3 Indonesia’s investment policy
3.6 Policy coordination of international commitments with national law
3.6.2 Stakeholder consultations
This study has repeatedly illuminated the complexities of managing the large variety of interacting laws and regulations on investment at the national and international levels. For governments, it is often a challenge to evaluate fully the impact and consequences of newly enacted laws and regulations.
Thus, in order to avoid unnecessary controversies over new measures, it is important that governments consult not only among ministries, but also with all affected stakeholders about any new law or policy related to investment.
Stakeholders include investors themselves and the business associations and chambers of commerce representing them, but also other firms, consumers, the public, civil society and non-governmental organisations. Whereas some stakeholders focus on business interests, others might be more concerned about the impact of investment on society and local communities. In addition to enabling governments to evaluate the possible consequences of new measures, stakeholder consultations allow for necessary adjustments to be made already before a new law enters into force, avoiding the potential need for corrections at a later stage. A likely result is an improvement in investor certainty, even when a government eventually does implement an unfavourable measure. In addition, consultations allow the government to explain its interests – and, in particular, its development objectives – and caucus among investors and other stakeholders about which kind of laws they think would be most suitable in view of these development considerations.
In this way, even foreign investors will be involved in thinking about development issues and the role investment and investment rules can play.
To a certain extent, stakeholder consultations in the formulation of laws and regulations are compulsory in Indonesia, and according to Law No.
10/2004, the public has the legal right to be involved in the process. A procedure is in place whereby an inter-ministerial committee circulates a draft version of a legal text through the internet and the media, inviting comments and opinions. Accordingly, the business sector and civil society groups have contributed to Indonesia’s recent efforts of regulatory reform in many policy areas, such as by providing analyses and recommendations (OECD 2010, 166, 169, 173).
In the area of investment, the Indonesian government also consults with a variety of stakeholders. Probably the most important contact points are business associations, with the Indonesian government and the BKPM engaging in consultations with domestic and foreign chambers of
commerce (OECD 2010, 30, 96). Of course, business associations such as the Indonesian Chamber of Commerce (KADIN) have a particular set of interests that they seek to promote, but at times these may be associated with development, such as when it comes to the question of how local enterprises and small businesses can effectively benefit from foreign investments and improve their technological capabilities. Sometimes investors are directly consulted, as happened, for example, in the preparation of Law No. 25/2007 concerning Investment and on other trade- and investment-related issues (OECD 2010, 28, 193). Other stakeholders consulted are trade unions and the Indonesian employers association. Foreign stakeholders are also consulted.216 To further improve the system, domestic stakeholders should be involved in discussions about negotiations of international agreements, and existing consultations could be widened to involve a broader number of stakeholders.217
Moreover, foreign stakeholders are themselves getting actively involved through various channels. For example, the European Chamber of Commerce (EUROCHAM) in Indonesia maintains contact with the Indonesian government on investment issues. Such engagement by foreign stakeholders may sometimes be coordinated among different countries, and even with domestic stakeholders.218
To some extent, there is lack of evaluation of the possible consequences of new measures prior to their entry into force, as illustrated by a lack of formal regulatory impact assessments (OECD 2010, 172). An occurrence in 2007, where the new negative list had to be issued twice after complaints were made by the public sector (OECD 2010, 77), may serve as one example.
The mining law may be another illustration of this. It is argued that the feasibility of new measures is not being examined in sufficient detail, so that possible consequences of these measures are not being contemplated and anticipated sufficiently. New measures may be enacted before consultations have taken place, so that public discussion of a measure only emerges upon enactment. If pressure by public stakeholders opposing (parts of) a new law builds up, the government may be induced to review the measure. The ultimate consequence may be a trial-and-error process of rule-making that
216 According to one expert.
217 According to the views of two experts.
218 According to the explanations made by two experts.
increases legal uncertainty.219 Similarly, new laws are often enacted without the necessary implementing regulations in place (OECD 2010, 27). There are two formal mechanisms in place to review laws. The first is a judicial review mechanism in which the constitutionality of laws can be reviewed by the Constitutional Court in accordance with Law No. 24/2003 on the Constitutional Court. The other, more common approach is in line with Law No. 10/2004, providing for a revision mechanism within the parliament (OECD 2010, 184).
A tentative conclusion is that broader communication and consultation efforts by the government with stakeholders, the public and investors form an important part of effectively making use of policy space and regulatory flexibility. Investors should understand that, at times, the government has reasons to issue measures that are unfavourable to them. But what matters is the way in which the measures are developed; a government planning new regulations should consult and communicate with stakeholders – including the investors themselves or their representatives – prior to enacting the measures. This will decrease uncertainty among investors and increase the level of transparency of the government’s policy considerations. Changing conditions, which are a natural result of poorly crafted policies that require revisions, can deter investors. No doubt that such a process of stakeholder consultations can be costly, in particular in terms of providing sufficient human resources. But if conducted effectively, stakeholder consultations could end up economising funds, as measures would be introduced and implemented more swiftly. Therefore, establishing consistent procedures for “negotiated rule-making” is useful for governments in the process of developing or revising a regulatory framework on investment, and such procedures should also be attached to the negotiation of investment treaties.
Because they are affected by the new rules, investors and other stakeholders can often detect problems with laws, regulations and international commitments better than the government. This includes detection of legal inconsistencies between central and local, national and international, or investment-related and -specific bodies of law. Any feedback provided by stakeholders is information the government can use to harmonise and optimise rules and regulations, including in the interest of economic development.
219 According to the explanations given by three experts.