Indonesian Economic Coordinating Minister and Golkar Party chairman Airlangga Hartarto likes to put an historic spin on the 1,028-page Job Creation Omnibus Bill tabled last week in Parliament, calling it the country’s third great structural reform program.
The first, he says, was the 1967 Foreign Direct Investment Law, passed during the transition from founding president Sukarno to Suharto, then a little known general whose subsequent 32-year rule fundamentally transformed the Indonesian state.
The second was the International Monetary Fund’s (IMF) Letter of Intent, the structural changes and other draconian measures foisted on a reluctant Suharto at the time of the 1997-98 Asian financial crisis and which ultimately brought about his downfall through street protests.
What separates the 2020 omnibus legislation from the other two landmarks, Hartarto told Asia Times, is the fact that it is not being pushed in response to either an economic or political crisis.
The reforms are instead regarded as essential if Indonesia is to avoid a so-called ‘middle income trap’, a theoretical situation in which a nation reaches a per capita income of between US$1,000 and $12,000 and is unable to go any higher.
The ambitious “big bang” program, comprising the main Job Creation Omnibus Bill and two others – one covering taxation and the other providing legal underpinnings for moving the national capital from Jakarta to East Kalimantan – are targeted for passage in just three months. Most observers, however, feel six months is a more realistic target.
It is a major political gamble, but if President Joko Widodo pulls it off it will potentially define his second term as he focuses on human resource development and revitalizing an economy that has barely budged off 5% growth since the global commodity boom ran out of steam in 2012.
“Based on the long-term economic scenario, the Indonesian economy needs to grow about 6% as a precondition to be able to get out of the middle-income trap,” Finance Minister Sri Mulyani Indrawati warned Parliament last July in urging the need for major structural reforms.
Widodo is trying to achieve that through a single piece of legislation to amend as many as 2,000 articles in 82 individual laws. But it is an objective so breath-taking in scope analysts believe the normally snail-like legislature will take at least the rest of 2020 to pass it.
The bill’s two main objectives are to partly recentralize administrative power in Jakarta, effectively watering down the ground-breaking 2001 Local Autonomy Law, and lay out a broad range of red tape-cutting measures to promote new investment and employment.
While it may well be justified in certain sectors, particularly mining and education, recentralization of power in Jakarta is seen as a retrograde step by pro-democracy advocates who regard local autonomy as one of the key achievements in dismantling Suharto’s authoritarian New Order regime.
What alarms many in civil society is Article 170, which gives the president the authority to revise or revoke laws through a government or presidential decree. “How can the president change a law,” asked a former minister. “It allows him to do anything.”
Equally controversial is Article 166, which appears to contradict a 2017 Constitutional Court ruling by allowing the president to revoke local government by-laws, including presumably a recent slew of religious-inspired measures that restrict personal freedoms.
The strongest opposition is expected to arise from trade unions, which strongly oppose proposed changes to the worker-friendly 2003 Labor Law, and local government leaders and the bureaucracy, both loathe to see an erosion of their power and the money that comes with it.
Critics also point to excessive secrecy over crafting the job creation bill, with one former minister claiming that many senior Economic Coordinating Ministry bureaucrats did not have prior knowledge of its contents. Those who were aware, the ex-minister said, had to sign a confidentiality agreement to avoid leaks.
Getting the main job creation bill through the House of Representatives will be a major challenge and could quickly become a frustrating exercise for the president as he bids to carve out a reform legacy.
Widodo may still be a member of the ruling Indonesian Democratic Party for Struggle (PDI-P), but given his edgy relationship with party leader Megawati Sukarnoputri, the daughter of independence hero Sukarno, he appears to be relying on the support of Hartarto’s second-ranked Golkar Party to push the bills through Parliament.
Megawati’s daughter, Parliament Speaker Puan Maharani, has a stake in prioritizing the omnibus bills as she eyes a possible run for the presidency in 2024. But while the government controls 74% of the House seats, it is her own PDI-P she may have to worry about to win parliamentary support for the more controversial provisions.
Nationalist PDI-P politicians like four-term West Java legislator Ribka Ciptaning, 60, have already rejected amendments to the Labor Law, arguing that workers’ rights should not be sacrificed for the sake of foreign investors.
That sort of myopic thinking is not something the president wants to hear when the whole objective of the changes is to encourage more investment in the manufacturing sector and, in doing so, create more jobs for a growing army of formal sector unemployed.
Widodo’s determination to improve the investment climate stems in part from the fact that Indonesia has missed out to other Southeast Asian countries, particularly Vietnam, as the Sino-US trade war encourages manufacturers to shift production capacity away from China.
Foreign direct investment (FDI) realizations during Widodo’s first term rose from $21.7 billion in 2014 to $27.8 billion in 2018, but that figure was lower than for the previous three years.
Although Widodo has briefed Megawati on the bills, the country’s largest party does not have any representation on the president’s economic team with perhaps the exception of Mines and Energy Minister Arifin Tasrif, a non-party member known to be close to Megawati and Maharani.
Golkar, on the other hand, has Hartarto, Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan, who is also a senior presidential adviser, and Industry Minister Agus Kartasasmita, son of Suharto-era economic coordinating minister Ginandjar Kartasasmita.
The party also has traditionally strong ties to the Indonesian Chamber of Commerce and Industry (Kadin), which along with the Indonesian Employers Association (Apkindo) has had considerable input in framing the omnibus legislation.
The importance Widodo attaches to Golkar was clear for all to see last December when his inner circle of loyalists used the latent power of the presidency to engineer Hartarto’s re-election as party chairman, despite what promised to be a tight race with People’s Consultative Assembly (MPR) chairman Bambang Soesatyo.
A three-term legislator from Central Java, Soesatyo, 57, is considered the more astute politician whose larger following among Golkar’s rank and file – and support from Megawati — appeared to make him an odds-on favorite to take over the party leadership.
But it wasn’t to be. Hartarto’s re-election involved the prior softening up of regional party leaders, and then the busing of delegates under police escort to an obscure hotel in the western Jakarta suburb of Serpong two days before the December 3-5 convention.
There, with a little pecuniary inducement and promises of party positions that Hartarto has now delivered, Panjaitan made it clear which way the wind was blowing.
“It was primitive, but effective,” smiled one government official familiar with what went on. “They caught on very quickly.”
When Soesatyo was summoned to a meeting in Panjaitan’s office the day before the convention, albeit in a much grander central Jakarta hotel, the ground had already shifted under his feet, leaving him little choice but to withdraw his candidacy.
“It’s a message to Megawati that he (Widodo) is not entirely dependent on PDI-P,” says one senior Golkar source, who claims Widodo only agreed to open the convention if Hartarto was in the chair. “It shows he has a card to play if he wants to.”
Three years earlier, Widodo had used his influence to help Hartarto, the then-industry minister, to take over the Golkar chairmanship from Setya Novanto after the latter was indicted for his role in a $176 million corruption scandal. He is now serving a 15-year jail term.
In an effort to unify the party, Hartarto recently brought Soesatyo in as one of Golkar’s 11 vice-chairmen, appointed Soesatyo loyalists to other positions in the party’s structure and named the ever-busy Panjaitan to yet another job as Golkar’s chief adviser.
Hartarto also has more than halved the party’s unwieldy 250-strong central board, still twice as large as during the New Order days when his father was one of Suharto’s key economic ministers.
Widodo and State Secretary Pratikno both denied intervening in the intra-party election. But while questioning the principle involved, Tempo newsweekly noted in an editorial: “The palace’s support of a candidate who would be most beneficial (to it) is not entirely wrong.”
[Reporting from Jakarta]