It is certainly a very difficult time for companies in Indonesia now and will continue to be so next year, as our economy begins to feel the devastating impact of the financial crisis and recession in the world's economic powerhouses – the United States, Europe and Japan.
Worse still, the consensus forecast among analysts is that the situation will get worse before it gradually gets better, probably late in 2010.
In fact, our businesses are already feeling the pinch, as evidenced by the massive worker layoffs made or planned by companies already hit by the global economic downturn.
Manpower Ministry data show that 21,000 workers could be laid off by the end of this year, with another 13,000 or so other redundant employees receiving only nominal wages.
The situation this time around is different from our 1997-1998 economic crisis when companies that served the international market continued to do rather well: This time it is the export-oriented businesses – most of which are natural resources based – that are suffering the most because of the depressed demand in the developed world.
Worse still, while companies badly need to cut costs to stay competitive in the international market, our labor regulations remain too rigid to allow for a realignment of employment structures.
Firing workers remains the most expensive option, with severance allowances sometimes eight times as high as those in Malaysia, China, Bangladesh and India. This anomaly occurs even though we have more than 12 million unemployed and around 40 million – almost 50 percent of our total workforce – underemployed.
Yet the government and the parliament do not seem to have the courage to amend the 2003 labor laws, instead succumbing to threats by agitating trade union leaders who have steadfastly opposed any attempt to make labor regulations more flexible.
President Susilo Bambang Yudhoyono's Cabinet issued in October a joint ministerial decree designed to serve as a broad guideline for tripartite (government-employer-worker) negotiations for minimum wages for next year in anticipation of the tough economic times ahead.
However, instead of providing a conducive legal foundation for maintaining peaceful industrial relations, the ministerial ruling caused unrest among trade unions, which claim the regulation has weakened their bargaining power vis-a-vis employers. We still wonder why the government issued such a poorly drafted regulation in the first place, because it includes virtually nothing in the way of facilitating meaningful wage negotiations between workers and employers.
One of the five articles in the decree, which caps wage rises for next year at the rate of economic growth (estimated at 6 percent this year), has instead provoked several trade unions to organize massive street protests.
Adversarial relationships, let alone confrontations, between employers and trade unions at this difficult time will surely benefit nobody but will instead make our products and our overall economy much less competitive.
Workers, given their weak bargaining position, do need protective labor regulations because the market cannot always strike a good balance between the often opposing interests of workers and employers. They need a strong framework in which fair wages and working conditions can be set.
But overly protective or too rigid regulations, as they are now according to most employers and potential investors, could hurt growth in formal-sector employment, which accounts for around 65 percent of the total labor force.
On the other hand, a free-wheeling labor market or too flexible labor regulations will never work in the interest of workers, especially because more than 80 percent of the nation's labor force is not covered by an adequate social security system.
The government needs to consider companies' grievances more seriously, whether their problems are redundant workers, lack of trade financing, inadequate export insurance, unnecessary delays of imports or bureaucratic red tape, and take the necessary corrective measures accordingly.
The 2009 state budget provides Rp 12.5 trillion (US$1 billion) for what it calls a "stimulus" for businesses to weather the difficult economic conditions ahead. But this sum is paltry considering the magnitude of the challenges to come.
The most helpful stimulus for businesses right now would be the creation of a better business environment through more efficient bureaucratic infrastructure and protection of the local market from smuggled foreign goods.