The Complexity of Indonesia’s Halal Economy

In November, a group of Indonesian legislators revived a long dormant debate over a proposed ban on the sale of alcohol in the country. Every few years this topic seems to come up for discussion, and it usually comes to nothing. But Indonesian politics has lately been taking a decidedly conservative turn, so it wasn’t immediately clear if the anti-alcohol sentiment would have more staying power this time.

The bill was quickly shot down, with members of the PDI-P, Golkar, and Gerindra coming out against it. One legislator worried that the bill could potentially harm the economy and its battered tourism industry, bolstering his case with the observation that “Germans like to drink beer.” Moreover, the bill is in many ways unnecessary as alcohol sales outside of licensed establishments and certain major supermarkets were already banned back in 2015 (Bali was exempted). Speaking from personal experience, I can attest that under the existing legislation it is no easy task to find a beer in most parts of Central Java.

This episode speaks to the complexity of balancing economic and religious considerations in Indonesia. In the case of banning alcohol, the decision was seemingly easy as Indonesia already has somewhat restrictive alcohol regulations. But this tension has manifested itself in other more contentious areas, as in 2018 when the Indonesian Ulama Council (MUI) issued a fatwa declaring a new measles-rubella vaccine to be haram (forbidden) since its production involved the use of pig components. The MUI is the highest authority in the country on such matters.

In this context, Jokowi’s decision to nominate Ma’ruf Amin, a conservative cleric who was the chairman of MUI, as his vice-presidential running mate in August 2018 snaps into sharper focus. With the rollout of the COVID-19 vaccine coming up, where speed and public confidence will be key, that move seems rather shrewd in hindsight. For his part, Ma’ruf Amin has already come out and stated that the COVID-19 vaccine does not need to be halal. But it underscores the delicate balancing act required in steering the Indonesian economy – accommodating conservative religious beliefs, without compromising on issues that are seen as critical to economic growth or public health.

In fact, the government is increasingly trying to cater specifically to Islamic consumers and leverage them an engine of economic growth. The Shariah banking arms of the three biggest state-owned banks – BNI, BRI, and Mandiri – are planning a merger that will create the largest Islamic finance institution in Indonesia, and the seventh-largest commercial bank by assets according to Fitch Ratings. Shariah banking has historically underperformed in Indonesia, but there is a lot of room for growth given the large Muslim population and that a substantial percentage of people do not yet have bank accounts.

Indonesia’s halal tourism and fashion industries have also grown considerably in recent years, and the implementation in 2019 of a  halal certification law, which applies to a range of products, shows that a push is clearly underway to tap into the purchasing power of Islamic consumers. And at the center of these ambitions is the MUI, with its ties to the current administration and its authority to approve halal certifications.

It’s still probably too early to make a meaningful judgement as to the economic effect of these efforts one way or the other, but it’s clear the Jokowi administration wants to stimulate the domestic market for Shariah-compliant services and halal products. It’s equally clear they are willing to draw the line when conservatives go too far and propose actions, such as a nation-wide ban on alcohol, that might have adverse economic consequences. It’s a fine line to walk, but for the time being it seems that Germans will still be able to drink their beers when they visit Indonesia.