Honoring contracts
President Abdurrahman Wahid's reaffirmation on Monday of the Indonesian government's full commitment to honor contracts with international companies seems designed to assuage the fears of investors pending the decentralization of political and fiscal authority to the provinces and districts early next year.
Many resource-based ventures, notably mining and plantation operations outside Java, have become frequent victims of harassment at the local level. Local administrations and villagers, for more than 32 years completely excluded from the decision making process regarding the exploitation of local natural wealth, are now forcefully asserting their rights.
Former president Soeharto's exit in May, 1998 has unleashed a collection of activists -- non-governmental organizations, local leaders or village heads -- some touting genuine causes, several with self-seeking interests -- that were kept silent during his 32-year authoritarian rule.
All the contracts concluded under the corruption-infested Soeharto regime now seem to be in danger as the legitimate government of President Abdurrahman has yet to build a stabilizing central force and the police and Military are still too discredited to act as respected and credible law enforcers.
The resulting breakdown of law and order in several provinces and the persistent recession have made resource-based ventures located mostly in remote areas highly vulnerable to arbitrary claims and harassment. Local people, mistrusting law enforcement agencies, often resort to violent behavior in asserting their views, resentments or rights. Hence the harassment suffered by the Kelian Equatorial Mining company in East Kalimantan, Freeport in Irian Jaya, Indorayon in North Sumatra and Caltex in Riau.
But the resentment against some companies is quite legitimate given that many contracts or concessions in the past were acquired through corruption or collusion. Many businesses in the provinces had simply ignored local administrations and communities because the only requirement to operate and become prosperous was to keep the central government in Jakarta happy. Local people sometimes received almost nothing for their land that was appropriated by investors; the real payment having been given to officials or political leaders in Jakarta.
It is, however, encouraging to note that the government will not arbitrarily terminate or close those businesses that were granted contracts or concessions through corruption or under questionable practices. The decision by the government to renegotiate those contracts will not violate any national or international laws, nor will investor confidence be damaged.
All major industrialized countries now have enacted laws against corrupt business practices. Companies that got their contracts or concessions through bribes and questionable procedures should accept renegotiation. They cannot continue to operate with double standards, behaving one way in their home countries and another in Indonesia.
Most important, though, is that the assessment or audit process to determine whether a contract was concluded through corruption or awarded as a result of legitimate business practices should be transparent and fair.
There is, however, another strong message conveyed by the recent wave of local resentment against businesses. Compliance with the law, though mandatory to maintain legitimacy, is no longer enough to guarantee long-term viable operations. Companies, notably those operating in undeveloped remote areas where the government has yet to provide even basic services, should also be strongly committed to exercising social responsibility.
Social responsibility rises above the mandatory floor for corporate standards. It also incorporates standards of behavior that may be expected but are not required under Indonesian laws. It is a concept that focuses on operational behavior and its impact on the neighboring community, while embracing standards of good business practices.
Without this social responsibility, operating prosperously in the midst of an impoverished community fosters resentment and envy that may eventually explode into resistance. People will not tolerate forever what they perceive to be an unjust distribution of wealth. But social responsibility should not be mistakenly equated with philanthropy, an activity extraneous to a company's operations and one that often creates a sense of artificial prosperity.
Donating to a worthy cause, though appreciated, is less effective than continuous efforts to empower the local community. Social responsibility is best realized by gradually transferring business, technical and social competence to local people by utilizing, as much as possible, local labor, contractors, suppliers, and consultants, even when subcontracting those services elsewhere, seems easier and much less expensive.
Experience has shown that companies that have met their social obligations are less vulnerable to pressure from local people or administrations. A company's best defense is its reputation in the community.