Indonesia's Tech Winter Arrives, Personally Served

Welcome to Indonesia Last Week, the only show where we cover Indonesia’s business and political news with the seriousness it deserves. This week, the tech winter that Nadim Makarim once warned about appears to have arrived at his own doorstep.

Nadim Makarim has been sentenced to ten years in prison, with an additional five years tacked on if he does not pay the government 809 billion rupiah. ^[1] The figure is large enough to make any audit of state laws feel, in practice, very much like an audit of you personally.

The verdict has prompted warnings that it sets one of the worst precedents for the business community. ^[2] One commentator I spoke with put it plainly: any audit of state laws, without being accountable to another body, could change something that was completely fine — a policy, a procurement, a business deal — and suddenly make it a criminal corruption case. ^[3]

That is, I believe, the technical term: completely fine on Monday, criminal case by Friday.

The concerns run deeper than a single ruling. The same commentator warned that just owning shares in a company might, under this logic, automatically constitute a conflict of interest in a public company. ^[4] Imagine how many government officials are scared now. Imagine how many vendors are scared now. Imagine how many people in the technology space that want to do something for the government for their country, how scared they are. ^[5]

In other words, the very people the country has been telling to get more involved in the state are now being shown the door. Personally, I would have preferred a different sign on that door, but I do not run the country. I run a satirical news program. The country is, in many ways, the satirical news program.

For the tech sector specifically, the timing is — to use a technical financial term — terrible. Nadim Makarim is the same figure who, along with many others, feared a tech winter. ^[1] The arc, from a figure who warned about a tech winter to a figure now facing one, is the kind that gets written about in business school case studies, although probably not the kind the case study authors had in mind.

In the courthouse, the verdict triggered roars of approval from his supporters. ^[6] This is, of course, the part of the story I am going to spend the least amount of time on, because there is not much to add to a crowd cheering in a courtroom. They cheered. The case continued. The cameras, I assume, kept rolling.

What I want to spend a little more time on is what comes next. Because the warning from the commentators I have been speaking with is not that one high-profile figure has been sentenced. It is that the precedent, if left to stand, will reshape the relationship between the Indonesian state and the Indonesian private sector in ways that are difficult to walk back.

To be fair, the ruling is being challenged. A commentator indicated that this battle is not yet over. ^[7] In my opinion — and I want to flag this clearly, because I would like to keep doing this show for at least another few years — the appeals process will be the part of the story worth watching.

The mathematics are worth performing. Ten years in prison, plus the option of an additional five years if 809 billion rupiah is not paid. ^[1] I did the mathematics. Even by the standards of a country that has made a habit of large corruption penalties, the figure is large enough to make an audit of state laws feel, in practice, like an audit of any individual who has ever signed a contract with the government.

The implication, drawn out to its logical conclusion, is not subtle. If any audit of state laws can become a criminal case, and if owning shares in a public company can be an automatic conflict of interest, then the pool of people willing to take senior government roles, sign procurement contracts, or simply partner with state-owned enterprises shrinks very quickly. ^{[3] [4]} The state, in effect, gets to pick its counterparties by deciding which ones it does not prosecute.

This is, in my opinion, not the kind of investment climate Indonesia’s policymakers say they want. It is, however, the kind of investment climate that follows inevitably from the precedent the court has now set. Investors, vendors, and tech figures are not, in general, in the business of becoming the subject of criminal cases. They are in the business of building things, hiring people, and paying taxes. If the line between the two is now drawn by a court rather than a regulator, the result is exactly what the commentator described: people who are scared. ^[5]

And so the tech winter that Nadim Makarim once warned about, the one that was supposed to come for the rest of us, has come for him first. Whether it stops there, or spreads, is the question that the appeal, the regulators, and the broader business community will be answering for the rest of this year and probably well into the next.

Make of that what you will.