In a move that appears aimed at the numbers of Chinese mainlanders flooding into Indonesia’s industrial sector but that will likely sideswipe foreign and local investors, the government is poised to mandate that all expatriate work permit holders be forced to learn Indonesian as a foreign language.

The early drafts of the new rules – which have not been formally introduced – state that foreigners must be proficient in Indonesian before work permits will be issued. Later drafts seem to indicate some flexibility, but companies are worried that even vital senior executives, who rotate through head offices on three to four year tours, could be at risk.

Korean, Japanese, American and European business chambers have all been buzzing over this latest manifestation of economic nationalism. It is unclear if the country’s Manpower Ministry will relent, although one recent version of the new rules indicates that there may be a grace period to allow expats already in the country to brush up their Bahasa Indonesia before facing a formal test. Foreign business associations have been given no input into the new rules but a handful of local business leaders have been consulted.

Given rapid economic growth and a problematic educational system, local companies are often as reliant on expats as foreign firms. Retail supply chains, logistic operations, engineering departments and other out-of-sight aspects of local conglomerates are often run by foreign experts.

Fear of the Chinese

The chief villains being cited by officials are illegal Chinese workers. In the wake of the Asian Financial Crisis in 1997 and 1998, most foreign investors fled Indonesia except for Chinese companies, many of which won infrastructure tenders on a wave of cheap financing. As commodity prices subsequently took off, more Chinese companies entered, taking a strong interest in the country’s growing economy and natural resources.

This has discomfited some Indonesians, many of whom have never been comfortable with the prosperous Chinese-Indonesian minority in the first place, since they tend to command the country's economic heights. Tens of thousands of ethnic Chinese were slaughtered in the anti-communist purges that followed a failed 1965 coup. Those events brought to power the strongman Suharto, who used ethnic Chinese economic strength to build the economy while banning the Chinese language and forcing most Chinese to take Islamic names. Later, ethnic Chinese Indonesians felt the brunt of the violence that swept the country when Suharto fell after 32 years at the top.

The new proposed manpower regulations and other measures that are seen to target expatriates are largely aimed at growing numbers of mainland Chinese workers, many of whom are believed to be in the country illegally. Existing laws would bar these workers but enforcement is spotty and bribes to look the other way are common.

ASEAN worries

The measures being proposed are also considered to be aimed at the late 2015 onset of the ASEAN Economic Community [AEC], which envisions an integrated ASEAN economy including the free flow of skilled workers and capital throughout the 10-country region. According to a joint study by the International Labour Organization (ILO) and Asian Development Bank (ADB) in 2014, the AEC could generate some 14 million jobs by 2025, and improve the livelihood of the 600 million people in ASEAN.

The study shows that there will be significant wage and productivity gaps after the implementation, with the wages of skilled workers likely to benefit most. However, skill mismatches are likely to worsen with more than half of the high-skill jobs available being filled by under-qualified workers, highlighting the importance of improving the quality and relevance of education and training to meet industry requirements, which is high on the to-do list of the Indonesian government under President Joko Widodo. Many Indonesian officials and business leaders fear that the country is unprepared to face the coming competition under the AEC and the response has been to seek non-tariff measures to slow down the impact.

Expanding rules

The decree regarding the use of foreign workers amends a 2008 regulation stipulating that “the ability to communicate in Indonesian shall be in accordance with the skills required for the relevant position,” and that if the foreign workers are unable to meet the required standard they will have to take language training.

“We hope that the revision can be complete in February so we can immediately implement the Indonesian language skill test for foreign workers who wish to work in Indonesia,” Minister Hanif Dhakiri was quoted as saying by the state-run Antara news agency. The new regulation is to add a formal test and standards being developed by the University of Indonesia.

He added the government would tighten various regulations concerning expatriate workers in Indonesia and ensure their enforcement in order to protect the local workforce from an influx of foreign newcomers seeking jobs in Indonesia.

According to data from the Manpower Ministry, as of October 2014, 64,604 foreign workers were registered in Indonesia, a decline from 68,957 in 2013 and 72,427 in 2012. The largest number of workers – more than 15,000, are overseas Chinese, followed by Japanese (10,183), South Koreans (7,678), Indians (4,680), Malaysians (3,779) and Americans (2,497).

The regulations can be traced to a higher law in Indonesia which pertains to certain provisions of the National Language, Flag, Coat of Arms and Anthem. While the regulation focuses on the promotion and protection of the Indonesian language and literature, it introduces a potentially significant requirement for expatriate workers in Indonesia to have sufficient knowledge of Indonesian to satisfy standards to be set by the Minister of Education.

The provision is not the first to require knowledge of the Indonesian language for expatriate employees; the same kind of regulation is stipulated by the Minister of Energy and Mineral Resources for the oil and gas industry. However, in both cases, the level of proficiency required is confined to “the ability to communicate in Bahasa Indonesia,” with the sanctions unclear if foreign workers fail to meet these requirements.

In its defense, the Indonesian government pointed out that similar strategies have often been used in the past to circumvent the principle of free movement of labor in the European Union.

"Like other countries, Indonesia makes policies not to bar foreigners from entering, working, or studying in Indonesia, but to facilitate their entry so that their stay gives mutual benefit for the country and the foreigners themselves," Mudjiman, the chairman of the National Commission for Standardization of Professions, told local media.