State based on rule of law still distant

By Dewi Anggraeni

MELBOURNE (JP): Indonesia still has a long road to travel toward fully implementing the law despite the fact that it is a nation based on the rule of law, a conference here concluded.

After three decades of impressive economic growth there is a discrepancy between the speed of economic progress and that of the judiciary.

"The fact that Indonesian judges are supervised by the executive body as well as the judicature body, makes it hard for the judges to achieve an independent and impartial judiciary," said Frans Winarta, chairman of the International Relations committee of the Indonesian Bar Association.

Winarta noted that while the rule of law is cited and guaranteed in the Constitution, it has yet to be achieved. Political interference with court decisions is not unknown, despite a constitutional guarantee that the judiciary should be impartial and independent.

In addition, he said, there is psychological pressure on the judges to conform.

"Law No. 14/1970 states that judges are agents of development. No one, least of all judges, would want to be `anti- development,'" he told the conference organized by the University of Melbourne on Sept. 28.

The conference, attended by 150 participants, mostly law practitioners, is the first of its kind on Indonesian law in Australia.

At the end of the conference, a new cooperation body, the Australia-Indonesia Legal Development Foundation was launched.

One of the issues that received a great deal of attention was the inadequate judicial review in the legal system.

Judge Benyamin Mangkoedilaga, speaking about the five year old Administrative Court, pointed to the small number of judges in this court compared to those in the Public Court.

"There should be an administrative court in every regency and municipality and every provincial capital should have a High Administrative Court," he said.

At present there are only four High Administrative Courts, in Medan, Jakarta, Surabaya and Ujung Pandang, and sixteen State Administrative Courts. All these are supported by 120 judges, compared to three to four thousand for the Public Court.

Satya Arinanto of the University of Indonesia pointed to the doctrine of separation of powers as the basis of the argument that review of administrative decisions is not the task of the ordinary courts.

"If review is to be undertaken it should be by administrative courts, as is the case in France," Arinanto said.

Judicial review enforces the rule of law and confines executive action to the powers and functions assigned to it by law, he said.

However, the reviewing power of the Administrative Court, as Judge Benyamin explained, is limited to cases which are written, concrete, individual and final. These limitations, according to Satya Arinanto may be overcome by the establishment of a Constitutional Court.

Judicial review, as the conference observed, is a new phenomenon in Indonesia. Robyn Creyke of the Australian National University indicated the limited number of special review bodies in Indonesia.

What stands out, for instance, is the lack of an anti- discrimination body, because in Australia it is one body whose services are actively and frequently sought. However, Creyke sounded a note of optimism, illustrating as examples the National Commission on Human Rights reports that are unmistakably critical of the authorities.

The Hon. Justice Michael Kirby, patron of the newly founded body made an observation that the rule of law is the cornerstone of the struggle for human rights.

The rule of law, he said, has to be upheld in any culture. He added that in his capacity as a judge of different courts for 21 years in Australia, he had never felt pressured to compromise his independence in handing down any court decision. For that he was thankful and proud to be an Australian judge.

Another issue addressed at the conference was commercial law reform.

Following 25 years of impressive economic growth and integration into the global economy, the need to reform the law is pressing.

The conference has highlighted the fact that the lack of sophisticated legal infrastructure has caused problems to foreign companies investing in Indonesia. To function effectively in the modern commercial world, it seems, a reliable legal system is sine qua non.

Foreign investors, according to Bruce Johnston of Arthur Robinson & Hedderwicks, are attracted to Indonesia by its natural resources, relatively low labor costs, growing domestic market and political stability. However, these investors also expect predictability and an understanding of their rights and obligations. And more important than tax holidays and investment incentives, they want to be able to make sure that their rights and obligations are legally enforceable.

The new Law on Limited Companies (No. 1/1995) enacted on March 7, 1995, to come into force on March 7, 1996, will probably be welcomed by investors, domestic as well as foreign, as a step in the right direction.

Two specific issues have been highlighted in the new law: the duties and liabilities of directors and commissioners, and minority shareholders' rights. However, there are still doubts as to whether these rules will be enforced. Johnston indicated that, for instance, there are no specific consequences for failing to adjust a company's articles to the new law. The persons adversely affected by a company's failure to adjust would probably have to approach the Ministry of Justice or take the matter to court to force the changes they require.

Benny Tambalujan of Nanyang University, Singapore, observed that some parts of the new law may be nothing more than a codification of existing practice or government policy. However, the new law would give these practices and policies the force of law, thus provide greater legal certainty in the Indonesian corporate sector. Tambalujan also sounded a note of caution that the new law was not yet in effect and that no implementing regulations had been made public.

This uncertainty is no comfort when disputes arise between trading partners. As a rule most businesses will avoid disputes as much as possible, as these disputes invariably cost a great deal of money and effort.

"When disputes are inevitable, most companies would prefer private settlements to arbitration or litigation", said Normin Pakpahan of the Ministry for Economy and Finance Development. Even in countries where there is a legal mechanism for arbitration of commercial disputes, the process of obtaining it can drain a company of resources needed for the day-to-day running of its business. In countries where arbitration has not been effectively built into the legal structure, the costs resulting from disputes can escalate to the decimation of the whole business.

Lisa Ting of the Asian Law Center of the University of Melbourne said: "Foreign investors do not trust the court system and are unsure of the traditional systems of informal mediation and conciliation. Arbitration is seen as a more definite and internationally recognized procedure."

It became obvious that a reliable arbitration system is necessary if Indonesia wants to actively participate on a level playing field.

Recognizing this trend, Indonesia did become party to the ICSID (International Center for Settlement of Investment Disputes) Convention in 1968 and the New York Convention (on the Recognition and Enforcement of Foreign Arbitral Awards) in 1981. In addition to that, Indonesia has established a formal national arbitration agency called BANI.

Nonetheless, foreign investors are still very cautious. There have been instances pointing to the practical unenforceability of foreign arbitral awards, and indeed in practice, the existing arbitration system is inadequate.

Cross-boundary contracts carry their own usual problems of the cross-cultural nature that stretch beyond a mere legal framework. In addition, the speed of economic globalization has created transactional forms ahead of legislation.

In her research, Veronica Taylor of the Asian Law Center of Melbourne University found that in Indonesia, relationship dominates legal rules. Procedures tend to be quicker if the business is well connected to high places. In cases where the foreign partner becomes impatient with the Ministry of Finance, the Indonesian partner usually takes the stance of the ministry, finding the foreign partner too aggressive. This understandably puts the foreign partner in a tight corner. Yet arbitration is not regarded as a desirable option either.

The Indonesian arbitration system relies on enforcement through the courts, which foreign investors mostly avoid.

Internationally recognized arbitration is no doubt less costly than litigation. And obviously aware of this fact, the authorities in Indonesia have shown some political will to accommodate it. However, the conference found that to participate effectively in regional growth, this political will must go beyond an enactment of new laws. Implementing regulations are urgently needed to enforce them.

The writer is a freelance journalist and author of a number books.