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Indonesia capital raises minimum wage by 11 pct amid tepid call for more

Kanupriya Kapoor and Fathiya Dahrul
Friday, 1 Nov 2013 | 4:47 AM ET

JAKARTA, Nov 1 (Reuters) - Indonesia's capital raised its minimum wages by 11 percent on Friday, far below demands for a 50 percent rise during a two-day strike that failed to draw the millions hoped for by labour unions.

Police put Friday's turnout on the streets of Jakarta and neighbouring industrial areas in the thousands only, with two of the three major unions staying at work, saying a repeat of last year's 44 percent increase could jeopardise jobs at the time when growth is slowing.

Only about seven million workers across the country, with a population of 240 million, are union members. Most are part of the informal sector in a country where 40 percent of the population survives on around $2 a day.

"The wage hike isn't that big and that might have an effect on domestic consumption ... but on the whole, the impact on the economy would be much worse if businesses were forced to close because of unsustainable labour costs," said Destry Damayanti, chief economist at Bank Mandiri.

"When workers ask for a 50 percent increase in wages, that doesn't reflect a rise in productivity. So that's really bad for labour-intensive companies and for the economy as a whole. This year the increase in minimum wage (in Jakarta) is in line with inflation so I think it's reasonable."

Inflation in Southeast Asia's biggest economy hit 4-1/2 year highs of over eight percent after June's sharp increase in fuel prices.

Asep Kusno, of PT KMI Wire and Cable, a Jakarta-based cable manufacturer, welcomed the wage increase.

"We were expecting an increase of about 20 percent so we had factored it into our budget for next year," Kusno, corporate secretary of the company, told Reuters via SMS. "So we won't feel the effect of the wage hike so much this year."

Manufacturers have repeatedly warned that any big wage increases would eat away at Indonesian competitiveness.

Jakarta, which is seen as a benchmark for neighbouring industrial districts, raised the monthly minimum wage in the capital to 2.4 million rupiah ($211), to take effect in January.

The announcement was made by Jakarta's hugely popular governor Joko "Jokowi" Widodo who opinion polls show would easily win next year's presidential election if he runs.

He has not yet been nominated but there is widespread speculation the opposition PDI-P party will choose him as its candidate.

"It shows Governor Jokowi is not as populist as some in the business community had feared earlier," Standard Chartered chief economist Fauzi Ichsan said.

Indonesia's economy, which has grown at an average annual 6 percent in recent years, stumbled this year because of troubles in the global economy and slowing domestic demand.

Last year, labour unions mobilised hundreds of thousands of workers to push the government to raise minimum wages by an average of 44 percent in greater Jakarta to 1.9 million rupiah ($167) a month.

$1 = 11,335 rupiah

(Editing by Jonathan Thatcher and Nick Macfie)