Indonesian local business climate set to worsen

Subject

Outlook for the business climate at the district and municipal levels.

Significance

To improve the local investment climate by making it more predictable and transparent, the 2014 Regional Autonomy Law empowered national and provincial governments to revoke lower-level regulations that were violating national or provincial-level laws. However, the Constitutional Court in April ruled in favour of district and municipal governments, annulling some crucial provisions of the 2014 law.

Impacts

• The local business climate is likely to become geographically more uneven.
• Discriminatory social policies, notably for women and minorities, will be harder to revoke.
• Legal costs for businesses wishing to challenge predatory regulations may prove prohibitive.