The Indonesian authorities’ drive to curb wasteful spending by limiting meetings outside of government facilities has sent shudders through the hospitality sector.
Just as hoteliers were starting to look forward to stronger business prospects with Indonesia’s robust tourism targets, the new government’s austerity drive is causing waves.
Indonesian president Joko Widodo has set an ambitious target of 20 million international arrivals and 275 million domestic travel movements by 2019, huge jumps from 9.4 million international arrivals and 250 million domestic movements in 2014.
When the new government came into office in October last year, Jokowi also prioritised reducing official spending, including cutting the cabinet’s travel and meeting budget for 2015 to Rp25 trillion (US$1.9 billion), from Rp41 trillion last year.
In line with that minister of state apparatus and bureaucratic reform Yuddy Chrisnandi last November issued circulars instructing government officials to limit meetings outside office facilities as part of the administration’s effort to trim the state budget.
According to Yuddy, the leakage of government fiscal resources reached 30 per cent, and civil servants’ spending on unnecessary meetings organised outside offices was one of the violations.
Yuddy was also quoted by Bisnis Indonesia Daily as saying that within two months of the introduction of the state budget efficiency programme, the government managed to save Rp5.2 trillion for all sectors, including travel expenses and meetings in hotels.
While the circular sought to “limit” and not “ban” meetings outside government-owned facilities, it did not detail the do’s and don’ts, resulting in government agencies cancelling a majority, if not all, of hotel meetings, to devastating effect.
Since regional autonomy took place in Indonesia over a decade ago, regional businesses have grown and prompted investors to develop hotels, big and small, with meeting facilities across the archipelago. Many of these were used for government and state-owned company meetings, trainings and seminars that could account for up to 40-50 per cent of the MICE business, according to the Indonesia Hotels and Restaurants Association (IHRA).
Hotels in Bandung, Yogyakarta, Makassar and Lombok, for example, reported receiving massive cancellations for November and December last year, typically busy months for government meetings.
TTG Asia understands that a recent tourism stakeholders meeting in Yogyakarta revealed that in November and December last year, the city lost Rp70 billion worth in government meetings.
Occupancy across the country dipped by as much as 50 per cent while rates declined between five per cent and 20 per cent, according to Yanti Sukamdani, outgoing chairman of IHRA and chairman of Indonesia Tourism Promotion Board.
Meanwhile, several hotels in Bali and Jakarta were reportedly experiencing a similar situation. Yanti commented: “Hotels have mushroomed everywhere (in Indonesia) in the last few years, and many are relying on MICE.
“The government should remember that tourism is the fourth largest contributor to the country’s GDP, which means that it is an important agent of development,” she added, stressing the need for strong political will in prioritising the tourism sector.
She also called for deeper cooperation between the government and private sector.
Following much outcry from the hospitality sector, the government finally issued a formal guideline in end-March to clarify the guidelines given earlier.
Government meetings could be held outside of government offices but they must produce clear results, through transcripts of the meeting, reports and a list of all attendees, signed by the official in charge.
National and regional government agencies must also come up with further terms, conditions and standard operating procedures to perform such evaluations, Yuddy elaborated.
Hoteliers like Don Tiganov, e-commerce marketing manager, Lombok Raya Hotel, lauded the move and have since received inquiries from government agencies for meetings, and expects them to translate into bookings.
Vivi Herlambang, director of sales, marketing & business development of Sahid International Hotel Management & Consultant, said: “We unofficially heard about the new directive last month and managed to convince some government agencies to book with our hotels.
“The official announcement has made us more confident of the business coming back, although not as big as it was before.”
However, she pointed out that besides the more stringent regulations on meetings, government offices have cut meeting budgets significantly for this year and all additional budget approvals would require time for parliament to clear.
For others, the furore surrounding Indonesia’s austerity drive stems from what is essentially a problem of supply and demand.
Addressing the industry’s laments during the opening of the IHRA National Assembly on February 17, Indonesian vice president Jusuf Kalla said that the biggest problem the hospitality industry faces is the result of the massive hotel development that took place amid a slowdown in demand.
“Hotel development in Indonesia grew by 100 per cent in the last five years. It is this development which has created an oversupply at a time when demand is slowing down (due to global economic slowdown), so do not (be quick in blaming) the government’s policy for that,” he said.
Kalla instead urged the hospitality industry to improve their services and increase promotions, in addition to diversifying their markets to limit their dependence on government meetings.
If anything, the kerfuffle surrounding the austerity drive and its impact on the meetings market should have been a wake-up call for hotels in Indonesia.
Sahid International Hotel Management & Consultant’s Vivi, has heeded the warning and the company is developing its e-commerce platform to reach out to broader market segments from overseas.
“We will participate in international tradeshows, such as PATA Travel Mart and ITB Asia, something which the company has not done for many years,” Vivi said.
She hopes that such a strategy will be a stepping stone to reintroducing Sahid brands to the international market.
This article was first published in TTG Asia, April 10, 2015 issue, on page 5. To read more, please view our digital edition or click here to subscribe
