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Workers, small-scale industry will be worst hit by price hikes

Kompas – May 15, 2008

Jakarta – Workers in the 1-3 million rupiah per month wage group will be further squeezed if the planned fuel price increases come into effect. This is not just because real wages are steadily declining, but also because workers face the possibility of being dismissed due to the economic pressures confronting industry.

“Out of the 37 million workers in the formal sector, almost half receive a wage of between 1-3 million rupiah per month. The government should think about the impact of the fuel price hikes on middle-class income groups”, said All Indonesia Labour Organisation (OPSI) president Yanuar Rizky in Jakarta on Wednesday May 14.

Fuel price increases will not only have a serious impact on mid-income groups, but small-scale, household and labour intensive industries are also extremely sensitive to fuel price increases.

Rizky said that when the price of fuel was increased by 114 percent in October 2005, at least 400,000 workers were dismissed a month after the price increases came into effect. Many small-scale and household industries fell into bankruptcy.

The results of an OPSI survey in December 2005 of workers in the formal sector in Jakarta and the satellite cities of Bogor, Depok, Tangerang and Bekasi indicated that as a result of the October fuel price increases, transport costs rose by 53.8 percent, the price of food bought by officer workers increased by 41.4 percent, family food expenditure went up by 51.5 percent and housing rental rates increased by 47 percent. In such a situation, there should have been a wage rise of as much as 48 percent.

According to Rizky, the planned fuel price hikes will also trigger increases in the price of consumer goods, even though workers’ purchasing power is declining. Thus people will obviously have to reduce consumption because they will be unable to keep up with price increases. “The majority of workers whose wages are inadequate to meet their daily needs will make up the difference by falling into debt”, added Rizky.

According to a survey conducted by OPSI on April 30 this year, out of the 816 respondents who replied 227 stated that they borrowed money from commercial lending institutions in order to cover their living costs. As many as 204 people borrowed money through credit cards, 195 borrowed from families and 61 used a combination of all three.

“The dependency of workers in the middle-wage group on credit card [debt] is extremely high. If they are dismissed, [widespread] non-performing credit card debt could impact upon the banking industry”, said Rizky.

Confederation of Prosperity Labor Unions (K-SBSI) president Rekson Silaban is of the view that the group that is most vulnerable to the economic situation is contract labourers. “As industry comes under pressure, the easiest way to reduce costs is to rationalise by dismissing contract labourers”, he said. (HAM)

[Translated by James Balowski. The original title of the article was “Workers earning less that 4 million per month will be further squeezed”.]

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