Reducing the Risk of Change of Law to Achieve Legal Certainty for Indonesian Businesses

By: Eka Imbia Agus Diartika

Abstract: Regulatory uncertainty, or change of law, is one of the biggest obstacles facing businesses in Indonesia. Over the past five years, the government has rolled out various reforms—from simplifying risk-based licensing and the Job Creation Law to strengthening the OSS-RBA (Investment and Investment Management System) to improve the investment climate. However, this accelerated reform has often been accompanied by rapid, overlapping regulatory changes and minimal transition periods, resulting in additional compliance costs and delaying investment decisions. This study outlines how the speed of regulatory change, not matched by institutional readiness, weak central-regional coordination, and a lack of synchronization of technical regulations, has resulted in uncertainty in the licensing process and policy implementation. At the regional level, excessive caution due to fear of misinterpreting central regulations has prolonged permit issuance times and increased operational costs. Meanwhile, long-term investment contracts still lack protection against policy changes, leaving businesses with the full burden of regulatory risk. The analysis shows that the root of the problem lies in weak cross-ministerial regulatory harmonization, the absence of post-regulation evaluations, and the haste in issuing strategic policies. These findings underscore the need for a more predictive, coordinated, and transition-based regulatory system to create legal certainty and a more stable and sustainable investment climate for Indonesian businesses.

Introduction

In the business world, change is commonplace, such as price fluctuations, shifting demand, and rapidly evolving technology. However, sudden changes in government regulations (changes in law) pose a significant threat to businesses due to the unpredictable financial risks they entail. Over the past few years, Indonesia has faced a regulatory explosion. According to the RechtsVinding Journal (2024), data from the Peraturan.go.id website shows that each year there has been a significant increase in the number of laws and regulations, particularly in 2023–2024, indicating an overregulatory phenomenon that is complicating regulatory coordination. 

Data from the Directorate General of Legislation (DJPP) shows that the total number of laws and regulations recorded in the database reached 61,207, of which 57,634 are still in effect today.  The Director General of Legislation even stated that Indonesia is experiencing "regulatory obesity," with approximately 67,000 regulations recorded at the statutory and regional levels. 

These rapid regulatory dynamics coincided with significant reform efforts, including the Job Creation Law, the simplification of risk-based licensing, and the strengthening of the OSS-RBA system. Although intended to improve the investment climate, regulatory changes issued without a clear transition period often create additional burdens for businesses, such as ballooning compliance costs and unstable licensing timelines.

In the digital realm, the regulatory development process also continues to evolve. In mid-2025, the Directorate General of Public Order (DJPP) announced plans to draft a Presidential Regulation (Perpres) to update the Presidential Regulation on the National Legal Documentation and Information Network (JDIHN), as part of efforts to strengthen the national legal information ecosystem.  While important, these steps also demonstrate that the national regulatory structure is constantly evolving, meaning that businesses must bear the risk of ongoing regulatory adaptation.

This regulatory uncertainty, stemming from the sheer number of new regulations, inadequate coordination between policymakers, and the lack of a transition period, can pose a serious dilemma for long-term investors. The risk of a change in the law is not simply about the rules themselves, but about whether adaptation can be managed without significant costs or operational disruptions.

Therefore, governments and policymakers must adopt a more predictive and coherent regulatory approach: not just producing new regulations, but also harmonizing, evaluating, and providing transitional space so that businesses can respond with more confidence and sustainability.

When Regulations Change Faster Than Businesses Can Adapt

One of the most significant problems with investment in Indonesia is the rapid pace of regulatory change, which is not matched by the readiness of institutions and business actors. Every year, thousands of new regulations are issued, ranging from laws and government regulations to ministerial and technical regulations issued by each directorate. When this series of changes occurs without strong coordination, the first reaction of business actors is almost always the same: delaying expansion.

Many business actors admit they are not afraid of new regulations, but somewhat afraid of making a mistake. The energy, commodities, and manufacturing sectors are the most obvious examples. When export regulations, tariffs, or technical certification requirements are repeatedly revised over a short period, investors incur additional costs to recalculate project feasibility. Profit projections change, contracts must be adjusted, and even raw material supplies can be disrupted.

It’s not surprising that several studies have found that regulatory uncertainty increases compliance costs by up to 10 percent in the small and medium-sized industrial sector. For large businesses, this figure may seem minor. However, for small businesses—whose capital is limited—even the slightest cost increase can cause them to postpone expansion plans. 

OSS-RBA: Important, But Unfinished Reforms

Risk-Based Licensing (RBA) and the OSS system were designed to be a single point of entry for business licensing. The expectation was clear: investors could apply for permits through a central system, without having to navigate multiple locations. Conceptually, this was revolutionary. In some respects, the process of obtaining a Business Identification Number (NIB) is much faster than it was five years ago. However, on the ground, the business world presents a more complex reality.

OSS-RBA is often considered a "fast-track" system that is not fully connected to the “technical channels” behind it. NIBs are easy to obtain, but sectoral technical permits still require manual verification, physical documents, and even approval from various officials. While the central government claims to use a risk-based process, many regions still cling to old methods. 

Ultimately, businesses fill out digital data but are still asked to bring physical document folders. They register online but still end up queuing at service offices. The OSS is not a failure. However, without central-regional integration, it cannot become a system that builds long-term trust. 

When Local Governments Fear Making Mistakes

In many regions, the licensing issue is not simply a matter of speed or delay, but rather a matter of fear. Many local officials delay issuing permits not because they want to complicate matters for businesses, but because they fear misinterpreting constantly changing central regulations. When technical regulations haven’t been updated or aren’t fully aligned with national policies, the safest option for regions is to wait. However, this "waiting" option has a cascading effect: businesses are held up longer, production processes shift, operational costs increase, and in some cases, investors shift their plans to other areas perceived as more certain. Local governments aren’t inherently anti-investment; they simply operate within an often-ambiguous coordination framework. This gap transforms regulatory uncertainty into economic uncertainty, ultimately harming all parties.

Unstable Long-Term Contracts

Significant investments, such as processing plants, renewable energy projects, or infrastructure, require long-term certainty. No investor would build a 20-year facility if technical regulations change every two or three years.

Problems arise when investment contracts don’t provide adequate protection against regulatory changes. Some public-private contracts lack explicit stability clauses. As a result, renegotiations often occur, and some businesses feel they haven’t received the certainty they expected.

When regulations change without a precise transition mechanism, it becomes difficult for businesses to develop long-term plans. For some companies, regulatory changes can mean cost adjustments. For others, however, they can mean the inability to operate.

Why Do Law Changes Happen Repeatedly?

The repeated regulatory changes, often enacted without adequate time, are not accidental but reflect structural problems in Indonesia’s regulatory governance. First, weak inter-ministerial coordination leaves each agency pursuing its own agenda. As a result, issued regulations often contradict each other, technical definitions are inconsistent, and regional governments interpret central government policies differently. Second, there is no systematic evaluation mechanism after regulations are enacted. Many regulations are formulated as a quick response to short-term problems, but their impact on the business world is rarely reviewed. Third, the push to accelerate reforms often leads the government to issue strategic regulations without an adequate transition period. While the goal is noble, this haste creates confusion on the ground and heightens uncertainty.

Towards More Stable and Investment-Friendly Regulations

To create a truly stable business climate, Indonesia needs a new approach to regulatory management. It’s no longer simply about rolling out new regulations when problems arise, but rather about building a system that governs how regulations are formulated, coordinated, and evaluated on an ongoing basis. Regulatory stability is not just a technical issue; it is the foundation of trust between the State and businesses. Therefore, regulatory governance improvements must be implemented systematically rather than sporadically. The following five strategic steps can provide important stepping stones towards a more investment-friendly and predictable regulatory ecosystem.

1. Stronger National Regulatory Harmonization

Indonesia needs a harmonization mechanism that not only resolves conflicts between regulations but also unifies economic visions across ministries. Every draft regulation should ideally undergo a rigorous harmonization process to avoid differing interpretations across regions. To this end, an integrated regulatory platform connecting the central and regional governments must be established. This platform should not simply be an information portal, but a coordination space that facilitates officials in understanding and implementing new regulations uniformly.

2. Mandatory Transition Period for Every Major Change

Regulatory changes without a transition period create significant uncertainty for the business world. Many countries have demonstrated that a 6–12-month transition period can reduce adaptation costs and mitigate the risk of misinterpretation in the field. Indonesia needs to adopt a similar practice. A transition period provides businesses with time to adjust internal processes, helps local governments prepare for technical integration, and allows ministries to develop uniform implementation guidelines. This way, significant changes will no longer present surprises.

3. Strengthening Investment Contracts with Stability Clauses

In long-term projects, stability clauses are a basic requirement, not an additional incentive. The government can formulate transparent protection mechanisms, such as automatic adjustments when tariffs or taxes change, compensation schemes for new regulations that incur significant costs, or faster dispute-resolution mechanisms. This contract certainty signals the government’s commitment to maintaining policy consistency, thereby making investors feel more secure about their long-term investments.

4. OSS-RBA Must Become a Fully Integrated System

For OSS-RBA to truly become a single point of entry for licensing, comprehensive integration with sectoral technical permits must be implemented. The practice of requesting physical documents after businesses upload digital documents should be eliminated. Risk indicators need to be simplified, and ministerial technical decisions should be automatically linked to the system. Thus, the OSS is no longer an administrative platform, but a single source of truth that creates consistency and transparency throughout Indonesia.

5. Public Involvement in Regulatory Development Must Be More Structured

Clear, open, and meaningful public consultations that have a real impact on regulatory content will strengthen policy quality. This process does not slow down regulatory development; on the contrary, it prevents implementation conflicts and ensures that the interests of business actors and the public are represented. With a structured participation mechanism, policymakers can assess the impact on the ground before regulations are enacted, thus making regulations more mature and adaptive.

Realizing Business-Friendly Regulations Without Sacrificing the Public Interest

Indonesia is now at a crucial moment. Regulatory reform has begun, but its success depends on the country's ability to maintain consistency and predictability in implementation. Amidst increasingly fierce global competition, legal certainty is the factor that differentiates a country that merely attracts investors from one that retains them. Reducing the risk of legal change does not mean limiting reform; what is needed is measured, coordinated change that respects the business world’s need to plan.

If Indonesia can build a stable, harmonious, and transition-oriented regulatory system over the next five years, the foundation of the national economy will be much stronger. Legal certainty is not an end, but a fundamental prerequisite for inclusive and sustainable growth.