The World Bank recently announced that Indonesia jumped 19 places in its ease of doing business rankings to 72 out of 192 countries. (It ranked 114 at the time of President Jokowi’s election). Before we cheer too loudly its important to understand that the positive ratings change has come by the bank’s analysis of regulations that relate mostly to starting a business not operating one. And that’s the rub. Ask most of our members who operate in the country (both US and Indonesian firms) and you will hear a litany of complaints that range from infrastructure bottlenecks, contradictory regulations, labor issues, and port entry delays to protectionist policies and an aggressive bureaucracy especially in taxation (some products taxed twice). But the largest issue may be judicial malfeasance. Simply put, the reputation of decision-making in Indonesia’s courts, poor to begin with when Jokowi was elected, seems to be getting worse.
Recently I learned of a decision in the West Jakarta District Court that is so outrageous that unless it is overturned in appeal, it will no doubt harm the image of reform and openness that the President and his Cabinet have worked so hard to create. In September 2014, BluTether Limited, a Bermuda company with its subsidiary BluTether Technology, a Delaware corporation based in Virginia (“BluTether”) entered into a contract with Indonesia’s largest direct to home satellite entertainment operator PT MNC Sky Vision (“MSKY”), also known as Indovision, to provide BluTether’s patented Bluetooth module technology and services. Like many companies, BluTether chose Singapore as the legal jurisdiction for their contract, given the reputation of Indonesia’s legal system. When MSKY failed to pay for goods and services, BluTether sought redress under the terms of its contract at the Singapore International Arbitration Center (SIAC). BluTether won a USD $17+ million Award that was subsequently confirmed as a Final Judgment by Singapore’s High Court. However, MSKY colluded with its parent company, PT Global Mediacom, that was not a party to the contract, to contrive a legal strategy by which to void the contract to evade its legitimate obligations. Accordingly, Global Mediacom sued its own subsidiary and BluTether in Indonesia alleging the contract was subject to the Indonesian Flag Law that requires a bilingual contract in Bahasa and English despite the contract being governed by Singapore law which requires only English. Of even greater importance, Global Mediacom as the Claimant circumvented Indonesian law by failing to have the court deliver a summons to BluTether as the Co-Defendant yet the West Jakarta District Court failed to verify proper service then proceeded to issue an ex-parte decision in BluTether’s absence. Afterward, BluTether obtained a letter from Indonesia’s Ministry of Foreign Affairs (“MoFA”) verifying that the court never asked MoFA to issue/deliver a summons to BluTether as required. The District Court ignored the definitive evidence filed by BluTether during the challenge/Verzet of the ex-parte decision.
In effect, the proceeding was “kangaroo” justice. A proper functioning court would have tossed the case given improper service of process, the law of the contract was Singapore not Indonesia, and it certainly would have questioned why a parent company not a party to the contract was suing a subsidiary when several individuals are directors of both companies.
Goldman Sachs recently lost a case when the South Jakarta court ordered it to return the shares in property developer PT Hanson it had purchased in 2015 from US hedge fund, Platinum Partners that declared bankruptcy last year. (The shares were acquired on the Indonesian stock exchange). Citibank, custodian of the assets, was a co-defendant. Indonesian businessman, Bambang Tjokrosaputro, part owner of Hanson claimed Goldman had no right to buy the shares as he had merely pledged them as collateral for a loan from Platinum. Goldman Sachs is contesting the $24 million in damages it was ordered to pay Tjokorsaputro, who claimed on very specious grounds that his shares were encumbered, even though he never registered them as required by law. Goldman Sachs has said it never had any dealings with Tjokrosaputro or obligation to him. Any legal dispute of sale should have been between Tjokrosaputro and Platinum since they were the parties involved.
So here we have two cases where an Indonesian court is standing prevailing law on its head. I could go on with more examples and trace the common denominators: local Indonesian law firms who operate with a hit man mentality.
Why has there been no serious reform to Indonesia’s civil service or justice system? We certainly have been hearing about plans to transform these institutions into meritocracies since 2004 and the election of President SBY. Is it just that the bribe money is so much bigger than salaries? A recent commentary by the Jakarta Globe columnist Johannes Nugroho may point to a reason: ingrained hierarchical attitudes that accord officials (pejabat) with honor and respect as entitlements rather than as a consequence of service and accountability. In Nugroho’s view Indonesia, despite the strong reform rhetoric of many of its leaders, remains by and large a “Negara Pejabat” or Bureaucratic State. Its what its people seem to want. “Negara Pejabat-ism means that those in power would almost always feel that they deserve to use whatever means at their disposal to further their own interests as part of their “rights, perks and privileges.” On the other end, it also induces the “ordinary folks” to assume that a “pejabat,” being their overlord, must behave with noblesse oblige towards them, such as by granting them personal or group favors and coming to their monetary assistance. The combination is invariably fatal as it tends to perpetuate the cycle of corruption, collusion and nepotism.” To be fair we have seen innovations, for example, in the Finance and Foreign Ministries as well as better service at BKPM. Occasionally, a judge is arrested for corruption. But, it seems that until prevailing public attitudes change or there is wholesale reform from above bureaucrats remain susceptible to extralegal payments and in fact, the public may expect them to take them.
Sorry for the unease.
(The writer’s opinions do not necessarily reflect those of the American Indonesian Chamber of Commerce or its members)