People take part in a rally against a controversial new law which critics fear will favor investors at the expense of labor rights and the environment in Jakarta on October 16, 2020. Photo: AFP/Bay Ismoyo

It started as the brainchild of national development planning minister Sofyan Djalil in 2016, the second year of President Joko Widodo’s presidency.

Then it took on a life of its own, finally emerging as a 900-page legislative blueprint for hacking away the thickets of red tape seen to be strangling the Indonesian economy. 

The so-called Job Creation Bill was bold and it was ambitious, fully embraced by a president frustrated at endless regulation and bureaucratic foot-dragging and determined to attract the foreign investment needed for Indonesia to gain a place in the global supply chain.

It was meant to cement his legacy – and may still do – but in what one former minister describes as a “massively far-reaching grab for something far greater than merely rectifying a lot of problematic laws,” the timing couldn’t have been worse.

More than that has been the government’s failure to conduct transparent public hearings on the bill, tabled only last April, or to adequately explain the reasoning behind many of the 186 articles, which amend provisions in at least 75 existing laws.

Unprecedented in Indonesia’s legislative history, when the “big bang” omnibus law was finally rushed through the House of Representatives (DPR) on October 5 it sparked a spate of demonstrations across the country that took the police and the political elite unawares.

Spearheaded by labor unions opposed to changes in the minimum wage and severance benefits, the continuing protests may have paradoxically left the impression that Indonesia was not the best place to do business despite the size of its market.

Distracted by the impact of the Covid-19 pandemic, Widodo has hardly been able to find his feet since his second term began last October and is now left struggling to win back the public support he needs for his remaining three years in office.

Indonesian President Joko Widodo visiting a hospital for Covid-19 patients in Batam. Photo: AFP/Rusman

Insiders say the bill started out as an effort to amend what in many cases was only a single sentence or a paragraph in laws deemed to be disruptive of business: for example, the 2014 Halal Law that says all products circulated or traded in Indonesia must be halal certified. 

But under chief economic minister Darmin Nasution, the bill metastasized into an exercise in recentralization, driven by Widodo’s ire over endless local government regulations and also by his closer ties with the tycoons needed to fund his 2019 re-election.

Indonesia has had a mixed experience with decentralization since it was introduced in 1999, with even its strongest advocates complaining its greatest weakness was the decision to devolve to district instead of provincial level.

The initiatives and breakthroughs Widodo achieved as the high-flying mayor of the Central Java city of Solo would never have been possible without the freedoms afforded by regional autonomy.

But while ceding power to the regions was crucial to Indonesia’s future unity, it has always been accepted wisdom among Jakarta’s political and business elite that its architects over-reached in the early heady days of democratic rule.

A bureaucrat himself with no party loyalties, Nasution set about clawing back powers to ministries and central government agencies on such diverse issues as the minimum wage, zoning and building, environmental and forestry permits.

Many of the amended articles are replete with the acronym NSPK, which basically refers to nationally-accepted “norms, standards, rules and criteria” as defined by the central government. That now means a slowdown in the decision-making process on a wide range of issues.

Although there are mixed opinions about recentralizing fiscal authority, reformists argue that the best way to fix contradictory regulations is through better coordination and harmonization, not to simply revoke the powers of local governments. 

When the president appointed a team last December to put the finishing touches to the law, the more than 120 members included the secretary-general of every ministry and a heavy presence of business executives and academics.

Noting the virtual absence of civil society activists and the prevailing mindset behind the bill, the former minister told the Asia Times: “The omnibus bill was basically drafted by bureaucrats for bureaucrats. They loved it.”

So did the powerful coal, plantation and forestry industries and the equally influential Indonesian Chamber of Commerce and Industry (Kadin), though the coal sector has probably benefited the most with 25-35% royalties on revenue being replaced by a flat 10% value-added tax.

Alarmed at what they see as a relaxation in environmental protection rules embodied in the new law, critics note that what one calls a “giveaway to coal miners” comes at a time when most countries are raising taxes on carbon emitters.

Simplification did not always guide the process either. Previously determined by three criteria – revenue, size of workforce and capital – small and medium industries are now judged on nine different categories.

People take part in a rally against the controversial new law in Jakarta on October 16, 2020. Photo: AFP/Bay Iismoyo

Reformists are supportive of many new liberalization measures in the new law, removing time-worn barriers dating back to the Suharto era and opening up more sectors to foreign investment. 

“Removing the rigidities in the labor market and making it more flexible will be pro-jobs, not only in the long term but also the short term,” says the ex-minister. “There are so many good things about the law, but ultimately they are outweighed by the many negatives.” 

Amending parts of the worker-friendly 2003 Labor Law seen to act as a deterrent to foreign investment was always going to be a tough sell, particularly with regional elections looming in December and the pandemic pushing the jobless rate this year from 4.2% to 9.2%.

The government was ultimately forced to retain overly-generous severance benefits, under which employers are required to pay laid-off workers 32 times monthly wages. But under a new arrangement, the state will now be liable for six of those months, placing another unwanted burden on the national budget. 

Vietnam, Indonesia’s chief rival for foreign investment in the region, requires companies to pay one and a half months’ severance pay for each year of employment. It also has a workforce with a productivity rate surveys show is the highest in the region, compared with Indonesia at the lower end.

Otherwise, Indonesia’s trade unions feel the legislation is slanted against the workers. One change now permits longer work hours, from a maximum of three hours a day and 14 hours of overtime a week to four hours a day and 18 hours of overtime.

It also reduces mandatory paid leave and allows the hiring of contract and part-time workers in place of full-time employees and the expansion of outsourcing schemes – a practice that is already widespread to get around severance pay requirements.

Former Indonesian President Megawati Sukarnoputri (L) and her daughter Puan Maharani, who is Coordinating Minister for Human Development and Culture. Photo: AFP/Adek Berry

Ironically, the original 2003 law was passed by the administration of President Megawati Sukarnoputri, the leader of Widodo’s ruling Indonesian Democratic Party for Struggle (PDI-P), in a bid to win working-class votes ahead of her failed 2004 presidential election battle with Susilo Bambang Yudhoyono.

Yudhoyono’s centrist Democrat Party, now a vehicle for his son’s ambitions in the 2024 presidential election, has joined the opposition Sharia-based Justice and Prosperity Party (PKS) in calls to repeal the legislation in the Constitution Court. 

For civil society activists, the bulky statute is viewed as a gift to foreign and local conglomerates at the expense of the lower end of society. That has given conservative Muslim groups an opening to criticize the growing disparity between rich and poor.

Although the 212 Movement, in particular, was born out of the massive 2016-2017 campaign to bring down ethnic Chinese Jakarta governor Basuki Purnama on blasphemy charges, economic inequality was always an underlying part of its populist message.

With radical Islamic Defenders Front (FPI) leader Rizieq Shihab vowing to return from self-exile in Saudi Arabia, the law could be shaping up as the opening skirmish in the 2024 campaign when the same Islamic and secularist forces will be aligned against each other.  

Now it has passed Parliament, Widodo has invested too much in the new law to back off. In a recent speech, he claimed the protests have been fuelled by disinformation and said the legislation would accelerate economic transformation and add three million jobs to the workforce.

It is a vision that is difficult to pass on to workers struggling to make ends meet in the middle of a health crisis the government is struggling to contain. Only this week, the International Monetary Fund (IMF) added to the gloom by predicting the economy will shrink 1.5% this year, far greater than its mid-year forecast. 

The official draft of the bill was never widely distributed and even when the supposed final version of the newly-enacted law was sent from Parliament to the palace last week, it had grown by 12 articles, but pared down to 812 pages using a tighter font.

Days later, with House speaker Puan Maharani, Megawati’s daughter and presidential hopeful, seemingly missing in action, it was left to the Golkar Party’s deputy House speaker, Aziz Syamsuddin, to appear on television to defend the law.  

Observers are now curious about what independent oversight the government intends to put in place to ensure the central government bureaucracy follows through on implementation, particularly in areas that may not conform with its interests.

Analysts already point to a whole section on education missing from the final version of the law, which would have allowed regional institutions of higher learning to establish their own majors.

Those with long memories recall reformist guru Sofian Effendi uncovering covert efforts by senior civil servants to sabotage 12 key provisions in the Bureaucracy Reform Law in 2013, days before it was to go to the DPR for approval.

“Consistent implementation of the law will be critical and will require strong implementing regulations to ensure inclusive and sustainable economic growth as well as concerted efforts by the government and other stakeholders,” the World Bank said in an October 16 statement.

The bill should have little trouble getting through Indonesia’s parliament. Photo: AFP/Anton Raharjo/Anadolu Agency

Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan predicted last month that the bill would have little difficulty getting through Parliament because it had the support of the seven parties that make up the ruling coalition.

Bringing the bill down to a simple issue of politics, where horse-trading abounds, ignores the fact that as vehicles of the elite most parties are hardly representative of workers or other important segments of society that will be affected by the legislation. 

The year-long process to formulate and then deliberate the law was carried out largely behind closed doors. When it did pass, three days ahead of schedule, much of the attention rested – as it always has – on the raft of labor reforms. 

Public confidence in Indonesia’s Parliament has never been great, but it took another major hit last year with the passage of a bill that has done serious damage to the Anti-Corruption Commission (KPK), once the country’s most trusted institution.

That and other equally problematic law-making, including recent changes in the Constitutional Court Law, has added to the impression that democracy in Indonesia is under increasing threat from vested interests.   

Ironically, it is Widodo’s fear of street unrest that has always guided the way he has dealt with the coronavirus, trying to steer a tricky course between containing the pandemic until a vaccine is widely available and ensuring that the economy doesn’t continue to slide ever deeper into recession.   

The motivation for the latest violence seemed to stem more from the indecent haste in steam-rolling the bill through Parliament, rather than what was actually in it. After all, few Indonesians have taken the trouble of wading through it all.

That raises the question of whether Widodo’s political opponents are already trying to weaken his administration ahead of the 2024 elections, albeit without any coherent plan. One video circulating on social media showed a man in a peaked cap and mask dishing out a stack of 50,000 rupiah notes at a demonstration in Jakarta.

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