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

Teguh Maramis, Senior Partner, Lubis Santosa & Maramis

Teguh Maramis: Viewpoint

The current government’s vision is clear: to develop our human resources skills to meet demand from various business sectors, and continue the development of infrastructure that has won praise both locally and internationally. The government insists that the only way to bring Indonesia into the top-five global economies by 2045 is by improving its investment climate. Indonesia was ranked 73rd out of 190 economies in the World Bank’s ease of doing business index in 2020. This position remains unchanged from 2019.

The government seeks to introduce omnibus legislation to enact sweeping reforms. The aim is to roll out one new law for selected subject matters that would amend or revoke previous laws, with the purpose of boosting investment, reducing red tape and driving economic growth, which fell to a three-year low of 4.97% in the fourth quarter of 2019.

Whether it is achieved through deregulation or the implementation of the omnibus laws, we believe that the solution to increasing the ease of doing business in Indonesia is improving conditions for investors in the period immediately following the issuance of permits. Thus far, reforms have only focused on the initial permit phase and do not address the problems afterwards, especially those encountered during the operational phase. A report by the World Bank suggested that the introduction of deregulation and incentives will be sufficient if the operational issues are tackled. Our current investment problems include a high cost of doing business, mainly due to issues in logistics and acquisition; a persistent lack of transparency, including demands for facilitation payments; and uncertainty in long-term regulation and contracts.

Presidential Instruction No. 7 of 2019 and several draft packages of the omnibus laws indicate that the government seeks to accelerate the ease of doing business by providing a more centralised role for the Indonesia Investment Coordinating Board, and introducing provisions that would benefit investors and corporations, particularly from overseas. One of the initial packages is the Omnibus Law on Job Creation, which would affect 79 existing pieces of legislation.

In its current form, the law aims to liberalise foreign investment regulations by opening all business sectors to foreign direct investment, with the exception of any that have already been prohibited from certain activities or can only be managed by the government. Even in the case of the latter, the law provides the option for the government to form joint ventures with foreign investors, subject to the prevailing regulations governing shareholding in that particular sector. The government plans to issue a positive investment list – as opposed to the negative list currently in use – through a presidential regulation. The liberalisation measures will not affect small and medium-sized enterprises, however, in order to protect and encourage the growth of Indonesian businesses.

The omnibus laws have not been without criticism. There were suspicions that the legislation was designed to enable businesses to expand their investments at the cost of ignoring public opinion. Opponents of the law argue that there was insufficient public consultation on its content and point out that the chair of the task force for public consultation on the law is a businessman. Government experts have long contended that systematic and effective public consultations not only lead to better regulations but also improve compliance and reduce enforcement costs. Critics are also concerned that the law will negatively impact the country’s environment, human rights and democracy.

If the Omnibus Law on Job Creation is passed, it would give the government the power to amend other related pieces of legislation. Although the government would still need to consult the House of Representatives, there could be considerable legal debate regarding the government’s right to amend legislation. The law may also reignite concerns that the central government has taken too much power from regional authorities.

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The Report: Indonesia 2020

Legal Framework chapter from The Report: Indonesia 2020

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