Local Language Proficiency in Indonesia: An Economic Dilemma
Government officials indicated last Tuesday that Indonesia would no longer go ahead with a plan that would require prospective foreign workers to take proficiency exams in the local language. This announcement comes after protests from both domestic and foreign investors who see the act as protectionist.
According to a government official who declined to be named, coordinating ministers have come to a consensus that the planned regulation should be abolished and details are “now being worked out in the cabinet”.
Manpower Minister, Muhammad Hanif Dhakiri, who had announced the planned regulation earlier in the month was unavailable for comment.
The Red-Tape Remains
Although this move to cancel the requirement of local language proficiency of foreign workers has been seen by many as an encouraging one, investors continue to decry what they see as unnecessary barriers in the form of bloated bureaucracy.In 2013, the Indonesian government issued regulations that set out stricter requirements for hiring foreigners in the oil and gas sector. The new regulations banned relevant companies in the industry from hiring expatriates above the age of 55 and mandated proficiency in Bahasa Indonesia, the local language, amongst other requirements. In response, Lukman Mahfoedz, chairman of the Indonesian Petroleum Association, commented that “Indonesia is still left behind in oil and gas technology” and that “executives who are 55 years or above are those we need to recruit most due to their long-time experience”.
This red-tape extends even to the education sector, where Indonesia has some of the “most stringent conditions” for English teachers around the world, according to Nina Wexler, an American who owns schools in the Indonesian city of Surakarta. Wexler stated that “out of 100 applicants, maybe five qualify” and that “chances are that they will end up taking higher-paid jobs in other countries”.
Despite President Joko Widodo’s promises to reduce the number of barriers to investment late last year, recent moves by the government seem contrary to this commitment. On March 23, Minister Dhakiri announced the need to limit the number of foreign workers in Indonesia to ensure ample opportunities for locals. Indonesia, Southeast Asia’s largest economy by GDP, ranked 114th out of 189 countries in the World Bank Ease of Doing Business survey of 2015, well behind regional competitors for investment Malaysia (18th) and Vietnam (78th).
Human Resources and the ASEAN Economic Community (AEC)
The seeming indecisiveness of the Indonesian government on this issue of local language proficiency requirement belies a graver situation at hand for the Indonesian economy – a shortage of skilled labour. This problem is exacerbated in light of the coming integration of the economies of the 10 member states of the Association of Southeast Asian Nations (ASEAN) to form the AEC.
In the 2012 Programme for International Student Assessment (PISA) by the Organisation for Economic Cooperation and Development (OECD), Indonesia’s 15-year-olds ranked 64th in math and science and 60th in reading out of 65 countries assessed.
According to a report released in 2013 by the Boston Consulting Group, Indonesian companies might find themselves unable to hire qualified employees due a shortage of skilled labour in the near future. The report found that 88 percent of Indonesians within the college age group were not enrolled in tertiary education institutions. Furthermore, Indonesia currently yields only 30, 000 technical graduates each year, almost half the 50,000 required by Indonesian industries. The report concluded that with no action taken, leading firms in Indonesia would not be able to fill half of their entry-level positions with qualified candidates.
With the 31 December 2015 deadline for the AEC’s realisation looming ahead, Indonesia faces potentially difficult times and most definitely difficult decisions. Ideally, a common market would increase the overall welfare and prosperity of the region but Indonesia’s workers would undeniably face greater competition with regional integration. While this planned language proficiency regulation for foreign workers was described by Indonesian Vice-President Jusuf Kalla as “well-intentioned” to protect low-skilled jobs in view of the AEC integration, it appears that the economic realities of a transition from labour-intensive to capital-intensive investments in Indonesia will be a long and difficult one.