The Effectiveness of the Reformed Economics Laws:Indonesia Experience

The objective of this paper is to examine the effectiveness of the reformed eco- nomic laws, in particular for addressing the serious problems faced by the Indone- sian economy. In this paper it will be argued that the economic law reform has not been as effective as expected at the implementation stage. The causes for the inef- fectiveness will be identified. These causes have become a challenge that should be addressed by the new Indonesian government. So far, the literature dealing with these issues has been limited.

By the late 1980s, reform of economic laws had intensified due to globalization. Under the Soeharto administration, globalization had been conceived as an oppor- tunity for Indonesia to become industrialized. Indonesia was confident that its na- tional development policy would allow it to catch up with the economic level of other developed countries. During that period, Indonesia enjoyed high economic growth, businesses were booming, and statistics for foreign investments showed high figures. Many economic analysts saw Indonesia as one of the new “Asian Tiger” economies, following the Republic of Korea, Taiwan, and others. Indonesia had also been considered to be one of the newly industrialized economies, and even the World Bank had included Indonesia within the East Asian Miracle.

Efforts to reform economic laws became more intensified after Indonesia was devastated by the financial crisis of 1997. Law reform was attached as conditions to loans and grants provided by the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB). In addition, agreements in the context of the World Trade Organization that Indonesia had signed imposed further obligations on Indonesia to reform its laws, in particular its intellectual property rights (IPR) laws.

After the economic crisis hit Indonesia, numerous economic legislations have been repealed, amended, and introduced. In 1998, the Bankruptcy Act was amended. In the same year, the Banking Act of 1992 was amended. In 1999, the Antimo- nopoly Act, the Consumer Protection Act, and the Construction Services Act were introduced. During the same year, the Central Bank Act, the Arbitration Act, Fidu- ciary Security Act, and Telecommunications Act were amended.

In 2000, the Industrial Design Act, Integrated Circuit Act, and Trade Secrets Act were introduced. During 2000, the Trademark Act and Patent Act were amended. In 2001, the Foundation Act was introduced. In 2002, Indonesia introduced the Anti– Money Laundering Act, State Debenture Act, and Electricity Act. In the same year, the Copyright Act was amended.

Legislation is the part of a law passed intentionally by governments with certain purposes and reasons that can be various. Here, the purposes and reasons for enact- ing a certain legislation will be referred to as legal policy.
The legal policy that dictates the drafting of legislation can be separated into two dimensions. The first dimension is the so-called basic policy of certain laws. The basic policy refers to the fundamental purpose for enacting a certain law. For ex- ample, in the area of IPR laws, the basic policy is to protect inventors. The basic policy of the Bankruptcy Act can be summarized as the mechanism that offers the opportunity for an insolvent debtor to release him/herself from the burden of the inability to repay a debt and, at the same time, to enable the creditor to seize debtor assets for loan recovery.

The second dimension of the policy is when the government, on its own or in response to pressure, decides to formulate a policy with respect to certain laws. This second dimension of policy can be found mostly in developing countries. For instance, a government may formulate a policy to enact laws in order to replace colonial laws due to the extreme aversion to the former colonial ruler. It may also adopt a policy to act like developed countries, or it may enact laws due to internal and external pressure. This category of policies will be referred to as the “enact- ment policy.”

Legal policy during the legislation-making process is important for two reasons. First, it acts as a guideline for drafters to translate policies and concepts into the defining provisions of the target legislation. Second, it provides guidance to the law enforcer who is in charge of the implementation of the legislation and in ensuring conformity with the adopted legal policy. At the implementation stage, law en- forcement should reflect the original aims of the legal policy behind the legislation.

In Indonesia, reforming legislation does not imply that the behavior of the soci ety will instantly change. Throughout Indonesia’s law reform history problems have continually been encountered at two stages.

The first stage is related to the drafting process of the legislation. The second stage is when related to the implementation of the legislation.
At the drafting stage, several problems can be identified. Firstly, the legislation enacted may not address social issues faced by the society. Legislation has often been enacted for political rhetoric, for the sake of developing a legal system that resembles that of developed countries or meeting demands placed on Indonesia from international sources.

Second, the drafter sometimes does not understand the intricacies of the issues. Understanding the intricacies is important, since at the implementation stage, the law enforcement agencies will rely mostly on what is contained in the written pro- visions. Thus, inaccuracy in translating concepts and policies when incorporating them into the provisions will result in high levels of inconsistency between what is intended and what is in fact implemented.

Third, legal drafters in Indonesia usually translate foreign legislation instead of referring to the source countries’ legislation. Translating provisions, which results in the legislation, fails to take into account the prevailing local conditions. In addi- tion, drafters tend to follow and accept foreign experts’ recommendations without question. As a result, no serious attempt to adapt the recommendations to the Indo- nesian context was ever made.

Fourth, drafting legislation often does not take into account the supporting legal infrastructure for such legislation to smoothly operate. To write a provision on the establishment of a certain institution is easy. The challenge, however, lies in its implementation, including aspects related to the funding of the institution or the recruitment of the members. This became a major issue since, under the Soeharto government, the legal infrastructure was not functioning as one would expect in a country. During that time, the power of the political elites had overshadowed law enforcement.

Fifth, new legislation involves the adoption of new concepts that require drastic changes in the society values. The legislation may be considered to be unsuitable for the local society as the society is not familiar with it or does not have a good understanding of the new values.

At the implementation stage, the problems are as follows. First, the ability of the individuals working in the enforcement agencies must be considered. Across the board, human resources in the enforcement agencies may not display a high integ- rity. Many have been criticized for not fully understanding the law or the principles underlying it. This has resulted in high levels of inconsistency between policy and implementation.

Second, in many cases, the text of legislations is written vaguely or inaccurately. This has created confusion for the enforcement agencies when the legislation is implemented. Also, enforcement agencies often apply the provisions wrongly. This has also resulted in the fact that the enforcement agencies reluctantly apply the provisions and the rulings will be made through a lack of compliance based on procedural matters.
Third, law enforcement can be lenient and compromised due to the law enforcer’s sympathy towards the gap issue between what is embedded in the legislation and society’s behavior.

Fourth, bribery and corruption still linger, even though this is not easy to prove. The public perception is that most court rulings will considerably depend on bribes. The attitude of the major clients when soliciting a lawyer is not based on his/her ability, but on whether such lawyer has good connections with the judges. Bribery and corruption have led to a weak and unpredictable enforcement of the law.
Furthermore, since some problems were not foreseen during the drafting pro- cess, they evidently cannot be addressed by the enforcement agencies when the legislation is implemented.

Sixth, lawyers are tactful and skillful in finding loopholes in the legislation, re- sulting in further frustration about law enforcement.

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