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Indonesia in work-permit U-turn following businesses' pushback

Move adds to concerns over the country's unpredictable regulatory environment, which has been a major beef of foreign investors

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Indonesian workers walk on train tracks as they go to work at Tanah Abang train station in Jakarta, October 15, 2015.

Singapore

THREE months after introducing onerous work permit rules on foreign professionals heading to Indonesia and offshore directors of local companies, Jakarta has reversed course and scrapped some of the more cumbersome requirements.

Last Friday, the Indonesian government made a dramatic policy U-turn with the Ministry of Manpower (MOM) issuing amendments to parts of a tough set of work permit rules that was introduced in July.

One rule that was revoked was the need for foreign professionals heading to Indonesia for business meetings to apply for temporary work permits. Another that was dropped had required non-resident foreign directors of Indonesian companies to also obtain temporary work permits.

Industry watchers believe that the back-pedalling could have been a result of "pushback" from businesses, chambers of commerce and embassies.

"We are not entirely surprised by this decision given the considerable pressure from various parties and particularly in a country where legislative U-turns are not uncommon," said Tom Platts, a Singapore-based corporate partner in law firm Stephenson Harwood (Singapore) Alliance.

While the latest development is a huge relief to businesses, including in Singapore, where many businesses have operations in South-east Asia's largest economy, it cements the notion of an unpredictable regulatory environment in Indonesia, which is a major beef of foreign investors.

"This policy flip-flop reflects a worrying lack of proper research and consultation with industry groups by the Ministry of Manpower," said Bill Sullivan, a Jakarta-based foreign counsel with law firm Christian Teo Purwono & Partners.

President Joko Widodo has often trumpeted Indonesia's openness to foreign investors and yet, since he took over the leadership, his government has tightened rules on hiring of foreigners, among others.

While many appreciate Indonesian policymakers' goal to preserve job opportunities for the locals amid rising unemployment, they lament the ad hoc manner in which these policies are rolled out to appease surging nationalism, and worry about the impact on the greater economy.

"There is a disconnect between what is said on top and what comes out of the bureaucracy at the bottom," said Mr Sullivan.

For instance, earlier this year, policymakers rolled out a rule requiring expatriates to demonstrate their proficiency in Bahasa Indonesia to keep their work permit. This rule, which had understandably riled-up the foreign community there, was revoked after strong protests from the investment community.

"The frequent changes in the rules and regulations on manpower is a continuous challenge for Singapore companies doing business and operating in Indonesia," said Ho Meng Kit, chief executive of the Singapore Business Federation (SBF). "If Indonesia is serious about attracting foreign investments to help boost its slowing economy, it should review the need for the numerous changes to its manpower rules.

"This is not good for investors as Indonesia's labour environment has become exceptionally complicated, with its labour laws and regulations changing frequently."

If MOM had stood its ground on the earlier changes, said Mr Platts, it would have been a "huge nuisance" for businesses.

For one, requiring foreign professionals heading to Indonesia for short working assignments or business meetings to apply for work permits - a process that could take weeks or even months - would have been a logistical nightmare for businesses. Equally vexing was requiring offshore directors of Indonesian firms to obtain work permits although they do not live in Indonesia. Critics bemoaned the fact that under the rule, offshore directors - a source of valuable contacts, network and international expertise - were regarded as employees and they cautioned that a loss of such talent as a result could hurt the country's competitiveness.

While these rules have now been lifted, temporary work permits are still needed for a large number of other common "short-term activities" by foreigners such as installing and servicing equipment and consulting assignments which exceed a month, according to Mr Sullivan.

Indonesia's mixed signals and perceived growing protectionism also fly in the face of Asean's agenda for a unified economic community (Asean Economic Community or AEC) among member countries by next year.

"This is inconsistent with free movement of labour and capital and while there are implications for AEC, they aren't exclusive to Asean," said Joel Shen, solicitor at Stephenson Harwood. "It's a bigger issue than Asean."