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Indonesia’s decision on jobs law could cloud investment prospects, experts say




  • The law may require substantive changes – legal expert
  • Pre-election deadline could complicate legislative process
  • Law designed to attract investors, diversify the economy

JAKARTA, Nov.26 (Reuters) – A court ruling in Indonesia against a new job creation law could cloud its investment prospects, experts said on Friday, which could deal a blow to the president’s will Joko Widodo to stimulate investment and reduce the economy’s dependence on consumption.

The Constitutional Court Thursday ordered the government to amend the legislation within two years, citing procedural flaws in its treatment. The government said it would comply. Read more

Indonesia had touted the law in an attempt to attract foreign investors, citing related structural changes that have prompted the introduction of measures to ease labor rules, cut red tape and speed up obtaining permits.

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“It cannot be ruled out that certain investment decisions or corporate actions may be delayed while legal experts analyze the implications of this court ruling,” Helmi Arman, economist at Citibank, said in a client note.

The end-of-2023 deadline for amendments is just before the 2024 general election, he noted, a period during which lawmakers could be distracted.

Adhi Lukman, president of the Indonesian Food and Beverage Industry Association, said it was crucial to maintain “an enabling investment climate”.

“Our concern is about the certainty of doing business. Many of our investment partners, both domestic and foreign, have asked about the Constitutional Court’s ruling,” Adhi said in a virtual briefing.

Hariyadi Sukamdani, president of the employers’ association APINDO, said companies should follow official guidelines on the implications of the decision, to avoid confusion after various interpretations have arisen.

The government has stated that regulations derived from the new law will remain in force.

Although the ruling cited procedural flaws and dismissed union complaints over certain articles of the law, there is still a possibility that the substance will change, said Ahmad Redi, a law expert at the University of Tarumanagara.

Redi said the government and parliament may even have to restart the whole process.

“The court in the ruling ordered to improve public participation in the amendment process, so if the public demands certain changes in the material, the substance could change,” Redi said.

Jokowi, as the president is called, wants investment to be the main pillar of Indonesia’s resource-rich economy, especially in the downstream industry.

Household consumption accounts for more than half of Indonesia’s economic activity.

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Reporting by Fransiska Nangoy, Bernadette Christina Munthe; Editing by Martin Petty

Our standards: Thomson Reuters Trust Principles.




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