Just as the Masela Block decision (main topic of last month’s commentary that described a sudden reversal of a decision to build an LNG facility on rather than offshore) spoke volumes to investors about stark divisions within the government over energy policy, the recent revelation by the Corruption Eradication Commission (KPK) of graft within the Supreme Court apparatus will reverberate just as loudly as knowledge spreads outside Indonesia. On April 21 the KPK raided the home of the Supreme Court’s secretary Nurhadi and confiscated $130,000 in several bags. The raid was linked to an ongoing investigation of the Supreme Court bailiff as well as the arrest of a lower court secretary, Edy Nasution, accused of taking a bribe in a case involving a major company. The cash trail led directly from Nasution to Nurhadi. Indonesia’s leading news magazine Tempo reported that according to a former Supreme Court judge Nurhadi ”has the power to intervene with the work of court officials up to the level of judges of the Supreme Court. Nurhadi can push through requests for appeals or case reviews that do not actually meet actual requirements.” In what has often been the pattern Nurhadi, a mid level official, was found to own multiple cars and houses way beyond his means.

Senior Indonesian officials have been quiet so far perhaps because they are waiting for formal charges to be filed. The existence of a court mafia is widely known and local attorneys defending foreign companies and individuals privately confess that they are at a distinct advantage if their adversary brings spurious appeals when they lose. We have seen teachers incarcerated in cases without evidence (JIS) , employees jailed as a result of charges that are civil (Chevron), local debtors avoid paying their foreign creditors by filing capricious counter suits among other tactics. In all of these cases appeals should never been placed on the court’s docket and now we have even more evidence of why: the legal system — up to and including the highest courts– can be bought. The Nurhadi case ends the suspicion.

On a recent visit to Indonesia an attorney who often represents foreign companies told me that he is seeing a marked increase in cases in which the police are threatening to bring companies to court if money is not paid. Furthermore complaints to the police are not rejected for lack of evidence. Its all about “funds”. How widespread this extortion is not really known, but it is a troubling development parallel to the corrupting influence of money in the court system. A strong economy, stable government, and a basic attitude towards reform can sweep plenty of dirt under the rug. But slowing growth (see page 2) and a weakened currency make Indonesia’s dysfunctional legal system stand out more starkly as a barrier to the many open economic policies the current government advocates, especially surrounding foreign investment. Since September of 2015 12 economic restructuring packages have been released, but not one has involved legal reform. The Jokowi government –given the platform on which it was elected in 2014– should take a serious stand on legal and judicial reform and would do well to undertand its intrinsic importance to the nation’s economic future. Without it the $billions in offshore funds being lured by the new tax amnesty policy will stay there, needed as collateral for loans that lenders demand can only take place in countries with an adequate rule of law. Policy arrows shot at the 7% growth target, dependent more on foreign investment than exports or consumption, will fall short. It may be that the current administration is waiting for its second term to initiate judicial reforms, but the Nurhadi revelations change the equation. Something needs to be done now and the KPK should not be the only institution rooting out the graft. A major overhaul of the system of judicial and prosecutor appointments, as well as stronger oversight of the work of court employees would be a good start.

(The views expressed above are the author’s and may not represent those of the American Indonesian Chamber of Commerce or its members)