Economic Liberalization Has Gone Too Far

Kompas

Didie SW

From the establishment of the Republic of Indonesia until 1967, no concrete details had been provided on Article 33 of the 1945 Constitution, which stipulates: "Goods that are important to the state and the branches of production that affect the livelihood of the people are to be controlled by the state and used for the greater prosperity of the people. ”

The details are only found in Law (UU) No. 1/1967 on Foreign Investment, which mandates that "goods that are important to the state and the branches of production that affect the livelihood of the people" may be controlled by the private sector, especially foreign private enterprises. Let's take a deeper look.

UU No. 1/1967

This law was the first to be issued as a result of the work of an economic team known as the Berkeley Mafia.

I quote excerpts from the book Economists with Guns by Bradley R. Simpson, which describes the birth of that law. It clearly indicates that the United States (US) government had influence in dictating the contents of this very crucial law in order to realize "economic colonization" by the American corporatocracy and government. Regarding the issuance of Law No. 1/1967, Simpson writes as follows.

Page 235: “The US heavily influenced the drafting of Indonesia’s foreign investment law. A consultant from the Denver-based Van Sickle Associates (who recently signed a production-sharing contract for the construction and operation of two plywood companies) helped the economist Widjojo Nitisastro draft the bill, which Indonesian officials gave to the Embassy in Jakarta, asking for comments on ‘possible improvements from [the] standpoint [of] US investors’.”

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It adds: “Legal experts from the US Department of State sent back the draft law with line-by-line proposals. They objected to the bill because it gave too much discretionary authority to the government that could discourage potential investors, because the state-owned enterprises are given opportunities in many business fields that large foreign companies want to enter, primarily extractive companies.”

It also says: "Widjojo revised the bill in accordance with the US suggestions, seeking the language which would ensure the maximum liberalization he also favored while placating economic nationalists on the lookout for signs that Jakarta was bowing to Western pressure. This episode reminds us very clearly of the power structure dictated by supporters of the Suharto regime in important decisions made by independent countries.”

Law No. 1/1967 on Foreign Investments was issued through the process as described in the book. Article 6, Paragraph 1 stipulates: “Business fields which are closed to foreign investment for full exploitation are those which are important to the state and affect the livelihood of many people as follows: (a) ports; (b) production, transmission and distribution of electricity for the public; (c) telecommunications; (d) education; (e) aviation; (f) drinking water; (g) public rail services; (h) atomic power generation; (i) mass media.”

KOMPAS/SUPRIYANTO

Supriyanto

This means that foreigners can control these fields, but they must establish a joint venture with domestic companies. The percentage of shares that foreigners can own is stipulated in the succeeding law, namely Law No. 6/1968 on Domestic Investment. Article 3, Paragraph 1 of this law reads: “A national company is a company in which at least 51 percent of the capital is owned by the state and/or national private companies. This percentage of shares must be increased so that it is at least 75 percent on 1 Jan. 1974.”

This means that foreign companies are allowed to own 49 percent of companies engaged in those business sectors considered important to the state and affect the livelihoods of the people. One year earlier, namely Law No. 1/1967, there was still no stipulation on the maximum shares foreign companies could own.

PP No. 20/1994

Government Regulation (PP) No. 20 was issued in 1994. Article 5, Paragraph 1 of the PP allows foreign companies to conduct business activities that are important to the state and affect the livelihoods of many people.

It reads: "Companies established as referred to in Article 2, Paragraph 1(a) may conduct business activities classified as important for the state and affecting the livelihoods of many people, namely ports, the production, transmission and distribution of electricity to the public, telecommunications, shipping, aviation, drinking water, public railway services, atomic power generation, and the mass media.”

Article 6, Paragraph 1 of the regulation states: "The ownership of Indonesian participants (investors) as referred to in Article 2, Paragraph 1(a) must be at least 5 percent of the total paid-up capital of the company at the time of establishment.”

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This means that foreign companies are not allowed to fully enter business fields that are classified as important to the state and affect the livelihoods of many people. The Article 3, Paragraph 1 of Law No. 6/1968 implicitly states that foreigners may own and control up to 49 percent. Meanwhile, Law No. 4/1982 entirely prohibits foreigners from entering the media business.

Strangely, Government Regulation No. 20/1994 states that if a company has 5 percent Indonesian ownership, it can be classed as an Indonesian company that may conduct business activities that are important to the state and affect the lives of many people, including the mass media. So Government Regulation No. 20/1994 is contrary to Law No. 1/1967, Law No. 6/1968 and Law No. 4/1982, and also opposes the spirit of Article 33 of the 1945 Constitution.

In another respect, Government Regulation No. 20/1994 is also contrary to Article 6 of Law No. 6/1968, which states: “The business duration of foreign companies, both new and old companies, is limited as follows: (a) In the trade sector ends on 21 Dec. 1997; (b) In the industrial sector ends on 31 Dec. 1997; (c) In other business fields, the government will determine a time limit of between 10 and 30 years.”

In Government Regulation No. 20/1994, 5 percent Indonesian ownership is the threshold for a company to be allowed entry to important business sectors. There is no longer a time limit for reducing the portion of foreign ownership. What is also very painful is that Article 33 of the 1945 Constitution has been interpreted wrongly, as though important business sectors can now be controlled by foreign companies as long they have Indonesian ownership of at least 5 percent.

This is similar to challenging or belittling the 1945 Constitution.

Infrastructure Summits I and II

During Infrastructure Summit I held on 17-18 Jan. 2005 by then-Coordinating Economic Minister Aburizal Bakrie, it was stated that Indonesia had opened its doors wide to foreign investors to invest in and profit from infrastructure and other public goods. The business community and companies were told that no branches of production, usually called public goods, were now closed to private investors, including foreigners.

In a publication titled Indonesia Infrastructure Summit, January 2005, Aburizal said: "The January 2005 Summit focused on a large number of concrete opportunities in various sectors such as toll roads, energy, communication, water and transportation. We invite you to be our partners. We invite you to take advantage of the huge opportunity to invest in our economy. We invite you to prosper together. The government can provide around 17 percent of the total investment, while the rest is expected from nongovernment sources.”

Vice President Jusuf Kalla said on closing the summit: “To put this in sound commercial terms, we wish for outcomes in fees and tolls that are commercially sound, competitively determined, predictable and fair. If the charges and fees for infrastructure services are competitive and tendered, and regulated by contracts that include indexation against cost charges, for example, this makes infrastructure earnings less risky and capable of attracting much capital at a reasonable cost.”

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The essence of the two senior officials’ speeches was that first, Indonesia only had 17 percent of the money needed to build infrastructure. The rest was expected to come from the private sector, especially foreign private companies, given the massive campaign to attract foreign companies to invest in the country. Second, Indonesia was inviting them to take advantage of the infrastructure projects that should be profitable because they were indexed to costs.

It is very clear that infrastructure, which is a public good, was considered goods and services that were to be used as common business objects to make profits. This way of thinking is one that I have rarely come across, even in capitalist and highly developed countries where the people are mostly wealthy. In Indonesia, however, where the people are still mostly poor, are required to pay if they want to use infrastructure so they can provide benefits for foreign and domestic investors, all of whom must have large capital.

Infrastructure Summit II was held in June 2006 under Boediono as the Coordinating Economic Minister. During that event, Boediono reiterated and emphasized the earlier statement. He also promised that the government would not treat foreign and domestic investors differently.

Investment Law No. 25/2007

This law replaced all laws and regulations in the investment sector. The main points are as follows.

Article 1, which defines “General Provisions” and consists of many paragraphs, essentially states that there is no difference between foreign capital and domestic capital. Article 6 states: "The government provides equal treatment to all investors originating from any country who carry out investment activities in Indonesia...”, while Article 7 states: "The government will not take actions to nationalize or to take over investment ownership, except by law.” Article 8, Paragraph 3 allows foreign companies to transfer and repatriate foreign exchange with great discretion.

In its entirety, Article 8, Paragraph 3 stipulates: “Investors are given the right to make transfers and repatriations in foreign currencies, including: (a) capital; (b) profits, bank interest, dividends and other incomes; (c) funds needed to: (1) purchase raw and auxiliary materials, semi-finished goods, or finished

goods, or (2) replace capital goods in order to ensure the viability of investment, then, (d) additional funds required for investment financing; (e) funds for loan repayment; (f) royalties or fees payable; (g) income from individual foreign nationals working at investment companies; (h) proceeds from the sale or liquidation of investment; (i) compensation for losses; (j) compensation for takeovers; (k) payments made for technical assistance, fees payable for technical and management services, payments made under project contracts, and payments for intellectual property rights; and (l) proceeds from asset sales as referred to in paragraph (1).”

Article 12 states that all business fields are open to investment activities, except weapons manufacturing and business fields explicitly declared closed by law. According to Presidential Decree No. 36/2010, these include cannabis cultivation, gambling/casinos, and alcoholic beverage production. The right to land is extended to 95 years, the right to build (HGB) to 80 years and the right to use to 70 years.

Massive liberalization

Many people say that the Indonesian economy since 1967 has been in the hands of neoliberals. Today, all of our economic policies have nothing to do with Pancasila or the 1945 Constitution.

From Law No. 1/1967 to Law No. 25/2007, it is very clear that the government's economic policies are systematically and consistently directed to give as much freedom as possible (liberalization). The market mechanism plays a more important role and in the end, Indonesia practically does not recognize the public goods and services that should be provided by governments everywhere in the world and, jointly financed by mutual cooperation, can be used free of charge by taxpayers.

KONTAN

Kwik Kian Gie

If we put this in the context of economic philosophy, it is very clear that Indonesia is one of those countries that have adopted excessively liberal economic policies. Many people say that the Indonesian economy since 1967 has been in the hands of neoliberals. Today, all of our economic policies have nothing to do with Pancasila or the 1945 Constitution.

Kwik Kian Gie is a former Coordinating Economic Minister (1999-2000) and National Development Planning Minister/the National Development Planning (Bappenas) head (2001-2004)

(This article was translated by Hendarsyah Tarmizi.)