Chloe Prasetya
“We must capitalise on the coronavirus crisis as a momentum to make a big economic leap,” said President Joko Widodo (Jokowi) during his state of the union address this year, comparing Indonesia’s current economic slump to “a computer crash” that needed “rebooting”.
It was an admirable – and much-needed – sentiment, given that Indonesia’s annual economic growth has been shrinking over the past few years, reaching an all-time low of 3% in 2020. Its economy is hampered by over-regulation and bureaucratic red tape. As a result, the World Bank’s Ease of Doing Business list ranks it 73rd of 190 countries; Jokowi aspires to raise Indonesia’s rank to 40.
February 12th provided clarity on how he plans to achieve this. That morning Jokowi submitted the Omnibus Law to Parliament for evaluation - a 900-page long proposal. It aims to draw foreign investment to Indonesia, boost jobs and make the labour market more flexible. However, there has been widespread anger and protests against the government’s “signature effort at economic reform” (Reformasi Weekly), one reason being its environmental impact.
The bill conveys several clear messages about the Indonesian government’s environmental stance. Firstly, the extent of environmental damage is largely left up to corporates and government, despite their obviously having ulterior motives. This can be seen with the removal of the requirement that provinces retain 30% of their forest cover, instead allowing them to set these numbers “proportionately”. The devastating consequences of this have been quantified - five provinces, including biodiverse Sumatra, may completely lose their forests over the next 30 years.
Similarly, before the bill’s introduction, completing an environmental impact assessment was mandatory for all companies. Thanks to the Omnibus Law, only companies whose work is deemed to be of “high risk” to the environment will need to do so. (It is unclear what exactly that means.)(3)
Secondly, the central government will become the “single supervisor and law enforcer in the natural resources sector”(1). The government now has the right to approve business in officially protected forests. Plus, the bill stipulates that the government will be the sole entity doling out these approvals - there will be no more input from civil society, making corruption more likely. Local communities cannot even file a lawsuit against companies that violate the environmental impact assessment.
Finally, the government is making it easier for firms to dodge the blame for environmental destruction. Previously, concession holders “were responsible for any fires that occurred on their land”(2). Now, firms can only be charged once it is proven they have started the fires, which will hamper law enforcement efforts.
All of these changes paint a highly concerning picture of the future of Indonesia’s forests. The Omnibus Bill will reverse Indonesia’s hard-earned progress in reducing deforestation, which included restoring peatlands and strict moratoriums.
It is also likely to disincentivise foreign investment in Indonesia. An environmentally conscious investment trend has been emerging as of late - the value of global assets utilising ESG data for investment decisions has tripled over the past decade. Investors have a “fiduciary duty to act in the long-term interests of their beneficiaries”. Now, they are realising that deforestation “creates material financial risks for companies, including reputational and market risks” and by contributing to climate change, represents a systemic risk to their portfolios(4) . Indeed, a group of investors managing $4.1 trillion in assets recently wrote to the Indonesian government, describing their trepidation about “the negative impact of certain environmental protection measures affected by the Omnibus Bill.”
The bill could also make importers shy away from Indonesia as a supplier. In line with consumers’ demands, major importers like the EU are increasingly calling for suppliers to adhere to sustainable production practices. Large corporations like Unilever and McDonald’s are strengthening their commitments to source palm oil responsibly. The Omnibus Bill’s pro-deforestation stance would result in Indonesia losing business opportunities.
If in doubt about whether these predictions will actually occur, one only has to look to Brazil. The country has received international condemnation for its failure to protect the Amazon rainforest from destruction. Over 40 prominent European companies have threatened to boycott Brazilian goods; investors are already “reducing their exposure to Brazilian assets”. Indonesia is at risk of following in Brazil’s path.
Clearly, the environmental destruction caused by the Omnibus Bill will actually damage Indonesia’s economic prospects - the opposite of what Jokowi intended. Indonesia must align its policymaking to a society increasingly geared towards sustainability. This could take the form of a green recovery plan in which economic development and the environment are not at odds with one another.
In the development of this plan, the government should hold public consultations, which can highlight shortfalls in proposed legislation. This was a large protest point of the Omnibus Bill - its task force was led by industry representatives. In fact, a draft of the bill was not made publicly accessible until February 15th, three days after it was submitted. In the words of the Indonesian Legal Aid Institute, “The people affected by this bill aren’t heard at all, and they’re not even involved...A law has to represent the public interest, of groups like laborers, fishermen and indigenous peoples.”
Furthermore, sectors like the palm oil industry should not assume a position of complicit silence regarding destructive legislation. Neither should they seize on the more vague terms of the Omnibus Bill as an opportunity to wreak more environmental havoc. After all, doing so will only damage their business prospects. It is hoped that such action will be taken and that Jokowi will heed the calls of protesters, to ensure the rebooting of Indonesia’s system does not backfire.
3 Indonesia Center for Environmental Law
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