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Politics

Indonesia's parliament passes contentious 'job creation' bill

Unions plan to launch a nationwide strike against omnibus legislation

Indonesian students and workers gather at the House of Representatives building in Central Jakarta to protest against the omnibus bill on job creation in July.   © AP

JAKARTA -- Indonesia's parliament on Monday passed the highly contentious "job creation" bill, a cornerstone policy of President Joko Widodo's second term to cut red tape and boost investment in the country.

The bill, widely known as the omnibus bill, includes sweeping legislation changes to revise 76 laws in key sectors such as labor and tax. But the law has been attacked by some factions for disregarding workers' rights and environmental protections, and the government appears to have backtracked on some changes from its original draft bill last year.

Yet the bill is still likely to face opposition from labor unions at a time when millions of Indonesians have lost their jobs due to COVID-19. At least 32 organizations are planning to launch a nationwide strike, the Confederation of Indonesian Workers Unions said, but the police have not granted permission for demonstrations citing coronavirus restrictions. Protesters from neighboring areas wanting to enter Jakarta have also been stopped, according to police.

The bill was passed after final discussions between the government and the House of Representatives late on Saturday. Lawmakers from former President Susilo Bambang Yudhoyono's Democratic Party and the Islam-based PKS rejected the bill.

"People think that this bill has an agenda of damaging the environment and violating people's rights," said a member of parliament from the Democratic Party during the plenary session. "The Job Creation Bill should not only break down regulation, but guarantee legal certainty for affected groups such as workers, small- and middle-sized enterprises, as well as fishermen, farmers, breeders.

"It is unfortunate that the government's intention was not balanced with ideal discussions. The discussion is too fast so that the discussion of the article is not in depth," he said. Democratic Party members walked out of parliament in protest after the bill was passed.

The government believes the bill will create 1 million jobs a year and increase worker productivity, which is below the average among the Association of Southeast Asian Nations.

While Indonesia's standing in the World Bank's Ease of Doing Business ranking has improved markedly compared with a decade ago, it has stagnated in recent years, falling behind regional rival Vietnam. With production relocation from China becoming a key topic in the region, Jakarta saw the passing of the bill as imperative for capturing demand.

Foreign business owners have long complained that current laws hamper investment, slowing an economy that had hovered around 5% annual gross domestic product growth in recent years. The current labor law, in particular, had been a cause for concern as it makes it hard for companies to fire underperforming employees and requires them to pay large severance packages, which discouraged hiring.

Without the reforms to the Indonesian economy through the job creation bill, "employment will move to other more competitive countries, competitiveness of job seekers [will be] relatively low compared to other countries," the Office of Coordinating Minister for the Economy said in a statement over the weekend.

"Investment costs in Indonesia are quite expensive and less competitive than neighboring countries... One of the reasons is the high standard of minimum wages in Indonesia compared to other countries and the high cost of severance pay in the event of a termination of employment," it added.

According to the ministry, severance pay in Indonesia on average equaled 52 weeks of salary, whereas it is 32 weeks in Thailand, 25 weeks in Vietnam, 23 weeks in the Philippines and 17 weeks in Malaysia.

But the draft bill seen by Nikkei Asia before the plenary session in the parliament paints a different picture, with the legislation circulated last year being watered down.

For example, in the articles that govern severance packages, last year's draft bill stipulated that the employer "can provide" compensation money for things like unfulfilled paid leave, a payment that was mandated in the original 2003 law. The bill that was voted on Monday backtracked on that revision, again mandating that employers pay for "rights that should have been received."

Additional reporting by Ismi Damayanti.

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