A landmark law passed this month in Indonesia will open the populous, impoverished country to labor-intensive industry like many of its Southeast Asian neighbors despite a hit to worker rights, people on the ground say.
The 905-page Omnibus Bill on Job Creation bill will give millions of young people chances to work, including in formal jobs that can be hard to find because older Indonesian laws discouraged foreign investors from setting up factories, analysts believe.
Indonesians are struggling to earn income during an unrelenting COVID-19 outbreak that prompted shutdowns from April. The nation with nearly 400,000 infections reported a sharp drop in retail sales from April through August and a fall in exports over the three months ending in September.
“With this new law, it is expected that the investment would come not only to the Indonesian economy, but also come to the labor-intensive part, and by getting more investment in that area it is expected that more jobs will be created, and those jobs are more of the quality jobs, not only informal jobs,” said Yose Rizal Damuri, economics department head with the Center for Strategic and International Studies research organization in Jakarta.
Indonesia’s government and House of Representatives passed the bill ahead of schedule on October 5, the Jakarta Post reported. The bill aims to cut bureaucracy and make it easier for investors to create jobs, said Richard Borsuk, S. Rajaratnam School of International Studies adjunct senior fellow in Singapore.
President Joko Widodo’s government sees this bill as part of his “legacy” to stimulate the 270 million-person country's economy, Rizal said. Minerals, oil and farming make up much of Indonesia’s $1 trillion-plus GDP today. “Labor-intensive” industry players find Indonesia too expensive now, Rizal said, explaining why that sub-sector makes up just 2% of the country’s total investment.
Foreign manufacturers of garments, shoes and textiles normally pick other low-cost Southeast Asian countries, such as Vietnam, over the past decade because of stiff pro-labor laws, economists say. Foreign investment eventually raises the living standards, as witnessed in China and eventually Vietnam.
“It’s probably something that will be a long-term benefit, if this does go through,” said Rajiv Biswas, senior regional economist with IHS Markit, a London-based analysis firm.
“It creates a better environment for foreign multinationals to hire, because from the perspective of foreign multinationals, it’s very restrictive labor laws there,” Biswas said. “They’re worried about hiring because it’s very hard to reduce the workforce later on.”
Foreign investors will consider the law a “step in the right” direction for making Indonesia friendlier, forecast Song Seng Wun, an economist in the private banking unit of Malaysian bank CIMB.
“This Omnibus Bill is part of something that Jokowi [was] looking to see how they can help sort of improve the investment landscape to make it a little bit more attractive in Indonesia, just to make sure Indonesia doesn’t get pushed down the investible list of countries,” Song said, using the Indonesian president’s nickname.
But the law sparked staunch opposition. Some governors have asked Widodo to revoke the law and other people protested in the streets over three days, sometimes violently, Borsuk’s study says.
The law effectively eliminates the power of labor unions, said Paramita Supamijoto, an international relations lecturer at Bina Nusantara University in greater Jakarta.
The October bill would roll back legal support for fair wages, safe working conditions and excessive overtime, U.S.-headquartered human rights advocacy group Amnesty International said in a statement in August. It called the bill’s preparation process “opaque.”
Severance pay for laid-off workers will also slip, Damuri said.
For workers, the law means that “whatever you do, your life will be determined by your employers,” Supamijoto said.
But the law could stoke enough investment to stop people from migrating overseas in search of work, she said. “Under our current president’s administration, they prefer to invite the investors rather than sending workers abroad, so it’s better to invite you to come here to spend money, to invest your money, then to help us to build the infrastructure,” she said.