On March 21st, the Indonesian Parliament passed an emergency decree on jobs and investment, absolving legal uncertainty over President Joko Widodo’s measures to promote investment. The decree replaces the 2020 Omnibus Law on Job Creation, which removed the red tape in Indonesia’s regulatory environment.
Provisions in the decree allow employers to cut mandatory leave and severance pay. The decree introduces a new concept of risk-based businesses, where standard certification is required for medium-risk businesses and a business license for high-risk businesses. The decree amends the formula to calculate the yearly rise in minimum wage. While the annual increase was pegged to economic growth or inflation in the 2020 law, the increment will now be set based on economic growth, inflation, and another unspecified variable. The Decree also places restrictions on outsourcing to certain sectors, which was not included in the 2020 law.
In November 2021, the Constitutional Court ruled that the law was partially unconstitutional because it failed to take the public’s opinion and ordered the government to make changes to the legislation within two years. President Jokowi’s emergency regulation overrides the law. He argues that global uncertainty justified the executive powers. While it was praised by foreign investors for streamlining business rules in the bureaucracy-heavy country, it was criticized by laborers and green groups for being too business-oriented.
