Concern over deregulation
Concern over deregulation
The great concern, despite the resounding positive reactions, aroused
by the May 19 deregulation of foreign investment is quite
understandable. The move opens wide areas of public utilities such as
sea and air transportation, seaports, drinking water, railways and power
generation and distribution to direct foreign investment. The hiccup was
made even stronger because the mass media industry itself was opened to
foreign majority ownership in violation of the Press Law of 1982.
Several analysts, including noted economist Kwik Kian Gie, have
argued strongly that opening public utilities and services to foreign
investors is contrary to Article 6 of the Foreign Investment Law of
1967. We think, however, the article still allows foreign investment in
those public utilities, not in the form of wholly-owned ventures, but
through joint ventures with domestic interests. The article completely
bans foreign investment only from the production of weapons, ammunition,
explosive materials and other war machinery.
Nonetheless, the reactions and concern we have heard so far were, by
and large, not so much against foreign investors' involvement in the
sector of public utilities, but rather questions as to how the
government would control and manage the public utilities owned by
foreign businessmen.
The questions, to a certain extent, are legitimate. Similar to
upstream industries which strongly influence the performance of
downstream plants, public utilities have a far-reaching impact on both
the business sector and the general public. It is perhaps
also quite difficult for the general public to imagine, for example,
that seaports can now be owned and operated by foreign entities.
Despite these legitimate concerns, we nevertheless think it is too
early to presume that the latest policy measure is detrimental to the
public interest. In fact, judging from our experiences with the control
or monopoly wielded by our own private sector over some industries, we
cannot say that it would have been better to only open those public
utilities to domestic private investors.
On the other hand, foreign ownership or management is not
automatically inimical to the public interest as the case of our customs
inspection of imports has shown. The transfer of the customs inspection
authority from our customs and excise tax directorate general to the
Swiss Societe Generalede Surveillance (SGS) in 1985 has fully achieved
its objective and satisfied both the government and businessmen. The
government has been satisfied because under-invoicing and over-invoicing
practices have been minimized. Businessmen have been pleased with the
much smoother flow of imports and the much lower import costs. So great
has been the SGS performance that businessmen are now worried because
SGS is being phased out of Indonesia's customs inspection.
We think the government is capable of preventing or minimizing any
potential damage of the foreign investment liberalization. As we noted
in this column over the weekend, Government Regulation No.20/1994
regarding the foreign investment liberalization has yet to be translated
into technical directives or guidelines through ministerial decrees. The
technical directives can be designed to safeguard our national interest
and to ensure that the measure will attract more foreign capital and
channel the foreign investment to improve economic efficiency, job
creation, transfer of technology and skills as well as export promotion.
We therefore ask the government not to overreact to the concern over
the foreign investment liberalization. Doing so might prompt the
government to make the technical directives so complex and arduous as to
nullify most stipulations of the regulation itself. It is most important
to make the directives clear-cut and the process of licensing foreign
investment in public utilities fully transparent to prevent the
impression that the deregulation was designed mostly to benefit
particular domestic private companies with strong political connections.