Robert Go, Jakarta – Fighting off stiff competition from other low-cost and high-productivity countries such as China and Vietnam, Indonesia is likely to reform some labour laws as part of attempts to stem the outflow of investors and to bring in fresh investments.

Among the measures are wage freeze and more rulings favouring companies in future disputes pitting firms and labour unions.

Top officials at the Ministry of Manpower and Transmigration told The Straits Times that draft labour regulations currently before Parliament could bring back foreign companies, particularly those operating in low-technology, labour-intensive sectors.

Dr Muzni Tambusai, director-general responsible for labour relations and training, said: "We know we have to do several things at once here. We want to protect our workers. But at the same time, people are also telling us that our workers scare investors.

"The proposed changes should reassure companies that our workforce remains stable and productive, and at the same time, affordable and hassle-free." Parliament could approve the new labour laws by next month.

Key components of the draft regulations include a freeze on minimum wages for a year, clauses detailing severance terms and how much laid-off workers are entitled to, and strict guidelines on resolving conflicts between workers and employers.

The government would also establish national and provincial labour tribunals, which would be tasked with mediating in labour disputes and avoiding prolonged strikes.

Dr Muzni added: "We had no regulations on how far striking workers could go. After the new laws, unions will know the consequences of unlawful or destructive strikes.

"The new laws also protect companies' rights when their workers get laid off or resign from their jobs. It will spell out clearly what economic costs companies have to bear when they fire workers. This should take care of many of our current disputes."

Indonesia had one state-recognised union during the Suharto era, but since the beginning of the Reformasi era in 1998, around 70 national-level unions have sprung up. The country also boasts of thousands of smaller groups representing workers at the regional and provincial levels, who at times band and strike together.

Businessmen and experts, including Trade and Industry Minister Rini Soewandi, have argued that unruly labour activities scare off foreign companies. Various business associations have said that hundreds of thousands of jobs are lost each year in Indonesia when firms pull out due to rising labour costs or problems.

Experts added that pro-labour policies, such as those mandating wage increases of up to 40 per cent this year alone, or forcing companies to pay up as much as a year's wages in severance pay, are counter-productive to the economy.

Business tycoon Sofjan Wanandi said: "Workers have asked for too much. Indonesian companies cannot survive under these conditions. Foreigners leave." Both unions and employers, however, are not happy with Jakarta's proposals, a situation which shows clearly the extent of the government's dilemmas.

For businessmen like Mr Sofjan, the government remains too soft on workers, and too hard on companies: "There are still a number of clauses that we cannot accept. Getting paid while striking. Compensating workers who resign voluntarily. These proposals would hurt companies too much. We are already struggling enough."

Unions, in the meantime, have staged a number of large demonstrations both in Jakarta and in provincial capitals, to protest against what they described as the government's intentions to bow down to "capitalist demands".