Indonesia’s Labor Law Sees Stocks Rally as Workers Protest

(Bloomberg) — Indonesia’s new law, aimed to simplify labor and investment rules, has been met with a rally in local markets and concern from global investors as well as labor unions.

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Workers transport carts loaded with boxes at Tanah Abang market in Jakarta, Indonesia, on Tuesday, Aug. 4, 2020. Indonesia is scheduled to announce its second-quarter gross domestic product (GDP) figures on Aug. 5.

Parliament agreed to pass the omnibus bill on jobs creation in a plenary session Monday, sending the rupiah and stocks to gain as much as 1.3% the next day. The vote was brought forward from Oct. 8, preempting a three-day strike by about 2 million workers who sought to reject it. The strike will still happen from Tuesday.

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Indonesian Workers Rally Against New Job Bill, Massive Layoffs

The law, which revises more than 70 existing regulations, has aroused controversy since President Joko Widodo announced it last year. While it cuts red tape and simplifies overlapping rules, labor unions and activists said the revisions would erode workers’ rights and environmental protection.

Global investors with $4.1 trillion of combined assets under management have also warned that the law could have a negative impact on deforestation and climate change.

Environmental Protection

“Economic development and protection of the environment need not be mutually exclusive,” the investors wrote in an open letter, while requesting a video call with the government to discuss the matter.

The bill’s passage could help Jokowi shore up an economy that’s set to slip into another contraction in the third quarter as the continued spread of the coronavirus damped household spending and investments. The government has sought to speed up state spending, while warning that growth can’t come from the public sector alone.

The Indonesian Chamber of Commerce and Industry welcomed the law as it’s able to answer and resolve various issues hampering investments that would create jobs, said Chairman Rosan Roeslani in a statement.

Centralized Decisions

The law also sets out a more centralized decision-making process, which could simplify layered and conflicting requirements from central and local governments, and so reduce investment uncertainty, economists at PT Bahana Sekuritas in Jakarta wrote in a note.

The government is setting up an unemployment fund to allay workers’ concern over the reduction in severance pay and the introduction of indefinite labor contracts. The fund will give cash payments, provide access to the job market and pay for training, with the premiums paid for by the state budget.

Other changes included in the jobs creation omnibus law:

Government to set up one-map policy to solve the issue of overlapping land claims and conflicts, which would ensure legal certainty for businessesThose who hire foreign workers are required to submit a plan for how the employee will work, while banning foreigners from holding roles that oversee personnelSimplified process for registering intellectual property and getting halal certificationLaw to speed up the construction of low-cost homesLaw maintains workers’ rights to maternity and menstruation leave

(Updates throughout with statements from unions and investors.)

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