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Activists want repeal of Indonesia’s controversial new law, while investors warn of 'severe' environmental, human rights repercussions

Meant to draw domestic and foreign investment, Indonesia’s new Omnibus Law on Job Creation has triggered massive outrage over weakening of protection for workers and the environment.

Read the story in Bahasa Indonesia here.

As protests in Indonesia continue against a controversial jobs creation bill passed in parliament last week, environmental and labour activists are calling for the new law to be repealed and for the government to conduct more extensive consultations with stakeholders. 

The country’s largest Muslim group, Nahdlatul Ulama,  and labour organisations have said they will seek a judicial review at the Constitutional Court, while several provincial governors have opposed the law or said they would relay protesters’ demands to president Joko Widodo.

Calling for the government to revoke the Job Creation Law by issuing a regulation in lieu of law, Iswan Abdullah, vice-president of the Indonesian Trade Union Confederation (KSPI), added: “Or maybe it’s better to restart the deliberation and open it to the stakeholders. So far, it seems to be just for the corporations. The government must be wise not to trigger instability.”

Wahyu Perdana, campaign manager for food, water, and essential ecosystems at the Indonesian Forum for the Environment (Walhi), told Eco-Business the repeal of the law is “not negotiable”.

The 905-page Omnibus Law on Job Creation, spanning 15 chapters, revises 79 existing laws that do away with overlapping rules on a wide range of issues. Meant to stimulate domestic and foreign investment by getting rid of certain licensing requirements and inefficiencies, it has triggered a massive outcry over provisions that would weaken protection for workers and the environment.

From Medan to Makassar, tens of thousands of people have poured onto the streets in protests across more than 20 cities in the past week. Thousands of protestors have been arrested and the police have deployed tear gas and water cannons.

President Widodo has said that the protests were “basically driven by disinformation about the law’s substance and social media hoaxes”. He reiterated that the new law was meant to improve workers’ welfare and that the government urgently needs to create jobs for the 2.9 million young Indonesians who enter the labour market each year.

The Covid-19 pandemic has also hit Indonesia’s economy and caused millions of workers to lose their livelihoods. As of end-July, about 3.5 million workers in formal and informal employment had been laid off due to the pandemic.

Some observers have noted that without reforms, Indonesia’s labour-intensive industries will remain unattractive to investors due to labour regulations that are too rigid and make it almost impossible to terminate a permanent employee.

But they also acknowledged that workers’ interests must be protected and that wages must enable them to meet the basic cost of living.

The new law cuts severance pay of workers from a maximum of 32 months to 25 months (inclusive of support from the Workers’ Social Security Agency), and removes a two-year cap on firms keeping workers on contract, allowing them to do so indefinitely.

Timboel Siregar, secretary-general of the Indonesian Workers Organisation (OPSI), noted that it alters minimum wage standards, putting workers at a disadvantage. 

According to the previous provision, Act No.13/ 2003 Concerning Manpower, a company has to adjust minimum wage to a city or regency’s minimum wage standards, which are usually higher than provincial wage standards.

“If every city or regency now refers to the province’s minimum wage standards, the workers’ income will drop and purchasing power also drops,” said Siregar. 

The new regulation will apply to workers hired after the law was passed, but Siregar said this poses the risk to existing employees. “In the near future, maybe there will be massive layoffs where a company will hire new workers to replace the old ones, so they can pay for cheaper wages,” he said.

The new law also imposes no limits to the types of jobs that can be outsourced. This differs from the previous rule that only permitted five types of jobs to be outsourced: Catering, mining support services, driving, cleaning, and security service, Siregar said.

‘Counterintuitive’ to weaken environmental protection

Critics have also questioned why the government involved the Indonesian Chamber of Commerce and Industry, but not the wider public, when the proposed law was drafted.

The omnibus law’s weaker environmental safeguards have also drawn the attention of global investors and environmental activists.

Concerns include procedures governing how nature exploration permits are granted—for instance, the new law reduces the participation of communities in environmental impact assessments for industrial and agribusiness projects, said Walhi’s Perdana.

It poses a threat to Indonesia’s rich tropical forests by eliminating the need to maintain at least 30 per cent forest cover in provincial lands. “The bill may escalate deforestation, ” he said.

Environmental campaign group Mighty Earth said the new law empowers the central government to approve business and investment in officially designated forest and peatland areas, which are currently under a deforestation moratorium. It also eliminates strict legal liability for companies with fires occurring on their concession areas, which has served as a key incentive for companies to prevent and extinguish fires and refrain from burning, Mighty Earth added.

Last Monday (5 October) when the bill was passed, 36 global investors that manage US$4.1 trillion in assets warned of its potentially “severe environmental, human rights and labour-related repercussions”.

“Efforts to stimulate foreign investment by weakening regulations, such as easing restrictions on clearing land in palm oil concessions, are counterintuitive in light of investors’ growing desire for environmental protections and rising international demand for responsible commodity production and regulation on imported deforestation,” the investors said in an open letter. Signatories included Aviva Investors, the Church of England Pensions Board, and Japan’s Sumitomo Mitsui Trust Asset Management.

The European parliament is, for instance, moving towards a legal framework to ensure deforestation-free supply chains, they noted.  This year, concerns over deforestation in the supply chain “almost derailed” the approval of a trade deal between the European Union and the Mercosur states of Argentina, Brazil Paraguay and Uruguay this year.

“Instead of rolling back these regulations, we urge [the government of Indonesia] to take a longer-term perspective and adopt a ‘green’ recovery plan to address the economic devastation caused by the pandemic,” the investors said.

Johanes Hutabarat and Jennar Kiansantang are part of the Eco-Business regional journalist network. To join this network or pitch your stories, write to editors@eco-business.com.

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