The Panama Papers as a warning for Indonesian Law on Public Housing Savings
Even as a developing country, there are thousands from Indonesia listed in the Panama Papers. The investment banking practices connected to a new law on Public Housing Savings brings to mind the mortgage crisis in the United States.
The curtain is slowly being lifted on the play that is international business practices with the publication of the Panama Papers, and the first scene is shocking but not surprising. A number of Indonesian businessmen and public officials are listed in the paper, creating/displaying controversies related to the economy, such as banking practices and (il)legality in tax practices. Why, would you ask, there are parallels exist between the Panama Papers, and the seemingly noble newly enacted Indonesian law on Public Housing Savings (‘Tapera’) that appears to only help Indonesian workers to save for housing?
The law was proposed as something to serve social causes, framed as being good for Indonesia’s low-income workers and bad for employers. It was enacted in a relatively quiet way, despite news about employers’ intention to test the law at the Constitutional Court. Even at the parliamentary hearing there were neither interruptions nor questions from the people’s representatives.
The law states that all citizens above the age of 18, or those who are married and have an income above the minimum wage, are obliged to pay 3% of their income into a savings account. If the “paying member” is an employee, not an independent worker, the employer has to bear 0,5% of the 3%. The savings account, theoretically, can be liquidated to fund the construction or renovation of a house or to buy a house. The “member”, to borrow the term from the law, can only stop being a member if s/he stops working for five consecutive years, retires, reaches 58 years of age, or passes away. The law does not regulate the changing of status from member to non-member, or the consequences brought about by temporary changes in circumstances such as an increase/decrease in income.
So far everything sounds relatively okay; the law might really be serving social causes. However the first weakness of the law concerns the withdrawal or use of funds from the savings account. A member can only use the savings account with priority-based approval from a management body –which is created with the law- and the Indonesian Financial Services Authority, taking into account the availability of funds at the time the member wants to use his/her savings. From the perspective of the members/workers, to liquidate their savings they have to gain approval from funders, who are an appointed bank and/or financing company.
This structure of practice is what makes the law closely related to the practices we have seen in the Panama Papers. The management body will appoint a custodian bank, an investment manager, and funders to manage the fund. By ‘managing the fund’ is meant that the custodian bank is free to invest it in any way it deems fit, placing it in the structure of international market transactions. From the perspective of investors this fund will become a short-term, high-yield investment. For them it means the cost of buying stakes in the fund is low, whereas expectations are high, given that funds are collected from members across Indonesia which is the fourth most populous country in the world. It is also a relatively safe investment because it is guaranteed by the government, as was shown by the enactment process.
This blog is a call for civil society to be cautious about Tapera law. There is an indication that the law allows the collection of money in the name of civic duty and social motives, only to give it to oligarchic capitalists. The workings of this law will depend greatly on the business practices of the firms and institutions involved, and the professional ethics of the people.
Furthermore, with regards to social housing, instead of enacting a law on Public Housing Savings, a more constructive alternative might be to investigate on improving certainty about real property rights for the poor and the marginalised.