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Indonesian government should include environmental development provisions in its omnibus finance bill

By Bitra Suyatno - posted Monday, 16 March 2020

he government of Indonesia has submitted its drafts for omnibus bills on job creation and taxation to the parliament. The laws are intended to create a greater ease of doing business in Indonesia and to attract more investors and business people to conduct business in Indonesia. It is hoped that the laws will boost Indonesia's economy and promote economic growth. But in addition, firms need finance to start up, run, and expand their business. So now, in line with the two previous omnibus drafts, the Government plans to draft an omnibus law for the financial industry. As reported by Bloomberg, some of the existing rules are "ancient and inadequate".

In addition, as quoted from the news, Finance Minister Sri Mulyani Indrawati (SMI) said that the current case of state-owned insurer Jiwasraya, deep in financial trouble after failing to pay out maturing policies,for example, has hurt investor confidence, making the need for the new law more urgent. She explained that the existing laws, such as the law for Prevention and Crisis Response to the Financial System, are very limited in their ability to mitigate a systemic banking crisis. Meanwhile, other financial institutions, as well as capital markets, may pose similar risks but they have not been regulated as, quite prudently, have the banks. Moreover, President Joko Widodo (Jokowi) also wants the Capital Market and Pension Fund acts to be included in the omnibus bill. The law would focus on financial sector development and how to strengthen it.

Although we do not know the details yet, everything indicates that the omnibus bill for the financial industry would consider some big issues such as consumer and investor protection; strengthening early warning and supervisory mechanisms for the financial industry; systemic risk definition, causes, and measurements; financial crisis resolution; public literacy and inclusivity in financial products and services, and their risks and benefits, also system risks; and removing disincentives in the financial industry (i.e. fees, policies, procedures, rules, taxes) that intentionally or unintentionally, directly or indirectly, discourage or prevent undesirable actions, behaviors, or decisions, so as to make them sound, robust and sustainable.


Many people have already raised issues about how and why Indonesia needs to design omnibus laws to make its financial sectors sound, robust and sustainable from the point of view of economics, social benefit, and consumer protection, but few have raised the matter of environmental issues for these sectors.

Haristandi, an industry analyst at Bank Mandiri, in his article published on the Jakarta Post on 29 April 2015, has already raised the issue of the role of banks in environmental development. At the time he focused on the banking sector, since Indonesian banks still retained the greatest asset levels, compared to other financial institutions. We are also happy that starting from 2017, the Financial Service Authority of Indonesia (OJK) has prohibited funding for companies that damage the environment. Mulya Siregar, as the Deputy of Komisioner Pengawasan Perbankan 1 OJK at that time, said that a sustainable finance commitment would emphasize the harmony of economic, social, and environmental interests. OJK's Roadmap for Sustainable Finance in Indonesia, 2015-2019, has designed general policies on sustainable finance principles governing the financial services institutions' obligations to maintain a balancing of the '4P' (pro-growth, pro-jobs, pro-poor, and pro-environment), protection and management of natural resources, as well as all parties' participation in every financing activity in Indonesia. This policy must be appreciated in the knowledge that the Indonesian economy currently still exhibits wasteful traits in terms of energy usage as well as environmental degradation.

World Values Research, published in 2012, tested both explanations using multi-level models and data from the 2005-2008 World Values Survey and the Climate Risk Index to evaluate the concern for global warming and the prioritization of environmental protection in 44 countries at various stages of economic development. Findings indicated that a country's recent experiences with climate-related environmental disasters have little to no effect on its concern for global warming – counterintuitive results. The survey put Indonesia in the seventh most vulnerable countries of the 44 in regard to the number of deaths, the number of deaths per 100,000 inhabitants, the sum of losses in US$ in purchasing power parity (PPP), and losses per unit of Gross Domestic Product (GDP). In addition, Edwards et. al (2019) reveal that the economic costs of Indonesia's 2015 forest fires are estimated to exceed US$16 billion, with more than 100,000 premature deaths. In several days, the fires emitted more carbon dioxide than the entire economy of the United States. Further, they explained that the economic-environmental trade-offs that have long characterized large scale agricultural and forestry expansion in the Indonesian countryside still exist. Possible explanations include: that districts use fire to create economic opportunity and grow the local economy; and that economic growth increases the capacity of residents and local firms to move, acquire land, and further increase burning activity.

Kuznets (1955) believes that in the first stage of industrialization, countries need to focus on increasing material output and promoting economic growth in order to become more developed. Unintended adverse effects that occur in many cases include the rapid growth of pollution that damages the environment. For India, as identified by Turaga (2016), the majority of Indians argue that at this current stage, the country needs to achieve its development goals even if it has to ignore environmental costs. Later, after it became richer, it could clean up pollution. Arrow et. al (1995) cited in Raymond (2004, p.328) confront the fact that, for example, observed relationships between economic growth and specific measures of environmental quality (such as SOemission levels) cannot be generalized across to all such measures. The researchers also argue that there is no evidence that the Earth's resource base is able to support the growth of per capita income over time.

We believe that both economic growth and environmental development should be considered as inextricably linked, not necessarily opposed. We also believe that, in the short run, if the Indonesian government could harmonize both interests, economic growth might be not as high as expected because preventing and maintaining the environment requires additional costs. However, in the long run, we might be able to save more money by promoting economic growth that was more sustainable, compared to the money the country would have to allocate from the budget in order to restore the environment and create a cleaner environment. The Indonesian government has shown its seriousness about protecting our environment. For instance, the government plans to impose excise duty on plastic bags, sugary drinks and vehicle emissions, with new levies – although it is clear that, as stated by the Minister of Finance, SMI, the proposed policies will face resistance from industry and businesses.

We think it is a good start for building awareness about the importance of protecting our environment. For the next step, we propose that the government should involve a broader range of key stakeholders to support more environmentally-friendly products. Industry and businesses and the public are on the 'downstream' side, but financial institutions and capital markets, as sources of financial capital for industries, can play an important role from the 'upstream' side.


In conclusion, we believe that with the Government now designing this omnibus law for the financial industry as a whole, now is the right time for us to include in the proposed law environmental development provisions for the whole financial industry, not only for the banks.

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About the Author

Bitra Suyatno ( is a Doctor of Business Administration who graduated from Victoria University, Melbourne, Australia in 2018. Currently he is working at the Ministry of Finance the Republic of Indonesia. His posts represent his own views. He blogs at

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