Jakarta drops labour reform

Financial Express
Shawn Donnan from Jakarta
9/23/2006

INDONESIA is abandoning efforts to push controversial employment law reforms through parliament because of tough opposition from trade unions, the country's vice-president said yesterday.


In an interview with the Financial Times, Jusuf Kalla said Jakarta would try to find other ways of addressing business concerns about rigid rules governing issues such as firing, outsourcing and wage rates.
The government's decision to back down will disappoint foreign investors, who often cite labour issues as a barrier to business prospects in Indonesia.
President Susilo Bambang Yudhoyono has repeatedly pledged to address these concerns as part of a campaign to lure foreign direct investment back to south-east Asia's largest economy, and big changes to labour laws were a key element of an investment package announced earlier this year.
Mr Kalla, who is to fly to the US next week for meetings with Dick Cheney, vice-president, and potential investors, said the government had decided to drop its efforts to push through big revisions to a 2003 employment law reviled by the business community.
"No. Not this time," he answered when asked whether the government would continue seeking the planned revisions. "It's not so easy, This is the same in France. This is the same in America. [Labour laws are] very sensitive."
The decision follows mass protests by labour unions in May, which prompted the government to appoint a panel of academics to review its proposed changes.. Mr Kalla told local reporters last week that the panel had recommended against big changes. But he did not indicate then that the proposals would be dropped.
The step comes less than a week after the International Finance Corporation, the World Bank's private sector arm, ranked Indonesia 135th out 175 countries surveyed for ease of doing business, down from 131st the year before. Neighbouring Singapore topped the IFC's rankings as the easiest place in the world to do business.
The government's change of heart on the labour law will add to growing concerns among investors - and some supporters of Mr Yudhoyono - that the former general's promised reforms are stalling.
Proposed revisions to a draft tax law - which, like the new labour law, had been sought by s the business community - were a withdrawn last month because of a parliamentary opposition.
Mr Kalla said the government was making progress on its push i for $150bn in new infrastructure investment, having decided on Monday to offer blanket government guarantees for power projects.
In addition, he pointed to other significant changes overseen by Mr Yudhoyono's government, such as the one-year-old peace agreement in Aceh province and an anti-corruption campaign.
But he laid part of the blame for the government's difficulties in advancing economic reforms on what he said were Indonesia's teething problems with democracy, eight years after the 1998 fall of strongman Suharto.
Democracy - as evidenced by the May labour protests - had come too early because of enduring low levels of education and income, he said, and had gone "too far".
"Democracy is a system. It's not our objective. Our objective is how to [ensure] people's welfare," he said. "To know the success of a system you have to know the result. We have not achieved the result. But we are a democracy, maybe a too-open democracy.