Prima Wirayani, Grace D. Amianti and Haeril Halim, Jakarta – A recent decision by the Constitutional Court reveals a sour fact for businesspeople: The roots of their bureaucracy issues seem to go deeper than just business-stifling regulations and into the nation's entire legal system.
In a decision regarding a request for a judicial review of the 2014 Regional Government Law submitted by the Indonesian Regency Administrations Association (Apkasi), together with 45 regencies nationwide and one individual, the Constitutional Court recently annulled four provisions in Article 251, Paragraphs 2, 3, 4 and 8 of the law that principally allow the central government to scrap problematic bylaws.
As a consequence, a bylaw revocation can now only be filed to the Supreme Court, which is responsible for examining judicial reviews of regulations of a lower level than national law, such as bylaws, as outlined in the Constitution.
Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani expressed concern at the decision, saying that some administrations often issued bizarre regulations that hampered investment through bureaucratic red tape and high regional taxes.
"The court's decision will trigger more problems, as local [administrations] can revive the revoked bylaws if they think [the revocations are] invalid," he said on Thursday, adding that the situation would hamper investment in the regions.
Even high-ranking government officials have said the decision would push the central government's deregulation efforts started in 2015 back to square one, as the Home Ministry would no longer be able to revoke bylaws that contradicted central government policy, including those related to ease of doing business.
"The comprehensive deregulation program between the government and local administrations surely will be hampered, because many bylaws that contradict higher regulations remain," Home Minister Tjahjo Kumolo said on Thursday.
The Home Ministry scrapped 3,143 business-stifling bylaws last year without going through a judicial review procedure at the Supreme Court. The revocation is a part of its deregulation efforts under a series of economic policy packages launched since September 2015 to improve the country's business climate.
He also expressed doubt that the Supreme Court would be able to annul all conflicting bylaws. A Supreme Court report shows that its 39 justices resolved 14,501 cases in 2014, leaving 4,425 unresolved.
Economists voiced a similar view, saying that the ruling could negatively affect the economy, particularly the government's commitment to deregulation and cutting red tape, two topics that have dominated the 14 previous economic policy packages.
The ruling created another contradiction and inconsistency between governance at the central and regional levels that is expected to trigger uncertainty for the business world and investment climate, Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal said.
"[The problem] comes from the concept of regional autonomy that was previously not thoroughly prepared," he said.
Four of nine judges gave dissenting opinions on the ruling, along with businesspeople who voiced their concern over the result. In their official legal opinion, the dissenting judges said the regional autonomy concept was different from the federal system – in which the central government cannot intervene in regional regulations.
Under the regional autonomy system, local administrations are responsible to the president and receive a chunk of the state budget through a regional transfer scheme. Thus, the central government can measure which regional administrations have bylaws that are most friendly to investment and implement a clear system of "rewards and punishments" through managing allocations of regional transfer funds.
The central government can reduce fund transfers to a region with bylaws that are unfriendly to investment while gradually improving their awareness on the importance of business-friendly bylaws, said Institute for Development of Economics and Finance (INDEF) economist Eko Listiyanto.
"[The ruling] will only prompt some regional administrations to maintain a number of bylaws that have been generating revenue for their budgets all this time," said Institute for Development of Economics and Finance (INDEF) economist Eko Listiyanto.
Responding to the ruling, Coordinating Economic Minister Darmin Nasution said the government had to seek ways to ensure deregulation continued. "But if the Home Ministry cannot [revoke bylaws anymore], there's still the president," he said.