A draft of the Omnibus Law will become a legal umbrella with a sapu jagat (one-size-fits-all) approach to boost Indonesia\'s economic growth.
By
Agus Herta Sumarto
·6 minutes read
The government is faced with a wave of rejections from several parties who doubt the effectiveness and the main purpose of deliberating this job creation bill. Several parties feel that the regulations contained in the draft could have a negative impact on their interests. The loudest objection of the bill came from labor groups. Several new regulations are seen as detrimental to workers, who have questioned at least three related principles, namely job security, income security and social security certainty.
These three principles seem to be missing from the bill, which has been handed over by the government to the House of Representatives some time ago. However, is it true that the job creation bill has lost all three principles of justice? The omnibus laws on job creation and taxation prepared by the government is supposedly a response to the current conditions and performance of Indonesia\'s economy, which is believed to be less than ideal. Since 2014, Indonesia seems to be trapped in low economic growth in the range of 5 percent. On the other hand, the level of risk that haunts the economy is also growing, eroding the level of confidence of economic stakeholders and the prospects of the Indonesian economy as a whole.
Therefore, it is not surprising that several indicators of Indonesia\'s economic performance have experienced a significant decline. Indonesia\'s competitiveness index and investment climate ranking have decreased significantly. In 2019, Indonesia\'s competitiveness ranked 50th in the world, down five positions from 45th in the world the year prior. By comparison, Singapore ranked first, Malaysia 27th and Thailand 40th.
In fact, President Joko Widodo wants Indonesia to be ranked 40th in the ease of doing business.
The same less-than-stellar trend can be seen it Indonesia’s ease of doing business (EODB) index ranking, which remains unchanged in 2020 from 2019. The country ranks 73rd out of 190 countries with the same investment problems, namely the difficulty of executing contracts and the difficulty of starting a business. These two problems are closely related to regulations that have often been an obstacle in boosting Indonesia’s investment performance. In fact, President Joko “Jokowi” Widodo wants Indonesia to be ranked 40th in the ease of doing business.
These various problems could push Indonesia into the middle-income trap. After falling into this trap, it will be very difficult for Indonesia to come out of it and become an advanced economy. This is not the ideal condition desired by all elements of the country.
‘Trade off’ interests
To move toward an advanced economy, the Indonesian economy must be able to move from a low economic growth rate of around 5 percent by encouraging investment growth, industry and national export performance. To achieve this goal, national competitiveness and ease of doing business must be
increased. In this regard, economic transformation through the creation of a legal umbrella for the job creation bill is a must.
The transformation into an advanced economy requires Indonesia to undertake "structural reforms" by solving various structural problems that can encourage increased investment and development of the industrial sector. One structural reform that must be done by the government is to improve the quality and productivity of human resources (HR).
Until now, it must be recognized that Indonesia still has "homework" related to the quality and productivity of human resources. Indonesia\'s Employment Development Index (IPK) is currently 61.01 or classified as lower middle class. The low value of the Indonesian Employment Development Index is partly due to inadequate working environments, industrial relations and labor productivity.
Even, a survey from the Japan External Trade Organization places this employment issue as a major problem in Indonesia\'s business climate. As many as 76.9 percent of Japanese employers consider surges/increases in labor costs as problems and risks in the investment climate in Indonesia. Furthermore, this figure is the highest number among ASEAN countries, West Asia and Oceania.
Therefore, with this job creation bill, the government is trying to make structural reforms to all conditions that are considered as obstacles for the investment climate in Indonesia, including labor regulations.
Labor regulations contained in the job creation bill are much more lenient. The government gives employers more freedom to make agreements with labor unions in determining various regulations relating to job security, income security and social security for workers.
Several regulations, which were previously regulated in detail in the Manpower Law, are not clearly visible in the draft of the job creation bill.
Several regulations, which were previously regulated in detail in the Manpower Law, are not clearly visible in the draft of the job creation bill. Arrangements of work leave and rest periods are increasingly regulated in work agreements whose processes are submitted to the negotiation process between employers and workers.
Employers are also given the freedom to conduct regular wage reviews by only considering the ability of the company and the productivity of workers. The wage increase formula also changes. The inflation rate as a safety net does not go into the determining variable of wage increases. The increase in wages is only determined by the percentage of economic growth as one of the dimensions of incentives for workers.
Don\'t take your hands off the wheel
A labor regulation system that submits more to the negotiation process will be effective in a labor market that is balanced between supply and demand forces. If labor market conditions are out of balance, the negotiation process will not be fair. In a labor market that experiences excess supply, the negotiation process will be more detrimental to workers because workers have little bargaining power. However, in a labor market that experiences excess demand, employers will be more disadvantaged because workers have greater bargaining power.
Regulations that prioritize the negotiation process show that the government experiences a tradeoff between supporting the interests of employers and supporting the interests of workers. But of course, the government must not take its hands off the wheel; it must be able to encourage and support these two different interests. The government must be able to create a conducive and prospective investment climate for employers, but on the other hand, the government must also be able to maintain that workers continue to get their rights fairly, especially in terms of job security, income security and social security.
Therefore, it is better for all stakeholders ranging from the government, members of the House, employers, up to workers to reexamine all the regulations contained in this draft of the job creation bill.
This must be used as an opportunity to realize Indonesia’s vision of becoming a developed country by 2045.
Agus Herta Sumarto, Lecturer at the Business and Economic School of Mercu Buana University; researcher for Indef