The monthly minimum wage in the Indonesian capital was set in November to rise by 0.85% to 4.45 million rupiah in 2022, based on legally prescribed calculations.

But Governor Anies Baswedan on Dec 18 told reporters that the increase was “insufficient” because it fell below the region’s inflation rate.

The Indonesian Employers’ Association, or Apindo, said it was considering a lawsuit to block the governor’s far larger increase. The Indonesian Chamber of Commerce and Industry, or Kadin, has expressed its opposition to the move.

Under the so-called Omnibus Law passed in November 2020, each Indonesian province determines its own minimum wage by plugging in its economic growth rate, inflation and other indicators into a standard formula.

The shift from a national minimum wage to provincial ones is part of a push by President Joko Widodo to grant more flexibility to employers and lure more foreign businesses to Indonesia.

Until the coronavirus pandemic hit the country in 2020, the minimum wage in Jakarta had been rising by about 8% per year, putting an increasingly heavy burden on employers.

But some unions objected to the Omnibus Law’s impact on wage growth, contributing to widespread protests in the province and calls for a dialogue with Baswedan.

Indonesia’s Constitutional Court ruled last month that the Omnibus Law would become unconstitutional unless the government amended it within two years, pointing to procedural flaws in the parliamentary process.

Some observers believe Baswedan is basing his minimum wage action on the court’s decision.

Baswedan argues that a 5.1% hike is smaller than the typical 8% rise and would benefit employers as well.

But the business associations suspect the governor announced the larger hike under pressure from unions. The business lobbies have also have urged Indonesia’s labour and interior ministries to impose legal penalties against the decision.

Some speculate that Baswedan’s stance on the minimum wage positions him to run for president in 2024.

He is one of the most popular potential candidates, opinion polls show, ranking behind Defence Minister Prabowo Subianto and Central Java Governor Ganjar Pranowo.

But because Baswedan is not affiliated with a political party, he would need to build a strong support base to win the race. Unions hold significant political clout in Indonesia.

Foreign companies had hoped the Omnibus Law would improve the business environment in Indonesia. The minimum wage debate shows the growing uncertainty the face over the fate of the Widodo administration’s signature law.

“The law was passed only recently, and it’s already been essentially overturned,” said the head of a local arm of a Japanese company. “We’re still facing predictability risk when it comes to investments.”