Indonesia’s labor law is a major impediment to its development even as it prepares to enter the trillion-dollar-economy club, Trade Minister Gita Wirjawan said on Tuesday.
Despite the government last year announcing a range of measures to promote investment, the minister said it ignored one thing that was significant for investors.
“That’s the labor law,” said Gita, who is also the head of the Investment Coordinating Board (BKPM). He said labor regulations were fundamental to the nation’s future prosperity.
The minister’s comments come at a delicate time for labor relations in Indonesia, with several strikes hurting companies and a newly emboldened union movement increasingly willing to assert itself.
A dispute over the monthly minimum wage in West Java led to thousands of workers blocking a major highway in Bekasi last week, while the Freeport gold and copper mine in Papua ground to a near-halt for several months last year.
Gita was speaking at a breakfast panel discussion on the topic “Post-Davos: Trade and Investment Prospects for Indonesia,” hosted by GlobeAsia magazine, a sister publication of the Jakarta Globe, on Tuesday.
To demonstrate the inflexibility of the current labor law, Gita said that in Indonesia, if an employer fired a full-time worker who stole money from the company, the worker might still be entitled to up to five months’ salary.
Investors say Indonesia’s labor law, which dates back to 2003, is too favorable to workers, especially with regard to compensation following job terminations.
In November, the government submitted a proposal to include a revision of the law in the National Legislation Program (Prolegnas) for 2012, which would have allowed lawmakers to discuss and vote on it this year.
The proposed revision included reducing payouts in case of termination and increasing the interval between reviews of regional minimum wages from one year to two. But House of Representatives Commission IX, which oversees manpower, rejected the proposal, saying the draft was unfavorable to workers.
Gita said revising the labor law was the next major item of reform after the introduction last year of incentive packages for foreign investors and a new bill governing the government acquisition of privately owned land.
Indonesia’s labor law is a major impediment to its development even as it prepares to enter the trillion-dollar-economy club, Trade Minister Gita Wirjawan said on Tuesday.
Despite the government last year announcing a range of measures to promote investment, the minister said it ignored one thing that was significant for investors.
“That’s the labor law,” said Gita, who is also the head of the Investment Coordinating Board (BKPM). He said labor regulations were fundamental to the nation’s future prosperity.
The minister’s comments come at a delicate time for labor relations in Indonesia, with several strikes hurting companies and a newly emboldened union movement increasingly willing to assert itself.
A dispute over the monthly minimum wage in West Java led to thousands of workers blocking a major highway in Bekasi last week, while the Freeport gold and copper mine in Papua ground to a near-halt for several months last year.
Gita was speaking at a breakfast panel discussion on the topic “Post-Davos: Trade and Investment Prospects for Indonesia,” hosted by GlobeAsia magazine, a sister publication of the Jakarta Globe, on Tuesday.
To demonstrate the inflexibility of the current labor law, Gita said that in Indonesia, if an employer fired a full-time worker who stole money from the company, the worker might still be entitled to up to five months’ salary.
Investors say Indonesia’s labor law, which dates back to 2003, is too favorable to workers, especially with regard to compensation following job terminations.
In November, the government submitted a proposal to include a revision of the law in the National Legislation Program (Prolegnas) for 2012, which would have allowed lawmakers to discuss and vote on it this year.
The proposed revision included reducing payouts in case of termination and increasing the interval between reviews of regional minimum wages from one year to two. But House of Representatives Commission IX, which oversees manpower, rejected the proposal, saying the draft was unfavorable to workers.
Gita said revising the labor law was the next major item of reform after the introduction last year of incentive packages for foreign investors and a new bill governing the government acquisition of privately owned land.
He said Indonesia was about to join the “very elite group” of trillion-dollar economies, to which only “so few countries belong.”
Few emerging countries have reached the milestone; only China, Russia, India, Mexico and Turkey. Indonesia will reach the threshold within a few years, Gita said.
Gita, a former vice chairman at investment bank JP Morgan, projected nominal GDP in 2012 in Indonesia would reach $930 billion, and he believed it would hit $1 trillion in 2014.
The government projected the economy would grow 6.5 percent this year. The economy is expected to grow at above 6 percent a year until at least 2014.
“If our country can post the right numbers on the board … we can be in the single-A category by 2014 or 15,” Gita said, referring to the designation given by international ratings agencies.
At both Fitch Ratings and Moody’s Investors Service, an A rating is three notches about Indonesia’s current status.
Given the nation’s economic growth path, the minister said that there was “no reason” for Indonesia not achieving $35 billion worth of foreign direct investment by 2014, up from $19.5 billion in 2011.
University of Indonesia economist Muhammad Chatib Basri shared Gita’s optimism.
He said Indonesia could grow by as much as 10 percent per year if the government fixed infrastructure hurdles and did more to support consumption.
“Economists believe there is a relationship between demographics and economic growth,” he said.
He said Indonesia was about to join the “very elite group” of trillion-dollar economies, to which only “so few countries belong.”
Few emerging countries have reached the milestone; only China, Russia, India, Mexico and Turkey. Indonesia will reach the threshold within a few years, Gita said.
Gita, a former vice chairman at investment bank JP Morgan, projected nominal GDP in 2012 in Indonesia would reach $930 billion, and he believed it would hit $1 trillion in 2014.
The government projected the economy would grow 6.5 percent this year. The economy is expected to grow at above 6 percent a year until at least 2014.
“If our country can post the right numbers on the board … we can be in the single-A category by 2014 or 15,” Gita said, referring to the designation given by international ratings agencies.
At both Fitch Ratings and Moody’s Investors Service, an A rating is three notches about Indonesia’s current status.
Given the nation’s economic growth path, the minister said that there was “no reason” for Indonesia not achieving $35 billion worth of foreign direct investment by 2014, up from $19.5 billion in 2011.
University of Indonesia economist Muhammad Chatib Basri shared Gita’s optimism.
He said Indonesia could grow by as much as 10 percent per year if the government fixed infrastructure hurdles and did more to support consumption.
“Economists believe there is a relationship between demographics and economic growth,” he said.
