Robert Go, Jakarta – Yesterday's 22-per-cent hike in fuel prices dealt a second blow within a month to Indonesia's already hard pressed businesses, particularly those operating in the export sectors.

In addition to shouldering higher fuel costs, companies have just started shelling out 30 per cent more to pay their workers after the country's latest minimum wage standards took effect on January 1.

Prominent business leader Sofyan Wanandi said: "Small and medium businesses will be hurt, and those in labour-intensive sectors will feel the effects of both increases."

Mr Richard Santosa, head of corporate affairs at giant retailer Ramayana, added: "Thousands of workers could be laid off in the next few months as companies respond to the wage and fuel hikes. Exporters are going to be badly hit."

Already, business communities across Indonesia are warning that thousands would lose their jobs if the government chooses to go ahead and implement its planned series of price hikes.

But it is also apparent that Indonesia's 100 million workers need to be paid more. According to the World Bank, per capita income in South-east Asia's largest country is dismal at US$570 when compared to Malaysia's US$3,400, Thailand's US$2,010, or even the Philippines' US$1,040.

The rate of wage inflation has not kept up with the increase in prices for a range of staple and commercial goods in the country since the onset of the economic crisis in 1997.

And the need to improve salaries is also more immediate this year given the expected increases in the prices of basic items, which include rice, cooking oil and sugar.

While it is to be expected that the business community here does not like government policies that hurt their bottomlines, analysts told The Straits Times a steep wage increase imposed now could severely harm the economy.

Ms Mari Pangestu of the Centre for Strategic and International Studies in Jakarta said: "The wage hike will cost companies more. It could also be counterproductive to the economic recovery programme and lead to increased unemployment." Other factors that could make life harder for companies include the government's planned price hikes for telephone and electricity rates.

Mr Sofyan said: "It's not just wages and fuel, but also electricity, phone, and other services and items that businesses depend on. The increases are coming one after another."

The price hikes could cost President Megawati Sukarnoputri the confidence of Indonesia's business leaders. Mr Raden Pardede, head jof Danareksa Research Institute, said: "Our monthly confidence survey shows a deterioration in business leaders' support level for the government. Many are beginning to feel that government policies are becoming less business friendly and limiting."