Mon, 11 Sep 2000

Abuse of market power

The democratization process in Indonesia, which has accelerated after the fall of former authoritarian president, Soeharto, in May 1998, has now entered the economic sector with the enforcement last Tuesday of the Antimonopoly Law. While the political democratization process and the resultant reform movement seek to prevent absolute power through checks, balances and free elections, the Antimonopoly Law, through free market competition, will discipline the holders of economic power and prevent them from abusing their market dominance.

Democracy on one side and market economy and fair competition on the other are indeed, as most economists say, the two sides of the same coin. While democracy distributes, decentralizes and checks political power through free elections, economic power is controlled through fair market competition.

The Antimonopoly Law, enforced after 18 months of preparation, will strive to make the domestic market, which was previously a jungle without clear rules of the game, a level-playing field. It will, at the very least, serve initially as a deterrent to big business groups from abusing their market power. The big market players will no longer be able to trample the smaller ones.

The Business Competition Supervisory Commission, which started working with the introduction of the law, will see to it that companies which hold more than 50 percent of the national market through restrictive business practices, will either lose their business licenses, be fined between Rp 25 billion and Rp 100 billion, or the directors or owners could be jailed for six months.

The law rules against a broad range of anticompetitive practices such as cartels, oligopolies, trusts, merger controls, vertical restraints of competition and abuse of market dominance. Two or three companies which between them hold more than 75 percent of the market for the same product would run afoul of the law. Likewise, a dominant market position gained through the ownership of majority shares in several companies, operating in the same line of business, also violates the law.

It is only natural if the law doesn't yet apply to state-owned companies, small-scale businessmen or cooperatives whose businesses such as telecommunications and other basic utilities are aimed for the benefit of the public.

One should not, however, see the law as an antibig businesses drive. Big conglomerates are here to stay as long as they uphold fair competition. In fact, the law allows a company to hold more than 50 percent of the market as long as the market dominance was gained through healthy competition.

But the task of the commission will be quite challenging. The rapidly developing business practices, the broad definition of what is considered restrictive or dishonest business practice and the vast grey areas between them will make complaints on abuse of market power or monopoly a very complex case to handle. What will make the job even more formidable is the fact that the commission will deal mostly with big businesses, including international ones, which are often skilled in finding loopholes in laws to maximize profits and can afford to hire high-caliber lawyers.

Fortunately, though, the commission has been designed from the outset as an independent body. Moreover, integrity and technical competence have been stipulated as the most important criteria for the commission members so as to be less susceptible to collusion and bribes offered by big businesses.

The effectiveness of the law will indeed depend largely on the commission as its decision is legally binding and also on the Supreme Court which handles appeals. Given the widely-criticized performance of the Commercial Court which enforced the Bankruptcy Law -- another important commercial legislation -- the government should see to it that the commission is adequately funded and staffed with highly competent investigators.

Being an entirely new body in charge of enforcing completely new legislation against 'powerful' big conglomerates, the commission should naturally be allowed to grow on the job. But given the low public trust in law enforcement, the commission does not have the luxury of a long learning process by trial and error. Its top priority therefore is to establish credibility in its handling of the first few cases of complaints. The commission also should have a clear sense of priority, zeroing in on cases that adversely affect the public's interests and the efficiency of the economy.