Ill-ease of doing business in Indonesia

A high court decision threatens to derail President Joko Widodo’s deregulatory drive to promote business competition and attract foreign investment

Jakarta, April 14, 2017 1:01 PM (UTC+8)
An Indonesian woman carrying bags of foodstuff at a market in Surabaya. Photo: AFP
An Indonesian woman carrying bags of foodstuff at a market in Surabaya. Photo: AFP

When Indonesia began the process of decentralization after over three decades of authoritarian rule, it was widely held that healthy competition among regional leaders for outside investment would lead to the growth of new economic centers across the sprawling island nation.

It was a false hope. Over the years following former President Suharto’s centralized New Order regime, short-sighted local bureaucrats and politicians have instead passed one bylaw after another adding new layers of regulation that not only stifle business, but have also imposed elements of Sharia law.

Now, the country’s Constitutional Court has delivered another blow to private business and secularism alike by annulling four provisions in the 2014 Regional Government Law which allowed President Joko Widodo’s administration to scrap 3,143 of those restrictive measures.

Instead, in what will almost certainly become a drawn-out process, the court says moves to revoke bylaws must first be filed with the Supreme Court, which is responsible for the judicial review of regulations at a level below that of national laws.

Insiders say the court decision was actually made at a closed door meeting last August 22 and considered again at subsequent sessions in February and March without the presence of the conservative judge Patrialis Akbar, who had been arrested in January on unrelated bribery charges.

The reason for the delay was unclear. The Home Affairs Ministry had revoked many of the bylaws in 2015 as part of the government’s deregulation efforts, introduced over a period of months in 14 economic policy packages aimed at improving the business climate and attracting more foreign investment.

Indonesian President Joko Widodo could bring temporary stress relief to Australia's Malcolm Turnbull. Photo: Reuters/Darren Whiteside
Indonesian President Joko Widodo has moved to revoke thousands of bylaws that restricted business and investment. Photo: Reuters

The World Bank currently ranks Indonesia 91st among 190 global economies in its annual Ease of Doing Business survey, similar to last year’s ranking but still significantly better than the 117st position it averaged between 2008 and 2016.

Indonesia now sits just above Kenya in the World Bank’s ranking, but well behind Asean competitors Vietnam (82), Brunei (72), Thailand (46), Malaysia (23) and Singapore (2), despite having the region’s largest economy and domestic market.

Five of the nine Constitutional Court judges upheld the challenge from 45 districts belonging to the Indonesian Regency Administrations Association, which argued the government’s actions contravened the constitution and were inconsistent with the country’s legal system.

What Indonesia’s highest court was not asked to address were the hundreds of Sharia-based bylaws, enacted over the past decade, which discriminate against women and minority groups and, more importantly, run counter to the country’s secular constitution.

Human rights activists are now worried the latest court decision will embolden local politicians, many from mainstream parties, to issue more of the religiously inspired regulations that have fueled growing intolerance in recent years.

Hardline Muslim groups protest against Jakarta's incumbent governor Basuki Purnama (Ahok), an ethnic Chinese Christian running for re-election. The sign reads: "Reject Ahok." Photo: Reuters/Beawiharta
Hard-line Muslim groups protest against Jakarta’s incumbent governor Basuki Purnama (Ahok), an ethnic Chinese Christian running for re-election. Photo: Reuters

Confidence in the Supreme Court will hardly be bolstered by its decision some years ago to reject a challenge to a bylaw enacted by Jakarta’s Tangerang municipality, which sought to label women prostitutes if they ventured out alone after 10 pm.

Instead of looking at the substance of the regulation, one of a string of draconian measures issued by the Tangerang council, the court merely focused on whether the proper procedures had been followed in enacting it.

Although there is little evidence to show for it in a country where only 12%-14% of the electorate have consistently voted for Sharia-based parties, politicians still cling to the idea that pandering to conservative Muslim leaders earns them popularity and votes.

Interestingly, four Constitutional Court justices gave dissenting opinions, arguing that the concept of regional economy laid down in the 1999 Local Autonomy Law was different from a federal system in which the central government cannot intervene in local law-making.

That’s because local governments receive a share of the state budget through a regional transfer scheme which allows Jakarta to determine whether they are adopting policies that enhance their ability to eventually fund themselves.

This week, Administrative and Bureaucratic Reform Minister Asman Abnur revealed that administrations in at least 193 of the country’s 548 provinces, regencies and municipalities had failed to introduce programs that supported their development goals.

That mismatch between planning and outcomes, he said, had led to 400 trillion rupiah (US$30 billion) in wastage, or about a fifth of the national budget.

The Constitutional Court decision was welcomed in some quarters as a sign of democracy in action by denying the central government the ability to meddle in local government affairs.

An Indonesian woman casts her vote at a polling station on February 15, 2017.About 100 local elections took place across Indonesia on February 15 but the race in the capital is the most hotly contested, with the top job in Jakarta seen as a stepping stone to victory in the 2019 presidential polls. Photo: AFP / Chaideer Mahyuddin
An Indonesian woman casts her vote. Photo: AFP

“The primary lesson we learned from living under the New Order regime is that a concentration of power in the executive branch of government can lead to systemic abuse,” The Jakarta Post said of what it called a “monumental” court decision.

But leaving the revocation of contradictory bylaws to a corrupt and slow-moving legal system will prove to be a significant obstacle to the government’s efforts to cut red tape and attract the foreign investment needed to spur a sluggish economy.

The ruling came only days before the April 19 Jakarta gubernatorial election, which has brought together a troubling cocktail of populism and Islam that some fear will see religion playing a larger role in future regional and national elections.

Indonesian police stand behind barbed wire used to separate supporters and protesters of Jakarta's Christian governor Basuki Tjahaja Purnama, better known by his nickname Ahok, during his trial outside the court in Jakarta on January 10, 2017. Jakarta's Christian governor returned to court on to fight allegations of insulting the Koran that could see him jailed under tough blasphemy laws in the world's largest Muslim-majority country. (Photo by Agoes Rudianto/NurPhoto)
Indonesian police stand behind barbed wire used to separate supporters and protesters of Jakarta’s Christian governor Basuki Tjahaja Purnama. Photo: Nurphoto/Agoes Rudianto

According to the National Commission on Anti-Violence Against Women, a total of 421 discriminatory bylaws were issued by local governments between 2009 and 2016, including many which regulate morality and otherwise intrude on personal freedoms.

Last January, a report released by the state-appointed National Commission on Human Rights claimed regional administrations were the most frequent violators of religious freedom, accounting for 52 of the 97 complaints received last year – up from 36 in 2015.

The commission said some regional officials did not understand the importance of protecting religious freedom and were often influenced by intolerant majorities, pointing specifically at the implementation of Sharia bylaws.

An Acehnese woman gets whipped for spending time in close proximity with a man who is not her husband, which is against Sharia law in the city of Jantho, Aceh province on March 10, 2017. Indonesia's only province to impose sharia law caned Buddhists for the first time, after two men accused of cockfighting opted for punishment under the strict Islamic regulations. / AFP PHOTO / CHAIDEER MAHYUDDIN
An Acehnese woman gets whipped for spending time in close proximity with a man who was not her husband, which is against Sharia law in the city of Jantho, Aceh province. Photo: AFP

The populous West Java surrounding Jakarta was considered the most intolerant province in the country, six decades after founding president Sukarno’s government crushed the Darul Islam insurgency which flourished in the western part of the province during the 1950s and 1960s.

Last December, new national police commander Tito Karnavian fired the West Java police chief for allowing Islamic hardliners to break up a Reformed Evangelical Church of Indonesia Christmas service in the provincial capital of Bandung.

Police and government inaction allowed for a sharp increase in attacks against Christian churches and followers of the Ahmadiyah and Shi’a Muslim minorities during the decade-long rule of president Susilo Bambang Yudhoyono, when many of the bylaws in question were introduced.

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