New labor bill could turn foreign investors away

Dadan Wijaksana, The Jakarta Post, Jakarta

Businessmen criticized the new bill on labor protection and development as "overly protective" and at the expense of investors, saying that if it is passed into law, it will further deteriorate the country's business climate.

"If the bill is passed into law, many investors will leave the country and look for other places to invest in," chairman of the National Economic Recovery Committee (KPEN) Sofjan Wanandi told The Jakarta Post last week.

Minister of Manpower and Transmigration Jacob Nua Wea is lobbying the House of Representatives to complete the debate on the bill quickly so President Megawati Soekarnoputri can sign it in October.

The House is scheduled to separately meet with businessmen and workers this week to discuss the matter.

"The bill is overly protective (on workers)," Sofjan said.

According to the bill, companies must continue paying workers their wages, even if they were on strike.

Under the draft, when a worker stages a strike or is facing criminal charges in court, it means the worker is failing to fulfill their daily duties, yet the company will still have to pay the worker's salary during a strike or for the duration of a trial until the court's verdict.

Also uncommon by any standards is a clause stating a company has to pay severance payments to workers who voluntarily resign.

Night-shift workers will not be allowed to work more than 35 hours per week, which is five hours shorter than the current regulation, which in turn will lower productivity, eventually making companies less competitive.

Sofjan said that with such a ruling, Indonesian manufacturing industries would become even less productive than their peers in the region, which have been calling for more than 40-hours per week work for their workers.

Another clause that could scare off investors is that the violation of all labor regulations could risk a jail term.

"This is unbelievable. No such regulations exist in other countries. With this regulation who would come here and invest their money, they would be better off looking to invest in neighboring countries, such as China or Vietnam," Sofjan said.

Anton Supit, chairman of the Indonesian Footwear Association, agreed.

"(Minister) Jacob thinks our country is already wealthy so it has proposed a sophisticated labor bill," he said.

Analysts have said that in addition to security issues, legal uncertainty and disputes over the new autonomy law, labor issues were a significant factor in scaring away investors.

All these factors have resulted in approvals for foreign direct investment (FDI) and domestic investment during the first five months of this year dropping by between 59 percent and 30 percent, respectively, compared to the same period in 2001.

The Investment Coordinating Board (BKPM) disclosed last week that as of May 30, FDI approvals stood at US$1.67 billion, far below the $3.98 billion posted during the same period last year. As for domestic investment, it dropped to Rp 9.4 trillion from Rp 12.7 trillion.

Meanwhile, Sunarty of the Indonesian Prosperity Trade Union (SBSI), brushed aside the concerns saying the new bill was a result of discussions with various parties, including businessmen.

However, she urged both businessmen and workers to sit together and hold talks more often to produce better understanding.