26 Feb 2020
Reformist ‘Omnibus’ Bill on Job Creation Submitted to Indonesia’s National Legislature but Long Road Still to Travel

Introduction

The Government submitted the much anticipated Bill on Job Creation (the “Bill”)[1] to the National Legislature (Dewan Perwakilan Rakyat / DPR) on Tuesday, 12 February 2020. Dubbed the “Omnibus Bill,” it contains 174 articles spread over 1,028 pages, and is undoubtedly one of the most complex, reformist and liberalizing pieces of legislation in Indonesia’s legal history.

If passed, the Bill will amend a total of 79 existing statutes, which taken together cover virtually all major economic sectors and aspects of economic activity, as well as many important facets of the country’s governmental, regulatory and planning systems.

The economic sectors affected include manufacturing, agriculture, banking, fisheries, construction, broadcasting, mining, oil and gas, forestry, aviation, tourism, higher education, healthcare, telecommunications, power – the list goes on.

As for the governmental, regulatory and planning aspects addressed by the Bill, these comprise business licensing, manpower law, the foreign direct investment (FDI) regime, competition/antitrust law, central and regional/local government economic and spatial planning regimes, the relationship between central and regional/local government, government investment, product standardization, special economic zones, intellectual property law, immigration procedures, halal certification, building and planning permissions, etc.

Over the course of the next number of weeks, we will be publishing a series of ABNR Legal Updates setting out our analyses of the significant changes that will be brought about in key areas if the Bill in its present form is enacted into law, with a particular emphasis on those changes that will affect the interests of employers and foreign investors.

In this first update, however, we will focus our attention on the background to the Bill, the criticisms that have been laid against it, and opposition to its enactment.

Background

The idea of enacting sweeping omnibus legislation to eliminate existing statutory obstacles to investment and job creation was first mooted by President Widodo in a speech to mark his inauguration for a second term on 20 October 2019.

Pro-business Widodo’s renewed focus on economic reform appears to have been sparked by Indonesia’s stagnant ranking in the 2020 iteration of the World Bank’s Ease of Doing Business (EODB) Index,[2] which remained unchanged from 2019 at 73^rd (down from 72^nd in 2018), despite a raft of reforms that were instituted during the President’s first term. The country’s 2020 ranking also falls far short of the Government’s earlier target of securing at least the 40^th spot in the EODB Index.

Among major Southeast Asia economies, Indonesia is now ranked behind Vietnam (70^th, down from69^thin 2019), Thailand (21^st, up from 27^th in 2019), Malaysia (12^th, up from 15^th in 2019) and Singapore (2^nd, same as 2019).

The President’s goal of boosting the country’s EODB ranking and overall competitiveness amid ever tighter competition at both the regional and global levels has now passed its first milestone with the submission of the Bill to the DPR.

Criticism of Technical Legal Aspects

The Bill has been widely criticized by academics and commentators for being a “rushed job” and for lacking comprehensive prior studies on the various long-term ramifications of the proposed amendments to existing legislation. They also say that it suffers from poor harmonization and synchronization in many areas, both as regards the individual statutes that will be amended and as between one statute and another.

The critics further argue that certain provisions of the Bill are wide open to constitutional challenge, particularly as regards the power the Bill would give to the central government to amend existing and future statutes by way of Government Regulation (see Article 170), and the power accorded to the President to overturn regional/local government regulations and ordinances by way of Presidential Regulation (see Article 166). They also argue that the lack of public participation in the drafting process could potentially be used as an additional potential ground for constitutional challenge.

In the light of these perceived deficiencies, many have voiced concerns that the Bill, if passed, will result in significant legal uncertainty and confusion.

Opposition to Substantive Aspects

The enactment of the Bill, if not significantly watered down first by the DPR, will result in a massive liberalization of how things are done in the economic sphere in Indonesia. As is usually the case when sweeping changes are mooted, many people are unhappy. For example, the proposed overhaul of manpower law has raised the hackles of labor unions, while the envisaged liberalization of the foreign direct investment (FDI) regime worries some in the local business community. In addition, green NGOs and activists are up in arms over what they see as the undermining of Indonesia’s environmental protections. Many other groups that will be affected, ranging from journalists to university academics, are also upset.

Then there are the wild rumors circulating in both conventional media and social media that depict the Bill as an attempt to precipitate something akin to a free-for-all capitalistic apocalypse. For example, a particularly misleading rumor (which has rapidly been gaining traction) suggests that workers will only be allowed a maximum of one day off per week, whereas what the Bill actually says is that workers must be given a minimum of one day off per week (see Article 89). Another rumor doing the rounds has it that the minimum wage will be abolished.

Given the growing sense of unease among labor and local business interests, there is likely to be significant pushback by the unions, including the possibility of strikes and street protests, to thwart the proposed manpower reforms, and concerted behind-the scenes maneuvering by powerful business players to derail the Government’s efforts to liberalize the FDI regime.

ABNR Commentary

The opportunity to effect fundamental economic reforms, such as those proposed in the Bill, is greater now than at any time since the dawn of the New Order in the mid-1960s. This is because the Government currently enjoys an overwhelming majority in the DPR that is unprecedentedin the country's recent history.

However, it is important to remember that while the Government has a huge majority right now, things could rapidly change given Indonesia’s fluid and volatile system of politics. Ideology plays little role in shaping the stances of the country’s political parties, which are primarily populist and mostly concerned with boosting their influence and capacity for patronage. Consequently, if public opposition to the Bill gains momentum, it is quite conceivable that the political constellation in the DPR could change over the course of the deliberations, with implications ultimately for the enactment of the Bill in its present form. Thus, it is impossible to predict at this stage what the final outcome of the DPR’s deliberations will be.

By Indra Setiawan (isetiawan@abnrlaw.com) and Serafina Muryanti (smuryanti@abnrlaw.com).

[1] Rancangan Undang-undang Tentang Cipta Kerja

[2] Doing Business 2020,available at:

https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.