Teguh Maramis, Senior Partner, Lubis Santosa & Maramis: Viewpoint

Teguh Maramis, Senior Partner, Lubis Santosa & Maramis

Viewpoint: Teguh Maramis

Indonesia has been identified as one of Asia’s upcoming economies for quite some time. The political reforms of 1998 and the legislation of economic policies and business incentives that followed have brought us closer to that expectation, and the current administration has aimed to go further by bolstering foreign direct investment (FDI). In order to streamline the investment process, the government established the online submission system (OSS) for business licensing in June 2018. While some difficulties have surfaced since its enactment, it is still too early to tell whether or not OSS will benefit investors, and we are hopeful that the system will boost investment in the coming years.

The numbers alone are reassuring: year-on-year FDI rose by 13.1% in 2017, while FDI in the first three months of 2018 was greater than that in the first and last quarters of 2017. Indonesia has also significantly improved in the World Bank’s ease of doing business rankings, from 91 in 2017 to 73 in 2019. Given the steady economic growth, the ease of doing business improvements, the relatively stable political situation, Indonesia’s inclusion in the G20 summit and the planned opening of the country’s first mass rapid transit system in 2019, why is Indonesia not very attractive for foreign investors?

Although the administration actively invites top-level investments, the lack of implementation troubles investors. Despite significant cuts to red tape, the licensing regime remains quite complicated, and this has understandably led potential investors to compare Indonesia with other countries in the region.

It is imperative that investment laws emphasise certainty, as they comprise the tools that accommodate investors’ plans. We often need to consult with government bodies in reading certain regulations, both during the preliminary stages of establishment and operation, and after entering a commercial phase. Even after an understanding is reached with officials on how to construe such wordings, it is not uncommon to then receive different interpretations. The issue is further complicated by the fact that the provinces can enact their own regulations, especially when these deviate from those of the national government.

The predictability of law and court decisions is a key principle of frameworks that attract international investment. There are several recent examples where new laws and regulations have affected foreign investors, notwithstanding that they had entered into legitimate agreements to run their operations here for fixed periods. In several instances, threats to bring arbitration against the host country have surfaced, and recent trademark decisions have given no comfort to investors.

Too often, we have heard of companies receiving unfair treatment by different branches of government. We need to create a system where, once an investment is approved, the investor receives a degree of protection from all related state agencies, except in cases of breaches of law. Disrupting foreign investors with various uncertainties, let alone accusations and criminalisation, will not convince them to come. All the above creates uncertainty and inconsistency. FDI is not a short-term investment that prioritises capital gain, but a long-term commitment that, if conducted properly, can create value, new technologies and employment. Along that line, the state has made sufficient transport available by propelling infrastructure development, and an adequate, reliable supply of electricity as well as a skilled workforce will be attractive to foreign investors.

Every country has the privilege to regulate the economic activity within its territory, and Indonesia has a list of negative obligations that protect our constitutional, economic and social rights. Moreover, restrictions on foreigners holding land titles can be seen as preserving our national interest and social order. However, a balancing measure is also needed if we want to attract FDI. What the government has initiated is promising, but not without reservations, and we need to keep anticipating the best ways to entice foreign investors via laws that are friendly to their interests.

Anchor text: 
Teguh Maramis

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The Report: Indonesia 2019

Legal Framework chapter from The Report: Indonesia 2019

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