No Enthusiasm for Job Creation
Yopie Hidayat (Contributor)
THERE were high expectations that positive sentiments will take hold in Indonesia’s financial markets once the House of Representatives legalizes the Job Creation Law. For long, the market has waited for a fundamental restructuring of the Indonesian economy. Of highest importance is the liberalization of Indonesia’s labor market, which has been long considered as too rigid and troublesome for businesses. Unfortunately those expectations were not met. The market’s response was lukewarm.
Take the rupiah exchange rate as an example. After a brief positive trend, rising 1.3 percent one day after the bill was passed, the rupiah suddenly ran out of gas. Instead of appreciating back to its position before the pandemic, or at least approaching analysts’ fundamental calculation of Rp14,300 per US dollar, the rupiah depreciated back to Rp14,700 by the end of the week.
There are many reasons why the market is not too enthusiastic. Clearly, the Job Creation Law came in the midst of global financial volatility, originating from the political turmoil in the United States. President Donald Trump’s Covid-19 illness and the following flip-flops policy on economic stimulus have increased market’s volatility.
The substance of the Job Creation Law itself is highly controversial indeed. It is true that liberalizing the labor market can bring positive sentiments. However, this law does not simply fix labor market mechanism and reduce its distortions. With regards to environmental management, for example, the Job Creation Law is a huge step backward for Indonesia. Now Indonesia has become a country that puts second priority, or even no priority at all, in protecting the environment. The liberalization of labor regulations by the Job Creation Law can also be seen as the government favoring the capitalist while sacrificing the rights of workers.
Meanwhile, for multinational companies, the issue of environmental and human exploitation are at their most sensitive right now. Once they get branded as a company that neglects environmental protection and exploits poor workers in developing countries, their business will be in trouble. Consumer boycotts and negative campaigns can ruin a business. It is here that the Job Creation Law beats its own purposes. Sacrificing the environment and reducing workers’ rights do not make Indonesia more attractive to investors.
The most puzzling factor to investors is what is next with this law. The government now must prepare hundreds of implementing regulations. As the saying goes, the devil is in the details. There is no guarantee that actual government regulations will closely reflects the Job Creation Law’s spirit to liberalize the economy.
There is also the issue of fighting over authority. The Job Creation Law forces many authority handover, both from regional to central governments and from ministries to the president. Central bureaucrats and regional governments will not stay put and see their power evaporate. The process of putting together implementing regulations can be their chance to regain some of that power.
Do not be surprised if all these regulations eventually end up contradicting the law itself. Such is the character of Indonesia’s regulatory regime. It is simply an almost impossible task for the government to have all these regulations synchronized harmoniously.
The government has to bear the burden of speed as well, for these rules must be made as soon as possible. The quality of hundreds of regulations made with haste and with so many conflicts of interest is hard to imagine. The market is still anxiously waiting for these details. Will this massive economic reform really work? Nothing seems certain at this moment.
And there is still a more complicated problem. The plan to amend the Central Bank Law and the new presidential regulation to strip the independence of Bank Indonesia continue their progress. To the financial market, this is a far greater threat compared to the complications of the Job Creation Law.