Indonesia Passes Omnibus Law to Incentivize Investment and Jobs

Oct 2020

The Indonesian government has just revised more than 70 existing laws and regulations in an effort to create jobs, spur investments, reduce red tape, and improve bureaucratic efficiency. The new law touches on various areas including reducing obstacles to doing business in Indonesia, easing restrictions on foreign investments, and providing more incentives to free-trade zones.

Key points of omnibus law include:

  • Mandatory severance pay from the employer will be cut, from a maximum of 32 times a laid-off worker’s monthly salary to 19 times. The government will pay an additional six months’ worth of wages.
  • The two-year cap on contract employment – in place to encourage permanent hires – will be lifted. Companies can now hire employees on a contract basis indefinitely.
  • Businesses no longer need written permits from a minister or designated official to hire foreigners, and can get approval from the central government. There is no more restriction on the types of jobs that can be filled by foreigners.
  • The provincial minimum wage remains; the regional minimum wage can be set by governors, taking into account factors like regional economic growth. But both provincial and regional wage levels will be adjusted based on inflation or economic growth, not both.
  • More economic decision-making lies with the central government, with the president and ministers empowered to overrule regulations set by regional governments.

Fitch Rating stated that the law will help Indonesia’s long term prospects, while the Indonesia Chamber of Commerce expects it to lead to a 6.6% to 7% increase in investments per year.

However, the new Omnibus Law has attracted criticism as worker’s rights would be diminished due to changes in maximum severance payments and how the minimum wage is set. According to the law, the governor can now set the region’s minimum wage at the provincial and regency or city level by taking into account the economic growth and inflation rate of the relevant regency or city.

(Sources: The Jakarta Post; Channel News Asia, The Straits Times)

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