Indonesia's small firms struggle, dealing economy another blow

Fuad Fultoni has been selling wooden furniture from Pasuruan city on the eastern side of Indonesia's Java island for 15 years: gazing out as his workers sat idly in an empty showroom, he says business has never been so bad.

"People don't have the purchasing power for things like this anymore," Fultoni said, gesturing towards intricately carved tables, chairs and cabinets on display. "Now they are prioritising their primary needs."

At least Fultoni is still in business. He says hundreds of small furniture enterprises in the town have shut, bringing mass layoffs, after sales plunged and the cost of imported raw materials such as thinner and paint shot up.

Small and medium-sized firms (SMEs) like his account for at least 50 percent of Indonesia's economy, but they have been sideswiped by the rupiah's slide to 17-year lows against the dollar, faltering consumption and a jump in minimum wages.

The struggle of SMEs - traditional pillars of the economy that rescued Indonesia from the depths of the 1998 financial crisis - is bad news for President Joko Widodo, himself a former furniture businessman who is now battling the weakest growth in six years.

The growing ranks of jobless may widen the rich-poor divide and push up crime in Indonesia, dealing a blow to the man-of-the-people image that swept Widodo from small-town mayor to governor of Jakarta and then, a year ago, to the presidency.

A monthly central bank survey showed that consumers were pessimistic about the economic outlook in September, the first time since August 2010, mainly due to rising unemployment.