Skift Take

The U.S. hotel industry, as well as many workers who relied on it for jobs, was hit hard when the government cut back on meetings and events. It's a quick budget fix that usually hurts more than helps.

At the former Dutch colonial hill retreat of Bogor, Indonesian hotelier Kosasih Kadra is fretting over empty rooms and blaming President Joko Widodo for it.

Widodo banned civil servants from hosting meetings in hotels starting in December and cut the allowances they get for attending. That’s hurting places like Bogor, where government events have accounted for as much as 60 percent of the hospitality business, according to Kadra, secretary of the Indonesian Hotel and Restaurant Association in the city.

“There has been a massive impact,” said Kadra, who also owns a hotel in the city that feted then U.S.-President Bill Clinton and his Asian counterparts in batik shirts at a 1994 summit. “We predict in a couple of months many hotels will have to close.”

The fallout echoes the economic impact of China’s anti-corruption crackdown, which hurt demand for luxury goods. In Indonesia, the president’s efforts to plug wasteful government spending is hitting an industry whose growth has benefited companies including PT Hotel Sahid Jaya International in recent years.

Widodo, known as Jokowi, took office in October pledging to improve budget efficiency and free up funds for building infrastructure. Reforming the bureaucracy is a key priority to get things done, and freeing up more of the budget for roads, ports and railways will attract foreign direct investment and help the economy, he said in an interview last week.

Budget Savings

The hotel ban saves the government 24 trillion rupiah ($1.9 billion), according to the proposed 2015 budget.

Yet the move will reduce tax revenue for local and central administrations, and Jokowi isn’t taking into account the multiplier effect of the hotel trade from transport to insurance, said Yanti Sukamdani, the head of the Indonesian Hotel & Restaurant Association and director at Hotel Sahid Jaya. Government business is even more important for hotels in remote areas across the archipelago, she said.

“Hotels can survive if the occupancy rate is 55 percent,” said Sukamdani. Anything below that would lead to layoffs in an industry employing 11 million people, she said. The government’s 2015 growth target “cannot be achieved if there is a slowdown in hotel business.”

Accommodation, food and drink supply accounted for 3.1 percent of gross domestic product in Southeast Asia’s largest economy in 2014, according to data from the statistics bureau. The country’s hotel occupancy rate fell to 50.1 percent in December, when Jokowi’s ban took effect, from 54.5 percent the previous month, with five-star hotels the worst hit, the bureau’s data show.

Side Effects

“It will definitely hurt the hotel industry” and related sectors such as restaurants, food suppliers and travel, said Eric Sugandi, an economist at Standard Chartered Plc in Jakarta. “The policy will impede the real GDP growth. I would say that this is the implication of playing the populist card too much, merely to show that the government is tightening its belt, and not taking into account the side effects.”

Indonesia’s economy shrank last quarter from the previous three months, and full-year growth slowed to 5.02 percent, the weakest since at least the global financial crisis. Jokowi, 53, said he’s sticking to his 5.7 percent expansion target for this year, pledging to fast-track transport projects, lift tax revenue and cut red tape to attract investment.

That’s not helping the Ambhara Hotel, a four-star property in Indonesia’s capital. Almost two-thirds of the hotel’s occupancy last year came from government clients. In January, the rate fell to less than 2 percent, according to sales director, Aryaduta Andi Sinta. The number of government bookings has dwindled to zero from about 50 state-sponsored events annually, he said.

President’s Call

The “sudden and drastic drop” in government events is forcing the hotel to search for other business, said Sinta.

Kadra and others from his organization went to see the minister of bureaucratic reform in January to ask for relief. The minister, Yuddy Chrisnandi, said he couldn’t help because the ban was an instruction from the president, Kadra said.

For civil servants like Dita, the clampdown has depleted meeting allowances that used to supplement their salaries. Dita, who works in the finance ministry and asked that her full name be withheld as she’s not authorized to speak publicly, said she could get about 400,000 rupiah ($32) per day for attending meetings that require a hotel stay, or as much as a million rupiah per event if she was a speaker.

Ika, an official at the public works ministry who also asked that her full name be withheld, said she usually got about 100,000 to 300,000 rupiah for each half or full-day external meeting. A worker on minimum wage in the capital gets about 100,000 a day.

Accor Expands

Parts of the hotel industry may be more resilient.

“In Indonesia specifically, we have a very strong domestic presence in economy and mid-scale, which are outside the scope of these crackdowns,” Vivek Badrinath, Paris-based deputy chief executive officer for Accor SA, said in a Feb. 6 interview in Bangkok. Accor will increase the number of properties in Indonesia to 100 by the end of 2015, he said.

Government departments still need big spaces to hold meetings and can’t abandon hotels, said Edward Sugiharto, a spokesman for Century Park Hotel in Jakarta, which used to get 30 percent of its clients from the government.

Kadra, the Bogor hotelier, says while he understands the need to save state money that led to the ban, a better solution would be to eradicate the opportunities for graft. He cites the practice of inflating hotel bills for government events, and providing blank receipts to seminar organizers, allowing them to make false expense claims.

“Don’t burn the rice field while trying to kill rats,” said Kadra. “Our aspirations are not being heard. Many people here are angry, some of whom were Jokowi supporters.”

–With assistance from Tony Jordan in Bangkok.

This article was written by Chris Brummitt, Herdaru Purnomo and Rieka Rahadiana from Bloomberg and was legally licensed through the NewsCred publisher network.

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Tags: indonesia, meetings and conventions

Photo credit: Hotel Novotel Bogor Golf Resort and Convention Center. Novotel Hotels

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