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World Bank: ‘Omnibus Law Cipta Kerja Potential To Harm The Indonesian Economy.’

The World Bank assesses that there are several clauses in the Job Creation Omnibus Law that have the potential to harm the Indonesian economy, which is inversely proportional to the purpose of the draft regulation which is to increase economic growth through investment.

This was conveyed by the World Bank in Indonesia’s economic report released this July under the title Indonesia Economic Prospects: The Long Road to Recovery. Three points highlighted by the World Bank are clauses on employment, licensing and the environment.

“The revision of the Manpower Law in the Work Creation Omnibus Law Bill has the potential to reduce the protection provided to workers,” wrote the World Bank in its report, on Wednesday (29/7/2020). According to the World Bank, the latest minimum wage schemes as well as severance pay are more lenient than Law no. 13/2003 concerning Manpower has the potential to weaken protection for labor and increase income inequality.

In provision 88D, the determination of the minimum wage to be determined only takes into account the provincial economic growth. This is different from the current provisions where the minimum wage is determined based on national economic growth and national inflation.

Furthermore, provision 88E also regulates that labor-intensive industries will have their own minimum wage provisions using a certain formula that is not specified in the Work Creation Omnibus Law Bill.

Finally, the minimum wage provisions do not apply to micro and small businesses. Provision 90B wrote that the wages for micro and small businesses are determined based on an agreement between the entrepreneur and the worker. What is clear, the wage agreement must be above the poverty line of the Central Statistics Agency.

In the aspect of licensing, the World Bank has highlighted the clause of the Job Creation Omnibus Law Bill which removes the requirement for granting licenses for high-risk activities. Activities such as pharmacy, hospital and building construction are no longer categorized as high-risk activities.

In the environmental aspect, the relaxation of environmental protection requirements in the Work Creation Omnibus Law Bill has the potential to disrupt people’s lives and will have a negative impact on investment.

In general, the World Bank assesses that business activities that have been hampered by permits and environmental requirements are not actually hampered by regulations, but by corruption and the complexity of the licensing administration process and compliance with environmental requirements.

On the positive side, the World Bank considers the Omnibus Law on Job Creation to have the potential to increase Indonesia’s involvement in the global supply chain or global value chain. Export-import licensing that uses a risk-based approach will reduce costs and uncertainty in conducting international trade.

“The export-import licensing authority shifted from the technical ministry to the central government has the potential to directly reduce corrupt practices that are spread across various ministries,” wrote the World Bank.

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