electronic products and footwear manufacturers have shut up shop, citing slashed orders, and have let go a combined 2,000 workers.

Chairman of the Confederation of Indonesian Prosperous Labor Unions Rekson Silaban said he had called on the government to enact the decree for only one year.

"The decree could be extended should the crisis continue," he said, adding that the decree should not be enacted by all firms, as some sectors had not been badly effected, including the mining and food and beverages sectors.

"The decree should only be aimed at avoiding bankruptcy and massive layoffs," he said.

Some key points in the decree

* The Manpower and Transmigration Ministry will ensure the consolidation of employees and employers under a national three-partite forum.

* In determining wages, local administrations should support the sustainability of working conditions by taking into account business capabilities, especially in the labor-intensive sector.

* The Manpower and Transmigration Ministry will promote effective communication between employees and employers, and will improve the efficiency of the mediation process by resolving conflicts in a quick and just manner, and by avoiding layoffs.

* The Internal Affairs Ministry should provide clarity to local administrations when imposing each labor policy.

* The Internal Affairs ministry and local administrations must support the sustainability of conducive working conditions, including by ensuring effective communication between regional three-partite institutions and the local waging council.

* In determining minimum wages, governors should try not to impose wage rises that exceed the growth of the national economy.

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