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number of Korean investors have closed down their factories and relocated them to other countries due to the increase in labor costs in the country, a senior executive of the Indonesian Employers Association (Apindo) has said.

Apindo’s secretary-general, Suryadi Sasmita, said the Korean companies had shut down their Indonesian factories as their requests to be exempt from paying the new minimum wage had been refused.

“These investors that employ hundreds of workers each, have left because they face difficulties in paying their workers in accordance with the new minimum wage, and with severance pay to dismissed workers,” he told The Jakarta Post.

More than 400 labor-intensive companies had submitted an official request to governors in Banten, Jakarta and West Java to be exempt from the minimum wage hikes due to financial difficulties, but only 10 percent of the requests were accepted.

The government has raised provincial minimum wages by around 40 percent to Rp 2.2 million (US$210) per month from the previous Rp 1.5 million in accordance with the basic cost of living (KHL).

Suryadi, who has closed down his garment factory that employed more than 200 workers in Cikarang, West Java, and has changed its business orientation to trade, admitted he would have to spend more than
Rp 10 billion in severance payments to dismissed workers, but he added that he would gain more from the trading company in the next few years.

“I have begun importing products from China, Vietnam and Cambodia, which are cheaper than local products. As a trader, my profits will be higher,” he said.

Suryadi said a number of large labor-intensive companies were still holding bipartite negotiations with their workers on whether they would maintain their operations or shut down their factories with lower severance payments.

“There is no guarantee that layoffs can be avoided even though the government has established a task force to mediate industrial disputes triggered by the minimum wage hike,” he said.

He cited, for example, that a sizeable company that produced shoes in collaboration with international brands in Pasar Kemis, Tangerang, was still negotiating with its 15,000 workers as it faced difficulties in paying about Rp 400 billion in severance pay to discharged workers.

PT Bata Indonesia, a major shoe producer, recently locked its factory in Purwakarta, West Java, because of the government ruling on the restrictions of outsourced workers and the rise in the minimum wage.

“If the minimum wage is set at Rp 2.2 million, employers have to prepare at least Rp 3 million for each worker, as they also have to pay social security and provide transportation and meal allowances,” said Suryadi.

Apindo’s deputy chairman, Anton Supit, concurred and blamed the foreign investors’ exodus on an elite group within government and workers’ unions seeking political and financial advantages.

Suryadi and Anton accused these worker elites of arranging a series of nationwide labor strikes last year to pressure the government to raise the minimum wage. If the wage was increased, medium- and senior-ranking workers would benefit, they said.