In his second term as the President, President Jokowi will certainly boost investment as widely as possible in Indonesia. As a result, each of the relevant ministries and state institutions, particularly the Investment Coordinating Board (“BKPM”) is required to act in an innovative and creative manner in attracting foreign investors to invest in Indonesia.

President Jokowi’s hope was expressed through one of the main points in his speech at the Indonesia Vision Event on Sunday, 14 July 2019, which basically emphasized that investment is the entrance for opening work opportunities, therefore the ease of obtaining license should be improved and there should be no community and domestic entrepreneurs who are allergic to investment. Even President Jokowi did not hesitate to act on matters that could hamper investment in Indonesia.

Welcoming the enthusiasm of the President in inviting the broadest investment to Indonesia, in this brief article will be discussed about the impact of corruption as extraordinary crime to investment, which is one of the important references for investors in investing in a country.

Trends in Corruption Eradication

In a legal perspective, corruption has been explained in Article 13 of Law No. 31 Year 1999 in conjunction with Law No. 20 Year 2001 concerning Eradication of Corruption Crimes. Based on those articles, corruption is defined in thirty forms or types of criminal acts, but all of them can basically be grouped into seven broad topics namely acts related to state losses, bribery, embezzlement occupation, extortion, fraudulent acts, conflict of interest in procurement and gratification.

The issue of eradicating corruption can be said to always be a trending topic in Indonesia. This was seen in the process of electing the Chairman of the Corruption Eradication Commission (“KPK”) which was covered by a lot of media and attracted a lot of people attention. Suggestions and even criticism have flowed to the Selection Committee (“SC”) who have worked hard screening KPK’s Chairman candidates who are expected to be able to stop the actions of corruptors who damage the nation.

Therefore, each component of the community was invited by the SC to participate via e-mail (panselkpk2019@setneg.go.id) in providing input on the track record of prospective KPK Chairman candidates whose names have been spread in the mass media.

Correlation Between Corruption and Investment

As an Advocate who is experienced in representing and communicating intensely with Chief Executive Officers (“CEO”) from foreign countries who are known to have a clean government administration, I will describe several matters related to the influence of corruption to investment, which are summarized from the views of foreign CEOs who has entrusted his legal case to be handled by me.

In the business world, the level of predictability of Return on Investment (“RoI”) is very important for investor consideration in investing their funds in a country. Simply stated, RoI can be interpreted as a comparison between the net profit of an investment and the costs incurred for that investment. A high RoI means the income derived from the investment is bigger than the costs incurred.

As a measure of success, RoI is used to evaluate the efficiency of an investment or to compare the level of efficiency of several different investments. Before investing, investors first conduct research and even a comprehensive study of the level of predictability, which among others can be measured from the factors of security, stability, strategic government policies, including the certainty of law enforcement in a country.

For this reason, a clean and healthy “ecosystem” in a country is needed to be “attractive” to investors. One of the factors that has the potential to damage the good “ecosystem” is corruption, because in a country with a high level of corruption it must lead to business instability that results in a condition where investors find it difficult to predict the level of RoI.

This instability certainly affects the investment decision-making process, because it is feared that the expected level of RoI will decrease significantly or become low, due to an increase in costs resulting from illegal fees, bribes, and even security funds that are “forced” to be given to certain individuals who have power to pressure investors.

Corruption Places Incompetent People in Strategic Positions

In conducting its business, investors from developed countries are accustomed to dealing or communicating with high standards of professionalism, having a clear foundation of accountability by prioritizing efficiency and effectiveness at work. Corruption in the form of buying and selling positions can make people who are incompetent in strategic positions to have the authority to make decisions. Because the position was obtained from the results of lobbying, even bribery, then they are not working with the mental of professional public servants but the mental of “businessman” who must return the “investment” he had done to achieve that position and then seek big profits through positions that he held. When investors from countries that are classified corruption-free, being associated with such officials, there is a “clash” in various aspects, both in professionalism at work, as well as accountability and compliance with applicable legal norms and provisions. Conflict like this can clearly discourage investors to invest in a country.

Corruption Creates Low Quality Human Resources

The CEO’s experience also revealed that in developing countries where the levels of Corruption, Collusion and Nepotism (“KKN”) were classified as high, it was often found that the recruitment process in government agencies was not based on competency but bribery and relations, whether it was family relations, tribal relations or friendship relations. So, the practice of KKN “eliminates” the competition that was supposed to occur in order to obtain the best results. Even if there is competition through a series of tests or examinations, that is only a formality because the winner or those who will be accepted have been determined in advance by the leader who accepts bribes or relatives who hold the reins of the leadership. On a certain scale, fraudulent practices like this can “extinguish” the enthusiasm of people who wish to study hard to achieve high achievements on the basis of competence because they are already skeptical of the rampant practice of KKN. The consequences are when employees who sit in government through the practice of KKN would deal with investors, there will be a “clash”, especially in terms of professionalism because they are basically low quality people and unable to occupy government-related positions with investors.

Last but not least, we hope that the leader and everyone who works at the KPK have a comprehensive understanding of investment issues, in relation to the prevention and eradication of corruption, so that Indonesia is not only a country that is ready to receive investment, but also capable in developing the country with a strong national character and integrity.

Hope it is useful,

FREDRIK J PINAKUNARY LAW OFFICES