Indonesia is set to overhaul its nearly two-decade old labor law and scrap an array of rules that hinder foreign investment as President Joko Widodo seeks to transition the economy from a commodity reliant one into a manufacturing hub, Bloomberg reports.
The government plans to table a bill in parliament on Tuesday (Jan 21) that will revise 79 separate existing laws and 1,244 clauses. The omnibus law on job creation will reform Indonesia’s labor legislation, make it easier for companies to secure permits, and relax foreign ownership rules, local content requirements and land procurement.
Jokowi, as Widodo is commonly known, has put the omnibus bill at the top of his second-term agenda as he looks to stoke economic growth that’s been hovering around the 5% mark since he won the presidency in 2014. The proposed legislation was delayed several times already and has run into resistance from labor unions, which have called for nationwide protests on Monday.
Here’s a look at some of the details of the bill disclosed so far, although the full draft hasn’t been published by the government yet:
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- The vast majority of tweaks to laws and articles are meant to simplify business licensing process, while others are targeted at investment requirements, employment, protection of minimum wages, land procurement and economic zones among others
- The government needs to create enough jobs for 7 million people currently unemployed as well as 2 million people who enter the workforce each year, Susiwijono, secretary of the Coordinating Ministry for Economic Affairs, said last week
- Creating 2 million jobs a year will require economy to expand at 6 percent pace, while adding 1 percentage point to gross domestic product will require 800 trillion rupiah ($58.6 billion) of investment, he said
- The bill is expected to change the minimum wage system by linking wages to regional economic performance rather than GDP. The new system will only apply to the first year of employment
- The government will introduce an unemployment program under which people who lose their jobs will be eligible for cash payments and other benefits. The Job Loss Guarantee program will not add to the burden of contributions for workers and companies, according to a document released by the Coordinating Ministry for Economic Affairs, suggesting it may be paid for from the state budget
- While the government hasn’t provided any update on whether it would also amend severance pay conditions, among the most generous in the world, Helmi Arman, an economist at Citigroup Inc. in Jakarta, said the unemployment benefits program sets the stage for cutting severance pay
Ease of Doing Business
- The bill will revise nine laws that cover the ease of doing business in the country. It will eliminate costs associated with setting up a business and relax working visa rules for certain sectors
- It will also create incentives for downstream mining activities, with some coal miners exempt from royalties and obligations to supply to the domestic market and to be given permits that last the life of the mine
Negative Investment List
- A long-awaited overhaul of the so-called negative investment list, which restricts foreign ownership in a range of industries, will be included in the job creation bill. The government will establish a priority list for investment that includes high-tech, digital and labor-intensive sectors
- Some areas considered important to national interest or covered by international conventions will still be off limits to foreign ownership, while others would face restrictions
- The government is yet to release sectoral details on local content requirements and foreign ownership levels
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