The draft omnibus law should ‘green’ Indonesia’s infrastructure and agriculture production

Indonesia has lost 3 million jobs because of the pandemic, bringing the unemployed figured to 10 million. Social assistance claims have skyrocketed; in West Java alone, 38 million of 50 million applied. Before the pandemic, there were 9 million claims in West Java. President Joko Widodo hoped to invest in human capital and improve infrastructure in an effort to stimulate economic growth. These plans have been put on hold amid the growing health crisis. The economic situation will likely worsen as COVID-19 cases increase. Indonesia has the highest number of cases in Southeast Asia.

Although cases have sharply increased, Indonesia is reopening its economy. Reopening has not prevented falling economic growth as regional and global economies are stagnating; foreign direct investment (FDI) into Indonesia fell 6.9% from April to June. 70% of Indonesia economy relies on foreign investment and household spending, the latter of which is similarly depressed by restrictions on regional movement and sub-national social distancing efforts. This, in combination with government resources directed towards addressing the effects of the pandemic, has slowed infrastructure projects and industries whose products rely on their export such as palm oil production. These projects and export-oriented industries are crucial for Indonesia’s development and maintenance of its high growth rate. Before the pandemic, the government of Indonesia was already looking for ways to increase FDI by cutting red tape, targeting firms in China and investment from Singapore. The pandemic has scared politicians into deregulating crucial environmental legislation.

Despite setbacks to such infrastructure and human capital improvement efforts, the newly formed National Economic Recovery and Transformation Task Force still places economic development at the head of the Widodo administration’s agenda. This is clear in newly proposed legislation.

The draft omnibus law on job creation was introduced in February and includes several controversial regulation changes. The bill may be passed this month. Its intention is to make foreign investment in Indonesia easier by decreasing some regulations. This law includes weakening environmental regulations such as scraping environmental impact assessments for new business, removing a rule requiring every province to maintain 30% of its forest cover, and making it easier to zone developments on coastal areas. These are a few out of the 79 rollbacks on environmental regulation. It is also important to note that this law drastically expands presidential power. Many argue these changes are unconstitutional. This law is serving as Indonesia’s main COVID-19 recovery plan. The deregulation of the environment under the draft omnibus law will not lead Indonesia to a greener future after COVID-19.

The deregulation would impact major infrastructure projects – such as the relocation of Indonesia’s capital to an area with significant, dense rainforest – and will result in emissions from land use change. These increased emissions also extend to agricultural production, particularly palm oil. 28.4% of Indonesians work in agriculture and 22.45 work in industry which includes infrastructure projects. 66.5% of GHG emissions come from land use change and forestry. 7.4% comes from agriculture. Land use change, forestry and agricultural emissions are largely driven by palm oil production and pulp and paper production. Infrastructure makes up less than 10% of emissions, but could spike particularly in major projects like the relocation of the capital. Given these deregulations, business and industry will expand, driven by foreign investment with few checks on their environmental impact and effect on GHG emissions.

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Activity Rating: * Falling Behind

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Take Action

Reach out to your member of parliament and urge them to reject the draft omnibus law for its relaxing on environmental safeguards and overreach of presidential authority. The parliament should draft legislation to put Indonesia on a sustainable recovery from COVID-19.

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This Post was submitted by Climate Scorecard Indonesia Country Manager Tristan Grupp