Group established to push legal reform in Indonesia

Adianto P. Simamora, The Jakarta Post, Jakarta

The International Finance Corporation (IFC), the investment arm of the World Bank, has set up a working group to monitor the implementation of law reform in Indonesia, according to a senior executive.

IFC director for East Asia and the Pacific Javed Hamid said on Friday that the working group would propose concrete steps to the government to improve the functioning of the legal system in the country.

"This (law reform) will help rebuild the confidence of private sector investors and stem the current massive outflows of private capital from Indonesia," Javed told reporters following a half- day discussion on law reform.

The working group is chaired by noted-lawyer Kartini Muljadi from Kartini Muljadi and Partners and has members that include judges, lawyers, legal practitioners, legal academics and also a number of businessmen.

Javed said that legal uncertainty in this country had been one of the main reasons for causing a capital outflow of around US$10 billion per year since the 1997 financial crisis.

In comparison, Indonesia enjoyed a private capital inflow of $11.5 billion in 1996.

"The private sector will play a key role in the restoration of the investment flows that are crucial for the recovery of the country's ailing economy," he said.

He said that investors' willingness to invest in this country would largely depend on the ability of the government to create legal certainty.

Javed acknowledged that most Indonesian legal products were good but their enforcement was weak.

He noted, however, that some laws, particularly on the mining industry, were out of date and needed immediate improvement to encourage new investors to return to this sector.

Javed added that the IFC had resumed its support for some projects already in the pipeline.

He, however, said that it would maintain a freeze on new funding to Indonesia until there was concrete evidence of improvement in the legal environment.

"We still accept that we have to suspend our operation until we see some improvement in the legal environment," he said.

The IFC has been embroiled in legal disputes involving companies it had invested in, particularly PT Panca Overseas Finance Indonesia (POFI).

An bankruptcy petition brought against POFI was rejected by the commercial court last year due to what the IFC suspects were fictitious creditors voting in favor of POFI.