Ria Fortuna Wijaya, Heru Andriyanto, Jakarta – Indonesia's ambition to establish an international financial center capable of competing with Singapore and Dubai may ultimately depend less on tax incentives than on whether it can convince global investors that the country's legal and regulatory framework offers the certainty needed for cross-border finance.
The House of Representatives recently passed legislation establishing the legal foundation for the Indonesia International Financial Center (IIFC), which is expected to offer preferential tax treatment and other incentives to attract global financial institutions. Indonesia's sovereign wealth fund Danantara will provide the initial capital for the project.
Senior economist Talitha Chairunissa said Indonesia possesses strong fundamentals to pursue the ambition, particularly as Southeast Asia's largest economy with abundant investment opportunities.
"Unlike Singapore and Dubai, which developed as offshore financial hubs, Indonesia's greatest strength lies in the size of its economy and the abundance of underlying assets, ranging from infrastructure financing and manufacturing to its rich natural resources," Talitha told the Jakarta Globe.
She said Indonesia also has the potential to become a regional hub for Islamic finance, carbon trading, and renewable energy financing, provided the government improves capital allocation, encourages greater private sector participation, and develops a highly skilled workforce.
Yet Indonesia's greatest challenge, she argued, lies not in its economic potential but in its institutional readiness.
"The main challenge is not capital availability or economic potential, but legal certainty, institutional readiness, and regulatory harmonization," she said, citing potential overlaps between the proposed IIFC regulator and the Financial Services Authority (OJK), as well as questions over how a dedicated commercial court would fit within Indonesia's existing judicial system.
Talitha said tax incentives alone would be insufficient to persuade international financial institutions and wealthy investors to relocate their assets.
"Fiscal incentives may serve as a sweetener, but they cannot be the main driver," she said. "Global investors seek the rule of law, political and macroeconomic stability, a strong supporting ecosystem, and confidence that fiscal policy is managed prudently and transparently."
She added that investors would ultimately judge not only the legal framework governing the financial center itself, but also the credibility of Indonesia's broader judicial system and its ability to resolve commercial disputes fairly and enforce arbitral awards consistently.
Common law vs civil law
The concerns echo recommendations submitted to lawmakers by the state-owned banks association Himbara during deliberations on the IIFC bill. The group argued that a successful financial hub requires regulatory certainty, competitive tax incentives, modern financial market infrastructure, ease of doing business, a deep pool of professional talent, internationally recognized governance standards, and reliable dispute resolution mechanisms.
A key issue is the legal system that will govern disputes within the proposed financial center. Indonesia follows a civil law tradition, where legal certainty is derived primarily from statutes enacted by the legislature and regulations issued by state authorities. Because those laws can be amended, some international investors view the system as less predictable than common law jurisdictions, where court precedents play a central role in interpreting commercial contracts.
According to Fayez Adesta, a manager in the Legal Service Department at Bank Negara Indonesia (BNI), predictability is one of the most important considerations for international investors.
"For investors, consistency is what creates legal certainty. Legal certainty does not mean always receiving a favorable ruling, but being able to predict how a dispute is likely to be decided – even before it arises," Fayez wrote in an opinion article published by Hukumonline.
He argued that the IIFC would need judges, arbitrators, and legal practitioners experienced in common law reasoning and international financial transactions, including syndicated lending, project finance, derivatives, and other complex financial instruments. It would also require a transparent, well-documented system for publishing court decisions so businesses can understand how legal principles are applied in practice.
The government estimates the financial center could attract between Rp 300 trillion and Rp 500 trillion ($16.7 billion-$27.8 billion) in investment under a moderate scenario, according to Herman Saheruddin, Director General for Financial Sector Development at the Finance Ministry. He acknowledged, however, that the outcome would depend on Indonesia's ability to compete with established financial centers such as Singapore and Dubai.
The government is considering two sites in Bali and Jakarta for the IIFC, Coordinating Economic Affairs Minister Airlangga Hartarto said on Thursday.