Labor factor seen as hindering FDI

Ridwan Max Sijabat, The Jakarta Post, Jakarta

The emergence of numerous labor unions and the high severance payments for workers have been blamed for the reluctance of foreign businesspeople to invest in Indonesia, and for the relocation of their factories to other (more competitive) countries.

Minister of Manpower and Transmigration Fahmi Idris said the number of labor unions continued to increase but this was not followed by an improvement in their skills in bipartite negotiations with their employers.

"As a result, most labor unions have encouraged workers to stay out of the workplace or to go strike after they are unable to fight for their interests in bipartite negotiations with the management," he told a business forum on strategic steps toward economic recovery here on Thursday.

There are at least 86 labor unions registered with Fahmi's office.

The minister admitted that many investors, especially those from South Korea, frequently complained about the expensive severance pay they had to give for their dismissed or laid-off workers.

"It is quite a dilemma because laid-off workers would have difficulty in meeting their daily needs and sending their children to school, unless they receive higher severance payments since there is no guarantee they will get new jobs after being laid off," he said.

Fadmi said the country's high unemployment rate was linked to the poor development in the real sector, while calling on the government to review the investment law and procedures to make the country more conducive to foreign investors.

The government has accelerated labor export to help contain the unemployment problem that has affected the national education program as unemployed parents cannot afford to send their children to school and contributed to the increasing crime rate. Open unemployment has reached almost 12 million people, while disguised unemployment or underemployment has reached 48 million.

Sofyan Wanandi, chairman of the Indonesian Employers' Association (Apindo), supported Fahmi's call and said the government should review the labor policy to attract new investment.

"The government should review Law No. 21/2001 on labor unions and Law No. 13/2003. Many employers are confused by the numerous labor unions in their companies, especially when they have to hold bipartite negotiations to prepare collective labor agreements (PKBs).

"Besides, the labor law also requires employers to pay severance and service payments that could be 20 times higher than their monthly salaries. Such regulations are not found in any other countries," he said.

He pointed out that many labor-intensive factories have moved to other countries and that no new labor-intensive firms have entered Indonesia since the economic crisis hit Indonesia in 1997.

New investors have invested only in capital-intensive investment projects and the mining sector to avoid non-investment friendly labor regulations, Sofyan said.

However, National Front for the Struggle of Indonesian Workers (FNBI) leader Dita Indah Sari said the labor factor was not to blame for the low investment in the country.

The lack of new investors in Indonesia has more to do with the global crisis and the rising prices of imported raw materials, she argued.

"Many labor-intensive factories have stopped operations or moved to other countries because of the rising prices of raw materials and the high-cost economy," she said.

Dita conceded that the existing laws do favor workers because they have been in a weak position in bipartite and tripartite negotiations.

Labor unions would support the proposed review of anti- investment chapters in the two labor laws, if the government was serious in providing social security for laid-off workers and jobless people.