Solid legal system prerequisite for free market

Solid legal system prerequisite for free market

The prevalence of justice is of paramount importance to the
business world. Legal certainty helps shape business ethics,
both of which are pillars of sound economic growth. Noted lawyer
T. Mulya Lubis takes a look at the relation between the two
using the General Agreement on Tariff and Trades agreement as a
background.

JAKARTA (JP): A number of countries, including Indonesia, have
completed the ratification process of the General Agreement on Trade
and Tariffs (GATT). If things move as expected, we shall have a free
and global market early next century. We will have to face the free
flow of commodities, capital and manpower, much like the traffic on
toll roads.

Regardless of the current levels of protection, restriction and
collusion, all will have to disappear. All regulations and laws that
are discriminatory and protective in character shall have to be
replaced with regulations and laws that are conducive to trade based
freely on competition. The principle of "national treatment" shall
have to be consistently observed.

Needless to say, meeting all of these conditions will be far from
easy. It will require a revolution in our attitudes as well as in
our legal products. One of the consequences of GATT is that there
will no longer be a dichotomy between foreign and domestic
investment companies. It will be impossible to require that the
shares of an ordinary limited liability company be owned only by
Indonesians.

This means that foreigners will have to be allowed to form their
own limited liability companies and that our stock market will have
to be more accessible to foreign investors. In short, in the early
2000s we will have to deal with a different legal structure, one
that includes economic laws that legitimize free market practices.

It is perfectly clear that the Indonesian government has taken
various anticipatory steps in order to prepare the country for a
free market. The issuance of PP (Government Regulation) 20/1994,
which has left the door wide open to foreign investments--including
new privileges and incentives--was obviously a bold move.

There must have been parties who were strongly against this
government regulation. They must have claimed that this regulation
is against Article 33 of our 1945 Constitution and therefore
unconstitutional. True as it may sound, it seems that not many are
interested in listening to this opinion. Trade liberation will march
on and our leaders have committed to it. It was in line with this
commitment that our House of Representatives ratified GATT through
Law No. 7 of 1994.

All of these developments make it meaningless for us to continue
questioning the validity of upcoming trade liberation, although
caution should always be exercised. Now the practical question is:
Are we going to compete in inviting foreign capital into our
country, or are we going to let it flow to our neighbors instead?

Offering many privileges to foreign investors is the proper way of
going about attracting foreign capital. However, all these
privileges will not mean much if we fail to assure foreign investors
of legal certainty and judicial protection. Without our guarantee,
they will always feel insecure. Such a situation will obviously be
detrimental to long-term business activities, and might even raise
Indonesia's "country risk" index rating.

It is a pity that not very many people realize this, despite the
seriousness of the issue. Perhaps one will be able to see the
magnitude of the problem if one recalls the comments made by former
deputy chief justice Asikin Kusumaatmadja, who alleged that a mafia
of court officials existed. This "mafia" was said to be responsible
for undermining the rule of law, impairing justice and turning court
decisions into commodities. It was further alleged that more than
half of the judges in this country were guilty of having accepted
bribes. In other words, Asikin Kusumaatmadja claimed that the
judicial system of Indonesia was full of promiscuity.

The controversy surrounding this allegation is not a recent one.
However, it has long been strongly denied. It was Kusumaatmadja and
his comments that placed the issue in the open. Unfortunately,
leaving it in the open also means leaving it for the whole world to
see, including those who do business in Indonesia. Thus, it is high
time real efforts are made to curb the mafia, using harsh measures
if necessary. Victims will fall, and there is a good chance our
judicial system will temporarily suffer from a shortage of judges.
However, it is better for us to have a few good judges than many
dishonest judges.

This will prove to be the biggest challenge to future economic
growth. We must realize that we could fail to achieve all the
objectives of AFTA, APEC and GATT unless we successfully eliminate
the problems in our legal and judicial systems.

The writer is a noted human rights activist and a corporate lawyer
based in Jakarta.