JAKARTA - Up in arms over a government
proposal to amend the national labor law,
Indonesia's powerful unions have threatened to
stage a nationwide general strike next Monday that
could cast another dark cloud over the country's
already dimming investment environment.
The Federation of the All-Indonesian
Workers Union (KSPSI), Indonesia's largest union,
has nearly 500,000 members representing 250 unions
nationwide. Jacob Nuwa Wea, a former manpower
minister, is a central figure in Indonesia's
ongoing
struggle for better workers'
rights and he now chairs the KSPSI, the country's
oldest and most influential labor union.
He has said workers would hold a national
strike "to achieve their rights" - though only as
a last resort. But increasingly, Indonesian labor
leaders feel as though they are being pushed to
their limits. The proposed revisions of the
national labor law are part of the government's
investment-promotion policy package, spelled out
in a Presidential Instruction issued at the end of
February.
Aimed at promoting greater
labor-market flexibility, the proposed amendments
would allow companies to hire contract-based
workers and outsource permanent jobs and core
businesses to other companies. The legislative
proposal would also make allowances to phase out
service pay for dismissed workers and cut by
almost 50% other required-by-law payouts, among
other amendments that would roll back labor
protections.
The heated debate comes at a
time when Indonesian industry faces severe
competitive pressure from lower cost producers in
China, as well as its own rising labor costs,
declining worker productivity, and increasing
industrial unrest. Since the 1997-98 Asian
financial crisis, Indonesia has suffered a
crippling period of de-industrialization, where
hundreds of factories have shut down and domestic
service industries have not grown fast enough to
absorb the displaced workers.
President
Susilo Bambang Yudhoyono has asked labor leaders
to call off any national strike, warning that it
would be extremely damaging to the country's
already hobbled economy and scare away badly
needed foreign investment. KSPSI leaders mobilized
rallies in front of the presidential palace on
April 5 and thousands of workers took to the
streets in major cities and towns across the main
island of Java aimed at forcing the government to
drop its plans.
Capital versus
labor It's not a done deal yet. The planned
revisions to the draft bill have not yet been
submitted to the House of Representatives (DPR)
for deliberation, let alone to the DPR Legislative
Body (Baleg) to which proposed legislation must
first be submitted and discussed at a meeting of
the DPR's Consultative Body. Yudhoyono, in an
apparent concession to the union protests, ordered
the establishment of a national tripartite team of
government officials, workers and employers to
review the changes.
An increasingly
emboldened and sometimes militant workforce
represents a major obstacle for Yudhoyono's
government, which is aiming to reestablish
Indonesia's 1980s and early-1990s reputation as a
welcoming destination for foreign investment. The
domestic economy was badly affected by last year's
fuel-price hikes, which triggered higher inflation
and soaring interest rates. With consumer spending
in decline, economists say the country needs
higher levels of investment to spur growth and
generate jobs.
The 2003 Manpower Act,
enacted when Wea was a minister, gave workers many
benefits and freedoms to organize and strike - a
reform reaction to former president Suharto's
authoritarian policies banning freedom of
association. However, the law has since been
widely viewed as favoring workers at the expense
of employers, and some say it has dealt a blow to
Indonesia's overall competitiveness. Industrial
disputes in recent years have often ended in
violence, either with workers taking out their
frustration at the failure to resolve their
grievances, or employers enlisting security forces
to put down protests.
High unemployment,
in theory, should dampen the influence of unions,
but union-bashing has not worked for Yudhoyono's
government.
The government and the
Indonesian Employers Association (Apindo) recently
came up with about 50 different changes to the
current laws governing employment in a bid to
improve the country's investment climate. If
enacted, the amendments would controversially
allow companies to hire contract-based workers and
outsource permanent jobs and core businesses to
other companies. They also include a weakening of
minimum-wage provisions, restrictions on the right
to strike, the elimination of service payments and
increased possibilities for employers to impose
disciplinary measures on workers. More politically
charged, the legal changes would pave the way for
foreign investors to hire expatriates to occupy
key positions, including director and commissioner
roles.
Although labor costs in Indonesia
are still lower than in competing countries in the
10-member Association of Southeast Asian Nations
(ASEAN), except for Vietnam, higher wages in
competing regional countries are usually
indicative of higher levels of productivity and
skills rather than the underlying strength of
their protectionist unions.
Unfortunately
for Yudhoyono's usually diplomatic government,
Apindo unilaterally announced that the draft bill
revision had been completed, after which the
unions slammed the government for baldly joining
forces with employers over workers. Dita Sari,
head of the National Front for Indonesian Labor
Struggle and chairwoman of the People's Democratic
Party, said the government was trying to blame
workers for having "too much protection that
creates less investment" while the real problem is
the government's economic policies, which are
creating very high economic costs.
The
Indonesian Trade Union Congress (ITUC) described
the proposed measures as a "race to the bottom" to
attract foreign investment, with its vice
president Khoirul Anam claiming the main hurdles
to investment are not labor laws but unfavorable
taxation regulations, weak law enforcement, poor
infrastructure in the provinces and a corrupt
bureaucracy. To underscore those arguments, on
Friday the government fired the heads of the tax
and customs offices, two notoriously corrupt
agencies accused of complicity in smuggling and
under-invoicing business activities.
Room for compromise In reality,
labor costs account on average for only 5-6% of
production costs in Indonesia. At the same time,
recent business surveys have identified labor
costs as only the seventh-biggest deterrent to
investment in Indonesia, after corruption, lack of
infrastructure and other factors. As such, leaders
on both sides of the conflict have left the door
open to negotiations.
Syukur Sarto, the
KSPSI executive behind the huge nationwide
workers' protest this month, said at the time that
workers and unions would have no objection to
revisions to the law if they had job security and
health-care benefits and dismissed workers were
assured of payments under social-security
programs.
Current Manpower Minister Erman
Suparno thereafter announced government plans to
insure dismissed workers through state-owned
insurance firm PT Jamsostek. Apindo secretary
general Djimanto said his group had long proposed
the idea of setting up a program to help dismissed
workers but that the government was slow to
respond.
Meanwhile, a new court system for
labor disputes, set out in former president
Megawati Sukarnoputri's Industrial Disputes
Settlement Act, finally came into being in
January. The International Labor Organization,
with funding from the US Department of Labor, has
also helped train judges for an Industrial
Relations Court.
The advent of this
special court, where rulings will be handed down
in just 140 days, is expected to give faster,
fairer and cost-free resolution of disputes for
both trade unions and employers, which includes a
mandatory process of negotiations and mediation
before a case can be brought before the court.
The issue of severance pay and conditions,
however, remains contentious. The current law
requires that employers give a total of severance
and length of service pay to a dismissed worker
equivalent to 30 times the monthly wage. Djimanto
notes in comparison that China provides an amount
equal to 10 times monthly wages and Vietnam only
five times.
Still, labor leader Sarto, who
was instrumental in leading the 1974 anti-Japan
demonstrations as well as workers-rights rallies
in 2002 and 2003, believes the new proposal will
act to undermine Indonesian workers. And it isn't
apparent he is willing to back down until the
government makes major concessions.
"As
long as we are serious, our instructions will be
accepted by workers," he said. If so, expect more
Indonesian labor unrest in the months to come.
Bill Guerin, a Jakarta
correspondent for Asia Times Online since 2000,
has worked in Indonesia for 20 years, mostly in
journalism and editorial positions. He has been
published by the BBC on East Timor and specializes
in business/economic and political analysis
related to Indonesia. He can be reached at
softsell@prima.net.id.
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