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SME Developmentin The Poverty

ReductionProgram: TRADE

AND LABORISSUES

SME Development in The Poverty Reduction Program: Trade and Labor Issues

Copyright@International Labour Organization 2005

First published 2005

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I L O

International Labour Organization, 2005

“SME Development in The Poverty Reduction Program: TRADE AND LABOR ISSUES”

Indonesian Title: “Tinjauan Aspek Perdagangan dan Ketenagakerjaan pada Pengembangan UsahaKecil dan Menengah dalam Program Penanggulangan Kemiskinan”

ISBN 92-2-017514-2 (print)ISBN 92-2-017515-0 (web pdf)

The designations employed in ILO publications, which are in conformity with United Nationspractice, and the presentation of material therein do not imply the expression of anyopinion whatsoever on the part of the International Labour Office concerning the legalstatus of any country, area or territory or of its authorities, or concerning the delimitationof its frontiers.

The responsibility for opinions expressed in signed articles, studies and other contributionsrests solely with their authors, and publication does not constitute an endorsement by theInternational Labour Office of the opinions expressed in them.

Reference to names of firms and commercial products and processes does not imply theirendorsement by the International Labour Office, and any failure to mention a particularfirm, commercial product or process is not a sign of disapproval.

ILO publications can be obtained through major booksellers or ILO local offices in manycountries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva22, Switzerland or from the ILO Office in Jakarta, Menara Thamrin, Level 22, Jl. MHThamrin Kav. 3, Jakarta 10250. Catalogues or lists of new publications are available freeof charge from the above address, or by email: [email protected] ; [email protected]. Visitour website: www.ilo.org/publns ; www.un.or.id/ilo

Printed in Jakarta, Indonesia

PPPPPrefacerefacerefacerefacereface

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Many parties are convinced now that SMEsdeserve special attention for supporting theirdevelopment, since SMEs are considered tocontribute to the economy and to provideemployment opportunities to many in the labourforce. Various government institutions and societyoften voice their interests in SMEs, and some of themare already involved in various activities to improveSMEs’ performance by formulating public policies andtheir implementation. At the national policy level,promotion of SMEs is on the government’s agendafor poverty elimination.

It is considered that large, middle and smallentrepreneurs all have specific roles in the nationaleconomic development. In government policies,therefore, policies for each of the entrepreneursshould not conflict each other, but instead they mustbe synchronized for their maximum contribution tothe economy. In short, the promotion of SMEs isbased on an objective to enable small businessesto become middle businesses, and to assist middlebusinesses to transform into large businesses. Thisis the basic characteristic of business actors, who ingeneral try to enlarge its size, and thus maximizeprofit.

The APINDO, as an employers’ association,supports government’s endeavours to enhance SMEperformance, since there is always a mutual interestamong business actors. Interdependency between


iv

large businesses and SMEs is not only based on“charity”, which would be extended from bigbusiness actors to middle or small ones, but also onmutual interests.

In order to forge the APINDO’s support towardsthe SME development, which in turn is expected tocontribute to the nation’s poverty reduction, theAPINDO’s team has conducted with assistance fromthe ILO a study on practical recommendations forthe APINDO to create a business environmentconducive to the development of SMEs. It isexpected that these recommendations would alsobecome inputs to the government’s effort to improvethe business climate, for SMEs and the business ingeneral.

Jakarta, 16 June 2005Board of Executives of APINDO

Sofjan WanandiChairman

PPPPPrefacerefacerefacerefacereface

v

According to Central Board of Statistics, in 2003,Small and Medium Enterprises in Indonesia made asignificant contribution to economic development,accounting for over half of the Gross DomesticProduct (62.42%) and absorbing almost the entireworkforce available (99.44%, compared with 0.56%absorbed by large enterprises). These indicatorsunderline the central role of small and mediumenterprises in national economic development andjob creation, which, from the ILO perspective, is thekey to poverty alleviation.

This APINDO report on “SME Development in thePoverty Reduction Programme: Trade and LabourIssues”, published by ILO Jakarta, highlights theimportance of public policy improvement on tradeand labour issues in shaping a conduciveenvironment for small and medium enterprisedevelopment in the context of poverty reduction.

ILO recognizes the importance of strongercoordination among the national players, localgovernment and the private sector, includingAPINDO, on policies and programmes aimed atfostering SME development initiatives. Through thepublication of this study, ILO is providing concretesupport for APINDO’s involvement in theimprovement of SME development policies, not onlybecause APINDO’s membership constitutes SMEs,but also because the vast majority of women andmen in Indonesia derive their livelihood and incomefrom SMEs.


vi

I hope that this publication will contribute to thedevelopment of a more SME-friendly policyenvironment by drawing on international bestpractice, and, in so doing, help to achieve theultimate goal of alleviating poverty in Indonesia.

Jakarta, June 2005

Alan BoultonDirectorILO Jakarta

vii

TTTTTabel of Contentabel of Contentabel of Contentabel of Contentabel of Content

Preface - APINDO iiiPreface - ILO vList of Abbreviation ixExecutive Summary xi

1. BACKGROUND 11.1. Objective 21.2. Scope 21.3. Research Questions 4

2. METHODOLOGY 52.1. Method of Analysis 52.2. Criteria for Policy Analysis 52.3. Sources of Information 6

3. GENERAL OVERVIEW 73.1. SME Profile 73.2. Current Position of SMEs on Trade and Labor 103.3. Parties Involved in SME Development 11

Government 11Non-government 12- Private Sector 13- Civil Society 15- Donor Institutions 15

4. ASSESSMENT OF THE REGULATORYENVIRONMENT 17

4.1. Laws and Regulatory Issues Affecting Trade Barriers 18Domestic Trade Barriers 18Large Enterprise and SME Business Relations:The Need for Industrial Clusters 20


viii

Large Enterprise-SME Relations:Free Competition vs. Fair Competition 23

4.2. Laws and Regulatory Issues Affecting Labor 24Labor, Labor Union and Labor Disputes 24Regional Policy 26

4.3. Other Laws and RegulationsAffecting SME Development 27

4.4. Policy Implication for SME Development 294.5. How Laws and Regulations Enable

SMEs to Contribute to PovertyReduction 31

5. CONCLUSION & RECOMMENDATIONS 355.1. Conclusions 355.2. Recommendations for APINDO Policy Advocacy 365.3. Recommendations for Further Action 38

6. ANNEXES 416.1. Laws and Regulations Reviewed 416.2. References 43

List of TablesTable 1. GDP Contribution of SMEs and Large Enterprises 8Table 2. Labor Contribution of SMEs and Large Enterprises 9Table 3. Trade Employment Absorption Contribution of

SMEs and Large Enterprises 29Table 4. Trade Contribution of SMEs

and Large Enterprises to GDP 30

ADB Asian Development Bank

APEC Asia Pasific Economic Cooperation

APINDO Asosiasi Pengusaha Indonesia (The Employers’Association of Indonesia)

AusAID Australian Agency for International Development

BAPPENAS Badan Perencanaan dan Pembangunan Nasional(National Development Planning Agency )

BDS Business Development Services

BKKBN Badan Koordinasi Keluarga Berencana Nasional(National Family Planning Coordinating Agency)

BPPT Badan Pengkajian dan Pengembangan Teknologi(Agency for the Assessment and Application ofTechnology)

BPS Biro Pusat Statistik (Central Bureau of Statistics)

BUMN Badan Usaha Milik Negara (State-ownedEnterprise)

CEO Chief Executive Officer

CPA Certified Public Accountant

EU European Union

FGD Focus Group Discussion

FORDA UKM Forum Daerah Usaha Kecil dan Menengah(Regional Forum of Small and Medium Enterprises)

FORNAS UKM Forum Nasional Usaha Kecil dan Menengah(National Forum of Small and Medium Enterprises)

GDP Gross Domestic Product

GEMA PKM Gerakan Pengembangan Keuangan Mikro (MicroCredit Development Movement)

GWM Giro Wajib Minimum (Minimum ReserveRequirement)

List of AbbreviationsList of AbbreviationsList of AbbreviationsList of AbbreviationsList of Abbreviations

ix


x

JNP UKM Jaringan Nasional Pendukung Usaha Kecil danMenengah (National Support Network for SMEs)

KADIN Indonesia Kamar Dagang dan Industri Indonesia (IndonesianChamber of Commerce and Industry)

KPEN Komite Pemulihan Ekonomi Nasional (NationalEconomic Recovery Committee)

KPPOD Komite Pemantauan Pelaksanaan Otonomi Daerah(Regional Autonomy Watch)

KPPU Komisi Pengawas Persaingan Usaha (BusinessCompetition Oversight Committee)

LP3ES Lembaga Penelitian, Pendidikan dan PeneranganEkonomi dan Sosial (Institute for Social andEconomic Research, Education and Information)

MSE Micro and/or Small Enterprise

NGO Non-Governmental Organization

PERR Partnership for Enterprise Policy Reform

PINBUK Pusat Inkubasi Bisnis Usaha Kecil (BusinessIncubator for Small Enterprises)

PRSP Poverty Reduction Strategic Program

PUPUK Perkumpulan Untuk Peningkatan Usaha Kecil(Association for Small Enterprise Empowerment)

RPJM Rencana Pembangunan Jangka MenengahNasional (National Medium Term DevelopmentPlan)

SENADA Indonesia Enterprise and Agricultural DevelopmentActivity

SME Small and/or Medium Enterprise

TAF The Asia Foundation

USAID United States Agency for InternationalDevelopment

WTO World Trade Organization

Executive SummaryExecutive SummaryExecutive SummaryExecutive SummaryExecutive Summary

xi

One of the main strategies for reducing poverty,as the provisional Indonesia PRSP (PovertyReduction Strategy Program) document mentions,is by improving people’s access to jobs through anSME development program, since it is anticipatedthat this will be an effective means of absorbing jobseekers. There is strong evidence that IndonesianSMEs make a significant contribution to the GDP aswell as labour absorption.

As one of the major employers’ associations inIndonesia, APINDO is intent on contributing toimproving the country’s business environment bydeveloping a policy and regulatory framework thatis conducive to SME development in the context of apoverty reduction strategy, and, in so doing,contribute to the implementation of the nationalPRSP.

Identifying an appropriate advocacy agenda fora better policy and regulatory environment calls fora policy analysis study. This study focuses on SME-related policies with respect to Trade and Labour.The rationale for selecting these two domains was,1) APINDO members—who are mostly large-scaleentrepreneurs—are willing to facilitate SMEs towiden their distribution channels through a mutuallybeneficial relationship between large-scaleenterprises and SMEs; and 2) APINDO’s corecompetence is in the field of industrial relations ingeneral, and labour issues in particular.


xii

This is a qualitative study that relies on ananalysis of relevant laws and regulations based ona set of criteria, together with the insights gainedfrom in-depth interviews and focus group discussionswith the parties concerned. The statistical data usedin this study provide additional information tosupport the qualitative analysis.

From the general analysis—not limited to tradeand labour—the study finds that government policy,as reflected in the existing legislation, is committedto SME development by addressing the specificneeds of SMEs. Through a number of laws andregulations, the government protects SMEs fromdomination by large-scale enterprises, applies lowerborrowing rates for SMEs, obliges state-ownedenterprises to develop business partnerships withSMEs, and has created a special ministry for SMEs;thus, policy wise, it has created a conducive businessenvironment for SMEs. However, weak coordinationand cooperation among central governmentinstitutions and between central and localgovernments has resulted in minimal impacts on SMEperformance.

Regarding policy, the laws and regulations ontrade at the national level do support SMEdevelopment in general, although not to any greatextent. The absence of a law on domestic trade is amajor obstacle. On the other hand, theimplementation of domestic trade regulations,specifically concerning retailer-supplier relationships,indicates that the bargaining position of SMEs vis-à-vis large enterprises (big retailers/hypermarkets)is very weak, and that fair competition tends to loseout to free competition.

In the context of regional autonomy, the lawsand regulations related either directly or indirectlyto trade provide discretion to regional governmentsto create their own regional regulations. This hasprompted many local governments to enactlegislation that has brought about a high costeconomy through the implementation of tariff andnon-tariff barriers to domestic trade. This high costeconomy reduces business competitiveness in

xiii

general, especially that of SMEs, which are the mostaffected due to their sensitivity to increases inproduction and distribution costs.

With regard to manpower, while the laws andregulations on labour unions and arbitrationbetween employer and employee are adequate,those concerning the minimum wage fail to take intoaccount the specific needs of SMEs. Therequirements for obtaining a deferment of theimplementation of the minimum wage for companiesthat cannot afford to pay it are burdensome, forcingSMEs to operate in the informal economy andconsequently removing any labour protection fromthe government for employees of SMEs.

Another problem on the manpower issue is thetendency of some autonomous regions to put intopractice an affirmative action policy, givingemployment priority to people indigenous to theregion. Even though it does not really affect SMEs,which normally employ local people, this practicepotentially hinders access to jobs and is thereforecontradictory to the basic principles adopted byIndonesia as a unitary state, namely freedom of theflow of goods, people and capital throughout theterritory.

To eliminate policy weaknesses and distortionof policy implementation, APINDO—which as anemployers’ association, has an important role indeveloping Indonesia’s economy— should act on itscommitment to support SME improvement in thetrade and labour domains by carrying out activitieson two levels. First, it should conduct policyadvocacy, by submitting a proposal for overcomingthe weaknesses of the current policies (such as therevision of laws and regulations that distort businessactivities), and developing a concrete blueprint forSME development. APINDO should initiate aconducive policy dialogue involving the mainstakeholders in SME development to make theadvocacy more effective. Second, APINDO needs tofacilitate business links between large enterprisesand SMEs. Partnerships should be developed alongthe lines of an interdependent, mutually beneficial


xiv

business relationship based on the industry clusterapproach. In such partnerships, the large-scaleenterprises would provide technical assistance toSMEs on various aspects of SME development suchas production, distribution, and access to financing.

1. Background

1 Provisional PRSP document (October 2004 version)

1

The provisional Indonesia Poverty ReductionStrategy Program (PRSP) document states that“poverty is no longer understood purely as the lack ofeconomic capacity but also the failure to fulfil the basicrights of the people and to treat individuals or groupsof people, men and women, fairly in their efforts to livewith dignity”1. In the Indonesian context, admittedly,economic growth is not the only answer to poverty,yet given the fact that the open unemployment rateis still high—10.1% in 2003—and more than 40% ofworkers in the formal sector work less than 36 hoursper week, it has to be considered a vital factor.

One of the poverty reduction strategiesmentioned in the document is improving people’saccess to jobs by developing the capacity of SMEs,since it is anticipated that this will be an effectivemeans of absorbing job seekers. Indonesian SMEsare demonstrably not just a veneer on the country’seconomy. Data from the Ministry of Cooperatives andSMEs derived from a collaboration with BPS (theCentral Bureau of Statistics) indicate that smallenterprises account for 46.06%, medium enterprises16.36% and large-scale enterprises 36.59% ofIndonesia’s GDP (based on current prices andexcluding Oil & Gas). This means that SMEscontribute more than half of the total GDP. The samereport also shows that of a total workforce of79,474,991, 88.43% was absorbed by small


1.1. Objective1.1. Objective1.1. Objective1.1. Objective1.1. Objective

2 Ministry of Cooperatives and SMEs, and BPS (Central Bureau of Statistics)

3 Terms of reference (TOR) of the ILO Program on Poverty Reductionthrough SME Development

2

enterprises, 11.01% by medium enterprises andonly 0.56% by large-scale enterprises.2 These factsand figures underline the need for a broadempowerment of SMEs based on a comprehensiveblueprint, aimed at enhancing the role of SMEs inthe country’s economic growth.

The blueprint should carry with it prospects forthe creation of a conducive business environmentfor linkages between large, medium and smallenterprises on an interdependent and mutuallybeneficial model. Avoidance of overregulation, acommon trap in many poor countries, is also a toppriority. Otherwise, illegal fees and inefficiency inpublic institutions will hinder business growth ingeneral and likely force more entrepreneurs into theso-called informal economy.

It is against this backdrop that APINDO, incooperation with the ILO, has conducted this study.As one of the major employers’ associations inIndonesia, APINDO is intent on contributing toimproving the country’s business environment bydeveloping a policy and regulatory framework thatis conducive to SME development in the context of apoverty reduction strategy,3 and, in so doing,contribute to the implementation of the nationalPRSP.

This is a practical rather than an academic study,aimed at supporting APINDO’s formulation of a setof recommendations for improving SME developmentpolicy through a review of the regulatoryenvironment.

This is a policy analysis study that focuses onSME-related policies in the domains of (1) Trade and(2) Labour. The rationale for selecting these twodomains was, first, APINDO members—who aremostly large-scale enterpreneurs—are willing to

1.2. Scope1.2. Scope1.2. Scope1.2. Scope1.2. Scope

4 MPR (General Consultative Assembly) Decree No. III/2000 stipulates thehierarchy of legislation: the Constitution, MPR Decree, Law, GovernmentRegulation in Lieu of Law, Government Regulation, Presidential Decree,and Local Regulation. In 2004, Law No. 10/2004 introduced a newhierarchy: Constitution, Law, Presidential Decree, and Local Regulation.Although public debate on the new hierarchy is ongoing, the governmentand legal experts refer to this Law.

3

facilitate SMEs to widen their distribution channelsthrough a mutually beneficial relationship betweenlarge-scale enterprises and SMEs. Second, APINDO’score competence in the field of industrial relationsin general, and labor issues in particular. Third, thefact that little attention has been given to buildingthe market penetration capacity of SMEs. Timeconstraints also demanded that the study be limitedto just these two domains.

To analyze existing policies on trade and labour,this study mainly refers to laws and regulations atthe national level, which in Indonesia are arrangedin the following hierarchy: Law (Undang-Undang),Government Regulation (Peraturan Pemerintah),Presidential Decree (Keputusan Presiden), andMinisterial Decree (Keputusan Menteri).4 AlthoughLocal Regulations (Peraturan Daerah), which areranked lowest in the hierarchy, are not analyseddirectly, the findings from other studies on localregulations have been taken into account in thisanalysis.

Because the existing legislation barely takesmicro enterprises into account, this policy studydeals primarily with SMEs and large-scaleenterprises. The definition of SME used here refersto the taxonomy jointly developed by BPS and theMinistry of Cooperatives and SMEs, whichcategorizes enterprises according to value of sales.Companies with sales above IDR 50 billion(US$522,000) are classified as large-scaleenterprises, those between IDR 1 billion(US$104,000) and 50 billion are medium-scaleenterprises while those with a sales value of up toIDR 1 billion are classed as small enterprises. Thelatter are further specified into two categories: smallenterprises are those with sales of between IDR 50million and IDR 1 billion per year, and microenterprises have an annual sales value of up to IDR50 million.


5 As stated in Law No. 9/1995, the figures in points ‘a’ and ‘b’ may bechanged pursuant to a Government Regulation.

4

The various definitions of SMEs used by differentgovernment institutions notwithstanding, this policyanalysis refers to the classification set forth in LawNo. 9/1995:5

a. Having a maximum net worth, excluding land andbuildings, of IDR 200 million (US$21,000);

b. Having an annual sales turnover of up to IDR 1billion (US$104,000);

c. Owned by an Indonesian citizen;d. Being an independent entity, and not a subsidiary

or branch of a company that is either owned,controlled or affiliated directly or indirectly witha medium or large enterprise;

e. Being a sole enterprise, a non-legal entityenterprise, or a legal entity; this includescooperatives.

The research objective above is elaborated intothe following questions:

What is the quality of existing domestic tradeand labour policies, and how do these policiesaffect SME trade activities?What obstacles are there to the implementationof existing trade and labour policies on SMEdevelopment in Indonesia?Do the existing trade and labour policiesencourage mutually beneficial business relationsbetween large-scale enterprises and SMEs?What policy reform is needed to improve tradeand labour policies?Which parties are seriously committed tosupporting SME development in Indonesia?

1.3. Research1.3. Research1.3. Research1.3. Research1.3. ResearchQuestionsQuestionsQuestionsQuestionsQuestions

2.1. Method of2.1. Method of2.1. Method of2.1. Method of2.1. Method ofAnalysisAnalysisAnalysisAnalysisAnalysis

2.2. Criteria2.2. Criteria2.2. Criteria2.2. Criteria2.2. Criteriafor Policyfor Policyfor Policyfor Policyfor PolicyAnalysisAnalysisAnalysisAnalysisAnalysis

2. Methodology

5

Literature study sourcing available studies,papers and other references related to aspectsof SME development.Secondary data analysis on pertinent laws andregulations as well as statistics.In depth interviews with various partiesrepresenting SMEs, large-scale enterprises, andkey decision makers in government.Focus Group Discussions involving stakeholderssuch as SMEs, large enterprises, and relevantgovernment officials.

A set of criteria is needed to qualify the lawsand regulations and determine whether they canbe deemed ‘best practice’ for SME development.

In an analysis of policy—in this case laws andregulations—the assessment criteria depend on thespecific objectives of each policy, and therefore willdiffer from one policy to another. Nevertheless, thereare a number of general criteria applicable to bothtargets of this study, apart from the additionalcriteria specific to each field.

The general criteria are:The legislation does not conflict with otherpertinent legislation at the national level.There are clear guidelines or direction for localgovernments, and other related parties,regarding compliance.


2.3. Sources of2.3. Sources of2.3. Sources of2.3. Sources of2.3. Sources ofInformationInformationInformationInformationInformation

6

It accommodates the specific needs of SMEs inview of the fact that SMEs and large-scaleenterprises have different characteristics andtherefore require different treatment.The technical provisions on legal drafting arefulfilled.

Additional assessment criteria for trade:The legislation clearly prohibits tariff and non-tariff barriers on the movement of goods withinIndonesian territoryIt allows all business entities, whethermultinational, national or local to do businessthroughout Indonesian territory without beingsubject to discriminatory treatment.

Additional assessment criteria for labour:The legislation ensures equal treatment for allIndonesians in finding employment anywherethroughout Indonesian territory, irrespective ofthe place of origin (province, regency, city andso on) of the job seeker.

Secondary data. The laws and regulations, aswell as the statistical data, were derived from therelevant ministries and other government agencies.The existing studies on SMEs were obtained fromuniversities, donor institutions, research-based NGOsas well as government institutions.

Primary data. This study also collected primarydata through in-depth interviews with selectednumbers of key respondents (four sources fromSMEs, two from large-scale enterprises, fourgovernment officials, and two NGO personnel) whowere questioned individually. The informationgathered from these interviews was then confirmedin a focus group discussion (FGD) where the samerespondents were joined by a number ofrepresentatives of the APINDO management toascertain the group perception.

3.1 SME Profile3.1 SME Profile3.1 SME Profile3.1 SME Profile3.1 SME Profile

3. General Overview

7

SMEs play a significant role in the Indonesianeconomy. By number, they make up by far the largestcategory of businesses: according to BPS, in 2003,42,388,505 units out of a total of 42,390,749companies Indonesia—99.99%—were SMEs. Theywere the national economic backbone during theeconomic crisis of 1997-1998 when the majority ofbig enterprises collapsed. However, as mentionedin the previous section, little attention seems tohave been paid to their development.

Table 1 breaks down the contribution of SMEsto the country’s GDP by major economic sector. Thisdemonstrates quite clearly the enormouscontribution SMEs have made in various sectors,notably agriculture (food crops, livestock andfisheries) and trade.


From the perspective of manpower absorption,Table 2 shows clearly that SMEs in the Agricultureand Trade sectors have generated considerableemployment opportunities.

Table 1. GDP Contribution of Small, Medium, and Large EnterprisesBy Sector - in Percentage (based on constant prices 1993)

8

No Sector 1999 2000

Small Medium SME Big Small Medium SME Big

1 Agriculture in Broader 83.89% 10.38% 94.27% 5.73% 83.98% 10.34% 94.31% 5.69%Meaning

a. Food Crops 99.47% 0.53% 100.00%0.00% 99.44% 0.56% 100.00% 0.00% b. Plantation 72.36% 14.39% 86.74%13.26% 72.35% 14.47% 86.82% 13.18% c. Farming 81.48% 16.04% 97.52% 2.48% 81.95% 15.62% 97.57% 2.43% d. Forestry 17.58% 50.06% 67.65%32.35% 17.95% 49.58% 67.53% 32.47% e. Fishery 87.67% 10.91% 98.58% 1.42% 87.53% 11.05% 98.58% 1.42%

2 Mining & Quarrying 10.38% 3.24% 13.62%86.38% 10.36% 3.25% 13.62% 86.38%

3 Manufacturing 18.86% 15.11% 33.98%66.02% 18.82% 14.80% 33.62% 66.38%

4 Electricity, Gas and Water 0.68% 8.14% 8.83% 91.17% 0.66% 7.87% 8.53% 91.47%

5 Construction 32.51% 27.59% 60.10%39.90% 31.94% 28.05% 59.99% 40.01%

6 Trade, Hotel and 76.45% 20.32% 96.76% 3.24% 76.39% 20.38% 96.77% 3.23%Restaurant

a. Trade & Retails 75.11% 21.20% 96.31% 3.69% 74.95% 21.36% 96.30% 3.70%

7 Transportation and 36.99% 25.57% 62.57%37.43% 36.47% 24.90% 61.37% 38.63%Communication

8 Finance, Property and 17.47% 46.24% 63.71%36.29% 17.28% 46.76% 64.04% 35.96%Business

9 Services 32.42% 6.35% 38.78%61.22% 32.78% 6.62% 39.41% 60.59%

Total GDP 41.31% 16.62% 57.93%42.07% 41.00% 16.64% 57.64% 42.36%

No Sector 2001 2002

Small Medium SME Large Small Medium SME Large

1 Agriculture 83.70% 10.45% 94.16% 5.84% 83.70% 10.41% 94.11% 5.89% a. Food Crops N/A N/A N/A N/A N/A N/A N/A N/A b. Plantations 72.32% 14.67% 87.00%13.00% 72.61% 14.73% 87.34% 12.66% c. Livestock 82.07% 15.53% 97.61% 2.39% 82.30% 15.33% 97.62% 2.38% d. Forestry 18.08% 48.75% 66.84%33.16% 18.18% 48.07% 66.26% 33.74% e. Fisheries 87.77% 10.81% 98.58% 1.42% 88.12% 10.46% 98.58% 1.42%

2 Mining & Quarrying 10.68% 3.25% 13.93%86.07% 10.99% 3.36% 14.35% 85.65%

3 Manufacturing 19.12% 15.34% 34.46%65.54% 19.64% 15.19% 34.83% 65.17%

4 Electricity, Gas and Water 0.66% 8.15% 8.81% 91.19% 0.66% 8.45% 9.11% 90.89%

5 Construction 32.45% 27.93% 60.37%39.63% 32.35% 27.93% 60.28% 39.72%

6 Trade, Hotel and 76.23% 20.51% 96.74% 3.26% 76.39% 20.39% 96.78% 3.22%Restaurant

a. Wholesale & Retail 74.66% 21.59% 96.25% 3.75% 74.72% 21.58% 96.29% 3.71%

7 Transportation and 35.89% 24.34% 60.23%39.77% 35.33% 24.11% 59.44% 40.56%Communication

8 Finance, Property 17.26% 45.57% 62.83%37.17% 17.64% 46.02% 63.66% 36.34%and Business

9 Services 33.69% 6.87% 40.56%59.44% 34.49% 6.84% 41.33% 58.67%

Total GDP 41.00% 16.83% 57.83%42.17% 41.13% 16.91% 58.04% 41.96%

Source: BPS (Central Bureau of Statistics)

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3.2. Current3.2. Current3.2. Current3.2. Current3.2. CurrentPosition of SMEsPosition of SMEsPosition of SMEsPosition of SMEsPosition of SMEs

on Ton Ton Ton Ton Trade andrade andrade andrade andrade andLabourLabourLabourLabourLabour

10

In general, there are three fundamentalproblems confronting SMEs: 1) limited access tomarkets, 2) difficulty in securing finance, and 3) weakbusiness management, which has a number of otherramifications touching on, for example, certainty ofraw materials supply and product/service quality.

On the trade side, interviews with SMErespondents suggest that micro enterprises tradeonly within a two-kilometre radius of their premises,whereas small enterprise markets are generallyconfined to their district or city. Only a very smallnumber have a market reach beyond provincial ornational boundaries. This illustrates the extremelylimited capacity of small enterprises to reach widermarkets.

Another obstacle SMEs have to face are the‘modern’ retailers (supermarkets). SMEs claim thatsuch retailers are reluctant to give them shelf spacein their supermarkets. For their part, thesupermarkets point out that SMEs lack the capacityto guarantee quality and continuity of supply. Yetanother barrier preventing SMEs from getting theirproducts to the market are the listing fees andpromotion costs imposed by hypermarkets. (Thisissue will be discussed further later on in the report).

Meanwhile, on the labour side, most SMEs—especially small enterprises—do not operate withinthe prevailing labour laws and regulations. Not onlydo these enterprises not comply with minimum wagerequirements, but there are also many that employchild workers. The lack of compliance with minimumwage regulations is a direct result of the SMEs’financial limitations—they simply cannot afford topay. Breaches of the laws on underage workers, onthe other hand, are rooted in socio-cultural factors:giving jobs to the children of poor families at leastguarantees those families an income. Such extra-legal practices have, in many cases, caused SMEsto operate in the informal economy. (This discussionwill be expanded in the next part of this report).

3.3. Parties3.3. Parties3.3. Parties3.3. Parties3.3. PartiesInvolved inInvolved inInvolved inInvolved inInvolved inSMESMESMESMESMEDevelopmentDevelopmentDevelopmentDevelopmentDevelopment

GovernmentGovernmentGovernmentGovernmentGovernment

11

Several parties are involved in the developmentof SMEs, both government and non-government. Abrief overview of each party is given here toillustrate the specific role they have played to date,and, more importantly, to help APINDO identifypotential partners in its forthcoming SMEdevelopment program.

The Indonesian government has put SMEs at theforefront of its policy, and has formulated andimplemented several measures aimed at SMEdevelopment. The existence of the Ministry ofCooperatives and SMEs is another indicator of theimportance the government places on SMEs. Despitethis, institutionalization without the necessaryplanning, organization, application and coordinationto bring these expectations to reality has more orless left the SMEs to fend for themselves.

The existence of a ministry specifically to dealwith small and medium enterprises notwithstanding,SME development is in fact a cross-sectoral issue.SMERU6 has mapped the agencies involved. Theyinclude BKKBN (National Family Planning CoordinatingAgency), BPPT (Agency for the Assessment andApplication of Technology), the Home Affairs Ministry,the Ministry of Maritime Affairs and Fisheries, theMinistry of Industry and Trade, the Ministry ofAgriculture, the Ministry of Social Affairs, the Ministryof Manpower and the Coordinating Ministry of SocialWelfare.

The involvement of these other ministries is vitalif a truly comprehensive policy approach is to beachieved. Presenting a basic policy or a blueprint iscertainly the primary responsibility of the Ministry ofCooperatives and SMEs, but it should be done withthe support of the other ministries. In the case oftaxation, for example, the Ministry of Finance should

6 SMERU, a research institute, compiled various activities on SME issuesconducted by government institutions, NGOs and donor agencies; seefurther in “Efforts to Empower Micro and Small Enterprises 1997-2003”.


7 This is the entirely subjective opinion of the non-government resourcepersons for this study (as well as a few of the government sources),expressed through interviews; in the group discussions in which thesame people participated, no objections were voiced regarded theseperceptions.

Non-Non-Non-Non-Non-governmentgovernmentgovernmentgovernmentgovernment

12

come up with a pro-SME policy that includesincentives, such as tax rates lower than thosepresently imposed on large-scale enterprises; withregard to financing, the Central Bank could applypolicies to steer the national banking sector towardsgreater support for SME development, and so forth.

In practice, unfortunately, support for SMEdevelopment seems to have been narrowlyinterpretated as a need for technical upgrading:although several ministries have undertaken pilotprojects they are all essentially very similar. TheCoordinating Ministry for Social Welfare, for example,has cooperated with state-owned banks on SMEcredit schemes; the Ministry of Manpower has anSME mentoring program; while the Ministry of State-owned Enterprises has a parallel but unrelatedprogram. The overall picture is one of scatteredefforts here and there; a comprehensive approachto SME development is lacking.7

The weak coordination and cooperation amongministries should not be dissociated from thegovernment’s over-cautious approach to delineatingthe tasks, structure and function of each ministry.Presidential Decree No. 9/2005 on the Status, Tasks,Function, Organization and Operational Proceduresof Ministries of the Republic of Indonesia stipulatesthat the authority of the Ministry of Cooperativesand SMEs is confined to formulating and coordinating,but not executing, a national policy. However, thisregulation—a product of the newly installedYudhoyono cabinet—is to be revised to allow theministry to play a part at the technical executionlevel. Underlying all of this is the poor coordinationbetween various parties in the government.

Apart from the government, there are otherparties involved in the development of SMEs inIndonesia. These parties fall into the following

Private Sector

13

categories: private sector, civil society and donorinstitutions.

A number of partnership programs have beenset up by large-scale enterprises to give SMEsbroader access to the market. These programs arebasically driven and managed on a business, notcharitable, basis, resulting in benefits for bothparties.

Partnership between Large and SmallEnterprises (SME)

Example 1: PT UKMI (Usaha Kita MakmurIndonesia) is a trading company established by asuccessful former executive of a leading food andbeverage manufacturer in Indonesia, to channelSME products to broader (global) markets. Whatjustifies this program is the mutual benefitrelationship between the two. The SMEs benefit bygaining a bigger share of the market for theirproducts, while the trading company enjoys profitsfrom the sales margin of the products supplied bythe SMEs.

Example 2: PT Bogasari Flourmills, a verylarge group of companies producing wheat flourand derivative products, has established apartnership program with micro and smallenterprises (MSEs), who use the wheat flourproduced by Bogasari. In the partnership Bogasariguarantees the quality and continuity of supply ofthe raw material along with technical assistanceaimed at the increasing the MSEs’ ability toproduce various high quality end products (e.g.noodles and bread). In addition to this, Bogasarialso provides mentoring for management(especially in the field of trade), as well as accessto financial institutions, with the eventual aim ofenabling these MSEs to expand their marketsindependently. The partnership approach has notonly brought benefits for the MSEs in the shape ofbetter product quality and a bigger share of themarket, but has also worked to the advantage ofBogasari: by increasing the number of MSEpartners (who now absorb some 60% of its totalproduction), it has leveraged demand for the rawmaterials it produces.


8 Ibid, SMERU

14

The two examples above—both of which arepurely private sector initiatives—are worth studyingbecause although both essentially represent abusiness partnership between large- and small-scaleactors, the sales direction is different. In the firstcase, the small enterprise acts as supplier for thelarger one, while in the second case it is the largeenterprise that supplies the MSE.

In the second case, it is harder to see whetheror not both parties in the partnership gainproportional benefits. A relationship that is too one-sided, with one party gaining more than the other,will surely jeopardize the partnership in the longterm. There is some justification for raising this point,given the fact that Bogasari dominates the domesticwheat flour market and has thus created a situationof so-called imperfect competition (marketmonopoly). Under such conditions, the MSE, despiteits enhanced technical capacity, is still in a very weakbargaining position with respect to securing aproportional increase in benefits. Unless thestructure of the commodity market changes, areasonable rate of return for the MSE remains highlydependent on the goodwill and fair play of the largerplayer.

Similar programs have been initiated andexecuted by other private sector companies,including PT. Astra International Tbk, PT. BahanaArtha Ventura, PT. Pos Indonesia, PT. Sucofindo andPT. Unilever. Some of the national banks that haveconducted programs in support of SME developmentare Bank Bukopin, BCA, Bank Mandiri, BankDanamon, BRI and Bank Niaga8.

APINDO has also been involved through itsWomen’s Entrepreneurship program. Aimed atempowering both members and non-members, thisprogram embraces female-run businesses (almostall of them SMEs) by providing consultations onvarious government policies (e.g., advising onpermits and licenses, and on complex bank financerequirements) and management training (e.g.marketing, finance, industrial relations). This is a

15

joint program between the central executive boardof APINDO and its regional branches, with supportfrom donor institutions/agencies. It has now beenrunning for two years and has been implemented inseveral parts of the country.

A number of NGOs have initiated their own SMEdevelopment programs, including Bina Swadaya,GEMA PKM, FORNAS UKM, JNP UKM, PUPUK, KadinIndonesia, Darma Bhakti Astra Foundation, LP3ES,PINBUK and so on.9 Some of these operate at thenational level, while others work at the local level,but in general their activities are focused on policyadvocacy, capacity building, and improving accessto markets and financing.

GEMA PKM (Micro Credit DevelopmentMovement), for example, concentrates onmicrofinance; Bina Swadaya provides technicalassistance for SMEs in the agricultural sector;FORNAS UKM (National Forum of SMEs) is theumbrella organization for more than 60 local SMEforums and focuses on market expansion and policyadvocacy; Kadin Indonesia (Indonesian Chamber ofCommerce and Industry) supports a large tradingcompany to facilitate the penetration of SMEsproducts into a broader marketplace; and so forth.Likewise, several international NGOs such as CareInternational, CRS and Mercy Corps are implementingvarious types of SME development programs.10

No less important is the support of donorinstitutions like ADB, TAF, USAID, AusAID, the WorldBank and the EU, through their technical assistanceprograms and grants, both to the government andto some of the NGOs mentioned above.

Civil Society

9 Ibid, SMERU

10 Ibid, SMERU

DonorInstitutions


11 According to a TAF-USAID report, The Asia Foundation established aboutfifteen one-stop-shops (OSS) providing various business licensing andregistration services. The results are impressive: 1) the time taken toregister a company has been cut by 60%, and on average now takesonly 15 days; 2) business licensing costs have been reduced by 30%; 3)nearly 70% of the firms reported higher profits and higher employmentafter registering, and 75% paid higher salaries; 4) the OSS have generatedeconomic growth, jobs and prosperity.

ADB (Asian Development Bank), for example, hasbeen promoting a capacity building program for SMEsthrough the establishment of service centres knownas BDS (Business Development Services). It isinteresting to note how the operation of the BDShas evolved: whereas originally its approach wassimply charitable, it is now based on a much morebusinesslike arrangement that yields benefits forboth parties.

The Asia Foundation (TAF), through its PEPR(Partnership for Enterprise Policy Reform) programworks intensively with SMEs to establish regionalSME forums in several districts. USAID, in cooperationwith TAF and local NGOs, has successfully improvedthe business environment with regard to businesslicensing processes.11

16

4. Assessment of theRegulatory Environment

17

Public policy analysis is crucial because thepolicies, and the way they are implemented, caneither encourage or inhibit the economic activity ofwhich SMEs are a part. In the context of this study,an analysis of the trade and labour aspects of SMEpolicy has to be linked to poverty reduction efforts,since the role of SMEs in promoting job creation andleveraging public purchasing power is considerable.It is therefore necessary to eliminate any constraintson the potential of SMEs improve their economicperformance.

The policy analysis in this study covers laws,government regulations, presidential decrees,ministerial decrees and local regulations, in orderto ascertain whether government policy on SMEs isimplemented in a comprehensive manner. Beforegoing further into the specific issues related to SMEsin terms of trade and labour, there are somefundamental principles that need to be presentedas frame of reference for SME development.

Going back to the absence of a comprehensiveblueprint on the SME development, the fundamentalterms of reference are the importance ofcoordination and cooperation between governmentagencies at the central level and a harmoniousrelationship between central and local government.No less important are relations betweengovernment (central and local) and non-governmental stakeholders—specifically, large andsmall scale enterprises.


4.1. Laws and4.1. Laws and4.1. Laws and4.1. Laws and4.1. Laws andRegulatoryRegulatoryRegulatoryRegulatoryRegulatory

Issues AffectingIssues AffectingIssues AffectingIssues AffectingIssues AffectingTTTTTraderaderaderaderade

DomesticDomesticDomesticDomesticDomesticTrade BarriersTrade BarriersTrade BarriersTrade BarriersTrade Barriers

12 Lihat lampiran daftar peraturan perundang-undangan yang dianalisisdalam studi ini.

18

Moreover, the blueprint must also demonstratethat the interdependency between large- and small-scale enterprises is mutually beneficial. This has tobe well understood not only by the those subject tothe policy, but also by the policy makers, in order toavoid falling into the trap of executing activities thatare merely charitable, and losing sight of the realobjectives of SME development.

The literature study (see in JICA-GoI, 2004),supported by the opinions expressed by therespondents, confirms that SME development basedon the model of interdependencies between smalland large enterprises has to be approached throughthe establishment of industry clusters specific toeach industry. The partnerships exemplified in theBox above have been successful over the long termbecause there is business linkage between theparties concerned within the same industry.

Based on the principles above, the analysis oftrade and labour policies12 undertaken in this studytherefore refers to the existing governance andclassification of industries, with reference to theanalytical criteria outlined previously in theMethodology section.

Bearing in mind that the scope of this study islimited to trade and labour policies, this can be onlya partial analysis of the issue of SME development.

Unlike other business sectors such as forestry,mining, and oil and gas, which have their own laws,domestic trade in Indonesia has never beenregulated in a specific law. Over the last three yearsthe government has attempted to draft a domestictrade bill, but as of the time of writing it has yet tobe completed. Hence, domestic trade is currentlygoverned by a number of government regulations,presidential decrees and ministerial decrees ontrade affairs and indirectly by laws in other sectors

19

that also have implications for trade. At the sametime, in the international trade sphere, Indonesiahas been relatively quick to adopt various globaland regional trade policies by ratifying agreementsmade under the WTO, for example. At the regionalscale, Indonesia has acted on the APEC consensuson reducing trade barriers between membercountries.

The study of existing laws and regulations atthe national level indicates a likelihood of disharmonybetween the policies issued by the government andtheir implications for the trade sector. One point ofdispute concerns Law No. 7/1994 on the Ratificationof WTO Trade Policies—by signing, Indonesia hasaligned itself with the global trend on lifting barriersto international trade, but this has not been followedup by any domestic trade policy. The fact is that LawNo. 22/1999 on Local Governance (for which theHome Affairs Ministry is the leading sector), as thelegal basis for the application of regional autonomy,devolves full authority to the regions to regulatetheir own trade. Likewise, Law No. 34/2000 on LocalTaxes and User Charges (leading sector: Ministry ofFinance) allows local governments wide discretionto levy their own taxes and charges.

In normative terms, the two laws do not conflictdirectly with the principle of “a single economic zonefor domestic trade”, because they stipulate certaincriteria for local governments that are supposed toensure that regional policy making does not distortnational domestic trade. To guarantee harmonyamongst all the levels of laws and regulations, thetwo laws also allow the central government tooverturn any local regulation that conflicts withnational policy.

Nevertheless, the fact that both laws allow localgovernments to regulate their own trade and fiscalaffairs has led to a distortion of domestic tradeactivity in general. Studies carried out by KPPOD andother research and advocacy groups have revealedlocal regulations that do in fact impose either tariff


13 Of 1,025 local regulations analyzed by KPPOD (Regional Autonomy Watch),around 30.15% of them have the potential to create a high cost economy;one cause is the imposition of entry/exit tariffs by local governments ongoods traded from one region to another of Indonesia. Many businessassociations, including SMEs, have complained about this unnecessaryadditional cost. See further in KPPOD: “Report on Local Regulations DeskAnalysis” (2002 & 2003), and “Rating the Investment Attractiveness of214 Districts/Cities in Indonesia”, 2004. See also SMERU, “RegionalAutonomy and Investment Climate”.

14 See “Revitalization of Industry and Investment” Kadin Indonesia, 2004.

20

or non-tariff barriers on national domestic trade.13

By law, it is the central government’s prerogativeto repeal these local regulations, but weakinstitutional capacity at the central level combinedwith the resistance of the autonomous regions hashampered efforts to overcome this problem.

These trade barriers inevitably exact a price.The high cost economy they have engenderedaffects all businesses but it is SMEs, due to theirsensitivity to any increase in production ordistribution costs, that bear the brunt.

In the case of Indonesia, the ongoing politicaltransition from authoritarianism to democracy hasgiven way to a transition from a centralizedgovernment to a decentralized one, with all theproblems that implies. Against this background, itwould be better for the aforementioned laws toallow the local governments limited leeway to issuetheir own regulations without going beyond whatis legally provisioned by the Law. This opinion isalso endorsed by Kadin Indonesia (the IndonesianChamber of Commerce and Industry) in itsrecommendations to the Government of Indonesia.14

Business relations between large-scaleenterprises and SMEs are also relevant to thisanalysis. In this regard, the government, througha policy issued by the Ministry of Trade and Industryhas shown its commitment to SME development bystipulating that modern markets—in this casesupermarkets—are to allocate 20% of their shelfspace for SME products. Akin to this is anothergovernment policy that allows hypermarkets tooperate only on the outskirts of towns, which is

LargeLargeLargeLargeLargeEnterprise andEnterprise andEnterprise andEnterprise andEnterprise and

SME BusinessSME BusinessSME BusinessSME BusinessSME BusinessRelations: TheRelations: TheRelations: TheRelations: TheRelations: The

Need forNeed forNeed forNeed forNeed forIndustrialIndustrialIndustrialIndustrialIndustrial

ClustersClustersClustersClustersClusters

21

soon to be reinforced by the planned issuance of aPresidential Decree to replace Ministerial Decree No.154/MPP/Kep/5/1997 that restricts hypermarketsstrictly to provincial capitals. These policies are, inprincipal, aimed at giving SMEs more access tomarket their products and to create fairercompetition between large and small businessactors.

Unfortunately, as mentioned earlier, SMEs faceserious difficulties in getting their products into thesupermarkets, which are dominated by the bigsuppliers. SMEs claim that this is due to resistanceon the part of the retailers, while the supermarketsjustify their position on the grounds that the SMEs’inability to guarantee quality and continuity of supplywill in turn adversely affect their own performance.

This kind of dispute calls for the Ministry of Tradeto play an active role by monitoring and following upthe findings from investigations in the field. If thereare cases of arbitrary practices on the part of‘modern’ retailers, it should not be as tough as itnow seems for the government to take action to rectifythe situation. On the other hand, if the SMEs doindeed have weaknesses in terms of product qualityand continuity of supply, the government has toproactively seek a win-win solution. One possibleapproach is industry clustering that takes intoaccount the interests of both parties. The governmentcould direct raw materials suppliers to advise theirSME customers—as exhibited in the partnershipbetween Bogasari and MSEs above—on how improvetheir business practices in order to achieve the qualityand continuity required by the retailers.

Using this model, each party plays its role in away that yields mutual benefits. Where there arepotential linkages between business entities, thegovernment needs only to act as a facilitator, and inthis way, saves a lot of resources it may have hadto make use of otherwise.

The action plan on SME empowerment issuedby the Ministry of Cooperatives and SMEs for theperiod 2005–2009 suggests that the governmentrecognizes the importance of clustering within


15 See further in the “Action Plan on SME Empowerment 2005-2009” issuedby the Ministry of Cooperatives and SMEs.

16 It is important to note that since the MPR (General Consultative Assembly)removed the GBHN (Broad Guidelines of State Policy) in the hierarchy ofIndonesian development planning instruments, the highest nationaldevelopment planning document is the PROPENAS (Program of NationalDevelopment Planning), which is endorsed as a Law. Theoretically, thePROPENAS–which is further translated as the Medium Term Development

22

specific industries. This plan sets out the creation ofSME market networks through the establishment oftrading houses and e-commerce centres; fosteringinterdependent partnerships in certain industriesthrough core-plasma schemes, franchising, agencyschemes and so forth; and facilitating SME accessto financial resources.15

In theory, this program covers nearly everythingrequired for SME development—as long as theministry sticks to policymaking, facilitating andevaluating, while the enterprises, large or small, arethe main actors in the program. As yet, there hasbeen no evaluation of program implementationbecause it has only just started.

Administrative relations between central andregional governments are another question. In thecurrent context of regional autonomy, wherein localgovernments have strong political legitimacy, theministry should delegate the program’s executionfully to the local authorities.16 It is the local authoritieswho know exactly which industrial clusters andproducts to promote, who should become thesubjects of the program and when is the right timeto start it up.

It should be reiterated that the role of the centralgovernment, through the technical ministries, islimited to making policies in support of SMEdevelopment, monitoring them, and evaluating them.The central government may harness its existingapparatus—reaching out to provinces, even downto districts—to help coordinate the development ofclusters of industry based on specific productcompetitiveness in each region, and from this, todetermine exactly at which scale the economicdevelopment is needed. It may be at the provinciallevel, or the city/district level, but in any case eachcluster of industry will require a different strategy.

23

The discussion in this section focuses again onthe business relationship between SMEs and modernretailers, in this case hypermarkets. The disharmonybetween these two parties has already beendiscussed; basically, the SMEs feel unfairly burdenedby the charges they need to pay to get theirproducts displayed on the hypermarket shelves, so-called listing fee.

Hypermarkets impose the listing fee, as well asother promotional costs, on all their suppliers. Forthe big suppliers, this is not deemed a problem; it isa common practice in this kind of relationship. Forthe SME suppliers that cannot afford to pay,however, it is a different story: the listing fee policykeeps them from accessing the market.

According to the entrepreneurs grouped in theAssociation of Hypermarket Suppliers (the majorityof whose members are SMEs), cases like this arenot uncommon, yet they are rarely made public. Asa result of their decision to expose the issue, itreached the KPPU (the Business CompetitionOversight Committee), and provoked a widespreadresponse from the public. Through the mass media,the hypermarkets concerned explained that thelisting fee actually depends on the marketpositioning of a supplier’s product. The less well-known or less in demand the product, the higherthe listing fee, and vice versa. Under this practice,leading manufacturers may not even have to botherwith the listing fee at all because the hypermarketis actually the one in need of their products.

So there is more than just a matter of lettingthe invisible hand work freely behind the principleof supply and demand, with all the power of capitalat its disposal. This case shows that the marketmechanism is not working perfectly—large capital issqueezing out small capital. The question is, is itfair to impose listing fees on SMEs? What’s more,when these smaller payers eventually go bankrupt,the hypermarkets refuse to return the fees.Obviously, free competition does not necessarilymean fair competition.

LargeLargeLargeLargeLargeEnterprise-SMEEnterprise-SMEEnterprise-SMEEnterprise-SMEEnterprise-SMERelations: FreeRelations: FreeRelations: FreeRelations: FreeRelations: FreeCompetition vs.Competition vs.Competition vs.Competition vs.Competition vs.FairFairFairFairFairCompetitionCompetitionCompetitionCompetitionCompetition


24

This is the kind of unfair competition upon whichthe government can make the case for intervention.The forthcoming presidential decree should stressthe importance of the principles of fair competitionover free competition. The time is ripe for thegovernment to rearrange the structure of therelationship between SMEs and hypermarkets byseriously considering the need for a special schemefor SMEs, not for protection, but to guarantee thema fair chance in the competition,otherwise SMEs willhave very little chance of surviving against the biggerplayers. Improving SMEs’ access to the market byaccommodating their specific needs will ultimatelylead to improvements in their capacity.

This new policy has to make it clear how a smallenterprise is defined, and to what extent it is entitledto participate in the scheme. For this reason, LawNo. 9/1995 on Cooperatives and SMEs needs to beredefined, taking into account the various existingdefinitions of SMEs used by government institutions,NGOs, donors etc., leaving only one ultimate legalreference.

The key issue in Law No. 13/2000, whichregulates labour affairs, concerns the minimumwage. The law states that in order to protect theinterests of workers, employers are required tocomply with the provisions on the minimum wage.The law further states that employers who are notin a position to fulfil this requirement can—if theymeet certain conditions—apply for a deferment. Theprovisions governing this are outlined in Decree ofthe Minister of Manpower No. 231/MEN/2003, whichrequires any company requesting such a waiver tofirst secure the approval of its labour union—toensure that there are proper industrial relationsbetween the employer and workers—and to supplya financial audit report by a CPA (Certified PublicAccountant) to verify its claim of financial inability topay the minimum wage.

4.2. Laws and4.2. Laws and4.2. Laws and4.2. Laws and4.2. Laws andRegulatoryRegulatoryRegulatoryRegulatoryRegulatory

Issues AffectingIssues AffectingIssues AffectingIssues AffectingIssues AffectingLabourLabourLabourLabourLabour

LabourLabourLabourLabourLabour, Labour, Labour, Labour, Labour, LabourUnions andUnions andUnions andUnions andUnions and

LabourLabourLabourLabourLabourDisputesDisputesDisputesDisputesDisputes

25

For SMEs, especially the smaller ones, therequirement to submit an audit report is a hugeburden—in most cases they lack the capacity to meetthe minimum standards of accounting. Nor it ispossible for most enterprises of this sort to pay aCPA to audit the company. It is just such obstaclesthat force SMEs into non-compliance with almost alllegal formalities, including registration with theMinistry of Manpower, and drives them into theinformal sector.


26

small workforce of most SMEs these two issues haveless significance. From the SME perspective, these twolaws, particularly No 21/2000, are deemed sufficient.

The implementation of regional autonomy hasgiven rise to indications of discrimination againstcertain job seekers. A number of regionalgovernments have put in place policies that prioritizelocal people—however they are defined—for jobs inthe region.

Several regions are formally adopting suchpolicies through regional regulations, while othershave taken a more informal route by engineeringlocal opinion to put pressure on companiesoperating in the region to observe this priority.

Applied through regional regulations, suchpolicies require companies operating in the regionto comply with various employment quotasformulating certain percentages for local people. Inmany regions the scope of these regulations is notlimited to the provincial level, but extends to thedistrict, sub-district and even village levels. Anybreach of these rules is subject to fines and financialcompensation to the regional administrationconcerned.

For Indonesia, despite the noble-soundingexcuse of equal employment opportunities for theindigenous people, as well as other socialjustifications, this kind of affirmative local policy mayin the long term endanger national unity; Indonesiaprofesses itself to be a unitary state, within whichthe free flow of goods, people and capital isstrenuously defended. These distorting policies havetheir roots in the national policy on regionalautonomy, reflected in Law No. 22/1999 on RegionalGovernance, which transfers authority over labouraffairs to the hands of each local administration.

In general , such affirmative action has littleimpact on SMEs which, for the most part, employ

RegionalRegionalRegionalRegionalRegionalPolicyPolicyPolicyPolicyPolicy

27

local people. Even so, in the context of fair andequitable treatment for all citizens, who should havethe right to work anywhere within the territory, theproblem cannot be overlooked.

The regulation of business sectors for large,medium and small enterprises, leveraging access tofinancing for SMEs, managerial guidance (technicalassistance), and fiscal and monetary policy, are otherissues of policy that deserve to be reviewed briefly.

To protect SMEs from the domination of large-scale enterprises, Presidential Decree No. 99/1999(later amended by Presidential Decree No. 127/2001) on Business Sectors Reserved for SMEs andSectors Open to Large Enterprises throughPartnerships with Smaller Enterprises, signifies thatthe government has already taken the necessarysteps. Without this regulation, it is very likely thatSMEs operating in the sectors concerned would beunable to withstand the competition if a largeenterprise decided to enter.

Concerning SMEs’ access to financial institutions,the Central Bank’s policy No. 3/2/PBI/2001 in theoryenables SMEs to enjoy micro credit facilities forbusiness expansion. As for fostering bettermanagement of SMEs, Central Bank Regulation No.5/18/2003 provides for banking support for SMEsthrough technical assistance and information onmarkets, locally competitive commodities and so forth.

Running parallel with the Central Bank policiesis a Decree of the Minister of State-ownedEnterprises (abbreviated as BUMN in Indonesian)No. 236/BMU/203, pertaining to partnershipsbetween BUMNs and SMEs, which requires BUMNsto allocate 1% to 5% of their net profits to a softloan scheme, with an interest rate of a maximum12% per annum, that is earmarked for SMEs.17

4.3. Other4.3. Other4.3. Other4.3. Other4.3. OtherLaws andLaws andLaws andLaws andLaws andRegulationsRegulationsRegulationsRegulationsRegulationsAffecting SMEAffecting SMEAffecting SMEAffecting SMEAffecting SMEDevelopmentDevelopmentDevelopmentDevelopmentDevelopment

17 Indonesia’s commercial bank borrowing rate was 17-21% per annumwhen this ministerial decree was enacted. The interest rate now standsat around 14-17%.


28

Moreover, this same decree also provides for aCommunity Development fund, under which theBUMNs award grants to small enterprises in theirvicinity.

Despite the positive message the above policiesimply for the development of SMEs, some caveatsneed to be made. First, in terms of the interest ratefor the soft loan, regular adjustments need to bemade to ensure it stays in line with the currentdownward trend in lending rates, so that it remainscompetitive against the commercial rate. Otherwise,if the interest rate does not reflect that of a softloan, what use is it to the SMEs? Secondly, withregard to the allocation of profits for SMEs, most ofthe BUMNs only allocate the absolute minimum, i.e.1%, for the partnership program. From a policy pointof view there is nothing wrong with this; however,both policies are due for a comprehensiveevaluation.18

Fiscal, especially taxation, and monetary policiesalso influence the performance of SMEs. In theexisting taxation system, for example, there is nodifferentiation of the corporate income tax rate forSMEs and big corporations. A joint government-private sector team coordinated by Kadin Indonesia(the Indonesian Chamber of Commerce andIndustry) is currently looking into ways of reformingthe tax system; for SMEs, the key issue is the planto introduce a lower tax rate than that applied tolarge enterprises. With regard to monetary policy,one recommendation voiced by the respondents thatdeserves further study was that the central bankshould consider allowing some flexibility with respectto its minimum reserve requirement for nationalbanks whose funds are channelled into SMEfinancing. The expectation was that this would serveas an incentive for the national banking sector tochannel more of their funds to SMEs.

18 Dr. Sri Adiningsih in “Regulation in the Revitalization of Small and MediumEnterprises in Indonesia”

4.4. Policy4.4. Policy4.4. Policy4.4. Policy4.4. PolicyImplicationsImplicationsImplicationsImplicationsImplicationsfor SMEfor SMEfor SMEfor SMEfor SMEDevelopmentDevelopmentDevelopmentDevelopmentDevelopment

29

From the description in sections 4.1, 4.2, and4.3 concerning policies that have a direct influenceon the development of SMEs in the trade and labourdomains, as well as other pertinent policies, it isobvious that the substance and the implementationof the policy will qualitatively affect any improvementin SME capacity and performance. The policy analysis,based on the set criteria, together with theconfirmations from the respondents, reaffirms thecorrelation between the development of SMEs andthe quality of the relevant policies—in terms of bothsubstance and implementation.

It should be admitted that relying on aqualitative analysis of the substance of the policiesand the subjective confirmation made by individualrespondents—the collective confirmation throughthe focus groups notwithstanding—is anunsatisfactory way to assess the extent to whichthe SMEs have been influenced by those polices. Ananalysis of the available quantitative data would atleast support the qualitative analysis. The databelow, therefore, may be of use as additionalindicators to supplement the policy analysis.

Table 3. Trade (Trade & Retail), Hotel and RestaurantEmployment Absorption Contribution

Small Medium Small & Medium Large Total

Year People % People % People % People % People %

2000 15.223.033 91,61 1.367.924 8,23 16.590.957 99,84 26.058 0,16 16.617.015 100,00

2001 14.971.538 91,61 1.345.325 8,23 16.316.863 99,84 25.628 0,16 16.342.491 100,00

2002 15.547.307 91,61 1.397.063 8,23 16.944.370 99,84 26.614 0,16 16.970.984 100,00

2003 16.145.340 91,61 1.450.801 8,23 17.596.141 99,84 27.637 0,16 17.623.778 100,00


Table 3 above shows that SMEs absorb almostall employment (99.4%) across the trade sector(including hotel and restaurants). Of these SMEs,91.61% are small enterprises. While percentagewise, there was no change in the structure of theSME contribution to this sector from 2001 to 2003,there was an upward trend in the absolute figures:


30

absorption of employment by SMEs rose by around3.8% each year (2001: 1,345,325; 2002: 1,397,063;and 2003: 1,450,801). Thus, despite their small size,SMEs in the trade sector continue to contribute tothe absorption of new entrants to the workforce.

Meanwhile, with regard to added value, SMEshave also made a considerable contribution to thetrade sector Regional Gross Domestic Product(PDRB), as shown in Table 4 below: an average ofat least 96% between 1999 and 2003, of which anaverage 75% is contributed by small enterprises.Table 3 also shows that although there was littlechange in the percentage contribution of SMEs overthis period, the absolute value of the contributionincreased by an average 3.5% per annum,comparable to that of the large-scale enterprisesoperating in this same sector.

Table 4: Trade (Trade and Retail) Small, Medium and Large Enterprises PDRB Contribution(based on 1993 constant prices); USD 1=IDR 9,575 (April 2005)

Small Medium Small & Medium Large Total

Year Million IDR % Million IDR % Million IDR % Million IDR % Million IDR %

1999 35,732,573 75.11% 10,084,57121.20% 45,817,144 96.31% 1,757,357 3.69% 47,574,501 100.00%

2000 37,723,384 74.95% 10,750,03621.36% 48,473,420 96.30% 1,860,401 3.70% 50,333,821 100.00%

2001 38,819,578 77.57% 11,227,95921.59% 50,047,537 96.25% 1,950,263 3.75% 51,997,800 100.00%

2002 40,250,202 77.59% 11,622,76821.58% 51,872,970 96.29% 1,998,449 3.71% 53,871,419 100.00%

2003 41,503,897 77.34% 12,163,67421.85% 53,667,571 96.39% 2,009,288 3.61% 55,676,859 100.00%


Inadequate as they are to demonstrate how farpolicy has affected SME performance in the tradesector, the above data may at least serve as apreliminary indicator that SMEs have hardly beeninfluenced at all by policy—it has caused neither anincrease nor a decrease in their performance.Perhaps this is in line with the qualitative analysisof trade and labour policy related to SMEdevelopment in sections 4.1 and 4.2 above, whichis judged to be merely adequate—not reallypositive, but not distortional either.

4.5. How Laws4.5. How Laws4.5. How Laws4.5. How Laws4.5. How LawsandandandandandRegulationsRegulationsRegulationsRegulationsRegulationsEnable SMEs toEnable SMEs toEnable SMEs toEnable SMEs toEnable SMEs toContribute toContribute toContribute toContribute toContribute toPovertyPovertyPovertyPovertyPovertyReductionReductionReductionReductionReduction

31

Regarding the impact of the financial access andmanagement development policies on SMEdevelopment discussed in section 4.3, noquantitative analysis can be made here because theCentral Bank and the Ministry of State-ownedEnterprises only issued these policies in 2003, andaggregate data for 2004 are not yet available.

Ideally—according to national policymakingprocedure—the national PRSP (Poverty ReductionStrategy Program) should have been completedahead of the more strategic national RPJM (MediumTerm Development Plan). Had this been the case,the poverty reduction program could have beenaccommodated in the RPJM, which not onlydetermines the direction of national developmentpolicy but also serves as the guideline for theautonomous local governments’ development plans.

Lamentably, though, as of the time of writing thePRSP is still being discussed at Bappenas (theNational Development Planning Agency), who willthen have to submit it to the Coordinating Ministerfor Social Welfare. This year—2005—the academicnarrative will have to be drafted before it can finallybe enacted as a law, despite the fact that the RPJMhas already been endorsed by the president.Nevertheless, since Bappenas is also the agencyresponsible for producing the RPJM—with input fromall the other ministries—it can be assumed that itwill have included elements of the provisional PRSPat the drafting stage.19

As is mentioned in the background to this study,the PRSP document refers to SME development asthe mechanism for one of the key strategies forpoverty reduction strategy, i.e. improving people’saccess to jobs.

19 The Regional Development & Decentralization Deputy of Bappenas is thekey member of the PRSP working group that consolidates and formulatesinputs from line ministries. He is currently still evaluating the draft PRSPdocument before forwarding it to the Coordinating Minister for SocialWelfare (Menko Kesra).


32

SME development in the poverty reductionstrategy is aimed at enhancing the capacity of theseenterprises to grow their business—microenterprises will become small enterprises, smallenterprises will expand to become mediumenterprises and so on. A simple calculation wouldsuggest that building SME capacity will thereforeenable them to absorb more employment, which willultimately lead to an increase in people’s purchasingpower. Statistically, this will reduce poverty.

To ensure that SME development yields theexpected results in terms of poverty reduction, it isstrongly suggested that such programs prioritizeareas most affected by poverty.

There are 190 districts in Indonesia that arecategorized as “left behind” or underdeveloped,according to government mapping, and one of thecriteria for this classification is closely linked topoverty.20 Identifying an area’s potentiallycompetitive products and commodities can be thefirst step towards developing the local economy. Thenext step—based on the industry clusteringapproach—is how to create a synergy between thiseconomic potential, local SMEs, and large-scaleenterprises that will be able to convert the potentialinto real economic strength for the people. Thesynergy should take in all aspects of SMEdevelopment, be it production (product diversificationand quality, raw material supply chain, and so on),marketing and trade (continuity of product supply,distribution networks), support from financialinstitutions (national banking sector, non-bankinstitutions, micro credit agencies), and so forth.

Central and local government commitment todeveloping industrial clustering is demonstrated byat least three indicators. First, the making of policiesto support industry clustering, including efforts tomitigate the constraints posed by existingregulations such as those discussed in sections 4.1,

20 In its “National Development Strategy for Underdeveloped Regions”, theMinistry of Underdeveloped Regions mapped 190 districts/cities inIndonesia, which, based on six key criteria (social economy, humanresources, infrastructure, fiscal structure, accessibility, and regionalcharacteristics), need special attention for development.

33

4.2 and 4.3. Second, facilitating, monitoring andevaluating the implementation of these clusters.Third, a budget commitment to the development ofthe specific infrastructure and facilities needed bythe SMEs.

Focusing on SME development through industryclustering in these underdeveloped areas shouldallow SMEs to have a significant impact on povertyreduction.


34

5. Conclusions AndRecommendations

5.1.5.1.5.1.5.1.5.1.ConclusionsConclusionsConclusionsConclusionsConclusions

35

In general, government policy, as reflected in theexisting laws and regulations, has been supportiveof the specific needs of SMEs. Through a number oflaws and regulations, the government protects SMEsfrom domination by large-scale enterprises, setsfavourable interest rates for SMEs, obliges state-owned enterprises to develop businesspartnerships with SMEs, has created a specialministry for SME, and more; thus, at the policy levelat least, it has created a conducive businessenvironment for the development of SMEs. However,in terms of implementation, the weak coordinationand cooperation among central governmentinstitutions and between central and localgovernments has meant that policy has not had theintended effect on SME performance.

A number of specific findings from this analysisof legislation on domestic trade and labour are givenbelow in an attempt to answer the specific researchquestions.

With regard to policy, the quality of nationallegislation on trade is sufficient to support SMEdevelopment in general, even if cannot yet bedescribed as very conducive. On the other hand,the findings on the implementation of domestic traderegulations, specifically concerning the retailer-supplier relationship, tell us that the bargainingposition of SMEs vis-à-vis large enterprises(hypermarkets) is still very weak: fair competitiontends to give way to free competition.


5.2.5.2.5.2.5.2.5.2.RecommendationsRecommendationsRecommendationsRecommendationsRecommendations

for APINDOfor APINDOfor APINDOfor APINDOfor APINDOPolicy AdvocacyPolicy AdvocacyPolicy AdvocacyPolicy AdvocacyPolicy Advocacy

36

In the regional autonomy context, the substanceof the laws and regulations related directly orindirectly to trade increases the chances for policydistortion at the regional level. This has promptedlocal governments to enact regional regulations thatwork to the detriment of domestic trade throughthe implementation of tariff and non-tariff barriers.These barriers have an adverse impact on thecompetitiveness of SMEs because of their extremesensitivity to any increases production or distributioncosts.

Turning to manpower, the legislation on labourunions and arbitration between employer andemployee does not pose any problems for SMEs.On the wage issue, however, the specific needs ofSMEs are ignored, particularly concerning thedeferment of the minimum wage for companies thatcannot afford to pay it. The conditions stipulated bythe government for obtaining this deferment aresimply too burdensome for most SMEs, forcing theminto the informal sector where, among other things,there is no protection for labour.

Another problem with regard to manpower is thetendency for autonomous regions to applyaffirmative employment policies to favour the localworkforce. The effect of the generally low capacityof human resources at the local government levelcombined with weak supervision by the centralgovernment is that people seeking to findemployment outside their area of origin are likely toencounter discriminatory treatment.

To overcome the weaknesses in policy and thedistortions in policy implementation, APINDO’scontribution to SME improvement should start withthe following:

In broad terms, APINDO, in cooperation with theother business associations under KadinIndonesia, should initiate a policy dialog withgovernment to develop or revise a number of

37

laws in the related sectors, which will work tothe benefit of both SMEs and big business.On trade legislation, APINDO and KadinIndonesia should be active participants in thedrafting of the proposed Domestic Trade Law,with a target of getting the new law enacted nolater than the end of 2005.The revision of Law No. 34/2000 regarding LocalTax and User Charges, which has thrown upbarriers to domestic trade. The revision shouldfocus on limiting the types of charges that canbe applied at the regional level in order to avoidmultiple interpretations on the part of the policymakers at district and provincial level. Incooperation with KPEN (National EconomicRecovery Committee) and KPPOD, APINDO shouldadvocate for the amendment of this law by themiddle of 2005.On manpower, APINDO should be activelyinvolved in the drafting or revision of governmentregulations, presidential decrees and ministerialdecrees to elaborate Law No. 13/2000 regardingManpower. One specific objective will be to reviseMinisterial Decree No. 231/MEN/2003 by the endof 2005 in order to dispense with therequirement for SMEs to submit an audit reportfrom a public accountant with their applicationto defer the minimum wage.To support the specific recommendations forpolicy advocacy on trade and labour, this studyalso recommends that APINDO initiate a policydialog with government and other relatedparties to create a comprehensive blueprint forSME development.The SME blueprint should be based on at leastsix fundamental principles: 1) a clear definitionof SMEs as a point of reference; 2) promotingthe market economy through fair competition byaccommodating the specific needs of SMEs,including fiscal and non-fiscal incentives; 3)mutually beneficial linkages between SMEs andlarge-scale enterprises in industry clusters; 4)positioning the Ministry of Cooperatives andSMEs as the leading sector among governmentinstitutions; 5) confining the role of government


5.3.5.3.5.3.5.3.5.3.RecommendationsRecommendationsRecommendationsRecommendationsRecommendationsfor Further Actionfor Further Actionfor Further Actionfor Further Actionfor Further Action

38

to policy making, monitoring, and evaluatingpolicy implementation; 6) positioning theautonomous regions as the most importantactors at the implementation level.

In the Background section, reference was madeto the willingness on the part of APINDO membersto assist in the development of linkages betweenlarge enterprises and SMEs. Starting early 2006,APINDO should therefore follow up its policy advocacyby facilitating partnership programs, taking thefollowing considerations into account:

The partnership program should be packagedas a mutual benefit business relationshipbetween large and small enterprises. Theapproach should be industry clustering betweenlarge-scale enterprises and SMEs in the sameline of business. In the partnership, the largeenterprise should provide technical assistanceand mentoring for the SMEs on various aspectsof SME development such as production,distribution, and financial access.The cluster development should be located inone of the 190 underdeveloped regions identifiedby the government, in order to align SMEdevelopment efforts with the poverty reductionstrategy. The selection of the region will bedetermined by the following factors: theeconomic potential of the region, strongcommitment from local government, and theexistence of a large-scale enterprise that has afirm commitment to improving SME performancein the respective industry.It will be ideal if the cluster development may bemerged to the APINDO existing program on‘women entrepreneurship’ in order to achieve asound result.APINDO should explore the possibility of donorsupport for the program. One potential donor isUSAID, through a new program scheduled for

39

launching in mid-2005. This program, entitledSENADA (‘working in harmony’), will focus, amongother things, on industry cluster development.


40

1. Law No.7/1981: The Obligation for Enterprisesto Report Manpower Status

2. Law No.25/1992:Cooperatives3. Law N0.7/1994: Ratification of WTO Trade

Policies4. Law No.1/1995: Limited Companies5. Law No.5/1995:Healthy Business Competition/

Anti Monopoly6. MPR (General Assembly Decree) Decree No.XVI/

MPR/1998: The Political Economy in respect ofa Democratic Economy

7. Government Regulation No.32/1998: SMEDevelopment

8. Law 9/1995: Small Enterprises9. Law 22/1999: Regional Governance10. Law 25/1999: Fiscal Balance Between Central

and Regional Government11. Law No.23/1999: The Central Bank of

Indonesia12. Law No.21/2000: Labour Unions13. Law No.25/2000: The National Development

Planning Program14. Law 34/2000 (amendment of Law 18/1997):

Regional Taxes and User Charges15. Government Regulation 25/2000: The Authority

of the Central Government and the AutonomousProvincial Governments

16. Presidential Decree No.127/2001 (amendmentof Presidential Decree No.99/1998): BusinessSectors reserved for SMEs and Sectors Open

6. Annexes

6.1. Laws and6.1. Laws and6.1. Laws and6.1. Laws and6.1. Laws andRegulationsRegulationsRegulationsRegulationsRegulationsReviewedReviewedReviewedReviewedReviewed

41


to Large and Medium Enterprises throughPartnerships with Small Enterprises

17. Presidential Decree No. 56/2002: RestructuringSmall & Medium Enterprise Credit

18. Law No.13/2003: Manpower19. Decree of the Minister of Manpower No.231/

MEN/2003: Procedures for the Deferment of theImplementation of the Minimum Wage

20. Decree of the Minister of Manpower No.233/MEN/2003: Types of Continuous Occupations

21. Decree of the Minister of Manpower No.235/MEN/2003: Types of Occupations that Endangerthe Health, Safety, or Morals of Children

22. Decree of the Minister of State-OwnedEnterprises No.236/BMU/2003: PartnershipPrograms between State-Owned Enterprisesand SMEs, and Community DevelopmentPrograms

23. Decree of the Minister of Manpower No.244/MEN/2003: Obligations for Enterprises thatEmploy Women Between 11pm and 7am

24. Central Bank Regulation No.5/18/PBI/2003:Technical Assistance for SME Development

25. Law No.2/2004: The Settlement of IndustrialRelations Disputes

26. Decree of the Minister of Manpower No.102/MEN/VI/2004: Overtime and Overtime Wages

27. Presidential Regulation No.7/2005: Medium-Term Development Program

28. Presidential Regulation No9/2005: The Status,Tasks, Function, Organization, and OperationalProcedure of Ministries of the Republic ofIndonesia

29. Ministry of Cooperatives and SMEs: Action Planfor SME Empowerment 2005–2009

30. Ministry of Underdeveloped Regions: NationalStrategy for the Development ofUnderdeveloped Regions

42

ADB, ADB Support for SME Development: PenguatanLayanan Pengembangan Usaha Untuk Usaha Kecildan Menengah (Strengthening Services for Smalland Medium Enterprise Development)

Adiningsih, Sri (2004), Regulasi Dalam RevitalisasiUsaha Kecil Menengah di Indonesia (Regulationof the Revitalization of Small and MediumEnterprises in Indonesia)

Anas, Titik (2003), “Decentralization and DomesticTrade” in T.A. Legowo and Muneo Takahashi (ed.).Regional Autonomy and Socio-EconomicDevelopment in Indonesia – A MultidimensionalAnalysis, Chiba, Japan.

APINDO-IWAPI-ILO (2004), Promoting Women’sEntrepreneurship Development in Indonesia.

Budiantoro, Setyo (2005), Dari Demokrasi KapitalMenuju Demokrasi Ekonomi (From CapitalDemocracy Towards Economic Democracy),Jakarta.

Allal, Maurice (2003), Classification of SMES, ILOGeneral Survey 2003 on Employment-RelatedConventions and Recommendations: Analysis ofMember States Responses to Recommendation189 (Job Creation in Small and Medium-SizedEnterprises), Chapter III Draft SEED WorkingPaper, Thailand.

ILO (2004), Terbebas Dari Kemiskinan: Masukan ILOatas PRSP Indonesia (Working Out Poverty: ILOInputs to Indonesia PRSP), Jakarta.

ILO (2004), Employment Dimension of Macro andSectoral Policies, Jakarta.

ILO (2004), Job Creation and EnterpriseDevelopment (SMEs and Local EconomicDevelopment), Jakarta.

ILO (2004), Gender and Poverty, Jakarta.

ILO (2003), Small Enterprise Development: AnIntroduction to the Policy Challenge, Geneva,Switzerland.

ILO (1998), Job Creation in Small and Medium-SizedEnterprises, Guide to ILO RecommendationNo.189, Geneva, Switzerland.

6.2. References6.2. References6.2. References6.2. References6.2. References

43


JICA-Government of Indonesia (2004), Study onStrengthening the Capacity of SME Clusters inIndonesia: Final Report.

KADIN-Indonesia (2004), Revitalisation of Industryand Investment, Kadin-Indonesia: Contributionof Thoughts to the Government of the RepublicIndonesia 2004–2009, Jakarta.

KPPOD (2004), Regional Investment Attractiveness,A Survey of Business Perception, Jakarta.

Lewis, Blane (2003), Empirical Evidence on NewRegional Taxes and Charges in Indonesia,Research Triangle Institute, North Carolina, USA,www.gtzsfdm.or.id

The Asia Foundation-World Bank, Improving theBusiness Environment in East Java, View fromthe Private Sector.

Wattanapruttipaisan, Thitapha (2002), PromotingSME Development: Some Issues andSuggestions, Thailand.

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