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Indonesia: weathering the storm

Early to mid-2013 was a difficult time for the Indonesian economy. This led to the country becoming tagged with the unfortunate moniker of a member of the “fragile five” of the developing world.

However, late 2013 and early 2014 has been a more positive period. In December 2013, Indonesia recorded its largest monthly trade surplus for nearly two years and exports rose by approximately 10.3% year on year (The Economist).

An element of protectionism by the government has assisted this process and there are directed attempts to protect local producers from foreign competition. Given it is election year it is expected that such steps will continue to be taken to ensure economic stability.

Last year also saw a wave of strikes organised by worker representatives and trade unions. Demands were made for a fair minimum wage and greater protection for workers given concerns that outsourcing was being used to create distance between employer and employee and therefore undermining worker rights.

There have been significant changes in the employment relationship since the pre 1998 situation when strict labour law rules were enacted by the government and employers had to obey them. Any failure to do so could lead to fines, levies, penalties and in some extreme cases jail sentences. However, from 1998 the country began to reform the employment sector and laws were implemented to give employers and employees more leeway to negotiate terms.

Currently, an employer can dismiss an employee at any time provided one month’s notice is given and also can terminate the employment relationship without notice providing that compensation is paid for the period. Employees also have an element of sick pay protection, annual leave and compensation for any injury at work. Dispute resolution is favoured and the law facilitates employers and employees getting together to try and resolve disputes amicably without recourse to the Labour Dispute Settlement Committee.

The concern amongst trade unions is that as Indonesia attempts to ensure further economic growth that there will be a diminution in workers’ rights. There will come a period of time when the protectionist model currently in operation will no longer be suitable going forward as Indonesia tries to integrate more fully into the global economy. It remains to be seen what ramifications this will have on labour market reform.

Matthew Yates Partner

Co-Lead Global Labour Law Unit

matthew.yates@dwf.co.uk

David Gibson Partner

Co-Lead Global Labour Law Unit

david.gibson@dwf.co.uk

 

 

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further