James Guild – Indonesia's recent "Omnibus Bill" on job creation touched off massive pushback from civil society groups in recent days, even as there remains quite a bit of confusion about what exactly is in the bill. For a piece of landmark legislation with the purported aim of reducing regulatory uncertainty and simplifying the procedural labyrinth of Indonesia's bureaucracy, the irony is hard to miss.
But as I wrote for New Mandala last year, that this would be Jokowi's play during his second term in office has been clear for some time. He horse-traded aggressively, packing his cabinet with political, business and military heavies in order to secure a supermajority in the legislature so he could pass legislation that would, it was hoped, increase investment and export-led growth. In the process, he has been willing to minimize or ignore many of the concerns of civil society groups.
Jokowi is gambling that the bill will drive sufficient economic activity to offset these unsavory political trade-offs. It is too early to say whether this gambit will work – we don't yet know the economic effect of the legislation, which is expected to be further shaped through subsequent ministerial and presidential regulations. Regardless, it seems the president and his governing coalition may have overplayed their hand, misjudging the intensity of the pushback as they tried to rush the bill through. But for a close watcher of Jokowi's first term, this bill in its aims and its execution conforms to a fairly consistent internal logic.
The main take-away from Jokowi's first term in office was that the Big Bang decentralization of the Reformasi period had created more problems than it solved. By investing local officials like bupati, who head Indonesia's sub-provincial regencies, with wide-ranging fiscal and licensing authority, it became very difficult to formulate and execute national-level economic strategy. For instance, a single bupati could delay a toll road project for years, for their own personal reasons. This uncertainty, in turn, held back investment.
At the heart of Jokowi's economic vision is a recentralization of power in Jakarta, what he views as a necessary step to break through these jurisdictional bottlenecks. He tapped state-owned companies, as well as a new legal right of eminent domain, to speed up land acquisition and overcome regulatory and legal hurdles. Whenever possible, he stripped authority from local officials and placed it in the hands of national agencies. Much of this was accomplished through executive fiat – presidential decrees and regulations. The Omnibus Bill is an attempt to codify these reforms into binding law.
From an aggregate economic perspective, these efforts have had an impact. Investors have been eager to buy government and corporate bonds, helping to underwrite big infrastructure projects. Growth remained steady at 5 percent despite some economic headwinds. And the country's stock of fixed capital grew significantly. As just one example, during the ten years of Susilo Bambang Yudhoyono's presidency, Indonesia built only 229 kilometers of new toll roads. In Jokowi's first four years, over 700 kilometers were completed.
It's clear that Jokowi sees these efforts as a net benefit to the Indonesian economy and an engine of growth and job creation (in line, it should be noted, with much mainstream economic thinking). The Omnibus Bill is more of the same: increased centralized authority over licensing and regulations in order to juice investment, exports and manufacturing. This is Jokowi's vision for economic development, and he had success with it in his first term.
But the question now floating to the fore is, development for whom? The accelerated construction of the long-delayed Trans-Java Toll Road is a noteworthy accomplishment, especially given the magnitude of the financial, political and regulatory challenges it had to overcome. Its construction has resulted in some undeniable economic benefits. However, many Indonesians may never or only rarely use it, since the tolls are quite expensive.
A one-way trip from Probolinggo, currently the eastern terminus, to Central Java will run you more than 300,000 rupiah (around $20). It is a fast, convenient transportation artery that has considerably sped up travel time through Java. Factories in Central Java will benefit from the toll road when it comes to shipping their goods to Surabaya for export. But as the road cuts through green rice fields in Sragen regency, often ringed with barbed wire to keep wildlife out, many local workers in the area earning the minimum wage of 1.67 million rupiah may never directly experience this reduced travel time.
It is this duality that lies at the heart of the Omnibus Bill protests. If the bill works as intended it will drive a particular type of economic growth, one that prioritizes manufacturing and investment. The protests stem from a desire on the part of civil society to hold the government accountable and ensure that those who will be asked to make sacrifices (workers), will share in the gains and be protected against incurring all of the costs.
These are legitimate concerns, and the government has an opportunity here to engage constructively with these issues particularly because its core goal (creating a more attractive investment climate) is a broadly popular one. It is tempting in such a messy and fraught environment to invoke the power of the state to overrule objections under the guise of developmentalism (this was the New Order's MO, more or less – and it worked until it didn't). But, particularly given the added pressure of a global pandemic, the limits of that approach are becoming clearer.
Economic policymaking often masquerades as an impartial, technocratic process. But the truth is, it involves fundamentally political decisions. In a democracy, especially one as large and diverse as Indonesia, the process of balancing a multitude of competing interests through political trade-offs and deal-making is messy. But the trade-offs ultimately reflect the interests, objectives and priorities of political actors. Civil society groups and labor unions have made it clear that they want a bigger voice in this process, that if sacrifices are being demanded for the bigger goal of economic development they want to know, development for whom? This is a complex question, but if Jokowi wants to protect his legacy then he would be wise to have an answer for it.
[James Guild is an expert in trade, finance, and economic development in Southeast Asia.]