World Bank says Indonesia's reforms may hurt environment, labour rights

JAKARTA (Reuters) - The World Bank on Thursday criticised some of Indonesia's planned reforms to make environmental and labour rules more business friendly, warning they could have adverse effects, especially amid the COVID-19 pandemic.

Thursday's release of a report by the bank coincided with trade union protests in several cities seeking cancellation of an "omnibus bill" that aims to revise dozens of existing laws to ease the way for investment in Southeast Asia's largest economy.

The World Bank described the bill as "a potential step in the right direction", praising measures to remove discriminatory practices against foreign investors and streamline export-import rules.

However, "the bill includes reforms that could have adverse effects on people's health and safety, natural assets, and labor rights," the multilateral lender wrote in the report.

Satu Kahkonen, World Bank Country Director Indonesia and Timor Leste, told a streamed briefing the bank is concerned with the relaxation of environmental study requirements.

"It's going to move Indonesia's environmental legislation further away from international best practice and this is not basically helping Indonesia," she said.

The planned exemptions of minimum wage and reforms to phase out severance pay "could weaken the protection of workers and increase income equality", especially during heightened unemployment due to the coronavirus crisis, the bank wrote in the report.

Kahkonen called for clear sequencing plans for the unemployment benefit system and severance pay adjustments.

Green activists and labour groups have raised similar concerns.

In a joint statement on Thursday, labour unions complained their views had not been incorporated in the parliamentary debate and accused lawmakers of siding with companies.

Officials at the economic ministry did not respond to requests for comment.

Supratman Andi Atgas, chairman of the parliamentary body that deliberates on the bill, said rules on environmental protection would only be simplified, but not changed, adding that lawmakers are aware of unions' aspirations.

The World Bank predicts Indonesia's economic growth will flatline this year due to the pandemic, with activity possibly contracting 2% if the country is forced to reimpose restrictions on people's mobility due to a new wave of infections.

The government's GDP forecast ranges from a 0.4% contraction to 1% growth this year.

(Reporting by Gayatri Suroyo, Agustinus Beo Da Costa, Tabita Diela and Maikel Jefriando; Editing by Kim Coghill)