[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions

 Vincent Lingga Jakarta Jakarta / Mon, October 26 2020 / 01:00 am

One hundred dollar notes are seen in this photo illustration. (AFP/Getty Images/Brendan Smialowski)

Indonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget. Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds. 

Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets. As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf. The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens. Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean).

 The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals. The positive point, though, is that all major credit rating agencies, including Standard & Poor’s (S&P), Moody’s and Fitch, have upgraded Indonesia’s sovereign credit to investment grade, though still at the lowest rank of their investment grade classifications. It remains difficult to classify the LPI into one of the three most popular kinds of SWF currently prevailing in the international market: 1. Natural resource funds, such as those launched by Norway, Abu Dhabi and Kuwait; 2) Foreign exchange reserve funds (China and Singapore) and 3) Pension reserve fund funds (Australia, New Zealand and Singapore). 

The LPI certainly does not fall in the first category, which draws its endowments from exports of natural resources (notably oil and gas), as Indonesia has been a net oil importer with a steadily increasing deficit since 2004. Nor does it fit into the foreign reserve funds category of balance of payments surpluses. Although Bank Indonesia has steadily increased its foreign reserves, most of them are short-term portfolio funds, and they are needed to maintain the rupiah’s exchange rate stability. As the state budget has steadily suffered a deficit and will likely be in the red at least for the next five years, the Indonesian SWF does not belong to the third category either. Since SWFs are long-term investors, the market confidence in the LPI will depend primarily on Indonesia’s record of political and economic stability, public-sector governance and transparency and accountability of the fund-raising and management. In terms of political stability, Indonesia has been impressive, especially after the democratization of the political system in 1998.The risks of unexpected adverse political changes that may affect the value of economic assets are reasonable. 

But we should admit that, when it comes to public-sector governance, transparency and accountability, Indonesia is still internationally perceived as notorious. The credit rating agencies, which periodically assess Indonesian sovereign risks, have taken political risk into account by looking at such factors as the level of democratization, the concentration of decision-making, the incidence of corruption and the independence of the judiciary. Unfortunately, Indonesia does not score well in the latter two because of the high incidence of corruption and poor governance at most SOEs. Certainly, as the LPI will seek to raise funds from the international market, it must be managed strictly under the 2008 Generally Accepted Principles and Practices, issued by the International Working Group of SWFs, commonly called the Santiago Principles of SWFs. 

These principles, which were drawn up at the initiative of the International Monetary Fund, assess many factors. Primary among them are the country’s political ability to confront growing public-sector indebtedness and the willingness of its citizens to accept fiscal austerity. Other factors assessed for the market value of LPI assets include the structure of the fund, links to the government’s fiscal policy and whether the fund is independent from a country’s international reserves; the governance of the fund and accountability and transparency of the fund in its investment strategy, investment activities, reporting and audits. 

In light of the notorious governance within the entire government (executive, legislative and judiciary), the plan on the establishment of an Indonesian SWF seems premature. We still wonder why the Job Creation Law, already so overcrowded with so many lofty goals, was still overloaded with the SWF idea at a time when the economy is mired in a deep recession and the global economy remains fraught with uncertainty as nobody knows when the pandemic will end. We cannot help but be apprehensive about the government plan to put such a huge fund at stake after observing the scandal plaguing the 1MDB 

Malaysian multibillion dollar SWF by politicians, businesspeople and foreign bankers. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

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iOS: http://bit.ly/tjp-iosVincent Lingga Jakarta Jakarta   /   Mon, October 26 2020   /  01:00 am

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

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iOS: http://bit.ly/tjp-iosIndonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget. Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds. Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets. As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf. The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens. Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean). The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals. The positive point, though, is that all major credit rating agencies, including Standard & Poor’s (S&P), Moody’s and Fitch, have upgraded Indonesia’s sovereign credit to investment grade, though still at the lowest rank of their investment grade classifications. It remains difficult to classify the LPI into one of the three most popular kinds of SWF currently prevailing in the international market: 1. Natural resource funds, such as those launched by Norway, Abu Dhabi and Kuwait; 2) Foreign exchange reserve funds (China and Singapore) and 3) Pension reserve fund funds (Australia, New Zealand and Singapore). The LPI certainly does not fall in the first category, which draws its endowments from exports of natural resources (notably oil and gas), as Indonesia has been a net oil importer with a steadily increasing deficit since 2004. Nor does it fit into the foreign reserve funds category of balance of payments surpluses. Although Bank Indonesia has steadily increased its foreign reserves, most of them are short-term portfolio funds, and they are needed to maintain the rupiah’s exchange rate stability. As the state budget has steadily suffered a deficit and will likely be in the red at least for the next five years, the Indonesian SWF does not belong to the third category either. Since SWFs are long-term investors, the market confidence in the LPI will depend primarily on Indonesia’s record of political and economic stability, public-sector governance and transparency and accountability of the fund-raising and management. In terms of political stability, Indonesia has been impressive, especially after the democratization of the political system in 1998.The risks of unexpected adverse political changes that may affect the value of economic assets are reasonable. But we should admit that, when it comes to public-sector governance, transparency and accountability, Indonesia is still internationally perceived as notorious. The credit rating agencies, which periodically assess Indonesian sovereign risks, have taken political risk into account by looking at such factors as the level of democratization, the concentration of decision-making, the incidence of corruption and the independence of the judiciary. Unfortunately, Indonesia does not score well in the latter two because of the high incidence of corruption and poor governance at most SOEs. Certainly, as the LPI will seek to raise funds from the international market, it must be managed strictly under the 2008 Generally Accepted Principles and Practices, issued by the International Working Group of SWFs, commonly called the Santiago Principles of SWFs. These principles, which were drawn up at the initiative of the International Monetary Fund, assess many factors. Primary among them are the country’s political ability to confront growing public-sector indebtedness and the willingness of its citizens to accept fiscal austerity. Other factors assessed for the market value of LPI assets include the structure of the fund, links to the government’s fiscal policy and whether the fund is independent from a country’s international reserves; the governance of the fund and accountability and transparency of the fund in its investment strategy, investment activities, reporting and audits. In light of the notorious governance within the entire government (executive, legislative and judiciary), the plan on the establishment of an Indonesian SWF seems premature. We still wonder why the Job Creation Law, already so overcrowded with so many lofty goals, was still overloaded with the SWF idea at a time when the economy is mired in a deep recession and the global economy remains fraught with uncertainty as nobody knows when the pandemic will end. We cannot help but be apprehensive about the government plan to put such a huge fund at stake after observing the scandal plaguing the 1MDB Malaysian multibillion dollar SWF by politicians, businesspeople and foreign bankers. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

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Android: http://bit.ly/tjp-android

iOS: http://bit.ly/tjp-iosIndonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget. Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds. Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets. As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf. The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens. Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean). The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals. The positive point, though, is that all major credit rating agencies, including Standard & Poor’s (S&P), Moody’s and Fitch, have upgraded Indonesia’s sovereign credit to investment grade, though still at the lowest rank of their investment grade classifications. It remains difficult to classify the LPI into one of the three most popular kinds of SWF currently prevailing in the international market: 1. Natural resource funds, such as those launched by Norway, Abu Dhabi and Kuwait; 2) Foreign exchange reserve funds (China and Singapore) and 3) Pension reserve fund funds (Australia, New Zealand and Singapore). The LPI certainly does not fall in the first category, which draws its endowments from exports of natural resources (notably oil and gas), as Indonesia has been a net oil importer with a steadily increasing deficit since 2004. Nor does it fit into the foreign reserve funds category of balance of payments surpluses. Although Bank Indonesia has steadily increased its foreign reserves, most of them are short-term portfolio funds, and they are needed to maintain the rupiah’s exchange rate stability. As the state budget has steadily suffered a deficit and will likely be in the red at least for the next five years, the Indonesian SWF does not belong to the third category either. Since SWFs are long-term investors, the market confidence in the LPI will depend primarily on Indonesia’s record of political and economic stability, public-sector governance and transparency and accountability of the fund-raising and management. In terms of political stability, Indonesia has been impressive, especially after the democratization of the political system in 1998.The risks of unexpected adverse political changes that may affect the value of economic assets are reasonable. But we should admit that, when it comes to public-sector governance, transparency and accountability, Indonesia is still internationally perceived as notorious. The credit rating agencies, which periodically assess Indonesian sovereign risks, have taken political risk into account by looking at such factors as the level of democratization, the concentration of decision-making, the incidence of corruption and the independence of the judiciary. Unfortunately, Indonesia does not score well in the latter two because of the high incidence of corruption and poor governance at most SOEs. Certainly, as the LPI will seek to raise funds from the international market, it must be managed strictly under the 2008 Generally Accepted Principles and Practices, issued by the International Working Group of SWFs, commonly called the Santiago Principles of SWFs. These principles, which were drawn up at the initiative of the International Monetary Fund, assess many factors. Primary among them are the country’s political ability to confront growing public-sector indebtedness and the willingness of its citizens to accept fiscal austerity. Other factors assessed for the market value of LPI assets include the structure of the fund, links to the government’s fiscal policy and whether the fund is independent from a country’s international reserves; the governance of the fund and accountability and transparency of the fund in its investment strategy, investment activities, reporting and audits. In light of the notorious governance within the entire government (executive, legislative and judiciary), the plan on the establishment of an Indonesian SWF seems premature. We still wonder why the Job Creation Law, already so overcrowded with so many lofty goals, was still overloaded with the SWF idea at a time when the economy is mired in a deep recession and the global economy remains fraught with uncertainty as nobody knows when the pandemic will end. We cannot help but be apprehensive about the government plan to put such a huge fund at stake after observing the scandal plaguing the 1MDB Malaysian multibillion dollar SWF by politicians, businesspeople and foreign bankers. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

Download The Jakarta Post app for easier and faster news access:

Android: http://bit.ly/tjp-android

iOS: http://bit.ly/tjp-iosIndonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget. Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds. Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets. As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf. The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens. Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean). The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals. The positive point, though, is that all major credit rating agencies, including Standard & Poor’s (S&P), Moody’s and Fitch, have upgraded Indonesia’s sovereign credit to investment grade, though still at the lowest rank of their investment grade classifications. It remains difficult to classify the LPI into one of the three most popular kinds of SWF currently prevailing in the international market: 1. Natural resource funds, such as those launched by Norway, Abu Dhabi and Kuwait; 2) Foreign exchange reserve funds (China and Singapore) and 3) Pension reserve fund funds (Australia, New Zealand and Singapore). The LPI certainly does not fall in the first category, which draws its endowments from exports of natural resources (notably oil and gas), as Indonesia has been a net oil importer with a steadily increasing deficit since 2004. Nor does it fit into the foreign reserve funds category of balance of payments surpluses. Although Bank Indonesia has steadily increased its foreign reserves, most of them are short-term portfolio funds, and they are needed to maintain the rupiah’s exchange rate stability. As the state budget has steadily suffered a deficit and will likely be in the red at least for the next five years, the Indonesian SWF does not belong to the third category either. Since SWFs are long-term investors, the market confidence in the LPI will depend primarily on Indonesia’s record of political and economic stability, public-sector governance and transparency and accountability of the fund-raising and management. In terms of political stability, Indonesia has been impressive, especially after the democratization of the political system in 1998.The risks of unexpected adverse political changes that may affect the value of economic assets are reasonable. But we should admit that, when it comes to public-sector governance, transparency and accountability, Indonesia is still internationally perceived as notorious. The credit rating agencies, which periodically assess Indonesian sovereign risks, have taken political risk into account by looking at such factors as the level of democratization, the concentration of decision-making, the incidence of corruption and the independence of the judiciary. Unfortunately, Indonesia does not score well in the latter two because of the high incidence of corruption and poor governance at most SOEs. Certainly, as the LPI will seek to raise funds from the international market, it must be managed strictly under the 2008 Generally Accepted Principles and Practices, issued by the International Working Group of SWFs, commonly called the Santiago Principles of SWFs. These principles, which were drawn up at the initiative of the International Monetary Fund, assess many factors. Primary among them are the country’s political ability to confront growing public-sector indebtedness and the willingness of its citizens to accept fiscal austerity. Other factors assessed for the market value of LPI assets include the structure of the fund, links to the government’s fiscal policy and whether the fund is independent from a country’s international reserves; the governance of the fund and accountability and transparency of the fund in its investment strategy, investment activities, reporting and audits. In light of the notorious governance within the entire government (executive, legislative and judiciary), the plan on the establishment of an Indonesian SWF seems premature. We still wonder why the Job Creation Law, already so overcrowded with so many lofty goals, was still overloaded with the SWF idea at a time when the economy is mired in a deep recession and the global economy remains fraught with uncertainty as nobody knows when the pandemic will end. We cannot help but be apprehensive about the government plan to put such a huge fund at stake after observing the scandal plaguing the 1MDB Malaysian multibillion dollar SWF by politicians, businesspeople and foreign bankers. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

Download The Jakarta Post app for easier and faster news access:

Android: http://bit.ly/tjp-android

iOS: http://bit.ly/tjp-iosIndonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget. Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds. Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets. As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf. The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens. Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean). The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals. The positive point, though, is that all major credit rating agencies, including Standard & Poor’s (S&P), Moody’s and Fitch, have upgraded Indonesia’s sovereign credit to investment grade, though still at the lowest rank of their investment grade classifications. It remains difficult to classify the LPI into one of the three most popular kinds of SWF currently prevailing in the international market: 1. Natural resource funds, such as those launched by Norway, Abu Dhabi and Kuwait; 2) Foreign exchange reserve funds (China and Singapore) and 3) Pension reserve fund funds (Australia, New Zealand and Singapore). The LPI certainly does not fall in the first category, which draws its endowments from exports of natural resources (notably oil and gas), as Indonesia has been a net oil importer with a steadily increasing deficit since 2004. Nor does it fit into the foreign reserve funds category of balance of payments surpluses. Although Bank Indonesia has steadily increased its foreign reserves, most of them are short-term portfolio funds, and they are needed to maintain the rupiah’s exchange rate stability. As the state budget has steadily suffered a deficit and will likely be in the red at least for the next five years, the Indonesian SWF does not belong to the third category either. Since SWFs are long-term investors, the market confidence in the LPI will depend primarily on Indonesia’s record of political and economic stability, public-sector governance and transparency and accountability of the fund-raising and management. In terms of political stability, Indonesia has been impressive, especially after the democratization of the political system in 1998.The risks of unexpected adverse political changes that may affect the value of economic assets are reasonable. But we should admit that, when it comes to public-sector governance, transparency and accountability, Indonesia is still internationally perceived as notorious. The credit rating agencies, which periodically assess Indonesian sovereign risks, have taken political risk into account by looking at such factors as the level of democratization, the concentration of decision-making, the incidence of corruption and the independence of the judiciary. Unfortunately, Indonesia does not score well in the latter two because of the high incidence of corruption and poor governance at most SOEs. Certainly, as the LPI will seek to raise funds from the international market, it must be managed strictly under the 2008 Generally Accepted Principles and Practices, issued by the International Working Group of SWFs, commonly called the Santiago Principles of SWFs. These principles, which were drawn up at the initiative of the International Monetary Fund, assess many factors. Primary among them are the country’s political ability to confront growing public-sector indebtedness and the willingness of its citizens to accept fiscal austerity. Other factors assessed for the market value of LPI assets include the structure of the fund, links to the government’s fiscal policy and whether the fund is independent from a country’s international reserves; the governance of the fund and accountability and transparency of the fund in its investment strategy, investment activities, reporting and audits. In light of the notorious governance within the entire government (executive, legislative and judiciary), the plan on the establishment of an Indonesian SWF seems premature. We still wonder why the Job Creation Law, already so overcrowded with so many lofty goals, was still overloaded with the SWF idea at a time when the economy is mired in a deep recession and the global economy remains fraught with uncertainty as nobody knows when the pandemic will end. We cannot help but be apprehensive about the government plan to put such a huge fund at stake after observing the scandal plaguing the 1MDB Malaysian multibillion dollar SWF by politicians, businesspeople and foreign bankers. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.


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iOS: http://bit.ly/tjp-ios Vincent Lingga Jakarta Jakarta / Mon, October 26 2020 / 01:00 am

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

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iOS: http://bit.ly/tjp-ios Vincent Lingga Jakarta Jakarta / Mon, October 26 2020 / 01:00 am

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.

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iOS: http://bit.ly/tjp-ios    Vincent Lingga Jakarta Jakarta / Mon, October 26 2020 / 01:00 am

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.


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iOS: http://bit.ly/tjp-ios    Vincent Lingga Jakarta Jakarta / Mon, October 26 2020 / 01:00 am

This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.


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This article was published in thejakartapost.com with the title "[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions". Click to read: https://www.thejakartapost.com/paper/2020/10/25/commentary-indonesias-planned-5b-sovereign-wealth-fund-raises-questions.html.


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The imbroglio of foreign investment in the horticultural seed business

 Vincent Lingga

 The Jakarta Post 

Jakarta / Wed, October 21, 2020 / 08:31 am

One of the greatest impacts of the Job Creation Law on the agricultural sector is the liberalization of foreign direct investment (FDI) in developing hybrid seeds for horticulture, which produces vegetables, fruits, flowers and bio-pharmacy products. The jobs law abolishes the 30 percent cap on FDI in horticultural seed development by amending the 2010 Horticulture Law, which has constricted Indonesia’s agriculture since 2015. Unfortunately, there is great uncertainty about the liberalization of FDI. 

Several narrow-minded farming and civil-society organizations will surely challenge the amendment at the Constitutional Court, and they may likely win because the same court turned down a petition for judicial review advocating for the repeal of the same FDI restriction filed by the Association of Horticultural Seed Producers in early 2015. But such an imbroglio in the seed development industry would hinder the growth of horticulture, which has been playing an increasingly important role in providing main staple foods and export commodities. Look at how we have been importing billions of dollars worth of horticulture products annually, while countries such as Thailand, Vietnam and the Philippines, which welcome FDI in the horticultural seed business have seen significant earnings from horticultural exports. 

The seed development industry, which is a highly knowledge-based business, is key to agricultural development because high-quality seeds, in addition to appropriate fertilizer, pesticides and the best farm practices, determine the productivity of crops. Ideally, we should develop a strong national foundation for our own seed breeding industry, but this process cannot be achieved by simply forcing foreign investors to divest their controlling ownership in seed businesses. 

What the government should do instead is impose strict terms and provide incentives to foreign investors to accelerate the process of transferring scientific knowledge and research capability to Indonesian scientists and companies. With a population of more than 270 million and counting, Indonesia is a potentially huge market for horticultural products. But even after the compulsory divestment by foreign investors, the horticulture seed market has been dominated by foreign hybrid seed producers such as Syngenta, DuPont, Bayer, Monsanto and BISI. 

But this dominant role should be attributed to their centuries of experience in research and development in biotechnology and plant breeding. The foreign seed producing companies would simply move their research and knowledge to other ASEAN countries like Thailand and Vietnam, which still allow foreign-majority ownership but under strict conditions on the transfer of research and biotechnological knowledge to locals. 

Seed development, besides being highly knowledge-based, is also labor-intensive because the process requires many farm research stations designed to meet the specific conditions of distinct areas, the training of farmers in different provinces to produce certified seeds and wide networks of agricultural extension services. Most senior Indonesian crop researchers have acknowledged that the remarkable development of horticultural commodities in the country over the past decade should be attributed to the participation of foreign seed companies and their well-equipped research stations and experienced researchers. But the investment restrictions over the past five years have reduced the participation of foreign seed companies. 

Well-functioning seed markets are essential for agriculture and food security. The growth in crop production depends on improved varieties made possible by public and private investments in R&D. Continued investments in these genetic improvements are necessary for a sustainable increase in agricultural productivity. 

For this reason, it is important to ensure seed markets remain competitive and innovative. Horticulture has also played an increasingly important role in our food security as more middle and high-income people have diversified their main staple foods away from rice into horticulture, notably vegetables and fruits. Unfortunately, almost 60 percent of vegetables and fruits sold at supermarkets now are imported. To meet consumer needs, the quality of horticultural products should be improved and their production should be increased. 

But the availability of good quality seeds is key to the growth of food crops. Experience during the green revolution proved this. Horticultural production can be promoted by facilitating farmers’ access to wholesale markets and supermarkets, credit financing, agricultural extension services, better transportation infrastructure, agricultural extension services and high-yield parent seeds. Traditional retail markets need improved hygiene and sanitary standards, infrastructure (pavement, roads and stalls) and cold chain systems. 

This will create an efficient system linking producers, processors and packers to the modern procurement system. Farmers need guidance from extension service workers so that they can meet the standards required by supermarkets. Good and reliable transportation is also quite crucial because vegetables and fruits are highly perishable commodities. The application of contract-farming schemes between farmers’ associations or farmers’ cooperatives and large supermarket chains is quite appropriate.

 Under such contract-farming schemes, supermarket chains can act as the development agent for horticultural farmers, providing them with extension services, farm inputs, credit financing and market outlets. But given the weak bargaining position of farmers, it is imperative for the government to draw clear-cut guidelines to ensure that the terms of the contracts for such farming schemes protect the interests of both the farmers and the retailers equally. 

It is encouraging to observe that several agritech companies are improving coordination in the supply chains of the horticulture industry. The firms use digital platforms and new technologies to connect farmers with traders, lenders, consumers and machine and input suppliers. These agritech startups, such as TaniGroup and 8villages, have attracted tens of million dollars in investment from foreign venture capital firms and national business groups such as Salim Group, Triputra and Sinar Mas. ---------- Senior editor at The Jakarta Post

One of the greatest impacts of the Job Creation Law on the agricultural sector is the liberalization of foreign direct investment (FDI) in developing hybrid seeds for horticulture, which produces vegetables, fruits, flowers and bio-pharmacy products. The jobs law abolishes the 30 percent cap on FDI in horticultural seed development by amending the 2010 Horticulture Law, which has constricted Indonesia’s agriculture since 2015. Unfortunately, there is great uncertainty about the liberalization of FDI. Several narrow-minded farming and civil-society organizations will surely challenge the amendment at the Constitutional Court, and they may likely win because the same court turned down a petition for judicial review advocating for the repeal of the same FDI restriction filed by the Association of Horticultural Seed Producers in early 2015. But such an imbroglio in the seed development industry would hinder the growth of horticulture, which has been playing an increasingly important role in providing main staple foods and export commodities. Look at how we have been importing billions of dollars worth of horticulture products annually, while countries such as Thailand, Vietnam and the Philippines, which welcome FDI in the horticultural seed business have seen significant earnings from horticultural exports. The seed development industry, which is a highly knowledge-based business, is key to agricultural development because high-quality seeds, in addition to appropriate fertilizer, pesticides and the best farm practices, determine the productivity of crops. Ideally, we should develop a strong national foundation for our own seed breeding industry, but this process cannot be achieved by simply forcing foreign investors to divest their controlling ownership in seed businesses. What the government should do instead is impose strict terms and provide incentives to foreign investors to accelerate the process of transferring scientific knowledge and research capability to Indonesian scientists and companies. With a population of more than 270 million and counting, Indonesia is a potentially huge market for horticultural products. But even after the compulsory divestment by foreign investors, the horticulture seed market has been dominated by foreign hybrid seed producers such as Syngenta, DuPont, Bayer, Monsanto and BISI. But this dominant role should be attributed to their centuries of experience in research and development in biotechnology and plant breeding. The foreign seed producing companies would simply move their research and knowledge to other ASEAN countries like Thailand and Vietnam, which still allow foreign-majority ownership but under strict conditions on the transfer of research and biotechnological knowledge to locals. Seed development, besides being highly knowledge-based, is also labor-intensive because the process requires many farm research stations designed to meet the specific conditions of distinct areas, the training of farmers in different provinces to produce certified seeds and wide networks of agricultural extension services. Most senior Indonesian crop researchers have acknowledged that the remarkable development of horticultural commodities in the country over the past decade should be attributed to the participation of foreign seed companies and their well-equipped research stations and experienced researchers. But the investment restrictions over the past five years have reduced the participation of foreign seed companies. Well-functioning seed markets are essential for agriculture and food security. The growth in crop production depends on improved varieties made possible by public and private investments in R&D. Continued investments in these genetic improvements are necessary for a sustainable increase in agricultural productivity. For this reason, it is important to ensure seed markets remain competitive and innovative. Horticulture has also played an increasingly important role in our food security as more middle and high-income people have diversified their main staple foods away from rice into horticulture, notably vegetables and fruits. Unfortunately, almost 60 percent of vegetables and fruits sold at supermarkets now are imported. To meet consumer needs, the quality of horticultural products should be improved and their production should be increased. But the availability of good quality seeds is key to the growth of food crops. Experience during the green revolution proved this. Horticultural production can be promoted by facilitating farmers’ access to wholesale markets and supermarkets, credit financing, agricultural extension services, better transportation infrastructure, agricultural extension services and high-yield parent seeds. Traditional retail markets need improved hygiene and sanitary standards, infrastructure (pavement, roads and stalls) and cold chain systems. This will create an efficient system linking producers, processors and packers to the modern procurement system. Farmers need guidance from extension service workers so that they can meet the standards required by supermarkets. Good and reliable transportation is also quite crucial because vegetables and fruits are highly perishable commodities. The application of contract-farming schemes between farmers’ associations or farmers’ cooperatives and large supermarket chains is quite appropriate. Under such contract-farming schemes, supermarket chains can act as the development agent for horticultural farmers, providing them with extension services, farm inputs, credit financing and market outlets. But given the weak bargaining position of farmers, it is imperative for the government to draw clear-cut guidelines to ensure that the terms of the contracts for such farming schemes protect the interests of both the farmers and the retailers equally. It is encouraging to observe that several agritech companies are improving coordination in the supply chains of the horticulture industry. The firms use digital platforms and new technologies to connect farmers with traders, lenders, consumers and machine and input suppliers. These agritech startups, such as TaniGroup and 8villages, have attracted tens of million dollars in investment from foreign venture capital firms and national business groups such as Salim Group, Triputra and Sinar Mas. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "The imbroglio of foreign investment in the horticultural seed business - Opinion - The Jakarta Post". Click to read: https://www.thejakartapost.com/academia/2020/10/21/the-imbroglio-of-foreign-investment-in-the-horticultural-seed-business.html.


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One of the greatest impacts of the Job Creation Law on the agricultural sector is the liberalization of foreign direct investment (FDI) in developing hybrid seeds for horticulture, which produces vegetables, fruits, flowers and bio-pharmacy products. The jobs law abolishes the 30 percent cap on FDI in horticultural seed development by amending the 2010 Horticulture Law, which has constricted Indonesia’s agriculture since 2015. Unfortunately, there is great uncertainty about the liberalization of FDI. Several narrow-minded farming and civil-society organizations will surely challenge the amendment at the Constitutional Court, and they may likely win because the same court turned down a petition for judicial review advocating for the repeal of the same FDI restriction filed by the Association of Horticultural Seed Producers in early 2015. But such an imbroglio in the seed development industry would hinder the growth of horticulture, which has been playing an increasingly important role in providing main staple foods and export commodities. Look at how we have been importing billions of dollars worth of horticulture products annually, while countries such as Thailand, Vietnam and the Philippines, which welcome FDI in the horticultural seed business have seen significant earnings from horticultural exports. The seed development industry, which is a highly knowledge-based business, is key to agricultural development because high-quality seeds, in addition to appropriate fertilizer, pesticides and the best farm practices, determine the productivity of crops. Ideally, we should develop a strong national foundation for our own seed breeding industry, but this process cannot be achieved by simply forcing foreign investors to divest their controlling ownership in seed businesses. What the government should do instead is impose strict terms and provide incentives to foreign investors to accelerate the process of transferring scientific knowledge and research capability to Indonesian scientists and companies. With a population of more than 270 million and counting, Indonesia is a potentially huge market for horticultural products. But even after the compulsory divestment by foreign investors, the horticulture seed market has been dominated by foreign hybrid seed producers such as Syngenta, DuPont, Bayer, Monsanto and BISI. But this dominant role should be attributed to their centuries of experience in research and development in biotechnology and plant breeding. The foreign seed producing companies would simply move their research and knowledge to other ASEAN countries like Thailand and Vietnam, which still allow foreign-majority ownership but under strict conditions on the transfer of research and biotechnological knowledge to locals. Seed development, besides being highly knowledge-based, is also labor-intensive because the process requires many farm research stations designed to meet the specific conditions of distinct areas, the training of farmers in different provinces to produce certified seeds and wide networks of agricultural extension services. Most senior Indonesian crop researchers have acknowledged that the remarkable development of horticultural commodities in the country over the past decade should be attributed to the participation of foreign seed companies and their well-equipped research stations and experienced researchers. But the investment restrictions over the past five years have reduced the participation of foreign seed companies. Well-functioning seed markets are essential for agriculture and food security. The growth in crop production depends on improved varieties made possible by public and private investments in R&D. Continued investments in these genetic improvements are necessary for a sustainable increase in agricultural productivity. For this reason, it is important to ensure seed markets remain competitive and innovative. Horticulture has also played an increasingly important role in our food security as more middle and high-income people have diversified their main staple foods away from rice into horticulture, notably vegetables and fruits. Unfortunately, almost 60 percent of vegetables and fruits sold at supermarkets now are imported. To meet consumer needs, the quality of horticultural products should be improved and their production should be increased. But the availability of good quality seeds is key to the growth of food crops. Experience during the green revolution proved this. Horticultural production can be promoted by facilitating farmers’ access to wholesale markets and supermarkets, credit financing, agricultural extension services, better transportation infrastructure, agricultural extension services and high-yield parent seeds. Traditional retail markets need improved hygiene and sanitary standards, infrastructure (pavement, roads and stalls) and cold chain systems. This will create an efficient system linking producers, processors and packers to the modern procurement system. Farmers need guidance from extension service workers so that they can meet the standards required by supermarkets. Good and reliable transportation is also quite crucial because vegetables and fruits are highly perishable commodities. The application of contract-farming schemes between farmers’ associations or farmers’ cooperatives and large supermarket chains is quite appropriate. Under such contract-farming schemes, supermarket chains can act as the development agent for horticultural farmers, providing them with extension services, farm inputs, credit financing and market outlets. But given the weak bargaining position of farmers, it is imperative for the government to draw clear-cut guidelines to ensure that the terms of the contracts for such farming schemes protect the interests of both the farmers and the retailers equally. It is encouraging to observe that several agritech companies are improving coordination in the supply chains of the horticulture industry. The firms use digital platforms and new technologies to connect farmers with traders, lenders, consumers and machine and input suppliers. These agritech startups, such as TaniGroup and 8villages, have attracted tens of million dollars in investment from foreign venture capital firms and national business groups such as Salim Group, Triputra and Sinar Mas. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "The imbroglio of foreign investment in the horticultural seed business - Opinion - The Jakarta Post". Click to read: https://www.thejakartapost.com/academia/2020/10/21/the-imbroglio-of-foreign-investment-in-the-horticultural-seed-business.html.


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Jakarta / Wed, October 21, 2020 / 08:31 am

This article was published in thejakartapost.com with the title "The imbroglio of foreign investment in the horticultural seed business". Click to read: https://www.thejakartapost.com/academia/2020/10/21/the-imbroglio-of-foreign-investment-in-the-horticultural-seed-business.html.


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Jakarta / Wed, October 21, 2020 / 08:31 am

This article was published in thejakartapost.com with the title "The imbroglio of foreign investment in the horticultural seed business". Click to read: https://www.thejakartapost.com/academia/2020/10/21/the-imbroglio-of-foreign-investment-in-the-horticultural-seed-business.html.


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This article was published in thejakartapost.com with the title "The imbroglio of foreign investment in the horticultural seed business". Click to read: https://www.thejakartapost.com/academia/2020/10/21/the-imbroglio-of-foreign-investment-in-the-horticultural-seed-business.html.


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Omnibus law: Biggest ‘big bang’ reform ever

 Vincent Lingga,  The Jakarta Post 

Jakarta/ Wed, October 7 2020/ 08:46 PM

Hundreds of labors stage a protest in Jatiuwung, Tangerang, Banten on Monday, Oct. 5, 2020 to protest the Omnibus Law on job creation. In the protest, the workers say they will stage protests and strikes until Thursday. (Antara/Fauzan)

It is unfortunate that most headline stories about the newly passed Omnibus Law on Job Creation have singled out the most controversial of the thousands of provisions in its 905 pages, only to contribute to the public hostility toward what should be lauded as the most comprehensive “big bang” economic reform ever launched. More than 90 percent of the law is actually designed to stimulate domestic and foreign investment by removing bureaucratic inefficiencies and excessive licensing requirements as well as opaque, overlapping and contradictory regulations that have long hindered competitiveness.

The House of Representatives was prompted to endorse the omnibus bill by the miserable failure of almost 20 reform packages that were launched from 2015 to 2019. Those reforms were largely ineffective because their implementation was undermined by the regulatory overlap and conflict deriving from about 80 laws as well as thousands of presidential regulations and ministerial decrees. It would have taken more than a decade to revise the numerous laws and regulations through the process of conventional lawmaking and raucous deliberation with attendant politics. The economy, already mired in a recession, badly needs huge investments right now to boost growth and create jobs, and thereby reduce poverty and income inequality. 

omnibus law in a single stroke amends 79 laws and eliminates thousands of regulations inimical to business and investment. But it will take several months more to prepare all the technical regulations needed to implement the new law. It is most imperative that the government now focuses its resources on completing all implementing regulations and disseminating them publicly, notably to local administrations, the business community and trade unions. It is difficult to understand why the trade unions remain obsessed with opposing the labor provisions in the new omnibus law, because they essentially maintain the labor rights protected in the 2003 Labor Law. 

Moreover, only less than 30 percent of the estimated 131 million labor force work in the formal sector which is governed by the labor regulations. The other 70 percent are still trapped in the informal sector, thereby ineligible for the labor protection as regulated in the law. The labor-intensive industries would remain unattractive to investors if the labor rules were not amended to boost the competitiveness of Indonesian labor against our Southeast Asian neighbors. In a country not known for its worker productivity, the too-rigid labor regulations made it virtually impossible to terminate a permanent employee. 

This turned away countless potential investors and encouraged employers to avoid new hires while resorting to rolling contracts to outsource much of their extra work. The old, inflexible labor rules were certainly a great disadvantage to employers, because companies today face a changing economic landscape that have varying impacts on different business sectors. The amended provisions also will offer more flexibility in hiring contract and outsourced workers so companies can adapt to changes as they occur, which is the only certainty in today’s business climate – notwithstanding the pandemic. Even without the inflexible labor regulations, our business sector has been suffering from major, inherent disadvantages in our economy: high logistics costs due to utterly poor infrastructure, excessive bureaucratic red tape and high interest rates.

 We fully support workers’ demand for the compulsory minimum wages to at least meet the basic cost of living so they can lead decent lives. But we should also accept the basic premise that economic growth and job creation are in the public and national interests, and that they can be achieved only if there is industrial peace and equitable distribution of economic gains. Understandably, the government should be heavily involved in the labor market because a freewheeling labor market will never favor the workers’ interests, given the unequal status and often opposing interests of employers and employees. Labor policies that overly favor workers will stifle new investment and prompt companies to hire temporary workers. Employers want profits, the unions want better pay and the government wants a conducive investment climate. 

These elements are not part of a zero-sum game, but are interdependent, as companies can remain profitable only if they take good care of their workers, and the combination of the two leads to increased competitiveness that attracts investments. Hence, economic growth and job creation go hand in hand in the common interest. If the unions continue to hold strikes and street demonstrations to push their demand for higher wages and more generous welfare benefits at a time when we are in a coronavirus-induced recession, then their action will be entirely counterproductive. 

The problem is that wage hikes are not sustainable if revenues don’t increase, whether by increased productivity, better infrastructure or higher sales. But blaming the slow growth in formal jobs primarily on rigid labor rules could also mislead policy decisions in both the informal and formal sectors. The key to spurring jobs growth in the formal sector is investment policies that promote product diversification and facilitate business restructuring.

To reiterate, more than 90 percent of the provisions in the job creation omnibus law are appropriately designed to stimulate private investment and businesses. However, the government should also realize the blunt fact that while the majority of the workforce is currently engaged in the rural sector, it is this very sector that policymakers have long neglected. It is no wonder that the rural sector has the highest underemployment rate and lowest productivity, and will remain so unless the government boosts public investment in rural infrastructure and expands the coverage of its agricultural extension program.

 ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever - Opinion - The Jakarta Post". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.

It is unfortunate that most headline stories about the newly passed Omnibus Law on Job Creation have singled out the most controversial of the thousands of provisions in its 905 pages, only to contribute to the public hostility toward what should be lauded as the most comprehensive “big bang” economic reform ever launched. More than 90 percent of the law is actually designed to stimulate domestic and foreign investment by removing bureaucratic inefficiencies and excessive licensing requirements as well as opaque, overlapping and contradictory regulations that have long hindered competitiveness. The House of Representatives was prompted to endorse the omnibus bill by the miserable failure of almost 20 reform packages that were launched from 2015 to 2019. Those reforms were largely ineffective because their implementation was undermined by the regulatory overlap and conflict deriving from about 80 laws as well as thousands of presidential regulations and ministerial decrees. It would have taken more than a decade to revise the numerous laws and regulations through the process of conventional lawmaking and raucous deliberation with attendant politics. The economy, already mired in a recession, badly needs huge investments right now to boost growth and create jobs, and thereby reduce poverty and income inequality. The omnibus law in a single stroke amends 79 laws and eliminates thousands of regulations inimical to business and investment. But it will take several months more to prepare all the technical regulations needed to implement the new law. It is most imperative that the government now focuses its resources on completing all implementing regulations and disseminating them publicly, notably to local administrations, the business community and trade unions. It is difficult to understand why the trade unions remain obsessed with opposing the labor provisions in the new omnibus law, because they essentially maintain the labor rights protected in the 2003 Labor Law. Moreover, only less than 30 percent of the estimated 131 million labor force work in the formal sector which is governed by the labor regulations. The other 70 percent are still trapped in the informal sector, thereby ineligible for the labor protection as regulated in the law. The labor-intensive industries would remain unattractive to investors if the labor rules were not amended to boost the competitiveness of Indonesian labor against our Southeast Asian neighbors. In a country not known for its worker productivity, the too-rigid labor regulations made it virtually impossible to terminate a permanent employee. This turned away countless potential investors and encouraged employers to avoid new hires while resorting to rolling contracts to outsource much of their extra work. The old, inflexible labor rules were certainly a great disadvantage to employers, because companies today face a changing economic landscape that have varying impacts on different business sectors. The amended provisions also will offer more flexibility in hiring contract and outsourced workers so companies can adapt to changes as they occur, which is the only certainty in today’s business climate – notwithstanding the pandemic. Even without the inflexible labor regulations, our business sector has been suffering from major, inherent disadvantages in our economy: high logistics costs due to utterly poor infrastructure, excessive bureaucratic red tape and high interest rates. We fully support workers’ demand for the compulsory minimum wages to at least meet the basic cost of living so they can lead decent lives. But we should also accept the basic premise that economic growth and job creation are in the public and national interests, and that they can be achieved only if there is industrial peace and equitable distribution of economic gains. Understandably, the government should be heavily involved in the labor market because a freewheeling labor market will never favor the workers’ interests, given the unequal status and often opposing interests of employers and employees. Labor policies that overly favor workers will stifle new investment and prompt companies to hire temporary workers. Employers want profits, the unions want better pay and the government wants a conducive investment climate. These elements are not part of a zero-sum game, but are interdependent, as companies can remain profitable only if they take good care of their workers, and the combination of the two leads to increased competitiveness that attracts investments. Hence, economic growth and job creation go hand in hand in the common interest. If the unions continue to hold strikes and street demonstrations to push their demand for higher wages and more generous welfare benefits at a time when we are in a coronavirus-induced recession, then their action will be entirely counterproductive. The problem is that wage hikes are not sustainable if revenues don’t increase, whether by increased productivity, better infrastructure or higher sales. But blaming the slow growth in formal jobs primarily on rigid labor rules could also mislead policy decisions in both the informal and formal sectors. The key to spurring jobs growth in the formal sector is investment policies that promote product diversification and facilitate business restructuring. To reiterate, more than 90 percent of the provisions in the job creation omnibus law are appropriately designed to stimulate private investment and businesses. However, the government should also realize the blunt fact that while the majority of the workforce is currently engaged in the rural sector, it is this very sector that policymakers have long neglected. It is no wonder that the rural sector has the highest underemployment rate and lowest productivity, and will remain so unless the government boosts public investment in rural infrastructure and expands the coverage of its agricultural extension program. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever - Opinion - The Jakarta Post". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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It is unfortunate that most headline stories about the newly passed Omnibus Law on Job Creation have singled out the most controversial of the thousands of provisions in its 905 pages, only to contribute to the public hostility toward what should be lauded as the most comprehensive “big bang” economic reform ever launched. More than 90 percent of the law is actually designed to stimulate domestic and foreign investment by removing bureaucratic inefficiencies and excessive licensing requirements as well as opaque, overlapping and contradictory regulations that have long hindered competitiveness. The House of Representatives was prompted to endorse the omnibus bill by the miserable failure of almost 20 reform packages that were launched from 2015 to 2019. Those reforms were largely ineffective because their implementation was undermined by the regulatory overlap and conflict deriving from about 80 laws as well as thousands of presidential regulations and ministerial decrees. It would have taken more than a decade to revise the numerous laws and regulations through the process of conventional lawmaking and raucous deliberation with attendant politics. The economy, already mired in a recession, badly needs huge investments right now to boost growth and create jobs, and thereby reduce poverty and income inequality. The omnibus law in a single stroke amends 79 laws and eliminates thousands of regulations inimical to business and investment. But it will take several months more to prepare all the technical regulations needed to implement the new law. It is most imperative that the government now focuses its resources on completing all implementing regulations and disseminating them publicly, notably to local administrations, the business community and trade unions. It is difficult to understand why the trade unions remain obsessed with opposing the labor provisions in the new omnibus law, because they essentially maintain the labor rights protected in the 2003 Labor Law. Moreover, only less than 30 percent of the estimated 131 million labor force work in the formal sector which is governed by the labor regulations. The other 70 percent are still trapped in the informal sector, thereby ineligible for the labor protection as regulated in the law. The labor-intensive industries would remain unattractive to investors if the labor rules were not amended to boost the competitiveness of Indonesian labor against our Southeast Asian neighbors. In a country not known for its worker productivity, the too-rigid labor regulations made it virtually impossible to terminate a permanent employee. This turned away countless potential investors and encouraged employers to avoid new hires while resorting to rolling contracts to outsource much of their extra work. The old, inflexible labor rules were certainly a great disadvantage to employers, because companies today face a changing economic landscape that have varying impacts on different business sectors. The amended provisions also will offer more flexibility in hiring contract and outsourced workers so companies can adapt to changes as they occur, which is the only certainty in today’s business climate – notwithstanding the pandemic. Even without the inflexible labor regulations, our business sector has been suffering from major, inherent disadvantages in our economy: high logistics costs due to utterly poor infrastructure, excessive bureaucratic red tape and high interest rates. We fully support workers’ demand for the compulsory minimum wages to at least meet the basic cost of living so they can lead decent lives. But we should also accept the basic premise that economic growth and job creation are in the public and national interests, and that they can be achieved only if there is industrial peace and equitable distribution of economic gains. Understandably, the government should be heavily involved in the labor market because a freewheeling labor market will never favor the workers’ interests, given the unequal status and often opposing interests of employers and employees. Labor policies that overly favor workers will stifle new investment and prompt companies to hire temporary workers. Employers want profits, the unions want better pay and the government wants a conducive investment climate. These elements are not part of a zero-sum game, but are interdependent, as companies can remain profitable only if they take good care of their workers, and the combination of the two leads to increased competitiveness that attracts investments. Hence, economic growth and job creation go hand in hand in the common interest. If the unions continue to hold strikes and street demonstrations to push their demand for higher wages and more generous welfare benefits at a time when we are in a coronavirus-induced recession, then their action will be entirely counterproductive. The problem is that wage hikes are not sustainable if revenues don’t increase, whether by increased productivity, better infrastructure or higher sales. But blaming the slow growth in formal jobs primarily on rigid labor rules could also mislead policy decisions in both the informal and formal sectors. The key to spurring jobs growth in the formal sector is investment policies that promote product diversification and facilitate business restructuring. To reiterate, more than 90 percent of the provisions in the job creation omnibus law are appropriately designed to stimulate private investment and businesses. However, the government should also realize the blunt fact that while the majority of the workforce is currently engaged in the rural sector, it is this very sector that policymakers have long neglected. It is no wonder that the rural sector has the highest underemployment rate and lowest productivity, and will remain so unless the government boosts public investment in rural infrastructure and expands the coverage of its agricultural extension program. ---------- Senior editor at The Jakarta Post

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever - Opinion - The Jakarta Post". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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Jakarta / Wed, October 7, 2020 / 08:46 am

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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Jakarta / Wed, October 7, 2020 / 08:46 am

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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Jakarta / Wed, October 7, 2020 / 08:46 am

This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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This article was published in thejakartapost.com with the title "Omnibus law: Biggest ‘big bang’ reform ever". Click to read: https://www.thejakartapost.com/academia/2020/10/07/omnibus-law-biggest-big-bang-reform-ever.html.


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