Indonesia’s Markets Rally on Move to Simplify Labor Regulations

(Bloomberg) -- Indonesia’s stocks and currency rallied after the nation passed a bill simplifying labor and investment rules, making it easier for companies to secure permits while exempting some dividend taxes.

The benchmark stock index and the rupiah gained as much as 1.3% each. Shares of Bank Central Asia Tbk PT and Bank Rakyat Indonesia Persero Tbk PT led an advance in lenders.

President Joko Widodo is seeking to shore up an economy that’s set to report its first annual contraction in growth since the Asian financial crisis. While the bill has met with opposition from workers resisting a reduction in severance pay, it could boost banks and builders, according to Citigroup Inc. and CGS-CIMB Sekuritas Indonesia PT.

“The omnibus bill helps to remove or ease some of the inherent frictions and pain points in conducting business in Indonesia, so markets are on net reacting positively to that,” said Yanxi Tan, foreign exchange strategist at Malayan Banking Bhd. in Singapore. Still, there “are residual concerns over the labor union protests this week, and actual policy implementation may face challenges too,” he said.

The rupiah rose 0.6% to 14,710 at 10:05 a.m. local time. The Jakarta Stock Exchange Composite Index was up 1%.

“If the government can execute and implement the regulations smoothly in real case situations, we believe FDI and domestic investments should be more robust,” Citigroup analysts Ferry Wong and Edi Chandren wrote in a note. “There must also be deregulations to ease non-tariff measures such as import restrictions and local-content requirements.”

The rule changes will also make it easier for companies to secure permits and ease foreign-ownership requirements, while the government plans to set up an unemployment fund.

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