Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Sunday, February 24, 2013

Indonesian Competition Policy and Law: Where It's Heading

Posted by D. Daniel Sokol

Deswin Nur (Indonesia Competition Commission) summarizes Indonesian Competition Policy and Law: Where It's Heading.

ABSTRACT: Indonesia may not be one of the famous countries in the world. Tourists mostly know Bali (one of the islands in Indonesia) rather than the country itself. Not too many people are aware that this country is the largest archipelago country in the world, as well as the largest economy in Southeast Asia, and is one of the emerging market economies of the world. Indonesia is also a member of G-20 major economies. In the 1960s, Indonesian economy deteriorated due to political instability, which led to severe poverty, unemployment, amid enormous annual inflation (up to 1,000 percent). That was then; the New Order administration under President Soeharto has brought a degree of discipline to economic policy that quickly tackles inflation, currency fluctuations, and attracts foreign aid and investment. The New Order has lasted for more than thirty years.

However, high levels of economic growth from 1987-1997 masked a number of structural weaknesses in Indonesia's economy. Growth came at a high cost in terms of weak and corrupt institutions, severe public indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia's natural resources, and a culture of favors and corruption in the business elite.

During those years, some Indonesian academicians raised the issue of a need for competition policy and law in Indonesia to guarantee a fair business environment in Indonesia. Debates were inevitable in drafting the law as many interests interfered. One fundamental debate was the structural issue on market share threshold, as the government, private sectors, and most economists agreed that the law should focus on conduct rather than structure. Limiting market share was deemed to be irrational and could be contra-productive toward national investment.

Despite these debates, in 1995 some academicians, together with parliament members, discussed major points that were expected to lead to a national competition policy and law. However, the draft was not favorably timed due to the political and economic situation during that period. The draft was then canned and no longer discussed.

Since 1997, as with many other countries in Southeast Asia, Indonesia has been in the center of a long and exhausting economic problem. The world economic downturn in 1998 severely damaged the Indonesian economy, which was crowded with enormous foreign debt. It was then believed that one of the factors that influenced the level of damages caused by the crisis was high market concentration in Indonesia, which had not been controlled by sufficient and clear competition policy. At that point, the International Monetary Fund ("IMF") presented a bail out package to assist many countries in Southeast Asia, including Indonesia, to help them rise from the crisis. However, the financial commitment was not cheap.

Among the fifty points in the January 1998 IMF Letter of Intent for its loan-rescue program, there were at least seven proposals for the need of a national competition law. Their over-all program was extensive and covered reforms in many areas, including reduction of some export taxes; elimination of the clove monopoly; liberalization of imports of many agricultural commodities; reduction of import tariffs; removal of trade monopolies in cement, rattan, and plywood; removal of local content requirements for automobiles; removal of restrictions on Foreign Domestic Investment; and enforcement of extensive macroeconomic targets. Furthermore, the IMF also required Indonesia to pass a law that would ensure fair competition in the market. This led to the initiative by Parliament to issue their long-standing draft law which was promulgated on March 5, 1999 as the Law No. 5/1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition.

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