JAKARTA - Industry Minister MS Hidayat warned on Wednesday of massive layoffs in April if relevant authorities failed to postpone the recent rise in the minimum regional wage for labour-intensive industries.
Around 900,000 workers employed by at least 1,320 companies in the food and beverage, tobacco, textile, footwear and leather, toy and furniture sectors were set to lose their jobs, according to Hidayat.
"Businesses cannot bear the costs incurred by the new minimum wage, which has increased by an average of 43 per cent," said Hidayat.
He added that companies faced difficulties, however, in cutting the number of workers to compensate for the wage rise as severance costs for dismissed workers were extremely expensive.
Regional administrations agreed to increase the 2013 minimum wage late last year by between 30 and 40 per cent, mostly due to pressure from striking workers. The figures were well beyond the 15 per cent average rise proposed by businesses.
In response to complaints from businesses, President Susilo Bambang Yudhoyono agreed late last year to exempt labour-intensive sectors from complying with the policy.
Labor-intensive companies need to register with the Manpower and Transmigration Ministry to receive the wage-freeze facility.
However, Hidayat blamed the manpower ministry for not taking the matter seriously as it had failed to immediately process applications from businesses requesting the facility.
One contentious issue, according to Hidayat, was a 2003 manpower ministerial decree that did not permit companies to obtain a wage freeze unless they had suffered financial losses for two consecutive years.
"We need to review the decree because we are in an emergency situation. This is a special case where we need to prevent massive layoffs and save these businesses," said Hidayat.
"I will be talking to the manpower and transmigration minister very soon to find a solution to the wage freeze holdups."
In response to the issue, Manpower and Transmigration Ministry spokesman Suhartono said the ministry was in the process of revising the decree as demanded by businesses and relevant ministries.
He added that the ministry was currently in talks with regional administrations, the Indonesian Employers Association (Apindo), the Indonesian Chamber of Commerce and Industry (Kadin) and workers' unions over the revision.
Suhartono also claimed that, as of Wednesday, the ministry had approved 50 per cent of wage-freeze applications filed by 946 labour-intensive companies.
"We have to admit that we cannot approve all the applications. This is not an easy situation," he said.
Although Indonesia's economy grew by more than 6 per cent during the past couple of years, concerns over high levels of unemployment remain.
According to the Central Statistics Agency (BPS), around 41.4 million people, or 35 per cent of the country's workforce, are categorized as either open (unemployed) or half-unemployed (a few hours of paid work per week).
A worsening jobless rate would undermine the growth in domestic consumerism, which is a key variable and has been the biggest driver of Indonesia's economic growth since 1999.
Bank Indonesia (BI) had already signaled its concerns over future employment opportunities in its December consumer confidence index (CCI), an important economic indicator in a consumer-reliant economy.
According to the survey, Indonesians remained confident about their country's economic outlook, but continued to worry about employment opportunities.
Apindo chairman Sofjan Wanandi estimated that 15,000 people in Greater Jakarta had lost their jobs in the past few months because of the new wage policy.
"I am afraid we are going to see more layoffs in the next few months as many companies have stated that they can only survive until March," Sofjan said.
More than 10 foreign companies, mostly from South Korea and India, have relocated their businesses to other Asian countries, according to Apindo.