Backlash against Foreign Investment Regime: Indonesia’s Experience
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This study investigates Indonesia’s changing attitude from embracing to repudiating foreign direct investments. Opened its door for foreign investment in the late of 1960s and enjoyed significant economic growth as the result, the country suddenly changed its foreign investment policy in 2012 to be more protectionist towards domestic investors and skeptical towards foreign investors. The essential issues to be discussed in this research are: what motivates Indonesia to move away from global investment regime; what actions the country has taken as manifestation of resentment against the regime; and who are the actors behind such a backlash. This is a qualitative study which aims at gaining a deep understanding of a legal development of Indonesia’s foreign investment. It aims to provide explanation of the current phenomenon taking place in the country. Data were collected through interviews and documents. This research reveals that liberalization of foreign investment law has become the major cause of resentment towards the foreign investment. Liberalization which requires privatization and openness toward foreign capital has failed to deliver welfare to the Indonesian people. Instead, foreign investors have pushed local business players, especially small and medium enterprises, out of the market. This is not only disadvantageous for local industries but also in contrary to the economic principle stipulated in the Indonesian Constitution. Liberalization also carries the risk of regulatory chill due to the government’s fear of being sued before an international arbitration if such regulations inflict financial loss for investors. A key finding is the adverse impacts of ‘openness’ toward foreign investors were responded by civil society organizations and several individuals to file judicial review towards various Laws which give opportunity to foreign investors operating in strategic sectors such as electricity, oil and gas, and water resources. As a result, the Constitutional Court annulled the laws or provisions which give legal basis for foreign investor participation in the country. In addition, various measures are taken by the government to reduce the effects of liberalization including the enactment of protectionist policies, bilateral investment treaty moratorium, and drafting a model Bilateral Investment Treaty (BIT). Therefore, privileges and protections given to foreign investors are significantly reduced. From the examination of judicial review cases and interview, this research discovers that various civil society organizations and some prominent figures actively engage on the backlash by seeking judicial review on laws that give way for foreign investors’ operation in the country. By rendering decisions in favor of the plaintiffs and annulling the laws, the Constitutional Court itself can also be classified as an actor. On the other end of the spectrum, the Indonesian government also plays a crucial role in the shift through more subtle approaches. Its protectionist policy, BIT moratorium and the model BIT are powerful tools to cut down the privileges and protection enjoyed by foreign investors since the late of 1960s. A combination of factors between people’s power and government legal actions emerge as the most important driver for the current backlash against foreign investment in Indonesia.
- Law