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Reforms may jeopardize Indonesia’s role in global value chains: World Bank
According to the Bank’s World Development Report 2020, some countries weaken social and environmental safeguards to attract foreign direct investment (FDI) but thereby reduce their role in global value chains (GVCs).
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A worker walks in an auto assembly plant in Bekasi, West Java. Manufacturing was listed as one of the sectors that generated offshore borrowings among private companies in January, according to a Bank Indonesia report. (Kompas/Totok Wijayanto)
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lanned economic reforms through omnibus bills on job creation and taxation, while seen as boosting investment, may risk Indonesia’s efforts to increase its role in global value chains and international trade, the World Bank says.
According to the Bank’s World Development Report 2020, some countries weaken social and environmental safeguards to attract foreign direct investment (FDI) but thereby reduce their role in global value chains (GVCs). Common measures include reducing minimum wages, eliminating environmental protections and cutting corporate taxes.
For Indonesia, reforms should address key impediments to participation in global value chains, including competitive labor resources and logistic bottlenecks, said World Bank East Asia Pacific chief economist Aaditya Mattoo.
“Minimum wages can prevent inequality, and the best way to attract FDI and GVCs is to increase productivity,” said Mattoo in Jakarta on Tuesday. Wages in Indonesia were half the level of China’s, but actual labor costs were as high because of low productivity.
“Indonesia’s education system is not equipping its people with adequate skills,” Mattoo told The Jakarta Post. “Investors cannot overcome the scarcity of domestic skills by drawing on foreign skills, because work permits limit skilled foreign workers to only 73 per 100,000, compared to Malaysia’s 858.”
