Indonesia Update: Constitutional Court Decision Prohibits Minister of Home Affairs from Revoking Regional Laws

Indonesia Update | May 8, 2017
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Steve Prawiromaruto
 
LOOKING AHEAD
 
 
  • Indonesia E-Commerce Summit and Expo (May 9-11): The Indonesian E-Commerce Association (idEA) is hosting the Indonesia E-Commerce Summit and Expo from May 9-11 in Jakarta, featuring 26 summit topics, 50 workshop topics with over 120 industry experts as speakers. Please click here for further information and registration. 
  • Indonesia International Conference on Tourism Investment (May 23-24): The Indonesian Investment Coordinating Board (BKPM), Ministry of Tourism and the Government of North Sulawesi Province are hosting the International Conference on Tourism Investment in Manado from May 23-24. The conference will be opened by the President Joko Widodo and the theme is for potential investors to learn about the new initiatives to support tourism growth, conceptual master plan and specific opportunities will also be presented. Please click here for more information.
 
THE COUNCIL'S TAKE
 
 

Constitutional Court Decision Prohibits Minister of Home Affairs from Revoking Regional Laws

On March 31, Indonesia’s Constitutional Court ruled that the central government through the Minister of Home Affairs no longer has the authority to revoke regional laws. The court partially upheld a challenge by the Indonesian Regency Administration Association (Asosiasi Pemerintah Kabupaten Seluruh Indonesia - Apkasi) against Article 251 of Law No. 23 of 2014 on Regional Administration which states that the Minister of Home Affairs has the right to review regional laws that contradict national laws and regulations. The law was enacted in order to give more power to the central government to be able to review local laws and regulations that did not coincide with national interest, which include ease of doing business, and revoke them. With this decision, all of the revocation of regional laws must now go through the judicial review process by the Supreme Court instead. Prior to this latest development, the Minister of Home Affairs had scrapped some 3,143 laws throughout 2015 and 2016 without facing challenge of judicial review. Coordinating Minister for Economic Affairs, Darmin Nasution, in response to this, stated that the Constitutional Court’s ruling will hinder the government’s efforts to deregulate policy that are not investment-friendly in the country. While President Joko Widodo holds the same opinion, he has stated that he will respect the ruling while continuing his administration’s deregulation policy reform efforts. The Constitutional Court’s decision is available here (in Bahasa Indonesia). The priority given to regulatory reform by the Jokowi administration to improve the domestic business environment has been of welcomed by the Council. The decision by the Constitutional Court could hinder such efforts. However, given that promoting economic development in less developed regions of Indonesia has also been a priority of the administration this decision could be a catalyst for new forms of regulatory reform cooperation/coordination between local governments and the national government.

Indonesia Remains on Priority Watch List in 2017 USTR Special 301 Report

On April 28, USTR released its 2017 Special 301 Report on Intellectual Property (IP) protection. Indonesia was again included in the Priority Watch list due to a lack of adequate and effective IP protection policies and enforcement. The 301 report reflects a congressionally mandated annual review of the global state of intellectual property rights, and helps informs policy making.

Some key concerns cited in the 2017 report regarding Indonesia include widespread piracy and counterfeiting, and insufficient enforcement against dangerous counterfeit products. In addition, the report includes concerns over a lack of effective system for protecting against unfair commercial use and unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. USTR is also concerned about various market access barriers in Indonesia, including requirements for domestic manufacturing and technology transfers for pharmaceuticals and various sectors. Furthermore, the revision of Indonesia’s patent law has also raised some serious concerns, including those with respect to patentability criteria for incremental innovations and computer implemented inventions and local manufacturing and use requirements. The issues raised in the report also reflect challenge and constraints to Indonesia’s desire to promote innovation and entrepreneurship especially given the government’s recent focus on developing the e-commerce industry and the increased attention which venture capital investors are showing to Indonesia.

The report also highlights some of the areas where Indonesia has made progress in terms of IP protection, such as combating online piracy, as well as removing film and recording studios from its investment list, which allows 100% foreign direct investment in the production of films and sound recordings. However, overall enforcement has been insufficient and the United States, with plans to intensify engagement with Indonesia, continues to urge the country to improve this through giving stakeholders the opportunity to give input, cooperation among relevant agencies, such as the National Inter-Ministerial IPR Task Force, Directorate General for Intellectual Property and the Attorney General’s office. USTR also recommends the establishment of a specialized “IP unit” under the Indonesian National Police to handle counterfeiting and piracy issues on a larger scale. as well as the establishment of a specialized “IP unit” under the Indonesian National Police to handle counterfeiting and piracy issues on a larger scale.

IN THIS UPDATE
 
 
Regional Affairs
US Trade Panel Affirms Argentina, Indonesia Biodiesel Probe
Vietnam, Thailand are Indonesia`s competitors in attracting foreign investment: Kalla
Jokowi, Duterte Open New Shipping Line Between Davao City and Bitung
House Ratifies Agreement on Indonesia-Philippines EEZs, Concludes 20 Years of Negotiations
Indonesia seeks stronger cooperation with US
Indonesia to Establish More Short Sea Shipping Routes in ASEAN
Pence Discusses Barriers to US Companies With Jokowi, as $10b Deals Signed

National Affairs
Gov't to Abolish Cash Payments on Toll Roads by October
Jokowi Denies Rumors of Cabinet Reshuffle
Jakarta Election Commission officially announces Jakarta governor-elect
Government has right to revoke land ownership: Minister
Indonesia to Spend Rp1tn for World Bank - IMF Event
FDI Growth Slowed in Q1: BKPM
Palangkaraya hopes to be chosen as Indonesia's new capital

Economics
Indonesia's first-quarter GDP growth seen edging up, but recovery still sluggish
Trade Ministry denies freezing CEPA negotiations with EU
Indonesia's annual inflation rate rises to 13-month high in April

Energy
Minister surprised over high gas production cost
Gov't to Delay Planned Price Increases to Limit Inflation: Minister
Government continues to push for affordable electricity
Energy ministry to develop 16 wind power plants

Financial Services
Indonesia Calls for Greater Cooperation Among Asian Multilateral Development Banks
Economy grows 5.01% in first quarter
Indonesia's Financial Sector Is Stable: KSSK
State-Owned Banks to Eliminate ATM Transaction Fees
Indonesia records inflation of 0.09% in April

Food & Agriculture
Indonesia's Chocolate Rush Worth Rp 15 Trillion
Live cattle exports to Indonesia slow as beef price pressure takes a toll
Indonesia to create 80,000 hectares of new rice fields
National Police establish food stability task force

ICT
New virtual currency tied to oil takes aim at bitcoin
KOMINFO Indonesia working on number of initiatives to boost digital start-up ecosystem and support SMEs

Infrastructure
Gov't Pins Hope on PPPs to Lure the Private Sector Into Infrastructure Initiatives
Dwelling time at ports down, but logistics costs still high
Interview: Indonesia minister: Japan, China rivalry good for Asian infrastructure-
Jokowi Meets With Business Leaders in Hong Kong, Attracts Infrastructure Investments
Gov't-Backed Infrastructure Projects a Boon for State Construction Firms

Manufacturing
Minister calls for maintaining growth in manufacturing sector
Indonesia manufacturing activity improves as input price inflation hits 18-month high
Manufacturers See Strongest Production Rise Since Mid-2016
 
ARTICLE CLIPS
 
 
Regional Affairs

US Trade Panel Affirms Argentina, Indonesia Biodiesel Probe Jakarta Globe 7th May 2017
The United States International Trade Commission voted on Friday (05/05) to continue a US Commerce Department investigation into alleged dumping and unfair subsidies of biodiesel fuels from Argentina and Indonesia, moving a step closer to punitive US duties.

Vietnam, Thailand are Indonesia`s competitors in attracting foreign investment: Kalla Antara News 5th May 2017
Vietnam and Thailand have become Indonesias competitors in attracting foreign investments into the Southeast Asian region, especially in the face of sluggish global economic conditions, Vice President Jusuf Kalla stated.

Jokowi, Duterte Open New Shipping Line Between Davao City and Bitung Jakarta Globe 5th May 2017
President Joko "Jokowi" Widodo and his Philippine counterpart Rodrigo Duterte opened a new shipping line between Davao City in Southern Philippines and Bitung in North Sulawesi by launching a "Roll On Roll Off" shuttle ship in Kudos Port on Saturday (29/04).

House Ratifies Agreement on Indonesia-Philippines EEZs, Concludes 20 Years of Negotiations Jakarta Globe 5th May 2017
The House of Representatives ratified a maritime agreement demarcating the exclusive economic zones of Indonesia and the Philippines in a plenary session on Thursday (27/04), concluding 20 years of negotiations between the two Southeast Asian countries.

Indonesia seeks stronger cooperation with US Antara News 5th May 2017
Indonesia will seek a stronger partnership with the United States during the visit of Indonesian Foreign Minister Retno Marsudi to Washington DC on May 4 and 5. The ministers visit to the United States is aimed at optimizing dialogue mechanism in several areas of cooperation between the two countries, Ministry of Foreign Affairs official website stated here on Friday.

Indonesia to Establish More Short Sea Shipping Routes in ASEAN Tempo 4th May 2017
The government will establish more short sea shipping routes by roll on roll off (ro-ro) ships in ASEAN. Having successfully launched a shipping route between Davao (Philippines) and Bitung (North Sulawesi) on Sunday, the government will cooperate with Malaysia. “After this, we will open a ro-ro shipping route between Dumai [Riau Islands] and Malaysia,” Transportation Ministry official Tonny Boediono told Tempo yesterday.

Pence Discusses Barriers to US Companies With Jokowi, as $10b Deals Signed Jakarta Globe 2nd May 2017
Indonesia and the United States agreed on Friday (21/04) to find ways to reduce barriers to U.S. companies operating in Southeast Asia's largest economy, visiting U.S. Vice President Mike Pence and Jakarta's investment chief said.

National Affairs

Gov't to Abolish Cash Payments on Toll Roads by October Jakarta Globe 7th May 2017
The government will require all toll road users in the country to conduct electronic transactions beginning in October in an attempt to ease traffic flows on major thoroughfares. Agus Martowardoyo, governor of Bank Indonesia, said concentrated efforts must be made to realize President Joko "Jokowi" Widodo's plan to mitigate traffic jams at major tolls.

Jokowi Denies Rumors of Cabinet Reshuffle Jakarta Globe 5th May 2017
President Joko "Jokowi" Widodo denied rumors of a cabinet reshuffle in April during a visit to the Al-Hikamussalafiyah Islamic boarding school in Purwakarta, West Java, on Tuesday (24/04). "No [cabinet] reshuffle today, none this week and there will be none this month," Jokowi said.

Jakarta Election Commission officially announces Jakarta governor-elect Antara News 5th May 2017
The General Election Commission (KPU) of Jakarta has officially announced the name of Anies Baswedan as the Jakarta governor-elect and Sandiaga Uno as deputy governor-elect for the 2017-2022 period.

Government has right to revoke land ownership: Minister The Jakarta Post 3rd May 2017
After failing to impose progressive taxes on idle land, the government is looking for another way to push land owners to make better use of their properties. Agrarian and Spatial Planning Minister Sofyan Jalil claims that the government has the right to revoke land ownership if land is not being used productively, or if plots of land have lost their social function. The Agrarian and Spatial Planning Ministry is now in the process of finalizing a regulation on the land bank, whose function is to, among other things, redevelop plots of idle land that have already been taken over by the state.

Indonesia to Spend Rp1tn for World Bank - IMF Event Tempo 3rd May 2017
Indonesian Government has prepared a Rp1 trillion budget for the annual World Bank-International Monetary Fund (WB-IMF) that will be held in Nusa Dua, Bali next year. Coordinating Minister for Economic Affairs Darmin Nasution says that the budget, which comes from the State Budget (APBN), is mainly to fund the event’s infrastructure.

FDI Growth Slowed in Q1: BKPM Jakarta Globe 2nd May 2017
Foreign direct investment in Indonesia rose 0.9 percent on an annual basis in the first quarter this year, slowing from the 2.1 pace in the previous quarter amid global economic uncertainties, the Investment Coordinating Board, or BKPM, said on Wednesday (26/04).

Palangkaraya hopes to be chosen as Indonesia's new capital The Jakarta Post 2nd May 2017
The Central Kalimantan administration said it was hopeful that President Joko "Jokowi" Widodo would move the nation's capital to Palangkaraya, saying such a move would fulfill the "dream of Indonesia's founding fathers."

Economics

Indonesia's first-quarter GDP growth seen edging up, but recovery still sluggish Reuters 4th May 2017
Growth in Southeast Asia's largest economy had been slowing in each of the past five years up to 2015, due to falling exports, weak investment, infrastructure bottlenecks and waning consumption. As commodity prices recovered last year, growth accelerated to 5.02 percent, but a soft reading in the fourth quarter highlighted Indonesia's struggle to mount a strong rebound. Analysts in a Reuters poll expect the sluggish recovery to continue, picking a median forecast for 2017's first quarter at 5.00 percent, just a touch stronger than the previous quarter's 4.94 percent.

Trade Ministry denies freezing CEPA negotiations with EU The Jakarta Post 4th May 2017
The Trade Ministry’s international trade negotiation director general, Iman Pambagyo, has denied rumors that Indonesia will freeze negotiations on the Comprehensive Economic Partnership Agreement (CEPA) with the European Union (EU) due to a recent palm oil resolution issued by the EU parliament. “There’s no such plan. We want to bring that CPO [crude palm oil] issue into the context of trade and sustainable development under the CEPA platform,” he said via text message. On April 4, the EU parliament issued a resolution to only import sustainable oil palm products after 2020. The resolution also called for a single sustainability standard despite Indonesia already having its own Sustainable Palm Oil standard.

Indonesia's annual inflation rate rises to 13-month high in April The Business Times 2nd May 2017
Indonesia's annual inflation rate rose in April to the highest in 13 months, the statistics bureau said on Tuesday, which was more than expected in a Reuters poll. The consumer price index rose 4.17 per cent on a yearly basis in April, the quickest pace since March 2016. A Reuters poll had forecast an annual rate of 4.08 per cent. March's headline inflation rate was 3.61 per cent.

Energy

Minister surprised over high gas production cost Antara News 5th May 2017
Minister of Energy and Mineral Resources (ESDM) Ignatius Jonan has said that he was surprised to see the rise in domestic gas production cost, which is higher than that abroad. "I cannot understand how the production costs can go up when the results are down," Jonan stated, while speaking at a National Gas Forum in a Jakarta hotel, on Wednesday.

Gov't to Delay Planned Price Increases to Limit Inflation: Minister Jakarta Globe 3rd May 2017
The government will delay all planned price increases until after the Idul Fitri celebration this year to help control inflation, a cabinet minister said on Wednesday (03/05). Annual inflation rose to a 13-month high in April, at 4.17 percent, mainly due to increasing electricity tariffs, the Central Statistics Agency (BPS) said on Tuesday. "We will not raise prices of LPG [liquefied petroleum gas], electricity and fuel until after Idul Fitri," Coordinating Economic Affairs Minister Darmin Nasution told reporters after a limited cabinet meeting with President Joko "Jokowi" Widodo.

Government continues to push for affordable electricity The Jakarta Post 2nd May 2017
Energy and Mineral Resources Minister Ignasius Jonan said on Tuesday the government would continue to push for affordable electricity, arguing that expensive electricity in remote areas suffering from a lack of infrastructure was unfair to the locals, who often could not afford the rates.

Energy ministry to develop 16 wind power plants The Jakarta Post 2nd May 2017
The Energy and Mineral Resources Ministry is planning to develop wind power plants in 16 locations across the country. The ministry's director general for new and renewable energy, Rida Mulyana, said in Jakarta on Tuesday that the country had great wind energy potential that would be harnessed by the power plants. The locations of the projects, which are to be developed in cooperation with Denmark, include Surakarta in Central Java and the South Sulawesi towns of Jeneponto and Sidrap, Antara news agency reported on Tuesday.

Financial Services

Indonesia Calls for Greater Cooperation Among Asian Multilateral Development Banks Jakarta Globe 7th May 2017
Indonesia called for greater cooperation among multilateral development banks in Asia on infrastructure development to ensure inclusive growth amid fresh challenges posed by shifting policies in the West.

Economy grows 5.01% in first quarter The Jakarta Post 5th May 2017
Indonesia recorded economic growth of 5.01 percent in the first three months of the year, higher than the 4.92 percent and 4.71 percent seen in the same period of 2016 and 2015, the Central Statistics Agency (BPS) announced on Friday.

Indonesia's Financial Sector Is Stable: KSSK Jakarta Globe 5th May 2017
Indonesia's financial sector was in a normal condition in the first three months of the year as inflation remained tame in line with improving loan conditions and liquidity in the banking sector as well as a stable rupiah against the US dollar, the Financial System Stability Committee, or KSSK, said.

State-Owned Banks to Eliminate ATM Transaction Fees Indonesia Expat 3rd May 2017
The Ministry of State Owned Enterprises plans to make transfers between state-owned banks free of charge via Link automatic teller machines (ATM) through a programme of gradually eliminating the fee. Integrated ATM services, like Link, are easing money transfers between banks and increasing efficiency, particularly for consumers who cannot access ATMs belonging to their bank.

Indonesia records inflation of 0.09% in April The Jakarta Post 2nd May 2017
After seeing deflation a month earlier owing to the harvest season, the country recorded monthly inflation of 0.09 percent in April on account of increases in the prices of most commodities. Inflation in April brought annual inflation to 4.17 percent year-on-year (yoy), the Central Statistics Agency (BPS) announced on Tuesday.

Food & Agriculture

Indonesia's Chocolate Rush Worth Rp 15 Trillion Jakarta Globe 5th May 2017
Indonesia is going to consume 99,000 tons of chocolate this year, establishing a Rp 15 trillion ($1.13 billion) domestic market, which drives the country's transformation from a raw cocoa exporter to its net importer, according to a report by global research company Mintel.

Live cattle exports to Indonesia slow as beef price pressure takes a toll ABC 5th May 2017
With tight cattle supply making it difficult for exporters to source cattle, Wellard's Ocean Drover picked up 5,400 head in Broome and then filled the ship in Darwin. With tight cattle supply making it difficult for exporters to source cattle, Wellard's Ocean Drover picked up 5,400 head in Broome and then filled the ship in Darwin.

Indonesia to create 80,000 hectares of new rice fields Far Eastern Agriculture 4th May 2017
The new rice fields will be created outside Java. (Image source: Prabowoid/Pixabay)The Indonesian Agriculture Ministry has expressed its plans to create arpund 80,000 hectares of new rice fields this year as targeted by the government as part of the country’s food security program The Ministry’s agricultural infrastructure director general Pending Dadih Permana said the new rice fields would be created outside Java, The Jakarta Post reported.

National Police establish food stability task force The Jakarta Post 3rd May 2017
The National Police have established a food stability task force that is tasked with coordinating with the Home Ministry, the Agriculture Ministry, the Trade Ministry, the Business Competition Supervisory Commission and the State Logistics Agency to monitor food prices and prevent cartel practices in the food industry. The task force is a follow up to President Joko “Jokowi” Widodo’s instruction to maintain price stability during the month of Ramadhan.

ICT

New virtual currency tied to oil takes aim at bitcoin The Jakarta Post 3rd May 2017
The currency called "bilur" and created by London-based financial services company R Fintech uses the technology pioneered by bitcoin, while trying to offer an alternative for those weary of the wild fluctuations that have plagued digital currencies. (Shutterstock/File) A new virtual currency launched Tuesday aims to rival industry leader bitcoin by pegging its value to hard oil assets, a first in the rapidly growing digital money sector.  The currency called "bilur" and created by London-based financial services company R Fintech uses the technology pioneered by bitcoin, while trying to offer an alternative for those weary of the wild fluctuations that have plagued digital currencies. 

KOMINFO Indonesia working on number of initiatives to boost digital start-up ecosystem and support SMEs OpenGov 4th May 2017
The Ministry of Communications and Informatics in Indonesia (KOMINFO) announced last week that the the 1000 Startup Digital National Movement Program has completed the incubation stage in the first batch of three cities, Jakarta, Surabaya and Yogyakarta. Launched in August 2016, the movement aims to create 1,000 high-quality digital startups by 2020 with a total valuation USD 10 billion. The startups will focus on providing concrete solutions for real problems by leveraging digital technology and the large base of Internet and smartphones (Indonesia has ~100 million internet users and 80 million smartphone users). Initiated by KIBAR, a tech-startup ecosystem builder supported by KOMINFO, the movement is part of the government's vision to build Indonesia as 'The Digital Energy of Asia’.  

Infrastructure

Gov't Pins Hope on PPPs to Lure the Private Sector Into Infrastructure Initiatives Jakarta Globe 7th May 2017
Indonesia is now much better prepared to tap into private sector financing to help develop national infrastructure projects, thanks to new initiatives put in place over the last decade to facilitate public-private partnerships, or PPPs.

Dwelling time at ports down, but logistics costs still high Antara News 5th May 2017
Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan said that the government had successfully reduced the loading and unloading time of goods at ports (dwelling time), but logistics cost still remained high.

Interview: Indonesia minister: Japan, China rivalry good for Asian infrastructure- Nikkei Asian Review 5th May 2017
Competition between Japan and China to build infrastructure in the region is healthy and will help the development of Asian countries, Indonesia's Finance Minister Sri Mulyani Indrawati told Nikkei Asian Review on Thursday.

Jokowi Meets With Business Leaders in Hong Kong, Attracts Infrastructure Investments Jakarta Globe 5th May 2017
President Joko "Jokowi" Widodo met with leading business leaders on Monday (01/05) in Hong Kong, an autonomous Chinese territory, in a bid to attract greater investments into infrastructure projects in Indonesia.

Gov't-Backed Infrastructure Projects a Boon for State Construction Firms Jakarta Globe 5th May 2017
Profits at state-owned construction firms soared early this year on the back of new contracts and ambitious infrastructure projects planned by the government all across the Indonesian archipelago. Waskita Karya booked Rp 450 billion in net income in the first quarter, almost four times the figure from the corresponding period last year of Rp 124 billion. Wijaya Karya posted Rp 245.07 billion in profit in the same period, more than triple the figure last year of Rp 71.67 billion.

Manufacturing

Minister calls for maintaining growth in manufacturing sector The Jakarta Post 5th May 2017
In response to improved growth in the manufacturing sector in the first quarter,  Industry Minister Airlangga Hartarto has said the ministry and relevant stakeholders need to ensure that investment and infrastructure kept improving so that growth continues.

Indonesia manufacturing activity improves as input price inflation hits 18-month high Financial Times 2nd May 2017
Indonesia’s manufacturers enjoyed a second month of growth in new orders and export business, according to an April survey, helping to offset pressure from the rupiah’s weaker exchange rate against the dollar, which pushed input costs up at the fastest pace in a year and a half. The Nikkei-Markit purchasing managers’ index for Indonesia’s manufacturing sector climbed to a ten-month high of 51.2 in April, up 0.7 points from March and pushing further above the 50-point line delineating expansion from contraction.

Manufacturers See Strongest Production Rise Since Mid-2016 Jakarta Globe 2nd May 2017
Indonesia's manufacturing industry started the second quarter of 2017 on a strong footing as companies scaled up production for the second straight month in April to match growing demand, the Nikkei Indonesia Manufacturing Purchasing Managers' Index survey showed.