Labor pains in Indonesia
By Bill Guerin
JAKARTA - Up in arms over a government proposal to amend the national labor law, Indonesia's powerful unions have threatened to stage a nationwide general strike next Monday that could cast another dark cloud over the country's already dimming investment environment.
The Federation of the All-Indonesian Workers Union (KSPSI), Indonesia's largest union, has nearly 500,000 members representing 250 unions nationwide. Jacob Nuwa Wea, a former manpower minister, is a central figure in Indonesia's ongoing struggle for better workers' rights and he now chairs the KSPSI, the country's oldest and most influential labor union.
He has said workers would hold a national strike "to achieve their rights" - though only as a last resort. But increasingly, Indonesian labor leaders feel as though they are being pushed to their limits. The proposed revisions of the national labor law are part of the government's investment-promotion policy package, spelled out in a Presidential Instruction issued at the end of February.
Aimed at promoting greater labor-market flexibility, the proposed amendments would allow companies to hire contract-based workers and outsource permanent jobs and core businesses to other companies. The legislative proposal would also make allowances to phase out service pay for dismissed workers and cut by almost 50% other required-by-law payouts, among other amendments that would roll back labor protections.
The heated debate comes at a time when Indonesian industry faces severe competitive pressure from lower cost producers in China, as well as its own rising labor costs, declining worker productivity, and increasing industrial unrest. Since the 1997-98 Asian financial crisis, Indonesia has suffered a crippling period of de-industrialization, where hundreds of factories have shut down and domestic service industries have not grown fast enough to absorb the displaced workers.
President Susilo Bambang Yudhoyono has asked labor leaders to call off any national strike, warning that it would be extremely damaging to the country's already hobbled economy and scare away badly needed foreign investment. KSPSI leaders mobilized rallies in front of the presidential palace on April 5 and thousands of workers took to the streets in major cities and towns across the main island of Java aimed at forcing the government to drop its plans.
Capital versus labor
It's not a done deal yet. The planned revisions to the draft bill have not yet been submitted to the House of Representatives (DPR) for deliberation, let alone to the DPR Legislative Body (Baleg) to which proposed legislation must first be submitted and discussed at a meeting of the DPR's Consultative Body. Yudhoyono, in an apparent concession to the union protests, ordered the establishment of a national tripartite team of government officials, workers and employers to review the changes.
An increasingly emboldened and sometimes militant workforce represents a major obstacle for Yudhoyono's government, which is aiming to reestablish Indonesia's 1980s and early-1990s reputation as a welcoming destination for foreign investment. The domestic economy was badly affected by last year's fuel-price hikes, which triggered higher inflation and soaring interest rates. With consumer spending in decline, economists say the country needs higher levels of investment to spur growth and generate jobs.
The 2003 Manpower Act, enacted when Wea was a minister, gave workers many benefits and freedoms to organize and strike - a reform reaction to former president Suharto's authoritarian policies banning freedom of association. However, the law has since been widely viewed as favoring workers at the expense of employers, and some say it has dealt a blow to Indonesia's overall competitiveness. Industrial disputes in recent years have often ended in violence, either with workers taking out their frustration at the failure to resolve their grievances, or employers enlisting security forces to put down protests.
High unemployment, in theory, should dampen the influence of unions, but union-bashing has not worked for Yudhoyono's government.
The government and the Indonesian Employers Association (Apindo) recently came up with about 50 different changes to the current laws governing employment in a bid to improve the country's investment climate. If enacted, the amendments would controversially allow companies to hire contract-based workers and outsource permanent jobs and core businesses to other companies. They also include a weakening of minimum-wage provisions, restrictions on the right to strike, the elimination of service payments and increased possibilities for employers to impose disciplinary measures on workers. More politically charged, the legal changes would pave the way for foreign investors to hire expatriates to occupy key positions, including director and commissioner roles.
Although labor costs in Indonesia are still lower than in competing countries in the 10-member Association of Southeast Asian Nations (ASEAN), except for Vietnam, higher wages in competing regional countries are usually indicative of higher levels of productivity and skills rather than the underlying strength of their protectionist unions.
Unfortunately for Yudhoyono's usually diplomatic government, Apindo unilaterally announced that the draft bill revision had been completed, after which the unions slammed the government for baldly joining forces with employers over workers. Dita Sari, head of the National Front for Indonesian Labor Struggle and chairwoman of the People's Democratic Party, said the government was trying to blame workers for having "too much protection that creates less investment" while the real problem is the government's economic policies, which are creating very high economic costs.
The Indonesian Trade Union Congress (ITUC) described the proposed measures as a "race to the bottom" to attract foreign investment, with its vice president Khoirul Anam claiming the main hurdles to investment are not labor laws but unfavorable taxation regulations, weak law enforcement, poor infrastructure in the provinces and a corrupt bureaucracy. To underscore those arguments, on Friday the government fired the heads of the tax and customs offices, two notoriously corrupt agencies accused of complicity in smuggling and under-invoicing business activities.
Room for compromise
In reality, labor costs account on average for only 5-6% of production costs in Indonesia. At the same time, recent business surveys have identified labor costs as only the seventh-biggest deterrent to investment in Indonesia, after corruption, lack of infrastructure and other factors. As such, leaders on both sides of the conflict have left the door open to negotiations.
Syukur Sarto, the KSPSI executive behind the huge nationwide workers' protest this month, said at the time that workers and unions would have no objection to revisions to the law if they had job security and health-care benefits and dismissed workers were assured of payments under social-security programs.
Current Manpower Minister Erman Suparno thereafter announced government plans to insure dismissed workers through state-owned insurance firm PT Jamsostek. Apindo secretary general Djimanto said his group had long proposed the idea of setting up a program to help dismissed workers but that the government was slow to respond.
Meanwhile, a new court system for labor disputes, set out in former president Megawati Sukarnoputri's Industrial Disputes Settlement Act, finally came into being in January. The International Labor Organization, with funding from the US Department of Labor, has also helped train judges for an Industrial Relations Court.
The advent of this special court, where rulings will be handed down in just 140 days, is expected to give faster, fairer and cost-free resolution of disputes for both trade unions and employers, which includes a mandatory process of negotiations and mediation before a case can be brought before the court.
The issue of severance pay and conditions, however, remains contentious. The current law requires that employers give a total of severance and length of service pay to a dismissed worker equivalent to 30 times the monthly wage. Djimanto notes in comparison that China provides an amount equal to 10 times monthly wages and Vietnam only five times.
Still, labor leader Sarto, who was instrumental in leading the 1974 anti-Japan demonstrations as well as workers-rights rallies in 2002 and 2003, believes the new proposal will act to undermine Indonesian workers. And it isn't apparent he is willing to back down until the government makes major concessions.
"As long as we are serious, our instructions will be accepted by workers," he said. If so, expect more Indonesian labor unrest in the months to come.Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has worked in Indonesia for 20 years, mostly in journalism and editorial positions. He has been published by the BBC on East Timor and specializes in business/economic and political analysis related to Indonesia. He can be reached at email@example.com.