(Bloomberg) -- Indonesian President Prabowo Subianto announced an average 6.5% increase in minimum wages for next year as consumption falters in Southeast Asia’s largest economy.
“The manpower minister proposed a 6% increase in the minimum wage. However, after discussing it and holding a meeting with labor leaders, we decided to increase the average,” Prabowo said in a press conference after a cabinet meeting on Friday.
The minimum pay per sector will be later determined by the wage board. The government will also seek other opportunities to improve workers’ welfare, the president said.
Prabowo, who took office last month, is under pressure to lift purchasing power as high borrowing costs dampen consumer demand and slow lending growth. A string of recent factory closures also threaten to worsen already-elevated unemployment post-pandemic.
The wage hike is larger than the roughly 4% set for this year, though is much smaller than the 10% granted in 2023 on the back of skyrocketing food and fuel prices. Inflation has since come down to a three-year low of 1.71% in October.
Still, the decision falls short of laborers’ demands for an 8%–10% minimum wage increase. “Workers will fight for a sectoral minimum wage hike,” according to Said Iqbal, president of Indonesia’s Labor Party, in a text message.
Workers’ groups will also oppose the government’s plan to increase the value-added tax to 12% in January, Iqbal added.
The president’s plans to turbo-charge economic growth to 8% — centered around his $30-billion campaign pledge to provide free school meals — may be constrained by a pledge to keep a modest budget deficit.
Prabowo announced on Friday that the budget allocation for the free meals will average 10,000 rupiah (0.60 cents) per child per day, down from his earlier promise of 15,000 rupiah. The program will start on January 2, aiming to feed more than 15 million children and adults across Indonesia.
--With assistance from Eddie Spence.
(Updates with more comments from Prabowo)
©2024 Bloomberg L.P.