Indonesia, formerly seen as one of Asia’s tiger economies, has seen tumultuous times – but increased political stability finds it again starting to attract investment, writes Jon Robins

Once a powerful Asian tiger in the boom time of the 1990s, Indonesia has since felt the pain of economic downturn, political turmoil and terrorist attack.


But some City law firms have remained committed to the giant archipelago – despite the fact that the local bar remains resistant to the charms of foreign lawyers, and recent hopes that the country was to open its market to foreign lawyers have proved premature.


Those firms are now beginning to reap the rewards of their loyalty as they report an upswing in business.


Many observers were disappointed that the Indonesian government’s initial offer on legal services in the Doha round of the World Trade Organisation negotiations did not provide for allowing foreign firms to establish a commercial presence in the country, as some had hoped. Why has the developing country proved so reluctant to liberalise its legal market? ‘I’d suggest they have had bigger fish to fry than reforming their rules governing the regulation for foreign lawyers in the last eight to ten years,’ reports one expatriate lawyer, who has spent much of his professional time brokering deals in Jakarta over the past 15 years.


But he also points out that foreign firms have not been clambering to set up in Indonesia either. ‘It’s very easy for the major international firms in Singapore to cover Indonesia, especially in a post-9/11 world where Indonesia has suffered its share of disruption and terrorist incidents,’ he says. ‘But while Jakarta hasn’t been a terribly pleasant place to live, all that seems to be changing and people are increasing in confidence.’


City firms Herbert Smith and Clifford Chance, together with US-headquartered international firm Baker & McKenzie, all have a lawyer present in Indonesia, by making use of a rule that allows foreign lawyers to practise in the country under a secondment arrangement with a domestic firm. Other UK firms such as Norton Rose, and US firms Latham & Watkins and Milbank Tweed Hadley & McCloy, run Indonesian practices from Singapore.


David Dawborn, a Herbert Smith partner on full-time secondment to Indonesian firm Hiswara Bunjamin & Tandjung (HBT) in Jakarta, is sceptical about the likelihood of any imminent relaxation of the rules on foreign lawyers, and points out that any such liberalisation would be ‘contrary to the general flavour here’. He says: ‘A new law was recently introduced that expressly prohibits foreign law firms having offices or joint ventures.’


In the previous Uruguay round of negotiations under the World Trade Organisation’s GATS (General Agreement for Trade in Services) talks, Indonesia committed to allowing foreign enterprises to establish activities there, but there has yet to be a specific commitment for the legal profession.


‘Most firms are content to work from Singapore,’ says Mr Dawborn, ‘but if the economy was to pick up significantly to the point that we had prior to the economic crisis of the late 1990s, then you would find that more firms would send a lawyer here.’ Mr Dawborn has lived in the country for 13 years. ‘In those days, the firms in Singapore basically lived off this place, but that hasn’t been the case since 1998.’ He reckons that there are about 30 foreign lawyers registered in Indonesia under the current rules, and as few as five or six from UK firms.


Mr Dawborn says Herbert Smith’s practice is different from others because it tries to combine Singapore and Jakarta. ‘HBT is predominantly a local law practice, and we still involve Herbert Smith in the international law element or for contracts governed by English or US law, which would be done from Singapore, Hong Kong or London,’ he explains. ‘But our role here, and one of the advantages of working with HBT, is the ability to provide high-quality Indonesian law advice.’


David Zemans, a partner in the Singapore office of Milbank Tweed, says his firm has resisted a secondment arrangement. ‘We have a responsibility to our clients,’ he says. ‘They like us to recommend the very best counsel and not the ones we have a relationship with.’


The Indonesian market has a ‘huge’ importance for the firm in the region, says Mr Zemans. ‘We are working on the largest merger and acquisition, capital markets and project finance deals,’ he says. ‘For the last 15 years, it has been an area into which the firm has invested a lot of resources and commitment.’


Norton Rose has a strategic alliance with Indonesian firm Lubis Ganie Surowidjojo, which is supported by the City firm’s 20-lawyer Singapore office. ‘Nobody has an office which has its own name-plate on the door,’ says partner Jeff Smith. ‘Firms all operate in different ways in Indonesia, and our way has been through an association with Lubis Ganie. If they have something that requires international input, they give us a call and, likewise, if we do a deal down there which needs local law advice, we give them a call.’


The firm has dedicated space in Lubis Ganie’s offices and in the past there have been Norton Rose staff placed there on a permanent basis. How significant is access to the Indonesian legal market to the firm? ‘It’s important for the firm because it is such a big market,’ says Mr Smith. ‘You are looking at 230 million people in an emerging economy that is crying out for infrastructure.’


Latham & Watkins has around 20 lawyers based in Singapore, and covers its Indonesian practice exclusively from that office. ‘It’s a very important part of what we do,’ says Mark Nelson, managing partner in its Singapore office.


‘In some years, between a quarter and a half of the projects that we are working on have an Indonesian nexus, and we’ve tried to assemble under the one roof a group of first-rate English and US-qualified lawyers who have language skills, a cultural affinity and a desire to work on Indonesian matters.’


Why has Latham & Watkins not opted for the secondment route? ‘We have found that it’s fairly cumbersome to do, and the regulatory environment isn’t crystal clear as to what the lawyers in these positions can do,’ says Mr Nelson.


In the past two years, the Indonesian government has implemented a new law further restricting the right of foreign lawyers to practise within the country. A new pan-Indonesian law society was created to monitor and licence the foreign lawyers, as opposed to simply getting an easily obtainable licence from the Ministry of Justice to practise locally. ‘There was a bit of angst when this new law was introduced, because it gave [the local bar] a way to interfere and people thought that the need to obtain a recommendation was going to be misused,’ says Mr Dawborn. ‘But it hasn’t been to date.’


Indonesia has come a long way politically since former president Suharto stepped down in 1998, after more than three decades of authoritarian rule. Last October, Susilo Bambang Yudhoyono was sworn in as head of state, having won a landslide victory in the country’s first direct presidential election. Unsurprisingly, the country’s 1997 financial crisis had a big impact on lawyers in the region. But things are now looking up. ‘We did a lot of international capital markets work, but that all dried up instantly,’ recalls Mr Dawborn. ‘Only in the last year or so have we really seen a more definite upswing, and the new government has been much more focused on making the right decisions and getting the economy back on track.’


‘We are coming into a period where we are seeing fresh investment; that is very different from the restructuring and divestiture work that was the principal legal work during the recovery years,’ comments Mr Nelson. ‘This is as vibrant as it has been since the crisis… The infrastructure needs in the country are huge, and that means external financing is going to play an important role in projects which, in turn, means US and European lawyers are going to be involved in documenting those transactions.’


Norton Rose’s Jeff Smith agrees. He points to a big infrastructure development project that has recently been announced: ‘There will be about 90 projects across all types of sector including capital investment of $20 billion,’ he explains. ‘It is much busier here than it has been for a long time.’


Jon Robins is a freelance journalist