To gain support from the Muslim community, the narrative of sharia economy is developed towards addressing the relative backwardness of Indonesian Muslims in the economic arena. Non-Muslims are perceived as dominating the economy at the cost of Muslims’ well-being. The Muslims in turn, as the majority, think that they should have control over the country’s economy, and sharia economy is perceived as a means for achieving this goal.

The MUI (Ulama Council of Indonesia) established two important pillars for sharia economy. The first is sharia-based banking and financial businesses, designed to improve the welfare of the community and nation. The second pillar is halal economy, enforcing the lawfulness of goods produced and consumed by Indonesian Muslims through the issuance of halal certification.

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In October 2019, Indonesia passed a law on halal product assurance, transferring the authority for halal certification to a state body, but the MUI still has a significant role in the process, as the issuer of halal fatwa.

The launch of the Indonesia Masterplan of Sharia Economy 2019-2024, demonstrates Jokowi’s support for sharia economy.

The two pillars underpinning the emergence of sharia economy reflect a significant change of the shariatisation model in Indonesia from cultural to structural. Since the establishment of various Islamic organisations in Indonesia, in particular MUI, the shariatisation of some aspects of public life has been undertaken through the model of cultural shariatisation. All sharia-associated economic activities initiated by MUI for instance were done without any direct intervention from the state.

However, the current state intervention in the development of the two pillars demonstrates its strong will to be involved in the shariatisation project. This also indicates that the position of the Indonesian state to Islam is not neutral. In many cases, although the first initiative of shariatisation comes from MUI, when the state sees opportunity and benefit it takes over the shariatisation. This is evident in halal economy.

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The state’s support for sharia economy ties up with its priority to promote national economic development. As a Muslim majority country, and with both Muslim and non-Muslim scholars declaring that Islam is compatible with economic growth, the government feels that the sharia economy must be addressed at a policy level. It needs to devise an appropriate strategy in ensuring the promotion of sharia economy does not jeopardise Indonesia`s ability to sustain economic growth, secure access to international markets and retain investor confidence. In other words, state support for sharia economy is prompted by political necessity, but also constrained by current economic realities.

The structural shariatisation of the economy is problematic for the future of Indonesian democracy because it can lead to the shariatisation of other sectors. In a democratic system, structural shariatisation should not be allowed to happen because the state is not allowed to exhibit favouritism of one dominant legal system over others. Halal economy is an obvious example of proliferating the supremacy of one legal system over other legal systems in Indonesia.

Sharia economy, particularly halal economy, is perceived by non-Muslim groups in Indonesia as an economic system that deepens social segregation. In some big cities like Jakarta and Medan, halal-based social segregation has started to appear in the public sphere. People have the tendency to avoid consuming food provided by different religious groups. The legislative process of state laws on sharia economy and halal economy also tends to exclude the interests of minority groups.

Sharia economy is not only about the implementation of sharia doctrine in the economic field but also about its implementation in the legal and public sphere. Some laws on sharia economy – such as sharia banking and halal economy – indicate shariatisation from the cultural and structural angle. The production of state laws in relation to this issue is an obvious sign that the state plays a key role in shariatisation. It means that the position of the state is no longer neutral. In fact, in the last 20 years, it has accelerated the process through a growing number of sharia-related state laws.

Importantly, sharia economy goes beyond economics and affects politics within the country as well, as the implementation of sharia economy is supported by political efforts. Therefore, it is difficult to separate one from the other.

This is an edited version of a paper titled “The Political Economy of Sharia and the Future Trajectory of Democracy in Indonesia”, published in ISEAS Perspective No 108 by the ISEAS-Yusof Ishak Institute