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Uncertainty looms after Job Creation Law declared unconstitutional
The court's decision could revive perceptions of significant legal uncertainty for investment in Indonesia.
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Priorities: A protester holds a sign that reads “Overcome the virus, withdraw the omnibus [law]” during a protest on Nov. 12, 2020 outside the House of Representatives in Senayan, Central Jakarta. Workers continue to demand that the government repeal the newly omnibus Job Creation Law. (JP/Seto Wardhana)
T
he Constitutional Court delivered shocking news on Thursday by declaring that the main item of the reform agenda of President Joko “Jokowi” Widodo’s administration, the omnibus Job Creation Law, is partly unconstitutional. This is a historic decision as for the first time the court has declared the unconstitutionality of a law based on significant procedural violations that occurred during its legislative deliberation.
There were three main points that court ruled as infringements of the law-formulation procedure: the omnibus law approach is still alien to Indonesia’s law-making procedure; the draft that President Jokowi signed in November 2020 was not the same as the law passed by the House of Representatives; and the deliberation process lacked meaningful public participation.
The court decision also demonstrates clearly that a key tenet of Indonesia’s democracy is alive and well – with the checks and balances between an independent judiciary and the executive clearly on display through this decision. This is particularly important given that many observers have questioned the Constitutional Court’s independence after the hasty revision of the Constitutional Court Law that extended the term of all sitting judges last year, believing that this illustrated the influence of the Jokowi administration over the court.
While we should applaud the court’s decision, which reaffirms Indonesia’s functioning democracy, we should also assess the impact of the ruling on the investment climate in the country.
The Job Creation Law itself is an unprecedented reform, the most ambitious and significant reform to improve investment and the business climate since the 1998 reforms. This is Jokowi’s signature achievement as president and is seen by Jokowi as indispensable to improving the country’s investment competitiveness vis-à-vis its neighbors in East Asia.
Since its enactment last year, the law has generated significant interest from international investors. The Indonesian Chamber of Commerce and Industry (Kadin) recorded a year-on-year investment increase between 10 and 15 percent until the third quarter of this year, with inbound investment in 2021 already surpassing the total inbound investment in 2019.
The rise can be observed coming significantly from domestic investors, but the interest expressed by international investors has increased significantly despite major challenges from the COVID-19 pandemic and restrictions on travel to Indonesia.
