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Indonesia Omnibus Bill: Breakthrough Legislation or Another Blow to Labor?

In Indonesia, an Omnibus Bill regarding labor was passed into law by parliament in October and signed by president Joko Wodido in Jakarta on Nov. 3, amid protests and a city-wide lockdown.

While the exact date of implementation is still unclear, the law is expected to go into effect this month if labor union appeals to the courts go unheeded.

But even as labor leaders protest that the bill takes away major tenets of labor security, business leaders have been hailing the Omnibus as ‘historic’ in that it brings together 79 archaic laws.

Lawmakers have emphasized the main aim is job creation–which includes bolstering investment in Indonesia, reducing taxes, easing licensing procedures–and improving the ease of doing business in Indonesia for both local and global players.

Anne Sutanto, vice president, PT Pan Brothers, one of the largest manufacturing companies in Indonesia, from which global players like Adidas, Uniqlo and Ikea source, speaks of the necessity of change. “The ease of doing business in Indonesia has been deemed to be below par compared to the other ASEAN countries. I think the government wants to give more chances for domestic as well as foreign investors to meet the needs to do business.”

The law is also intended to revive a reeling economy, as well as make investment in Indonesia more attractive, including for apparel makers and retailers who have been looking at Indonesia but often bypassing it for the easier business practices in other countries, like Vietnam. The government has made it clear that this law would help streamline a host of processes that have long been considered too lengthy and bureaucratic to negotiate.

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Speaking at a virtual World Economic Forum dialogue with global business leaders in November, president Joko Widodo explained that this was an important step in responding to the situation post Covid-19 and would be help the country recover from the effects of the pandemic.

Indonesia is the world’s fourth most populous nation, the world’s 10th largest economy in terms of purchasing power and the largest economy in Southeast Asia.

As of July 1, Indonesia was upgraded to a middle-income country according to the World Bank with a Gross National Income (GNI) per capita of $4,046 to $12,535, having sustained an average of 5 percent GDP growth for the last few years.

It continues to be among the top 10 textile producing nations and the 12th largest textile and apparel exporter in the world.

In 2019, the garment Indonesia garment sector saw exports of $13.5 billion.

Hit much harder by Covid-19 than other countries in the region with more than 600,000 cases as of December, Indonesia’s approximately 4.2 million workers in the textile, clothing and footwear industry have been fearful about the number of factory closures and layoffs as sourcing of inputs from China slowed down, as did global orders.

As a result of Covid-19, the GDP in 2020 is expected to be negative 1.5 percent according to the International Monetary Fund.

Given the job losses over the past year, garment workers in the country cite the Omnibus law as just another blow blow as it includes a relaxation of labor regulations.

Labor unions are not only calling for a repeal of the law, but have also taken the matter to court.

“The new law degrades workers’ rights,” said Elly Rosita Silaban, president, All Indonesian Trade Union Confederation (KSBSI). Silaban is spirited, clear and methodical in her objections. She explained that the law had many troubling features, including the fact that workers could be kept by companies on contract periods that could be extended indefinitely. Also, that the differences in sectoral wages are being removed by the law, which means that different sectors–despite specialization or higher training in some, like the garment industry, would all start with the same minimum wage. “This reduces severance pay for workers substantially and is very harmful for labor,” she said.

She said that she hoped that an application for judicial review of the law would result in some reprieve for grievances by labor associations across the country.

“We wanted to stop it during Covid-19,” Silaban observed. “Especially when three trade union confederations were invited to join discussions in April.” But these discussions turned out to be more cosmetic than effectual, she said.

“We are not anti-change,” she added emphatically. “But protection of workers is a must. We have a demographic bonus in the numbers of workers, but the way forward, especially in the garment industry, is more training and upgrades, not making it easier to fire workers.”

The government continues to maintain that the new law will encourage hiring.

Indonesian factory managers have long complained that it is impossible to dismiss workers, however inefficient they may be. They also say that since more than 70 percent of the labor force is in the informal sector, they will actually benefit with the new laws.

PT Pan Brothers’ Sutanto, is convinced it will help all parties.

“I do feel the law seems to be simplifying bureaucracy, and encouraging foreign investment, rather than being draconian as I am hearing. I also believe that this will create more jobs because the certainty of the process of licensing, doing business will change,” she said. Her vision of growth has been clear: Pan Brothers, has been one of the few to grow during the pandemic, with business up by more than 14.5 percent in the first six months of the year because of both agility in growing PPE production, as well as its response to the global brands for whom they manufacture.

“The law must be fair to both sides. In terms of labor, the hiring and firing process are very clear, you don’t have to wait till you get sued by your workers but you can file in the industrial court if you want to severe your relationship with your employer, or employee, so it is vice versa.”

Other manufacturers and analysts agree that the process of transparency is necessary with the changing times.

But the simplification, itself runs 1,187 pages with the new law. It was 812 pages when it was submitted to the president.

“Understanding it is one thing, the law is complex enough-but then it all comes down to the actual implementation. How long will that take?”asked a global retailer who asked not to be named.