As Indonesia Grows, Discontent Sets in Among Workers

The men — all employees of the biggest hypermarket chain in the nation, run by the French retail giant Carrefour — said the company was violating their rights by paying them as contract workers, unprotected by strict Indonesian labor laws.

“Cheap wages and outsourcing, these are the main issues in Indonesia,” said Abdul Rahman, a Carrefour employee and the secretary general of the union, known as Kasbi, which represents about 130,000 workers.

He and others have been negotiating with the company for improved contracts since a 1,000-person strike in late August, but talks have gone nowhere. The same cycle has played out repeatedly since Carrefour entered Indonesia in 1998, said Mr. Rahman, 33, who has worked at the company for 11 years.

United by discontent, Mr. Rahman and his fellow activists are far from alone. Indonesia, the largest economy in Southeast Asia, is also among the top 20 economies in the world, with growth this year of around 6 percent. On Thursday, the ratings agency Fitch upgraded the country to investment-grade status. More than 50 percent of its 240 million inhabitants have entered the middle class, according to the World Bank, which defines that as those who spend between $2 and $20 a day. Still, many of them toil for barely a living wage, offering some of the cheapest labor in Asia.

In recent years, though, this labor force has watched certain sectors grow fat on rising commodity prices and booming domestic demand, and increasingly, it is pushing for a greater share of company profits.

The biggest pushback has come from workers employed by Freeport McMoRan, which is based in Arizona and controls the world’s largest recoverable gold and copper reserves in Timika, Papua. On Wednesday, its workers’ union agreed to a 37 percent increase in wages after a three-month strike.

Affordable labor is a main reason investors are attracted to Indonesia, in part to offset wage increases in China, said Gita Wirjawan, currently the country’s trade minister and formerly head of its investment coordinating board.

But recent strikes for higher wages by mine workers and supermarket clerks, not to mention pilots of the state-owned airline, Garuda, have disrupted business operations — and could potentially deter foreign dollars.

According to the Manpower Ministry, Indonesia had 53 strikes in the first seven months of 2010, the last period for which figures are available. By comparison, in 2008 the International Labor Organization recorded five apiece in the nearby countries of Thailand and the Philippines.

Muhammad Chatib Basri, an economist at the University of Indonesia and the director of the Institute for Economic and Social Research, says frequent and prolonged strikes reduce profit margins and competitiveness. Sluggish Indonesian industries like garment manufacturing are starting to pick up as wages rise elsewhere, he says. But if the costs of dealing with unrest and lengthy union negotiations increase, that could stem growth in a country that will depend on labor-intensive industries for productive employment for the foreseeable future.

Mr. Basri says legally mandated high severance payments are another deterrent to investment.

“The labor law acts like a hiring tax, so many companies don’t want to absorb permanent workers because if there is downsizing, they have to pay out a lot of money,” he said.

Many companies get around that regulation by hiring contract workers, like the men of Kasbi demanding better benefits from Carrefour. But typically, big foreign concerns have a more difficult time evading the law in that way, and others, too, are facing worker unrest.

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