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Indonesia’s new omnibus law no silver bullet for spurring investments: Experts

Indonesia’s new omnibus law no silver bullet for spurring investments: Experts

FILE PHOTO: Recent graduates wait for the opening of a job fair held inside a shopping mall in Bekasi, West Java, east of Jakarta, Indonesia November 7, 2017. REUTERS/Darren Whiteside

JAKARTA: Experts have cast doubt on Indonesia’s newly passed omnibus law, raising concerns over whether it can effectively create jobs and attract investments, while bureaucratic reforms are left unaddressed. 

The Job Creation Law revises more than 70 existing laws and regulations and promises to simplify business permits and land acquisition processes as well as ease foreign ownership requirements.

But experts and unionists are worried that this will come at the price of workers’ rights as the law alters the way minimum wages are set and employment disputes are settled.

Activists have also raised concerns over how the law bypasses the requirement for Environmental Impact Analysis, which was previously needed before factories can operate. Under the new law, only “high risk business activities” such as mining would require such analysis.

The law was passed on Monday (Oct 5) evening, a day before millions of workers were supposed to stage a three-day strike to oppose it. The Bill was originally planned to be deliberated by Members of Parliament (MPs) on Thursday.

A man stands in front of an information board featuring people seeking jobs and rental houses at Kemang district in Jakarta, Indonesia. (Photo: REUTERS/Beawiharta)

In his speech at the parliament after the Bill was passed into law on Monday, Coordinating Minister for Economic Affairs Airlangga Hartarto said the law was needed to create jobs lost to the pandemic and improve Indonesia’s business climate which is lagging behind other Southeast Asian countries like Thailand and Vietnam.

But Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance expressed doubt over whether the new law would boost investment in Indonesia.

“Indonesia is a big market and raw materials are readily available here. But many companies are not relocating to Indonesia," he told CNA.

READ: Bali's unemployed turn to odd jobs, hard labour as COVID-19 ravages tourism sector  

“The government makes the assumption that Indonesia’s biggest hurdle in terms of our competitiveness is labour costs. But there are issues like rampant corruption, complicated bureaucracy and high logistics costs which the government needs to address," he said, adding that these were not addressed in the omnibus law. 

The economist said the law would only pave the way for discontent and more labour strikes, decreasing workers’ productivity and could even lead to unrest.

“Many big companies and brands are under pressure by the international community and consumers to employ fair labour practices. Indonesia, with its omnibus Bill, is taking a different path. These brands will seek other countries with good labour laws,” he said.

A worker sweeps inside Walini tunnel construction site for Jakarta-Bandung High Speed Railway in West Bandung regency, West Java province, Indonesia, Feb 21, 2019. (Photo: Reuters/Willy Kurniawan)

Mdm Hendri Saparini of the Centre for Reforms on Economics Indonesia said the law would not be effective without efforts to reform government ministries and agencies.

“I don’t see any attempts at fixing the bureaucratic structure, addressing overlapping authorities and improving coordination between the central and regional governments. Without this bureaucratic reform, the law only works on paper.”  

World Bank Indonesia country director Satu Kahkonen had also expressed concerns about the new law in July, when it was still being deliberated by parliament, saying that it could adversely affect labour rights and “move Indonesia’s environmental legislation further away from the implementation of best practices.”


President Joko Widodo has long championed the law, which he sees as a solution to Indonesia’s sluggish economic growth. According to the World Bank’s Doing Business 2020 report, Indonesia ranks 73rd out of 190 countries in ease of doing business.    

The law also comes at a time when the country’s economy shrank by 5.32 per cent between April and June of this year because of the continued spread of COVID-19 in Indonesia.

Indonesian Chamber of Commerce chairman Rosan Roeslani welcomed the new law, adding that he hoped to see a 6.6 per cent to 7 per cent rise in investment each year.

“The law is the answer to a multitude of problems which hinder investment and job creation through the simplification of bureaucracy and licence acquisition, ease of doing business and a sound investment ecosystem,” Mr Roeslani said in a statement.

Ari Kuncoro, an economics professor and rector of University of Indonesia told CNA that the law provides some solutions to the legal uncertainties which have deterred investors from doing business in Indonesia.

READ: Return to Jakarta lockdown will hit economy this quarter, but bitter pill needs to be swallowed: Economists  

“The law promises to harmonise the plethora of overlapping and sometimes conflicting laws and regulations. However, putting the new law into practice won’t be easy,” Mr Kuncoro said.

“The government still needs to adjust hundreds of ministerial and regional regulations and decrees. It could take three to four years before Indonesia starts to see more investors as a result of the new law. The law is good, but it all depends on how well the government can implement it.”


The passing of the law on Monday evening was marred by walk-outs and interruptions by MPs as two of the nine parties - the Democratic Party and the Prosperous Justice Party (both are opposition) - objected to the law being passed.

“We appreciate the government’s good intention to improve Indonesia’s investment climate, simplify bureaucracy and create jobs,” Mr Marwan Cik Asan of the Democratic Party told a parliament plenary hearing.

“However, the law in its current state has the potential to harm the environment, workers rights and society as a whole. Only investors stand to benefit from the law. There are too many issues which need to be discussed before the bill is passed into law.”

The Democratic Party tried to prevent the Bill from passing into law and motioned for the Bill to be deliberated further.

Lawmakers in Indonesia's House of Representatives at the parliament buidling in Jakarta. (Photo: AFP/ROMEO GACAD) Lawmakers listen to the address of President Susilo Bambang Yudhoyono before Indonesia's House of Representatives at the parliament buidling in Jakarta. (AFP/ROMEO GACAD)

But parliament deputy chairman Azis Syamsuddin of Golkar Party (a member of the government coalition) rejected the motion saying that the majority of the parliament have expressed their support for the Bill to be passed into law.

Members of the Democratic Party walked out of the session in protest.


At least 32 unions said that they would stage a nationwide strike from Tuesday to Thursday, including the largest union group Indonesian Confederation of Workers’ Unions (KSPI) which claims to have two million members.

Since Monday morning, police have deployed thousands of officers to Jakarta’s border areas to prevent labourers working in industrial areas surrounding the city from entering the capital and staging protests.

Because of the heavy security, labourers were forced to stage protests in front of their respective factories on Tuesday.

“We are not sending workers to protest in Jakarta. Our members are simply told to stage strikes and protest in front of their factories,” KSPI chairman Said Iqbal told Indonesian media.

The Indonesian Labourers’ Union Alliance (KASBI) also told local media that its nationwide members would stage demonstrations in front of their respective local government offices instead of sending representatives to Jakarta.

In the city of Bandung, West Java, hundreds of protesters descended onto the streets in front of the industrial area of Rancaekek and paraded on foot and on motorcycles to the city's mayoral office, 20km away. 

Similar protests were also observed in the city of Yogyakarta and Surabaya.  

Source: CNA/ni


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