Indonesia passes jobs decree into law, easing investment uncertainty

The new law replaces the 2020 Jobs Creation law, which was praised by foreign investors for streamlining business rules in the bureaucracy-heavy country, but also criticized by labor and green groups as being too pro-business.

In 2021, the Constitutional Court ruled the passage of that law was flawed due to inadequate public consultation and ordered a renewed debate process in parliament within two years.

Tuesday’s passage of the decree meant most of the changes brought about by the law would stay, with some small changes on labor rules.

Indonesia’s Chamber of Commerce and Industry deputy chair Shinta Kamdani said the passage provided clarity and certainty that were crucial for existing and potential investors after the 2021 court order raised concerns.

“Despite some notes on provisions on employment, at least the passage provides a guaranteed legal certainty for schemes and easing of investment rules that have been underway so far,” Kamdani said.

The Labour Party, which currently has no seat in parliament but plans to contest the 2024 elections, opposed the passage, with some 300 members rallying to protest the new law near the manpower ministry office.

The party will challenge the law to the Constitutional Court soon, its chairman Said Iqbal told a news conference, while calling for Indonesian workers to stage a strike that would be as big as French protests against pension changes after the Eid al-Fitr celebrations in April.

“We will stop production, we will prepare to strike for five days like in France,” he said.

Political ructions

Officials have credited a 44% rise in foreign direct investment last year in part to the 2020 jobs law, saying business expansion would boost employment in the world’s fourth most populous country, where over half of workers are in the informal sector.

Chief economic minister Airlangga Hartarto said the new law removed a legal vacuum and was necessary for the country amid global challenges ranging from slowing growth, climate change, the war in Ukraine to recent problems affecting some U.S. banks.

“The job creation decree is a measure to mitigate global crises … (It) prevents problems from spreading and global vulnerabilities affecting the national economy,” Airlangga told parliament after the passage.

However, opposition lawmakers said there was no emergency that gave a legal basis for the president to issue a decree to override the court’s ruling.

“We view that the decree does not solve legal and economic uncertainties in Indonesia. We should not solve problems with more problems,” Hinca Pandjaitan, a parliamentarian from the Democratic Party said, adding that workers are still unhappy about the minimum wage and outsourcing.

Two out of nine parties in parliament opposed the decree during the plenary session, with members of the opposition Islamist party, the Prosperous Justice Party, walking out before speaker Puan Maharani announced the vote had been passed.