State based on rule of law still distant

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.