Monday, January 22, 2007

Three foreign companies to quit Batam on uncertainty over wages

National News - January 10, 2007
Fadli, The Jakarta Post, Batam

Three foreign investors have announced plans to stop doing business in Batam, Riau Islands, saying that inconsistencies in the wage system make it difficult to determine long-term production costs.

Indonesian Industrial Area Association deputy chairman Johannes Kennedy Aritonang told The Jakarta Post that at least three foreign investors in Batam had said they would pull out of the island and move their businesses to other ASEAN countries such as Thailand and Vietnam.

He said the companies had announced the plan after they learned that the city's monthly minimum wage for 2007 had been set at Rp 860,000 (US$95), up from Rp 815,000 in 2006 and Rp 635,000 in 2005.

They said wage increases would be difficult to predict and pose a problem to calculating production costs, making it hard to secure orders from foreign partners offering long-term job contracts.

"It would be difficult for the foreign companies to compete because they could not accurately estimate their production costs. We understand their reasons for shifting their operations elsewhere, but we can't stop them," said Johannes, who is also the managing director of the Panbil Industrial Estate in Batam and the chairman of the Riau Islands Chamber of Commerce.

He declined to name the three companies but said reports they had submitted over the plan showed their dissatisfaction.

Two of the three companies operating electronic assembly businesses in Panbil Industrial Estate, while the third is in the packaging industry and is based in the Sekupang Industrial complex. They employ at least 3,000 workers and have millions of dollars in assets.

"They are confused by the constant wage increases. The hikes are not intended to improve workers' livelihoods but only cause the prices of basic commodities to rise," said Johannes.

He said he was not optimistic that Batam could be developed into a competitive industrial area to compete with Vietnam and Thailand because its minimum wage of Rp 860,000 (US$95) was higher than those of the two countries, where workers are generally paid between $60 and $80 a month.

"Workers' wages should increase in the event of a high inflation rate, but not every year. Wages should be based on performance and not a minimum standard. We don't know how to overcome this problem," said Johannes.

The chairman of the Riau Islands chapter of the Indonesian Business Association, Abidin, agreed that the annual wage increases had only caused the prices of essential items to rise.

"I think it's time to change the concept of the annual wage hike. The government's role is to control the price of basic goods in the markets to prevent them from being raised as (the sellers) wish," said Abidin.

However, he added that debates on the minimum wage between businesspeople and workers often ended in disagreement and frequently resulted in protests that disrupted production.


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