The crisis of confidence in Indonesia's legal system has gone on far too long to try to fix things with conventional tools like judicial reforms. When it comes to improving the country's notoriously iffy record in enforcement of contracts, which in Jakarta can cost up to 74 percent of a deal's value versus 9 percent in Iceland, it's time to use blockchain technology.

Finding the money wouldn't be hard. The aggrieved parties would themselves gladly invest, and one of them could be Goldman Sachs Group Inc.

The U.S. investment bank says it's "surprised and disappointed" by Tuesday's South Jakarta District Court order, which directs Goldman not only to forsake the 425 million shares in PT Hanson International it bought in 2015 from U.S. hedge fund Platinum Partners LLC through the local stock exchange, but also to pay 320.8 billion rupiah ($24 million) in damages to the property developer's founder, Benny Tjokrosaputro. Apparently, the businessman had borrowed against the shares in a repurchase transaction; he hadn't authorized a third-party sale.

Goldman will appeal. Regardless of what ultimately happens, a question mark will linger. It's impossible to talk about property rights if a third party can walk in and demand an exchange-mediated deal be nullified.

It isn't the first time something like this has happened. Deutsche Bank AG got embroiled in a similar controversy as a seller. The dispute centered on ownership of a coal mine in South Kalimantan, which was collateral for a $100 million bridge loan in 1997. The loan wasn't repaid, and the mine was sold in 2002 for $46 million.

But then came the sharp rise in Chinese coal demand. The mine's former owners, Indonesian plantation tycoon Sukanto Tanoto and businessman H. Djojohadikusumo, sued in Singapore, saying Deutsche Bank hadn't acted in good faith. They obtained a Jakarta High Court ruling to bolster their case. Proceedings dragged on. In 2010, a Singapore judge ordered the former owners to stop their parallel legal attempts in Indonesia.

Commercial disagreements crop up everywhere. Indonesia's problem is that rules and institutions that ought to be reducing the scope for disputes do no such thing. In Goldman's case, having a stock exchange in the picture was no use. In the Deutsche Bank incident, the German lender had received permission from the South Jakarta District Court (the same one that passed the Goldman order) to sell the collateral privately. In the end, that gave little comfort.

Areas vulnerable to commercial disputes


Now imagine a distributed digital ledger of assets, of the kind countries from Sweden to Ghana are experimenting with for their land markets. With a set of granular and highly specific rules on what hurdles must be crossed prior to disposal, it would be near impossible to sell property that isn't one's own. A true sale would be harder to challenge. Blockchain could also help mitigate risks in repurchase agreements of the type in which Goldman's Hanson shares were collateral. 

Legal uncertainty in Indonesia is endemic. In 2004, a local commercial court declared Prudential Plc's local unit bankrupt, two years after Canadian insurer Manulife Financial Corp.'s Indonesian venture was deemed insolvent. Exposure to such risks of mischief is a threat not only to banks and insurers, but to the entire financial system.

Some gaps can't be patched up with technology. But when it comes to transferring a clean title, the Indonesian government should tap Goldman and JPMorgan Chase & Co., which recently participated in a successful, six-month blockchain trial in the $2.8 trillion equity swaps market.

For JPMorgan, currently banned from doing business with Indonesian government entities after a bearish call on the local stock market, this might also be a good way to get unblocked again. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

To contact the author of this story: Andy Mukherjee in Hong Kong at

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