As nationalism grips regional and world politics, is Indonesia running out of time to implement reforms for business and cast out corruption? John Church reports

Getting a clear picture of Indonesia’s business law environment very much depends on whom you talk to, and what questions you ask. As the nation rolls towards crucial elections next year, political opponents are upping the ante for the people’s vote, and business, particularly foreign, may have to pay a price for keeping the favoured incumbent in power.

Reforms are ongoing and regulatory changes are occurring, but not all for the better if you listen to those who represent foreign and domestic perspectives. Other reforms wait to be enacted and associated policy is at times intangible, but business must proceed regardless.

Welcome to Indonesia – where hunger for change faces an uphill battle against an unhealthy appetite for corruption and the status quo. The latter, it seems, has all the time in the world.

Peter Fanning is a foreign legal consultant at HHR Lawyers and also treasurer of the Indonesia Australia Business Council. Wearing both hats, he hears criticisms from clients and fellow international business chambers alike, and from these identifies six main concerns:

  • Bureaucratic hurdles
  • Regulations that are incomplete and unclear
  • Regulations that make it harder to invest
  • Punitive tax administration
  • Preference given to state-owned enterprises
  • Corrupt police

“[Corruption] is most certainly being addressed in a fearless manner,” says Fanning, “but at the highest levels it clearly remains rampant, and those involved clearly expect that their wealth and the sheer amount of corrupt activity will help them hide.” He adds he does not come up against corruption in his normal transactional legal work.

Luky Walalangi, founder and managing partner of Walalangi & Partners, notes several regulatory reforms by the Indonesian government in the past 12 months that are intended to improve investment in Indonesia by making doing business easier, including:

  • In June, the government issued Regulation No. 24 of 2018, which reduces red tape and simplifies complex licensing procedures by introducing the online single submission (OSS) system;
  • In April, Regulation No. 14 of 2018 on Foreign Ownership in Insurance Companies was enacted, which strictly limits foreign ownership (whether direct or indirect) in Indonesian insurance companies to a maximum of 80%;
  • In March, the Indonesian president, Joko Widodo, issued Presidential Regulation No. 20 of 2018 on Foreign Worker Utilization, which simplifies bureaucratic procedures for obtaining a licence to recruit foreign workers;
  • In February, the Ministry of Energy and Mineral Resources (MEMR) announced its plan to revoke 32 energy regulations. Subsequently, the MEMR announced a proposal to consolidate 51 energy regulations into 29 regulations; and
  • The Indonesian Central Bank issued a new regulation limiting foreign ownership (direct and indirect) in a “non-bank” e-money issuer to 49%. In addition, a company is now prohibited from concurrently holding two licences from Bank Indonesia for two different categories of business.

According to Robert Reid, senior foreign counsel at S&T Advocates, most components of the corporate licensing system have been replaced and with the new centralized OSS business licensing system, many ministries have issued regulations permitting their sectors to integrate with OSS. The Investment Coordinating Board (BKPM) also issued new regulations this year to integrate itself with OSS and to confirm its remaining supervisory powers, scrapping the relatively new BKPM regulatory framework that had been introduced only last year.

Robert Reid, S&T Advocates

Reid adds that, while these changes were intended to ease doing business and provide more certainty, many foreign investors have become more cautious about investing in a jurisdiction with so much legislative change.

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