Joko Widodo bets big on deregulation to kickstart the Indonesian economy, writes Zachary Hall.
Indonesia has been notorious for its high level of ‘red tape’ to investors, however current President Joko Widodo, commonly known as Jokowi, has made it his mission to reverse this trend. Jokowi’s latest strategy are the Omnibus Laws, an enormous body of legislation designed to dramatically liberalise the economy. Now with Covid-19 halting growth, such reforms could be key to reviving the economy once it passes.
Proposed to the Dewan Perwakilan Rakyat (DPR), or the People’s Representative Council, on 12 February, the 1,028 page legislation would amend or replace 73 laws, ranging from tax reform to halal meat certification.
Jokowi has mainly focused on four aspects of the Indonesian regulatory law; investment deregulation, the relaxation of environmental standards, simplifying acquirement of business licenses and labour deregulation. Put simply, The government plans on opening up ‘almost all business sectors to foreign investment.’
Only investment in what Indonesia perceives as morally grey industries, such as narcotics, gambling, trading of endangered species, and industries related to public services or defence and security, will be kept tightly regulated.
The bill looks likely to pass, albeit probably with a few amendments, as the Coalition in support of Widodo controls 74 per cent of the DRP. However, it may receive some resistance from Jokowi’s own party, the centre-left Indonesian Democratic Party of Struggle, who have been known to side with the unions.
Yet, despite these small setbacks, Jokowi will nevertheless be encouraged by the overwhelmingly positive response from foreign businesses and investors. The American Chamber of Commerce in Indonesia (AmCham) managing director Lin Neumann notes “if the language in the draft refers to foreign investment and the promised changes in the DNI (Investment Board) are real, it would be welcome news for investors”. Certainly, indications suggest the laws could significantly change FDI flows into Indonesia.
The ‘Working Cabinet’ has been trying to pitch the sweeping reforms as a way for the people to ‘work … amid changing national and global situations’, and has made abundantly clear that this is its current focus, with Jokowi saying in a speech to the 2020 Financial Services Industry Annual Meeting that once this was cleared, he would ‘then turn his attention to other policies’.
When done well, deregulation, has proven itself to be a way to kickstart economic growth, such as the series of similar reforms done in Australia 20 years ago.
These laws, however, have been controversial with the Indonesian public. The sheer magnitude of the new legislation has left many Indonesians, especially those from economically disadvantaged backgrounds, feeling left in the dark as to the scale of change the bill entails to their lives.
So far, unions have provided the most organised opposition, with Elena Ekarahendy, head of the media and creative workers’ union, warning that the changes to the labour law could trigger a mass firing. Resistance to the law has been high, with several thousand protesting on the 20 January, and several union leaders promising further demonstrations and strikes across the country.
Nevertheless, this set of laws is a chance for Widodo’s ‘Onwards Indonesia Cabinet’ to deregulate some of Asia’s most strict labour regulations.These have proven to be a hindrance for Indonesia’s growth, which remains relatively sluggish at 5 per cent. Yet, Widodo must be careful not forsake everything for economic growth. These laws risk increasing Indonesia’s large and growing wealth inequality and have the potential to cause further environmental degradation of Indonesia’s relatively untouched ecosystems.
It truly is ‘go big or go home’ for Widodo. Covid-19 has upped the stakes on economic growth and if Indonesia, as Southeast Asia’s largest economy, can bounce back, it could have far-reaching implications for the region.