Zubaidah Nazeer – Indonesia's trade minister has called for the country's labor laws to be reformed, saying that increasingly aggressive unions and mass protests are posing a major stumbling block to economic development.

In a warning that echoed the concerns of many businessmen and investors, Mr Gita Wirjawan said that the laws sometimes favor workers at the expense of employers, and risk putting off investors just as Indonesia is on the path to economic growth.

His warning, delivered at a forum this week, comes amid a recent wave of workers' protests, legal battles and strikes that have prompted investors to consider pulling out of areas stricken by labor unrest.

One protest is planned for next Thursday, while another scheduled for today in Tangerang was averted only after labor unions and the Indonesian Employers Association (Apindo) settled their dispute, following a six-hour negotiating session mediated by the Manpower Ministry.

Companies and investors have long criticized Indonesia's labor laws for not being business-friendly, saying they are tilted too much in workers' favor, such as giving them huge severance payouts.

But others argue that workers are not given adequate protection, such as proper unemployment benefits. They also say wage growth has not kept up with inflation, which is why many workers have taken to the streets in protest.

Labor activist Odie Hudiyanto said many blame the government for not doing enough to protect their rights. "Trust between the labor and employer groups has broken down, so workers are willing to put their jobs on the line, seeing how other groups have demonstrated and successfully won higher pay," he said.

Tensions between labor unions and employers have been mounting in recent months, not just in the courts but also increasingly on the streets. Last Friday, thousands of workers in the industrial town of Bekasi, 20km east of Jakarta, caused a 30km tailback of traffic and forced shops to shut down after they blocked a major toll road.

The workers eventually scored a crucial victory, after a court ruling favoring Apindo was overturned and a minimum wage increase was upheld. Previous months also saw violent strikes in Batam, Riau, and long-running riots in Papua.

Observers say the workers' victories are likely to encourage labor unions to continue with their protests – raising fears that "street justice" could hurt an otherwise good investment climate and dent Indonesia's economic trajectory.

Southeast Asia's largest economy has managed to restore investor confidence with strong economic figures, netting record investment last year and scoring upgrades in credit ratings.

But economists say that apart from labor issues, the government also has to improve infrastructure, governance and transparency. Some also back worker demands for higher wages.

"Wage increases have not kept up with inflation, especially food prices," said economist Kazutoshi Chatani at the International Labor Organization. "This means that most of the workers are actually struggling to pay for basic needs."

According to the Central Statistics Agency, food prices rose by nearly 16 percent in 2010, while the wages of factory workers grew by less than 7 percent. Experts also say there are too many Indonesians working in informal sectors, earning below minimum wage without social security coverage and training.

The Manpower Ministry is working on ensuring that outsourced workers get the same benefits as permanent ones. President Susilo Bambang Yudhoyono on Wednesday also called for minimum wages to be revised in tandem with the growing economy.