A New Law Puts Indonesia's Credibility at Risk

TEMPO.CO, Jakarta - Indonesia’s credibility as a participant in the global financial system is facing a self-inflicted threat. Ironically, the risk stems from the Prabowo Subianto administration itself, backed by a parliament that has shown little appetite for scrutinising government’s agenda.

The latest concern follows amendments to the Financial Sector Development and Strengthening Law (P2SK), enacted on June 4. Article 50A authorises Danantara to issue two special debt instruments — Patriot Bonds and Merah Putih Bonds — without requiring scrutiny of the origin of the funds used to purchase them.

The provision goes considerably further. It grants investors immunity from prosecution under the criminal code, special criminal statutes and tax laws, while also shielding them from civil litigation. In practice, it creates an unusually broad legal safe harbour that could allow proceeds of corruption, organised crime or tax evasion to be transformed into apparently legitimate financial assets through the purchase of Danantara bonds.

The government may argue that facilitating money laundering is not its intention. Officials maintain that the legal protection is merely intended to encourage global potfolio fund to come and finance domestic investment.