Good commercial courts imperative for recovery

Muninggar Sri Saraswati, The Jakarta Post, Jakarta

The country's commercial courts, renowned for being ineffective and corrupt, must be reformed to encourage more investment and in turn boost economic recovery and growth, an expert said.

Sebastian Pompe, the resident legal counsel of the International Monetary Fund (IMF) in Jakarta, asserted that economic growth and proper commercial law application are intertwined.

"Therefore, the trust of the global market is much determined by what the commercial court does. If the court does badly, investors are afraid they will never see the money back they invest here," he said on Wednesday.

Pompe presented his views during a ceremony marking the end of the first phase of the IMF technical assistance program on the country's legal reform, including on commercial courts, funded by the Dutch government.

Indonesia has five commercial courts located in Jakarta, Semarang, Surabaya, Makassar and Medan, with 25 judges -- 14 of them working in Jakarta.

Bankruptcy litigation experts have lamented that the country's commercial courts have failed to meet expectations and instead delivered verdicts creating legal uncertainty for the business sector.

Worse, commercial courts are known as one of the most corrupt legal institutions in the country.

Last year, the country was stunned by the controversial ruling of the Jakarta Commercial Court which declared PT Asuransi Jiwa Manulife Indonesia (AJMI) bankrupt after the receiver of the now defunct company, the former partner of Canada's Manulife in AJMI, brought a bankruptcy petition over an unpaid dividend in 1999.

The Supreme Court overturned the decision only after international outcry over the decision.

With such unfavorable conditions, fewer and fewer bankruptcy petitions have been filed with the commercial courts, indicating that creditors do not trust commercial courts to recoup their lost money.

The low number of cases is especially evident at the Jakarta Commercial Court, which handles most of bankruptcy cases in the country. The Jakarta Commercial Court registered only 12 bankruptcy petitions as of April this year. In 1999, when the court was first established, it heard more than 100 cases.

Responding to investors' concerns, Supreme Court Chief Justice Bagir Manan said: "The results show that they are not meeting our expectations. Therefore, we need to make improvements."

Bagir argued that many people here still consider bankruptcy negative for businesses.

"That's incorrect. Bankruptcy is a way to settle a debt dispute," he said.

Pompe concurred, saying that some people think that bankruptcy is the same as unemployment.

"Bankruptcy does not kill, it revives. It is a process whereby the law facilitates the movement of economic resources, from non-productive enterprises to more productive enterprises. Good bankruptcy law means more employment, not less," he said.

There were 1.4 million bankruptcies in the United States in 2001, he said. Also, the Netherlands sees an average of 633 bankruptcies per month.

In comparison, the Central Statistics Bureau reported that 835 large and medium manufacturing companies went bankrupt last year, up from 650 the previous year.

"The U.S. and Dutch system allow entrepreneurs to go bankrupt, but afterwards they can start again," he added.