Wed, 28 Jun 2006

Labor rights may be curbed to up investment SEZs

The Jakarta Post, Jakarta, Batam

The government plans to relax the implementation of the labor legislation in the newly declared special economic zones (SEZs) on three major islands in Riau Island province, says the head of the Investment Coordinating Board (BKPM).

The plan may include restrictions on the rights of workers to unionize in the SEZs in order to prevent them from being "easily provoked by third parties", BKPM chairman Muhammad Lutfi told reporters Tuesday.

"Potential investors are very concerned about the union issue, and the huge cost of paying compensation to dismissed workers. We are now exploring the possibility of relaxing the implementation of the labor legislation in the SEZs," said Lutfi after a meeting with Vice President Jusuf Kalla.

Under the existing labor legislation, workers have the right to freely set up one or more labor unions in their workplaces. Employers argue that this freedom is often misused by agitators to disrupt company operations.

Employers also claim that some non-governmental organizations (NGOs) regularly incite union activists to stage strikes over petty matters as part of an effort by the NGOs to extort money from the companies.

In addition, employers are up in arms over the legal requirement to pay compensation to dismissed workers, even if the workers have been convicted of committing crimes. Employers even have to pay compensation to those who resign of their own volition. The amount of compensation is also frequently criticized as being too generous.

"The operating costs of businesses in Malacca, Malaysia, for example, are 2 percent higher than in Batam. But, investors do not feel comfortable in Batam, partly because of the labor issue," said Lutfi.

Indonesia and Singapore recently signed a framework agreement on economic cooperation to transform Batam, Bintan and Karimun into SEZs in a bid to draw investment from Singapore, which is running out of space for manufacturing.

Indonesia will provide various facilities to help make the islands more investor friendly, including relaxing the regulations on finance and banking, taxation, and customs and excise.

Lutfi said the BKPM would ensure that the upcoming revisions of the tax and customs legislation would include the putting in place of special facilities for the SEZs. There was also the possibility of a revision of the Free-Trade Zone Law so as to provide a firm legal basis for the new facilities that would be extended to the SEZs.

"I expect that all of the fiscal and non-fiscal incentives will be in place by early next year. The BKPM will also start work on setting up a "one-roof office" to manage and assist investors in seeking licenses to set up in the SEZs," he said.

The licensing process would take less than 14 working days, compared to the current 30 to 60 days, and would bypass all licensing procedures laid down by the local administrations, according to Lutfi.

Meanwhile, Riau Islands Governor Ismeth Abdullah said his administration would start upgrading the competencies of local bureaucrats in order to enhance the quality of the services they offered to foreign investors.

"We want investment facilities in the SEZs to be really business friendly. We will start by trying to reform the mentality of our bureaucrats so as to ensure that they won't be tempted to engage in corruption," said Ismeth recently.

According to the governor, the administration would soon inaugurate a "one-stop office" for investment in order to reduce bureaucracy for foreign investors on the three islands.

* With additional reporting by Fadli from Batam