Skepticism greets new antimonopoly law

JAKARTA (JP): Analysts remain unsure whether the new law to prevent monopolies and unfair competition can be effectively implemented, due to the lack of a clear definition of a key term and the law's adverse social impact on the crisis-hit nation.

"Although provisions of the legislation are clear, it remains questionable whether they can be effectively implemented," said Rosalina Lazuardi, an equity analyst at PT Vickers Ballas Tamara.

She pointed out that the law failed to define the term "efficiency", which will be key in determining whether a company is operating in a monopoly.

The House of Representatives approved on Thursday the new antimonopoly law which prohibits a company from holding more than 50 percent of the domestic market. Breaching the law is liable to a maximum of Rp 100 billion (US$11.76 million) in fines and six- month jail terms for the executives.

The enforcement of the law, which will become effective 18 months after ratification is given by President B.J. Habibie, will be overseen by a Business Competition Supervisory Commission, whose members will be appointed by the president following prior approval from the House.

The law, however, stipulates that a company will not necessarily be sanctioned if the independent commission determines the more than 50 percent market share was gained due to efficiency and the company did not abuse its dominant position to restrict new market entrants.

"But there is no clear definition on how to measure the efficiency," Rosalina said.

She said that the publicly listed PT Indofood Sukses Makmur, which controls 90 percent of the domestic instant noodle market, could be considered efficient in view of its highly professional management and extensive network, thereby escaping the law.

"The problem, though, is that the company has received special government privileges for quite a long time," she added.

Sudono Salim, known by his Chinese name Liem Sioe Liong, the founder of Indofood, is a close friend of former president Soeharto.

Rosalina, who monitors the food and consumer sector for her securities company, said the efficacy of the law would depend largely on the technical competence, integrity and autonomy of the members of the supervisory commission.

Martin Panggabean of PT Lippo Securities concurred that in order for the new antimonoply ruling to gain credibility, the members of the commission should not be recruited from among government officials.

"And the commission must be responsible only to the House not to the president," he added.

The new law also bans two or three companies from controlling a combined market share of 75 percent between them.

Martin said the limit is still too high to promote fair competition and the threshold should be reduced to 30 percent market share.

Rosalina predicted the enforcement of the law would have an adverse social impact.

She pointed out that forcing giant companies like Indofood, and publicly listed cigarette makers PT Gudang Garam and PT HM Sampoerna, to cut production would create massive layoffs.

"So I think they (the supervisory commission) should thoroughly consider all aspects before making a judgment of whether a company is engaged in a monopoly or not," she said.

Citing an example, she said that a judgment by the commission that forced Indofood to immediately reduce its output could cause a big shortage, raising noodle prices and inflation as well.

But Rosalina said it was too early to predict the impact of the law on Indofood because its new foreign investor, Japan's giant Nissins, could enter new overseas markets if it is forced to decrease its domestic market share.

She added, however, that Gudang Garam and HM Sampoerna, which control the domestic cigarette market, might suffer the brunt of the new law. (rei)