This chapter presents the country profile for Indonesia. It provides an overview of the current de jure requirements for the institutions, tools and processes of regulatory governance and, where possible, how these have been implemented in practice. The profile focus on three aspects of regulatory governance pertinent to the past, present and near future of regulatory reforms in the ASEAN region. The first is whole-of-government approaches to regulatory policy making, including national and international commitments to better regulation that are driving domestic reform processes. The second is the use of good regulatory practices, including regulatory impact assessments (RIAs), stakeholder engagement and ex post review. The third is approaches to digitalisation, or how countries are using digital tools to respond to regulatory challenges, and is the newest frontier for better regulation reforms in both ASEAN and OECD communities. The information contained in this and the other profiles serves as the basis for the analysis of trends in regulatory reform presented in Chapter 1.
Supporting Regulatory Reforms in Southeast Asia
5. Indonesia
Abstract
Whole-of-government initiatives
Regional focus
Indonesia has made significant efforts to integrate its National Single Window into the ASEAN Single Window (ASW). The Indonesia National Single Window (INSW) was launched in 2010 and since then, Indonesia has also joined the ASW Live Operation in December 2019. They currently have a two-pillar approach to the single window: the Trade System (which promotes the smooth issuance of import-export licenses and customs clearance), and the Port System (facilitates flow of goods at the port, especially in relation to cargo release processes. At present, the Trade System is registered as part of the INSW while the Port System is not (JASTPRO, 2012[1]).
Indonesia is also a signatory to several regional trade agreements. The Regional Comprehensive Economic Partnership, the Indonesia-Australia Comprehensive Economic Partnership Agreement, and possible agreements with the European Union and EFTA aim to ease the flow of goods, services, investment and people between Indonesia and some of its major partners (OECD, 2021[2]). Indonesia has also committed to ratify the ASEAN Comprehensive Investment Agreement (ACIA), ASEAN Framework Agreement on Services (AFAS), and the ASEAN Mutual Recognition Arrangement (U.S. Department of State, 2020[3]). These trade agreements will likely be grounded with chapters that relate to regulatory quality to ensure that all trade partners are aware of their obligations and that the trading of goods are monitored for their quality and assurance (OECD, 2021[2]).
Indonesia has also worked bilaterally with other countries to conduct regulatory reforms. The Indonesia Prosperity Fund Regulatory Reform Bilateral Programme 2018-2023 is being led by the UK’s Office for Product Safety and Standards, which is located within the Department of Business, Energy and Industrial Strategy (BEIS) and leads the work for the Government’s agenda on regulatory reform (Foreign&Commonwealth Office, 2018[4]). This co-operation with the UK government has been aimed at improving the central regulatory reform to overcome obstacles such as a complicated regulatory environment and insufficient cross-government co-ordination and collaboration between public and private sector (Foreign&Commonwealth Office, 2018[4]).
National focus
Regulation plays a key role the Indonesian government’s policy priorities. OECD (2021[2]) notes that simplifying, cutting down on and trimming all forms of obstructive regulation and improving the bureaucracy are two of the 2019-2023 medium-term priorities set out by President Jokowi Widodo in his October 2019 inauguration speech for his second term. The medium-term priorities are part of Indonesia’s objectives to increase its GDP and to become an advanced country by 2045.
Since 2018, Indonesia has adopted various strategies to improve their national regulatory environment. Indonesia’s 16th economic policy package, launched in August 2017, targeted regulatory reform of business licensing and permitting processes (OECD, 2018[5]). In October 2020, the Indonesian Parliament enacted the Omnibus Law on Job Creation, which focused on strengthening the country’s economy through promoting job stimulus as well as reducing regulatory requirements around attracting foreign and domestic investments1 (UNCTAD, 2020[6]). The law aims to streamline the current regulatory framework for investment and includes key measures ostensibly lifting restrictions and conditions placed on FDI, centralising and simplifying business licensing and land acquisition procedures, significantly reforming Indonesia’s labour market and relaxing certain environmental regulations (UNCTAD, 2020[6]). The law had wide effects on multiple sectors in Indonesia, as it contains 186 articles, amends 79 laws and eliminates thousands of regulations in ten main areas, including labour reform, ease of doing business, investment, tax, and land procurement (OECD, 2021[2]). In November 2021, the Indonesian Constitutional Court ruled that the law is conditionally unconstitutional on procedural grounds and set a deadline of two years for lawmakers to redo the legislative process, whereby the law will remain valid during the two-year period but the government cannot take further actions related to the law in the meantime (Omar and Bakker, 2021[7]).
Indonesia has also undertaken other governmental strategies to improve their regulatory environment such as the 2020-22 Open Government Indonesia (OGI) National Action Plan2 (NAP) and the 2020-24 National Medium-Term Development Plan3 (RPJMN).
In terms of intergovernmental developments to support their national regulatory development, Indonesia’s Investment Coordinating Board (BKPM) was transformed from a government agency charged with implementing and supervising investment policy into a ministry, now known as the Ministry of Investment/BKPM, as of April 2021 (Abednego, 2021[8]). This was also part of the Omnibus Law described above. The Ministry is the focal point for connecting all investment sectors from the technical ministries as well as serves as the “one stop shop” for helping investors with their business licensing. As the main link between business and government, the ministry is responsible for creating a conducive investment climate in Indonesia (Ministry of Investment/BKPM, n.d.[9]).
Governmental strategies and plans have also committed to improving the regulatory environment. These include:
The Open Government Indonesia (OGI) National Action Plan (NAP) 2020-2022 is part of the development agenda in the 2020-2024 Medium-Term National Development and contains commitments reflecting OGI’s values of 1) transparency, 2) participation, 3) innovation, 4) accountability, and 5) inclusion (Open Government Indonesia, 2020[10]).
The 2020 Government Work Plan (RKP) was the initial achievement of the first year of implementing the 2020-2024 National Medium-Term Development Plan (RPJMN). The 2021 RKP focuses on seven national development priorities under the 2020-2024 National Medium-Term Development Plan(RPJMN), namely strengthening economic resilience, developing regions, improving human resources, spreading the spirit of “mental revolution”, improving infrastructure, preserving the environment, improving disaster resilience and climate change, as well as maintaining stability of political, legal and security affairs and public services (Cabinet Secretariat of the Republic of Indonesia, 2020[11]).
The authorities also took measures to improve regulations related to business competition, including through the Indonesian Competition Commission (KPPU). In 2019, KPPU focused on reforming procedural law, easing notification of merger and acquisition transactions, and improving legal protection for SMEs (OECD, 2020[12]).
Good regulatory practices
Regulatory impact assessments
As described in OECD (2018[5]), draft regulations may be proposed or initiated by any ministry and it is the responsibility of that ministry to undertake all evaluations relevant to the proposal before it is approved. This includes an explanatory description and/or academic research paper, including an introduction (background, problem identification, objectives and methods), theoretical studies and empirical practices, evaluation and analysis of regulations, the range, the direction of the regulation, sociological and juridical aspects, the scope of material content of local laws and regulations, and the conclusions and suggestions. Once these have been prepared, the Ministry of Law and Human Rights proceeds with the preparation of the Bill.
Regulatory impact analysis was introduced to the Indonesian national government, via the then Ministry of Industry and Trade by the 2002 ADB Deregulation and Competition Project, which produced a training manual and trained some Ministry officials in the methodology (USAID, 2009[13]).Indonesia’s Presidential Instruction 7/2017, effective as of 1 November 2017, indicates that a RIA must be undertaken before a new regulation can be imposed and Indonesia’s Cabinet Secretary Regulation 1/2018 further reinforces this protocol by stating that RIAs should be done both at the ex ante and ex post stages of the regulatory policy cycle. The National Development Planning Agency (BAPPENAS) offer both guidelines to conduct RIA, as well as training with the support of external networks such as the Asian Development Bank and the Asia Foundation are also available (USAID, 2009[13]).
In terms of organising RIAs, the Ministry of Law and Human Rights co-ordinates the lawmaking processes within Indonesia (OECD, 2018[5]). The Ministry oversees activities related to regulatory reform, ensures the quality of legislations and offers other services related to public administration and law. The Ministry of Law and Human Rights also delivers regular training on Regulatory Impact Assessments (RIA Law No. 12), cost-benefit analysis (in partnership with academia) and provides advice and support to governments on SME issues and smart regulation when needed (OECD, 2018[5]).
The RIA process in Indonesia requires that regulators identify the impacts of a regulatory proposal and explain all of their analysis through an academic paper. In general, a complete regulatory proposal in Indonesia should comprise of an introduction to the policy problem, a review of theoretical studies that support the issue, any empirical evidence, evaluation and analysis of regulations, the range, the direction of the regulation, any sociological and juridical aspects, the scope of material content of local laws and regulations, and the final conclusions and suggestions based on the overall analysis. Once these have been prepared, the Ministry of Law and Human Rights can then proceed preparing the draft Bill. Draft bills are to the House by the House itself, the President or the Regional Representative Council (OECD, 2018[5]).
Stakeholder engagement
As noted in OECD (2018[5]), stakeholder engagement is identified an important part of Indonesia’s law-making processes. The requirement to convene these consultations are outlined in Presidential Instruction 7/2017, whereby it stipulates that consultations must be conducted for new regulations. When a new regulation is proposed, a legislative session is organised and these sessions are often inclusive of inter-ministerial committee members, experts and relevant stakeholders. These sessions offer a platform for these members to deliberate the draft regulation as well as evaluate the accompanying academic paper.
In some cases, a public hearing can also be arranged to obtain input from community members on draft regulations (OECD, 2018[5]). Indonesia has also employed the use of several online databases to create a wider scope on who can engage with existing and upcoming regulations (OECD, 2018[5]). Some of the noted public consultation website are as followed:
Partisipasi Publiik (Ministry of Law and Human Rights)
Legal Smart Channel
Konsultasi Hukum Online
Hukum Online
In the context of the 2030 Agenda and Voluntary National Reviews (VNRs), Indonesia established a mechanism that gathers key sectors of society, including the office of the president, to participate in the implementation, follow-up, and review of the SDGs (UNESCAP, 2018[14]). Stakeholders were consulted throughout the process, including through online platforms. Online consultations were even used during the country's formulation National and Subnational Action Plans for the 2030 Agenda (UNESCAP, 2018[14]).
Presidental Regulation Number 18 of 2020 on the National Medium Term Development Plan (RPJMN) 2020-2024 was signed in January 2020 and stipulates that a Ministry/Institution should carry out consultation and co-ordination with the Minister when drafting or revising Strategic Plans and Regional RPJMs (Cabinet Secretariat of the Republic of Indonesia, 2020[15]).
Burden reduction/Ex post review
Ex post reviews and burden reduction mandates have been noted throughout Indonesia’s national mandates. Not only has Cabinet Secretary Regulation 1/2018 reinforced the need to also undertake ex post evaluations as part of the country’s regulatory policy cycle, but tenants of Indonesia’s most recent Economic Policy Package (16th) also outline the importance of administrative simplification. According to a monitoring report from the Office of the Presidential Staff (KSP) in 2018, of the 8 811 regulations affected by the policy packages, 324 were revoked and 75 were revised.
Other national plans of Indonesia have also contribute to strategies of administrative burden reduction. For example, as part of the implementation of the Omnibus Job Creation Law, 77 Indonesia laws were revised into a single law which would regulate various sectors of the country’s economy and the creation of the Online Single Submission (OSS) licensing system would support a stronger integrated system for business licensing.4 More information on the OSS licensing system can be found in Box 5.1. Last, monitoring on Indonesia’s National RPJM is carried out regularly, whereas the evaluation of the plan is carried out in the midterm and final year of its implementation (Cabinet Secretariat of the Republic of Indonesia, 2020[15]).
Digital
Indonesia has identified that digital transformation is one of the key areas that the government should invest resources towards in order to maximise public service efficiency and the operations of the government. In October 2018, the government issued Presidential Regulation No. 95/2018 on e‑government, which required all levels of government (central, provincial, and municipal) to implement online governance tools (e-budgeting, e-procurement, e-planning) to improve budget management, government transparency, and the provision of public services (U.S. Department of State, 2020[3]). This direction was one the stimulus that supported the introduction of the OSS systems (see Box 5.1), as well as the development of new electronic tax invoicing and e-filing systems.
Box 5.1. Indonesia’s Online Single Submission (OSS) system
Indonesia’s Online Single Submission (OSS) system has made business registration in Indonesia easier as several key permits - the location permit, environmental permit and building permit - can be obtained within one hour of submitting all required data (Indonesia Investments, 2018[16]). After these permits are completed, then the business permit and the operational/commercial permit are activated, allowing investors to immediately start preparations to run their business in Indonesia while awaiting formal documents (Indonesia Investments, 2018[16]). The OSS system streamlines 492 licensing and permitting processes through the issuance of Government Regulation No.24/2018 on Electronic Integrated Business Licensing Services (U.S. Department of State, 2020[3]). The OSS has integrated 21 line ministries and institutions, and has delegated 325 licensing products and services to BKPM (Indonesia Investment Coordinating Board, 2021[17]). Moreover, it has introduced a risk-based licensing process. The system is based on (1) Presidential Regulation No. 91/2017 on the Acceleration of Business Implementation and (2) Government Regulation No. 24/2018 on the Electronically Integrated Business Licensing Service, which was designed to cut lengthy bureaucratic procedures (red tape), thus attracting more direct investment (Indonesia Investments, 2021[18]). The risk-based licensing process establishes separate categories of risk for the license and confers different requirements upon businesses in accordance with these risk levels (Indonesia Investment Coordinating Board, 2021[17]):
|
Risk Level |
Requirements |
|---|---|
|
Low risk |
NIB as the single license for preparation, operational, and commercial stages |
|
Lower middle risk |
NIB and Standard Certificate (SS) as the license for preparation, operational, and commercial stages |
|
Upper middle |
Standard Certificate in the form of self-declaration to meet business activity standards NIB + SS (self-declaration) as the license for preparation stage SS (verified) issued after verification of compliance with business standards by the Government NIB + SS (verified) as a business license is valid for operational and commercial stages |
|
High |
NIB as the business license for the preparation stage Companies must meet all the requirements before license is issued NIB + Permit as business license for the operational and commercial stages |
Since 2018, other developments supporting regulatory progress and digital transformation within the country have been related to the INSW and a Presidential Regulation that has focused on harmonizing data to improve government efficiency.
With regards to the INSW, new developments have been proposed for the creation of a digital platform that provides an integrated environment for doing business that are in line with international standards (i.e. handling customs documents, quarantine documents, licensing documents, port/airport documents, and other documents, related to exports and/or imports electronically). In terms of the new Presidential Regulation announced in 2019 that would support the development of the One Data program, Indonesia would focus in the upcoming years on how to support digital transformation within the country to better plan, implement and monitor government processes. At present, this program has been notable in supporting the 2020-2024 RPJMN, by encouraging stakeholders to use interconnected, standardised, and shareable data, to improve the accuracy of planning and performance within the development strategies of the country (Open Government Indonesia, 2020[10]). Already the program has deployed pilots in several regions to measure the success of the initiative (Open Government Indonesia, 2020[10]).
References
[8] Abednego, S. (2021), Indonesia Gets Investment Ministry, https://www.mondaq.com/investment-strategy/1110422/indonesia-gets-investment-ministry.
[11] Cabinet Secretariat of the Republic of Indonesia (2020), https://setkab.go.id/en/govt-to-roll-out-policy-mix-to-speed-up-economic-recovery/.
[15] Cabinet Secretariat of the Republic of Indonesia (2020), Gov’t Issues Regulation on 2020-2024 National Medium-Term Development Plan, https://setkab.go.id/en/govt-issues-regulation-on-2020-2024-national-medium-term-development-plan/#:~:text=%E2%80%9CThe%202020%2D2024%20National%20Medium,1%20of%20the%20Regulation%20reads.&text=The%20National%20RPJM%2C%20the%20Perpres%20reads%2C%20shall%2.
[4] Foreign&Commonwealth Office (2018), Indonesia Prosperity Fund Regulatory Reform Bilateral Programme.
[17] Indonesia Investment Coordinating Board (2021), The Implementation of OSS System for Business Licensing Based on Omnibus Law for Job Creation, https://www.oecd.org/gov/regulatory-policy/06-Indonesia-BKPM-Haryo.pdf.
[18] Indonesia Investments (2021), Indonesia Launches Risk-Based Online Single Submission (OSS) System to Smoothen Investment; Will It Improve the Ease of Doing Business Ranking?, https://www.indonesia-investments.com/business/business-columns/indonesia-launches-risk-based-online-single-submission-oss-system-to-smoothen-investment/item9437.
[16] Indonesia Investments (2018), Indonesia Launched the Online Single Submission Licensing System, https://www.indonesia-investments.com/news/todays-headlines/indonesia-launched-the-online-single-submission-licensing-system/item8887.
[1] JASTPRO (2012), ASEAN Single Window Hearing Survey in 2012: Issues to be Studied.
[9] Ministry of Investment/BKPM (n.d.), Ministry of Investment/BKPM, https://www3.bkpm.go.id/en/about-bkpm/profile-of-institution.
[2] OECD (2021), OECD Economic Surveys: Indonesia 2021, OECD Publishing, Paris, https://doi.org/10.1787/fd7e6249-en.
[12] OECD (2020), OECD Investment Policy Reviews: Indonesia 2020, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/b56512da-en.
[5] OECD (2018), Good Regulatory Practices to Support Small and Medium Enterprises in Southeast Asia, OECD Publishing, Paris, https://doi.org/10.1787/9789264305434-en.
[7] Omar, K. and T. Bakker (2021), Lexology, https://www.lexology.com/library/detail.aspx?g=8e2e6db9-5e27-4bd5-b344-f17ca84d0a06.
[10] Open Government Indonesia (2020), Indonesia Open Government Partnership National Action Plan 2020-2022.
[3] U.S. Department of State (2020), 2020 Investment Climate Statements: Indonesia, https://www.state.gov/reports/2020-investment-climate-statements/indonesia/.
[6] UNCTAD (2020), UNCTAD Investment Policy Monitor, https://investmentpolicy.unctad.org/investment-policy-monitor/measures/3567/indonesia-omnibus-law-on-job-creation-has-been-enacted.
[14] UNESCAP (2018), Effective Stakeholder Engagement for the 2030 Agenda.
[13] USAID (2009), Regulatory Impact Assessments and the Private Sector in Indonesia.
Notes
← 1. In November 2021, the Indonesian Constitutional Court ruled that the Omnibus Law was conditionally unconstitutional on procedural grounds and set a deadline of two years for lawmakers to amend the legislation. At present, the Omnibus Law is still undergoing review by policymakers, but remains legally active (Omar and Bakker, 2021[7])
← 2. The OGI NAP has suggested potential of regulation to mitigate legal uncertainty and to increase transparency and accountability in law-making processes (Open Government Indonesia, 2020[10])
← 3. Regulatory efforts within the RPJMN have partially improved regulations related to business competition(OECD, 2020). The RPJMN is also the fourth phase of implementation of Indonesia’s National Long Term Development Plan (RPJPN) 2005-2025.
← 4. OSS system simplified processes for obtaining a business identity number (NIB) from three days to one day upon completion of prerequisites (U.S. Department of State, 2020[3]).