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RESPONDING TO CHANGE IN THE WORKPLACE:

INNOVATIONS IN LABOR-MANAGEMENT-GOVERNMENT COOPERATION

**NEW INDONESIA INDUSTRIAL RELATION SYSTEM:**

**PROMOTING FREEDOM OF ASSOCIATION AND**

**THE RIGHT TO COLLECTIVE BARGAINING**

# INDONESIA

June 25 -- 26, 2001 Mexico City, Mexico

**NEW INDONESIA INDUSTRIAL RELATION SYSTEM:**

**PROMOTING FREEDOM OF ASSOCIATION AND**

**THE RIGHT TO COLLECTIVE BARGAINING**[^1]

**By:**

**Dr. Endang Sulistyaningsih**[^2]

# INTRODUCTION

During the last 2 years, the Indonesian Industrial Relations system has
transformed from a monopolistic system of trade unions (single unions)
into a more moderate system of increased participation by workers,
employers and the Indonesian society as a whole. Indonesia has
experienced a rapid transformation in Industrial Relations (see
Figure 1) as a direct response to the unprecedented economic and
financial crisis that impacted the country. Freedom of association has
created a sense of "euphoria" among workers given the limited
opportunity they have been afforded in the past. Although workers are
excited about the freedom to express their collective strength through a
showing of solidarity, labor unions remain reluctant to use a worker's
strike as a negotiation tactic to gain their demands.

The dramatic change towards a more moderate system that included worker
participation occurred after the Government of Indonesia ratified the
International Labor Standards ("ILO") relating to Freedom of Association
and protection of the Right to Organize as mandated by two ILO
Conventions on Freedom of Association (No. 87, 1948) and protection of
the Right to Organize and Collective Bargaining (No. 98, 1949). Despite
the fact that Indonesia has ratified these two ILO Conventions[^3], the
observation made by the ILO in the past has shown that there is some
improvement for the implementation, especially in providing room for
negotiation at any level (national and regional at the industrial and/or
factory/plant level).

This paper will briefly address the development of industrial relations
in Indonesia and highlight labor relation law reforms accomplished under
the labor law reform program. This will provide an opportunity to review
and analyze the progress made by the Government relating to the
formation of multiple unionism, registration and union shops, bargaining
and union structures, labor courts and the function of labor inspectors,
as well as collective bargaining and strikes. This will include
observations regarding the implementation of ILO Convention no. 87 and
98.

[Note for Figure 1]{.underline}.

Figure 1 attempts to capture the evolution of the industrial relations
system in Indonesia since independence. Time is on the horizontal axis,
and the development of a representative industrial relations system is
on the vertical axis. The solid line represents an \"average\" labor
supply price, relative to which we measure statutory rights (with the
thick broken line) and voice and representation (with the fine broken
line). Following Hirchman (1970), voice and representation may be the
result of a functional industrial relations system and may also be the
result of dynamic employment creation, which allows workers to vote with
their feet. The position of the three lines indicates the premature
introduction of statutory rights, above what would have been voluntarily
negotiated, and the subsequent introduction of controls on the labor
movement.

**Before the Ratification of the ILO Convention**

### Industrial Relations and Improved Labor Standards 

In 1957, the government introduced anti-strike measures in vital
industries and for all public sector employees, including most newly
nationalized states. The New Order government (1965-1996) banned the
leftist union and set the stage for the government-backed Indonesia
Labor Federation (namely SPSI), which has been the only recognized union
since 1973. Since then, labor policy in Indonesia has been focused on
the key objective of preserving stability and creating jobs while
avoiding labor unrest. Local officials of the Ministry of Manpower are
primarily responsible for mediating labor disputes.

According to Act No. 22/1957 and Ministerial Decree No. 15A/Men/1994,
the Ministry of Manpower must act as a mediator in any dispute between
workers and employers. The government has implemented this Act by
setting up a dispute resolution institution, which exists at *Daerah*
(Province levels -- disputes at district level are handled at province
level), and *Pusat* (National level). This institution is called P4D or
*Panitia Penyelesaian Perselisihan Perburuhan tingkat Daerah* at
Province level and P4P or *Panitia Penyelesaian Perselisihan Perburuhan
tingkat Pusat* at the national or highest level.

P4D and P4D as arbitration institutions are tripartite committees,
consisting of five people representing each party (workers, employers
and government). As occurs in many other tripartite committees, one of
officers from the Ministry of Manpower chairs the committee. This
chairman has the task of appointing the committee members made up of
representatives from workers, employers and the government.

The Dispute Resolution Act 22/1957 is the only Act that details the
steps of resolution. Although the government released the Act 25/1997 to
solve disputes, Act 22/1957 is the only practical reference. Workers
must, first, attempt resolution themselves with their employer. If the
dispute continues, workers and employers can involve one of officers
from the Ministry of Manpower as a mediator for informal resolution. If
the dispute is still unresolved, workers and managers can apply to P4D
to find a solution. If the dispute is resolved, the P4D decision must be
endorsed by the Province Jurist before its execution. If the dispute is
not solved, either of these two parties can apply to the highest level,
the P4P committee. However, the Minister of Manpower has a right to veto
a decision by P4P, by either delaying or cancelling its implementation.

In essence, there are generous statutory rights provided for workers
under the principles of Freedom of Association (ILO Convention no.
87/1948) and under Indonesia's initiatives for government intervention
in dispute resolution. The existing policy on the workers' Right to
Organize, ILO Convention No. 98, in fact, is against the government
policy of allowing workers to organise under a single union (during the
New Order government of President Suharto). Since the government
ratified this ILO Convention in 1998, this means that the government
will have to accept unregistered unions even though some of them emerged
under the affiliation of political parties (currently, Indonesia has
more than 30 labour unions).

This two-sided labor policy - Freedom of Association and government
intervention on the mediation process - is directly relevant to the
formal sector (which is comprised of public enterprises and modern
industry and services), a relatively small portion of the labor market,
but with much scope for expansion. Labor policy has been less relevant
to the majority of workers in the informal sector since by definition
the informal sector is the sector that is untouchable by the government
policies. The informal sector has no fixed business, no fixed hours of
work, no fixed location, for example fisherman, food stall, small goods
makers, day laborers and shop-keepers. (Central Bureau of Statistic,
Workers in Informal Sector, 1986)

Meanwhile, during the period from 1980 -- mid 1990s, the economy grew
amid macroeconomic stability and sensible investment of oil revenues.
The pace of growth accelerated as a result of the deregulation process
that began around 1985. The rapid expansion of manufacturing exports led
to strong growth in wage employment, greater scrutiny of violations of
ILO standards, and greater pressure on government to respond to
criticism of labor standards. These three factors have contributed to
increase the strength of the \"voice and representation\" factor.

Apart from the mounting pressure on the international front to raise
labor standards, two additional factors have added a sense of urgency to
labor policy concerns. First, the civil rights movement views their
support for increasing worker\'s rights as a way to advance human
rights. Second, Indonesian policymakers perceive that the benefits from
economic development have not been sufficiently shared by the workers.
The view that an increase in the minimum wage would result in rising
wages at the bottom of the wage scale and a reduction in wage
differentials is commonly held.

### The Right to Organize

The 1945 Constitution (Article 28) established the right of Indonesian
workers to organize and to engage in collective bargaining. However,
union recognition statutes are very strict because they have to follow
certain rules for recognition as a union. In order to become a "union",
an organization must first register with the Department of Home Affairs
as a social organization that accepts and support the principles of
\"Pancasila\" \-- a set of five principles to guide labor management
relations. The fundamental theme of \"Pancasila\" is the rejection of
conflict between the interests of workers and management and an emphasis
on common goals, cooperation and conciliation based on \"family\"
principles. (Manning, 1993)

In formulating labor relations, the government uses the State philosophy
of Pancasila as the basic principle to establish and ensure a harmonious
industrial climate. The labour relation system is called HIP (*Hubungan
Industrial Pancasila*) (Act 25/1997, section 24). The government
believes that under this philosophical umbrella employers and workers
can perform their respective functions and duties effectively. Thus, it
is expected that the production process can function smoothly, corporate
production can increase and national stability can be ensured. There are
five fundamental principles:

First, employers and workers are partners in the production process, so,
that working is not only meant to earn money, but it expresses a
devotion to God.

Second, workers are not only perceived as production factors, but also
as human beings, so they should be treated accordingly.

Third, between workers and employers, mutual interest must be built for
the sake of the success and continuity of the business. The failure of
the business will cause a loss of jobs and thus a loss of income for
both employers and workers.

Fourth, workers and employers in a company should reflect "family
relations". Any differences of opinion should not develop into disputes,
which if occurring can be resolved by *musyawarah* or "deliberations" to
reach consenus. This means that workers should not force their wishes
and demands by striking, and employers should not force their wishes by
ordering a lockout.

Fifth, workers and employers should be aware of an equilibrium between
"rights and duties" in order to achieve cooperation, justice and
fairness.

In order to gain union recognition, according to the Manpower
Ministerial Regulation no. Per-03/MEN/1993, a workers\' organization
must also be able to demonstrate that it was organized by and for its
workers through the following:

\(1\) Union offices in at least five of the country\'s 27 provinces.

(2) Branch offices in 25 districts

\(3\) One hundred plant-level units

\(4\) 10,000 members if it is so geographically confined that it would
be unable to meet standards 1-3 because of the nature of the industry,
for example, in mining. (PER03/MEN/1993)

Only one labor organization has been able to meet the strict
requirements for official recognition \-- the All-Indonesian Workers
Union (**SPSI)** because of the above requirements. Two other large
labor organizations have made unsuccessful attempts to gain recognition.
The Solidarity labor organization is reported to have been unable to
meet numerical standards. The **SBSI** claimed membership of 30,000 in
April of 1993 but was denied recognition because they they only cover 87
plant units as opposed to the 100 plant units, required by the job. With
the exception of teachers, public employees do not have the right to
join unions or to engage in collective bargaining. The teachers\'
association (PGRI) was granted union status in 1990, but has not engaged
in collective bargaining (Gallagher, 1995).

In 1994, the government introduced a new form of representation at the
level of the company. The Indonesian law PER-OI/NTN/1994 established
Company Unions (SPTP) to provide workers without representation by a
union, another option or political dynamic for expressing their opinion
at the plant level. An SPTP can be formed in companies that do not have
union representation and have a minimum of 25 employees. There can only
be one SPTP per company. Members of the SPTP must have Indonesian
citizenship, and must be employees of the company but may not be in a
management position. A majority representation (50 percent or more of
the eligible workers) is required for recognition of a SPTP. In
addition, employers have to be informed, and the organization has to
register at the local office of the Ministry of Manpower. Collective
agreements have to be registered at the local Manpower Office and are
binding for both of the signing parties, pursuant to the government
regulation (PER 01/1994). This new regulation offers a way to formalize
organizations that had already developed within enterprises, and it
makes it possible for new workers\' organizations to be formed. The fact
that these organizations have to restrict themselves to representing
workers in collective bargaining and that the potential leaders must
gain the confidence of employers since they do not have legal protection
as union representatives, is a very clear attempt to limit the rights of
these new organizations and to prevent them from gaining political
representation.

A number of firms (both publicly owned and even well-established ones)
are reported to function well with workers\' representation linked to
the official union (SPSI). Other firms (privately owned) are operating
with SPTPs (independent of the union movement). Currently, it is
estimated that around 1,000 companies operate with SPTPs and about
11,000 have established unions affiliated to SPSI. It is unclear to what
extent these new organizations can remain independent in the long run.
Article 12 of the law states that "after 12 months of being established,
it is suggested that the SPTP unite with the Labor Union of the
corresponding business sector.\"

In spite of this new avenue for representation, in companies with a high
degree of employment rotation, the capacity of workers to organize
themselves in councils or unions is naturally limited, and it is often
this incapacity that triggers public protests by minority groups. Of the
47,000 companies that employ 25 workers or more, only 40 percent of them
have signed collective labor agreements with their workers (see Jakarta
Post, Friday Nov 24, 1995). The rest of the workers have implicitly
agreed to accept company policy regarding their work arrangements,
although in most cases, there is no clarity about what that policy is.

**Freedom of Association**

On June 5, 1998 Indonesia ratified ILO Convention No. 87/1948 by a
Presidential Decree No. 83/1998. The implication of this ratification
has been very positive in terms of promoting and developing trade unions
at all level. Currently, there are at least 18 federations of trade
unions operated throughout the country, although not all of them have
been legally administered by the Government as regulated by Ministerial
Regulation No. 05/MEN/1998 on registration of trade unions but they are
welcome to operate their programs as long as the principal organization
is in line with the philosophy of Pancasila (state ideology) which being
manifested as a basic system in industrial relations in Indonesia and
the substance of the international labor standards. Basically,
Ministerial regulation 05/MEN/1998 promotes the possibility of setting
up plant level unions (in house unions), sectoral unions, integrated
unions (Gabungan Serikat Pekerja), and federation of unions as well as
Confederation of unions.

The term "union shop" is not popularly used, since this refers to those
that are set-up at the plant level. In addition, to those registered as
a pare of the federation of trade unions, there are many integrated
unions (Gabungan Serikat Pekerja Nasional) which are registered at
national level, due to their availability at many provinces such as
plantation and transport unions, and they share the committee for
negotiation. The federation of trade unions, collectively, have the
opportunity to affiliate to a Confederation of a federation of trade
unions. Such a body has been built this year, although, it is
unfortunate that only a limited number of the existing federation joined
this Confederation.

In terms of employers' associations, there is no longer a single
federation of employers involved in the process of labor relations, such
as APINDO (Employer's Association of Indonesia) and KADIN (Indonesian
Chamber of Commences and Industries) which recently set-up a department
to deal with industrial relations matters.

**Collective Bargaining**

The Government of Indonesia has ratified Convention No. 98/1949 in 1956
by Law No. 18 of 1956. Observations made by the ILO during the last 20
years suggested that Indonesia has not properly implemented the
substance regulated by this Convention, especially as it relates to
Article 1-4 of the Convention. This observation was made in regard to
the implementation by the previous Government, which started in 1978.
International trade unions blame Indonesia for not adequately
implementing this regulation, which has long been applied in Indonesia.
Single unions and lack of pure negotiation at the plant level is among
the most difficult problems facing Indonesia, in general.

However, this observation is no longer appropriate as many collective
bargaining negotiations has taken place at a variety of levels,
especially after the change in attitude by the Government to commit to
international labor standards. There is no involvement or intervention
for setting-up trade unions, either from the Government apparatus or
management, since the ratification of Freedom Association's convention.

Collective bargaining has mostly been conducted democratically. There is
no restriction on making such agreement, so that both parties have
adequate time for discussion. Although the principle of negotiation is
universally similar, Indonesia has a tradition of local practices, which
may facilitate the process of negotiation, such as praying before the
start of negotiations. In addition, in Indonesia, deliberation is
considered a central pillar of success, essential to reach consensus,
along with emphasis on common goals, cooperation and conciliation based
on \"family\" principles. As regulated by Act No. 25/1997, trade unions
may only represent workers if they have a majority membership at the
plant level and minority unions may suggest points to be negotiated.
Collective bargaining may be negotiated at national, regional or even
sectoral level.

**Labor Law Reforms**

In the area of law reforms, the Government through a tripartite
mechanism has intensively discussed any law that would improve the
protection of workers, improvement in labor productivity, and creating
industrial democracy and industrial harmony at the work places. These
efforts include drafting Trade Unions Act and Labor Courts Act. In
addition, there are two laws currently being revised, known as Labor Law
No. 25/1997, and Social Security Law No. 3/1992. The drafting of these
two Bills has included participation by international organizations,
such as the ILO which has been active since the early drafting stages
and provided financial assistance for "socializing" such drafts to the
competent parties" for more feedback or suggestions for improvements.
This was a follow-up of the Direct-Contact Mission undertaken in October
1998.

In line with the new labor law reformation, some ministerial regulations
are now expected to be revised. At first, a team was set up by the
Minister to regularly conduct meetings and discuss any regulations which
do not appear to be in compliance with the current situation, especially
in regard to the best interest of the people. Such regulations, include
trade unions registration (Minister Regulation - Permen 05/MEN/1997);
termination of employment; severance pay, service pay, and compensation
in private undertakings (Permen 03/MEN/1996), and Permen on Indonesian
Migrant Workers (Permen 44/1994). Some other regulations are now being
identified for further revision due to the political and international
pressure. These efforts have proven that the Government is really
consistent to implement the Seven Core ILO Conventions. (See Appendix 1)
In the future, some other positive efforts should also be considered
such as how to socialize this positive thinking (through several
meetings, workshops, seminars etc), for all sectors in the industrial
relations process for more universally acceptable.

The two Bills and the revisions of Laws will be submitted to the
Parliament in due course, while the revision of respective regulations
have been discussed at the Secretariat of the tripartite body which will
than be discussed internally for a final decision taken by Minister of
Manpower.

**Lessons Learned**

On a practical level, problems exist which relate to the implementation
of Ministerial Regulations 05/MEN/1998, such as the reluctance of
employers to accept more than one union at their factories. There has
been some criticism by the single federation of unions about the
fragmentation into multi-unions because these unions are influenced by
the political parties and is not easy to deal with more than one union.
At the factory level, such cases occurred in Jakarta (the capital city)
and its surrounding area, which often resulted in duplication creating a
need for a reduction of workers. Most of the areas affected at factories
are those considered as labor-intensive industries, such as garment,
shoe-making and textiles.

It should be noted that Indonesian workers do not have experience in
managing "modern organizations" such as unions. It is not because their
educational level is low, since that has increased as compared to ten
years ago. They are not aware of the fact that the union is powerful
enough to negotiate with employers. Lack of experience is demonstrated
by their limited capacity to formulate collective demands, find
strategies to articulate their grievances and maximize opportunities (or
take advantage of loopholes in the law) in response to their needs. As a
result, strikes often do not have clear objectives and merely express a
superficial misunderstanding with the employer.

Other problems identified include: inadequacy of leadership skills by
the union; lack of funding, since most trade unions have never operated
at the plant level; lack of operational knowledge of programs,
especially in regard to dealing with worker's welfare; lack of knowledge
and skills about how to implement the existing laws and regulations
pertaining labor relations, etc. These hindrances do exist in practice
and need to be resolved as soon as possible.

Efforts have been made to combat such problems and have been identified
by trade unions bills and the labor courts bill, as well as, the
revision of Labor Law No. 25 of 1997 and the revision of Social Security
Law No. 3 of 1992. These labor law reforms started a year ago and they
are still under discussion with the Parliament. One of the quick
responses to the recommendation made by the ILO -- Direct Contact
Mission undertaken in 1998.

In the future, additional assistance will be needed to further develop
these initiatives and should address how to provide in-house training
for trade union member, so that increased awareness is not merely
conducted for the leaders of the union or the leaders of management.
Initiatives to improve these programs should include providing the
knowledge or skills on how to set-up the structure of a union
organization, training facilities and guidance for practical-use for
labor inspectors.

**Conclusion**

This paper has briefly explained the progress being made by Indonesia
before and after ratification of international labor standards relating
to freedom of association and the further implementation of the right to
organize and bargain collectively conventions and how labor law reforms
is being undertaken by the tripartite team. Although positive impacts
have occurred, reluctance continues to exist, especially when the issue
regarding multiple unions at one factory location arises. Therefore, it
is suggested that this forum conduct a brainstorming session and
discusses the best solutions to create industrial harmony in the
workplace.

**Appendix 1**

# ILO Core Convention -- Ratified by the Government of Indonesia

+-------------+---------------------------------------+----------------+
| No.         | Subject                               | Ratified       |
+-------------+---------------------------------------+----------------+
| 87/1948     | ## Freedom of Association             | PD no. 83,     |
|             |                                       | June 5, 1998   |
| 98/1949     | Freedom of Association and Protection |                |
|             | of the Right to Organize              | Act. 18/1956   |
|             |                                       |                |
|             | The Right to Organize and Collective  |                |
|             | Bargaining                            |                |
+-------------+---------------------------------------+----------------+
| 29/1930     | ## Forced Labor                       | 1933/1950      |
|             |                                       |                |
| 105/1957    | Forced Labor                          | Act 19/1999    |
|             |                                       |                |
|             | Abolition of Force Labor              |                |
+-------------+---------------------------------------+----------------+
| 138/1973    | ## Child Labor                        | Act 20/1999    |
|             |                                       |                |
| 182/1999    | Minimum Age                           |                |
|             |                                       |                |
|             | Worst Forms of Child Labor            |                |
+-------------+---------------------------------------+----------------+
| 100/1951    | ## Discrimination                     | Act 83/1957    |
|             |                                       |                |
| 111/1958    | Equal Remuneration                    | Act 21/1999    |
|             |                                       |                |
|             | Discrimination (Employment and        |                |
|             | Occupation)                           |                |
+-------------+---------------------------------------+----------------+

[^1]: This paper is prepared for Symposium on "Helping Businesses
    Respond to Change: Innovations in Labor-Management-Government
    Cooperation", APEC HRD WG, Mexico City, June 25-26, 2001.

[^2]: Endang Sulistyaningsih is currently working as Head of Research
    and Development Center at the Ministry of Manpower and
    Transmigration, Jakarta-Indonesia.

[^3]: ILO No. 98 of 1949 was re codified in 1956 into Act No. 18 of
    1956,