By Ben Otto And I Made Sentana 

JAKARTA--Indonesia is flirting with a new message for foreigners wanting to work in Southeast Asia's largest economy: Speak the language, or don't bother.

By next month, the country's labor ministry says it will roll out a rule requiring its more than 68,000 foreign workers--plus any new arrivals--to pass tests in Indonesian. The ministry hasn't said what level of proficiency it will demand, only that the rule is required by law, and that it won't make exceptions.

But the drive comes after new President Joko Widodo had pledged to lower barriers to badly needed foreign investments, and is rattling a foreign business community that had welcomed his election last year.

That is exposing rifts within the new administration of Mr. Widodo, who last week traveled to China and Japan to drum up interest in building ports, power plants and other infrastructure Indonesia can't build on its own. A presidential policy adviser acknowledged that the language rule "works at cross-purposes" with the president's foreign-investment objectives, and Economics Minister Sofyan Djalil told The Wall Street Journal on Tuesday that it amounted to a nontariff barrier and shouldn't apply to foreign workers "across the board."

"In principle, we don't want this kind of regulation," he said.

The rule was set in motion by a law a decade ago. That it is rumbling to the foreground under Mr. Widodo reflects how difficult it is for Indonesia's leaders to move beyond deep-seated economic nationalism.

It is "clearly going to represent a serious obstacle for foreigners seeking to work in Indonesia for the first time," said Bill Sullivan, a legal adviser to mining companies. He called it "the latest example of growing Indonesian nationalist sentiment, which is opposed to the employment of foreigners in Indonesia except where absolutely unavoidable."

Indonesian is spoken nowhere outside the archipelago, except for a similar language in neighboring Malaysia and Brunei. Few foreigners coming to work on temporary assignment have studied it.

Labor Minister M. Hanif Dhakiri said the move is designed to control the number of foreigners and aid the transfer of knowledge and skills to Indonesians.

The rule is aimed specifically at protecting Indonesia against an influx of foreign labor when a Southeast Asian free-trade pact takes effect next year. But it will ripple far beyond the region: The U.S. is by some measures Indonesia's largest single investor, and China, Japan and South Korea account for half of all foreign workers.

Reyna Usman, the labor ministry's director general for manpower placement and development, also pointed to Australia's demand that foreigners applying for skilled migrant visas demonstrate competence in English. "It's a reciprocal thing, nothing special," she said.

Still, other countries that compete with Indonesia for foreign investment--including China, Vietnam, Thailand, Myanmar and Malaysia--have no language requirements for workers. In Japan, companies in theory may require foreign workers to speak Japanese, but the government demands proficiency only of a few hundred nurses from Indonesia and the Philippines under a regional agreement.

The measure could increase costs to companies for both training and lost work hours. Foreign businesses have been cautious about commenting on the new rule, in part because the specifics aren't yet known.

"There's not enough time for preparation," said Song Yoo Hwang, director general of the Korea Trade-Investment Promotion Agency in Indonesia.

Foreign companies in Indonesia range from the likes of Chevron, Coca-Cola and Freeport-McMoRan that have been here for decades to new arrivals such as Uniqlo and IKEA seeking to tap the growing purchasing power of 250 million Indonesians. Last year, foreigners poured in nearly $30 billion into sectors not including oil and gas.

But many companies say the mood is changing. The language rule follows others that have cut the expatriate workforce from a peak of more than 77,000 in 2011 to about 68,000. Last year, the local branch of the American Chamber of Commerce estimated that the number of foreigners employed by U.S. companies had fallen by 75% since 2007. The labor ministry attributes much of the fall to tighter rules imposed since 2012.

Indonesia has declared midlevel banking and all human-resources positions off limits to expats, and recommended shorter visas in some sectors.

Workers in oil and gas--the greatest source of foreign investment--face age limits of 55, and jobs such as in-house legal counsel and procurement officer are no longer open to expats.

Local-language requirements anywhere are a burden for an industry that relies on moving workers around the world on different projects, said Craig Stewart, president of the Indonesian Petroleum Association and country general manager for Salamander Energy PLC.

The labor ministry dismisses concerns the move will cut into foreign investment, saying companies ultimately won't view the requirement as a major obstacle. "We want foreigners to be able to communicate in Indonesian, not be fluent," said Ms. Usman said.

Spokesmen for Mr. Widodo declined to comment on the president's views.

Leli Dwirika, a language lecturer at the University of Indonesia, whose linguists are consulting with the government on the creation of a language test, said foreign workers could reasonably expect the government to require what she called moderate proficiency. A program at the university designed to achieve that level takes at least seven months to complete based on classroom study of 15 hours a week, she said. A four-month course teaches more basic Indonesian.

Amid the debate, the language requirement might well get watered down or postponed; Indonesia has backtracked on similar policies before at the 11th hour. Either way, it is unlikely to affect the long-term goals of big investors. U.S. miner Freeport-McMoRan, the largest single source of tax revenue for the government, says it already provides language training for its foreign workers.

Nevertheless, Franky Sibarani, head of Indonesia's investment agency, said he has asked the ministry to ease off. "For those who are not communicating with the public, I hope the [labor minister] can consider exempting them."

Write to Ben Otto at ben.otto@wsj.com and I Made Sentana at i-made.sentana@wsj.com

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