Indonesia could face more strikes as workers push for higher pay

JAKARTA Aug 29 (Reuters) – Recent strikes in Indonesia by gold miners, pilots and supermarket staff over pay signal that workers have started to push for a greater share of profits in a booming economy that has drawn foreign investors partly for its low labour costs.

The push for higher wages means firms may no longer be able to count on the world’s fourth largest population offering among the cheapest labour in Asia, and they could face protracted pay talks that could affect their operations.

Union activists and advocacy groups see the power of labour unions growing in Southeast Asia’s biggest economy, with a growing likelihood of further strikes sometime after this week’s holidays marking the end of the Muslim fasting month.

“The recent strikes showed that workers in Indonesia are in a learning stage — they know that they can fight for their rights more than before,” said Soeharjono, a program officer of the International Labour Organisation (ILO) in Jakarta.

Wage pressures in an G20 economy growing over 6 percent annually could also add to structural inflation problems caused by poor infrastructure and high distribution costs in the archipelago.

Union leaders at Freeport McMoRan Copper & Gold’s huge Grasberg mine have vowed to strike again in coming days after talks with the firm failed to close a huge gap in pay expectations, while further labour actions are also possible at Carrefour and airline Garuda Indonesia .

A Freeport source told Reuters that the U.S. firm had offered a union representing 8,000 mine workers a 10 percent rise in the coming year and another 10 percent the following year, following an unexpected eight-day strike in July that halted its output and lifted global copper prices .

He said this was better than a 10 percent pay rise at Vale’s Indonesian nickel miner Inco or 9 percent for a key unit of top coal miner Bumi Resources — both rises well above 6 percent inflation in Indonesia in 2010.

Yet the union, which says other Freeport staff around the world get 10 times the $1.50 hourly rate given to low level mine workers, has said it intends hold out for far more — for between $20 and a highly aggressive $200. (For a miner working 10 hours a day and 20 days a month, $200 an hour would work out to $40,000 a month.)


Freeport workers are in a strong position to press for higher wages as they know another strike would hurt the company at a time of record gold prices . According to Reuters calculations based on a $1.50 hourly wage and a $1,500 an ounce gold price, gold output which was lost during an eight-day strike in July could have covered three times the workers’ annual wages.

Analysts say the push by Freeport workers comes as record prices for many commodities this year have spurred labour unrest globally.

“It’s industry-wide, everywhere… There is a bit more voice coming back to the people that are actually doing the hard work,” said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

“It’s the voice which is the big thing — people are starting to question ‘we should be getting paid more if we are within this boom’,” he said, referring to Indonesia.

There is also a risk that protests could spill over into violence as local communities seek a greater share and the high prices attract new investment. An Australian firm’s exploratory camp for a gold mine was burnt to the ground in May and local residents attacked and halted production at an oilfield this month.


Labour activism is unlikely to be limited to the resource sector.

The Garuda pilots union told Reuters it plans to strike again in September because talks over contracts have failed, after a one-day dispute in July over the gap in salaries between local and better-paid foreign pilots.

This past weekend, there was a strike and rally by around 500 employees of Carrefour, which said its hypermarkets in Indonesia were unaffected. But Carrefour has yet to agree on a deal with workers pushing for improved contracts and there will be further talks in mid-September.

While the country’s buoyant consumer demand will continue to be a major draw for investors, the low wages that led some textile and sports shoe manufacturers to relocate to Indonesia from China and Vietnam in the past year may be eroded.

A labour surplus is falling, with the unemployment rate down this year to 6.8 percent, from 11.2 percent in 2005.

Although wages have been low, so is productivity while Indonesia’s labour laws — which require high severance pay awards — are among the most rigid in the world. This has led many firms to maintain flexibility by outsourcing workers without formal contracts, which analysts say is another potential source of labour unrest.

Long-mooted government plans to reform strict labour laws that protect workers, in order to favour investment, look a long way off.

“Firms have an incentive to foster non-compliance of labour laws, putting them at risk of facing labour disputes at a time when the number of labour unions has grown rapidly,” said Nomura in a recent report on Indonesia’s economy.


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