Indonesia's new criminal code threatens liberty

Another country descending into authoritarianism. Estimated reading time: 8 minutes

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Source: Slamet Riyadi/AP

Earlier this month, the Indonesian parliament approved a new criminal code.

This new criminal code will ban sex outside marriage and punish those who engage in extramarital or premarital sex with prison.

But what’s even worse is that lawmakers snuck in provisions in the law that bans any criticism of the government. Demonstrations will be banned. Anyone deemed to spread “misinformation” on social media could be jailed for up to four years.

Indonesia is entering a darker new era, where incumbent leaders can use the new criminal code to go after enemies and consolidate their power.

While the direct impact on Indonesian companies is still unclear, it doesn’t make me positive about the long-term prospects of the Indonesian economy.

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1. Bans on sex outside the marriage

Source: Deutsche Welle

Indonesia’s new criminal code will ban sex with anyone who is not your husband or wife. So if you’re not married - think twice before you have sex. You could face up to one year in prison.

Premarital sex will also be banned. If parents suspect that their child is having premarital sex, they can then report the couple to the authorities. The couple will then face up to one year in prison.

These provisions are, understandably, unpopular among the average Indonesian. An October 2021 study suggests that 42% of Indonesia’s population had practised pre-marital sex. So the law essentially criminalises normal behaviour.

It’s not just Indonesians that will be subject to the law. Foreigners and ex-pats will also be banned from having premarital sex. Although in practice, since only parents or children can report someone for premarital sex, foreigners are unlikely to end up in jail for having sex with another foreigner.

There’s a new ban on cohabitation before marriage. If you live with a partner before marriage, you’ll be subject to a jail term of up to six months.

This provision is strange since living together before marriage is common in Indonesia. Will millions of people get arrested?

“It is impossible to enforce this law broadly. There are millions of Indonesian couples who live together without legal marriage certificates. The authorities and police cannot arrest (all of them)” - Andreas Hartono, Human Rights Watch

And what about gay couples? Since it’s illegal to marry someone of the same sex in Indonesia, gay couples will be unable to live together.

As many others have pointed out, parents who disapprove of their children’s sexual orientation will be able to punish them by threatening jail if they move in with their partners. Just imagine what kind of pressure they’ll be living under:

“This is dangerous not only because of the threat of punishment, but it can [give] legitimacy to the vigilante community” - Muhamad Isnur, Indonesia Legal Aid Foundation.

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2. The end of free speech

Source: Nikkei

Also included in the new criminal code are provisions about free speech.

It will become illegal to criticise the government, including the President, the Vice President, or any other government official. If you insult the president, you’ll run the risk of a jail term of up to three years.

It will also become illegal to hold protests that criticise the government. Unless the government has already approved those protests (unlikely).

Anyone deemed to spread “misinformation” that could incite a riot will face a prison term of up to four years.

Nobody knows how courts will determine what’s misinformation and not. So journalists will probably play it safe by self-censoring themselves and avoiding government criticism.

There’s also a vague provision about adhering to “living laws”. You’ll get caught for violating the “rules of society”, but the criminal code doesn’t specify what those rules are. In practice, local courts could potentially punish any behaviour that’s not in line with Sharia law.

And on the positive side, for government officials, the maximum punishment for corruption will be greatly reduced to just two years in prison. Great for those who want to consolidate their own power through bribery.

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3. Constitutional challenges

Source: Charles Wiriawan

The parliament has already passed the criminal code.

The next step will be for President Jokowi to sign it within 30 days. But even if he doesn’t sign it, the bill will automatically be passed into law anyway.

Going forward, the only way that the bill can be withdrawn or watered down is through the constitutional court.

In theory, the constitution should support and protect religion, in line with the government ideology of Pancasila. But it’s unclear whether a perceived Muslim right to practice Sharia law will be weighed against, say, the Hindu faith, which doesn’t ban premarital sex.

And the previous dictator Suharto strongly supported the philosophy of Pancasila, even while running a thoroughly corrupt dictatorship.

The law will be implemented by 2025. It remains to be seen whether it gets watered down before its implementation.

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4. Implications for investors

I see three potential problems for investors with the new criminal code:

1. Drop in tourism to regions such as Bali

2. Lack of minority shareholder protections

3. A slow descent into authoritarianism

4.1. Drop in tourism to Bali

Source: Shutterstock

The most immediate question is whether tourism will be affected. Early indications are that some foreign tourists are starting to desert Bali in favour of other tourist destinations such as Thailand and Vietnam.

Bali’s governor has made the case that foreign tourists will not need to worry about the premarital sex ban. First, it will take three years before the law comes into effect. Second, any transgression of the law can only be reported by parents or children of an unmarried couple. Third, the Bali government has assured foreigners that marriage certificates will not be needed for unmarried couples to check into a hotel.

But what if a foreigner ends up in bed with a local resident? The foreigner could then be blackmailed and threatened with jail unless he or she hands over cash. While both partners would end up in jail - who is to say that a big-enough sum of money isn’t worth a few months in prison?

I can picture tourism getting decimated if a foreigner ever goes to jail for premarital sex. Such stories tend to spread fast in overseas media. There’s a reason why tourists shun regions that practice Sharia law, including Indonesia’s own Aceh province.

So far, the number of Google search queries for Bali tourist-related keywords has continued to be strong since Bali opened up its borders earlier this year:

Bali tourist arrival has so far shown a gradual recovery. If there’s any immediate impact on tourism to Bali from the new criminal code, we won’t know until the December tourist arrival data comes out in late February 2023.

If tourism to Bali does get hit, beer producers such as Multi Bintang (MLBI IJ - US$1.2 billion) and Delta Djakarta (DLTA IJ - US$195 million) will probably see lower sales volumes. Before COVID-19, Bali used to represent almost 25% of Indonesia’s beer consumption, and much of that revenue came from tourists visiting from overseas.

Hotel owners and developers such as MNC Land (KPIG IJ - US$426 million), Indonesian Paradise Property (INPP IJ - US$275 million) and Surya Permata Andalan (NATO IJ - US$274 million) are also at risk.

Airlines such as Garuda Indonesia (GIAA IJ - suspended; just filed for bankruptcy) and AirAsia Indonesia (CMPP IJ - US$115 million) would suffer marginally. As well as airport service company Cardig Aero Services (CASS IJ - US$54 million).

In my view, there will be a minor impact in the first few months of the new law. But its longer-term impact on tourism will depend on whether tourists actually end up in jail for premarital sex. I somehow doubt it will happen.

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4.2. Weakening shareholder rights

The new criminal code will expand the provisions related to corporate crime, expanding the scope of who can be held responsible for company violations. Shareholders can now become liable for corporate wrongdoings as well. This will blur the line between partnerships and limited liability companies.

As Adinova Fauri of the US-based Center for Strategic and International Studies said:

"This has the potential to become an elastic law, and it is necessary to specify how far the shareholder's role [extends] in making decisions regarding [a] company's violations. Do not let all shareholders be the subject of punishment or over-criminalization… This has the potential to reduce investment intentions from investors."

While minority investors in publicly listed companies are unlikely to be affected, foreign direct investment could certainly take a hit.

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4.3. Descent into authoritarianism

And finally, I think that the main issue with the new criminal code is that it will enable future presidents to consolidate power:

• Banning free speech and reducing the penalties for corruption tilts the power away from the people to the political elite.

• Reduced penalties for corruption will encourage bribery.

• The extramarital sex provisions will be used to blackmail political enemies.

Overall, it’s not implausible that Indonesia could one day regress to a Suharto-style dictatorship, where rent-seeking businessmen collude with the leader to monopolise part of the economy. The new criminal code will take us back closer to the political system of that era, in my view.

Let’s hope it gets watered down before its final implementation in 2025.

If you’re interested in reading more about the Indonesian beer and tourist industry, check out my previous posts on beer producers Multi Bintang and Delta Djakarta: