Warp Speed: Implementing Indonesia’s Job Creation Law
A weighty body of law takes shape
The Indonesian government has signed into effect the implementing regulations for its massive and complex job creation law, which means the government is on track to meet the ambitious targets set in the law.
The implementation measures in the Indonesian system are the crux to a new law, and can often be complicated and/or delayed. In this instance progress is moving very swiftly.
President Joko Widodo is making the Job Creation Law a signature component of his second and final term as a tool to cut red tape and encourage investment. He has persisted with the laws despite ongoing criticism that it will adversely affect workers’ rights.
Given the breadth, scope and reach of this law, together with the pace of its roll out, there can be little doubt that the impact of it will be a key feature of his eventual legacy.
From personal experience in working with a number of Indonesian and Australian governments, it’s very clear that drafting and passing all these regulations so soon after the law itself was passed was a truly herculean achievement. Even to get one such implementing regulation passed through the myriad of consultative processes together with interdepartmental committee negotiations, followed by ensuring legal compliance with other regulations and statutes, can take months.
This Job Creation Law contains more than 1,100 pages. Its passage amended approximately 80 other laws affected. Each amended law requires government or presidential regulations to bring about the changes.
Keeping to its mandate, the Government has now released 45 government regulations and a further four presidential regulations. Many of these regulations also included several attachments that further flesh out their operationalisation. Collectively all of this body of law from legislation, including the Work Creation Law, to the Regulations and all attachments, amounts to some 17,000 pages. The date of enactment for all of these implementing regulations and attachments was 2 February 2021, precisely within the 3 month deadline set in the law.
The Scope and Limit of coverage
The reach of the changes being affected by this omnibus law is vast. It includes changes to taxation and revenue raising, management of state enterprises through to village enterprises, management of state functions such as managing the new risk based business permits system and revision to the investment regime, spatial planning as well as wages, conditions and other labour market reforms.
There are also numerous regulations focused on sectoral reform in transport, primary and secondary industries, health, tourism, telecommunications and the mining and energy sector as well as strategic issues such as special economic zones, free trade and port zones.
One sector, which was effectively quarantined from reform, was the education sector. The initial draft of the Work Creation Law did include some deregulation of the education sector such as devolving elements of curriculum to universities.
“These tentative steps towards reform of the education system were ultimately rejected.”
Consequently the Ministry will continue to exercise considerable oversight over core and compulsory curriculum materials which includes the Indonesian language, religion, civics and Pancasila and also over the endorsement of fields of study at tertiary level.
Please find relevant supplementary materials as follows:
The driving force
A key driving force underlying the movement that has driven the development of this law was a general frustration, certainly by the President, that the country seemed to be suffering from a ceiling of growth at approximately five percent a year. The President has hoped in his first term to see growth move towards seven percent. The five percent figure achieved was believed to be way below potential.
Among the factors seen as inhibiting the achievement of faster rates of growth was the complexity of administrative rules and procedures. The President was also known to be frustrated that very little of the investment in manufacturing being redirected out of China was finding its way to Indonesia.
This trend was often reflected in the comparative findings identified annually through the World Bank’s Ease of Doing Business. As noted in earlier reports while Indonesia had made some progress in this area during the past decade, progress stopped by 2018. Meanwhile other key economies in the Asia Pacific region continued to make further progress, thereby leaving Indonesia an even less attractive location for conducting business. Indeed among all measures on the Ease of Doing Business index Indonesia performs worst of all on the issue of the ease of setting up a business, barely rating above its second worst factor, namely the capacity to legally enforce contracts.
The first of a series
Given the importance of this law, we’ll be examining some of the other industry areas affected by the laws that are of specific interest to AIC stakeholders. These include sectoral issues such as rail and shipping, agriculture and health/hospitals.
Other areas that could be examined include the reforms to create risk based permits management, the new investment regulations together with the development of Indonesia’s new Investment Management Institute, often referred to as a sovereign wealth fund.
If you have other areas of particular interest among the vast array of reforms being enacted, please do let us know.
Kevin Evans has been a student of Southeast Asia in general and Indonesia in particular for 35 years. During the 25 years he has lived in Indonesia, he has worked variously as a diplomat, stock broker, academic and NGO activist.