Labor and business

http://www.thejakartapost.com/detaileditorial.asp?fileid=20070129.E01&irec=0
Editorial January 29, 2007

About 40 million Indonesians are unemployed and more than two million new workers enter the labor market every year. With the difficult situation exacerbated by a continuing decline in foreign investments, the government faces an enormous task to create a climate that is attractive to investors and protects workers.

The harsh and often violent labor demonstrations last year opposing the revision of a labor law were evidence of the deepening distrust of workers in the government and business community, and only put this nation on the brink of an investment disaster.

On one hand the government wants to revise the law because according to the business community the law is still hostile to them, while many private companies have nearly collapsed because Indonesia cannot compete with neighboring countries in providing cheap, skilled and productive workers, as well as competitive products. Meanwhile, workers complain their wages are still far below their minimum living requirements.

For years, the House of Representatives has been widely criticized for its poor legislation performance, with only a few bills deliberated or endorsed. The lawmakers get busy increasing their own salaries or pursuing self-interests at the expense of their legislative jobs.

Worse, there are many laws that need to be immediately revised as soon as the House gives its approval. A law is expected to be based on far-reaching vision, comprehensive studies and thorough preparation. It is difficult to deny the public perception that the House does not prepare enough while deliberating bills and simply pass them to meet deadlines. There is also the public perception that money often plays a crucial role during the deliberation process.

The 2003 Labor Law is a perfect example. Just two years after it was passed into law, the government and the House had to revise the law because the national and international business communities had complained it was too biased toward workers. Many private companies closed down their offices here because they could not be bothered to face the unions and deal with the red tape.

Indonesia's rigid laws and government regulations on labor have worsened the gloomy investment climate.

The labor law is regarded as unfriendly to businessmen as it, among other things, requires an employer to pay 12-months' worth of salary plus other benefits in order to dismiss a worker who has worked for four years or more. There is no such regulation in other countries.

Apart from the widespread corruption and weak law enforcement here, investors also have to deal with a labor force that is less competitive in terms of productivity compared to its counterparts in neighboring countries like Vietnam.

Private companies have asked the government to adopt a more flexible labor law that would enable the business world to hire or cut workers at will. They have also asked for a more reasonable severance pay scheme and a more flexible employment system.

In a bid to lure investment, the government has initiated a number of policies on tax, custom and excise and labor. The plan to revise the labor law, however, was met with harsh, often violent, opposition from labor unions and workers, due to fears the revision would pave the way for companies to dismiss workers whenever they wanted, without a fair compensation scheme.

The government had to retract its revision plan. It is still not ready to make another unpopular decision, especially after its drastic decision to increase fuel oil prices in 2005 had a severe economic impact on the public.

The government realized it had no choice but to woo back investors. Now it's proposing a new draft revision of the labor law. To minimize worker resistance, earlier this month the government revealed its plan to set up a new severance-pay scheme. Under it, dismissed workers will receive payment from the scheme, not from their employers.

The government hopes the scheme will make it easier to convince labor unions that the revision of the law will not affect their welfare, particularly when they have to lose their jobs.

The scheme, however, needs further study. Who, for instance, contributes the money to the severance scheme? Is the plan economically visible, or is it just false hope for the workers? Workers will support the plan if the government manages to prove that the new mechanism will work better than the existing one.

It is urgent for the government to revise the labor law because it fails to balance the interests of workers and investors. However it will not be easy for the government to convince the workers of its sincerity either.