2023/80 “Virtue and Violence: Revealing the Nexus between Political and Domestic Violence in Thailand’s Deep South” by Daungyewa Utarasint
EXECUTIVE SUMMARY
- There are several types and levels of violence to be mindful of when we frame an analysis on these issues where Thailand’s Deep South is concerned. In the three southernmost provinces, macro-level violence refers to the confrontation between the insurgency and the Thai state authorities.
- At the same time, micro-level violence can refer to domestic violence that can happen in any family, household or village. Micro- and macro-level violence might be classed differently, but they are strongly linked.
- Patriarchy is deeply ingrained in the minds of many Malay Muslim women, and they consider themselves inferior to men. In accepting male social dominance, they tolerate—and rationalise—domestic violence. Often, they choose to remain silent despite suffering abuse.
- Besides macro-level violence, the way some Malay Muslims understand Islamic virtue—whether as ethics (akhlaq), as conformity to a standard of righteousness, or as moral excellence—contributes to domestic violence in the region.
- Peace talks held between the Thai state and the insurgency had not brought socio-political problems such as domestic violence to the table. Eliminating the deeply entrenched patriarchal culture within the Malay-Muslim community presents a formidable challenge for women in the region, particularly when religious institutions have failed in their role as mediators.
* Daungyewa (Hong) Utarasint is former Visiting Fellow at ISEAS – Yusof Ishak Institute. She is Visiting Assistant Professor, Arts and Humanities at NYU Abu Dhabi (NYUAD). Her current research investigates women and voting behaviour amid conflict in the southernmost provinces of Thailand, examining obstacles to women’s political participation, and how religion and cultural norms affect women’s political mobility.
ISEAS Perspective 2023/80, 9 October 2023
INTRODUCTION
Religious leaders (including Imams) play an essential spiritual role in the Malay Muslim communities in Thailand’s three southernmost provinces. However, when addressing marital disputes, many of them often overlook the struggles of women, and frequently suggest that women should remain loyal to their husbands as a matter of honour. In 2022, during a visit to the Women’s Majlis at the Islamic Council in Yala province, a staff member shared several concerning cases with the author. In one instance, a woman arrived to file a complaint. Her face was covered in blood, and she was crying and screaming angrily that her husband had bludgeoned her with a hard object. Rather than reporting to the police, the Imam sought to mediate between the husband and wife, urging them to forgive each other. This recollection hits me intensely; as someone who merely researches on the Thai insurgency, I have come to fathom the profound importance of bringing this type of violence to public attention.
This article does not wish to repeat what most articles have covered: how the conflict and violence between the Thai security forces and the separatist movements in the southernmost provinces erupted, and the progress of the peace process. The goal, instead, is to bring attention to a different type of violence, namely domestic abuse and the ways Islamic institutions deal with it. Different forms of abuse against Muslim women in the southernmost provinces include emotional and psychological pressure, physical violence, early marriages, forced sex, and (marital) rape. According to Oxfam’s project on Violence-against-Women (VAW) in the three southernmost provinces of Thailand, “domestic violence is far more severe, widespread, and complex but remains underreported and underrated.”[1] The project aims to reduce violence against women through collaboration between the Women Networks (WNs), local civil society, the Thai government and Provincial Islamic Councils in Yala, Pattani, and Narathiwat.
In 2019, VAW reported 240 cases of violence against women in Narathiwat province alone. The common causes of violence are illegal drugs and gambling (48%), followed by polygyny (33%), and other reasons (19%). In 2020, the Narathiwat and Yala Provincial Islamic Counselling offices reported 3,030 such cases.[2] The high figures may be alarming, but on a positive note, it may show that victims are now more willing to report incidences of abuse to the Provincial Islamic Council. Whether the rise in reporting is due to an upsurge in incidents, or a greater willingness of victims to come forward, is unclear. This complexity arises from the dual legal system, which combines Thai and Islamic laws.[3]
ONGOING VIOLENCE IN THAILAND’S DEEP SOUTH
Conflict and violence have plagued the southernmost region of Thailand for almost two decades, rooted in historical tensions between the Thai state and the Malay-Muslim population. Since January 2004, clashes between the Thai security forces and insurgent groups such as the Barisan Revolusi Nasional (BRN), a Malay–Muslim separatist organization, have resulted in over 7,000 lives lost and more than 10,000 injured. Conflict management and peace negotiations between Thai authorities and rebel peace negotiators are ongoing, but the BRN continues pursuing independence violently. Concurrently, there are reports of human rights abuses in the region, with the 2005 Emergency Decree enabling Thai security forces to conduct cordon-and-search operations without a warrant, monitor people by taking photos without permission, and detain suspects with reports of torture and ill-treatment.
The case of Abdullah Esomuso, a 34-year-old suspected leader of an insurgent cell, demonstrate the ongoing tension in the area. On 21 July 2019, Abdullah was found unconscious in an interrogation centre at Fort Inkayuthaboriharn, an army camp in Pattani province. He died at a hospital two months later. Relatives claim Abdullah was in great health before the military interrogation. In May 2022, two years after his death, the Thai court ruled that his death resulted from natural causes, specifically oxygen deprivation to the brain and heart failure during detention.[4] No military interrogators were convicted.
This tragedy is just one of many that have occurred in Thailand’s three southernmost provinces over the past 19 years. Although overall violence and conflict have decreased since 2013, when peace talks began, data from the Deep South Watch database indicates a 44% increase in violent incidents in 2021 compared to the previous year.[5] This suggests that despite efforts at peace, violence remains prevalent in the region.
THE DISCOURSE ON ISLAMIC VIRTUE, DOMESTIC VIOLENCE, AND WOMEN
As there are different types and levels of violence, we must be mindful of which of these we use to frame our analysis. Confrontation between the insurgency and the Thai state authorities is well-known in the southernmost provinces of Thailand. Because of its immense scale covering the whole region, including spillover violence affecting civilians, I describe this as macro-level violence. Micro-level violence, meanwhile, illustrates domestic violence that can happen in any family, household or village. Micro- and macro-levels of violence might be classed differently, but they are nevertheless strongly linked. To decipher the structure of violence in the southernmost provinces of Thailand, both have to be examined seriously.[6]
In those provinces, significant gaps persist in the implementation of the specialized protective measures outlined in the Victims of Domestic Violence Protection Act B.E. 2550 (2007). These shortcomings become even more evident when intertwined with the Muslim Family Law and the Law of Inheritance Code of 1941. Malay-Muslim women’s local culture, deeply rooted in patriarchy, is strongly shaped by traditional interpretations of Islamic teachings.[7] Female victims of violence in the Deep South endure in silence. Their suffering is exacerbated by cultural resistance, unequal access to justice, and significant under-reporting of domestic violence stemming from inadequate governmental responses and insufficient engagement from religious institutions.[8]
There have been many misconceptions pertaining to women’s rights in Islam. According to the World Health Organization website, statistics collected between 2000-2018 reveal the prevalence of domestic violence against women aged 15-49 by intimate partners. Bangladesh, a Muslim-majority country, ranked fourth globally at 50%, while Afghanistan took the sixth spot at 46% (WHO, Violence Against Women Prevalence Estimates, 2018, 2021). Data from some Middle Eastern countries is absent, possibly due to the reluctance of victims to come forward. This raises the question: Why does violence against women persist in Muslim societies when Islam fundamentally promotes peace and justice?
Islamic teachings and principles underscore equal partnership between men and women. The Quran does not specify particular characteristics of any gender or suggest how either gender should behave towards the other. For example, the Quran does not teach that women are naturally inferior to men.[9] In fact, there are mosques for women in China, Lebanon, and Scandinavian countries like Denmark, where Sherin Khankan became the first Denmark’s first female Imam, who lead the prayers.[10] A section that is heavily debated between male proponents and feminists would be Surah An-Nisa, which makes references to women’s role vis-a-vis men. Experts have diverse views on the chapter, especially verse 34:
Men are the caretakers of women, as Allah elevated men above others, and men financially contribute from their wealth. Good women are loyal and safekeep everything behind their husbands according to what Allah has preserved. As for those women, whose disobedience intimidates you, reprimand them, leave them alone in the bed, and whip them. When they become obedient, then punish them no longer. Truly Allah is the Highest, the Greatest of all.[11]
Meanwhile, the text from the same surah on the website www.quran.com which carries translations of the Qur’an by Dr. Mustafa Khattab, in English and many other languages is as follows:
Men are the caretakers of women, as men have been provisioned by Allah over women and tasked with supporting them financially. And righteous women are devoutly obedient and, when alone, protective of what Allah has entrusted them with. And if you sense ill-conduct from your women, advise them first, if they persist, do not share their beds, but if they still persist, then discipline them gently. But if they change their ways, do not be unjust to them. Surely Allah is Most High, All-Great.[12]
The Thai translation based on Abu Israfil Al-Fathoni leans towards men with an oppressive tone to women, while the English version by Dr. Khattab is more neutral. Dr. Khattab’s translation mentions no whipping. Many feminists view that most men who translate the teaching in this verse, do so to justify domestic violence for themselves without breaking their religious rules.[13] Thus, it leads to the discussion on what being a true Muslim means. The debate continues with many trying to secure power, and to claim that their interpretation is the correct one for true Muslims.
CAN ISLAMIC VIRTUES EMPOWER WOMEN AND AID THAILAND’S PEACE PROCESS?
The prolonged political conflict in Thailand’s southernmost regions is conflated with other challenges such as economic underdevelopment, extreme poverty, high illiteracy rates, and widespread illicit drug use. At the micro-level, patriarchy strongly influences the power dynamics between Malay Muslim men and women, further exacerbated by conventional Islamic interpretations by religious leaders. It is this that has led to the proliferation of domestic violence.[14]
Besides macro-level violence, some Malay Muslims’ orientation towards Islamic virtues—whether ethics (akhlaq), conformity to a standard of righteousness, or moral excellence—play a crucial part in sustaining domestic violence in the region. For example, if there is an incidence of rape in a village, the community might arrange a force-marriage between the rapist and the victim instead of reporting the incident to the police. Another example is a child marriage case in 2018 involving a 41-year-old man from Malaysia and an 11-year-old girl from Narathiwat.[15] Under Thai civil law, a woman cannot marry without her parents’ permission if she is under 20. However, some male religious leaders approve of such marriages in the southernmost region of Thailand. They cite a hadith that states that Prophet Muhammad (saw) married Aisha, who was only 9 years old, even though there are other narrations that dispute Aisha’s age upon her marriage to the prophet.
Patriarchy is deeply ingrained in the minds of many Malay Muslim women, and they consider themselves inferior to men. As a result, they accept male social dominance, tolerate and rationalize domestic violence, and often remain silent despite being abused. Sociologist Randall Collins suggests that the emotional dynamics of a confrontation play a crucial role in the outcome. He states, “Emotional dominance of the confrontation is the main prerequisite for successful violence; one must dominate emotionally to dominate physically”.[16] This insight highlights the psychological barriers that prevent women from resisting or escaping abusive situations, as the emotional dominance exerted by their abusers keeps them subjugated which is relevant in Oxfam’s cases in the three southernmost provinces.
My fieldwork findings in the Pattani, Yala and Narathiwat provinces confirm that domestic violence happens to women and even young boys. At the very least, Muslim women have an outlet to report to the Provincial Islamic Council in Pattani, Yala, and Narathiwat Provinces. One of my acquaintances shared a story of a 15-year-old boy that he met while filming a documentary in the region. The teenage boy was raped continuously by his uncle. Coping with trauma, the boy was helpless and vulnerable. His uncle threatened to kill him if he disclosed his ordeal to anyone. The boy could neither report to the police because he was afraid of his uncle nor report to the local Islamic Committee because sexual acts between males are considered a major sin in Islam. Cases of boys whose family members are raped can easily slip through the cracks; even if their mother or other relatives know about them, they are unwilling to file a complaint. They are concerned with the humiliating social stigma these acts may bring to their families. In other words, victims of domestic violence in the Deep South suffer silently under cultural resistance, unequal access to justice, and explicit discrimination.
The prevalence of domestic violence in the southernmost region has largely been ignored by both the Thai security forces and the rebel peace negotiators. Ngamsuk Ratanasatian, a Thai human rights advocate and a lecturer at Mahidol University’s Institute of Human Rights and Peace Studies (IHRP) in Bangkok, observed that women in the region engage in peace-building efforts. However, the peace talk between the Thai state and the insurgency had not brought socio-political problems like domestic violence to the table.[17]
An effective conflict resolution involves more than just peace talks between the insurgents and Thai state securities; it necessitates transforming the domestic violence issue into a robust conflict management plan, recognizing it as being integral to the structural conditions and regional dynamics of violence. This involves considering both macro-level and micro-level violence concurrently in peace process discussions. However, the question remains: How can both parties contribute to alleviating domestic violence, instead of solely concentrating on ending combats?
Don Pathan, a senior programme officer for Regional Security Cooperation at The Asia Foundation, Thailand, noted that Juwae (militant fighters) are devout Muslims, and the Barisan Revolusi Nasional (BRN) is likely to treat women respectfully.[18] Given the extensive reach of the Juwae networks at the grassroots and village level, insurgent groups can potentially participate in preventing violence against women. Juwae could serve as first responders for women seeking assistance.
Eliminating the deeply entrenched patriarchal culture within the Malay-Muslim community presents a formidable challenge for the women of the region, particularly when the Islamic institution has been unsuccessful in its role as mediator. A significant power imbalance exists between the sexes, and having the Juwae as a support system can potentially counteract male or husbandly dominance, thereby helping to reduce domestic violence.
CONCLUSION
Violence in the southernmost region of Thailand is not only about constant battles between Thai security officers and insurgents, but also domestic violence within Malay-Muslim communities. The dominance of the Malay-Muslim patriarchal culture has desensitized violence-against-women to a certain degree. Many religious leaders and village councils tend to look away or are indiscreet when settling marriage disputes, which puts the burden more on the women.
In the case of the southernmost provinces of Thailand, the social significance of what some Malay–Muslim communities believe to be an Islamic virtue, in fact nourishes violence. While clashes between Thai state authorities and insurgents cost lives, domestic violence has a long-lasting effect on people in the community. The first step is to recognize the problem. The most promising way forward will inevitably involve collaboration between Women Networks, the civil society groups, Thai state authorities, religious leaders, and even insurgency groups.
In conclusion, it is imperative for peace negotiators and others to understand that the issue of domestic violence in the three southernmost provinces of Thailand is as severe as the clashes between Thai security forces and insurgents. It is impossible to achieve peace in the conflict-ridden region without systematically addressing the issue of domestic violence within the Muslim communities.
REFERENCES
Bradley, Samantha. 2018. “Domestic and Family Violence in Post-Conflict Communities: International Human Rights Law and the State’s Obligation to Protect Women and Children.” Health and Human Rights Journal, 20(2), 123–136.
International Crisis Group. April 2022. “Sustaining the Momentum in Southern Thailand’s Peace Dialogue.” https://www.crisisgroup.org/asia/south-east-asia/thailand/b172-sustaining-momentum-southern-thailands-peace-dialogue
Marddent, Amporn. 2017. “Women Political Participation in Peacebuilding in Southern Thailand.” Al Abab 6 (2). https://peaceresourcecollaborative.org/wp-content/uploads/2020/02/Amporn-Madden.pdf
ENDNOTES
For endnotes, please refer to the original pdf document.
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“Terrorism in Indonesia and the Perceived Oppression of Muslims Worldwide ” by Prakoso Permono and A’an Suryana
“A Review of Data, Policy and Transparency in Reducing Methane Emissions in Malaysia” by Matthew Ashfold, Helena Varkkey, Yong Jie Wong, Anjulie Razak, Shareen Yawanarajah, Mark Lunt and Emily Oi Yen Tse
2023/79 “Selangor’s 2023 State Election: Pakatan-BN’s Defense, Perikatan’s Breakthrough” by Lee Hwok Aun
EXECUTIVE SUMMARY
- The Pakatan Harapan – Barisan Nasional (PH – BN) pact retained power at Selangor’s 2023 state election of 12 August, but saw its seat count drop from 45 to 34. Rival Perikatan Nasional (PN) made major gains, burgeoning from 5 to 22 and depriving PH-BN of a two-thirds majority in the 56-seat assembly.
- PH maintained incumbency advantages, leveraging its track record, steady administration and social programmes to win 60 per cent of the popular vote. However, PH lost ground in the Malay electorate and suffered a lower turnout of its base; the continuing decline of UMNO curtailed the benefits of PH’s partnership with BN.
- PN’s popularity has surged; the coalition expectedly dominated in Malay supermajority seats. A coordinated campaign, lavish manifesto and targeted messaging – notably at youths, women, and the Indian community – contributed to its increased share of Selangor votes, from 27.5 per cent in November 2022 to 37.8 per cent nine months later.
- The PH-BN government has a host of young assemblypersons, and with a fresh mandate for Chief Minister Amirudin Shari’s second term, has strengths to build on. However, PN’s expansion and morale-boosting wins presage a robust opposition and a more competitive political arena.
- PH’s 2008-2023 era of dominance has ended; the next chapter of Selangor’s politics remains to be written.
* Lee Hwok Aun is Senior Fellow and Co-coordinator of the Malaysia Studies Programme atISEAS – Yusof Ishak Institute. The author gratefully acknowledges datasets from Ong Kian Ming (GE-15 parliamentary election results mapped onto state constituencies) and Tindak Malaysia (estimated ethnic composition data of Selangor’s electoral roll), and thanks Rebecca Neo for her excellent cartographic work and Francis Hutchinson, Kevin Zhang and Adib Zalkaply for their comments on an earlier draft of this article. The usual disclaimer applies.
ISEAS Perspective 2023/79, 3 October 2023
INTRODUCTION
Selangor was widely expected to be the most competitive and consequential of the six Peninsular Malaysian state elections held on 12 August 2023, referred to as PRN2023 (Pilihan Raya Negeri). Malaysia’s 15th general election of 19 November 2022 (GE2018) verified the strength of the Perikatan Nasional (PN) coalition of Malay-based parties, and showed the consequences of an electoral contest with three major coalitions. Pakatan Harapan (PH), anchored by multi-ethnic parties and bolstered by its urban voter base, retained 16 out of Selangor’s 22 parliamentary seats, mostly by wide margins. PH remained competitive in Malay-majority constituencies, aided by the capacity of UMNO, the hegemon of the Barisan Nasional (BN) coalition, to vie for Malay hearts. This resulted in a three-way split that diluted PN’s vote share. However, a protest against UMNO and a surge in Malay support for PN catapulted the latter from one seat to six. All were in Malay-majority constituencies as expected, but portentously for PH, PN’s new domain extended beyond northern Selangor to the central and southern fringes of the Klang Valley which stretches from Petaling Jaya to Klang city (Figure 2). PH and BN subsequently formed the federal “Unity government” coalition of coalitions with East Malaysian partners, which operated on the Peninsula as a PH-BN alliance to go head-to-head against PN (See Table 3 for PH and PN component parties and full names).
PN framed PRN2023 as a referendum on the Unity government, and sought to capitalize on perceivable economic discontent and Selangor’s electoral configuration in the race to win at least 29 of Selangor’s 56 seats. Selangor had been Pakatan’s stronghold since 2008, but PN viewed the 37-38 Malay-majority seats dispersed throughout the state as ripe targets. PH maintained the advantages of state government incumbency and alignment with the federal Unity government, and could take comfort from GE2022 results. However, the PH-BN pact would be sternly tested. Heading toward PRN2023, questions loomed large: How much more momentum would PN gain? Would the Unity coalition’s voters turn out? Would BN supporters rally behind PH candidates and vice versa?
Selangor voters answered on 12 August by giving PH-BN a new mandate but without the two-thirds majority that PH had enjoyed since 2013. PN’s expected surge translated into decisive wins in most Malay-majority constituencies, while PH-BN continued to dominate mixed constituencies and retained various Malay-majority seats. This Perspective outlines the context of PRN2023, surveys salient vote patterns, and discusses the outcomes and implications of the resulting situation.
BACKGROUND AND RUN-UP TO POLLING DAY
Selangor is Malaysia’s most urbanized and economically advanced state. In 2022, 96 per cent of its residents lived in urban areas, and its median household income of RM9,980 considerably topped that of the next highest state, Johor (RM6,880), and the national median (RM6,340).[1] While governing the state confers prestige, Selangor’s incumbent did not face credible challenges for three electoral cycles. Figure 1 shows the dominance of the Pakatan Harapan government since 2008 and the mirrored decline of the BN opposition through the 2013, 2018 and 2022 general elections. BN’s and UMNO’s political prospects in Selangor have been hamstrung by weak state party leadership and a demoralised political machinery.
Figure 1. Parliament seats and popular votes across eight general elections, 1990-2022
Notes: Pakatan Rakyat 2008 and 2013: PKR, DAP and PAS; Pakatan Harapan 2018: PKR, DAP, Amanah, and Bersatu; Pakatan Harapan 2022: PKR, DAP, and Amanah.
The collapse of the PH government in February-March 2020 and an emergent political reconfiguration centred on the Malay-party triumvirate of Bersatu, PAS and UMNO. By 2022, schisms grew between UMNO and the formal PN alliance of Bersatu and PAS, resulting in the UMNO-led BN competing against PN and long-term foes PH at the November 2022 general election. Three-cornered fights blanketed the Peninsula, pivotally causing three-way splits in the Malay vote. PN emerged as the new champion of the Malay heartland in northern Selangor and the periphery of the Klang Valley (Figure 2). State-wide, PN garnered an estimated 49 percent of Malay votes, dwarfing BN (27 per cent) and PH (21 per cent).[2] PH fared better in Selangor than the Peninsula-wide average of 11-12 per cent,[3] but would need to expand its Malay vote share to hold the state in a two-cornered contest.
GE2022, while limited to federal parliament seats in Selangor, provided data points for the state assembly election. Mapping the votes cast on 19 November onto the state seats within each parliament district, ethnic patterns continue to stand out. PH maintained its non-Malay majority strongholds — ethnically mixed areas without one clear majority group — in which the coalition won an outright majority on its own in three-cornered fights (Table 1). Of the 22 seats PH would have won if the state election was held concurrently with GE2022, 18 were in non-Malay majority seats. PN’s traction in Malay supermajority seats, where Malay voters comprise two-thirds or more, was also apparent; of PN’s wins by majority, all were in such areas. Winning by plurality — getting less than 50 per cent of votes but more than any other candidate — transpired in 31 of the total 56 seats. PN won a plurality in 11 Malay supermajority seats, as did PH in 5 Malay supermajority seats and 14 Malay-majority seats, and BN in 2 Malay-majority seats. The combined votes for PH and BN would carry a PH-BN pact over the halfway line. These patterns underscored the imperative of PH-BN collaboration to convince BN supporters to transfer their votes to PH, and vice versa.
Figure 2. Selangor parliament constituencies: 2022 general election results
Table 1. Selangor state seats based on GE2022 parliament results, by ethnic composition (Malay share of registered voters)
Notes: M≥67% = Malay supermajority; M50-67% = Malay majority; M<50% = non-Malay majority
The question for PRN2023, nine months after GE2022, was the extent to which PN’s momentum would grow its share of Malay votes and carve further into BN’s and PH’s, particularly with perceived reservations in UMNO’s base toward its partnership with PH.
Differences in turnout could also be decisive. Projecting PRN2023 scenarios from GE2022 results, Ong (2023a) showed that PH-BN held a substantial buffer and could retain Selangor in a “neutral” scenario of 50 per cent transfer of BN support to PH candidates and a 50 per cent loss of BN votes to PN. Khairy (2023) similarly argued that a PN win, while not unimaginable, would require a steep drop in PH-BN turnout and a large number of their supporters migrating to PN. Marzuki and Khairul (2023), referencing a survey that found low likelihood of vote transfer within PH-BN and a sizable transfer in favour of PN (as well as almost half of respondents indicating “unsure”), posited the possibility of PN winning the vast majority of Selangor’s 37 Malay-majority seats. However, they did not present permutations and pathways for PN to cross the 29-seat threshold.
RESULTS AT A GLANCE
Selangor voter turnout, at 72 per cent, rather exceeded expectations of a major decrease from GE2022’s 74 per cent nationally. PH-BN secured 60.5 per cent of votes state-wide, a safe distance from PN (37.8 per cent) (Table 2). However, PN gained markedly from its 27.5 per cent share in November 2022, when the cumulative share of PH (with MUDA) and BN was also much higher. In absolute terms, from GE2022 to PRN2023, PH-BN’s combined votes decreased by 396,543, whereas PN’s increased by 233,611. The expected difference in turnout — with the opposition typically more able to mobilise voters in mid-term-type elections[4] — transpired, although PH-BN support did not diminish momentously enough to trigger more losses. The MUDA-PSM partnership was a non-factor, mustering a paltry 1.4 per cent and underscoring voters’ gravitation to the two coalitions and indifference toward the “third force”. The majority in the state assembly aligns closely with the popular vote; PH-BN’s 34 seats translate into 60.7 per cent of the total (Table 3). PH continued to secure larger victory margins, reflecting that its base was considerably galvanised,[5] but PN also comfortably won most of its seats.[6] Some constituencies were evenly split, reflecting a 50-50 electorate and the potential effects of minor differences in voter turnout. The two narrowest margins across all six states occurred in Selangor: Taman Medan (30 votes per total 44,602) and Gombak Setia (58 votes per total 61,616), both won by PN. PH’s loss of Taman Medan, in the heart of the Klang Valley won by comfortable margins since 2008, will surely be scrutinised when granular data become available, but has already served notice that metropolitan seats can also be flipped.
The Selangor election outcome for specific political parties generally mirrors their prospects across the peninsular west coast. DAP has the most clearly defined base in urban mixed constituencies and hence swept to victory in all contests, while PKR fielded candidates more widely and won most of the time. Amanah, as part of PH, remains competitive in Selangor. UMNO’s two wins helped salvage the alliance, but underscore its dire state. More distinctive to Selangor, PAS has gained a foothold in a state where it has struggled for traction – and like Amanah, rode on the Perikatan brand. Bersatu, which contested the most seats, secured the most seats within PN, but its negligible non-Malay support limits its capacity to reach the prize of governing Selangor.
Table 2. 2018, 2022 and 2023 elections in Selangor: Popular vote share by party / coalition
Note: PH in GE2018 included Bersatu
Table 3. Selangor state assembly: Seats held at dissolution (23 June), PRN2023 candidates and winners
UNPACKING THE OUTCOME
Ethnic composition
Ethnicity remains the big factor in the big picture of Malaysian elections (Marzuki and Ibrahim 2023). The pattern of GE2022 persisted; Malay-supermajority seats overwhelmingly voted PN and non-Malay majority seats unanimously favoured PH (Table 4). Ethnic lines have sharpened in Peninsular Malaysia’s politics since 2020, with multi-ethnic PH facing off against an all-Malay coalition — initially with the three major Malay parties including UMNO. After GE2022, PN consolidated as a Bersatu-PAS alliance with multi-ethnic party Gerakan unconvincingly adjoined. PN forthrightly champions Malay interests, bolstered by its claim to be the successor to UMNO — with overtures to other communities and a more inclusive posture especially for election campaigning.
Selangor has become more polarised electorally (Figure 3). PH has generally secured a more diverse based compared to other states, but struggled to coax BN votes, especially from UMNO’s Malay base. Vote transfers from BN to PH varied across constituencies, ranging from an estimated 24 per cent to 65 per cent in a few marginal seats won by PN.[7] Plotting the Malay proportion of registered voters against PN’s vote share produces a strikingly predictive and statistically robust relationship (Figure 4). All of PN’s wins are in constituencies with more than 60 per cent Malay voters, located in the upper right corner in Figure 4. We must emphasise that the Malay electorate is not homogeneous; the rallying behind PN derives from various factors and winning is not guaranteed. These realities are underscored by PH-BN retaining a few Malay-supermajority seats. Gerrymandering has exacerbated the polarisation. Selangor’s electoral re-delineation of 2018 — conducted at UMNO’s behest — carved out higher Malay majorities in various constituencies. In nine PH-incumbent seats in PRN2023, the share of Malay voters had been inflated by more than ten percentage points, and of these, five were wrested by PN, possibly a difference maker in PH-BN losing the two-thirds majority.[8]
Table 4. Selangor state election 2023: Ethnic composition and winning party
Figure 3. Selangor state constituencies: ethnic composition and seats won by PN
Figure 4. Selangor state assembly seats, PRN2023: Malay share of registered voters and PN share of votes
Manifestos and messaging
PH-BN’s Kita Selangor (Our Selangor)— echoing PH’s GE2022 slogan Kita Boleh! (We Can!) — made the case for continuity. The manifesto launched on 31 July featured five key pledges and 52 offerings, spanning infrastructure and industrial development, education assistance, support for religious affairs, efficient government, sustainable development, and social assistance. The manifesto treads softly on policies that target ethnic or demographic groups, although it highlights programmes specifically for women, youth, and religious communities, especially Muslims. The manifesto strives to adhere to a brand of inclusivity and multi-ethnic politics that eschews group-targeted policies, and to scrupulously limit election pledges to new benefits, seemingly to the point of omitting to mention continuities of past administrations, such as the water subsidy programme. On the whole, Kita Selangor substantively represented the PH-BN administration’s track record and the changes it would engender. However, the PH-BN machinery was rather sluggish in its messaging and dissemination, particularly in the production of infographics, videos and social media content.[9]
PN stirred sentiments for change and summoned protest with its clarion call Selangor Baharu, Kita Membangun (A New Selangor, Let’s Rise Up). The Selangor Baharu slogan had been trumpeted since June, and PN’s social media machinery was activated and prolific for months prior to PRN2023, but the manifesto was unveiled only on 4 August, halfway into the two weeks-long campaign period. The late launch and dissemination blitz confined the time for scrutiny, and allowed for PN to outbid Kita Selangor’s terms[10] orcapitalise on Kita Selangor’s omissions, such as PN’s promise of water bill subsidies to low- and middle-income households which it misrepresented as an absolute difference when in fact PN was increasing the scope coverage (PH-governed Selangor has since 2020 granted the subsidy only to low-income households).[11] The manifesto was expansive and lavish, with seven pillars and 112 offerings and expenditures totalling RM2 billion, and with clearly demarcated interest groups and policies, notably for youth, women, and the Indian and Orang Asli minorities.[12] PN’s formidable social media presence, a phenomenon widely noted since GE2022, persisted into PRN2023. Its output of materials — infographics, talking points, and TikTik videos — was prolific and coordinated.
The prominence and effect of manifestos are difficult to quantify, but PN’s voluminous offerings and social media engagements clearly disseminated the message widely, compelling PH to react, which underscores PN’s rising popularity. The incumbent government had a manifesto to sell, but with its promises being clearly outshone by the challenger’s, shifted to assailing PN’s capacity to deliver.
Party factors: Affiliation, leadership, cooperation
The historical primacy of political parties in Malaysian voters’ choice persisted in PRN2023. Candidates matter, as discussed later, but parties or coalitions — the banner or logo that campaigns contest under and that appear on the ballot sheet — remain more decisive to the election outcome. The capacity of parties to retain and rally their base, particularly with new candidates, is demonstrated by the continuance of majorities won in GE2022 into PRN2023, specifically 22 for PH and 3 for PN (Figure 5). PH and PN were also able to convert the plurality of votes at GE2022 into a PRN2023 win in 11 and 10 seats, respectively. The pro-PN swing transpired in 9 seats ‘won’ by a PH plurality at GE2022, an outcome that is attributable to the PN brand, given its limited prior presence and few incumbents in Selangor. Indeed, PN turned incumbency against the PH administration by highlighting cost of living and economic woes, and presented its united front and ideological convergence as a counterpoint to the past animosities and diverse ideologies of the PH-BN alliance, specifically between UMNO and DAP.
Figure 5. Selangor state assembly seats: Shift from GE2022 win by majority or plurality to PRN2023 win or loss.
Party incumbency, of course, conferred some advantage on the PH-led government. PH-BN campaigned for a second Chief Ministerial term for Amirudin Shari, generally well-regarded for his steady, people-friendly, and relatively scandal-free administration of Selangor, and enabled PH-BN to show cohesion by rallying behind him. Material conditions could have benefited the incumbent. Amid widely perceived economic discontent and cost of living woes, household survey data showed remarkably rapid income growth (derived from multiple sources, including government assistance) for Selangor’s low-income households between 2019 and 2022.[13] The Unity coalition’s campaign was also buoyed by the support of its federal government presence, including various prominent Selangor members of parliament and federal ministers. Conversely, PN’s absence of a clear Chief Minister candidate — its manifesto was launched by party president Muhyiddin Yassin, not a Selangor-based leader — undercut its credibility (Ong 2023b).
Grassroots mobilization and cross-party coordination are crucial at the local level. In a closely fought election, these factors can make the difference in turning out the base and winning over new, non-partisan or undecided voters. PH and BN have established networks over the years while holding power; PAS’ grassroots have been more clustered in areas such as the parliamentary constituencies of Gombak (state seats Sungai Tua, Gombak Setia, and Hulu Kelang) and Kapar (Meru, Sementa, Selat Kelang). PH-BN party machinery evidently rallied votes for Amirudin in Sungai Tua, bolstered by his candidacy strength as Chief Minister candidate, but narrowly lost in Gombak Setia and Hulu Kelang, where PAS’ established presence (the party is headquartered in Gombak) carried PN’s candidates. PH-BN collaboration was particularly consequential in Dusun Tua, where the UMNO candidate, as a beneficiary of DAP’s relinquished incumbent seat, relied on DAP-PH support. In Sungai Pelek, the only Malay-majority seat contested by DAP, PH’s visible collaboration with UMNO yielded winning dividends (Figure 2).[14]
Candidates
Seat negotiations to allocate candidates across the coalitions’ component parties proceeded steadily, and by and large amicably, in both coalitions. PH’s concession of two seats to UMNO — Dusun Tua (DAP incumbent) and Gombak Setia (PKR incumbent) — triggered some murmurings of discontent, but were generally accepted as coalition-building gestures. PH fielded a combination of incumbents with a substantial number of new candidates, which reflected internal party dynamics and office holders, and an overall strategy to enhance the campaign for a fresh mandate. The onus on renewal fell primarily on PH, after three terms in government. Accordingly, out of PH’s 44 candidates, 21 were first-timers. BN’s lineup arguably lacked the pull factor of a popular figure such as Minister of International Trade and Industry Tengku Zafrul, whose rumoured candidacy did not materialise.
Some selections roused public attention or provoked a public response. The candidate choice for Hulu Kelang, where PN Selangor chief and former Chief Minister Azmin Ali was widely expected to contest, was one notable surprise. Azmin, a PKR leader turned nemesis for his role in leading a defection to Bersatu which was a key trigger for the infamous Sheraton Move that brought down the Pakatan Harapan federal government in February-March 2020, was defeated in Gombak by his former protégé Amirudin Shari at GE2022. PH’s flag was carried this time by Amirudin’s political secretary and one-term Selangor assemblyperson Juwairiya Zulkifli, parachuted in from Bukit Melawati. A Bersatu youth leader expressed displeasure at the quality of candidates in Selangor, but the complaints did not ripple widely.[15] The newness of PN’s candidates, however, was a clear constraint. PN duly disseminated their profiles and highlighted past administrative experience, and academic or professional qualifications.
An assessment of candidates is highly localized and individual-specific, but a few general points can be registered here. PRN2023 in Selangor saw a few incumbents prevail against perceived unfavourable odds. These exceptions – two of PH-BN and one of PN – provide useful reference points to highlight the potential personal impact of the candidate. UMNO’s Rizam Ismail, on the back of his local popularity, strong grassroots support and resourcefulness, retained the Sungai Air Tawar, the constituency with the highest share of Malay voters (83 per cent), preventing a PN sweep of all seats with more than three-quarter Malay voters.[16] Incumbent Mohd Najwan Halimi of PKR also quite comfortably defended his Kota Anggerik seat. In Gombak Setia, Hilman Idham (Bersatu) scraped through by a razor thin margin of 58 votes to claim the scalp of UMNO’s Megat Zulkarnain Omardin, who is also BN’s Selangor chief. Multiple factors surely contributed to the outcome, but it is plausible that Hilman’s incumbency made the marginal difference. Non-incumbent candidates can also run winning campaigns, such as Amanah’s Danial Al Rashid who had maintained a track record of local public service in Batu Tiga, and Bersatu’s Azmin Ali, whose personal connections in Gombak contributed to his victory in Hulu Kelang, despite PH-BN devoting immense attention to that contest.
IMPLICATIONS AND CONCLUDING NOTE
On 21 August, Amirudin Shari was appointed by the Selangor Sultan as Chief Minister, together with a ten-member state executive council (EXCO) – nine from PH, one from UMNO. The seven new faces in the EXCO represent a renewed coalition, but the administration has its work cut out. In the legislature, Selangor’s more competitive politics will likely translate into more adversarial government-opposition relations. PN signalled such intent on 19 September, with the appointment of Azmin Ali as opposition leader and the formation of a 10-member shadow “portfolio committee”.[17] PN’s all-Malay composition and ideological disposition may sharpen ethnic contestations, but the opposition’s need to tap into a broader demographic base will assuredly induce it to apply pressure on “rice bowl” and governance matters.
PRN2023 has shown that PH’s administration and political brand remain credible, and PH-BN collaboration can deliver positive results, although UMNO’s chronic weaknesses and glaring unpopularity pose questions on the coalition’s durability and its professed goal of strengthening UMNO as the contender against PN. Indeed, PN’s advance into PH’s turf gives the opposition more footholds. In the near term, Selangor’s Unity government will be occupied with delivering on the material promises of economic opportunity and social assistance. Challenges on the further horizon will soon demand decisive and effective action, including re-delineating electoral borders to redress the under-representation of urban seats and rectify the borders gerrymandered in 2018, spurring new investments, and defining multi-ethnic politics and inclusive policies. PH-BN’s capacity to regain Malay votes remains to be seen, but should not be underestimated; likewise, PN’s scope to make inroads into the non-Malay, especially Indian, electorate should not be dismissed.[18]
All physical roads to Putrajaya cut across Selangor. At the next general election, the road to power may well run through this state.
REFERENCES
Khairy Jamaluddin. 2023. Malaysia’s 2023 Elections: A Coming Clash of Coalitions in Selangor. ISEAS Perspective 2023/61. Singapore: ISEAS.
Marzuki Mohamad and Ibrahim Suffian. 2023. Malaysia’s 15th General Election: Ethnicity Remains the Key Factor in Voter Preferences. ISEAS Perspective 2023/20. Singapore: ISEAS.
Marzuki Mohamad and Khairul Syakirin Zulkifli. 2023. Why Perikatan Nasional May Win in Selangor. ISEAS Perspective 2023/50. Singapore: ISEAS.
Ong Kian Ming. 2023a. Malaysia’s 2023 State Elections (Part 1): Projections and Scenarios. ISEAS Perspective 2023/52. Singapore: ISEAS.
Ong Kian Ming. 2023b. Malaysia’s 2023 State Elections (Part 2): Campaign Strategies and Future Implications. ISEAS Perspective 2023/66. Singapore: ISEAS.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/78 “The Digital Transformation of Indonesia’s Banking Sector: Current Trends and Future Prospects” by Manggi Habir and Siwage Dharma Negara
EXECUTIVE SUMMARY
- The pandemic has especially accelerated digital adoption in the financial sector. Competition is intense in the bottom end of the market, with the entry of fintechs and conventional banks going digital by acquiring smaller banks and converting them to digital banks.
- The speed of this change has left digital financial players struggling with data integrity and access issues. This encouraged an initial reliance on servicing the business ecosystem of affiliates in a more controlled market environment in order to buy time for developing and fine-tuning their digital systems.
- By becoming major funders of fintechs, banks deepen their partnerships with those with a similar market focus. Well-funded fintechs also try to secure a more stable and predictable funding base by taking a stake in banks, thus blurring the distinction between the two.
- With rising digital financial transactions, risks associated with digital and online transactions increase, and regulators are tightening set-up and operating requirements as well as customer protection regulations. This is expected to streamline the sector since it provides an advantage to those with deep funding and a stronger market position.
- Even with a weak recovery and even if investors become more selective and stress profitability over growth and market position, the outlook for this sector remains positive. The ultimate beneficiary, though, will be the consumer as they gain more options and more affordable financial service offerings.
* Manggi Habir is Visiting Fellow at ISEAS – Yusof Ishak Institute and Independent Commissioner of PT ADIRA Finance. Siwage Dharma Negara is Senior Fellow at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/78, 2 October 2023
INTRODUCTION
The ongoing digital transformation of Indonesia’s financial sector since the early 2010s has further accelerated during the 2019-2022 pandemic. Social mobility restrictions (PPKM) during the pandemic forced most people to shift their daily activities online, including accessing financial services. Rising e-commerce transactions also led to increased use of e-payments, and fintech lenders were kept busy filling in the micro and small medium enterprises (MSMEs) loan demand gap.
This essay examines the digital transformation of Indonesia’s banking landscape.
INDONESIA’S BANKING LANDSCAPE
Much has been written about the provision of financial services to the vast unbanked segment at the bottom of the income pyramid in Indonesia. About 80% of Indonesia’s 275 million population are unbanked and underbanked.[1] Yet, smartphone penetration in Indonesia is relatively high at 80% of the population.[2] To make financial services affordable to low-income customers or small micro enterprises, transaction costs need to be brought down. This is where issues of data, technology and scale become critical. The battle for providing services to this vast bottom-end of the market is altering Indonesia’s banking landscape.
Indonesia’s Financial Services Authority (OJK) categorises the banking segment into conventional and Syariah banks. This essay excludes the latter, which account for just 7.6% of total banking assets.[3] Within conventional banks, there is a subset of a few more digitally-focused banks (henceforth digital banks). Both conventional and digital banks carry the same banking license. The difference between the two is getting blurred as conventional banks rapidly catch up and adopt a lot of the digital technology and online channels that digital banks have been using for some time. One difference between conventional and digital banks is that digital banks do not have physical branch networks and their services are operated entirely online. Conventional banks, on the other hand, continue to provide services through physical branches, albeit they have also begun launching online services as well.
In recent years, a new type of financial institution called fintech lenders has begun to provide loan services as well. Unlike banks, fintech lenders operate exclusively as an online platform that matches borrowers with funders directly, and collect a brokerage fee. The risk of non-repayment is absorbed by funders directly and not by the fintech lender. In contrast, a bank depositor is taking a bank risk, while the borrower risk is borne by the bank. Reflecting the higher risk, the return on funds for fintech funders is much higher than the return on bank deposits.
The operating costs of fintech lenders, given their use of technology and absence of branches, are much lower than those for commercial banks and this allows them strategically to service the unbanked sector at the bottom of the income pyramid. The beneficiaries are often lower-income individuals as well as small micro-enterprises involved in commercial activities, such as food stall operators and vegetable traders at traditional food markets.
Table 1: Financial Market Segments
Note: Note*: Large banks occasionally give overnight short-term loans to mid-to-small-sized banks (interbank borrowers market)
Source: Authors
Conventional banks have traditionally focused on large corporate and commercial (mid-sized corporate) segments (Table 1). Automation and the lowering of transaction costs have prompted these banks to offer consumer banking services to upper-middle income individuals and the SME sector.
Soon after the fintech lenders grew to provide services to the bottom unbanked sector (micro and SME segment), newer digital banks began to emerge. These digital banks are trying to replicate the success of the fintechs, but with a more stable funding base, as they could take on deposits. Like the fintechs, digital banks operate without a physical branch network and need fewer employees by using information technology and centralised operations.[4]
Table 1 shows an overlap of the conventional, digital and fintech markets. Conventional and digital banks compete at the mid-to-lower end of the commercial (mid-sized corporation) segment. Meanwhile, at the lower end of the financial market table, all three lending services are starting to compete, with conventional banks. The latter only recently entering the upper micro business segment. It is the newer digital banks and fintech lenders that are competing head-to-head in this relatively unbanked new segment.
The earliest players in the bottom-end micro-lending field have been conventional banks. Bank Danamon, followed by BTPN and later Mandiri, launched their respective micro-loan programme for this segment in 2004-2015.[5] However, these human-intensive programmes were not delivered digitally and operated through conventional branch networks. They were costly to operate since they relied on frequent customer visits by bank officers to market loans and to collect loan repayment from small traders. However, the high profit margins from these micro-loans were sufficient to ensure profits.
However, this trend ended when the government introduced the People’s Productive Loan (KUR) programme in November 2007,[6] which currently carries a subsidised interest rate of six to seven percent. Eventually, the commercial banks’ micro loan programmes became unsustainable and were discontinued. One exception is BTPN Syariah, a subsidiary of BTPN, which follows the Grameen Bank model by providing micro-loans to groups of women entrepreneurs in remote villages. The remoteness of this market segment enabled BTPN Syariah to continue making high-margin micro-loans operated manually through their branch networks.
THE RISE OF FINTECH LENDERS
As the conventional banks exited the micro-loan segment, the fintech companies began entering the bottom-end micro-lending segment around 2010. Unlike conventional banks, fintech lenders have no branches, use technology in their operations and channel their services entirely online. This allows them to provide financial services to the unbanked bottom segment of the income pyramid and scale up at low costs.
In 2011, only a handful of OJK-registered fintech lenders existed. However, by 2022 there were over a hundred of them registered, with an even larger number of unregistered or illegal fintechs providing online lending services. In the SME space, fintech lenders compete with commercial banks, but in the unbanked lower Micro segment they face relatively less competition (Table 1).
One key feature of Fintech loans is the relatively short loan tenure, averaging around 90 days. These loans are also limited by OJK to a maximum of Rp 2 billion (US$ 132,000) per borrower. As these do not require collateral, their interest rates are kept higher than those offered by banks.
In the early phase of its development, fintech lenders were primarily funded by individuals and non-bank institutions. However, during the pandemic, banks stepped in to become major funders of fintech lenders; this was to compensate for their inability to grow their loan portfolios. Today, while both banks and fintech lenders provide financing to SMEs, due to their higher operating costs, the former have largely avoided financing micro enterprises, a market in which lower cost digital banks and fintech lenders are active.
In the post-pandemic period, rising interest rates and the sluggish recovery have made it challenging for the fintech sector. For one thing, their high loan growth during the pandemic coupled with the rising interest rate environment are causing borrowers loan repayment problems. This has caused fintech lenders’ non-performing loans (NPLs) to rise (Figure 1).[7] In contrast, banks have managed to bring down their high NPLs, restructure their loan levels, and grow their loans portfolio again. They are also starting to compete with fintech lenders in the SME and upper micro enterprise market segment.
Figure 1: Non-Performing Loan Rate (%) for Commercial Banks and Fintechs
Source: Financial Services Authority (OJK)
Finally, fintech investors and venture capitalists have become increasingly more selective; they stress on and require positive cashflow or profitability from their fintech investees. Earlier, when interest rates were low, investor emphasis was more on scaling up and gaining market share.[8]
THE ENTRY OF TECHNOLOGY-DRIVEN DIGITAL BANKS
Aside from the advent of fintech lenders, the financial sector has also witnessed the entry of two types of digital banks.
One is the digital banks owned by conventional banks. These banks were created by conventional banks acquiring smaller banks and converting them into digital banks. Examples include Bank Raya (owned by BRI), hibank (formerly Bank Mayora, acquired by BNI), and BCA Digital (owned by BCA).
A second type of digital bank is a stand-alone digital bank owned by fintechs and/or tech companies. These include Bank Jago (where GoTo has a significant minority stake), Superbank (with Emtek, Grab and Singtel as shareholders), and Allobank (with the Chairul Tanjung group, Grab, Carro, IndoLife and Traveloka as shareholders). Investree, a well-funded fintech, has also taken a minority stake in Bank Amar. Another fintech, Akseleran, is planning to take a stake in a multi-finance company to broaden its customer base, diversify its services offered, and further strengthen its funding base.
For digital banks, the linking and servicing of their affiliated business ecosystems for MSMEs remain important strategies during the early growth phase.
With fintech lenders entering the lower-tier of the income pyramid, a few banks, including fintechs and tech companies, have taken stakes in existing small to medium-sized banks and converted them into digital banks (see Table 2). These banks have followed the fintech lenders’ model, but they have access to a more predictable and stable funding source and are able to mobilise deposits.
Table 2: Selected Major Digital Banks in Indonesia
Source: Authors compilation[9]
Post-pandemic, the initial excitement and expectation over fintech lenders and digital banks have tempered. With consumers reverting to their pre-pandemic offline behaviour, e-commerce growth has slowed down and, along with it, e-payment and fintech lending activity. The rise of interest rates globally has also raised the cost of business in this segment. The market valuation of listed tech-based companies worldwide has taken a hit, including in Indonesia (Figure 2).
Figure 2: Tech Companies Valuation Declines Post-Pandemic (IDX)
Source: Indonesia Stock Exchange
THE CHALLENGE OF BUSINESS ECOSYSTEM LINKAGES
A major challenge facing digital banks and fintech lenders is the strengthening of linkages in their digital business ecosystems. Key elements in these ecosystems include: (i) sharing and accessing data, (ii) verifying and making such data consistent and usable, and (iii) feeding data to algorithms for critical business decisions.
Data is arguably the sector’s most valuable raw material. The ability to acquire, store and manage appropriate data is as important as having sophisticated algorithms that are used to choose, filter and onboard both lending and funding customers. These algorithms are used to assess the loan repayment risk of each borrower and, for those passing the filtering phase, to help set the terms and conditions of their loan, which includes calibrating loan rates according to each borrower’s risk score, all in an automated way without human intervention.
Newly established digital banks in Indonesia such as Superbank plan to provide loans to the vast number of MSMEs suppliers and distributors within its stakeholders’ (Emtek, Grab and Singtel) respective ecosystems. By focusing on affiliated ecosystems, the bank is able to better control risks and more efficiently onboard and service its customers.[10]
An effective end-to-end seamless system involving digitally onboarding customers, processing transactions in an automated way and ultimately providing financial services online, will take time and resources to build and fine-tune. Inappropriate data processing could lead to unusable “garbage in garbage out” results. There is also the problem of connecting and having different systems among the group-related companies to talk with each other, and to ensure that their respective management cooperate in addressing these teething issues.
Algorithms inevitably contain biases that lead to skewed decisions. These systems take time to test, fine-tune and remedy, before they can be used in an open environment. This explains the tendency of digital banks and fintech lenders to initially operate in a more controlled network of affiliated group-related companies. This way, accessing and sharing data as well as testing algorithms becomes more manageable.
However, financial institutions relying on group-related ecosystems with a limited and narrow sectoral focus could face concentration risk issues whenever their markets suffer a downturn. Those that can link with a more diversified group of companies closely resembling an open market would have a better advantage.
THE BANK-OWNED DIGITAL BANKS
In the meantime, the large conventional banks have not been idly standing still. Some have acquired smaller banks and converted them to digital banks to complement their regular ongoing services (Table 2). Others are nurturing strategic alliances with fintechs and becoming their major funders. They may even take an ownership stake in their fintech partner if the relationship works.
Large incumbent banks are also digitising their distribution channels to similarly acquire, select and onboard customers online. Fintech lenders and digital banks have a bit of a head-start in this area, but banks, given their resources, should be able to catch up easily. Those that can acquire, select and manage their database as well as timely fine-tune their algorithms can create a reliable digital banking system. One approach is to grow organically in its current form. Alternatively, it can inorganically be acquired by large incumbent banks that do not want to start from scratch.
Recent strategic alliances and acquisitions, as well as conventional banks’ digitalisation are starting to blur the boundaries between these segments.
NEWLY EMERGING DIGITAL-RELATED RISKS
The banking industry faces several familiar digital-technology-related risks that have become more prevalent in recent years.
First, the growing use of digital platforms exposes banking and financial institutions to cyber threats such as hacking and data breaches.[11] A cyber ransomware attack recently caused disruption of Bank Syariah Indonesia (BSI) services. The incident highlights the weakness of the bank’s digital security systems.[12] As cyber-attacks become increasingly complex and sophisticated, there is an increased risk of customer data breaches, financial theft, and service disruption.
Second, improvements in digital technologies also increase incidents of identity theft, phishing scams and online frauds.[13] The fraudsters could exploit vulnerabilities in online banking systems, use malware to capture confidential information, or impersonate legitimate institutions to deceive customers.
Third, banks and financial institutions deal with vast amounts of personal and financial data. While data privacy regulations impose strict requirements on how customer data are collected, stored, and processed, in practice, there is weak enforcement.[14]
Fourth, the banking industry relies on a complex technology infrastructure, including core banking systems, payment gateways and online banking platforms.[15] The industry is struggling to keep up with the latest technology. Outdated or poorly maintained systems may increase the risk of system failures, software glitches or infrastructure vulnerabilities, which can lead to service disruptions, transaction errors and financial losses.
THE REGULATORY FRAMEWORK
Rapid digital technological advancements often outpace the development of regulatory frameworks. Financial institutions face challenges in keeping up with advancements related to digital technologies, such as cryptocurrency, blockchain and digital wallets. However, regulatory bodies lag behind in understanding the emerging new risks and coming up with effective and enforceable rules. The difficulty for regulatory bodies is finding a delicate balance between a regulatory framework that is tight enough to protect consumers but at the same time, loose enough to allow innovation to flourish.
The Indonesian government has been quite supportive in providing a relatively loose regulatory environment during the initial phase of the fintech sector development. However, with the rise of digital risks, it has begun to tighten up the regulatory framework. Regulations such as the E-Money and Digital Financial Innovation roadmap as well as subsequent regulations[16] are designed to facilitate innovation while ensuring consumer protection and financial stability. The government is also encouraging closer collaboration between traditional financial institutions and fintech players.
Collaboration and partnerships between traditional banks, fintech companies and other stakeholders will be critical to capitalise on the opportunities presented by digital technology. Traditional banks can leverage the innovation and agility of fintech startups, while fintech companies can benefit from the funding resources and broader customer base of established financial institutions.[17]
THE NEAR-TERM OUTLOOK AND FUTURE TRENDS
The near-term outlook for Indonesia’s banking sector remains generally favourable. The country has seen significant advancements in digital technology adoption in recent years, and this trend should continue.
Digital technology has played a crucial role in promoting financial inclusion in Indonesia. It has enabled banks and financial institutions to reach previously underserved segments of the population,[18] particularly in remote areas. Digital platforms, mobile banking and e-wallets have made financial services more accessible and convenient, allowing a larger portion of the population to participate in the formal financial system.[19] The challenge from now on is to educate and incentivise the unbanked market segment to become more financially and technology literate as well as to utilise various digital services more safely and effectively.
Indonesia has a thriving fintech ecosystem, with numerous startups and technology companies entering the financial services space and providing innovative digital financial products and services, such as peer-to-peer lending, digital payments, crowdfunding, and robo-advisory services.
Unfortunately, as digital technology becomes more prevalent, cybersecurity and risk management become critical concerns for the financial sector. Indonesian banks and financial institutions will continue to spend and invest more in cybersecurity measures, risk assessment frameworks, and incident response capabilities.
Digital technology is transforming the Indonesian banking and financial sector landscape. The distinction among banks, finance companies and fintechs is blurred by the fact that these different market segments now cooperate with each other. In some cases, where there is a strategic fit, different entities merge into a larger financial services group.
Given Indonesia’s large unbanked population, rising internet penetration and increasing smartphone usage, the financial industry still has considerable room to grow. Intense competition among the three categories of financial services and the offering of new digital services, especially at the lower-end of the market, should ultimately benefit end consumers.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/77 “New Thai PM Faces a Crisis of Confidence” by Termsak Chalermpalanupap
EXECUTIVE SUMMARY
- As a political novice, Thailand’s new Prime Minister, Srettha Thavisin is facing an uphill struggle to prove that he is the right man for the job.
- He has no formal leadership post inside Pheu Thai, the major party in the 11-party coalition government. He also did not take part in the selection of Pheu Thai’s election candidates. Neither did he have much say on who would join his cabinet line-up.
- He is in great need of support from his coalition partners. Without that, he will not be able to deliver concrete results. Worse still, he can be unseated in a no-confidence motion in the House of Representatives.
- The volatile political heavyweights from the other parties in his coalition government do not owe him anything – neither allegiance nor gratitude. They would resent his supervision if it limits their manoeuvrability to advance their own political interests.
- The most formidable challenge Srettha is facing is a crisis of confidence: More and more unhappy Thais feel that he lacks what it takes to deliver good concrete results.
*Termsak Chalermpalanupap is a Visiting Fellow and is Acting Coordinator for the Thailand Studies Programme, ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/77, 27 September 2023
INTRODUCTION
Many challenges await the new Thai Prime Minister Srettha Thavisin. First of all, as a political novice without any power base in Pheu Thai (PT), the largest party in the 11-party government coalition, he faces a crisis of confidence. More and more Thais doubt that he can stop corruption and improve lives and livelihoods – let alone lead Thailand back to genuine democracy.[1]
During the election campaign, as a premiership candidate of the PT, Srettha was less popular than Paetongtarn Shinawatra, another of the party’s premiership candidate, who is also the youngest daughter of former PM Thaksin Shinawatra, and Pita Limjaroenrat, leader of Move Forward Party (MFP).
The 60-year-old real estate tycoon used to head Sansiri, the largest real estate public company on the Stock Exchange of Thailand, with an estimated market capitalisation of about 30.147 billion baht (US$ 840 million). He has been accused of engaging in “unethical” business practices (including tax evasion and price manipulation through mysterious nominees) in some of Sansiri’s land purchases.[2]
Both Sansiri and Srettha have denied any wrongdoing. Srettha, who resigned from the CEO post at Sansiri on 3 April, has sued Chuwit Kamolvisit, a former Bangkok MP, for slander and demanded 500 million baht as compensation.[3] Chuwit has responded with a threat to petition the National Anti-Corruption Commission to investigate Srettha.
The PT was in disarray after it failed to score a “landslide” victory in the May general election. At first, it had to play second fiddle to the MFP, the election winner, in haphazardly attempting to win the premiership for MFP’s Pita. After Pita’s failure due to lack of support from senators, the PT seized the opportunity to “divorce” the MFP and decided instead to work with parties in the previous Prayut Administration, which many PT supporters disdain as vestiges of authoritarianism.
Srettha’s premiership will practically be held hostage by its four major coalition partners, all of which are former opponents of the PT: Bhumjaithai (BJT, 71 MPs), Palang Pracharath (PPRP, 40 MPs) and United Thai Nation (UTN, 36 MPs), and Chartthai Pattana (10 MPs). The PT alone has only 141 MPs in the 11-party coalition of 314 MPs.[4]
Without the support of these four parties, which were part of the Prayut Administration, the current PT-led coalition would lose control of the majority in the 500-member House of Representatives; Srettha would then risk being toppled in a no-confidence motion.
In addition to the above predicament, Srettha also has to deal with another “political hot potato” – Thaksin, who has been undergoing some unspecified emergency treatment in the Police Hospital after surrendering himself on 22 August to face an 8-year jail term upon his return from 17 years of overseas exile. About one week after his return, Thaksin quietly submitted a personal request for royal clemency. On 1 September, the Royal Gazette published a decision of the King to reduce the jail term of Thaksin from eight years to one.
How will Thaksin serve this remaining one-year jail term, and under what extraordinary arrangements during the Srettha Administration will be a closely watched issue. The Corrections Department on 21 September approved Thaksin’s request to extend his stay in hospital by 30 more days.
It will be a remarkable achievement if the Srettha premiership lasts till its mid-term in May 2025, when his administration is expected to deliver a new and democratic “people’s constitution”.[5]
POLITICAL NOVICE’S DISADVANTAGES
So far, it remains a mystery who invited Srettha to join the PT prior to the May general election. One speculation has it that it was Yingluck, former prime minister and younger sister of Thaksin, who recommended him. Srettha was a known critic of the Prayut Administration.
At first, Srettha was given merely an informal role as chief advisor to the head of the “Pheu Thai Family,” Paetongtarn. He subsequently emerged as one of the PT’s three premiership candidates. The two other candidates are Paetongtarn, and Chaikasem Nitisiri, a former justice minister in the Yingluck Administration.
Srettha’s most memorable feat during the election campaign was to unveil on 5 April the PT’s ambitious pledge to give every Thai who is 16 years old and above a “digital wallet” containing (the right to use) 10,000 baht for spending within their neighbourhoods.[6]
Not having any formal post in the PT leadership, Srettha played no role in the selection of election candidates. Neither did he have much say on who would join his cabinet. The cabinet list was submitted to the King on 1 September, ten days after Srettha had won the premiership on 22 August. The Royal Gazette published the King’s approval on 2 September.[7]
Key ministerial posts went to senior politicians who are influential leaders of factions within the PT, and to Thaksin’s lieutenants. One of them, Dr Prommin Lertsuridej, will be the chief-of-staff to Prime Minister Srettha. In all probability, few of them will be willing to obey Srettha, to whom they owe neither gratitude nor allegiance.
Interestingly, Srettha is concurrently the finance minister.[8] This will enable him to push the implementation of the “digital wallet” plan. More importantly, he can control the purse strings and keep an eye on spending and decide on new budget requests from all ministers. He will be assisted by a deputy finance minister from the UTN, Krisada Chinavicharana, who on 31 August resigned as permanent secretary of the Ministry of Finance.
Not being an MP has both advantages and disadvantages. Srettha will have more time to travel overseas, which he wants to do every month in order to negotiate free trade agreements with Thailand’s key trading partners.[9] Srettha reportedly secured a deputy foreign minister of his choice, Jakkapong Sangmanee, the PT’s registrar, to assist him in this endeavour.
However, one huge disadvantage in not being a legislator is a tendency to lose touch with MPs and senators, whose support he needs in order to push through in a timely manner key legislations – especially constitutional amendments.
PERILS OF COALITION GOVERNMENT
Perils of the Srettha coalition government could already be seen in the tedious “horse-trading” for cabinet posts. The commotion began as soon as the PT announced its decision in early August to part ways with the MFP. Pol Gen Sereepisuth Temeeyaves, leader of Thai Liberal, one of the coalition partners with only one MP, compared the infighting to “dogs fighting over a rice bowl”.[10]
Many MPs in the PT were surprised and upset to see the interior minister post go to BJT leader Anutin Charnvirakul,[11] and the agriculture minister post to PPRP secretary-general Thammanat Prompao. The former post controls all provincial governors and local government administrations; the latter is in a position to help farmers nationwide. Both are crucial in winning the hearts and minds of the provincial poor.
The PT also sacrificed the energy minister post and let it go to UTN leader Pirapan Salirathavibhaga in exchange for the defence minister post which the UTN had earlier wanted. The energy minister will have a crucial role to play in bringing down prices of electricity, diesel, gasoline, and cooking gas to curb the rising cost of living. This is crucial in winning urban votes.
The defence minister post went to Sutin Klungsang, one of the PT’s deputy party leaders. He has recruited General Nipat Thonglek, a former permanent secretary of defence with a reputation for being a “Democracy General”, to be his chief assistant. Sutin has become the first civilian in modern times to head the Ministry of Defence without concurrently holding the premiership.[12] But Sutin’s appointment came too late to change the annual military reshuffle.
Under the careful watch of outgoing PM General Prayut Chan-o-cha, who was concurrently the defence minister, appointments of the new Supreme Commander of the Armed Forces, Army Commander, Air Force Commander, and Navy Commander were swiftly done. Announced on 30 August, the appointments take effect on 1 October 2023, at the start of the new fiscal year.[13]
The PT had to yield – some PT negotiators said they had to “swallow blood!” – in order to secure support from these former “enemy parties” to help Srettha win the premiership. And they are cognizant of the fact that crucial support for Srettha will continue to come only at a price. The PT as well as Srettha must allow ministers from coalition partners some leeway to advance their respective parties’ agendas without unnecessary intervention from the head of government.
One serious risk that Srettha cannot avoid is to be held responsible for whatever corruption and other wrongdoings in the government under his watch. He can learn from the example of former Prime Minister Yingluck Shinawatra, who had to flee the country to avoid a 5-year jail term for failing to stop massive corruption in the infamous paddy pledging scheme of her administration.[14]
Srettha’s dilemma lies in his need for support from these coalition partners to stay in power long enough to deliver concrete results. At the same time, his dependency on them can be mistaken by ministers as a licence to abuse power with impunity. In such a situation, corruption in the Srettha Administration may thrive and spread faster than the Thai economy can recover.
HOW TO PLACATE UNHAPPY THAIS?
When asked what kind of prime minister he wants to be, Srettha has responded: “People’s prime minister”; he has pleaded repeatedly through the mass media to give his “people’s government” a chance to prove its worthiness.
Following his formal acceptance of the royal command to serve as prime minister on 23 August, Srettha announced his conviction that the next four yours of his premiership would be “four years of changes”. He also reaffirmed the pledge of the PT-led coalition government to work “tirelessly” to make Thailand a land of hope for the younger generation and a land of happiness for all, and to “once again win honour and dignity for Thailand in the international arena”.[15]
Therefore, in his first cabinet meeting on 13 September, Srettha secured quick decisions on lowering prices of electricity and diesel; suspending repayment of debts of farmers and SMEs for three years; and introducing new visa-free entry for more foreign tourists.[16] Also high on his to-do-list are cutting prices of gasoline and cooking gas, and providing new financial support for distressed SMEs.
Another high priority for Srettha is to put in place by 1 February the digital wallet to stimulate nationwide spending during the Songkran water festival in mid-April. It is still unclear how he is to raise the 560 billion baht needed to give 56 million adults 10,000 baht each. This huge special stimulus injection was not included in the new fiscal budget of 2024, which starts on 1 October 2023.
The Srettha Administration will also push for legal recognition of same-sex marriages, development of a new volunteer military, and drafting a new constitution.
However, what the actual policy of the Srettha Administration towards marijuana and hemp will be, remains unclear. The PT promised during the election campaign to return marijuana and hemp back to the list of banned narcotics. But the BJT, now the second largest party in the coalition government, vowed to defend “free” cultivation and the sale and use of marijuana and hemp for medicinal purposes.
Ex-PT leader Dr Cholnan Sri-kaew, in his capacity as the new public health minister, will now have the unenviable task of finding a new compromise. Dr Cholnan on 31 August stepped down as PT leader to take responsibility for his failed pledge not to let the PT embrace the two parties of the two ageing generals—the PPRP of General Prawit Wongsuwan,[17] and the UTN of General Prayut.[18]
One sensitive omission that all in the PT-led coalition government can readily agree upon is to leave untouched the controversial Section 112 of the Criminal Code, the so-called lese-majeste law. This was in fact one of the crucial preconditions of many senators who voted for Srettha on 22 August.
Another play-safe move for Srettha is to avoid offending the Thai military and their conservative allies in the Senate by not advocating “reforms” of the armed forces. Instead, Srettha’s softer approach is to go for “joint development”[19] in full consultation with all relevant stakeholders in the military and in the general public.
Yet, another sensitive and pressing issue confronting Srettha is how to deal with Thaksin, who now has a one-year jail term to serve following the King’s commutation of his sentences from altogether eight years down to one. Any new preferential treatment for Thaksin will only confirm the widespread public suspicion that Thaksin is wielding actual power behind the PT and is secretly manipulating the Srettha premiership.
NEW CONSTITUTION NOT THE PANACEA
One of the old and continuing challenges confronting Srettha is the polarisation between conservatives who want to preserve the status quo, and the young who want more rapid changes. A large majority of the latter voted for the MFP because of its clear agenda for change – including reform of the military and the monarchy.
Nevertheless, most political parties inside the coalition government as well as the MFP (149 MPs) and the Democrat Party (25 MPs) tend to see eye to eye on the need to give Thailand a new and genuinely democratic constitution. A civil society movement on 30 August submitted to the Election Commission a list of 212,139 signatures calling for a new constitution.[20] Such a petition normally needs only 50,000 signatures.
However, every proposal to amend the 2017 Constitution requires support of at least one-third of senators (83 senators). At the premiership voting on 22 August, 152 of 249 senators voted for Srettha.
It is unclear how many senators will support the drafting of a new constitution. Several senators have voiced their opposition to such a move, which they consider to be of low national priority.
The current batch of senators will leave in May 2024, at the end of their five-year transitional period during which they had had the authority to join MPs in selecting a new prime minister. After their departure, the Senate will be filled by a new batch of 200 senators selected from professional groups through own-peer voting who however will no longer have the authority to join in the premiership selection.
A majority of MPs in the lower House will then be in a position to approve the drafting of a new constitution. One key decision to be made is whether to choose drafters in a national election; or to handpick them through a search committee. PT’s Deputy Prime Minister and Minister of Commerce Phumtham Wechayachai has been appointed to be in charge of setting up a committee to study ways and means of holding a national referendum and drafting a new constitution.
If the drafters come from a national election, what will happen if a majority of them are supporters of the MFP, and what if they produce a far-reaching reform-oriented new constitution? The Srettha Administration will face a deadly dilemma: either block such a progressive new constitution, or fall apart with the resignation of Srettha from the premiership and his calling of an early general election.
Such a dreadful scenario is plausible, considering the fact that the MFP has gained a great deal of public sympathy in the wake of Pita’s failure to win the premiership, and the subsequent rejection of the resubmission of his name for another round of premiership selection. Pita on 16 September resigned as leader of the MFP. Secretary-general Chaitawat Tulathon is expected to succeed Pita.
One recent survey found that the MFP’s popularity rose from 30.20% in the May general election to 49.04% in late August; whereas the PT’s popularity dropped from 28.20% to only10.65%.[21]
In addition, MFP’s candidate Pongsathorn Sornpetnarin easily captured a House seat in the by-election in Rayong’s Constituency 3 on 10 September, with 39,296 votes. In the second place was Democrat Party’s Dr Banyat Jatnachan, who received only 26,466 votes.
It is therefore pragmatic for Srettha to concentrate first on tackling economic woes besetting the Thai people. He needs to deliver quick good results, so that he has more bargaining power in dealing with his coalition partners as well as in keeping the MFP at bay. The latter objective is important if he is to secure continued endorsement of the influential conservative establishment for Srettha’s premiership.
CONCLUSION
The new Thai prime minister is facing an uphill struggle. His lack of a political power base inside the lead government party is a serious handicap.
He can count on support from his coalition partners only as long as they are happy to work with him in this rather shaky coalition government.
A growing number of unhappy Thais are rather sceptical that he has what it takes to succeed.
ENDNOTES
For endnotes, please refer to the original pdf document.
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“Human Capital, Amenities and Trade: The Case of Malaysia” by Cassey Lee
2023/76 “Maintaining ASEAN’s Leverage in a Volatile Trade Policy Landscape” by Kristina Fong Siew Leng
EXECUTIVE SUMMARY
- Geopolitical tensions between the US and China have been rising, with international trade facing more frequent challenges in what has become a tit-for-tat retaliatory landscape. Moreover, economic security initiatives have become more strategic and sophisticated, and more players now find themselves caught in the crosswinds of the strategic battleground.
- The US-China trade spat has seen ASEAN emerging as a viable alternative to China as a manufacturing hub, especially for technology-related goods. ASEAN economies collectively account for around 30% of US Electrical and Electronics (E&E) imports, notably on par with China, in 2022.
- Major economies have stepped up their engagement with ASEAN economies this year through the G2G channel and at a business level through the relocation of operations out of China into Thailand and Vietnam as part of a China+1 diversification strategy. China’s strict zero-COVID policies may have also catalysed the search for viable alternative production bases.
- ASEAN economies should proactively maintain their favourable position amid the global supply chain recalibration. Possible strategies could include: 1) Active engagement with key trade partners, 2) Domestic policies that provide a stable and predictable business environment, 3) Productive capacity upgrading policies, 4) Leveraging on multilateralism and 5) Strengthening the public-private-academic nexus.
* Kristina Fong Siew Leng is Lead Researcher (Economic Affairs) of the ASEAN Studies Centre. The author wishes to thank Jayant Menon, Senior Fellow of the Regional Economic Studies Programme, Sharon Seah, Senior Fellow and Coordinator of the ASEAN Studies Centre and Climate Change in Southeast Asia Programme, and Joanne Lin, Lead Researcher and Co-coordinator of the ASEAN Studies Centre for their valuable comments and suggestions.
ISEAS Perspective 2023/76, 26 September 2023
A MORE SOPHISTICATED GEOPOLITICAL BATTLEFIELD
As geopolitical tensions between the US and China continue to rise, middle powers and small countries alike remain inadvertently caught in the crosswinds and become part of the strategic battleground. Whilst the Trump presidency (2017-21) was dominated by a barrage of retaliatory tariff increases between the two economic majors, the approach to international trade policy has since become more sophisticated, taking on elements of investment policy. One such approach has countries building up capacity onshore and attracting new investments in key strategic areas in the technology supply chain, exemplified by the US CHIPS Act of 2022[1] and the European Chips Act[2] enacted in September 2023. Some non-tariff barrier approaches are more direct and are laced with a security angle, such as China’s export restrictions on key rare metals (gallium and germanium, and related compounds)[3] (effective 1 August 2023), the US’ export caps on Chinese technology giant, Huawei[4] and more recently, the Netherlands’ additional restrictions on the export of ASML Holding’s chipmaking machinery to China.[5] This back and forth is set to continue with new measures and announcements of counter-policy measures making the headlines more frequently as it becomes increasingly a race for technological dominance as much as to address economic security concerns. That said, official dialogue between the US and China on trade and investment matters, including the establishment of a working group, convey some positive signals that having a ceiling to, if not a de-escalation in, trade tensions would be the preference of both sides.[6]
ASEAN RESILIENCY AMID GEOPOLITICAL UNCERTAINTIES
Although small in its constituent parts, the ASEAN region has grown in importance as an integral node in global value chains, as both a manufacturing hub and a significant player in the technology supply chain network. The region has effectively emerged as a viable alternative to well-established supply chains, diverting some of the global manufacturing concentration away from China. To assess the extent of the trade pattern shifts catalysed by the onset of the Trump, tariff-driven trade war, and ASEAN’s standing in the global ecosystem, we take into consideration trade data from the 2016-2022 period, covering the period before the Trump trade war, through the pandemic and into the present day.
Figure 1. Import pattern shifts for the US and China (2016-2022)
Source: UNCTAD and author’s analysis
From the initial analysis of both the US’ and China’s import patterns for this period, we observe a notable shift in imports away from one another and subsequent positive spillovers to the ASEAN region, as shown in Figure 1. For the US, the share of overall imports from China fell to 17% in 2022 from 21% in 2016, while the share of China’s imports from the US fell more marginally to 7% in 2022 from 9% in 2016. ASEAN’s share of imports correspondingly grew to 11% for the US (2016: 7%) and 15% for China (2016: 12%). Notably, there are significant dynamics exhibited by the changing patterns in the Electrical and Electronics components (E&E) imports. For the US, the significant shift away from China as a key backward linkage in this sector has resulted in import shares falling to 30% in 2022 (2016: 42%), while the shift to ASEAN in tandem has resulted in import shares totaling 29% in 2022 (2016: 20%). For context, ASEAN-sourced imports for E&E products make up almost a third of US imports of these components compared to a fifth before the Trump trade tensions started. This puts ASEAN on par with China in terms of import shares for the US in this respect. That said, some of this change could have also resulted from Chinese MNCs adding capacity to ASEAN locations for their own de-risking strategies on account of rising tariff rates imposed by the US.
Comparatively, China’s import share trends over this period are more stable, with shifts in imports from ASEAN for the main categories observed more muted in comparison. Import shares for overall products stood at 15% (2016: 12.4%) and 19% for E&E components as at 2022 (2016: 18%), reinforcing the central importance of ASEAN in the trade landscape. Amid the ongoing US-China trade rivalry, ASEAN’s relationship with China has remained intact, while its relationship with the US has strengthened. However, it should be noted that despite the growing ties with the US, ASEAN’s overall trade with China stood at USD 730.1 billion in 2022, 1.7 times that with the US which had a corresponding value of USD 422.5 billion. Moreover, China constitutes 19.1% of ASEAN’s total trade, whilst the US makes up only 11.0%.
A BROAD ROLE FOR ASEAN IN INTERNATIONAL TRADE
ASEAN’s changing trade patterns with major economies reflects its growing importance, as seen in Table 1. Although European economies did not see substantial changes to imports from ASEAN over the period, Japan experienced an increase in ASEAN import share, especially for that of E&E products to 16.9% in 2022 from 13.7% in 2016. This too can be a shift away from reliance on China; Japan’s import shares from there fell from a significant 52.3% in 2016 to 42.2% in 2022 in E&E components. Not only has ASEAN grown in importance as an upstream producer for major economies, it has also markedly grown as an export destination for economies such as China and Japan (Table 1). All in all, the ASEAN region is greatly intertwined in the global supply chain, with its importance growing as both a viable backward and forward linkage. That said, it illustrates the importance and provides growing impetus for all stakeholders in the global value chain to prioritise the relationships between developed economies and China with ASEAN, and vice versa.
Table 1. Major economies and their trade dynamics with ASEAN
Source: UNCTAD and author’s analysis
ASEAN’S COMPETITIVENESS IN KEY AREAS OF MERCHANDISE TRADE
As Table 2 on Revealed Comparative Advantage (RCAs)[7] shows, ASEAN is an evident choice for supply chain recalibration to ‘de-risk and diversify’. Illustrated by the RCA values of more than 1, Malaysia, the Philippines, Singapore, and Thailand have maintained their productive competitiveness in semiconductors and related electronics over this period, while Vietnam has established its standing in this regard driven by the additional capacity built up in this sector since the onset of the trade spat. Given the high level of sophistication and specialisation along the technology value chain, most of the trade diversification trends at the start of the US-China trade tensions could have initially been centred around labour-intensive and lower-tech activities.[8] However, the tide could be shifting as even very niche producers such as TSMC, a global leader in semiconductor foundries, is seeing the need to diversify from its home base of Taiwan. This may provide more high-tech opportunities for those ASEAN countries that have capabilities to move up the value chain, such as Singapore.[9] Apart from these products, resource-endowed ASEAN countries such as Indonesia and Malaysia also find themselves competitive in the supply of integral energy-related exports such as natural gas.
Table 2. Revealed Comparative Advantage (RCAs) of ASEAN countries in selected products
Source: UNCTAD (SITC Product code classifications); Note: SITC Product code of 776: Cathode valves and tubes include that of semiconductors and integrated circuits.
THE ASEAN REGION IN FOCUS FOR MAJOR TRADE PARTNERS
The region holds strategic importance with respect to backward and forward linkages and has become increasingly significant in the technology value chain, especially as a China+1 diversification strategy. As a positive spillover, the added focus on the ASEAN region as a major global trade player has spurred greater industrial capacity building in select sectors; this has led to sectoral specialisation and enhanced economic development through human capital and technological upgrading. Thus, from the perspective of ASEAN and its trade partners, it is of mutual benefit to continue active engagement and remain open to trade growth. This stance has already taken root as perceptions of ASEAN as a leader in championing global free trade amongst respondents surveyed in the ISEAS State of Southeast Asia 2023 has risen from 15.5% in 2022 to 23.5% in 2023.
To ensure economic security, major powers that are wary of China have stepped up their engagement with ASEAN, for example through a slew of face-to-face high-profile roadshows this year. One notable example is US Secretary of the Treasury Janet Yellen’s trip to Vietnam in July, after earlier trips to China and India. Objectives of the trip included enhancing cooperation between the countries in manufacturing, and promoting the G7’s Just Energy Transition Partnership (JETP) funding for renewable energy adoption, of which USD 15.5 billion were allocated to Vietnam. In the same trip, Treasury Secretary Yellen also promoted the USD 500 million available funding for international semiconductor factories under the CHIPS Act, to build up capabilities along the global technology supply chain. All these activities laid the groundwork for the official upgrade of US-Vietnam relations to a Comprehensive Strategic Partnership in September,[10] along with a spate of business deals and partnerships quickly revealed thereafter involving the participation of technology heavyweights such as Nvidia and Microsoft.[11]
MULTINATIONALS HAVE ALSO TAKEN INTEREST IN ASEAN
There have also been moves by multinational businesses, especially those in the E&E sector, to do more in ASEAN countries as part of their own strategies for self-preservation. Several major computer hardware manufacturers have announced concrete plans to diversify away from their reliance on China. In January, Dell announced its intention to completely shift away from “Made in China” chips by the end of 2024 and target at least 20% of its laptop production in Vietnam this year.[12] Subsequently, HP announced in July that they are working with suppliers to shift more production of consumer and commercial laptops to Thailand and Mexico this year, with preliminary intentions to move some of this capacity to Vietnam next year as well.[13] Apple has also diversified some of its MacBook production to Vietnam this year, marking the first time its laptops have been produced outside China.[14] Malaysia has also gained some sizeable wins with Infineon Technologies announcing that it will build the world’s largest 200-millimeter Silicon Carbide (SiC) power fab there,[15] as well as Tesla making known its intentions to set up a headquarters there later this year.
ASEAN HAS WELL-ESTABLISHED TRADE AND INVESTMENT AGREEMENTS
One of ASEAN’s strengths is that it already has some robust formal relationships with major economies individually and at bloc level. These established platforms for active engagement in trade and investment activities are beneficial to facilitate greater collaboration, and perhaps, more importantly, brings ASEAN to the fore with respect to the latest global developments. Some notable Free Trade Agreements include the Regional Comprehensive Economic Partnership (an ASEAN+6 trade deal, that includes China), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (which includes four ASEAN countries – Brunei, Malaysia, Singapore and Thailand + 8 including Australia and Japan), ASEAN+1 FTAs with China, South Korea and India. Of note, the ASEAN-China FTA is currently undergoing an upgrade and the ASEAN-India Trade in Goods Agreement (AITIGA) is being reviewed. Other major bilateral FTAs include Singapore’s bilateral FTAs with the European Union (EU), United Kingdom (UK), and the United States, Vietnam’s bilateral FTAs with the EU and UK, and Thailand’s bilateral FTAs with China, Australia and Japan, with some notable ongoing negotiations between the EU and US and a number of ASEAN economies. Most recently, the EU announced the start of a scoping exercise to relaunch negotiations for the EU-Philippines FTA when the European Commission’s President Ursula von der Leyen visited the country in late July.[16]
STRENGTHENING ECONOMIC LEVERAGE WHILE REMAINING NEUTRAL
In tandem with the more focused interest that major economies’ have taken in ASEAN economies, ASEAN economies should take proactive steps to maintain their favourable position amid the global supply chain recalibration. Some possible policy strategies are:
- Pursuing active engagement with key trade partners – In line with how major economies and companies have been stepping up efforts to engage with ASEAN, it is important for ASEAN economies to show the same level of commitment and, likewise, pursue opportunities and build up relationships with key trade and investment partners. Although, ASEAN is undoubtedly in a favourable position in terms of manufacturing capabilities and competitive aspects such as production costs, ASEAN economies are not the only ones on the radar of major economies. India has frequently emerged as a key market for E&E components relocation. Complementing high-level G2G engagements this year, companies such as Tesla and Apple are seeking to build up a viable technology hub in India. Thus, there is a risk that potential complacency may lead to a loss in some of the strategic leverage ASEAN currently holds. Active engagement will also help ASEAN economies de-risk their own supply chains as well.
- Promoting domestic policies that provide a stable and predictable business environment Amid global risks and uncertainties, companies prefer operating in a business environment characterised by economic policy certainty and political stability. Thus, placing emphasis on this objective will help regional economies rank higher in terms of a relocation preference. In the latest IMD World Competitiveness Ranking 2023, five ASEAN economies feature in its assessment of 64 economies. Singapore ranks highest in terms of government and business efficiency, while the Philippines ranks the lowest. To note, Malaysia’s rankings in both these measures appear to be lower than what would be expected of an upper-middle income economy.
Table 3. IMD World Competitiveness Rankings 2023
Source: IMD World Competitiveness Center
- Prioritising productive capacity upgrading policies – Being at the forefront of technological development lends itself well to how the prospects of an economy are perceived. Targeting capital investments in new technologies and having a workforce sufficiently skilled to reap the benefits of these technologies, should be high on the priority list of ASEAN governments. Regional economies must tread carefully so as not to unleash beggar-thy-neighbour policy implications akin to the impacts some developed economies are now facing by virtue of the competitive subsidy regimes they have adopted.[17] Relocation attraction should not be based on costs alone and hence, having a robust foundation of capital and skills can help limit adverse spillover effects, as there is more to the value proposition than attractive subsidies.
- Leveraging on multilateralism – Strengthening respective domestic productive capacities and building up industrial specialisation may be worthwhile objectives for economies to pursue independently, but there are certain benefits to acting together as a bloc, especially in terms of collective interests and for smaller ASEAN member states to benefit in terms of visibility and credibility. Moreover, collaborating as a bloc on aspects such as digital upgrading and harmonisation of standards would also strengthen the region as an attractive business ecosystem. In terms of active participation in high-profile and multilateral FTAs, it would serve to maintain the region’s relevance in the global supply chain and avoid the risk of ‘being left out’ of key global economic developments. Moreover, deep FTAs, such as the ones initiated by the EU and the US, can also set the stage for economic reforms in investment protection and labour rights, which could also make these economies more attractive from an investor perspective, if implemented in a non-distortive way for the host country. In preparation for accession to high-profile FTAs such as RCEP and CPTPP, ASEAN countries involved are required to amend relevant domestic laws in order to comply with the terms of the deal. These FTAs also provide an opportunity for CLMV countries to transition to open regionalism through the multilateralisation of preferential terms of the trade accords they are party to.[18] As a start, the RCEP requires these countries to extend preferential tariffs to all RCEP members, above and beyond ASEAN. In this context, the Margin of Preference (MOP)[19] would ideally be reduced to zero and hence, again, help to increase the attractiveness of ASEAN as a trading bloc ecosystem. As of 2018, the import-weighted MOP for Cambodia, Laos and Vietnam stood at 10%[20] which is more than double that for other ASEAN economies.
- Strengthening the public-private-academic nexus – In any major industrial development, it is vital that a clear and constant line of communication between the business sector and the government exists. The benefits of this are particularly important for new areas of business and innovation. Businesses would gain a better pulse on new technological developments in their industry and perhaps even be market leaders in the area. This would be useful for policy prescriptions, especially to capacity build for the future. Moreover, businesses would also be able to provide relevant and valuable feedback on the right kind of policy mix for their industry to sustainably grow. The further integration of academic output and knowledge-sharing to this nexus, would enhance the innovation capabilities and competitiveness of economies in the region.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/75 “What Can We Expect of Indonesia’s PDP Law?” by Yanuar Nugroho and Sofie Syarief
EXECUTIVE SUMMARY
- The Personal Data Protection (PDP) Law was ratified by the Indonesian House of Representatives at the end of 2022. Although seen as a move in reaction to some data leakage incidents, this marks an important step in the country’s journey towards digital transformation.
- However, the enactment of this law near the end of Jokowi’s terms makes it look like mere lip service since it can be implemented only after all derivative regulations are in place. Till today, none of them is ready, which means that implementation of the law will be delayed.
- There are some serious challenges in the law. First, the accountability of the government in handling and managing citizens’ personal data is not clearly defined. Second, the mandate to establish the Personal Data Protection Authority is difficult to operationalise because the chain of command involving various government entities is unclear. Third, there is a risk of journalistic work being stifled by indiscriminate use of the law by those in power.
- Policymakers must carefully identify, anticipate and mitigate potential unintended consequences of the law.
* Yanuar Nugroho is Visiting Senior Fellow at the Indonesia Studies Programme (ISP) and Regional Economic Studies (RES) at ISEAS-Yusof Ishak Institute Singapore and Senior Lecturer at Driyarkara School of Philosophy Jakarta. Sofie Syarief is former Visiting Fellow at the Media, Technology and Society at ISEAS-Yusof Ishak Institute Singapore and a PhD student at Goldsmiths, University of London, UK.
ISEAS Perspective 2023/75, 22 September 2023
INTRODUCTION
On 20 September 2022, Indonesia’s House of Representatives (DPR) ratified the PDP Law (Personal Data Protection, or UU Perlindungan Data Pribadi),[1] which was first initiated in 2016. The ratification happened during the ‘Bjorka havoc’ when a hacker penetrated and stole data from national online applications such as the Covid-19 tracing app, PeduliLindungi, operated by the Ministry of Health (MOH) and the MyPertamina app belonging to the state-run oil and gas company Pertamina.[2] Not long after the incident, 1.3 billion SIM card registration data were stolen, exposing personal ID details.[3] In the latest case, in early July 2023, 34 million passport numbers and immigration IDs were leaked.[4] All these data leaks involving governmental bodies were usually met with denial or excuses, the most popular being that the leaked data are obsolete[5] although ID numbers are valid for life.[6]
The PDP Law’s ratification is seen as a reactive move to the cases of data leakage. It marked an important point in the country’s journey towards digital transformation.[7] The government has been slow in developing its digital capacity, especially in protecting citizens’ personal data. Indonesia has passed the Law on Information and Electronic Transactions (UU ITE, or ITE Law). This law is seen as an ‘elastic’ regulation which, instead of providing convenience and ease of service to the public, suppresses democratic and civic space in Indonesia by introducing an extended range of vague and imprecise offences, and with draconian penalties that can be abused.[8]
The calls for more serious policies concerning data governance resurfaced when Bjorka publicly leaked several supposedly confidential datasets.[9]
Politically, the enactment of the PDP Law coming near the end of Jokowi’s term makes it look like mere lip service because it cannot be implemented until the derivative regulations are ready. These regulations are impossible to complete within less than a year. The issue of personal data and data protection is understood differently by the government – even among government bodies— and by the citizens. The logical implication is the occurrence of bias and multiple interpretations when the policy is implemented. This essay highlights some key issues related to data governance and the PDP Law. It will also discuss implementation challenges.
GOVERNMENT’S ACCOUNTABILITY, OR THE LACK THEREOF
At the heart of the PDP Law is the crucial ‘accountability principle’ requiring all organisations operating in Indonesia to be responsible for managing data.[10] Yet, there is still very little assurance of accountability when government bodies mishandle data.[11]
Government accountability on data mishandling was shown to be even more crucial a mere two months after the PDP Law was passed when another data leak occurred, in November 2022.[12] The breach was met with a firm denial from the Minister of Health[13] after the ministry (as the data controller) failed to inform the public (as the data owner) that data protection failure had occurred, as required in the PDP Law. The minister’s denial stopped further investigations within the ministry.
The response to the data leak incident illustrates the government’s ineptitude and reluctance in taking data breaches seriously. Arguably, it shows how the government has yet to understand that personal data protection is part of citizens’ rights to privacy as stipulated in the Constitution. During the abovementioned massive data breach, the president and several ministers were targeted for doxxing—an act to intentionally reveal a person’s private information online without their consent, often with malicious intent. Rather than seeing it as cause for alarm, Coordinating Minister for Political, Legal, and Security Affairs Mahfud MD — who himself was doxxed[14] — responded with a statement that showed a lack of sensibility in personal data protection. He tweeted, “I’m not bothered, and I don’t want to know. Because my personal data is not confidential. It can be taken from and seen on Wikipedia (Google), on the back covers of my books, at the LHKPN KPK (State Officials’ Asset Report of Corruption Eradication Commission). My personal data is open, no need to leak it.”[15]
In a show of privilege, the former Minister of Communications and Informatics (Menkominfo) Johnny G Plate, opted to use an American phone number after his private data was doxxed.[16] Rather than acknowledging how harmful private data breaches can be or showing care in securing the public’s data which his own ministry had harvested, he asked journalists not to make a fuss about his decision.[17]
Unfortunately, the responses from both ministers largely represent the government’s lax stance in regard to data protection.[18] The inadequate responses are compounded by half-heartedness in acknowledging the root cause, which is poor data protection governance. In handling the Bjorka hacking incident, rather than take measures to improve the nation’s cyber security system, the government opted to block sites or accounts used to hack the system. At the same time, several relevant agencies, including Kemenkominfo and the National Cyber and Crypto Agency (BSSN), shifted the blame onto the other.[19] These responses ignited public scepticism: How can the government protect citizens’ data if the authorities keep buck-passing and no one takes responsibility?
CHALLENGES TO PERSONAL DATA PROTECTION
The PDP Law stipulates two types of personal data: specific and general.[20] In public services, data are further classified into personal or individual data, aggregate or group data, and demographic data. Based on the Civil Registry (Administrasi Kependudukan/Adminduk) Law No. 24/2013 revising Law No. 23/2006, personal data are stored, managed, and protected confidentially, whereas aggregate data refer to a group of data on characteristics or events, or groupings of individual populations such as demographic events, age groups and occupations. Demographic data are used by citizens to access public services, while the government uses them as a basis to carry out development planning, budget allocation, and law enforcement.[21] These data are sourced by and are under the responsibility of government agencies.
Such a complex classification of data, especially if protection is not well managed, is prone to leakages and breaches. Poor data security or user negligence can lead to data leakage. Data breach occurs when the system is broken into.[22] Between 2019 to 2021, there were many cases of data breaches in Indonesia. Based on BSSN (2021), there were 290.3 million cyberattacks in 2019. This would increase by 41%, reaching 495.3 million cases in 2020. Understandably, as data flows exponentially increase, so does the risk of cyberattacks. From 2019 to 2020, ransomware attacks alone increased 105%.[23]
Official responses to data security problems may have shown a lack of goodwill and evasion, judging from excuses given by some individuals. One example is the statement that a particular hack involved old, outdated data[24] – implying the hacked data were not important. Another example is the claim that the system was still safe despite a hack.[25] Nevertheless, these cases have multi-dimensional impacts, not only for the individual data owners but also for data management institutions, especially when the data are managed by government agencies. For individuals, hacking of their personal data may cause material and non-material losses, for instance, when the hacked data are used for doxing, fraud, or breaking into digital assets in the form of currency and other digital products. For data management institutions, such cases reduce public confidence in their performance and may decrease service quality or cause a decline in their reputation, and potentially lead to lawsuits.
The government is hence obliged to secure data as a strategic resource. There is an urgent need for better personal data governance, both for Indonesia’s public and private sectors. The government must take full responsibility for protection of existing personal data. Indeed, it is for this reason that the PDP Law was proposed and passed.
PDP LAW AND ITS (PROBLEMATIC) SUBSTANCE
Consisting of 16 chapters and 76 articles, this law substantially covers at least four aspects, that is, data categorisation, the rights of data subjects,[26] the obligations of data controllers,[27] and the establishment of Personal Data Protection Authority (PDPA).[28]
The table below describes a juridical review of the substance of the PDP Law and the technocratic implications in its implementation, both concerning derivative regulations and the duties and responsibility of relevant institutions.
Source: Compiled by authors
Several articles in the PDP Law have legal implications and loopholes that need to be investigated. For instance, there are around 15 authorities that have not been listed — PDPA included — in resolving disputes through non-litigation adjudication mechanisms and issuing mediation decisions regarding compensation. There is a legitimate concern that the law can threaten the work of Indonesia’s press,[29] including criminalisation of it.[30] The law also regulates criminal sanctions without providing definite limits on the meaning of each element,[31] and is therefore somewhat more inclined towards imposing sanctions than raising awareness.
In particular, the establishment of the PDPA under the President begs the question of its independence since its role is to oversee the implementation of the law by all stakeholders. Another loophole are the provisions that require companies or providers to comply with requests for deletion without delay within 3 x 24 hours from the date the request was submitted.[32] These are technically problematic because in practice, companies would need a longer time to delete data, perhaps even weeks. Further, the obligation for data controllers to have a Data Protection Officer (DPO) and parameters related to the terms of the fulfilment of the rights of Personal Data Owners[33] is difficult for medium to smaller businesses to fulfil.
IMPLEMENTATION CHALLENGES
There are two fundamental challenges to overcome for the PDP Law to be fully implemented: (i) Preparing derivative regulations and (ii) Establishing the PDPA Board.
The formulation of derivative regulations requires a fairly long time and is a complicated process. The PDP Law mandates that nine Government Regulations (Peraturan Pemerintah, or PP) and one Presidential Regulation (Peraturan Presiden, or Perpres), and subsequent Ministerial Regulations, be produced. So far, the passage of various PP and Perpres has taken significant amounts of time, mostly around six months or even a year from draft to law. If these regulations are the priority of the President – like the Omnibus Law on Job Creation (UU Ciptaker, Law No. 11 of 2020) and State Capital Law (UU IKN, Law No. 3 of 2022), they could be formulated quickly. Arguably, the completion of derivative regulations of PDP Law has so far not been the government’s priority.[34]
The government organised a public consultation in February 2023 involving some 200 participants from the banking, health, education, IT, e-commerce, hospitality, transport, and public sectors.[35] So far, there is still no clear time horizon as to when the implementing regulations will be completed. Again, this signals that the issue of PDP is not seen as a priority.
Chapter 9 of the PDP Law mandates the need for a Perpres to establish a ministerial level non-structural body (PDPA) that reports to the President[36] and a PP on the authority of this institution as a data protector.[37] However, the institutional form of the PDPA is also unclear, even though the law explicitly stated it as being fully and directly responsible to the President (Article 58 para 4). There is a question of its independence. Although the law applies to both corporations and the government, the regulation delegates the establishment of the PDPA to the President, virtually rendering it no different from other executive institutions. Conflicts of interest may arise when there is no clear division of responsibility or authority regarding supervision and enforcement. Unclear regulations regarding the position and institutional structure of the PDPA will also leave its formation—including how vast its authoritative reach will be—heavily dependent on the President’s “good will”.[38]
The ways in which the PDPA will be established entails at least two significant problems. First, inequality of sanctions may occur in response to a failure in data protection. Any violations of data protection may be subjected to varying sanctions, from mere administrative sanctions to fines.[39] However, criminal penalties[40] are also looming, with specific penalties towards corporations.[41] Not only are governmental bodies not regarded as economic institutions that amass annual income and cannot therefore be subjected to sanctions more profound than the administrative ones, the nature of the PDPA—not being independent from the executive bodies they are supposed to regulate— opens the possibility for unfair judgments and ineffective supervision.
Second, the PDPA being an institution on par with the governmental bodies it is meant to regulate poses a serious challenge. For example, it might do very little to determine which ministry or agency is responsible for any breach of a civil registry, especially for ID numbers, and put in place measures to secure the data created and harvested under government policies. The supervision of the PDPA should hence rest with an independent commission rather than with a government ministry.
The process for establishing the PDPA will likely take a long time, and there is no guarantee that it will start work immediately after it is formed. One is reminded of the National Research and Innovation Agency (BRIN), whose full organisational structure and governance remain unfinalised more than two years after its formation.[42] These lessons indicate that the institutional aspect is more urgent than the implementation of the PDP Law or the establishment of PDPA, and should be prioritised accordingly.
With such challenges, what may the implications of the enactment of the PDP Law be?
LACK OF AWARENESS OF DATA PROTECTION
The long list of sanctions against private data protection violations might force public entities and private corporations to channel their resources towards obeying the PDP Law. However, as much as sanctions are necessary, punitive actions towards citizens might be problematic if imposed before any meaningful measures to raise public awareness on protecting private data are taken.
According to a 2021 survey conducted by the Ministry of Communication and Information Technology, Indonesia’s overall digital safety index—including the safety to not share any private data via social media—is quite low, i.e., 3.1 on a scale of 1-5.[43] This reflects general ignorance towards personal data protection or that of other people; this opens possibilities for unintentional breaches, which stem not from malicious intent but from the lack of adequate awareness of private data and the importance of protecting them—evidenced by how Minister Mahfud reacted to the personal data breach against him.
With this background in mind, the law might lead to misuse and overcriminalisation,[44] like the ITE Law. In essence, it threatens criminal action against anyone unlawfully disclosing other people’s personal data. However, there is neither sufficient definition nor legal limitation on what constitutes ‘unlawful’ (Article 65 para 2) hence opening possibility for abuse. Equally, without adequate knowledge and conceptual awareness of data protection, the public is prone to unintended offence. For instance, teachers sharing students’ daily activities could potentially be a violation[45] especially because the Law categorises children’s data as ‘specific’ data,[46] implying different and more stringent legal repercussions.[47] It is therefore crucial to ensure overall awareness of personal data protection if the fundamental aim is to protect the public.
CURBING PRESS FREEDOM
In a continuation of the trend in curbing press freedom,[48] the PDP Law also has its own articles which may stifle journalism. Among the varieties of specific data that should not be disseminated, “criminal record” is included (Article 4 para 2). Within the bill, “criminal record” is elaborated as a written account of past unlawful acts and present judicial proceedings, police records and immigration records for travel ban issuance. The fact that all kinds of criminal records—including ongoing judicial proceedings—are regarded as specific data, implying offence for anyone publishing them, will potentially threaten journalistic work in reporting.[49]
Exclusions for the disclosure of specific data are also found in the Law (Article 15 para 1). However, these are limited to governmental undertaking and academic research. Journalistic works and the public’s legitimate interests are disregarded. As mentioned, the term ‘unlawful’ can also be problematic for journalistic works. There is no legal definition and limitation regarding unlawful dissemination of personal data — or even specific data — rendering the term obscure yet broad.
As such, some articles of the PDP Law can be used in an unchecked manner by certain groups, especially those in power, to restrict and criminalise journalistic works. The possible outcome is journalist reports such as exposing public officials’ history of corruption or other crimes—which are of legitimate public interest, and paramount since Indonesia is anticipating a national executive and parliamentary election in 2024— can be subjected to punishment. Not only do these articles contradict Indonesia’s Press Law (Law No. 40 of 1999)[50] which mandates the press to professionally fulfil the public’s rights to know without coercion and interference, they further question the country’s commitment to democracy.
CONCLUSION
There are several aspects within the PDP Law that must be revisited and attended to when it comes implementation. These aspects, including unclear institutional set-up and articles that have ambiguous or conflicting ideas, foreshadow unintended consequences affecting the actual protection of Indonesians’ data. Such consequences must be identified, anticipated and mitigated when they happen. Reflecting on the consequences and putting them in the bigger picture takes us to another reflection: Beyond the PDP Law lies a more fundamental need for a digital strategy at the country level. Without a strategy to provide firm ground for digital transformation, Jokowi’s vision of Pemerintahan Dilan, a digital government that serves the people, will never be realised.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
Temasek Working Paper No. 6: 2023 – The So-Called ‘Kāla Head’ Armband of Temasek: A Preliminary Report by Natalie S.Y. Ong
