News analysis

Indonesia's new omnibus law could make or break Jokowi's legacy

When Mr Joko Widodo was re-elected as Indonesia's president last year, his dream was to transform the country into one that would have an annual per capita income of 320 million rupiah (S$29,500) and a gross domestic product of US$7 trillion (S$9.5 trillion) by 2045.

He introduced then the concept of an "omnibus law" - a single overarching law aimed at tackling problematic legislation known to hinder foreign investment across several sectors. It was passed in Parliament on Monday, less than a year later. Considering the tediousness of having to revise over 70 existing laws and more than 1,200 clauses, it was a major feat.

But street protests swiftly broke out across the country and are ongoing. On the face of it, it would be hard to argue against a law touted to be an antidote to many of Indonesia's investment woes.

At its very essence, this new piece of legislation will streamline bureaucracy, remove overlapping and often contradictory regulations, and fire up a sluggish economy that is reeling from the devastating impact of the coronavirus pandemic.

Foreign investors have long bemoaned the low productivity of the Indonesian workforce. Among other things, severance issues make it virtually impossible to lay off permanent employees. As a result, many companies resisted new hires and used rolling contracts to outsource the work.

But the omnibus law, which is chiefly centred around simplifying wages, work hours and job redundancy, comes at a time when Indonesians are suffering economic hardships due to income cuts and job losses.

"While it will be beneficial for businesses and investors, it will give fodder to protests," Mr Made Supriatma, an ISEAS - Yusof Ishak Institute visiting fellow, told The Straits Times.

"Looking at what is going on in the streets of Jakarta and other major cities, I am afraid that it will spin out of control. We are in the middle of a pandemic and people are angrier than usual."

The law, which covers, among other things, job creation, taxation and investment, drew a mixed response from the start. It is no surprise that any government will face resistance in trying to make changes that will unfavourably affect a large part of the population.

Hence, a pushback was expected. But this anger could have been minimised had there been greater transparency, say legal experts, labour unions and green groups.

The public was not consulted and the new regulation also removed protection for the environment and workers, they told ST.

University students protesting in Jakarta yesterday against the omnibus law, which was passed in Parliament on Monday. PHOTO: REUTERS

Mr Timboel Siregar, secretary-general of the Indonesian Workers Organisation, said the new law will allow firms to hire workers indefinitely through a contractual arrangement, removing the previously required two-year minimum engagement for new employees.

He also took issue with setting the minimum wage only for the provincial level.

"The cost of living in Jakarta is different to the cost of living in a provincial village. Companies may exploit the law and pay everyone the same, and that is unfair," he told ST.

  • Key points of omnibus law

  • • Mandatory severance pay from the employer will be cut, from a maximum of 32 times a laid-off worker's monthly salary to 19 times. The government will pay an additional six months' worth of wages.

    • The two-year cap on contract employment - in place to encourage permanent hires - will be lifted. Companies can now hire employees on a contract basis indefinitely.

    • Businesses no longer need written permits from a minister or designated official to hire foreigners, and can get approval from the central government. There is no more restriction on the types of jobs that can be filled by foreigners.

    • The provincial minimum wage remains; the regional minimum wage can be set by governors, taking into account factors like regional economic growth. But both provincial and regional wage levels will be adjusted based on inflation or economic growth, not both.

    • More economic decision-making lies with the central government, with the president and ministers empowered to overrule regulations set by regional governments.

  • Linda Yulisman

Mr Asep Komarudin, a Greenpeace Indonesia senior forest campaigner, said the new law had scrapped a strict, but important, liability clause which provides a legal basis to sue corporations for causing environmental damage.

"Administrative sanctions alone are weak and provide no deterrence. This will mean forest fires and haze will continue to happen," he told ST.

Mr Made said Mr Joko needs to walk a fine line. While he has received majority support in Parliament, the new law is highly unpopular with the public.

"How he reacts to the protests, when they become bigger and uncontrollable, will determine his strength and his overall presidency," he added.

The pandemic has already derailed many of Mr Joko's economic plans and infrastructure projects. The omnibus law could secure his lasting legacy when he leaves office in 2024. It could also undo it, if his haste to rush through his desired reform causes a massive public backlash.

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A version of this article appeared in the print edition of The Straits Times on October 08, 2020, with the headline Indonesia's new omnibus law could make or break Jokowi's legacy. Subscribe