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Jakarta Post

Environmental concerns, protests may discourage foreign investment: Moody’s

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Fri, October 9, 2020   /   03:32 pm
Environmental concerns, protests may discourage foreign investment: Moody’s Students and workers take part in a demonstration to protest the omnibus law on Jl. MH Thamrin, Jakarta, on Oct. 8. (JP/Seto Wardhana)

Indonesia’s Job Creation Law may facilitate investment and help revive the economy, but relaxed environmental regulation and widespread protests by labor unions could discourage foreign investors and limit the law’s benefits, Moody’s Investor Service has said.

The passage of the omnibus bill is expected to facilitate both domestic and foreign investment and help revive economic growth, Moody’s wrote in a research note on Thursday. Risks, however, loom for the Indonesian economy.

“Relaxation of reporting for businesses that have required an environmental impact analysis and easier restrictions on clearing peatland for oil palm plantations could particularly deter foreign investment” that is increasingly focused on environmental-, social- and governance-driven goals and responsible commodity production, Moody’s analysts said.

The omnibus bill on job creation, which passed into law on Monday, earlier than previously scheduled on Thursday, has sparked widespread protests and labor strikes nationwide due to concerns that the law will undermine labor rights and weaken environmental protections.

Activists and observers have also raised concerns over the law’s deliberations, which they said lacked transparency and public input.

“Without offsetting benefits, weaker protections for a large and growing working class could spark opposition from various political and social interest groups, with counterbalancing effects on labor productivity over the near term,” Moody’s said.

The government has been struggling to revive the economy, which has been hit hard by uncertainty over the pandemic. Indonesia's gross domestic product shrank 5.32 percent in the second quarter as household spending and investment contracted 5.51 percent and 8.61 percent respectively.

The government projects this year's full economy to shrink 0.6 to 1.7 percent, marking the first annual economic contraction in two decades.

Asian Development Bank (ADB) country director for Indonesia Winfried Wicklein said the omnibus law, along with other policy and regulatory measures, would help the economy to recover from the pandemic and boost its economic outlook.

“ADB is looking forward to supporting the government of Indonesia toward achieving more equitable labor market outcomes and addressing concerns on environmental sustainability,” he said in a statement on Thursday.

Under the law, environmental permits are now merged with business permits with only high-risk industries required to submit an environmental analysis. The law will also raise fines for environmental damages, with those who burn forests potentially subject to 15 years’ imprisonment and a Rp 7.5 billion fine.

The law also returns the authority over land use and permits to the central government from regional administrations and sets up a one-map policy to resolve the issue of overlapping land claims.

In addition, it cuts severance benefits paid by employers to laid-off workers from 32 times their monthly salary to 19 times.

The JKP scheme will be managed by the Workers Social Security Agency (BPJS Ketenagakerjaan). Article 46E of the bill stipulates that the source of funds for the JKP scheme, which currently has yet to be established under the country’s social security system, will come from the government, workers' premiums and BPJS Ketenagakerjaan operational funds.

Speaking in a press briefing on Thursday, Investment Coordinating Board (BKPM) chief Bahlil Lahadalia said the government would speed up the implementation of the law, adding that the widespread protests did not deter potential investors from coming into the country.

“As many as 153 companies from Japan, China and the United States are planning relocation to Indonesia following the passage of the omnibus bill,” he claimed. “They wanted to invest in infrastructure, manufacturing, mining, energy and tourism, among other sectors.”

The BKPM chief defended the law, saying “it would be able to create jobs that will benefit workers and will not undermine environmental rules”.