Indonesia Gangsters VS. BYD & VinFast, Preman Rent-Seeking & Law & Order Reform - E573
Jeremy Au and Gita discussed the challenges of doing business in Indonesia, particularly the issue of "preman" (gangster) culture, its effects on businesses, and potential ways to mitigate this issue. They also addressed systemic corruption, the importance of legal reforms, and how emerging markets can better integrate informal sectors.
02:55 Understanding Preman Culture: Gita explains the origins and persistence of "preman" (gangster) culture in Indonesia, which has been affecting businesses since the colonial era.
06:25 Challenges in Emerging Markets: The conversation delves into the systemic challenges businesses face in emerging markets, focusing on rent-seeking behavior and law enforcement inefficiencies.
13:53 Public Sector and Corruption: Gita discusses the impact of low wages in Indonesia's public sector, which fosters rent-seeking behavior and creates a corrupt environment, affecting businesses of all sizes.
16:27 Taxation and Revenue Challenges: The difficulties of implementing effective tax systems in Indonesia are explored, highlighting inefficiencies in tracking citizens and businesses, further complicating the economic landscape.
18:50 Empowering Local Leaders: Gita proposes a solution to collaborate with local citizenry groups by offering them formal roles and contracts to integrate them into the formal economy.
20:29 Fragmented Organizations and Turf Wars: Gita explains how Indonesia's informal preman groups are fragmented, with turf wars between different factions and some being backed by political entities, making it hard to address the issue centrally.
24:13 Fraud Confession and Its Implications: The discussion touches on the eFishery founder's fraud confession and its wider implications for the Indonesian startup ecosystem, where systemic issues of dishonesty and lack of legal consequences persist.
(00:52) Jeremy Au: Hey, Gita! Good to have you! I'm now here. In person.
(00:56) Gita: Now in your place.
(00:58) Jeremy Au: I know. We've been doing (01:00) online,
(01:00) Gita: forever.
(01:01) Jeremy Au: Forever.
(01:02) Gita: Yes.
(01:02) Jeremy Au: And I'm excited.
(01:03) I don't know how this is gonna turn out.
(01:05) Gita: We're about to find out.
(01:06) Jeremy Au: Awesome.
(01:06) Gita: I hope so, yes.
(01:07) Jeremy Au: It's like, we had this podcast and we fumbled it. Let's go back to online.
(01:10) Gita: What shall we talk about? I have no idea.
(01:13) Jeremy Au: Yeah, exactly. It's like, oh, it was just catching up about everything.
(01:15) Yes. So, Gita, it's so good to see you in person. So, what you doing in Singapore? How has that trip been?
(01:20) Gita: I know, this is a business trip. But it's a business trip where I'm trying to learn more about my new roles and basically now, this is the time to relax and record a podcast with my friend.
(01:31) Jeremy Au: Oh, that's so nice. Yeah. Well, I'm glad we're doing it. And you know, the topic that we want to talk about was this article. I'm laughing 'cause we shared articles.
(01:38) Gita: Yes.
(01:39) Jeremy Au: So, everyone's just like listening and just like, why the giggling about this? Why are we laughing? so the story that we have, the article is about
(01:45) Preman, P-R-E-M-A-N. And it's about gangsters who are holding up the BYD as well as the VinFast electric car plants in Indonesia. So, this was in the SCMP, the Chinese English language (02:00) newspaper. I thought it was an interesting article we'll talk about. The reason why it came up is that I think, local minister in Indonesia spoke about this and that, hey, this is a government priority to do it so that we can encourage more investment into Indonesia.
(02:13) It's kind of curious like, what is your take on this?
(02:15) Gita: Yeah. To Indonesia, so that is called Preman. Preman culture means gangster culture or mafia culture. Right. And basically these are the types of informal network of people or just individuals who cause havoc to businesses.
(02:29) This has been an issue in Indonesia, probably going back to the colonial era when they would need local people to bully other local people into working and creating revenue for the colonial powers. And then, as we kept going, it kept developing, right?
(02:47) Throughout the different types of administration. So, including during the Suharto era, we had that level of feminism except now. I think because the keys of power (03:00) were divided and became fractured.
(03:02) Because back then during the Suharto era, it was centralized with that one person. And then the person's cronies, now you just see them
(03:10) fractured throughout the country. Both from a regional level, local level, even all the way up towards the high ranks. Mm. That's where we have our current Preman and culture, where a typical business, you know, and I'm not talking just BYD and VinFast. Preman culture can affect everyone starting from Mom-and-Pop stores
(03:30) all the way to BYD. So, this is not just something that happens to foreign investors, but Preman culture is one of those things that the local communities but especially the public sector must fight
(03:43) against.
(03:43) Jeremy Au: So, let's talk about what the problem is before going to solutions.
(03:47) Gita: Yeah, totally.
(03:48) Jeremy Au: I think this is actually the first time I heard about this. Would you expect the local gangsters trying to extract money or get bribes?
(03:56) Most emerging markets kind of have that. It's called protection money. (04:00) Singapore had a problem 60 years ago. China had a problem 30, 40 years ago. Yeah. I mean even today, I think in Japan at the Yakuza, right? Yeah. Which is the Japanese mafia.
(04:09) Mexico, there's also protection.
(04:11) The concept of local gangsters requiring local taxation, I guess
(04:16) In a different way. Seems, but I think for the first time I never understood the scope of this problem.
(04:20) Gita: Yeah, it's quite large.
(04:21) And it has also become quite systemic, unfortunately. And that tends to happen in emerging markets as you said, Indonesia isn't the only one. It happens in all the other markets. And that tends to happen basically in places where rule of law isn't very firm especially administering the law, right?
(04:40) Which Indonesia, as we all know, tend to have a lot of challenges with that. So, what ends up happening are all these rent seeking behaviors that come out. Rent seeking behaviors don't just happen in the public sector where we all are very familiar with how Indonesian
(04:54) public sector often sees a lot of corruption cases but also happens in the informal (05:00) sectors. Not only are these mafia types come out in individual form, but they can even come out to this type called Ormas or Organisasi Kemasyarakatan, which is translated to the people's organization.
(05:14) Jeremy Au: That
(05:14) Gita: sounds so
(05:15) Jeremy Au: It sounds
(05:15) Gita: so nice, doesn't it? Who don't
(05:16) Jeremy Au: wanna join the people's organization?
(05:18) Gita: Who wouldn't realized that these people's organization can cause a lot of havoc in factories, mining sites, even small businesses, even a typical retail business in a popular area. They could experience these disturbances
(05:36) depending on where you are, what type of business, and how big the businesses are, the treatment from these types of bullies can really vary and they can vary very widely. There are some that are probably more streamlined, so there's one dude that you pay off and that's it.
(05:53) There are also ones where you don't know who you just paid off and you why you have to pay them off, how often you'll have to pay them off, (06:00) and all of these unpredictability makes the cost of doing business in Indonesia gets higher. Because again, it's not just about the formal cost of doing business, you also have to think about the informal cost of doing business.
(06:13) And that's what makes this problem, so damn complicated.
(06:16) Jeremy Au: I always remember that I think 20 years ago, the joke about China was that there was corruption but it was very efficient in the sense that you only had to pay once, right? And then you effectively got a receipt. And that made it easy for businesses to be like, okay, this is a predictable loss of doing business. But it sounds like it's much more disorganized.
(06:34) Gita: Yeah, it gets. You could say it's bottoms up, but also top down though.
(06:39) Yeah. Because some of these people's organization can also be backed by a politician or a local political party, which then gets very muddied, right? You don't know who's backing them or is there anyone backing them? That is the part where if you're just not familiar with the region, or you're not familiar with (07:00) that sector in Indonesia, then just be a very loaded situation.
(07:05) Yeah. And that's what makes entire concept and this entire situation, very tough to deal with. Right. Because it's not just about, oh, we can come up with a rule of law tomorrow that can easily solve this, you know? The question then becomes, okay, but rent seeking behavior, when they come out in the informal sector, it's because of so many other systemic reasons.
(07:26) Jeremy Au: Right.
(07:26) Gita: So, it's not just about saying, "tomorrow, no more Preman, no more Ormas." You also have to consider, okay then how do you also reroute, you know, these groups of people into other sources of revenue? Like, how do you empower them so they don't see this as the only way out?
(07:42) Jeremy Au: Right. Yeah. Yeah. When you say that, it reminds me a lot of the other stories of New York or mafia
(07:47) In America, that was the Italian mafia. Yeah. There was a big push by the police to break them up. And that wasn't a long time ago. It was like 40 years ago. So, it wasn't super, it was like America. Number one, only cleaned (08:00) up maybe, right,
(08:00) for the past 40 years. Yeah. So, I mean, as you say out loud, it makes me process, obviously Hong Kong has an issue with tryouts, right? Yeah. Which is the version of syndicates.
(08:09) Gita: Right.
(08:09) Jeremy Au: They make some really good Hong Kong movies about it. Like they affairs, you know, a lot of dirty cop movies that they used to make.
(08:15) You know, dirty politicians or dirty golden triangle and all stuff. So, you know, I think even Hong Kong has only just cleaned that up over the past 30 years even as well.
(08:24) Gita: Yeah. This brings into question, what is at the root of the problem and the root of the problem is never as simple as
(08:31) oh, you know, just outlaw them because people come out with rent seeking behaviors in emerging markets probably trying to find a different way where they can get money faster and more of it. Because usually, they come from areas where there was a lot of poverty and that's just very hard to live with.
(08:49) Think of putting yourself in another person's shoes, how do you feel if GDP per capita is $5,000? The average person makes $5,000 a year (09:00) and you think to yourself, well, my parents did that and they made that much. I worked harder in school yet I still make only that much. All my neighbors make that much.
(09:09) Everyone around me makes that much. You know, how will I move up? can I ever move up? Will my kids live my same life? The issue gets very layered because a lot of people feel like they don't have hope in moving up the socioeconomic ladder.
(09:24) Yeah. Yeah. For many reasons, not just poverty, but also there's questions of ,what's your education system like? Even af if you finish your education system, what's the probability that he could move up the corporate ladder? Or is that person at the top always reserved for the kid of the owner, right?
(09:43) And so these questions of back then we call it Kaka an or corruption collusion and nepotism. They're still around until today. There's still questions that are not answered.
(09:54) Jeremy Au: Mm.
(09:54) Gita: Yeah.
(09:55) Jeremy Au: You know, I think it reminds me of this Harvard MBA lesson they had, they had a (10:00) question for multinational corporations working in, emerging markets.
(10:04) There was this study which was like, why do these companies do ESG, what do they donate to the community?
(10:10) Gita: Yeah. And I
(10:10) Jeremy Au: think there was two parts of it, I think, yeah, the first part was they do it when they have a lot of assets that are fixed and immobile, right?
(10:17) So, if your assets are digital and it's hard to extract rent from, then you don't need to do much local community donations. But if you have an asset like an oil rig, people can just come in and treat you like a pinata.
(10:29) Gita: Totally.
(10:29) Jeremy Au: It's important for those companies to build that formal community support programs that, right, helps build up local community support, build up local politician support. Yeah. And also keeps the local stakeholders aligned.
(10:41) Gita: Totally.
(10:42) Jeremy Au: Then it's done positively in the form of education.
(10:44) Gita: Right. Right
(10:45) Jeremy Au: Nutrition programs, medical programs.
(10:47) Gita: Entire ecosystem to lift people up.
(10:48) Jeremy Au: I thought it was interesting, and I guess what's interesting is, one thing he reminded me as well, I thought it was interesting where the Indonesian minister was like, this is a problem.
(10:56) We need to fix it for these two companies, BYD and VinFast. And then (11:00) BYD, VinFast was like, we're okay, we, we are okay. W didn't complain. We totally complained to him and he said it, but I didn't, i'm totally fine, complain with it. So, just in case you have a problem with me,
(11:09) Gita: yes, exactly, it's minister. Right, right. We never complain. Actually, I think people also don't notice how there so many companies, and it's foreign, it's also local, right? Not only have they all experienced some form of this, but don't do very well when you complain too much about it in public and cause a stir.
(11:31) Jeremy Au: Right.
(11:31) Gita: Because you're already not very famous in that area to begin with.
(11:35) Jeremy Au: Right.
(11:35) Gita: You are in a country where there's a huge distribution inequality.
(11:40) Jeremy Au: Right.
(11:41) Gita: That's not great. Yeah. You know? And you're saying you're this large conglomerate trying to open something in extractive that area. So, you're already not particularly liked even when you came in, right?
(11:54) So, I think that gets very hard as to how do you even bring up this issue, right, (12:00) in public. Now, that's a conglomerate. Imagine if you are a Mom- and- Pop store, right, that just keeps getting squeezed. What can you say? Especially with people in general in Indonesia just tend to not trust law enforcement, right?
(12:12) And we have a very famous, saying that "no viral, no justice."
(12:17) Jeremy Au: What does that mean, sir?
(12:18) Gita: So, this saying is because sometimes the police won't move unless we cause it to go viral on the internet. We would bring up a case and medicines in millions would just drive up the traffic for an issue and then finally they would get to it.
(12:35) There's that very famous saying of, oh, "no viral, no justice". And it's just, if we always have to, right, right, I think this is what makes also disclosing the issue and about the issue really tough.
(12:49) Jeremy Au: Yeah, I think that's a super fair point, right? Which is that Ministers will get in the context of BYD and VinFast which are electric vehicle manufacturers. And obviously, they represent China and Vietnam (13:00) respectively as well. But it didn't come out in the context of like your local Mom- and- Pop store. So, when even I read article, I read it as, oh, this is only affecting the large manufacturers, but you're telling me is, is it's no systematic,
(13:13) Gita: it's quite systematic.
(13:14) And it can happen in a lot of different areas, so it can happen, you know, industries, other factories. Sometimes it can also blow up in people's faces when they do it because let's say it is a foreign owned company. That foreign owned company can easily also just walk away.
(13:31) Jeremy Au: Right.
(13:32) Gita: Right?
(13:32) Jeremy Au: Yeah.
(13:33) Gita: And that has happened in the past, where indonesians tried to squeeze them so hard that they ended up just walking out. Because the rent seeking behavior made it impossible for them to create sustainable, predictable returns over time.
(13:46) Jeremy Au: I gotta ask this question, and maybe you can give me a range here, it's just, what would be the range of rent extraction?
(13:52) Is it like 1% revenue? It depends.
(13:54) Gita: It depends on.
(13:55) Jeremy Au: How do they even,
(13:55) how do they define it?
(13:57) Gita: Also it depends on the people's (14:00) organization, how big are they, right? Yeah. But also how big are they?
(14:02) Are they backed by a political party? So for example, are you going into an area that is dominated by a certain political party or even belief system or even of people? Right. Right? That certain, you know, situation that you're going into where it's just dominated by
(14:18) one thing that you don't know about.
(14:21) Jeremy Au: Yeah.
(14:21) Gita: And that would become a problem.
(14:23) Jeremy Au: I'm just kind of curious because there's always that economic side of me which is governments should compete with these gangs because governments and local governments have the ability to tax and then they provide security.
(14:36) To some extent, there shouldn't be two centers of power, you know, in the same place. Right. 'Cause you know, you're draining money from each other.
(14:42) Gita: Totally. But again, this is what makes things hard. There are a lot of public servants in Indonesia that have never worked a day in the private sector.
(14:52) I don't really think it's a fair point to say, oh, all people in public sector are corrupt. Actually, most aren't. Yeah. Most are just (15:00) normal public sector servants. Yeah. Really. They're just been there since they graduated college and continue to be there until retirement.
(15:07) What's really tough about that situation is have master degrees, get scholarships to Oxford, and be so faithful in the public sector system, and make less than a thousand a month, and then maybe at your peak you're just making 2000 dollars a month if you are very lucky. And that makes life super hard for the average public servant. Most public servants really find it fulfilling to do great things, but what I'm saying is, when you just create a system where you don't reward people well in accordance to how much effort they do, you're just going to
(15:46) create rent seeking behavior. Especially that gets hard in the regional and local levels where the payment is even lower. You can be the head of a village and make $400 a month. That's nuts. Then how are you gonna pay for anything, right? Again, (16:00) that creates rent seeking behavior.
(16:01) So, when the money comes from the federal government or when you attract certain types of investment and they send the money to you, I can totally see how a person who thinks, "that's so crazy, I'm working really hard to watch over, let's say 10,000, residents."
(16:19) Jeremy Au: Mm-hmm.
(16:19) "Why
(16:19) Gita: am I getting paid only a couple of hundred dollars a month?"
(16:23) Jeremy Au: Right.
(16:24) Gita: So, I think this situation is not the kind of black and white thing where you can easily say, oh, because all politicians are corrupt, or all politicians are evil, but it's more like the reality in emerging market is, these systems are simply not well put yet.
(16:41) Often it's also just a younger country, a younger system, or they simply are not in a development stage yet to do it.
(16:49) Jeremy Au: What's interesting is that some countries have noticed that behavior from their state or city level, town level. Some countries have solved it by decentralizing tax to them.
(16:57) What's the balance of power between, 'cause I am (17:00) federal versus like, you know, I, I don't, yeah. I guess, I guess for me as an outsider, actually, I don't really understand how taxes work. Because in China, it's well known that at least I understand that
(17:09) the federal central government is very strong. The local, the provinces don't have much ability to tax.
(17:16) Gita: Yeah.
(17:16) Jeremy Au: So, that's the Chinese style. But I'm just curious from the Indonesia side.
(17:19) Gita: Okay. Not super I say, but Indonesia has a very low, I think it's even in the single digits of citizens paying taxes.
(17:30) Mm. For two reasons. One, most citizens don't make enough to be taxed. Their income is too low. But second, getting people to pay taxes is very hard. You have to see how you administer laws.
(17:42) We've always had a problem with not about public policy creation. Well, there's a problem there too, but more about administering the policy. So we tried very hard to track people and make them pay taxes. We find it really hard to even get the (18:00) right data. Oh my gosh. The right software to get people to pay taxes more easily online.
(18:06) We recently had a buffle where the government tried to launch this supposedly better tax solution. It's called Cortex, which ended up becoming such a pain in the bum for lots of corporations that they lost tax revenue for quarter. Because so many people couldn't use it. So again, that is some of the challenges that happens when we think about taxing people. Hmm. Or when we think about how do you centralize with something or how do you make the method of doing this easier for people? We have so many issues in that.
(18:43) Jeremy Au: I never knew that.
(18:45) I think that's interesting, right? Because that just be an obvious source of revenue? Just like, oh yes,
(18:48) 10
(18:48) Gita: percent,
(18:49) Jeremy Au: people who can't pay, we just say they don't need to pay because they're too poor and the people can't pay. Should just pay. And then that gives us more revenue for the government and then the government
(18:58) so can enforce (19:00) rules and law, and then that solves the Preman problem, you know?
(19:05) Gita: We'd like to think. So, I tend to say this to a lot of people who see an inefficiency in not just Indonesia but any emerging market. If they see an inefficiency and they go, Hey, I'm gonna easily solve that, because that's a question of better streamlining or better user interface design.
(19:23) I'll always ask, then always question, who's benefiting from this inefficiency? Because someone is. Right. And so before you go in there and try to muck everything up, always question, who's really profiting from this big headache and this big issue that's happening? One of the things that I find about Indonesia, rather than go head on It's actually better to find ways to work with the local system the way it is. But maybe you'd like to empower people differently. So, for example, this is also one of (20:00) those industries in the world of waste management, how do you empower the local mafias there
(20:06) work together with your waste management solution? Companies are experimenting to find ways to empower these people by giving them an official title. Giving them a work contract for the first time in their lives. They're in the formal sector and get paid a little bit more.
(20:21) People are already scared of them anyway. They can be security. There are ways of dealing with the system rather than just going head to head which is not necessarily the most productive way.
(20:33) Jeremy Au: Yeah, I think it makes a lot of sense and it's been interesting to see that story happen time and time again.
(20:39) These people wants to take care of their families and the community, how do you do it, right? So I think, giving them that formal way of work and applying that, makes a lot of sense. I think what's interesting is that when you look at this article as well, I think it was also talking about the fact that, you know, there's not really a national people's organization which is quite interesting because
(20:59) Gita: I think
(20:59) Jeremy Au: (21:00) different
(21:00) countries that at some level, the gangs have tough wars. And then they sort themselves out.
(21:04) Gita: Right.
(21:04) Jeremy Au: And then they slowly become systemized.
(21:07) Gita: They start rolling up, M&A,
(21:09) Jeremy Au: acquiring like, and then it becomes more formalized, right?
(21:13) Yeah. Like Luzar or triads. But it sounds like this situation is very much more fragmented. Every island has different groups. There's a lot of fragmentation.
(21:21) Gita: You can say that.
(21:22) Jeremy Au: Yeah.
(21:22) Gita: Yeah. It's more fragmented. There are some that are just bigger. There are organizations, often they're backed by a politician.
(21:30) Or they're backed by a party, or they're backed by some kind of other organization. They can get bigger. They can get to the level where they can be seen as an actual people's organization you should work with. And there are some that have turf wars, but again, there's no real formula,
(21:48) Jeremy Au: yeah, yeah, yeah,
(21:49) Gita: depends on your locality sector and what you're doing.
(21:52) Jeremy Au: So the solution, would be, this is amazing, they should just roll- up all of it. It's a formal organization. The ultimate platform. And then (22:00) that's it, you know?
(22:01) Right. There we go.
(22:01) Gita: That's hilarious. What are you doing? I'm creating the first platform for Preman. And it's like, what?
(22:08) Jeremy Au: It's just, you gotta roll- up all of it.
(22:09) Gita: A B2B SaaS solution.
(22:11) Jeremy Au: Sorry, Preman as a service.
(22:13) Gita: Preman as a service.
(22:15) Jeremy Au: So, that's true. But, you know, I think what's interesting is, let's talk about solutions, I think you gave a few of them, right? You said that some people just leave, just exit the zone.
(22:23) Gita: Yeah.
(22:24) Jeremy Au: Others just collaborate and do the payments, whatever. They can make sense, right,
(22:29)
(22:29) Gita: complain to a minister.
(22:30) Jeremy Au: It gets reported out by the Chinese, true, you know, English newspaper. So, the Chinese Communist Party is like, oh, hey, I see the bad signal, time to come and protect my multinational corporations.
(22:42) I'm just kind of curious from a local perspective, how do you think about it? Is it like, fix the system
(22:46) Gita: My
(22:46) gosh.
(22:47) We've all been very familiar with the situation. I think probably since we were born. And it's always this question of, well,
(22:55) you could find a way to reduce these incidences locality by (23:00) locality. But really, what people have been looking for is more certain rule of law on administering the law. It's that simple. And yet it's not. It's basically this question where we always ask, wait, is that law made for only that person? Which we've done. Let's be super real. We've done things where not administered equally, right? Right. So, usually the lower down of the socioeconomic ladder you are, you'll experience the law much more than people up top. And that's not what makes the country have a strong rule of law.
(23:32) Right. The whole concept is everybody has the same right to due process. Right. So, I think this is a huge homework for, to really consider strong, not just legal reforms, but also strong administrative of the law. Like, how do you administer it in a way that is equitable? So, it's not as simple as, oh, let's just roll out the military and police everywhere.
(23:54) But it's more about, no, how do you make it so that it makes people want to (24:00) work and contribute and invest. And we're not talking about just, oh, well how do you get the BYD to invest, but also how do you make it so that your Mom- and- Pop store is safe. And Mom- and- Pop stores feel like they can really thrive. And in that locality, do you make it easy for people to open bank accounts? Do you make it easy for people to open LLC. I'll bet how easy is it for them to get traditional bank financing, for example, which is closed for so many sections of society.
(24:30) It's about that. It's just letting capital flow which we're often not doing because they are so scared of not having it to begin with, that with the scarcity mindset, we end up with rent seeking behaviors,
(24:44) Jeremy Au: right
(24:44) Gita: rather than enlarge the pie. I better make sure I eat the pie while it's there.
(24:49) Right.
(24:49) Jeremy Au: Yeah, that makes sense. If I was a Mom- and- Pop store,
(24:52) Gita: yeah
(24:53) Jeremy Au: and if I look too rich or successful, someone's gonna come after me and offer more
(24:57) Gita: oh god
(24:58) Jeremy Au: protection money.
(24:59) Gita: Yeah.
(24:59) Jeremy Au: Then you're (25:00) just gonna be like, well, I'm just gonna eat. That's not gonna become too successful. And I'm not going to put my head
(25:04) Gita: I'm gonna put my head down.
(25:05) Jeremy Au: Keep my head down and survive. Speaking about rule of law, what was interesting is that we recently had a eFishery. The founder came out and confessed to fraud.
(25:13) He felt like he was doing it for a greater cause. And then he talked about the numbers.
(25:17) And
(25:18) he explained how he made the decision several times to commit that fraud. He shared that there was a point when he could have stopped the fraud and caught up with his lies.
(25:26)
(25:26) Gita: Lies. They were lies. Yes.
(25:28) Jeremy Au: His accounting numbers versus his real numbers. Then he said, SoftBank came and, and, so I had, you know, he had felt like, he felt obliged to keep going anyway. Sure. This saying it from his perspective.
(25:39) Gita: I know. And We all read that article.
(25:41) Jeremy Au: We all read
(25:42) article. It was mind blowing because at the start of this process, all of us were like, is this true? Is this the VCs who pushed him too hard? And now he's come out and just said he did it.
(25:53) Gita: Yeah.
(25:54) Jeremy Au: And he did it early.
(25:55) Gita: Yeah.
(25:56) Jeremy Au: I don't know how you feel about what he wrote.
(25:57)
(25:57) Gita: Again. this is the part where I (26:00) say, really question why there's so much rent seeking behavior. But with what he did, I mean, they were very much a way to mislead people. And it was very conscious.
(26:11) Jeremy Au: Yeah.
(26:11) Gita: And this whole, I did it for the greater good before we start demonizing different groups of people for trying to make money fast.
(26:19) A lot of people actually think like that, right? When they're squeezing other people. When you're bullying other people. Oh no, I'm only doing it for my family's wellbeing, for my sick child, for my wife. There are many ways to justify that you're simply doing the wrong thing.
(26:36) But again, the question is always how do you create systems in place? An environment where people are just less likely to go into rent seeking behavior.
(26:46) Jeremy Au: Right.
(26:47) Gita: Right? They can't be working super hard and go, oh shoot, I'm still only gonna make $5,000 a year no matter what I do, no matter how hard I work, no matter what sector, I can't go all the way up the ranks because it's always gonna (27:00) be the owner's kit up top.
(27:01) Again, I am totally not okay with what he did. I really think he should somehow pay for it one day. Not sure why it hasn't really escalated towards anything legal. But again, the problem is, what kind of environment are we creating?
(27:16) When he was saying, oh, other founders do it too. Yeah. Because one, Ooh, which founders? But also I know a lot of founders. Yeah, like there are some who probably did it, but the majority of founders are not like that at all. And they'll never get a better chance to defend themselves in front of investors because now he's ruined it for pretty much everybody else, like normal founders who are just trying to work hard and do the right thing.
(27:45) And then you meet them. And the first thing out of some random VC's mouth would be, oh, I hear you. Indonesian founders do this, and that's really not fair.
(27:55) Jeremy Au: Yeah, he basically said that it's a common behavior across Indonesian founders. So, I (28:00) was just like, well, that's pretty mean. And yeah, because you know the kind of statement,
(28:05) I just think that, I'm actually
(28:06) Gita: pretty wrong.
(28:06) Jeremy Au: Yeah, exactly.
(28:07) Gita: So, the majority of Indonesian founders find it very hard to raise funding. In general, in almost any year. They're the ones building solutions and they have to switch to become profitable very early on.
(28:18) I know tons of these founders. Until today they run profitable businesses. The growth isn't stratospheric, but they're trying to make something work and they give a living to their 10 to 50 employees. Now what? They can't stand up high because someone sold them out and basically claim that they're just like this person who committed lies.
(28:40) That's really not fair.
(28:41) Jeremy Au: Yeah. I think it's just not great. And like you said, I think it's definitely real. A stigma associated to Indonesian founders
(28:47) Gita: right now
(28:48) Jeremy Au: right now. It's just really not great. I think, you know what was interesting about that, you said something like, that you feel like it hasn't been escalated yet.
(28:56) Gita: Yeah.
(28:56) Jeremy Au: So, I guess a good question is, is the Singapore police or the (29:00) Indonesian police gonna do anything about this?
(29:01) Gita: I think another thing that makes it not great for the Indonesian ecosystem is that this isn't the first case, right?
(29:08) We've also just had it beforehand, is that you see these founders still moving around. They're still walking out and about, and there's no real legal repercussions so far.
(29:21) Jeremy Au: Right. And I think that's really the crux of it, right? America also has founders who committed fraud.
(29:27) Gita: A hundred percent.
(29:28) Jeremy Au: And they went to jail. Elizabeth Holmes went to jail.
(29:31) Gita: They have documentaries.
(29:32) Jeremy Au: They demonetize that.
(29:33) Gita: They told that,
(29:34) right?
(29:34) Jeremy Au: At least they go to jail.
(29:35) Gita: At least they went to jail.
(29:37) Jeremy Au: And I think the tricky part is you know, it was really interesting because at the end of this story of the eFishery confession, he's chilling on a farm with his brother setting up a new business.
(29:45) I think I was talking to a lawyer called Rachel Wong, and we were discussing more from a legal perspective and she asked me this question, I was just like, you know, I hope it's not pessimism about this organization ecosystem.
(29:55) I hope it's cyclical, and I think what I realized was like whether this is structural cyclical (30:00) depends on what happens in these instances because if there's no enforcement action, i'm not saying that he's guilty, I'm just saying that he confessed to doing it, but there should be an investigation
(30:09) to figure out the magnitude,
(30:09) Gita: discovery
(30:10) Jeremy Au: Figure out what the appropriate level of action is gotta be. But at least that has the start the fact that there's nothing starting, and I'll just say like,
(30:17) well on the Singapore side, what's the point of being the Delaware of Southeast Asia if you can't do enforcement action?
(30:25) Gita: Actually, that's a great question.
(30:26) Jeremy Au: Defrauding investors, investing in a Singapore entity.
(30:29) Gita: That's a great point.
(30:30) Jeremy Au: So, I feel like Singapore should be doing it because if a founder that was doing in Singapore, that definitely had problems.
(30:35) Yeah, I think he reported. Right. So, I think there's one part. Of course, the other part is Singapore don't do it. Would the Indonesians do it?
(30:42) Gita: It's us.
(30:43) Jeremy Au: You should also do it. It means your jurisdiction, like, it's your farmers, agree, your employees
(30:48) Gita: Agree.
(30:48) Jeremy Au: You know?
(30:49) Gita: I think what I've been saying a lot about why doing business in Indonesia gets very hard.
(30:57) All of our macros are super interesting. Our (31:00) demographic is young. It's very big and it's very promising. I agree to all of that, but the flip side of that is realizing that we just don't have strong rule of law, especially the enforcement side. We shouldn't have a situation where it's no viral, no justice.
(31:17) We shouldn't have a situation where rule for the few, rule for none. We can't have that concept. It seems that concept tends to happen again and again even if you look at some of our biggest corruption cases. The end point is rarely terrible. Someone could defraud the state by billions of dollars and then they end up in jail for two years or sometimes six months.
(31:41) Jeremy Au: And it's a pretty good ROI, I mean.
(31:43) Oh gosh. true.
(31:44) Gita: That's true for the person, not for
(31:46) all
(31:46) of us, right?
(31:46) Jeremy Au: It's like two years of jail for,
(31:49) Gita: billions, a
(31:50) Jeremy Au: billion dollars per year.
(31:51) Gita: But that's why you have people being very pessimistic, right, with how justice works. And I think like what you said, you can't be the (32:00) Delaware of Asia.
(32:01) Yeah. And not proof that you are a place that, that's safe to invest. But Indonesia is the same. If you're going to really leverage this supposed bonus demographic of people who are young and work ready and ready to be educated, and there's so many of us, you then also need a place to make us feel safer to do business, invest, and actually just live in the local area.
(32:29) Jeremy Au: You know, I'm just kind of wondering as like, is a single police force waiting for the Indonesian police and is it, oh gosh, hope single police? I hope not. I mean, I'm just wondering if they're like, you know, is this kind of like waiting for the other person to you'll,
(32:40) Gita: you'll be waiting for Indonesian police force for a long time.
(32:44) Jeremy Au: What they should do is hold hands and go to the dance floor together and start the party going.
(32:49) Gita: It's been wild and I think it's something that lots of people are asking for, right? Right. It's for all, not just a for select group.
(32:56) Jeremy Au: I think what's interesting is that, we're talking about(33:00) this issue like, what's the way forward?
(33:02) Is it
(33:02) my proposal? Police, the Indonesian police take action on this. They can figure out the investigation.
(33:08) Yep. And then, you know, that provides a certain set of guidelines to whole side which is you can, yeah. Who don't do accounting fraud? Otherwise, you'll be investigated as a norm for founders. I think that builds investor confidence across the region. Yeah. It also helps good in Southeast Asia say, okay, we can build.
(33:26) Gita: Yeah.
(33:27) Jeremy Au: And it.
(33:28) Gita: Yeah.
(33:28) Jeremy Au: From this process.
(33:29) Gita: Yeah.
(33:30) Jeremy Au: And that'll be, I don't know, one small step, for this.
(33:33) Gita: Absolutely.
(33:34) Trust me, I'm a very big fan of very large cases like these, especially cases that went this viral to have some kind of legal repercussion. Even a discovery would be something, anything, right?
(33:48) So, I think to have some kind of formal legal proceedings happening, as a next course of action would be great because I hope the global instability happening (34:00) right now would at least push Indonesian lawmakers and also just Indonesian public sector to start taking this issue of legal reform and administering the law equitably in a more serious manner.
(34:14) Because with economic crisis, this is my second one is a bill paying adult. Because, the first one I was still a teenager. Third, economic crisis, I guess in a way. Sometimes, economic crisis can make for the best sometimes. I really hope now that there's so much economic instability that hopefully this down word cycle will compel lawmakers and the public sector to make Indonesia a better place to live, work, and do business in.
(34:46) Jeremy Au: I think, maybe that's also an interesting piece because you're talking about the macro globally.
(34:51) Gita: Yeah.
(34:51) Jeremy Au: And obviously there's been a tariff situation that has happened.
(34:55) Gita: Right.
(34:55) Jeremy Au: And I thought it was an interesting piece. So for Singapore, it's a 10% (35:00) tariff. Even those America was more to Singapore than. right,
(35:04) than Singapore sells to America. Yeah. And we had a free trade agreement, so technically, it supposed to be zero, but here we are at zero and now up to 10%. What's the situation with the, you know, kind of like current US administration and the Indonesia tariff?
(35:17)
(35:17) Gita: So, it, it runs gamut, I think. And also we recently sent people to negotiate there. I think you're now looking at anywhere in the tens percent, but depending also on the sector. Yeah. I think we got also hit with some crazy tariff regarding I think solar panel or energy.
(35:39) Jeremy Au: Oh yeah, this came out
(35:40) last weekend.
(35:40) Yeah.
(35:41) Gita: It's like
(35:41) in the thousands percent. But I think what is obvious in all of these things, is that either way, we're gonna be put in a very tight spot. So, if you're in a tight spot, what are you gonna do, right, to make country a better place to live, work, and do business in?
(35:58) Jeremy Au: Right.
(35:58) Gita: I mean, that's it, (36:00) because either way we're, we're pretty challenged in all fronts, whether it's like 20% or whether it's, you know, whatever thousand percent it is for renewable energy and solar. But again, when you're experiencing a squeeze, you could either make the flow of capital easier so that people can better run their businesses.
(36:20) And I'm not talking the BYDs of the world, i'm also talking all the Mom- and- Pop stores, all the small, medium businesses, so they realize they can still move up in this world. Let's hope that this squeeze can push our public sector to do better.
(36:35) Jeremy Au: I think it's a good point because we've, Indonesia has made a promise of like going for 8% economic growth between the average 5% growth.
(36:44) That has been so far the delta of that 2%. Also be based on unlocking export.
(36:49) Gita: Yeah.
(36:49) Jeremy Au: And then the big part of it going to America, for example. Right. So, I think that was one of the, economic assumptions, yeah, of that acceleration. Do you think there's gonna be a reset on one of it?
(36:59) Do you (37:00) think
(37:00) there's a reset?
(37:01) Gita: We have to be flexible without feeling the need to make any enemies. We've always been very good at staying neutral and being friends with a lot of people. We should probably keep doing that.
(37:10) Jeremy Au: Yeah.
(37:10) Gita: But make it a much easier place to invest.
(37:13) Jeremy Au: Yeah.
(37:14) Gita: We are notorious with sometimes making things much harder than it's supposed to be. And we even have a saying, " you can make it easy, why just make it hard?" Yeah. That's a real saying that we say
(37:27) Jeremy Au: No. Is it?
(37:28) Gita: Yeah, yeah, yeah.
(37:29) Jeremy Au: Are you saying that the explanation of that statement is, if you make it harder for somebody else, you can make money from that?
(37:34) Gita: Yeah.
(37:35) Jeremy Au: Wow.
(37:35) Gita: It's very rent seeking, so it's like why make it easier?
(37:38) Jeremy Au: such a,
(37:38) Gita: So unfortunately, that's a thing that a lot of local people say. The only reason I'm saying this is because, look, there are a lot of things that are great, obviously, right, about Indonesia, right?
(37:49) But we often live harder for ourselves. And especially the government, decades made a lot of things that simply don't help the typical Indonesian person, the typical (38:00) Indonesian business. I hope this becomes a wake up call.
(38:03) Let's see what happens next. Let's see how we decide to pursue this current downward cycle.
(38:08) Jeremy Au: Thank you so much! I thought it was a really wonderful conversation.
(38:11) Gita: Yeah. As we talk about gangsters. Okay. One fun fact, there's a study called The Flourishing Study, and it's actually about social cohesion around the world, like what country counts as being
(38:22) the most socially cohesive? Hmm. And Indonesia I heard is like number one or number two in the world. Wow. And what's super interesting about that is 'cause people are like, 'Gita, you make it sound like it's such a hard place.' It is a hard place to do business. I'm not gonna lie. Is it better now than before?
(38:40) Absolutely. But of the things that I think, keeps me going there is it comes to social cohesion and actual sense of community, probably one of our biggest strength. Yeah. So, when I say like a lot of local communities have actually fought against gangsters, that is a real thing.
(38:56) Jeremy Au: Yeah.
(38:56) Gita: So, the mom- and- pop stores of Indonesia all the (39:00) way to religious organizations have fought against that culture. And I think sometimes when they find a way to incorporate this informal sector into the community, that's when you start seeing things
(39:12) better. We're also a flourishing society despite having so many troubles.
(39:17) Jeremy Au: Well, on that note, let's wrap things up. Thanks so much!