I GENERAL OVERVIEW

Investors and the general business community have been keeping an eye on Indonesia's political situation in 2019, and may wait to see the results of the political changes prior to making key business decisions, as the outcome of any legislative changes and the presidential election will have a big impact on the investment and business climate of Indonesia. 2018 saw a moderate economic slowdown, a trend that is likely to continue in 2019.

The Indonesian Investment Coordinating Board (BKPM) reported a total investment (including greenfield investments and acquisitions) of 721.3 trillion rupiahs in 2018, which is an increase of 4.1 per cent compared to 2017 but below the national investment target of 765 trillion rupiahs. The top five key target industries are:

  1. electricity, gas and water supply;
  2. transportation, warehousing and telecommunication;
  3. mining;
  4. food; and
  5. housing, industrial estates and office buildings.

Indonesia is further solidifying its Asian roots: the FDI invested into Indonesia based on country of origin has all derived from Asian countries: Singapore, Japan, China, Hong Kong and Malaysia.

A report by the Indonesian Competition Supervisory Authority (KPPU) estimates that the amount arising from M&A deals in 2018 was about 150 trillion rupiahs. Some of those transactions were reported to KPPU, although a large number were not. KPPU accepted 74 reports in 2018, lower than the 90 that it accepted in 2017. Of the filings, 97 per cent concerned acquisition deals.

Since taking over the presidential office, President Joko Widodo has been initiating various regulatory reform measures packaged under a series of deregulation policies (or economic deregulation packages (EDPs)) aimed at tackling regulatory complexities and bureaucratic hurdles. The first EDP was launched in September 2015, and since then there have been revisions to support the objectives of EDP reforms.

More recently, the government enacted Regulation No. 24 of 2018 (GR 24/2018), which introduces the online single submission (OSS) system as the main reference for business licensing and the gateway for government services at various ministerial, agency and regional government levels. This was followed by a new Head of BKPM Regulation No. 6 of 2018 on the Implementation of Capital Investment Licensing and Facilities. Similar to its predecessor of 2017, the Regulation recognises the possibility of simplified licensing for the services sector by allowing certain companies to apply directly for full licences, and by simplifying the process for merger approval from a two-stage to a one-stage process.

II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

In general terms, the statutory framework for the combination of businesses through a limited liability company is set out in Law No. 40 of 2007 on the Limited Liability Company the Company Law2 and various implementing regulations such as the Government Regulation No. 27 of 1998 on Mergers, Consolidation and Acquisition of Limited Liability Companies.

In addition to the aforementioned umbrella laws and regulations, the practice and procedure for implementing particular transactions must comply with other specific laws and regulations relating to the status or nature of the business of the target company, and is also regulated by specific bodies. For instance, banks, financial institutions and publicly listed companies are regulated by the Financial Service Authority (OJK). OJK is a body established by virtue of the Financial Authority Law3 merging the authority previously held by the Capital Market and Financial Institution Supervisory Board or Bapepam-LK (Bapepam) and the bank oversight authority of the central bank, Bank Indonesia to supervise all activities in the financial services industries under one agency, with the exception of payment services that are still under Bank Indonesia. Further, companies with foreign share ownership are regulated by the Capital Investment Coordinating Board (BKPM), and for tax purposes, all companies are subject to the relevant M&A regulations of the Directorate General of Tax and OJK, which also regulate share custodian services and securities broker-dealers. In addition, for M&A in the insurance sector, companies are required to comply with the Insurance Law and its implementing regulations; for M&A in the broadcasting sector, companies are required to comply with the Broadcasting Law and its implementing regulations; and for M&A in the telecommunication sector, companies are required to comply with the Telecommunication Law and its implementing regulations, and other sector-specific regulations to govern the respective M&A in such industry.

In general, the requirements pertaining to M&A in Indonesia are as follows:

  1. the announcement of an M&A proposal prepared by the acquirer and the target company or the merging companies, as the case may be, in newspapers;
  2. an extraordinary general meeting of shareholders of the target company or each of the merging companies (as the case may be) in which a quorum of at least 75 per cent of the total number of shares with voting rights are present (unless otherwise stipulated in a specific regulation), and in which approval is obtained from shareholders holding at least 75 per cent of the number of votes cast;
  3. the approval of creditors in respect of the proposed M&A transaction and a waiver of their rights for claims to be settled prior to the effectiveness of the merger or acquisition;
  4. a valuation of shares to determine the fair market value of the merger shares conversion formula;
  5. the approval of third parties, including but not limited to the approval of third parties required by prevailing law as well as pursuant to agreements entered into by the companies involved;
  6. the approval of the relevant agencies having jurisdiction over the merging or acquired company or companies (e.g., OJK and the Minister of Law and Human Rights); and
  7. the consent of any relevant industry regulator, depending on the nature of the target company's business.

An M&A transaction involves different companies, which can potentially result in a conflict of interest among directors, commissioners, majority shareholders and affiliates. Thus, with regard to the acquisition of a public company, to provide legal certainty and protection to shareholders – particularly independent shareholders who have no conflicts of interest in particular transactions – OJK under Bapepam Rule No. IX.E.1 requires a publicly listed company conducting an M&A transaction to appoint an institution registered at OJK to appraise the transaction. In the event that OJK finds a conflict of interest, the transaction will require approval by the independent shareholders through a vote at a general meeting of shareholders. Another related regulation is Bapepam Rule No. IX.E.2, last revised on 28 November 2011. Rule IX.E.2 provides that the disclosure of material transactions with a value of between 20 and 50 per cent of a public company's equity must be published within two business days of signing the transaction documents; if the value exceeds 50 per cent, the approval of the general meeting of shareholders is also necessary. The Rule also requires the results of material business transactions and changes in core business to be reported to Bapepam within two working days of completion.

In the banking sector, banks are subject to Government Regulation No. 28 of 1999 regarding Merger, Consolidation and Acquisition of Banks. Indonesia has acknowledged the single-ownership principle of the Indonesian banking industry known as the Single Presence Policy pursuant to OJK Regulation No. 39/POJK.03/2017 on Single Presence Policy. Pursuant to this policy, albeit only certain requirements and exceptions, a controlling shareholder of an Indonesian bank is allowed to be the controlling shareholder of only one bank. Another important regulation of bank ownership is OJK Regulation No. 56/POJK.03/2016 on Share Ownership of Commercial Bank. The rule sets out the maximum share ownership in Indonesian banks – around 20 to 40 per cent – differentiated based on the specific nature of the shareholders (whether a shareholder is also a bank, financial institution or an individual). The rule allows ownership that exceeds such limit, subject to OJK approval. Further, there is a specific requirement for prospective foreign investors to commit to the country's economic growth, obtain the approval of the authority of the respective country of origin and be subject to certain ratings set out by Bank Indonesia.

Recently there have been regulatory discussions in OJK about issuing a new regulation on holding companies for financial conglomeration activities that requires companies operating across different financial sectors to form a holding company that is also subject to OJK supervision. Financial industry stakeholders are currently waiting for the introduction of this new regulation.

Iii DEVELOPMENTS IN CORPORATE AND TAKEOVER LAWS AND
THEIR IMPACT

In general, developments in corporate and takeover laws aim to make the process more transparent, taking into consideration concerns of different stakeholders such as creditors, employees, minority shareholders and consumers, and within the framework of environmental protection and fair competition.

The government is concerned about maintaining fair competition among business players in Indonesia. Consequently, regulations governing fair trade practices are frequently issued or amended. In connection therewith, KPPU recently issued implementing regulations to the Antimonopoly Law, namely KPPU Rule No. 10 of 2010, Rule No. 11 of 2010, and Rule No. 13 of 2010 and its amendments, which govern the consultation and post-notification requirements for mergers, consolidations and acquisitions, along with guidelines that, inter alia, provide for the scrutiny of contemplated M&A transactions. These rules were issued as the implementing regulations of Government Regulation No. 57 of 2010 on the Merger or Consolidation and Acquisition of Enterprise Share which may Result in Monopolistic Practices and Unfair Business Competition (GR 57/2010), which was recently issued by the government (see Section IX).

With respect to acquisitions of public companies (also known as takeovers), OJK has issued OJK Regulation No. 9/POJK.04/2018 regarding Takeover of a Public Company. This regulation introduces the concept of the mandatory tender offer (MTO), which is triggered by a takeover of a public company. The Rule requires a refloating obligation of 20 per cent of the shares obtained as a result of an MTO. However, OJK can grant an extension of the time period for a refloat of shares to the Stock Exchange in certain cases. Additionally, OJK also introduced OJK Regulation No. 54/POJK.04/2015 on Voluntary Tender Offer, which can be a tool for acquisitions for public companies with no controlling or simple-majority shareholders, amending the previous Bapepam Rule IX.F.1 of 2011.

In December 2016, OJK introduced a revision to the regulation concerning mergers and consolidations for public companies by virtue of OJK Regulation No. 74/OJK.04/2016. The regulation provides new paper requirements for OJK approval in the event of the merger or consolidation of public companies. The new requested documents include, among others, corporate shareholding and management documents, appraisal reports, business plans, notes on the new controller and management analysis reports. This regulation is aimed at further promoting investor protection and information disclosure.

iV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

Foreign direct investment in Indonesia is regulated by the Investment Law4 and its implementing regulations issued by BKPM. As the appointed regulator of direct capital investment in Indonesia, BKPM has mainly focused on the efforts of the government to attract foreign investors and build an international economic environment.

The most recent rules on foreign equity restrictions are stipulated in Presidential Regulation No. 44 of 2016, which determines what business sectors are open or closed for foreign investors, and if open, to what extent FDI is permitted (the Negative List). The Negative List is the first and most important regulation that any foreign investor contemplating investment in Indonesia should consult. If the business of the companies in a contemplated M&A falls under the list of business fields that are closed to foreign investment as provided in the Negative List, then the foreign investor cannot invest in such business field in Indonesia. If the business falls under the list of business fields that are conditionally open for investment, however, then foreign investment in such business is permitted, but a contemplated M&A involving foreign investors will be limited regarding the level of foreign ownership of shares allowed in the Negative List. As a consequence of the involvement of foreign investors in an M&A transaction, the Indonesian company will be required to convert its status from a domestic company into a foreign investment company within the framework of the Investment Law.

The following are representative examples of the general application of current Negative List provisions regarding foreign investment, which are also subject to other specific regulations:

  1. finance companies: the maximum foreign ownership is 85 per cent;
  2. insurance: the maximum foreign ownership is 80 per cent; and
  3. plantation: the maximum foreign ownership is 95 per cent.

Most private foreign direct capital investments in Indonesia are administered and supervised by BKPM. Consequently, most matters relevant to M&A transactions must be reported to and will require approval of the Chair of BKPM. BKPM Regulation 6/2018 sets out the procedures for obtaining BKPM approval for new investments, changes in shareholders, mergers or business expansions.

Public companies, on the other hand, are regulated by OJK. Unlike private companies, unless specifically provided under a separate regulation, publicly listed companies have no restriction on foreign ownership of shares if such investment involves foreign passive portfolio investors and not strategic or controlling foreign investors. Moreover, the provisions under the Negative List are not applicable to a public company whose shares are acquired by foreign investors in portfolio transactions made through the domestic capital market.

V SIGNIFICANT TRANSACTIONS AND HOT INDUSTRIES

For years, Indonesia has been substantially relying on the energy and mining sector, being a strong force in the oil and gas business and the world's largest exporter of thermal coal. Ever since President Widodo took office, structure has become the top priority, as evidenced by the large number of deals focusing on electricity, gas and water supply, and telecommunication. Transportation and warehousing also made substantial contributions to both the economy and in terms of fixing Indonesia's lagging logistical landscape. More recently, the rise of the middle class means rising consumer spending; therefore, consumer sectors such as retail, consumer technology, consumer goods, transportation (including aviation) and property (including housing, industrial estate, and office building) have become main targets.

2018 saw various major landmark deals in Indonesia, some driven by state-owned enterprise and some by the banking sector. State-owned cement producer PT Semen Indonesia Tbk (SMGR) completed a US$917 million acquisition of PT Holcim Indonesia Tbk (SMCB), a local business of LafargeHolcim. Semen Indonesia reportedly raised US$1.25 billion through a bridge loan to fund the purchase of an 80.6 per cent stake in Holcim Indonesia and another MTO for the remaining shares.

Again in 2018, PT Bank Tabungan Pensiunan Nasional Tbk (BTPN) merged with PT Bank Sumitomo Mitsui Indonesia (SMBCI), both subsidiaries of Sumitomo Mitsui Banking Corporation (SMBC). SMBC was a controlling shareholder in BTPN and SMBCI, holding 40 and 98.48 per cent, respectively. Another notable M&A deal in the banking sector took place in August 2018, when Bank of Tokyo Mitsubishi UFJ increased its investment in PT Bank Danamon Indonesia, Tbk to become a controlling shareholder with a 40 per cent interest by acquiring (directly or indirectly) an additional 20.1 per cent from Asia Financial (Indonesia) Pte Ltd (AFI) and other affiliated entities. The investment amount for the additional 20.1 per cent was reported to be valued at 17.187 trillion rupiahs.

Finally, in December 2018 two major M&A deals were closed, forging a path for Indonesia's energy holding formation. After two years of negotiation, Indonesia's state-owned mining holding company, PT Indonesia Asahan Aluminium (Inalum), finally raised its stake in PT Freeport Indonesia, the operator of the giant Grasberg mine in West Papua, to 51.23 per cent from its previous 9.36 per cent stake. Inalum spent US$3.85 billion purchasing the stakes. Meanwhile, Perusahaan Gas Negara Tbk (PGN) completed its US$1.35 billion acquisition of 51 per cent shares of PT Pertamina Gas (Pertagas) from PT Pertamina (Persero).

VI FINANCING OF M&A MAIN SOURCES AND DEVELOPMENTS

As in other jurisdictions, financing for M&A in Indonesia is generally derived from internal cash flows, bank loans (provided such financing is not intended for investment in speculations on shares), the issuance of new shares (share swaps) and the issuance of financial derivative instruments.

Various regulations are applicable depending on the nature of a financing scheme, including a reporting requirement to Bank Indonesia for foreign currency-denominated loans from offshore banks or entities; the submission of registration statements to OJK if a transaction involves conducting a rights issue; and approval of BKPM for an increase of equity to finance expansion (growth by acquisition instead of organic growth).

The prevailing regulations that affect the financing of M&A are as follows:

  1. Bank Indonesia Regulation No. 16/22/PBI/2014 regarding Reporting of Foreign Exchange Activity and Reporting of Application of Prudential Principles in relation to an Offshore Loan Management for Non-Bank Corporation, as amended by Bank Indonesia Regulation No. 21/2/PBI/2019;
  2. Bank Indonesia Regulation No. 18/18/PBI/2016 regarding the Purchase of Foreign Currency Against Rupiah through Banks; and
  3. Bank Indonesia Regulation No. 19/3/PBI/2017 regarding Short-Term Financing Facility for Commercial Banks which, inter alia, prescribes reporting and credit rating requirements in some cases.

Bank Indonesia also issued Bank Indonesia Regulation No. 7/1/PBI/2005 regarding Offshore Borrowing and Other Obligations of Banks in Foreign Currency, which was last amended by Regulation No. 21/1/PBI/1/2019, containing, among other things, obligation for banks to limit the daily balance of short-term offshore borrowing to a maximum of 30 per cent of capital.

Another key regulation on the matter is BI Regulation No. 16/21/PBI/2014 on Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank Corporations as amended by Bank Indonesia Regulation No. 18/4/PBI/2016. The Regulation aims to prevent foreign loans and excessive foreign debt from hampering macroeconomic stability by providing guidelines for non-bank corporations to implement prudent principles in managing their loans with foreign parties. In managing foreign loans, companies must implement prudential principles by complying with the prescribed hedging and liquidity ratios and credit ratings. Hedging and liquidity ratios are based on foreign-currency assets (receivables) and liabilities (obligations) from forwards, swaps, or options transactions, or a combination thereof.

The mandatory use of the rupiah for a transaction's currency is another hot regulatory topic in Indonesia. On 28 June 2011, the government issued Law No. 7 of 2011 on Currency (Mata Uang). Article 21(1) of Law No. 7/2011 provides that the Indonesian rupiah shall be used in every payment transaction, for the fulfilment of other monetary obligations or for other financial transactions within the Indonesian territory, with certain exceptions. In 2015, Bank Indonesia issued Regulation No. 17/3/PBI/2015 on the Mandatory Use of Rupiah within the Republic of Indonesia. The Regulation basically strengthens the Currency Law, and provides clearer guidance that the Law applies to both cash and non-cash transactions. The new Regulation also explains in details the five exceptions of the rule.

VII EMPLOYMENT LAW

The Labour Law5 provides the framework for the rights of employees and employers in the M&A context. Basically, since M&A are only related to the change in ownership or control over a company, it should not in any way affect employees' status. In general, there are two possibilities with respect to an employee's continuance in a company with new controlling shareholders (in an acquisition) or with a surviving company (in a merger), which could be either the extension or renewal of the employee's term of employment. In the case of a renewal of employment, the employee will have his or her contract terminated from the previous company (before it was merged or acquired) and then be rehired by the surviving company under new terms and conditions. Accordingly, there is a requirement under the Company Law for boards of directors of companies undergoing M&A transactions to publish a summary of a proposed merger or acquisition in at least one newspaper, and to announce it in writing to the employees of the surviving or acquired company no later than 30 days before the invitation of shareholders to the general meeting of shareholders.

Should an employee not wish to maintain his or her employment with the surviving company, then he or she has the right to refuse the new employment. Thus, the employee can resign from the company and demand a special severance payment, long-service payment package and accrued compensation (such as untaken annual leave or housing allowance, if applicable) as set out in the Labour Law, Article 163(1). It should be noted that the Labour Law does not specify the percentage of ownership that triggers these entitlements, but simply refers to a change of ownership. There is a risk that the employees or their union (if any) will take the position that any change of ownership will qualify under Article 163(1), even where there is less than a 50 per cent change in shareholding. Any substantial change in management and employment policies, however, could also trigger Article 163(1), even though the new shareholder is not a controlling shareholder, as this may directly or indirectly affect the employees.

However, under Article 163(2) of the Labour Law, employers (both the buyer and the seller) also have the right to terminate an employment in the event of a change in a company's status, a merger or a consolidation, subject to the payment of severance and long-service payment as set out in Article 163(2), which is set at a higher level than those under Article 163(1) mentioned above.

In addition to the above, the rights of employees in M&A transactions are also governed by the provisions relating to M&A transactions in a collective labour agreement entered into by and between the company and the company's labour union. In the event of inconsistency between the provisions of the Labour Law and the collective labour agreement, the provisions that are more favourable to the employees will prevail.

VIII TAX LAW

i Corporate income tax in mergers

As in other jurisdictions, the accounting method used in mergers is generally a pooling of interest method and a book value transfer approach.

Article 1(3) of Minister of Finance Decree No. 43/PMK.03/2008 of 13 March 2008 on the Use of Book Value for Transfer of Assets in Relation to Merger, Consolidation or Spin-off (MOF Decree 43/2008) defines a business merger as a merger of two or more taxpayer entities with capital divided into shares in a manner that maintains the existence of one of the companies having no residual loss or having a smaller residual loss.

Furthermore, Article 2 of MOF Decree 43/2008 provides that taxpayers conducting a merger using book value must fulfil the following requirements: submission of an application to the Director General of Tax including the reason and purpose for conducting the merger or spin-off; payment of all tax owed by each of the companies involved; and fulfilment of requirements of the business purpose test (described below).

In addition, Article 3 of MOF Decree 43/2008 provides that a taxpayer conducting a merger using the book value approach may not compensate the loss or residual loss of the merged taxpayer.

In general, one could conclude that there will be no capital gains tax (corporate income tax) if the Directorate General of Taxation has issued an approval for a merger with book value. In the event that a transfer of assets using book value is not approved by the Directorate General of Taxation, then the transfer of assets shall be valued at the market price, and the difference between the book value and the market value (capital gains) will be subject to corporate income tax at a rate of 25 per cent (flat rate).

ii Value added tax

A transfer of assets is subject to VAT at 10 per cent of the market value, pursuant to Articles 4(1) and 7(1) of the VAT Law.6

The VAT should be imposed by a taxable business entity on the delivery of assets, the initial purpose of which is not to be traded, except assets on which the VAT cannot be credited because the acquisition of such assets has no direct relation to the business activity, and for the acquisition and maintenance of sedan or station wagon motor vehicles when made for a trading inventory or for rental purposes.

iii Tax on transfers of land

Government Regulation No. 41 of 2016 provides that the disposal of land and buildings is subject to final income tax at a rate of 2.5 per cent of the transfer amount that is stated in the deed, which is a reduction from the previous 5 per cent rate (the transferor's tax obligation). Moreover, the transfer of land or buildings in a merger is subject to land or building title acquisition duty (BPHTB) of 5 per cent of the taxable value (NJOP) (the surviving entity's tax obligation). The NPOP in the merger is the market value or the same as the NJOP.

The taxpayer who carries out the merger and obtains approval for the use of book value for the merger from the Director General of Taxation may apply for a 50 per cent reduction in the BPHTB.

iv Sale of shares

Article 17 of Law No. 36/2008 provides that the maximum tax rate for individual taxpayers is 30 per cent and the tax rate for corporate taxpayers is a flat rate of 25 per cent. Public companies that satisfy a minimum listing requirement of 40 per cent along with other conditions are entitled to a tax discount of 5 per cent off the standard rate, giving them an effective tax rate of 20 per cent.

For transfers of shares in general, the difference between the acquisition of shares and the selling price of shares will be subject to capital gains tax at a rate of 30 per cent (maximum) if the seller is an individual and at a rate of 25 per cent (flat rate) if the seller is a corporate taxpayer in Indonesia.

If the seller of the shares is a non-Indonesian taxpayer, then the capital gains tax from the selling of the shares will be regulated based on the applicable tax treaty between the seller's country of domicile and Indonesia.

For transfers of shares of a publicly listed company, a final tax of 0.1 per cent of the transaction value will be applicable to the seller and 0.5 per cent tax on the founder shares (if the seller is holding the shares from the initial public offering).

IX COMPETITION LAW

Certain provisions of the Antimonopoly Law7 deal specifically with M&A. Essentially, pursuant to Article 28 of the Antimonopoly Law, M&A transactions in Indonesia are prohibited if they result in monopolistic or unfair trade practices. Therefore, all efforts should be made to ensure that any contemplated M&A transaction does not give rise to a monopolistic or unfair practice.

The Antimonopoly Law uses a market share standard as a parameter for ascertaining the presumption of a monopoly (if a business player has more than a 50 per cent market share), for ascertaining the presumption of an oligopoly (if a group of business players has more than a 75 per cent market share) and for determining the dominant position (if a business player has more than a 50 per cent market share and, as a group, those business players have more than a 75 per cent market share unless the dominant position is not abused).

In July 2010, the government issued GR 57/2010, followed by various rules issued by KPPU. GR 57/2010 and the KPPU rules provide that companies conducting an M&A transaction with the following criteria shall fulfil the post-notification requirement: the total value of assets of the companies concerned is more than 2.5 trillion rupiahs; or the total turnover of the companies concerned is more than 5 trillion rupiahs.

It should be noted that subscription to newly issued shares (capital increase) shall also be deemed an acquisition.

KPPU provides a consultation procedure and post-notification within 30 days of completion of a contemplated deal. In addition, GR 57/2010 provides that a bank conducting an M&A transaction shall submit a post-notification of such transaction to KPPU if the total value of the assets of the bank concerned is more than 20 trillion rupiah. Any non-compliance with this requirement will incur administrative penalties.

After receiving a post-notification, KPPU will conduct an assessment to determine whether the transaction has violated the Antimonopoly Law, taking into account:

  1. market concentration;
  2. market entry barriers;
  3. potential for unfair trade;
  4. efficiency; and
  5. whether an M&A transaction is necessary to prevent a company's bankruptcy.

It should further be noted that, pursuant to Article 47(2.E) of the Antimonopoly Law, KPPU has the authority to cancel an M&A transaction if such transaction has elements of monopolistic or unfair trade practices. Moreover, the Antimonopoly Law may affect foreign entities that are not doing business in Indonesia, but have entered into agreements with Indonesian entities that may result in monopolistic or unfair trade practices within Indonesia. Hence, it is advisable for investors contemplating an M&A transaction to file for a consultation with KPPU prior to the completion of the contemplated transaction to avoid the later cancellation of a transaction.

X OUTLOOK

A major and unprecedented shift of M&A deals dominated by the technology sector was seen in 2018, in contrast to 2016, during which the mining sector still dominated. Consistent political support by the government has led to new optimism regarding Indonesia's potential growth; given its consumer market, there is massive untapped potential for M&A in Indonesia to cater to the needs of the rising middle class. Natural resources (coal, palm oil, natural gas, petroleum and mineral resources) remain an important sector, but telecommunications, retail, property, construction, technology, and financial services have proven to be the sectors that have led the market.

As a democratic country that has undergone significant reform in the past two decades, challenges still remain. Bureaucratic red tape and corruption have become the main obstacles to the country's sustainable growth. However, several reform initiatives have been introduced to restore confidence in the country's business climate. Investors are still waiting for the impact of new procedures introduced by Government Regulation No. 91 of 2017, and the subsequent BKPM regulation at the end of 2017 to streamline business process. Financial and securities regulations, as well as corporate governance rules, have been set up to provide a more sophisticated and modern regulatory environment for foreign investors.

In light of the foregoing, it appears that recent economic developments show market confidence that the government will continue to maintain and improve transparency, the certainty of stakeholders' involvement, fair competition and a more foreign investment friendly environment.


Footnotes

1 Yozua Makes is the managing partner at Makes & Partners Law Firm.

2 Law No. 40 of 2007 on the Limited Liability Company.

3 Financial Authority Law (Law 21/2011).

4 Law No. 25 of 2007 on Capital Investment.

5 Law No. 13 of 2003 on Employment.

6 Law No. 42 of 2009 on Value Added Tax and Sales Tax on Luxury Goods.

7 Law No. 5 of 1999 on the Ban on Monopolistic and Unfair Business Practices.