Indonesia’s Economy Heads into Turbulence

Indonesia’s Economy Heads into Turbulence

Maybe soon on the dole

Restive labor unions compound the problems as investors pack up


Indonesian President Joko Widodo is starting to face jarring setbacks on the economic front, starting with a 20,000-member labor rally slated for Feb. 6 in front of the Presidential Palace and the Supreme Court to protest layoffs and urge the government to revoke its recently introduced formula for setting minimum wages.

However, there seems little satisfaction for the labor unions, given mass layoffs by companies including Japanese electronics giants PT Panasonic Lighting and PT Toshiba Indonesia, which adds pressure on the government to swiftly implement stimulus packages to help fight the ongoing economic slowdown. 2015 saw the slowest growth since 2009 in the depth of the global financial crisis.

Jokowi, as the President is known, clearly recognizes that Indonesia’s future is no longer tied to the commodities that have powered growth for the past half century and that manufacturing, built on a young and populous work force, will have to take over. But it is late in the game, and some of the multinationals that have joined the Indonesian economy are already flagging as world growth slows and as the region’s powerhouse – China – starts to lose its magic.

The president in the past five months has announced eight separate economic packages to try to revive domestic activity, including spending on public infrastructure. The president is also pushing regulatory reform including cutting back on the so-called “negative list” of off-limit industries closed to foreign investment.

But, hamstrung by the global slowdown, Panasonic Lighting, with its facilities in Cikarang, West Java province and Pasuruan, East Java province, and PT Toshiba Indonesia, also  in Cikarang have announced layoff plans, according to the Confederation of Indonesian Worker Unions (KSPI), one of Indonesia’s influential labor umbrella organizations.

In addition to the two Japanese companies, the confederation said two South Korean electronics companies also shut down operations in January, laying off 1,700 workers.

That was in addition to US car manufacturer Ford’s announcement that it will cease operations in Indonesia from the second half of this year, a decision that came as a shock as it had only began selling the new Ford Everest since the first half of 2015.

“Today we are announcing the difficult business decision to withdraw our operations from Indonesia in the second half of this year. This includes closing Ford dealerships and official imports,” Ford Indonesia managing director Bagus Susanto said in a press release at end of January.

Ford Indonesia said they will maintain service and uphold guarantees for all existing vehicles in the country.

However, lack of interest from investors still haunts the country despite Jokowi’s announcement of economic deregulation policies aimed to boost investment.

“The government is trying to remove obstacles so as to increase industry competitiveness through de-bureaucratization and [increasing] certainty for businesses,” Jokowi said, adding that the government would focus on three areas: boosting industry competitiveness, accelerating infrastructure projects and increasing investment in the property sector.

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