Indonesia governors reject central govt's reformed minimum wage policy

 Indonesian trade union supporters march, protesting against job cuts and calling for higher wages, Sept 1.
Indonesian trade union supporters march, protesting against job cuts and calling for higher wages, Sept 1.PHOTO: REUTERS

JAKARTA (REUTERS) - The governors of two key Indonesian provinces say they will not obey a central government directive changing how minimum wages are set, posing a challenge to President Joko Widodo.

On Oct 15, Joko's government announced that annual increases in minimum wages would be calculated based on the economy's growth rate and inflation, rather than through talks between unions, bosses and local officials, as in the past.

The governors say they will keep setting minimum wages based on the cost of living in their areas, at least for 2016.

"I cannot be forced to comply," Basuki Tjahaja Purnama, who last year succeeded Joko as Jakarta governor, told reporters recently. "If they want me to follow the rule, it has to be corrected first."

The old way of setting wages drew criticism for letting local politicians buy votes with promises of hefty wage rises. In 2012, shortly after he was elected Jakarta governor, Joko hiked the capital's minimum wage by more than 40 per cent.

Under the new formula, the monthly minimum wage should increase 11.5 per cent in Jakarta in 2016. But Jakarta officials say they will raise it by 15 per cent, to 3.1 million rupiah (S$322).

The governor of Central Java, a populous and politically-important province, said he would not follow the national government's new rules without taking into account local living costs.

Ganjar Pranowo said he will compare the minimum wage increase allowed under the new formula - the same 11.5 per cent as in Jakarta - with what the wage hike would be based on province's survey of local living costs, as used in the past, and "we will go for the higher figure".

Neither Purnama nor Pranowo are running in local elections taking place in December.

The new wage regulation contains no sanctions for local leaders who don't comply, although there are sanctions for firms who do not follow them.

Asked what the central government would do about opposition from local politicians, Manpower Minister Hanif Dhakiri brushed off the matter. "Is Jakarta part of Indonesia or not? If so, they must comply," he said.

Resistance to the new method had been expected from trade unions, but not from governors.

There have been union protests, but they have been small. Last week, police fired water canons to disperse some 2,000 workers protesting in front of the presidential palace.