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Indonesia’s Omnibus Law won’t kill corruption

The new legislation will shift regional power dynamics,
but it can’t eradicate an entrenched culture of kickbacks.

Indonesia’s new Omnibus Law has attracted a great deal of commentary. As a piece of legislation meant to make investing in the country easier, its provisions, including changes to labour rights and environmental protection, were controversial enough to spark mass protests. But one feature that has largely escaped notice is its likely impact on regional autonomy and consequently corruption and political dynasties in the regions.

Indonesia first experimented with decentralisation in 2004 by enacting regional autonomy, a move which was hailed as a major political reform. This was a departure from how President Suharto had centralised power in Jakarta, which gave provincial and municipal authorities very little say in policies affecting their regions.

One unfortunate side effect of regional autonomy, however, was that corruption in the regions climbed to new heights as local governments acquired greater taxation revenues than before. The subsequent introduction of direct elections for provincial governors, regents and mayors in 2005 provided regional bigwigs opportunities to solidify their power by building political dynasties, a possibility unavailable as long as Jakarta appointed regional leaders.

16 years on, this state of affairs may be drawing to a close.

When President Joko Widodo, better known as Jokowi, signed the Omnibus Bill (RUU Cipta Kerja) into law last month, he effectively took away a major prerogative previously granted under regional autonomy: the power to determine what sort of investment and business were permitted in the regions.

Diminished in power, regional leaders will now need to be in the good books of the national elite to ensure their survival.

One key feature of the Omnibus Law, which in its entirety produced revisions to no fewer than 77 existing laws, is that the central government rescinds the right of regional governments to veto an investment project already approved by Jakarta.

While regional governments are bound to rue the loss of control over the initial phase of any major investment, they still keep the right to regulate the business once it is operational.

This scenario may be far from satisfactory in the eyes of foreign investors, especially when a major disincentive for them is the confusion of having to deal with regulations from the central government that often conflict with those of its local counterpart. On top of that, now companies face the prospect of having to placate predatory government officials looking for kickbacks not only at the local level, but also the national one.

Regional governments across Indonesia will probably accept the new law only after putting up a fight in one way or another. At the height of student and worker protests against the Omnibus Bill in October, five governors and two regional house speakers publicly called for the central government to withdraw the new law. Most, admittedly, seem to be opting to wait and see, since a judicial review of the law has already been lodged with the Constitutional Court by worker unions.

After more than a decade of regional autonomy, a number of political clans have emerged to carve out their little fiefdoms in the provinces. Recent research into the regional elections nationwide set for early December this year revealed that 124 out of 270 candidates were affiliated with local political clans.

With several local political dynasties such as Ratu Atut Chosiyah’s in Banten, West Java, being deeply rooted in their respective fiefdoms, the central government can expect a spirited fight as it encroaches upon a key prerogative from the regions. More importantly for the political clans, patronage over big investors is a source of income, both legal and illegal.

“Jeans Street” in Bandung, Indonesia (Samuel Hendricks)

The high cost of running for regional office is often blamed for the rampant corruption at local government levels. The Corruption Eradication Commission (KPK) estimated that a candidate in regional elections spends between IDR 20 and 100 billion (US$1.5 million and $7 million), which would be impossible to recoup on, say, the official salary of a provincial governor, at roughly IDR 10 million (US$700).

For this reason, and because the culture of KKN (Corruption, Collusion and Nepotism) is entrenched in Indonesia, it is doubtful whether the Omnibus Law will have much success in eliminating graft in the regions. But it could well exacerbate the tug-of-war between government officials at the national and regional levels as they battle for shares in the spoils.

Conflicts between existing local dynasties and the political elite in Jakarta will also increase in intensity as the latter try to bring the former to heel.

A glimpse of this power relationship can be found in how the Indonesian Democratic Party of Struggle (PDI-P), the largest party in the national parliament and Jokowi’s main supporting party, sabotaged attempts by the former Regent of Kediri, Sutrisno, to have one of his wives nominated as the party candidate in this year’s election. Instead, PDI-P successfully backed Hanindito Himawan Pramana, a son of the current Cabinet Secretary and party loyalist Pramono Anung.

While corruption is sure to continue in Indonesia’s local government, the Omnibus Law may change the relationship dynamics between local political clans and the political elite in Jakarta. Diminished in power, regional leaders will now need to be in the good books of the national elite to ensure their survival.

The Indonesian government has claimed that the Omnibus Law will streamline the red tape involved in setting up business by bypassing the regional authorities and concentrating power back in Jakarta. It remains to be seen whether the law will in fact do the trick. One thing, however, is certain: rather than eliminating corruption or dynasticism, it is likely only to change their standard operating procedures.


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