The Regulatory Framework of Village-Owned Enterprise in Indonesia: Does It Conform with Good Corporate Governance Principles?

Abstract

The establishment of Village-Owned Enterprises (“BUM Desa”) in Indonesia is expected to improve the village economy. Business entities like BUM Desa receiving capital from the public budget must apply Good Corporate Governance (GCG) principles, which include transparency, accountability, responsibility, independence and fairness. BUM Desa need to be managed based on these principles to reach their maximum potential and fulfil public accountability. A few studies have shown that many public organizations have not been able to ensure public accountability. Laws and regulations on BUM Desa do not specify and regulate GCG principles explicitly. Previous regulations actually contain clearer management principles in line with GCG principles. However, these have been revoked. This paper aims to examine and discuss the accommodation of GCG principles in the laws and regulations related to BUM Desa and the extent to which they intersect with GCG principles. It is part of a research project that examine the implementation of GCG principles in BUM Desa in North Sumatera region. Based on normative legal research, this paper concludes that the current legal framework on BUM Desa contains provisions which mirror the aspects of the GCG, in essence, aim to implement parts of the GCG. Unfortunately, it is still not adequately comprehensive. The legal framework should explicitly contain and adopt the principles of GCG, which consist of transparency, accountability, responsibility, independence and fairness. These principles must then be translated and formulated in such a way that it can be implemented in accordance with the capacity of BUM Desa to provide a comprehensive management and accountability standard for BUM Desa.