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.