Thu, 10 Sep 2015
A new Indonesian push to attract foreign investors was generally welcomed on Thursday, though one particular irritant to them remains: rules aimed at curbing the foreign workforce to protect local jobs.

Those rules, introduced in June by the labor ministry, seem to be at odds with President Joko Widodo's investment- friendly agenda, which he bolstered Wednesday with plans to ease investment barriers to business.

The labor ministry's steps reinforce an impression by many businesses and consultants that Mr. Widodo's efforts, while promising, are threatened by a government whose members sometimes work at cross-purposes and apply regulations unevenly and with an undercurrent of economic nationalism.

"It's encouraging that they've realized that there is a problem," Paul Rowland, a Jakarta-based political consultant, said Thursday. But "all of this piecemeal stuff absent a broader policy frame doesn't necessarily bring confidence to the investment community."

Pramono Anung, Mr. Widodo's cabinet secretary, said the foreign-investment push was designed to "speed up the economy" by helping to stabilize capital markets and the currency, which has hit a 17-year low against the U.S. dollar. The government wasn't immediately focused on labor issues, he said.

Mr. Widodo on Wednesday said the government had simplified or removed 89 regulations deemed to be hindering business and investment, including business licensing and trading permits. They followed a series of tax breaks aimed at reviving economic growth that has sunk to a six-year low due in part to a slowdown in China, Indonesia's biggest trading partner. More deregulation will follow in the coming weeks, Mr. Widodo said.

The Indonesian leader, who came to office last year, needs billions of foreign dollars to build the roads, ports and power plants at the heart of his plan to lift the economy out of dependency on commodity exports at a time when growth is slowing.

But many companies say they are concerned over the labor rules. Among other things, they require foreigners to obtain a work permit for temporary work, even if they're executives arriving for a brief meeting. And they oblige businesses to hire 10 Indonesians to each foreigner, which detractors say could hinder some representative offices and support services for crucial mining and manufacturing sectors.

"Should we stay and do business here, or is it better to close down and move to another country where the minimum wage is cheaper and the regulations are more flexible?" asked a Korean businessman, who said the new rules add to several minimum-wage rises and labor unrest during his 15 years in Indonesia that have all detracted from the country's attractiveness.

Indonesian law gives individual ministers the power to create and enforce binding regulations barring they don't conflict with already existing ones. Several foreign business chambers say the confusion the rules have engendered is counterproductive.

"Those with experience here understand that kind of confusion will always exist, and if they're patient they can work with it," said Peter Fanning, chairman of the International Business Chamber. "It does make doing business here so much more expensive than it needs to be while these processes are worked through."

At the center of the labor tightening is Manpower Minister M. Hanif Dhakiri, an energetic, 43-year-old former lawmaker from the moderate Islamic-based National Awakening Party, a small party that Mr. Widodo needs to retain his parliamentary coalition.

Mr. Dhakiri, who has gained popularity for supporting Indonesian workers' rights abroad, survived a shuffle of the cabinet's economics team last month that Mr. Widodo intended to help revive the economy and create better policy coordination.

The ministry has defended its barriers as necessary in part to stave off protests from local workers who fear "a flood" of unskilled labor from China. That sentiment is particularly sensitive given a history of bloody violence against the ethnic Chinese minority's dominant role in Indonesian business.

Mr. Dhakiri said foreigners who come to work in Indonesia need to do their part to increase employment opportunities for Indonesians. He said he was bombarded by messages on Facebook and Twitter with complaints about outsiders.

"What they see is that they are foreigners--that can go anywhere, take whatever level of job, and many of them are illegal," he said.

Evidence of an influx is hard to find. Indonesia was home to about 68,700 foreign workers--mostly executives, advisers, company managers or supervisors--out of a total workforce of 129 million in 2014, according to the ministry. That is down from a peak of 77,000 in 2011, when the last economic boom, driven by commodity exports to China, was peaking. Now, Indonesia's growth is slumping--GDP reached a six-year low of 4.7% in the second quarter.

More than 16,000 of the foreign workers in Indonesia come from China, followed by nearly 11,000 from Japan. Both are at the top of Mr. Widodo's list of countries he hopes will invest in this unevenly developed nation of 18,000 islands.

"I believe most of the companies that come will bring more opportunities to the country, to society, to Indonesian people," said Ivan Lau, the CEO of Chinese smartphone manufacturer Oppo in Indonesia, adding that most of his employees are Indonesian. "It's not just to come to grab the working opportunities."

Yoshida Susumu, the head of the Jakarta-Japan Club, a business lobby group, said the labor rules sow uncertainty. " Sometimes the rules are easily changed, so it's very difficult to comply with such kinds of regulations," he said.

Mr. Dhakiri said he isn't anti-foreigner and that Indonesia is open for business--so open he likens it to being " naked." The latest regulations are, in effect, part of the deregulation, since they will give foreign workers legal certainty, improve the process of getting a work permit, and reduce graft, he said.

Mr. Dhakiri, whose mother once worked as a maid in Saudi Arabia, said that he backed the president's goals of luring foreign investment, but that people "can't just bring cars full of workers from their home countries."

Kevin O'Rourke, a policy analyst and author of the Reformasi newsletter, said the cabinet has some disparate political elements in it, "so you have discord in policy-making where the president says one thing about making foreign work permits easier and a minister does something else and maybe a senior civil servant does something else again."

Some analysts say if Mr. Widodo's administration is to meet a goal of boosting infrastructure spending by more than 80% in the next five years, it needs foreign capital--and foreign talent.

"It's clear that if you want to have that sort of expansion of activity, you need more skilled engineers, more skilled project managers and similar professions and there aren't enough of them in Indonesia to deliver all of the projects that the government wants to deliver," said Julian Smith, an adviser on infrastructure and transportation at PricewaterhouseCoopers.

Mr. Dhakiri dismisses that idea, saying Indonesia has plenty of them. "Sometimes it's quite annoying when people say, 'Yeah, but it's hard to find adequate human resources in Indonesia."





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