May 31, 2022
When President Joko ‘Jokowi’ Widodo pledged reforms to attract greater investment at the October 2019 inauguration ceremony for his second and final term, we predicted that his plans would encounter serious difficulties.
A law on job creation passed in October 2020 is a key component of the reforms. In November 2021, the Constitutional Court ruled that the law would be rendered “permanently unconstitutional” unless the government revised it within two years.
It is clear that Indonesia will punch below its weight economically unless it improves the business environment. The job creation law, which extends from land procurement to labour regulation, is designed to remove obstacles to investment, but critics say it undermines environmental protections and workers’ rights. As we predicted, the rush to pass the legislation prevented adequate scrutiny of its weaknesses. How the government handles the revision process will be a key test of its ability to balance competing interests as well as its capacity to implement sweeping reforms that favour investors.
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