Indonesia Passes Law to Simplify Labor, Investment Rules

(Bloomberg) — Indonesia has rushed the approval of a law aimed at creating jobs and attracting investments, a day before 2 million workers were set to stage a three-day strike to reject it.

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Workers transport carts loaded with boxes at Tanah Abang market in Jakarta, Indonesia, on Tuesday, Aug. 4, 2020. Indonesia is scheduled to announce its second-quarter gross domestic product (GDP) figures on Aug. 5.

The parliament agreed to pass the omnibus bill on jobs in a plenary meeting on Monday. It was previously set to hold the meeting on Oct. 8.

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The law that seeks to simplify and revise more than 70 existing regulations will overhaul the country’s labor rules, make it easier for companies to secure permits and ease foreign ownership requirements. Its passage sets the income tax from capital gains to 20%, while some dividend taxes will be exempted.

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The bill’s passage could help President Joko Widodo shore up an economy that’s set to slip into another contraction in the third quarter as the continued spread of the coronavirus damped household spending and investments. The government has sought to speed up state spending, while warning that growth can’t come from the public sector alone.

The rupiah gained 0.4% to 14,800 a dollar as lawmakers voiced their support for the bill, the steepest rise in two weeks. The benchmark Jakarta Composite Index of shares advanced 0.7%.

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Unemployment Fund

As part of the law, the government will set up an unemployment fund to support workers who lost their jobs, with the premiums paid for by the state budget. The fund will give cash payments, provide access to the job market and pay for training. The law will also maintain workers’ rights to maternity and menstruation leave as set out in the existing labor rule.

The law has been met with opposition from labor unions and politicians who sought to reject the reduction in severance pay and the introduction of indefinite labor contracts. Activists have also spoken out against the bill, which lets investments judged to be low risk to continue without needing to submit a report on their expected environmental impact.

Other changes included in the jobs creation omnibus law:

Government to set up one-map policy to solve the issue of overlapping land claims and conflicts, which would ensure legal certainty for businessesThose who hire foreign workers are required to submit a plan for how the employee will work, while banning foreigners from holding roles that oversee personnelSimplified process for registering intellectual property and getting halal certificationLaw to speed up the construction of low-cost homes

(Updates with market movement in fifth paragraph.)

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