Law: Missing link in stabilizing the rupiah

Law: Missing link in stabilizing the rupiah

Various theories on how to fight the economic crisis have been
forwarded. Charles Himawan, professor of law and economics at the
University of Indonesia, argues that the Supreme Court could play
a major role in helping to alleviate the suffering.

JAKARTA (JP): Long before the "Thailand storm" of July 2,
1997, hit Indonesia, many foreign entrepreneurs often complained
openly that there seemed to be no law in Indonesia.

They misdefined law. They saw the law as that conceived in
many developed countries, that is "autonomous law" -- a law which
is applicable both to the lawmakers and to the people. If they
were to define law as the manifestation of the will of the power
holders, then they could easily see that there is indeed law in
Indonesia.

On top of that, court decisions could also be defined as law,
especially decisions of the Supreme Court, because the Supreme
Court is the highest judicial body in Indonesia. Most of
Indonesia's business partners in the world therefore look upon
these decisions as their guidelines in their economic activities.
The Supreme Court's decisions are generally defined as law-by-
action as opposed to law-by-the-book. To date, law-by-action has
not been conducive to ensuring a transparent business legal
environment.

Were it transparent, it might have cushioned the country
against Thailand's financial storm, and Indonesia's initial
recovery would have begun a few months ago. The International
Monetary Fund (IMF), for one, is aware of the role that the law
can play in preventing financial meltdown.

This is evidenced when the IMF evaluated the ability of
Singapore to recover from the financial crisis in a relatively
very short time. IMF analysts attributed this to Singapore's
"high quality of regulation." Furthermore, under paragraphs 29
and 30 of the Memorandum of Economic and Financial Policies of
Jan. 15, 1998, the IMF also called for the strengthening of the
legal and supervisory framework of Indonesia's banking sector.

To date, the Supreme Court's decisions in terms of banking
activities have been a deterrent to seeing the operation of
healthy banks, whereas we all know that banks are an
indispensable institution for smooth export activity. And exports
are a major source of U.S. dollars which in turn are the crucial
ingredient in stabilizing the rupiah. Furthermore, a stable
rupiah is a conditio sino quo non to reestablishing a healthy
business atmosphere, and hence to recovering from the current
economic crisis. It has become apparent to people recently that
there is a link between the four major players in the country's
economic activity: law, banking, exports and a stable rupiah.

The implementation of law-in-action judicial decisions is in
general far from encouraging. Take for example the case of Drs.
R.J. KAS versus PMI, PT T and BDN. KAS sued and obtained
compensation of about Rp 7 billion from the three defendants. The
case went through the District Court, the Court of Appeal and the
Supreme Court for about ten years, and was examined by a total of
nine judges. Nevertheless, the Chief Justice himself withheld its
enforcement on April 2, 1993.

The Supreme Court's decisions in regard to banking are also
very disappointing. The case in point is BoA versus PT BJA. PT
BJA made a notarial form of Acknowledgement of Indebtedness which
under Indonesia's law-by-the-book qualifies as a judicial court's
decision, and therefore could be immediately executed upon
default by the debtor. Central Jakarta District Court was for
allowing the plaintiff, BoA, to execute the document, but the
Supreme Court said no on Sept. 25, 1989.

This special IOU document is actually a potent instrument for
the protection of a bank, because it ensures the speedy return of
the bank's money, hence ensuring a healthy bank. Annulling the
enforcement of the document endangers the bank itself.

There were too many considerations given in favor of the
debtor by the Supreme Court, because the Supreme Court believes
that the debtor is the weaker party. The Supreme Court overlooks
the fact that in a business transaction the debtor and the
creditor each have their own function.

In regard to exports the Supreme Court's decisions are also
not conducive to a healthy legal environment. Many foreign buyers
of Indonesian merchandise prefer to choose arbitration as the
means to settle their differences should they arise.

Prior to 1990 the Supreme Court practically refused to enforce
foreign arbitration awards. Since then there have been some
encouraging decisions in favor of foreign buyers, though there
have still been some cases in which the Supreme Court refused to
enforce internationally made decisions. One case in point was SM
Ltd. versus PD PL of April 6, 1994.

In the country's coming recovery years, the Supreme Court
could play a major role as exemplified, for example, by
Singapore, if the justices can take into consideration the
economic effects of their decisions, particularly in the three
areas above.

They need to detach themselves from purely theoretical
considerations. If they are successful, then law could be linked
to economic progress and may be able to help stabilize the
rupiah. Otherwise, the law will only become an annoying ringside
spectator.