Jakarta aims to streamline laws to lure foreign investment

Indonesian job seekers at a job fair in Surabaya in September. Indonesia will coalesce overlapping parts of 74 laws into one "job creation law" that will go before Parliament in January, President Joko Widodo announced on Thursday.
Indonesian job seekers at a job fair in Surabaya in September. Indonesia will coalesce overlapping parts of 74 laws into one "job creation law" that will go before Parliament in January, President Joko Widodo announced on Thursday.PHOTO: AGENCE FRANCE-PRESSE

Indonesia's footwear manufacturers are watching with distress as minimum wages and stiff retrenchment payouts erode their competitive edge, according to business players and analysts.

The minimum monthly wage at shoe-making hub Tangerang will reach US$299 (S$409) next year, a 38 per cent rise since 2016.

It is also sharply higher than the US$190 monthly pay of workers in Vietnam's Ho Chi Minh, according to the Indonesian Footwear Producers Association (Aprisindo).

Shoemakers also blame the labour laws for deterring new investment as they require companies to give laid-off workers up to nine months' pay.

Yet another troubling sign is the drop in footwear exports - for the first time in a decade - between January and September this year, against the backdrop of the US-China trade war, noted Mr Budiarto Tjandra, Aprisindo's deputy chairman.

"People think we benefited from the trade war. We didn't," added Mr Budiarto whose company Panarub Industry makes adidas shoes.

But their fortunes look set to change. In a move to lure foreign investment, Indonesia will coalesce overlapping parts of 74 laws into one "job creation law" that will go before Parliament in January, President Joko Widodo announced on Thursday. A similar omnibus tax Bill is also being prepared for lawmakers to deliberate this month, he said at a forum attended by business leaders.

Mr Joko, sworn in in October for a second term, is intent on tackling the problems faced by the country's local industries, including labour-intensive sectors like footwear.

He is revamping regulations that hinder job creation and investment in the world's fourth-most-populous nation, where about seven million people are jobless as of August, according to Statistics Indonesia.

 

"Our biggest problem lies in our regulations and laws. It's not an easy fix because it deals with so many laws, not only at the national level, but also in provinces, regencies and cities. This is what we will work on in the months ahead," said Mr Joko, a former furniture exporter.

Apart from streamlining the laws, his government will also trim the bureaucracy next year, by using artificial intelligence in place of the lowest two of the four tiers in government institutions, he added.

Indonesia was ranked 73rd out of 190 economies in the World Bank's 2020 Ease of Doing Business index, despite the infrastructure push and steps taken to cut red tape during the President's first term.

The rigid employment terms and minimum wage rules were highlighted by the World Bank.

But the regulatory and bureaucratic reforms, including the omnibus laws, may pave the way for it to catch up with its neighbours, including Singapore, Malaysia, Thailand and Vietnam.

The reforms may also coax more Americans to shift their buying from China to the region to avert higher tariffs as well as draw much-needed-needed investment to revive Indonesia's slowing economy.

The job creation Bill will touch on 11 issues, including business permits, labour, small and medium-sized enterprises and special economic zones, said Dr Iskandar Simorangkir, deputy for macro economy and finance at the Coordinating Ministry for Economic Affairs. "The omnibus law will scrap articles in the existing laws that hamper investment. For instance, if licence fees in the Regional Government Law hinder investment, they will not be effective anymore (with the omnibus law)," he told The Straits Times.

Ms Mirah Sumirat, president of Labour Union Associations (Aspek) Indonesia, however, questioned the absence of labour unions in the ongoing talks on the draft Bill, which would affect workers directly when passed into law.

"When we are not invited to take part in it, there will be suspicions that the law will reduce our rights and welfare - two things we strongly reject," she told ST.

A biennial instead of an annual wage rise and the lower compensation for retrenched workers are two issues employers have been pushing for in lobbying against workers, Ms Mirah said.

But, Mr Johnny Darmawan, Indonesian Chamber of Commerce and Industry's deputy chairman for industry, argued that the job creation omnibus law will primarily overcome the collisions between regulations made by the central and regional governments.

"In the past few years, the central government had deregulations, but they didn't work because of regional regulations. So the omnibus law will bypass the regulations of lower order," he said.

A version of this article appeared in the print edition of The Straits Times on December 02, 2019, with the headline 'Jakarta aims to streamline laws to lure foreign investment'. Subscribe