Indonesian firms cut staff, costs as global crisis hits home

Export-oriented industries are among the hardest hit, with many reporting sales plunging 30 to 50 per cent or even more, depending on their reliance on the overseas market.

Vincent Fabian Thomas

Vincent Fabian Thomas

The Jakarta Post


Women from the Solidaritas Perempuan group participated in the rejection of the increase in fuel prices in front of the Parliament complex, Senayan on Jl. Gatot Subroto, Jakarta (Thursday, March 29, 2012). They brought pots, cauldrons and other kitchen utensils while sounding them during the protest against rising fuel prices with the workers and students.( JP/P.J.Leo)

November 11, 2022

JAKARTA – Companies in many sectors have begun to lay off workers to stay afloat, a stark reminder that being one of the bright spots in the world for GDP growth this year does not make Indonesia immune to global economic turmoil.

Export-oriented industries are predictably among the hardest hit, with many reporting sales plunging 30 to 50 percent or even more, depending on their reliance on the overseas market.

Footwear and textile industries that depend heavily on the United States and European markets top the list, followed by rubber and food-and-beverage producers. The latter has also expressed concern over plans to impose a sugary drink tax next year, which could further reduce their sales.

Because of the bleak outlook, the domestic electronics industry is bracing for what it anticipates to be a 10 percent drop in sales next year.

Tens of thousands of workers have reportedly been dismissed across the country, and further cuts are expected.

The Manpower Ministry said at least 10,700 workers had been laid off nationwide during the first seven months of this year, but the Indonesian Employers Association (Apindo) reckons the figure is far higher.

“There have been at least 25,700 layoffs in the footwear industry alone. The number is way higher in the textile industry, not to mention other industries,” Anton J. Supit, who heads the Manpower and Social Security division at Apindo, told The Jakarta Post on Wednesday.

“During COVID-19, demand was still available, but restrictions made it difficult to meet it. Now it is much tougher because there is no order [from foreign buyers],” Anton added.

Apindo’s West Java branch, for example, recorded at least 73,000 layoffs across 126 firms as of Oct. 21; with the textile industry accounting for more than 80 percent of that figure.

So far, layoffs have been concentrated in West Java, a province home to producers working for prominent brands like Nike and Victoria’s Secret, while the situation in other regions is much calmer.

Apindo’s Central Java branch head Frans Kongi said on Wednesday that layoffs were occurring on a small scale only, but added that hundreds of workers had been sent on unpaid leave, while Adik Dwi Putranto, head of the Indonesian Chamber of Commerce and Industry (Kadin) in East Java, said there had not yet been any reports on either layoffs or furloughs.

Global economy projections for next year have mostly been revised down over the past few months amid persistently high inflation that has triggered a cost-of-living crisis in many countries and cooled demand for imported goods.

Josua Pardede, chief economist at private-sector lender Bank Permata, said on Thursday the global economic turmoil had now hit home, even though the impact was uneven.

Export-oriented industries and manufacturers of durable goods were experiencing a heavier impact, he said while others would prove more resilient, but none could escape the pressure of higher input costs if they relied on imported raw materials, given the depreciation of the rupiah.

Domestically, industries operating in regions with high minimum wages may face greater risk than others, he said, which goes some way to explain the layoffs seen in West Java compared with other regions in the country.

This may result in some relocation of industries to regions of the country with lower minimum wages, he said.

In response, businesses and associations have urged the government to take action to protect the domestic market, such as by keeping out illegal imports and preventing dumping.

They also called for a more dovish monetary policy after recent interest rate hikes decided by Bank Indonesia.

“The world is not okay. That’s not from me, the President himself says so. Many buyers have told us their forecast for 2023 has deviated from what they had initially told us. They too are puzzled,” Anne Patricia Sutanto, head of the Permanent Committee for International Treaties at Kadin, told lawmakers on Tuesday.

Furthermore, businesses are pushing both the government and lawmakers to allow them to put workers on reduced hours without increasing hourly wages, which they say would greatly help prevent layoffs, as businesses are planning to cut working hours to 30 hours from 40.

Manpower Minister Ida Fauziyah said on Tuesday that she had urged firms to look for alternatives and make layoffs a measure of last resort, which she said could be done by reducing work hours, shifts and overtime as well as choosing to place workers on unpaid leave.

However, Confederation of Indonesian Trade Unions (KSPI) president Said Iqbal contested claims that there had been mass layoffs, saying he had yet to receive any reports from members.

He said on Wednesday that employers may be intentionally using the threat of layoffs as a smokescreen to put off debates on demands from workers for higher wages, which many needed to stay afloat amid increasing living costs.

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