JAKARTA Oct 17 (Reuters) - Thousands of Indonesian workers took to the streets of the capital on Thursday, demanding the government raise wages and adding to fears that labour costs in Southeast Asia's biggest economy are becoming uncompetitive.
About 7,000 members of the country's largest labour unions marched through the centre of Jakarta to the presidential palace to press their case for a 50 percent increase in the minimum wages and improved social welfare.
The demands add to pressure on President Susilo Bambang Yudhoyono to improve the lot of low income workers ahead of next year's parliamentary and presidential elections.
His government has said it would announce an inflation-linked basket to set minimum wages but manufacturers worry that rising costs are already threatening to make Indonesian products less competitive.
"For sure, some investors are worried that the government will give in like they did last year," Sofjan Wanandi, head of the Employers' Association of Indonesia (APINDO), told Reuters.
"Everyone understands that it's totally unsustainable for business because we had to lay off thousands of workers especially in the labour-intensive industries. This year, we have hope that the government is more serious about protecting the investors."
The government-set minimum wage rose 44 percent last year in greater Jakarta, where the bulk of the country's factories are based. The mininum wage in greater Jakarta is on average 1.9 million rupiah ($172) a month.
Despite years of some of the world's fastest economic growth, nearly 40 percent of the population live on about $2 a day, and the gap between the rich and the poor is widening, an issue that is likely to top the election agenda next year.
Economists say that they are concerned the government will buckle to populist demands to win votes and shy away from any serious economic reform to help counter a slowing growth.
"The government should be on the workers' side," said Yana Santhia, a 36-year-old worker from a textile factory outside Jakarta.
"The workers are suffering because prices have gone up, above what we can afford ... But so far the government has only prioritised policies that support the business model of foreign companies."
Inflation has jumped to 4-1/2 year highs after June's sharp increase in fuel prices, while interest rates have been pushed to their highest in almost 4 years in part to defend the fast falling rupiah, Asia's worst performing currency this year.
The government has said it plans measures for labour-intensive industries such as textiles to prevent layoffs. But it has yet to implement the measures and there is widespread concern that Indonesia's manufacturing industries are losing out to more competitive neighbours.
A presidential spokesman declined to comment when asked how the government intended to respond to the latest demands.