Jakarta Tries to Soothe Angry Multinationals on Visas

Indonesian labor officials appear to be trying to wriggle out of strict interpretation of a July law mandating that multinationals hire 10 locals for every foreigner, a law that is cutting severely into President Joko Widodo’s aspirations to lure foreign direct investment.

In addition to the hiring mandate, the law requires nonresident foreign company directors to obtain work permits, a process that typically is stalled for weeks or even months. International staff also need business visas in advance to attend meetings, train staff or take care of emergencies even including equipment breakdowns.

But, said a western businessman: “Out of a total workforce of more than 100 million, there were 54,000 registered foreigners as of August this year, down about 30 percent from 2012, according to the manpower ministry. The largest group, numbering 13,000, are from China. We have all been up in arms about it. This is so stupid I can hardly breathe.”

The Indonesians, he said, “now want to require non-resident directors of Indonesian companies to obtain resident work permits even if they do not live in Indonesia and have no intention of living in Indonesia,” the businessman said. “This seems to apply even to foreign-owned Indonesian companies. I have to obtain a visa to go to Bogor.”

In an apparent effort to soothe the international community’s ruffled feathers, Ruwiyono Septy Preharso, the head of the work permit section of Indonesia’s Manpower Ministry, held a seminar for mostly foreign businessmen, during which he said the regulation doesn’t mean the 10 Indonesians have to serve on the same level or in the same capacity as expatriates.

“There is no need to be afraid,” he was quoted by Bloomberg as saying. The quotas, he said could be filled by low-paid staff like menials. “They do not need to be permanent workers, but it is better if they are.”

With multinational companies furious at the restrictions and threatening to limit their activities in the country, the president is on his way to Washington, DC and the US west coast in mid-October to proselytize investment in the country, whose annual gross domestic product increase has slipped to 4.67 percent annually, the lowest level since 2009, and which increasingly needs investment from overseas to prop up the economy.

Indonesia is ranked 114th in globally by the World Bank’s Doing Business Report for 2015.

“Strengthening political and economic stability has removed some investment risk and improved the overall atmosphere of the market,” according to a Banco Santander report. “However, some obstacles remain, such as the rising cost of credit, the poor investment climate, excessive and unpredictable regulation, the poor quality of infrastructure, the control of the terrorism risk and a high level of corruption.”

Although officials have been quietly removing roadblocks for selected US companies that have indicated a willingness to increase investment if conditions improve, other parts of the bureaucracy continue to issue contradictory instructions that seem to turn his instructions upside down.

“The president wants the US trip to be a success,” said one of the event’s planners. “And that means getting a number, a big dollar figure, for incoming investment deals.”

As a sign of his own concern, in early September, Jokowi, as he is known, sent his entire cabinet to the city of Bogor for a three-day conclave aimed at cleaning up red tape. He later released a package of revisions to 89 regulations aimed at simplifying the process for obtaining business permits and streamlining bureaucracy.

Apparently, the law on work permits wasn’t included, possibly because of opposition by the country’s powerful trade unions, which are concerned with rising unemployment, which has climbed to 5.81 percent as of Oct. 5.

Trade Minister Tom Lembong, a former private equity manager who has reversed some policies since his appointment in August, told Bloomberg the restrictions on foreigner permits and local worker quotas are “a big problem” being created by bureaucrats. “For every one expat worker who comes in, that person creates between 3 and 12 jobs,” Lembong said in an interview last month. “You have to understand this is not coming from the president.”

The main investing companies in Indonesia in 2014, according to the Investment Coordinating Board, were Singapore, followed by Japan, Malaysia, the Netherlands, the UK, the United States and South Korea. However, China is moving up fast. Although the details are unclear, China is involved in reviving much of the country’s shambolic infrastructure. It recently signed on to build a 150-km railway between Jakarta and Bogor, where much of the country’s textile industry is located.

Local media, however, have had a field day pointing out that the industries and infrastructure the Chinese are building are largely staffed by what they call an “invasion” of Chinese workers from the mainland.