Global Justice Update - Tahun ke-6 - Edisi Khusus Bahasa Inggris 2008 by Buletin GJU

ntents

Editorial 3 Economic Turmoil WTO Update 6 WTO Doha Round Crisis, Global Crisis and Barack Obama 11 The Momentum to Look for an Alternative Way 14 Heterodox View : Industry Capitalism Forms 18 The World Financial Crisis in the 20th Century

FTA Update 21 Free Trade Agreement (FTA): to Intensify the Economic Inequilibrium 25 Why Does the World Bank Control Indonesia 34 Indonesia Japan Economic Partner-ship Agreement (IJEPA): the Economic Agreement for Japan 36 Indonesia : Japan Colo-ny for a Half of Century

National Update :: Investment Law 41 What would be the Next Recipe? 44 An Affirmation of Colonial Investment 48 Law No 25/2007: an Extension of Foreign Domination in Indonesia 52 The State Company Privatization: Government Rescue Steps through De-Nationalization 57 Cancel Petroleum Price Rise 60 Inside Out of Food Crisis and Way Out 63 Role of the World Bank on Capital Investment Law 67 Constitutional Court Verdict “Violates National Interest”

National Update :: Privatization 78 De-Nationalization 72 Privatization Truth and Ideology: De-Nationalization towards Re-Colonialism 76 An Irony: Privatizing State-Owned Companies 85 Privatization: the Neoliberal Economic Foundation 87 Free Trade is Indonesia Solution ? 98 Debt Economy Based on Deceptive Theories

National Update :: Financial Crisis 108 Exhausted by Hot Money 109 Momentum for Regime Change 112 The Failure of Neo-Liberal and the Need Of New Economic Program 115 Lion Paper Economy 118 Financial Crisis : a Lesson for Indonesia 121 Indover, Exchange Reserves, and Betrayal on Indonesian Migrant Workers (TKI) 127 IGJ Statement Related with Global Crisis 2008

National Update :: De-Industrialization 132 Self-Industry Eviction 133 Being Self-Reliance: Could it be? 136 Industrialization: “What and How Indonesia is” 143 To Break the Economy Inherited by the Colonial 154 To End the Stagnancy through National Industrialization 159 The State Gas Company Abundantly Lucrative among Mass Queue on Gas 163 Deregulation

Volume 6 / Special Edition 2008

GL BAL JUSTICE UPDATE Journal of Globalization and Free Trade

Executive Director : Indah Sukmaningsih Editor in Chief : Bonnie Setiawan Researcher : Ponny Anggoro Revitriyoso Husodo Veronika S. Saraswati Salamuddin Daeng Editorial Staff : Daeng, Sudi, Ade Financial : Else, Erna, Fajar Technical : Idris H. Translator : Mei, Katie, Dian Layout : Don Komo Studio Cover Image: World Social Forum (WSF) Brazil, 2005

Package Policy Series 1983-1995 Related with Indonesia Industrialization

Social Movement Update 167 Agrarian Reform Movement amidst the De-Industrialization and De-Agrarian 171 Debts and Development Funding: Searching for Alternative Ways 178 Issues and Perspectives of Privatization 181 The State, Market and Global Capitalism: Critical Reflection on Financial Crisis 2007-2008 188 Gerak Lawan’s Statement on Capital Investment Law Judicial Review’s Verdict 190 Sugar Industri Revitalization among the Sluggish Sugar Trades

SEZ Update 201 The Proof of Indonesia Land being Sold by Singapore 207 Batam Bintan Karimun Free Trade Zone for Singapore’s Sake

Culture Update 213 IGJ’s Recommendation on ASEAN Culture Establishment 214 Abolish Broker Culture, Build Social Solidarity Instead 216 Cooperativeness Keep The Mountain Well

Institute for Global Justice (IGJ) Jl. Matraman 12A, Jakarta 10430, Indonesia Telp. +62-21-3107578 Faks. +62-21-3107586 E: igj@globaljust.org W: www.globaljust.org

Editorial

Economic TURMOIL In 2008, the world food crisis started economic T U R M O I L. The prices of staples such as rice, wheat, corn, soybean increase sharply in the international market. The economic analysts decribe the crisis as the silent tsunami. Unrests prevail on the whole globe. In Indonesia, thousands of small entrepreneurs protest against the soybean price hike and urge the government to solve the problem. Not long afterwards, in May 2008 the government sets the policy of raising the oil fuel price 28.7%, impacting strongly on the price of commodities other than inflation. The most influential price hikes are on people staples, followed by the production costs, transportation costs and other living necessities. The government policy is run in the middle of the economic difficulty faced by the people that is caused by the previous policies of SBY administration. In March and October 2005, only several months after SBY-JK inauguration as RI presidency, they directly took a very controversial action. They increased the oil fuel price 120 percent with only one reason, to adjust to the market price. Whereas Indonesia economic situation then had not gone better due to 1997 crisis hit. Not only increasing fuel price, the government also planned to sell at least 34 state-owned companies (BUMN) and our strategic production sectors in order to mobilize the liquid funds for the power organization. While in 2005 the Worldbank released that at least 48 percent of Indonesian populations were trapped in the poverty, having income of 1 to 2 US$ per day. In the middle of the crisis hitting this country, the world economy is reshaken by the global financial crisis stimulated by the subprimed mortgage hitting US financial institutions. The prominent financial institutions of hundred years are falling hit by the crisis like the falling WTC twin towers. The crisis spreads all over the world, hitting the main stock exchanges and the most famous banking in the world. US government injects at least US$ 1,000 trillion fund for the banking and stock exchange. The bailout action is followed by the developed industrialized countries all over Europe, Japan, China impacted by the crisis. But the salvage of the financial institutions, banking and stock exchanges as the ca-

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pitalism systems supporters do not come into fruition. In the years ahead, the world is facing the prolonged severe economic turmoil. The economic global financial crisis impacts worse for Indonesia. The national stock exchanges fall at once, the players in the financial market rescue their money, release their shares at the Indonesia Stock Exchange. Most of the financial market practitioners change their assets into dollars. This gives impact immediately on the devaluation of rupiah. Rupiah falls again against several foreign currencies such as USD and EURO. Also, the main commodity prices plummet. CPO, oil, gas, coal etc, on which Indonesia export relies plummet. The agriculture and plantation commodity price decreases attack the peasants bearing the huge lost. The government seeks salvage, to save the state finance by taking a huge amount of foreign debts, the old habit not changing in facing problems. Such policy traps Indonesia in longer dependency chain on the world financial institution. The vulnerable national business condition is caused by neoliberal policy which are mostly bankrupt. In the bad situation, the government reruns the counter-productive policy, that increases the central bank interest rate, making it easier to dismiss unilaterally the workers through a Joint Decree of four ministers in September 2008. Both do not only attack the people but also the business world. And the government means to be irresponsible by letting the employees facing Vis to Vis against the employers. The analysts predict that at least one million of the employees are threatened with unilateral dismissal in 2008 and 2009. The above picture shows us Indonesia macro economic phenomena that go worse by the government policies plunging the people down into the crisis ravine. The worse situation is seen in almost all the sectors, farming, labour, small-middle entrepreneurship, middle-up industries, all are falling into de industrialization. Editorial

WTO Update

WTO Doha Round Crisis, Global Crisis and Barack Obama The Momentum to Look for an Alternative Way Heterodox ViewÂ : Industry Capitalism Forms The World Financial Crisis in the 20th Century 5

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WTO DOHA ROUND CRISIS, GLOBAL CRISIS and BARACK OBAMA By : Bonnie Setiawan

As we have known, DOHA Round in WTO have stucked totally. The last effort of WTO secretary general Pascal Lamy in July 2008 to save it, failed. The developed countries still dream that DOHA Round can be manipulated to complete by deliberations, in which the role of TWO secretary generals and secretariat are dominant to direct the deliberations. They still dreamt for the scenario like Blair-House agreement in Uruguay Round in 1994, in which the

strong players of England and US who are hostile in farming issues, at last can reach a deal that will automatically be followed by most other WTO members. But it did not happen in Doha Round. The Ambassador of New Zealand Crawford Falconer leading the Farming Committee maneuvered using his own farming draft, just caused furiousness among most of the members. So

www.gabrielaphilippinoc.org

WTO Update

as the Ambassador of Canada Donald Stephenson maneuver, leading the Service Committee, could not show any movements at last. This is especially caused by the standing position of the main developing countries such as Brazil and India who resisted the pressures, consistently proposing their interests. In addition, lately a giant player who has been silent in the accession stage as WTO new member, China suddenly turns up to stand for the two countries. Thus The Triad Brazil, India and China broke the dominant pressures of US, EU and Australia in last July 2008 meeting in Geneva. At last, the six year Doha round drama (since convened in WTO Ministerial Conference in Doha, Qatar in 2002) has not been finished yet but it has to be temporarily stopped. There will be no deliberation movements in WTO at present. The main concern is that the developed countries have never once been willing to change their attitudes or concession at all toward the developing/underdeveloped countries. There have never been stories of any free-trade give in. Free trade for developed countries is iron law for their capital expansion. Being with no or reduction of free trade will get rid of the spirit of capitalism expansion and dispersion. Actually, the main reason comes from the unwillingness of the US and EU participants to change their position to give concessions to developing countries. They know that US will not change, because George Bush administration has lost the mandate of trade deliberations since the end of

the Fast Track Authority in May, 2008. Besides since August 2008, US started to enter the presidential campaign sessions, and Bush administration has been impossible anymore to give any trade concessions, which will have to go through the Congress dominated by Democrat Party. Even Free Trade Agreement (FTA) convened between US and Korean, and US and Columbia, is intercepted in the Congress, because the decision making has to pass the Congress. So the observers and the players have actually realized that Doha round has lost its chance in the middle of 2008. Besides, we know that European Union since July 2008 was held by France. It has been known that France is so protective for farming sector, will never sacrifice its farming sector to be liberated, much less for the developing country interests. Under France domination, EU can not be expected to give concessions. So Doha round failure has been predictable. Unless the underdeveloped/ developing countries are beatable to follow their interest, Doha round can not be continued. The current developing countries have gone far different from the developing countries at Uruguay round or 1994 WTO establishment times. Nowadays Brazil, India and China economy rise have been known worldwide. With their populations of nearly half of the world population, now the developing countries can not be commanded nor pressured as they wish. They have just now turned to put pressures in WTO deliberations. Especially the Brazil and India negotiators are so expertise and well master the

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problems and articulate them fluently in argumentation in the meetings. Above all, related with global crisis coming nowadays, the financial crisis of US is really just resulted from the previous crisis in 2008. Especially the energy crisis, the oil prices rise from below $25 in 2001 now jumping up to $170, then they are predicted to approach $200 in the year-end. The energy crisis stimulated food crisis, in which the food and agricultural commodity prices are rising more than 50%-125%, causing the loss of access on food, especially of the poor. The crisis was added by the dollar falls from other currencies especially Euro, the larger US trade deficit and piling up foreign debts. The financial crisis shows that something has happened in US economy. The crisis phenomena have been known as triple-F crisis (Fuel, Food, Finance).

Finally, not long afterwards, a reverse flow happens in the world crisis. The middle-class housing crisis in US suddenly burst out, the debtors cannot repay their loans. This has actually been triggered by the previous crisis, those are the rising fuel and food prices pressing US households by rising living costs. On the other side, the credit failures of millions of debtors have dragged the plummeting financial market to null. US economy turned out to keep capital bubbles look as if of large values but factually of a little values. The bubbles were pumped up by various financial instruments called as derivatives marking up the securities to be as through solid while they turn out to be void. ‘Black Monday’ and

‘Black Tuesday’ happen then when the money market falls almost at half. The legendary financial market players stumbled one by one. Lehman brothers even of more than 100 years old, bankrupt unbearably. This is the biggest crisis of the century, much bigger than the Big Crisis of 1929/1930. The last half of 2008 has just been its beginning. Current crisis comes to dismantle the commodity prices. Fuel price plummets to $60. Commodity prices fall one by one too, due to the world halts its production cycle. The stock markets in various countries in the world stumble fascinatingly, cut more than half. Indonesia whose stock market is very vulnerably controlled by foreign players, jumped down to the half, from 2800s to 1300s left, and even it is feared to be plain dish down to 700s. Bakrie Brothers conglomerate who has just celebrated its coal price hike, bringing Bakrie to the top richest conglomerate in Southeast Asia, has its price jumped down to a total bankruptcy in an instant. This has just been the beginning of the global crisis. And like crisis in a moment will prey real sectors by all its domino effects. However instead of awareness of the capitalistic economy destruction, the leaders in US still dream of the perfect free market mechanism in which the market will correct literally to restore all the condition consequently. What has happened with $ 700 billion bailout by US government is the attempt of the capital owners to rescue by the state money aids, ignoring the public economy affected. On the other side,

WTO Update

they still believe that the market will work out to correct the wrong groups and escape the right workers (such as comparison between Lehman Brothers and Warren Buffet). However now they have to see that the financial crisis will change into the more incredible real crisis. Each of the developed countries is going to enter the prolonged recession. It is weird that the developed country leaders and WTO secretary general, Pascal Lamy still preach the need to finish the Doha Round as a precondition for the world economy crisis restoration. They reason that the expansion and emancipation of goodss and investment cycles among various countries, is going to cure the world of the crisis. This is the basic logic of the capitalism, seeing the money and investment flows like the blood in the human body. The smooth flow will cure the crisis. What they do not see, or not want to see, is that the investment cycle is one way round for the sake of the big players in the world trade. The goodss and investment cycle is not two way round for the benefit of various classes, instead it is lucrative only for big capitalists. It is only the preach saying that it benefits for all, whereas the fact is that the flow is just for the developed countries and global big companies. Moreover, most of the world trade are actually ‘intra-trade’, that is the trade occurring within and among the units in a Multinational Corporations (MNC). Take a look into the trade in Indonesia, most of which are only subordinated to the MNC economy. Most of the manufactured

exports are done by the corporation units themselves. Unsurprisingly, our GDP mostly comes from the foreign corporation transactions. It is to underline that what come really from Indonesia are only raw materials (either of farming, fisheries, forestry, paddy fields or mining), whose values are a little, because of the little added value, if any. The raw material trade is also, to remember, controlled by the foreign corporations. So what will happen next year (2009)? Doha Round crisis and global crisis occurring simultaneously are going to grow worse. The developed countries absolutely will be more protective, although they preach about free trade. It is just a simple reason, “we are in crisis”, for them to cut or halt temporarily any purchases or imports from developing countries. Without the exception, new US president Barack Obama from Democrat party. Since long before, Democrat party has been more protective on domestic economy, using the issues of human rights, environment and democracy et al to justify its policies. Obama will surely make the same attitude. Especially with the big crisis hitting US, US will prepare them inwards. Roosevelt will be the example of “New Deal’ to rescue US economy from depression damages. Obama will prioritize home agenda rather than aids for developing countries affected by US crisis. While the recession to happen in US and EU (more terribly beaten) will leave the developing countries, missing the target of crisis. Even to be alert, the global crisis will justify the developed countries to

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exhaust much more developing country economy, by moving the crisis result through freer and more opened liberation regulations. It is like forcing the developing country economy as the blood donators for the developed countries, so the tube will turn the dirty blood from the developed countries to the developing countries. This will be done if the developing countries still obedient sweetly to the free exchange and fully-opened liberation regime, such as applied in Indonesia. The neo-liberal regime of Indonesia will be revered back to be the target toy of developed countries, the bumpers of US, EU and Japan global crisis.

And our elites, as long as they take profit from the whole process, will continuously abandon the people and nation fate. It is precisely the same as what Ikhsan Mojo, an INDEF economy observer, call â&#x20AC;&#x2DC;rentier liberationâ&#x20AC;&#x2122;. We should not be glad hastily by Barack Obama being elected. He is only a screw in global capitalism, to run the basic interests of the central capitalist, US, to survive the global crisis hit. It is not about the black who has lived in Indonesia once upon a time, but about the US and its corporation interests. As long as WTO drives the liberation process faster, Obama will be aspirated for Doha Round. ***

The Momentum to Look for

an Alternative At Hotel Sahid Jaya Jakarta, on 24 OCtober 2008, the Institute for Global Justice held a One Day Seminar themed as ”The Global Crisis : Is Depression about to Happen and What Its Impact on Indonesia”, discussing about the global crisis development lately and its potential impact on Indonesia.

ivided into three terminations, this seminar was opened by watching video with theme ”What and How the Current Clobal Crisis” performing two speakers, Dr Walden Bello and Dr. Boris Kagarlitsky. Continued with the discussion, session I took the theme of ”Response on Global Crisis” presenting four speakers, that are Dr. A. Prasetyantoko (Atmajaya University), Dr. Hendro Sangkoyo (School of Democratic Economic), Dr. Ikhsan Modjo (INDEF), and Dr. Hendri Saparini (ECO-

Way

NIT). Next, Session II took the theme of ”Crisis Impact on Indonesia : The Failure of Neo-Liberal and The Needs of New Economic Program” presenting three speakers Dr. Syamsul Hadi (Indonesia University), Dr. Kusnanto Anggoro (columnist), and Yopie Hidayat (Kontan magazine). The event went on seriously but still enjoyable, seen from the enthusiastic audience who participated actively in the question and answer sessions, after listening attentively. Also the mass media team both electronic and newspapers also covered the event condusively, from the beginning until the end. The seminar atmosphere are further made better by the high animo of the participants who also visited the book salesbooth providing knowledge sources and informative enlightenment on the issues of the globalization and economic, social, ecological and political justice,

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both at global and national stages. Bonnie Setiawan as Executive Director of the Institute for Global Justice, initially read IGJ statement (as you can read in Chapter 8) related with the Global Crisis 2008. He said that the global crisis is the momentum for the basic correction on the national economy systems, investment policy, trade and financial systems in Indonesia. The global capitalist regime led by Transnational Corporation (TNC) and Multinational Corporation (MNC) are proved not to be able to control the economic turmoil as the result of their own actions. Exploitation, accumulation, and speculation have born the crisis attacking the capitalism heart (financial sector) with domino effect on all the real sector and attacking hard the economy of poor countries including Indonesia. Walden Bello in his video presentation disclosed that the unmatching or unsynchronized; or in the economics term (very delicate) is called as imbalance, however in more radical dialect is inequality; the financial and real sectors have caused the financial sector to stay out of the real sector context. While in conventional economics, the position of financial sector is the supporting systems of the real sector as disclosed by the classical economics theories. But then the financial sector has turned to be something massively develop and dominate the real sector so that nowadays the real sector must give up to be just a bumper for the financial sector, so A. Prasetyantoko said. Syamsul Hadi said that the current global crisis can reflect to 1970s Fordism-Taylorism crisis caused by exhaustsm or production saturation. It was exacerbated by the oil crisis so that the production costs were becoming more expensive to bring out the information and communication techology innovation. The shift presents Neo-Liberalism believing that the state intervention became something that is disliked and has to be reduced. And that the market tends to be released because the

view believes in the invisible hand mechanism. This then change the production pattern of global capitalism systems that was productive and mass to the production pattern of Casino-Capitalism dominated much by financial capital. The Marxists viewed financial capital domination in the global capitalism systems nowadays as the over-capital accumulation situation. Broadly speaking, the investment in the productive real sector is not anymore viewed as the most lucrative. The financial sector growth has to be laid in the context of the productive sector incapability in providing the considerable gain in the viewpoint of the capital owner by investing in shares, bonds, and other securities. Generally, there are two main problems in the financial crisis, that are the liquidity and solvency problems, as disclosed by Ikhsan Mojo. The fastest solution of the solvency problem is the capital injection while the liquidity problem can be tackled by various loosing, such as interest rate devaluation, and so on. Even the global finance architect himself, Alan Greenspan, in his testimony said ”I am totally wrong” when he responded to the crisis happening in US nowadays. In that chance, he explicitly said that there had to be a kind of regulation enforced tighter in the financial sector. Yopie Hidayat said that this time US government has made an attempt to save the shaky financial institution, and they must have driven the serious discussion about the new economic ideology needed by the whole human being. The fact shows that the salvation is the largest ”nationalization” program that has ever been going on and just implemented in the country of Neoliberalism reference so far. When the national interest is at stake, the politician will leave the ideology literally. This will be a lesson for any policy makers in Indonesia not to give up easily against IMF or like organization pressure. Hendro Sangkoyo explained that the cri-

Hendri Saparini explained that the spread of the global financial crisis ‘hitting’ Indonesia and its subsequent impact on the real sector, are exacerbated by the vulnerability of Indonesian economic structure. In the industrial sector, we can say that the practical capacity of the production tools in 1996 is still of 85% but now (2008) it is 50 percent left, even most of it has reached the critical number of 30 percent. This thing indeed will influence much the domestic production performance, moreover if it is related with the structure and performance of manufactured goodss export, in which 68 percent of non-oil and gas export of Indonesia at present is of primary products. Indonesia will be pressed by China because of their manufactured products, although with low value added and technology, they are so competitive that they can fill the trade “holes”. The vulnerable national economic structure is also shown by enlarging dependency of the national food on the food imported products. For comparison, in 1998 Indonesia can still produce and sell soybean, corn and cow milk for domestic needs.

At present, almost 70 percent of soybean products spreading in Indonesia are imported. Larger dependence on imported products, not only the raw materials but also food products, of course will give negative contribution greatly to the real sector development in Indonesia. Kusnanto Anggoro said that we have got big homeworks needing active participation from all the community elements in answering and formulating the solution from the economic ideology battle currently. Boris Kagarlitsky has proposed several solution option, whose essence is about the important need to buld an interventionist state. His idea was simple enough, that the state may have to be more interventionist. His solution can be formulated by making the interventionism of the state can be at a certain level determined by several parameters. Besides, the engagement needed in every regulations is taken by the government. This is the chance for civil society to participate in stimulating a systems notioned as better and ideal. There are several essential points of thought to define the new Indonesia economy systems, that is (i) the financial entity we must not see conventionally through the common institutions because of the more sophisticated networks, (ii) the importance of the government intervention through the creation and tightening of the regulation in derivative market practices so that the new innovation to be more undercontrol, and (iii) the government should not be afraid to return to a more protective economy systems in international repairment. dok IGJ

sis experiences in Indonesia, both in 19831984 and 1997-1998, have always started from the Money market and capital market, dan not come from the crisis in the real sector. This shows that Indonesia is not independent in facing the crisis coming both from abroad and from inside (the vulnerability of the domestic economic structure). The dependence is especially triggered by our still being in the same liberalization regime, which is just stimulating the more severe socioeconomic crisis in the future.

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Heterodox ViewÂ : Industry Capitalism Forms 1

By: Fachru Nofrian, DEA

fter facing the more severe crisis probability, the economic condition has currently shown goods signals, the declining crude oil price, taking the government to reduce once more the fuel price in Indonesia to Rp 5.000,00/liter, resulting in various operational and production cost reduction in companies and industries, such as transportation sectors. Such reduction does not likely cover the production costs expended by the industry and has reduced the income rates on average such as shown on the following table.

The graph explains that the average revenue of non-financial industries in Indonesia tends to increase starting from 2003 to 2007. But, the fuel price hikes tend to crush the revenue level, especially in the period of 2006 and 2008 because of considerable increase. Simply, logically the fuel price rise results in production cost increase to reduce the revenue level. So many companies plan to reduce its employee quantity related with the global economic crisis occurring right now. Nev-

6000

0.3

5000

0.25

4000

0.2

3000

0.15

2000

0.1

1000

0.05

Level of retail fuel price Level of income

0 2004

2005

2006

2007

2008

Processed data, source : Mineral Resource and Energy Ministry and Indonesia Stock Exchange 1 By: Fachru Nofrian, DEA (Lecturer at Indonesia University,Economy Philosophy and Trisaksi University,Economy)

ertheless, many economists still debate whether the de-industrialization is related with the crisis or not. The fact shows that the fixed asset growth tends to be static. Theoretically, industrialization is the community change, from agriculture to industry based on working classification, such as Adam Smith explains. In Europe, industrial revolution has taken big changes signed with the capitalism and modernity ages. Capitalism age is an age when the work and income level become so important before the community, so as Karl Marx explains. While modernity is the way of thought and paradigm changes, as Karl Marx explains that shifts Descartes paradigm that, ”I think, so I am” becomes “I work, then I am”. There, industrial capitalism flourishes through several stages. Big industry emerges such as Ford, Mercedez, Boeing, Nokia, Porsche, VW, peugeot, biotechnology, et al are the affect of the industrial revolution in Europe. The then history shows the emerging Toyotaism, Hondaism, Suzukiism, et al turning out not prevail in Europe, instead in Japan. It explains that actually the Asian countries can also be developed based on industry. Even in advance we can see Hyundai or Myo motorcycles as one of consumer choice not being made in Japan, but in Korea and China. In the globalization age, there are still countries capable in constructing power to enter the world economic constellation and control the market. Thus, the industry becomes

http://meetschmitt.typepad.com/.a/6a00d834b6c135 69e2010535b8db66970c-800wi

more competitive, while actually according to the economists, the easiness to enter the world economy depends on how to position themselves in the world. While other countries change from agricultural to industrial communities, for information, China, India and Korea are successful enough in agricultural sector before entering industrial one. Indonesia experience clearly shows the failure of national industry development. The Old Order age once tried to establish the national businessmen. But most of the businessmen could not use the opportunity. Only a small number of them, most of whose business does not last long because they are bankrupt in the New Order period. In this period, the foreign investment increases sharply so that many na-

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tional businessmen are not competitive, especially in the capital matter against the foreign companies. Protection cancellation is the exact setback for national industry due to having to compete with stronger businessmen while still being in the infancy stage. In the heterodox economic theory, es-

For example, the regulation research shows the so closed relationship between the education and research institutions and the companies in various industrial countries in diverse relationship in order to establish their capitalism. There are at least four types of industrial capitalism that are state- (France), meso-corporatis (Jepang), social-democrat (Jerman) dan market- (Anglo Saxon) industrial capitalisms. The following is the example of the stateindustrial capitalism applied in France.

www.ptpn5.com/images/pengolahansawit.jpg

pecially the regulation theory, besides agreeing with Marx view about capitalism stages, that is agriculture, industry and finance, that to become industrial economy, the community must change first. For example, a century ago, Europeans and Americans often mocked Japans as lazy men, but now, who dares to mock Japanese as lazy men with their working

hours much more than 8 hours per day. The regulation theory states that the industrialization is built based on complex social and economic relationship.

Organized Labour Market:

Various Research Institution

Minimun Wage Extended Welfare State

Education System: Elementary Education as Public Good Selection of Elite

Public Spending on Innovation Public Intervention on Rule Various Scientific Invention

Fordist Model Compatibility

Public Sector Related Companies

Public/Sector Public Spending Each Sector

Private Sector In Mass Production Specialization Transport, Equipment, Aircraft Weapon Growth

Competition

Financial Market

International System

Source: Robert Boyer, Seminar Presentation, 2006, Jakarta

Thus, to grow the industry there are many systems and ways to do according to the culture, value, tradition and orderliness

growing up in the community. What kind of industrial capitalism that Indonesia want to build?

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The World Financial Crisis in the 20th century1 1860-1921

Bank Quantity Increase in America up to 19 times

1907

International Banking Crisis, started in New York

1913

US Federal Reserves Systems

1914 – 1918 World War I 1920

Economic Depression in Japan

1922 – 23

Hyper-inflation hit Germany. Because of being afraid of the declining currency values, the salary was paid up to twice a day.

1927

Financial crisis in Japan (37 banks were closed); due to the crisis hitting Taiwan banks

1981 – 1901 The bank quantity increased 20 times 1929 – 30

The Great Crash (NY capital markets) & Great Depression (banking failures); in US, until the net national product was cut more than half.

1931

Austria was hit by banking crisis, resulted in the banking collapse in Germany, which then fluctuated international currency. It made UK leave using gold as transaction standard.

1944 – 66

Hyper inflation in France as the result of the policies starting to liberalize its economy.

1944 – 46

Hungary experienced hyper-inflation and monetary crisis. It is the worst crisis in Europe. Hungarian note issues increased from 12,000 million units (11 digits) until 27 digits.

1945 – 48

Hyper-inflation in Germany due to the World War II.

1945 – 55

Banking Crisis in Nigeria as the result of bad bank regulation growth in 1945

1950-1972

A period of no crisis. Regulation in the monetary sector was relatively tighter (Fixed Exchange Rate Regime). Besides, IMF allocated cash reserves in the form of gold. So the regulation especially in the banking and generally in the financial sector, and the stable exchange value regime application made the world financial sector at that time temporarily ‘cool down’.

1972

Bretton Woods agreement collapsed. Actually the collapse of the agree-

1 Compiled : Roy & Glyn Davies, 1996 & Francisco LR and Luis R Batiz,1985.

ment was because of the systems with the market mechanism kept claiming unbearable multi-interest Concept. 1973

America left the gold standard. Because of the law of “bad money =high interest (foreign exchange) replaced goods money(dollar backed-up by gold)-(Gresham Law)”.

1973 -...

The globalized speculation activities as the new dynamics in the conventional monetary market due to the application of floating exchange rate systems. Speculation period; capital, money , obligation, and derivative markets.

1973 – 1974 The second banking crisis in Britain; because of Bank of England increased the competition on the supply of credit. 1978 – 1980 Deep recession in the industrial countries due to oil boycott by OPEC, which then incited high jump of the interest rates of the industrial countries. 1980

The third World Crisis; much debt of the Third World countries made by the oil booming in 1974, but when the developed countries raised the interest rate to press the inflation, the Third World Country debt rose up exceeding their solvency.

1982

Debt Crisis in Mexico; caused by massive capital outflow to US, then many high-interest debt pattern from US, IMF, BIS. The crisis also drew Argentina, Brazil and Venezuela to enter the crisis circle.

1987

The Great Crash (Stock Exchange), 16 Oct 1987 US and UK capital markets, making the world monetary authority to increase the money supply.

1994

Mexico crisis; again caused by the improper financial policies.

1997

Southeast Asian financial crisis; started in Thailand, Malaysia then Indonesia, due to not transparent debt policies. Korea financial crisis; having the same cause as the Southeast Asia

1998

Russia financial crisis; Rubel value fell (by speculation)

1998

Brazilian financial crisis

1999

Argentina financial crisis

2001

Financial crisis due to 11 September incident

2007

Sub-primed Mortgage financial crisis, the financial companies such as Merrill Lynch, Bear Sterns, JP Morgan, Goldman Sachs, Lehman Brothers, et al, due to Hedge Fund fault in creating derivative securities on middle-level housing mortgage note receivables in US, while the middlelevel housing mortgage clients lost their solvency. US aggressive war to Afghanistan and Iraq created US deficit and made the mortgage debtors had no social benefits as usual.

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FTA Update

Free Trade Agreement (FTA): To Intensify the Economic Inequilibrium Why does the World Bank Control Indonesia Indonesia Japan Economic Partnership Agreement - IJEPA Economic Agreement fo Japan Interest Indonesia : Japan Colony for a Half of Century

FREE TRADE AGREEMENT (FTA) to Intensify the Economic Inequilibrium Some time ago, South Korea was shaken by a hard action in Seoul until six cabinet ministers had to step down. One of the causes is South Koreans’ being concerned with US-Korea agreement which inflicted a loss for the public. They refused the food wastes from America, that was American beef convinced as made from sane cows.

outh Korea refusal against FTA with the United States is a very serious attempt among the prevailing FTA implementations by the developed countries upon the developing countries. After the deliberations in WTO end in a deadlock, many developed countries alter the strategy to run FTA. So far, there are more than sixty FTA ratified by countries, without taking notice of the people interest widely. A letter sent by a student in Korea to US President, George Bush, Jr, even stated, ”I want to ask you: Wouldn’t this agreement be beneficial to the US only in short term? Couldn’t this agreement be perceived as violating the rights of Koreans to feel safe? Please consider the result that this agreement could and will leave, both now and for the future.” At the moment, Indonesia is holding several free trade agreements (FTA) which are negotiated and will be effective soon. They are ASEAN-EU FTA, ASEAN-Japan FTA, ASEAN-India FTA, ASEAN-South Korea FTA, and Indonesia-Japan EPA. ASEANEU FTA will take us to a significant destruction ravine for Asean countries, especially because the distinctive characteristics of the two regions. EU is a class of devel-

oped countries while ASEAN comprises of many developing countries with domestic economic problems which are more complex than the economic complacency of the developed countries. A number of researches (see Chandra 2007, Robles 2006) show that ASEAN-EU FTA is estimated to intensify the economic inequilibrium between the two regions. The following table lists FTAs which are being and have been agreed by Indonesia. FTA Indonesia has convened of: No.

Agreement Lable

Status

ASEAN Free Trade Agreement (AFTA)

Agreed

Indonesia – Japan EPA

Agreed

ASEAN-China FTA

Agreed

ASEAN-Korea FTA

Agreed

ASEAN-India FTA

In negotiation

ASEAN-EU FTA

In negotiation

ASEAN-Australia-New Zealand FTA

In negotiation

Indonesia – AS FTA

Pre-negotiation

Indonesia – EFTA (Swiss, Leichestein, Norwegia, dan Islandia)

Joint-Study Group

The latest development in current ASEAN EU FTA, they are continuously negotiating in the Joint Committee for the EU-ASEAN Free Trade Agreement. EU was said to accelerate the deliberation process, as Karl Falkenberg, EU Director Deputy for Trade

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Relationship said, “We’ve set the rather ambitious target of completing negotiations in about a year or a year and a half — let’s say by the end of 2009, we should be able to achieve some kind of outcome.” The next Joint Committee meetings are going to be more intensively held in ASEAN countries, such as in April in Bangkok, Thailand; in July in Philippines and in October in Vietnam. Table : Indonesian Non-Oil & Gas Exports to European Countries (Thousands of USD) Year 2000 2001 2002 2003 2004 2005 2006 2007

Export (X) 9,193,357 8,293,424 8,365,588 8,525,333 7,342,746 10,731,078 12,913,788 14,570,506

Import (M) 4,881,245 4,243,529 4,171,049 4,355,062 6,480,799 7,884,394 8,895,018 10,957,883

X- M 4,312,112 4,049,895 4,194,539 4,170,271 861,947 2,846,684 4,018,770 3,612,623

Aggressive steps are taken by EuropeUnion, so as said by Peter Mandelsohn, EU Trade Commissioner; “Strengthening the commitment and focus of EU trade policy in Asia is an important part of the EU’s Global Europe trade strategy. An EUASEAN FTA is a key part of that. This meeting helped clarify issues and map out the work ahead. I remain strongly committed to a wide-ranging twenty-first century trade agreement …” We observe there are big dangerous potentials for Indonesia and other developing countries in ASEAN if EU FTA is agreed. Firstly, the danger for service sector in Indonesia (especially in banking sector), secondly the danger of the more stringent application of the Rights on Intellectual Property (Hak atas Kekayaan Intelektual / HaKI) in Indonesia, and thirdly the danger in European modern fishery and agricultural industry expansion to Indonesia.

There are several cases in ASEAN for a lesson to other countries. For example, the problem related with TRIPs. Thailand is urged by Merck (pharmacy producer) not to do compulsory licensing on AIDS (anti retroviral) medications that have been patented by several multinational corporations, one of which is Merck. Compulsary licensing is one flexibility to use by the developing country governments to provide cheaper medication by producing generic version domestically or importing generic version of the medications under patent rights. We need to know that the patent period is 20 years. During this time, the corporation has monopoly right from the production, marketing, pricing to distribution. The license is compulsory to supply the generic version of the medications under patent rights. In TRIPs agreement in WTO, compulsory licensing is the right for every state to protect its nation interest. The agreement sounds completely as follows : â&#x20AC;&#x153;Each member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted (Article 5 (b))â&#x20AC;? Any FTAs with Europe will hinder a state to protect its people. In health sector, multinational corporations in Thailand continuously hamper the government attempts to give cheap medicines to their people. Pharmacy giants like Novartis and Merck have always been pressing Thailand government to cancel the medicine compulsory licensing, and so EU treats the patent issues. Europe Commission even asks Thailand

to change the statutes on compulsory licensing to obstruct the poor people access to the high-priced medication. An expensive lesson we can take from EUAfrica EPA ratification between Europe Union and African nations on 12 December 2007. Europe has used all the despicable ways by pressing on and threatening the states to legalize the agreement, including by cancelling the aids and closing the market access to Europe. The agreement essence is to abolish all hindrance on trade, such as ensuring that the African states will not apply import taxes on European highly subsidized food products in order to protect African peasants. So as the abolishment on the local content requirements applied to SADC (Southern African Development Community) states. The point is that EPA is WTO-Plus, that means being broader and more comprehensive than the ones regulated in WTO. (Daeng & Juno).

Indonesia Non Oil & Gas Export and Import to Asean Countries (Thousands US$) Year

Export (X)

Import (M)

(X â&#x20AC;&#x201C; M)

2000

9,828,385

3,724,593

6,103,792

2001

8,687,279

3,520,524

5,166,755

2002

9,173,836

3,804,671

5,369,165

2003

9,753,421

4,480,395

5,273,026

2004

28,360

6,285,506

(6,257,146)

2005

14,444,689

16,244,412

(1,799,723)

2006

16,577,915 16,471,960 105,955 Source: Bank Indonesia, 2008, http://www.bi.go.id

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Indonesia Non Oil & Gas Export and Import to Asean Countries (Thousands US$)

Indonesia is rich of natural resources with high population density and with the government that has not fully developed politically. It will certainly not escape from other countries or economic institution who compete to induce their influence and hegemony

http://www.sparehed.com/wp-content/uploads/2007/03/worldbank.jpg

WHY DOES THE WORLD BANK CONTROL INDONESIA

From Bretton Wood to Suharto

nitiated by Colonial countries like Europe (Dutch and England), followed by Japan in Indonesia, United States power became dominant since 1945 following the result of Cold War between USA and Soviet Union that put USA as a winner, as well as the collapse of Soviet Union. Therefore, United States government intensified its economic expansion to all developing countries, in this case, it saw the potential of Indonesia natural resourc-

es, in addition to low-paid workers. Under United Nations Charter, Europe countries were coordinated under Bretton wood agreement which was established in 1944, United States established The World Bank as an instrument to win over its strategy. 1 Strategy that was firstly born in Bretton Woods aim to restore the development of the countries involved in world war two. Therefore it is not surprising that after the World War II, United States, Europe and even Japan

1 Eric Toussaint, Your Money or Your Life : The Tyranny of Global Finance, Chicago : Haymarket Books, 2005, p. 89

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were able to rebuild their country rapidly. Billions of dollars was not only spent for development but also to build future’s strategic industries. The Ford, General motor, Exxon Mobil Oil, all private companies which help fastening USA economy enjoyed World Bank assistance. At that time, the Bank function as prime conveyor of US economic strategy. Then, problems out of World Bank authority rose, in particular political competition and world hegemony between USA and Soviet Union to the last recession in 1950 as well as Fordism issues. While in Indonesia, private corporations such as Exxon Mobil Oil and Caltex which were facing the situation form Indonesian Military group who loyal to Sukarno government, intensify their pressure to help the business in Sumatera and Kalimantan. President Sukarno and other newly independent countries in Asia and Africa, coordinates themselves as anti neokolim movement (anti neo colonialism and imperialism) that haunted USA pace in these regions. Sukarno Politics in forming axis of JakartaPyongyang and Beijing had broken through USA, England and Dutch hegemony in the regions. His close relation to USSR President, Kruschev placed United States and its allies in problematic position. Pressure of private companies operating in Indonesia added to political competition of anti-neo colonialism 2 http://go.worldbank.org/CNM19YH550

country had motivated US to take political and economic restoration. In political aspect, many CIA and M16 intelligents worked in political area in Indonesia. While in economic aspect, USA started to induce its influence to developing country. The World Bank was assigned for the second job. The Bank turned its operation area to developing countries in Asia and Africa, in particular Indonesia. The influence met its target. Sukarno was overthrown, and replaced by Suharto. The World Bank officially installed its power and located its office in Indonesia in 1967. 2 Here, the Bank worked in corporation with other international agent like Asian Development Bank, International Monetary fund and two World Bank operational branches that are International Financial Corporation and Multilateral investment Guarantee Agency. How do they control over Indonesia What is the significance of World Bank to Indonesia? The negotiation and “aid” commitment were initially conducted through debt mechanism and technical assistance of donor countries under the specific loan giver institution in Indonesia, known as Inter Governmental Groups of Development on Indonesia. IGGI was established in 1967, since Suharto overthrown Sukarno. IGG members and committees consist of 33 countries and bilateral and multilateral donor institutions coordinated under World Bank. In 1992 Inter

Governmental Group of Development on Indonesia was changed into Consultative Group meeting on Indonesia (CGI) In post-cold war, President George Bush Jr, run political and economic expansion through “peace” and “anti terrorism” strategy. Political situation in America had influenced the assistance of IGGI at time of IGGI changed into CGI. However, the aid commitment in Indonesia, both in organizing IGGI loan in 1967-92 and CGI in 1992 has never been changed. The assistance was in the form of loan, policy framework and technical assistance to create rule supporting market establishment, liberal economic activities under development project. Indonesia government preserves its corporation with other multilateral institution as IMR, ADB, and IFC etc. The Bank keep operating and widening its interest to ensure market strength to transnational, multinational and donors countries However, based on the experience, few IMF failures in running its loan strategy and organizing its “development” credit that has triggered the crisis made The Bank take over IMF �� financial authority. There are several World Bank’s tasks in Indonesia. First, lead and be in charge in CGI forum. Second, together with Japan and ADB, provide big amount of loan to Indonesia. Third, influence other donor to Indonesia. Fourth, Urging Indonesian government enacts privatization-supporting

policies or big corporation-supporting policies.

To realize its strategy under Country Assistance Strategy, The Bank �� recommends “development should be based on open and free market mechanism”. It is because open up market is the best mechanism to provide services on goods, capital and technology. �� Furthermore�� , “free market and private investment must create a�� base for�� strategy of a country development”. Furthermore, private corporations need to be promoted in each sector.” And so does the statement “to motivate government ability in creating privatization supporting policy or corporate supporting policy. Having realized Indonesia’s rich natural resources, in particular in mining, oil, gas and mineral sector that have been profitable for the countries that hold major shares - United States and former colonial countries,3 Indonesia still becomes the future target for donating countries, like United States. Due to the target, the Bank incessantly implement it strategy, one of its strategy to maintain loan and assistance based on the Indonesian request as well as World Bank Report. In running its strategic program and giving its loan, the bank consistently hold Country Assistance strategy mechanism to operate loan and non loan. The Bank firmly holds control and holds its loan program. 4 However, since monetary crisis in 1997 people

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Volume 6 / Special Edition 2008

has been demanding debt removal and reconsider the significance World Bank and other financial institution contribution to Indonesia. Due to stronger pressure to IMF, The Bank had the opportunity to intensify its influence in Indonesia. 5 Along with other parties in Indonesian and United States, though IMF is note-bene its international partner, The Bank criticized IMF’s economic recovery programs and bail out. Though launched critique to IMF, the Bank also addressed initiative argument in any opposition to the privatization program in Indonesia. Bank argued that opposition to privatization would be

counter-productive to the implementation of economic liberalization. This strategy was successful, mainly because local expertise that holds important position in government decision making process supports it. 6 To this day, debt realization has reached US$ 25 Billion in the form of credit for technical assistance and development project in all sectors. Economic restoration on development model triggered corruption issues and wasted debt fund which ultimately led to the 1997 crisis. After the crisis, the Bank changed” project” term into ” program” without changing the essence - to give credit for reform project. Its

3 Company operates in Indonesia, oil companies such as Mobil Oil, Caltex, Unocal (USA), Royal Dutch Shell (Dutch), British Petroleum, etc 4 ibid 5 Ibid 6 See some seminars or research of local expertise of government official, for instance Dr Mohamad Ikhsan, lecturer in Economic faculty of University of Indonesia, who also staff of

program focus on policy reform, social program through ”social safety net” and of course, along with IMF, UNDP Governance Partnership and ADB, restore economy bases on Bank’ initial standard that is trade liberalization, investment and market acceleration. Focus of the bank credit is targeting the following7: - Giving US$ 45 billion credit under IMF assistance program, greater than aid commitment of Consultative Group on Indonesia which was US$ 3,6 billion in 1998-2000 - To turn loan focus from the project into the loan adjustment, where the fund will be rapidly exchanged with government commitment for policy reform and straighten the priority to stress on social security net; stabilize the economy by helping business and banking restoration; as well as build foundation to strengthen institutions. - Maintaining IMF program and participating in formulating Letter of Intent and in charge for structural reform agenda such as social safety net, restructuring corporation, banking reform (in corporation with IMF) – in coordination with IMF and ADB

giving advice and assistance in agriculture and trade policies, corporate governance, reforms on state own privatization, legislation, middle-scale business, energy and environment. Canceling US$ 1,5 billion commitment of credit and give US$ 1 billion credit for crisis impact program that is targeted for scholarships, social development, humanity and rural empowerment – to maintain relevance of the program, by reducing financial obstacle that Indonesia has to bear

The World Bank then immediately restructured to fasten competitive economic restoration, including relaunching planned project lending in 1999-2000. In order to seek out economic effort other than giving credit for unemployment and poverty reduction program while improving growth rate, for years the Bank did 59 investments and 2 operational adjustments without United Nations’ Recommendation.8 In 2003, based on Indonesian government proposal and World Bank’s Country assistance strategy, as it is stipulated in White Book in reform

Economic coordination minister, in his work “ Investment climate : a progress Report”, Jakarta, 16-17 November 2005. This report was proposed in World Bank-financed workshop. The report basically point out his consent to new law on investment with points of investment progress, growth and equal treatment 7 ibid 8 article 57-60, chapter IX, Charter of the United Nations

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era, CGI launched a report ”Beyond Macroeconomic Stability”. Though not far different from the earlier reports, the report described its interest in expanding economic activity in finance and investment as a solution for debt and poverty. 9 Therefore, the Bank break down its ” reform” program to privatization, governance (democracy, anti-corruption, law reform) and decentralization. If we compare the substance of Law on investment of 2002 and 2007 to World Bank Report10, reform and poverty reduction programs aim to fasten its economic expansion through massive privatization11, facilitation to investment right, reducing its obligation to public by eliminating official payment like tax, custom and reduce risk to market that will inflict foreign investment and conglomerate. It is able to realize through law reform in investment, banking, forestry, agriculture, financial, industry, public services and infrastructure development. Those actions were focus on energy, oil and gas.12 Thus, the Bank had violated United Na-

tion Charter which assigned the Bank as specialized agency to assist people welfare.13 Focus of Bank Operational Standard to strengthen market bases and finance through multinational corporation economic expansion , credit, trustfund, and technical assistance in the poor and developing countries, so far have been without United Nation approvals. Furthermore, consistent with his position as a creditor, The Bank does not think how Indonesia should work hard to unleash itself from the debt trap. In fact, for the Bank the debt trap is the key to make Indonesia economic dependency to World Bank credit. In 2004 alone, it was projected that US$ 7.6 billion loan out of US$ 10 billion loan spent to pay debt that is US$ 5, 2 billion to pay foreign debt and US$ 2, 4 billion to pay domestic debt. It was only US$ 2, 4 billion spent for the development project and program expenditure.14 The experience of doublingprofit, the Bank become more persuasive to open wider path to investment in particular in mining sector and imported goodss, including financial sectors.

9 CGI report `Beyond Macroeconomic Stability’, The World Bank, December 2003 10 See capital investment law of 2002 and 2007, World Bank Report in 1998-2007, CGI report, ibid.,and The Preparation of a New Investment Law and related Implementing Regulation in Indonesia: A Report on the World Bank Group’s contributions, May 2006. Http://ww.fias.net/ifcext/ fias.nsf/attachmentsBy Title/FIAS Resource. 11 Mohamad Ikhsan, op.cit. 12 http://wbIn0018.worldbank.org/eap/eap.nsf/attachments/03-1203-PR-CASbrief/$File/ 03- 1203PR-CASbrief.pdf 13 See article of chapter IX, ibid 14 World Bank Annual report, 2005

Gas Producer in Indonesia, 2004

Record of disadvantages to Indonesia

Data of biggest oil producer in Indonesia in 2004

Excessive debt is truly bringing disadvantages to Indonesia. How does it bring disadvantages?

United States corporations operate this project, while Indonesia only give away the area of crude oil and small numbers of unskilled and low paid workers without working protection. The statistic shows that natural resources exploitation has brought disadvantages to Indonesian People In this case, the Indonesian States has experience following disadvantages:

Firstly, Indonesia do not realize that loan and technical assistance will only benefit the area of capital or economic of donating countries. Infrastructure for instance, had developed to facilitate drilling process in Caltex area and Exxon Mobil oil without any control from Indonesian government. Secondly, the project development brings welfare to United States highly official workers then Indonesia workers. Third, corruption is sparking in various government institutions who received loan from the Bank. In addition, the operation and production do not control under Indonesian government, but under Caltex and Exxon Mobil oil corporation

1. In economic aspect: â&#x20AC;˘ The state lost its revenue from oil drilling process and exploitation of mineral and other natural resources â&#x20AC;˘ Low job opportunity, where as job opportunities are determined by The World Bank15 â&#x20AC;˘ Greater debt trap, where the majority of the debt is equipped with the concession of United States corporation and other

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donor countries who also enjoy facility of free custom for their goodss and services. They also determine the prices while other disadvantage is that prices shall be the burden of Indonesian government. For instance the oil drilling, gas and mining exploration in Papua, Kalimantan, Sumatera and Sulawesi • Leak on uncontrollable project. Expertise ”assistance” who own the same competence as Indonesia experts are paid by Indonesia government through foreign debt.16 It is also ironic to see that local expertise work as a consultant or collaborator of word bank and share common idea of neoliberal’s perspective and World Bank economic strategy.

• Loan fund are spent for the research that do not answer the need of Indonesian people. In this case, the bank finances Indonesian expertise or Institution, Government University, research organization as a World Bank Partner. 2. In political aspect • Bound debt system obliges states to implement the whole strategic aspect. This ongoing system create great economic dependency that bring political decision dependency such as law reform in accordance with World Bank interest • World Bank Success in inducing its influence to Indonesia facilitates United States hegemony in economy.

Crude Oil Producers in Indonesia, 2004

15 see the report of David Hall and Robin de la Motte, “Annexe to Privatization and Conditionalities in Six Countries, published by Public Services International Research Unit (PSIRU), Business School, University of Greenwich, London, United Kingdom, website: www.psiru.org.

http://www.waspada.co.id/images/stories/oil_rig.jpg

Joseph Stiglitz strongly criticized World Bank in 2002, called the Bank as â&#x20AC;&#x153;institution that do not work for the poor people, environment and even global economic stability.â&#x20AC;? According to Stiglitz, globalization problem are sources in three international institutions that is World Bank, IMF and WTO. These institutions play their role for the interest of the developed countries and put the interest of developing countries aside.17 As a professional and consultant for international organization, Perkins said in 2004 that Indonesia is one of the targets of United States of America International Development (USAID) project and the World Bank that since the Cold War has been working for multinational corporation interest as Halliburton, Chas T. Main Inc, etc.18

16 For instance, see World Bank annual report that put economic Institution of research and management of University of Indonesia report and other report of state university who applied similar standard and own similar skilled but consider low competent to University of Indonesia. 17 Joseph E. Stiglitz, Globalization and Its Discontents, New York : WW Norton, 2002, p. 214 18 John Perkins, Confession of Econiomic Hit Men, Illinois : Berret Koehler, 2004, p. 165

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Indonesia Japan Economic Partnership Agreement - IJEPA

The Economic Agreement for Japan On 20 August 2007, Indonesia Japan Economic Partnership Agreement /IJEPA was signed by President RI ,SBY and Japan Prime Minister, Shinzo Abe who is going to give a special visit to Indonesia. It is the first bilateral free trade agreement made by Indonesia, and the most comprehensive agreement. New Age Liberation

JEPA is a “Free Trade Agreement NewAge” consisting of 13 comprehensive issues, a WTO-plus (exceeding the agreements regulated in WTO) plus the enticement of capacity building as part of “Partnership Agreement. Most of the media in Indonesia discuss only the trade and partnership aspects only, forgetting the sensitive issues potentially putting Indonesia at a loss, that is of the investment, service sectors, HAKI, energy and government spending. The essence of IJEPA is the comprehensive liberation between an economic superpower country (Japan) and the poor country with prolonged crisis (Indonesia). Wherever, the like asymmetric free trade relationship will put the weak party at the loss position. IJEPA is a form of Japan energy security strategy, especially for the coal and natural gas. Like statement was disclosed by The vice President Jusuf Kalla in 13th Nikkei international conference in Tokyo, on 25 May 2007, that Indonesia will supply gas to Japan in the framework of Economic Partnership Agreement.

Gas delivery to Japan is not without risks, because Indonesia energy security and sovereignty will be threatened, because gas is not a kind of renewable energy. The current energy crisis prevailing in the global politics should be a lesson for Indonesia to secure the domestic energy supply, to meet the needs of the households, agriculture and industries in the home country sustainably. Service sector liberation in IJEPA also harms the continuation of the domestic service sector and the populace living essentials. It convenes the commitment on various service sectors covering professional/business, communication, construction, education, finance, health, social, tourism and trip, and transportation. The liberation impacts are so bad for the people living essentials, especially in the sector related with the public interest such as health and education. IJEPA gives freedom and security on Japanese investor rights to invest in Indonesia. On the other side, there are no certainty and obligations for the Japanese investors to come. So our government is compelled to open the door as wide as possible, while the guests are not obliged to come.

Japan is a diligent country in patenting foreign products (for example, 19 types of tempe patented in Japan and Shiseido cosmetic company patenting Indonesian spices), and on the other hand, they always protect (monopolize) their HAKI ownership firmly. The capacity improvement and technical assistance components contained in the ‘partnership’ is Japan interest, in which everything is entered from Japan management. While partnership is not of dispute mechanism, that means Japan is not claimable, in which Indonesians can be claimed if failing the disciplines in IJEPA points. At last, the public and the stakeholders in Indonesia never know nor are consulted first about the contents of IJEPA agreements, especially the regulation details, affecting disadvantageous for Indonesians. Especially we asked that the government should have asked the House of Representatives to ratify first, before the government signed a bilateral agreement widely affecting the public or communal interest and the national future. With every above considerations, IJEPA should not be continued, especially because Indonesia never sets a national strategy to face FTA/EPA negotiations. The country has to be prepared first at home by public consultation and stakeholder discussions, before Indonesia bind itself to any economic agreements, both bilateral, regional and multilateral ones. Indonesia dependency and powerlessness in IJEPA will only strengthen Japan new colonization over Indonesia. Indonesia Impoverishment In a half of century time, Japan has got very big profit from its cooperation with its former colony. The profit is gained from the debt interest, natural resource and processed product sales revenue to

Indonesia. Economic cooperation between Indonesia-Japan never makes Indonesia independent while always dependent on Japan. Indonesia debt dependency on Japan as the largest creditor, will exacerbate the economic bilateral relationship in IJEPA context, strengthening Japan domination and dictate on Indonesia economy. Directly or indirectly as the cooperation result, Japan is on the most prosperous countries in the whole world. Per capita GDP Japan reaches $31,410 at the ninth rank in the world and is a very fast progress in the Industry, trade and culture. While Indonesia are slipped continuously into the deeper crisis cavity. From all the workers both working in the formal and informal sectors, including in the companies coming from Japan, as much as 55.02 percent or more than 52.3 million people live in poverty. Their income is under 660 thousands rupiah each month. If their income is shared for their all beneficiaries, each person will get under US$1 everyday. World Bank report in 20061 states that almost 42 percent of Indonesian people live between the poverty line of US$1-US$2 everyday. So Indonesia Japan bilateral relationship, especially in the economic sector is a cooperation never beneficial for Indonesia. Indonesia-Japan bilateral relationship shows more of an action of a rich country sucking the economy, natural resources and productive menpower of the poor countries. Therefore, the cooperation has to be reevaluated. We urge Indonesian government to put forward the national interest, save the natural resources, improve the human resource capacity (paid and expertise), and Indonesian economy benefits. (daeng, juno)

1 WORLD BANK “Era Baru dalam Pengentasan Kemiskinan di Indonesia”, JAKARTA, Website: www. worldbank.or.id

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INDONESIA :

A Japan Colony for a Half of Century *

2008 is called as The Year of Indonesia-Japan Friendship. This symbol is associated with a half of century old Indonesia-Japan bilateral relationship. Indonesia-Japan opened the diplomatic relationship on 20 January 1958, signaled by the cooperation agreement signed by both country foreign ministers, Subandrio and Aiichiro Fujiyama. The celebration of 50 year Indonesia-Japan relationship goes marathon during 2008, a range of ceremonies filled with various common activities in economic, social, culture, education and sports. Not only that, celebrating the half-of-century cooperation success are held in the prominent campuses in Indonesia. A range of seminars, discussions and meetings are held for the members appreciating what have been achieved in the cooperation of

both countries in Asia. What does Indonesia get from this cooperation? Is it truly beneficial cooperation, or it is only suction acted by the rich countries over the poor..? Several facts of Indonesia-Japan cooperation can be described as follows : Debt Colonization Japan is a country exporting the biggest debt to Indonesia, especially the formal loans to Indonesian government. JBIC1 is the Japanese government formal financial institution given the task to run the International Financial Operation and Foreign Economic Cooperation Operation (BPR or ODA). If we see the forms of the loans given by Japanese government, we can find cle-

* Written by:Salamuddin Daeng -Researcher of Institute for Global Justice

sources: http://www.antaraphoto.com/arch/prevw/grab.php?id=1173753151

arly the main motivation of the loans. At least there are three debt objectives. First, to stimulate Japan processed product export. Second, to improve Japan raw material import. Third, to stimulate the direct investment from Japan. The efforts to improve Japan processed product export can directly be done through debt projects and through trade. The debt project especially to build infrastructures, stressing the usage of goodss produced in Japan, then are traded through loans for Indonesia. Such trade gets many benefits in the forms of import duty exemption, besides Japan can increase the trade surplus to Indonesia. Next, the loans given by Japan government to Indonesia and Indonesian bankings, are so clearly aimed to increase the processed product export of the lending countries and increase their natural resource import. Economically, the condition is clearly disadvantageous for Indonesian economy, because the cheap raw material export has to face processed product import coming through debt and the trade of high added-values.

as an attempt to improve controlling the raw material prices, the direct investment becomes so effective. In order to improve the control over Indonesia natural resource, the requirement of Japan loans for especially Indonesian banking is that we must give credits to the joint ventures of Japan-Indonesia businesses. It is obvious that the lender countries such as Japan have relatively large amount of direct investment which are directed to the private companies whose operations are aimed to export the raw materials to Japan, especially in the extractive sectors such as oil and gas, mineral and coals. Energy Wealth Exhaust The direct investments are clearly aimed for the direct control over the cheap raw material supply from the poor countries which are rich of natural resources. The export oriented corporations getting loans from the formal financial institutions from the country, to focus export for their business activity capital sources. The developed industrial countries prioritize the availability of the raw materials of oil, gas, mineral and coals, as the main

The developed industrial countries have much interest in directly controlling Indonesia natural resources. To get security of the continuous raw material supply and

1 An institution established on 1 October 1999, as a joint of JEXIM and OECF, placing JBIC to take over both operation types:

BAL JUSTICE UPDATE

Table.

The Biggest Foreign Investment Project Agreed by the Government, sorted by The Lender Countries (in million USD) 2001

No. Country 1 2 3 4 5 6 7 8 9 10 Total

2002

2003

2004

Investment Investment Investment Investment Project Project Project Project Value Value Value Value

United States Canada Netherlands Germany Britain Japan Korea Singapore Taiwan Australia

Amount

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2005 Investment Value

Project

37 37 36 32 73 98 268 157 63 48

72.8 72.8 88.7 42.6 722.9 772 369.7 1143 74.1 255.5

37 37 26 15 76 80 229 160 35 40

467.7 467.7 243.9 35.8 719.9 510.6 370.3 3328.7 54.3 232.2

28 28 26 15 75 65 179 154 39 33

178.9 178.9 100 172.2 966.8 1256.6 127.1 692.4 137.3 125.4

24 24 34 21 80 74 209 150 40 39

133.2 133.2 258.7 29.8 1317.2 1683.4 402.7 576.5 68.6 481.2

44 44 54 30 104 76 309 203 43 68

91.3 91.3 472.3 42 1529.1 937.9 413.6 3933.3 133.7 513.5

849

3614.1

735

6431.1

642

3935.6

695

5084.5

975

8158

1334

15056.3

1551

9795.4

1060

13596.4

1190

10279.8

1648

13544

Source : Statistics Indonesia, 2006 Note: - Annual values are the New Projects and the Investment Value ofNew Projects and Expansion - the non-investment project values are the mine projects (Working Contract), otherwise, the non-project investment values are expansion projects.

energy sources and heavily depending on foreign supplies.

In the last five years, Japan takes the position as the biggest crude oil and condensate importer from Indonesia. besides to ensure the energy srouce availability to support its industry, Japan also takes big advantage from the Table .

Japan has taken the highest ranked position in utilizing Indonesia oil and gas natural resources supplied by the

Crude and Condensate Export Based on Destination Country

Destination Japan South Korea China Australia USA Thailand Singapore Taiwan New Zealand Philippines Other Amount Source : US Embassy, 2005

next fuel trade to Indoensia. As the biggest crude oil importer to Indonesia, Japan is the country with the biggest export to Indonesia, including of the oil products.

2000 74807.2 37407.5 33781.1 20539.9 14152.8 9932.7 15655.6 9156.9 165 1110.4 6790.9 223500

2001 77866.1 51965.1 19030.1 37461.9 15349 5496 20516.8 8167.2 760 1145.7 3854.1 241612

2002 61751.5 43976.7 22064 34468.7 15863.9 10558.3 14648.2 7023.1 1063.9 410.3 5445.7 217274.3

2003 62375.2 36888 26483.5 23488.7 11572.7 9643.2 10943.3 4981.2 569.4 1127.7 1022 189094.9

2004 52040.3 42110.4 25426.1 20430.2 11929.8 9140.6 8761 6029.1 285 278 2935.5 179366

foreign corporations operating in this country. As discussed before, Japan will give any supports to keep the supply of oil and gas energy source from Indonesia. Including the foreign loan both the government and private this country. As explained before, Japan gives big loans for infrastructural development. The loan to support the gas supply there has to be paid by the people. Japan is in the position of getting 75 percent of the total LPG delivery from the big corporations in Indonesia abroad. Besides, Japan gets 64 percent of the total LNG supply sent by Indonesia in 2004. This condition shows Japan portrait as a country that is energy thirsty, placing Indonesia as the main raw material producer for Japan industrial progress.

The above data shows that Japan is a country receiving the biggest LNG export from Indonesia, followed by Korea and Taiwan. The LNG delivery amount from the corporations operating in LNG production sector in 2004 reaches 64 percent of the total delivery to the countries receiving the largest supply of this energy source. Indonesia export to Japan is bound in a contract between Indonesian and Japanese governments. President Yudhoyono in Tokyo announced that Indonesia will continue the gas export contract to the Sakura country2. The LNG delivery to Japan has started since 1971 ending in 2010-20113. Next, from the coal products sent by the private and state-owned corporations operating in Indonesia, Japan is .

Table LPG Export based on Country (1000 MT) Country Japan Hongkong Taiwan Australia Singapore Philippine China Other

2000 943.8 90.5 1.7 30.4 3.5 31.5 151.8 53.1

2001 1169.2 35.7 93.5 51.8 13.3 17.7 21.8 82.1

2002 879.4 0 10.6 8.5 1.6 57.3 243.3 69

2003 882.3 0 0 7 21.7 34.9 82 78.7

2004 836 0 0 9.2 0 35.2 45.8 108

Amount 4710.7 126.2 105.8 106.9 40.1 176.6 544.7 390.9

Source: US Embassy, 2005 2 when the President arrived in Japan, at the same time there is kerosene scarcity in Jakarta. The mothers had to queue for hours at the quay in order to get 2-3Litres of kerosene allocated per queuer. In the international market, the pure kerosene is used as jet craft fuel so its price is so expensive. In Indonesia, the kerosene is used for working with stoves and for supplying cheap fuel for the motor machines of the fisherfolks who can not afford the solar. During last year, Medan citizens were exposed to black-out in three time turnings, similar as the medication schedule, three times per day, due to a very severe electricity supply crisis in Northern Sumatera. The gas and steam powerplant of Sicanang in Belawan which is the main electricity supplier in the city, could not maximally operate for a long time because of the continuously decreasing gas supply. With limited financial sources, the State Electricity Company (PLN) could not burn more oil as fuel to substitute gas

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Tabel. LNG EXPORT BY DESTINATION (1,000 MBTU)

Country 2000 2001 Japan 933,660 870,978 Korea 320,766 212,323 Taiwan 145,398 155,484 Total 1,400,024 1,238,785

2002 2003 2004 714,426 923,707 841,969 200,884 263,015 275,594 120,232 114,132 204,852 1,035,542 1,300,854 1,322,415

Source : US Embassy, 2005

the country absorbing most of the production results. The high value of coal export to Japan, shows that the country industries are highly dependent on the cheap energy source supplied in the unprocessed form in Indonesia. The above data describes that the cheap energy source coal absorption by Japan reaches 26 percent of all the coals exported by the corporations operating in Indonesia. currently, at least we have 15 big scaled coal mining corporations operating on Kalimantan and Sumatera islands. The reality abandons the fact that this country is in the crisis of energy source scarcity.

Table.

Indonesia Coal Export, 2005 (in tonnes)4

Destination CHINA HONG KONG INDIA ITALY JAPAN KOREA, R. MALAYSIA NETHERLANDS PHILIPPINES SINGAPORE SPAIN SWITZERLAND TAIWAN THAILAND UNITED KINGDOM UNITED STATES TOTAL

Total 1,227,064.80 8,969,582.58 8,740,258.58 2,780,453.83 24,237,427.00 9,963,869.00 4,021,894.91 1,075,783.00 2,678,644.95 1,279,758.84 3,652,727.00 4,239,435.22 14,524,210.00 4,255,737.02 1,771,706.00 1,930,710.00 107,326,459.40

Source : Mineral Resource and Energy Ministry, Republic Indonesia, 2006

3 Energi Indonesia untuk Siapa?, Tuesday, 12 December 2006, Kompas, 4 http://www.dpmb.esdm.go.id/modules.php?_mod=data_statistik&_sub=statistik

National Update :: Law Investment

What Would be the Next Recipe? An Affirmation of Colonial Investment Law No 25/2007: an Extension of Foreign Domination in Indonesia

The State Company Privatization: Government Rescue Steps through De-Nationalization Cancel Petroleum Price Rise Inside Out of Food Crisis and Way Out Role of the World Bank on Capital Investment Law Constitutional Court Verdict “Violates National Interest”

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Volume 6 / Special Edition 2008

What would be the next recipe? The neoliberalism followers are panic. The market that they believe in has proven failed; the world is in an acute crisis. President Bush begged oil producers and oil producersâ&#x20AC;&#x2122; countries to increase their production. Yet, it could not solve current energy crisis.

The market is truly anarchist; broke its

live in poverty and 70 percent of their

own rules - supply and demand regulates the price. In fact, supply and demand are no longer determining the price that must be paid by society. It is more determined by speculation. Speculatorâ&#x20AC;&#x2122;s projection on the future price has been destroying purchasing power, damaging the aggregate demand capacity .

income are spent for food consumption.

The impact of the crisis and chaos must be endured by majority. More than 70 percent of world population

Indonesia is even worse; liberalization has created an awful situation. Promarket regime and their followers kept campaigning the dream of prosperity. In fact, as liberalization and privatization intensify to all sectors, nearly half of Indonesian population lives in poverty. (World Bank: 2006). Law No. 25/ 2007 on Capital Investment is the next stage of colonial in-

vestment perpetuation in this country. Investment practice that is greedy of land and natural resources, equipped with debt-funded infrastructure has created wide externality. This law opens wider space to liberalization. “Freedom to people and goodss to move across region without boundaries” allows transfer, asset repatriation, fully equipped with commerce incentive. Practically, the country is dominated by traders. More than 195 hectares of Indonesia land, equals to two third of Indonesian area have been handed down to the investor, in particular foreign investors. Primary commodities such as oil, gas, mineral, coal has been managed to serve corporations’ interest. Various pro business policies are legalized through the hand of Indonesian government; the fuel and electricity price rise will lead to massive privatization on State-owned enterprises. The point of Susilo Bambang Yudhoyono statement that “Indonesia is on the track”, is that all liberalization recipes have been implemented. Furthermore, this country is known as a country that runs the fastest process to neoliberalism. Such recipe is proven failed, what would be next?

BAL JUSTICE UPDATE

Volume 6 / Special Edition 2008

“Refuse Investment Bill” “No Foreign investment for Indonesia Development"

An Affirmation of Colonial Investment

Bonnie setiawan

At first, investment was a trade-related activity in the colonial period. In the past, investment was only be possible under the colonial. In the era of merchantilism the activities were trading goodss. Coloniaslim is the one who open the path of productive investment. Therefore, historically, investment is assosiated with “colonial investment” which emphasize: (1) old investment to exploit natural resources and farming; (2) new investment to dominate local market, raw material and cheap labor to be able to compete in the international market.

image sources:http://cache.daylife.com/imageserve/04hEggI2JRczA/610x.jpg

The colony always faces exploitative and dominative investment from their colonializer who brought back the profit to their homeland. Capital accumulation on the period of primitive colonialism relied on extra economy power or arm forces and politic. What is happening today is neo colonialism, that is indirect colonial through international element, particularly in trade area. After colonizationperiod, investment relation is less similar. In this case we face narrow definition of foreign investment, that is foreign investment as a continuation of trade. Foreign investment regulations should regulate complex relationship between investor country and investee country. Foreign investment should includes relation between a sovereign country to another sovereign country. Unlike trade whose theory of“ comparative advantage” (Ricardian) is applied to this day, there are not many theories on investment. Investment concept remains absurb: Whether investment is a part of trade regime, or investment and trade are two different things? The dispute over whether investment includes to tradeissues or separate (non-trade issues) emerged in world trade regime, WTO. International regulation on Investment is always full of non-discrimination on trade, as it is stated on General Agreement on Tariff and Trade. Foreign investment in WTO also demands the same treatment and rights asdomestic investment. Such demand is included in National Treatment, market access to domestic market, transparancy, etc. Therefore, foreign investment is often considered purely as trade without questioning its position as other countries’ capital penetration to other sovereign country. This disgreation remains. Therefore, it is not suprising if today, investment regulates or is a part in international agreement on trade. It can

be seen in: • Bilateral Investment treaties (BITs), Trade and Investment Framework Agreement, EPA, Bilateral free trade agreement, • Regional

agreement like North American Free Trade Agreement (NAFTA), European union, Mercosur, ASEAN, Energy Charter Treaty-OECD;

• Multilateral Agreement on investment (MAI) that met its failure, General Agreement on Trade in Services (GATS) and Trade-Related Investment Measures (TRIMS) under WTO regime. Many of the operations are conducted by United Nations Conference on Trade and Development (UNCTAD), Organization for Economic Cooperation and Development (OECD) and other World Bank groups. What about investment regulation in a country? Of course since it is unilateral, therefore, the regulation should be dependent on the need and interest of its nation and people. Sovereign country should have determined its rights to set regulation and form investment mechanism under its economic systems in conformity to national interest and constitution. Multilateral agreement on investment is legally binding massively failed to be adopted. Developed countries made an afford to pass the agreement. However, MAI gains opposition from developing countries. Therefore, each country does not oblige to follow standard model or rule on investment. The only multilateral agreement which has come into forces is GATS. It is important to review history of Havana charter in 1948 which gave birth to GATT/ WTO and open a path to transnational agreement on investment for the sake of invested country, not for the sake of foreign investors. Chapter 11 and 12 emphasize

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Volume 6 / Special Edition 2008

host-state central approach as follows: (1) take adequate protection to avoid foreign capital intervention to national affair and policy. (2) To set how is the prosedure, amount of the prosedure and bases of permittion for foreign investment. (3) To set and to ensure a just requirement for current and future investment However, the resilient neo-colonial relationship and pressure of powerful country cause the investment agreement beneficial only to investors and investor countries. Havana Charter is put away easily. The first Bilateral Investment Treaty was the treaty between Germany and Pakistan on 1959 treaty reflected the high pressure and Jerman domination by its investment in Pakistan. Host-state central approach as it was mandated in Havana Charter turned to be investor central approach due to the fearful nationalization action in most of the colonized countries. In particular India that was indepedent in 1947. Since then, international investment tends to provide protection on foreign investor. This tendency is called as “ the great failure of international economic policy”. The failure of international regime and their economic knowledge to this day make zero gain to the host country. While the investor rights is fully granted through global rules. The main issues Investment regulation should set regulation to maintain balance among private rights to public rights. However, main issues was put away in order to secure investor rights upon private rights. Currently, rights of corporation are striving and rights of host country which is mostly

poor country and developing country are taken away. Since 1950s to this day, there have been 2,200 bilateral investments in the world. The characteristic of bilateral investment are the following: (1) guarantee of foreign investor rights to repatriate profits and funds related to investment (2) rights to most favored nation – the equal treatment of a country to other country; (3) Rights to national treatment- the same treatment with domestic county; (4) Right to compensate in the time of nationalization, seizing or other form of taking over ; The rights to minimum international standard and the system of conflict dispute which are based on nation to nation approach or investor to country approach. If we review to bilateral investment treaties between America and other countries, we witness the full guarantee rule to investor rights or corporation rights. 1 The pattern

of its US bilateral is quite similar to the draft of multilateral agreement on investment which was distributed on 13 January 1997, which introduced in WTO but failed to adopt. This principle is adopted in regulation on investment in national level. Through capital investment law no 25/2007 above principle is formulate as a following: 1. Foreign capital is a capital owned by foreign country, or individual, or corporation, and/or Indonesian legal institution where part of whole capital are owned by foreign country. 2. The provision on this law is applied to investment in all sector in Indonesian Republic.

Summary of Bilateral investment of USA from official website of (http://www.ustr.gov/ TradeAgreements/BIT/Summary_of_US_Bilateral_Investment_Treaty_(BIT)_Program.html)

3. All this sector or business for investment other than closed investment with certain requirement.

9. Capital investment may shift its assets to the parties referred to by capital investors as set by legislations.

4. The investment is based on the principle : the same treatment regardless of the states of origin.

10. Capital investment is granted rights to transfer and repatriate in foreign exchange.

5. By considering national interest, government gave the same treatment to domestic investment as to foreign investment in setting basic policy.

11. The facilitation of services or permission on the rights to land for 95 years

6. Government applies the same treatment to any countries who invest in Indonesia as it regulates to Indonesia legislation. 7. In the case of Indonesian government nationalizing or taking over the asset, Indonesian government gives compensation equal to market price. 8. If there is no agreement in these two parties, the dispute will take arbitrate

12. In the case of dispute between government and foreign investment, the parties will settle the dispute true international arbitrary.

Thus, it is clear that the nvestment theory is imbalanced and functions to preserve neocolonialism relationship that has been going on for a long time and now renewed based on global investment regime rules under the global trade regulations.

“Refuse Rice Import” “No WTO! No Rice Import!”

BAL JUSTICE UPDATE

Volume 6 / Special Edition 2008

Law No 25/2007

An Extension of Foreign Domination in Indonesia Economic crisis that has been hitting Indonesia since 1997 remains unsolved. In fact, it is even worsening in the past few years. The crisis penetrates to various aspects of basic economy. Highest unemployment and poverty rate indicates this deeper crisis. Yet, Indonesia crisis has been manifested in the worse form such as starvation and malnutrition that engulfs some regions in Indonesia for the past five years. Policy makers run a series of strategy hoping that it would solve the ongoing crisis. Their main concern is to achieve a high economic growth. Indonesia economic growth is measured under Gross Domestic Product (GSP) scheme. Total investment, production, expenditure are the determiner indicators under

such scheme. Therefore, policy maker endeavours to attract investment, mainly foreign investment to boast investment, export and revenue. In doing so, they provide legislation that takes side with the investment and promises big profit for investment activity, which applies for direct investmant or in trade activities (export/import). Government consider the existing legislation no longer suitable for bussiness. Scores of capitalsld fly out of Indonesia is government reason to impose immediate revision on investment law. The revision is also to promote trade under the free market instrument of neoliberal1 doctrine which is firmly held by big corporation, in particular multilateral2

1 Many definitions are raise by experts. Neoliberal can be defined as an economic doctrine that refers to economic-politic philosophy which urges elimination of State intervention in domestic economy. This doctrine focus on free market method with a lessen boundary to business and private

â&#x20AC;&#x153;Plenary assembly of the Constitutional Court on Law No.25/2007â&#x20AC;?

corporations, who rules the world today. Make changes for foreign capital After House of Representativeâ&#x20AC;&#x2122;s3 approval, on April 26, 2007, new investment law was enacted and signed by President of Indonesian Republic, Susilo Bambang Yudoyono,4. The law no 25/2007 on investment liquidates two earlier laws on investment, those are Law No 1/1967 on foreign investment and Law no 6/1968 on Domestic Investment as well set a base of equal requirement applied on activities of foreign and domestic capital Many groups redressed their protest to the government and House of Representative on the enactment of such investment legislation. Some organization filed Judicial R eview to Constitutional Court demanding the cancellation of that law.5 NGO and Democracy group stated that this law do not only accomodate foreign investorâ&#x20AC;&#x2122;s interers but also violate Indonesia constitution, in particular

article 33. Indonesian Democratic Party of Struggle (PDIP) stood their position to oppose its legislation and walked out of the assembly room. 6 Most of the articles in the law reflected foreign investment interest, such as the following articles: 1) strategic sectors that are significant for public needs can be held mostly by foreign investment. 2) Granting various privileges to foreign investors through agreement with State. 3) Facilitating landrights in a longer period 4) Facilitates repatriation and profit transfers. 5) Elimination of import tax. Such facilities are potential to damage national industries, Indonesian society and even Indonesian government. Basically, legislations and policies that support investment activities, in particular foreign investment began since New Order7 government was in power. One of important legal products is law No. 1/1967 on foreign investment that became legal base for the growth of foreign capital in Indonesia since the day of enactment on 10 January 1967. That law was effective in supporting foreign

property 2 Corporation operates in various countries; own offices, factories and subsidiary in many countries. Its headquarter coordinates global management. Its profit exceeds the revenue of many countries. Multinational Corporation holds strong influence to global politic due to their economic influence to the politicians and abundant financial to hold relation in society and political lobbying. Yet, a country competes to attract multinational to invest their capital (tax return, job creation, and other economic activity) in the country. In doing so, a country is frequently offering incentive such as tax reduction, infrastructure, and goods workersâ&#x20AC;&#x2122; standard and conducive environment. 3 Investment bill which was proposed by government was approved by majority of members of house of representative on March 29,2007. 4 Law No 25/ 2007 legalised in Republic Indonesia Document No 67/2007 5 Many mass organization joint into Gerak Lawan addressed their opposition to Law No 25/2007 on investment and filed Judicial Review to Constitutional Court. The suit itself was addressed through Indonesian Legal Aid and Human Rights Association (PBHI) and Foundation of the Indonesian Legal Aid Institute (YLBHI). 6 PDIP fraction opposed and walked out, National awakening Party (PKB) fraction that at first asked for postpone eventually accept the law with certain condition, while other are unanimously accept the enactment of this law. 7 New order government is an entitled on Suharto government who overthrown nationalist government of earlier president of Sukarno. New order government also changes political economic

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investment in Indonesia for more than 30 years.

scheme has been located in 23% of Indonesian land. 11

Foreign investors’ main interests are in the forestry and mining sectors. After the law no 1/1967, new order government legalized law No. 5/ 1967 on basic stipulation in forestry on may 24, 1967 and followed by Law no 11/1967 on main stipulation in mining that was legalized on 2 December 1967. 8

Law on forestry afterwards becomes legal base for Forest Management concession on millions hectares of land. On 1991/1992 about 60.48 hectares of Indonesian forestry are handed down to forest management concession scheme or equal to 53.57% of total forestry in Indonesia or nearly twice of protected forest area ranging 31.72 million hectares12.

Many tax incentives are provided for foreign investor at that time. Therefore in the short period, foreign capital dominated the investment structure in mining, forestry and plantation. Foreign investment in mining sector was worth US$953.7 and forestry sector worth 419,1 or 16,8 percent from total investment approved by Indonesia government.9

It is not only mining and forestry industries that are targeted by foreign investor in the New Order era but also tourism sectors. Tourism Development corporations as BTDC and LTDC emerge in Indonesia at the 80s. Between 1998-1999, Bali underwent ”peak of greatness” of capital activity in tourism sectors.

Handed over Indonesian Teritorial The law on mining led to issues of contract on mineral and coal in abundant. By the year 2006 government handed over 44 million hectares lands or equal to 44% of Indonesian forestry area, as a exploration area for mining and coal.10 Currently, Areas that are given under contract Production sharing

Currently, Foreign capital dominates Indonesia economic. To improve profits, they need a free market policy which regulates elimination of non tarrif barrier and all form of economic protection. It will gain higher profit from raw material export and goods import that will able to support their bussiness activities. The most effective way is to create an open gate to such trade.

direction to the open state’s economy to foreign capital. 8 Those two law signed by President Soeharto as an acting President of Indonesian republic with rank of Indonesian Military General. 9 Mochtar Mas’oed, op. cit page : 226 quoted from Yasuo Kuwahara, Employment Effect of Foreign Direct Investments in Asean Countries, ILO, Working Paper, No. 6 1979 page 8 ; Sources are from Bank of Indonesia. 10 Data from many sources : Jatam, ESDM, Tahun 2006 10 Data from many sources : Jatam, ESDM, Tahun 2006 11 Forestry planning agency mention that Indonesia forestry area is 101.843.486 hectares. Vegetation coverage of Indonesian land is 187.746.754 hectares, while total Indonesia land is 192.257.000 hectares 12 Forestry ministry, Directorate management of forestry production, statistic management of forestry production, 2005

A gate to free market A trend to follow dynamic of multinational capital motivates Indonesian government to open the area outside of custom. Government provides zone which facilitates and frees in-out activities of goodss and human without tax. On August 20, 2007, Current President, SBY issued three government regulation (PP), PP No.46/2007, PP No. 47 /2007, and PP No. 48 /2007 that set free trade and free harbour in respective are Batam, Bintan and Karimun. Those regulations refer to The Governmental Regulation in lieu of the Law No 1/2007 on revision on Law No 1/2007 on revision on law No. 36/2000 on Free trade zone and free harbor. Initiatives to issue government regulations is driven from the objectives to handle the constitutional barrier in relation to structure of existing legislation in Indonesia. Refering to law No 25/2007 on investment, the arrangement of free trade zone and free harbor zone should be taken in special economic zone as it regulated in its law. 13 Government would legalize to issue Indonesian Government Regulation in Lieu of Law (Perpu) only if the country is in emergency situation.14 Practically, the issue of Government Regulation in Lieu of Law on free trade zone and free harbor zone is

to give legal base for Batam area. It presumed that Batam bonded zone has switched its function to Free Trade zones (FTZ) since the government of President Susilo Bambang Yudoyono and Vice President of Jusuf Kalla. Batam Bonded zone applies the rules of Free Trade Zone which are marked by free import tax, free Value-Added Tax, luxurious product and custom. 15 Some potential impacts will raise from such policy,Firstly, free fiscal incentive to the exit-entrance of the product to and from this zone will directly reduce state revenue. Secondly, the creation of free trade zone and free harbor will be a track of raw material, gas and oil, mineral, coal, mining product, and plantation, agriculture, and fishery commodities. It will stimulate natural resource exploitation, in particular non renewable one. Thirdly, Indonesia will be a target of fickle products both capital and consumption products. Various free-tax facilities will raise import consumption and capital flow from Indonesia due to the massive purchase of these costly products. Batam’s experience for the past few years shows that this area is not more than a place where a foreign capital, in particular from singapore scoop up big profit. Cheap facility, land control facility, expensive infrastructure support, free import capital goods, low export tax and low wages, become a big profit for investment, in particular foreign investment. By: Salamuddin Daeng

13 Chapter XIV, article 31 point 1 and 2 of Foreign investment legislation No. 25/2007 14 As it stipulates on article 22 of Indonesian constitution (1945) in the emergency situation, President is entitle to issues a Perppu. 15 Head of Coordination body of investment. M. Lutfi, ” Government Regulation in Lieu of Law on Free trade zone will soon be issued.” Tempo Rabu, 04 Juli 2007 | 12:10 WIB

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The State Company Privatization : Government Rescue Steps through De-Nationalization By:Salamuddin Daeng The writer is a program officer at Institute for Global Justice (IGJ)

Privatization is the easiest way for the government to gain deposits for their pockets of the State Budget (APBN). Much less in the middle of APBN so largely under pressure, both resulted from the large foreign debts, the world oil price hike, and the ones stimulated by the declining rupiah exchange values against US Dollar, the privatization policy will earn cash fund as the financial source for the government in power to rescue their political sustainability.

As we know that the state budget salvage act has been the government priority policy among the crisis pressure. Openly, the government states “Related with the state budget allocation, the government is interested in how to save the State Budget and not to set the ideal budget,” President Susilo Bambang Yudhoyono said in the opening of National Leader Meeting of the National Trade and Commerce Chamber 2008 in Jakarta Convention Centre (JCC), on Monday (31/3). The statement is aimed to take a position against the state budget (APBN) pressure due to the world oil price, the food commodity price rocketing and the

domestic financial fluctuation since the beginning of 2008. The government would rather go with the efforts to salvage the state budget followed by its amendment, than set the budget allocation that is pro civilian, pro subsidy and civilian economy protection. APBN salvage steps through the policies of subsidy withdrawal and privatization are really made to secure APBN capability in defraying the power organization, the debt interest and principal payments both of domestic and foreign ones, and the infrastructural development in supporting the foreign investment. Otherwise, such actions mean to plunge the people into the deeper crisis. Raising fuel price policy and other neoliberal characterized policies such as state company and public asset privatization have proved as large earning source for the government, but at the same time people have to face the raising staple goods prices and lowering their access towards various staple goodss, which should have been provided by the state through the state-owned companies (BUMN). APBN salvage step results in Indonesian people suffering from the deteriorating economic condition year by year. Our people are facing the crisis not limited to a monetary crisis, that is the devaluation of currency exchange or high inflation rates. The crisis hitting the people living relates to the most fundamental aspect in the economy such as unemployment, poverty, food scarcity and reducing people access towards various basic needs. The deteriorating economic condition is resulted directly from the policies made by the government officials who are too busy with themselves, saving their budget and abandoning their statute responsibility for the people safety, by selling out the

state companies. 1 What does the government give by such neoliberal policies? Firstly, the government can refrain from taking responsibility over the crisis hitting the people, resulting from the weakening people access to the basic needs and staples. Secondly, the government holds the budget needed for organizing the development concepts set by lending institutions and all at once securing the budget needed for their political power organization. The Government as the Debt Servant Do the budget problems diminish after the government officials withdraw the fuel subsidy? None at all, as proved by the policies made further. After raising the fuel price in the middle of last May, the government once more planned to sell out BUMN through privatization program. At least 34 BUMNs are planned to privatize by SBY-JK regime in 2008 by the same reason, the heavy burden APBN has to bear so they need new financial resources. The government has almost never mentioned that the largest burden in APBN is the huge amount of foreign debts. The large obligation to pay the principal and interest installment on the domestic and foreign debts, is sucking most of the state revenues, both from taxes paid by the people and from other earning resources. Even the amount the government has to pay as the interest and principal debt installment is far more than the amount to spend for fuel subsidy or every other subsidies, such as health, education, agricultural fertilizer subsidies and others for civil economy sectors. In this term the government may forget that

1 In the record of the worldbank, at the end of 2005, the poor Indonesian people reach 49 percent of the national population. They have earnings between US$1 and US$2 per day. The condition has not changed at all until now, even it tends to deteriorate.

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the greatest budget responsibility is to save Indonesian people from the whole economic problems through the subsidy and economic protection.

Table. Foreign Debt Principal and Interest Payment (million US$) Year

Govt

Private Financial Non Financial Institution Non Institution Bank Bank

Total

1998

5,905

1,893

3,424

14,464

25,686

1999

5,800

2,116

5,312

23,503

36,731

2000

5,313

1,055

3,752

19,054

29,174

2001

7,048

620

4,124

10,815

22,607

2002 2003

7,374 6,451

984 579

4,824 5,078

7,800 6,793

20,982 18,901

2004

9,032

602

6,265

6,532

22,431

2005

7,234

749

7,812

8,569

24,364

2006 2007

17,057 9,188

1,394 1,643

8,819 9,673

11,665 16,147

38,935 36,651

Jumlah

80,402

11,635

59,083

125,342

276,462

Source : Bank Indonesia of 2008 Indonesia foreign debt position in the last decade shows that the foreign debt value accumulation reaches very huge amount. BI records that the foreign debt amount has reached US$136,640 billion in 2007. With the rupiah exchange assumed as Rp 9.200 per US$, the debt principals (of both government and private sector debts) can reach up to Rp 1.257 trillion or almost double of 2007 budget. The amount of the debt principal installment and interest payment has exhausted the state income sources. In the last decade the debt interest and principal payment has been amounted to US$ 276,462 million, 1.8 times more of the whole debts of government and private sectors in 2007, that is of US$ 136,640 million. Currently, all the state revenues from both the taxes and the natural resources are not competent significantly to cover 2 On the track, Susilo Bambang Yudoyono, 2008

all the government spending in the state and development organizations. The new debts always become the next support to lean to, to secure the government personal position,lthough the new debt amount gained by the government is not comparable with the amount paid out to cover the due debt interest and principal installment. Although the foreign debts are so huge, and the obligation that Indonesian people have to bear is also huge, the government does not take them as serious problems. Such budget condition is just made as the reason to run other neoliberal agenda, as mandated by IMF and the Worldbank. The neoliberal agenda among others are the subsidy withdrawal and privatization, which have currently not reached the level preconditioned by the lending institutions. THE STATE INHERITANCE CLEARANCE SALES SBY-JK regime was so confident to sell out the state-owned companies. The government states that the action is a right and proper step to handle the problems faced by the state, especially the deficit crisis in the state budget. It is the same as the logic reasoning the fuel subsidy withdrawal, electricity base-price, and other subsidy withdrawal policies. All of them are said as the proper steps in Indonesian economy2. Every year the government set the target of a certain number of revenue as the state-owned company (BUMN) sales results. In a document research issued by National Development Planning Board (BAPPENAS), the government targets to earn as much as US$ 90 billion from privatization (cummulative 1999-2005) to accelerate the debt payment.3 A theoretically unjustifiable thing. The debt

should have been paid by the debt own productivity, not by selling other business assets in order to get profit. How much is the value of the whole BUMN assets to sell out by the neoliberal supporter regime? The last data of the first quarter in 2008, the total value of the 139 BUMNs reaches up to Rp 1.891,5 trillion. It has increased 9.9 percent from the asset value of 2007 of Rp 1.721,7 trillion.4 This means that Indonesia is a richer country in terms of BUMN ownership, compared to Singapore and Malaysia whose BUMN assets are far below Indonesiaâ&#x20AC;&#x2122;s. Singapore BUMN assets are US$60 billion, Malaysia US$ 20 billion. Our largest BUMN assets among others are Mandiri Bank of Rp 256 trillion, the State Electricity Company (PLN) and Pertamina of above Rp 200 trillion.5 It is an extraordinarily large assets. SBY-JK are opportunistic to abuse their authorityin-charge to reap money in bulk amount in order to defray their power organization by selling out the state inheritance. All at once, the policies of selling out the state-owned companies help them to prove Indonesian loyalty to multinational financial institutions (IMF/WB). Indonesian government is so obedient to the two institutions in running the programs of the requirements for the debt liquidation. So it is the reason that the government always sets the target of a certain amount

of earnings planned from selling out state-owned companies. In 2005 the State-Owned Company Minister targeted privatization value of Rp 3,5 trilion. In 2006 the netto privatization value6 is set as much as Rp 1 trillion, consisting of the privatization revenue of Rp 3,195 trillion minus the State share ownership in BUMN as much as Rp 2,195 trillion. The privatization was made among others by selling 5.31 percent of the State Gas Company (PGN) capital stocks. Then in 2007, the netto privatization was Rp 2 trillion, consisting of the privatization revenue of Rp 3,3 trillion minus the state share ownership of Rp 1,3 trillion.7 Whereas, the BUMN net total profit given to the state has always been so large, reaching Rp 71,59 trillion and most of them is earned from only 25 BUMNs. Out of the 25 companies, the ones giving significant profit are only PT. Pertamina , PT. Telkom Tbk, PT. Bank Mandiri Tbk, PT. Bank BRI Tbk, PT. Bank BNI Tbk, PT. PGN Tbk, PT. Antam Tbk, PT. Semen Gresik Tbk, PT. PPA (Persero), PT. Bank BTN (Persero), PT. Pelindo II and PT. Jasa Rahardja8. Slowly but sure, of the state-owned companies with very high profitability potentials, the assets are mutilated and the ownerships are given out to foreign capitalists. Such actions are without economic reasoning. As a matter of fact, the state-owned company establishments are initially not aimed to be profit oriented,

3 Ryan Nugroho and Rendy R. Wrihatnolo, Ryan Nugroho is the Chairman of RBI Research, a management consultant for private and public sectors. Rendy Wrihatnolo, S.Sos is the Tourism, Trade and Commerce Directory Staff, the National Development Planning Ministry /BAPPENAS 4 Aset 139 BUMN Tembus Rp 1.891,5 T, sumber: jawapos.com, http://radiospin.net/? p=1436, By ajisaka on July 8th, 2008 5 BUMN Targetkan Laba Rp100 T, Ir Muhammad Said Didu, Sekmen BUMN, http://www1.bumn. go.id/ news. detail.html?news_id=20096 6 Netto privatization is a privatization value minus the state share ownership in a state company 7 http://64.203.71.11/kompas-cetak/0612/09/ekonomi/3156828.htm 8 BUMN Watch Chairman, Naldy Nazar Haroen, BUMN Terbaik Versi BUMN Watch, LKBN Antara - Minggu, 11 Mei 2008, http://www.ptppa.com/ detilnews.asp? id=4383 &kode=5

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but as a tool for the state to secure the people basic needs. Earning high rates of operational profits currently puts the state-owned companies in the position of economically high contributor to the state earnings. Furthermore, the companies can be relied as the strong economic foundation and potential sources for the state budget, if we clear their management of all the corruptive practices and operate them honestly with full integrity.

Indonesia Denationalization The privatization in Indonesia seems to be sales activities of the state companies to foreigners, not only selling the companies to private sectors. The tendency to hand out BUMNs to the foreign buyers or investors is obvious to be the government main motivation. One of the strongest indications is that since the beginning, the government does want to receive in foreign exchanges. The government can gain such receptions, one way of the others, by selling BUMNs to foreigners. Next, the receptions are the direct earning sources for the government in power.

Table BUMN Number Changes in Indonesia N0 I

Description BUMN Number Perjan Perum Persero Persero Tbk

II III

BUMN Sector Minority Ownership

2002

2003

2004

2005

2006

158

157

158

139

124

119

114

Source : BUMN Minister Republic of Indonesia The state-owned company number is continuously decreasing year by year. It seems that the present government regime who is commanded and dominated by the

businessmen enforces the privatization policy as the masterplan of Indonesian economy. The largest decrease of BUMN number happened in the period of 20052006. If in 2004 they state that we still have 158 BUMNs, in 2006 we have only 139 left. BUMN Minister Sugiharto once said that the government effort to reduce the BUMN number from about 150 to 50 can succeed as fast as in 2009. To achieve the high sales target, the government seems to abandon the logical economic reasoning so it acts wildly. The BUMN privatization is not accompanied by the proper planning and actual asset calculation. As a result, tens of strategic BUMNs are sold out at cheap prices. Several economists find oddity after BUMNs fall into the private controls. Their asset values jump up although there have not been any capitals newly added into them. The government policy is in accordance with the large foreign corporations, who plan to prey the strategic industries especially BUMN operating in the sectors of mining, oil and gas, energy, telecommunication and finance. The economic activities in such sectors have important position in raw material supply and energy source for the main positions and industries in the international commerce. It makes sense that foreign corporations and even foreign BUMNs seize over Indonesian BUMNs. It is the fact that most of our BUMNs have been sold out by our government and taken over by foreign capitalists, both private and government sectors of foreign countries. We can conclude that the BUMN sales are suitable to be preferrably called as Indonesia denationalization actions, than as mere privatization. They absolutely change the ownership of the state-owned assets to foreign control, both of state and private foreigners, for the sake of depositing into the State Budget counter.

Indonesian government decision to raise petroleum Prices to 28, 7 percent is contra productive to current situation. In the situation where the rocketting prices of basic needs, particularly food prices, such policy will deteriorate the living of majority of the population. Reasoning the international price rise and the swelling government subsidy for energy, however, there should not be such rise on petroleum price in Indonesia. In fact, Indonesia should enjoy benefits of the doubling prices of world oil prices. Since this country is rich with natural resources and even the more complete natural resources compare to other country. The country should enjoy great benefits from the rocketing prices of primary commodity as gas, mineral (gold, silver, cooper, bauxite and tin etc), and even food commodities.

image sources:http://pipiew.files.wordpress.com/2008/07/dsc044511.jpg

Cancel Petroleum Price Rise

Indonesia is an Oil Producing Country Indonesia owns plentiful oil resources that has been exploited for over a hundred years. Around160 contracts of oil and gas for 160 multinational corporation have been given by Indonesian government since 2005. These giant oil-corporations have been controlled over 95 hectares of land. Their land concession equals to 49.65 % of Indonesian land. Ministry of Energy and Mineral Resources stated that fossil energy production (oil, gas and coal) currently occupies the third rank, after Saudi Arabia and Iran, that is 4,19 million barrel/day1. In 2007, gas production reached 1,46 barrel/day or equal to 1,66 oil barrel/day. Indonesiaâ&#x20AC;&#x2122;s oil, gas and mining has been exploited to meet export need. It is only to earn country revenue, while ignoring

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national demand. So, it is commonly lead to energy shortage in Indoensia. Profit of developed countries and foreign corporations Advanced industrial country as Japan, US and Eurpe countries and Singapore are oil prices determiner, are enjoying Indonesian oil and gas reources to be foundation of the development their industries. Singapore, evenmore, does have any oil resources are oil exportir country. Japan is the country that enjoy most oil and gas resources from Indonesia. Japan highly absorb crude and condensate from Indonesia. Japan absorb 76% Liquefied natural gas export and 25% of coal export. (US Embassy, 2005). Rise on oil prices certainly give a great profit to oil and gas. British Petroleum (BP), Caltex, CNOOC, Connocophilips, Exxonmobil, EXSPAN, Total Fina/ELF, Unocal is rich corporation that earns high profit from Indonesia Oil and gas. Giant corporation which are mostly foreign corporation, controll over oil and gas industry upper to lower course, from Production to distribution. Those corporations able to produce more than a million barrel crude and condensate per day. According to current prices (US$120) It worth 1, 04 quintillion Rupiah/ day or 397, 44 quintillion per year. Government’s profit and People’s lost Current Indonesian President Susilo Bambang Yudoyono and Vice President Yusuf Kalla earn big profit from taxes and profit sharing of petroleum trading. Through facilitation on energy investment, Indonesia government only need to collect deposit from oil and gas corporations. While House of Representative members earn

profit from the proses to pass oil and gas Legislation which anti-people legislation and pro-oil and gas corporations. What do people earn from mineral and gas exploitation? People earn nothing. The fact that the petroleum rise has reached US$ 120-140/barrel, people must face 30% rise on petroleum prices (Premium, diesel fuel and kerosene). It is unfair. People have been suffering due to basic goods price rise. While oil and gas businessmen and their allies ; President and Vice President, House of Representative members, national businessmen (intermediary) and exporter and importer earn big profit from Petroleum Price rise. On the other side, imperialism through various neoliberalism policies such as privatization, subsidy reduction, market liberalization have trapped million of people into poverty ravine. Currently, at least 42% of Indonesian people, or nearly 100% people live under US$ 2 per day (World Bank, 2005). If that is the fact, Indonesian government, donor countries, and oil producing country are responsible for putting away people misery and must take strategic actions for it. Therefore, approximately each person spends 103.646.000 Rupiah for petroleum. The amount equals to 39% capita income or equals to 72% food consumption per capita. Poor people in Indonesia allocate 70% of their income to buy food. Petroleum Price rise directly lead to basic commodity price rise. Most of basic commodities use petroluem in its production process. Indonesian people since 2005 spend 272 quintilion Rupiah to buy petroleum for transportation, electricity, food production, fishery activity, industries, etc. If it is divided by the population number, each Indonesian person allocate at least Rp 103.646.000 to access the fuel energy, equals to 39% of

1 Prospek Minyak Dunia Tahun 2007, http://esdm.go.id/esdm2/index.php?option= com_content& task=view&id=296&Itemid=94

Production, consumption, export, import of oil per year (Barrel) Year

Production

Consumption

Export

Import

2000

517,415,696.00 383,955,955.00 225,840,000.00

79,206,903.00

2001

489,849,297.00 375,668,315.00 239,947,960.00 118,361,896.69

2002

455,738,915.00 358,806,832.00 216,901,729.00 121,269,175.75

2003

415,814,157.00 373,190,759.00 211,195,794.52 129,761,738.00

2004

400,486,234.00 375,494,636.00 180,234,938.00 148,489,589.13

2005

385,497,959.00 357,493,997.00 156,766,006.00 120,159,324.81

2006

359,289,337.00 349,845,435.00 114,147,764.31 113,545,934.13

2007

347,493,172.00 321,302,814.00 127,134,792.00 110,448,506.36

Sources: www.esdm.co.id, 2008 per capita income and equals to 72% of food consumption per capita. Petroleum price rise will obviously raise the cost of living, in electricity, transportation and basic goods prices. Poor people in Indonesia, Workers, farmers’, fisherman’s, urban poor’s life are more suffer. It is widely known that 44.98% or about

42 million workers in Indonesia only earn about 60,000 Rupiah/month2. The depedency level are 2,33 workers, therefore nearly half of workers family are classified as poor family who earn only 8.583 Rupian (below US$ 1) per day. Jakarta, 12 May 2008

2 Ministry of Labor , 2007

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INSIDE OUT OF FOOD CRISIS and WAY OUT by : Amalia P.

The Silent Tsunami, Jossette Sheeran’s phrase describes current global indication of the sharp incline on main agricultural products (corn, rise, and oat and soybean). Food crisis has been driving 70-130% food commodity in international market. While in Indonesia cooking Oil price has doubled its price from 6.000 Rupiah to 12.000 Rupiah /kilogram.

Even, organization such as Food Agriculture Organization identifies potential chaos and destabilization in 36 countries due to this food shortage problems. Chaos due to food shortage has end the life of 4 civilians in Haiti. In responding to this food shortage, thousands of soybean farmers surrounded President palace in Jakarta, Indonesia; 40 people were shot in Cameron in the protest against food price rise, 200 protestors were arrested in Burkina Faso. Even, England community even express:” that’s their food that you burn for your car”. What factors create the price rise which ultimately leads it to Food Crisis? It is hotly debated by various economists. Homi Kharas, Brooking Institution believes that it has been triggered by the world population growth and shift in consumption. World Hunger Education Service, an NGO which is based in United States indirectly objects to Homi’s idea by finding the fact that global agriculture has covered 17% of calorie needs for each person. While the others point out that China’s economic growth has driven food price rise. It is truly false since China is one of exporter of rise, oat and corn. In addition, China population consumption is 30% lower than US and Europe. So, what are the real causes? First, the nearly doubled rise on oil price to US$ 100 per barrel has been directly affecting the rise of other commodity prices. It sharply increases agricultural sector as well as food industry cost production and forced its actors to take adjustment in selling price to be able to survive. Second, the rise on oil price has motivated the developed country to explore bio fuel as an alternative energy. World’s grain products are 2,1 billion tons, 5 % increase from last years. Unfortunately out of its 2,1 billion tons, 1,1 billion will be spent to produce bio fuel (FAO, 2008). Hectares of US land were concentrated to produce agro fuel. This alternative has also been

followed by Argentina, Canada, European Union and Asia. In 2007, 85 million tons of corns (25% of corn harvest) are used to produce ethanol. The United Nation predicted that 232 kilogram corns to create 50 litters fuel are equal to the need to free starving children in a year. Third, the sharp increase on main food product has seen as a promising opportunity for speculators who withdraws and transferred their share to food investment. Fourth, a Climate change which has been discussing widely has disturbed a harvest prediction that obviously it creates harvest failure in many countries. Food Crisis and Obscene Feature of Indonesian Farming Indonesia occupies the tenth rank of world importer of rice, wheat flour and soybean. Although the country owns a great deal of land, the pro-liberal farming strategies has trapped Indonesia as importer country. Subsidize cut, liberalization has been striking local product as well as marginalizing agricultural sectors. Furthermore, 49.5 % Indonesia population are living under poverty line. The rise on food product prices has impoverished people who have very low purchasing power since the financial crisis in 1997. By 15-30% rise on those basic needs, we have 110 million of Indonesian people have difficulty in access to nutritious food. The nearly doubled price on basic needs make poor people whose shaping majority population are only be able to buy cooking oil, rise and sugar and ignore the other needs like housing, education and health. According to moderate data of Indonesian Statistic agency (BPS), in order to fulfil the calorie need a family must own at least 26.400 rupiah (US$ 2.8/day). While the farmer’s real income is only around Rp 17.500/day (US$2.1/day).

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Indonesia Participation in AoA agreement as well as LoI which regulate liberalization has fastened a radical and rapid liberalization. In compliance to IMF letter of Intent has cut subsidies on agriculture, fertilizer and at the same time removed import tariff and other barriers to liberalization practice. Non-protected products of peasants must compete with highly-protected products of developed countries. Cargil and Archer Daniels Midland, a US corporation have received great benefits and advantages from this liberalization package endorsed by WTO. In fact, in Indonesia the affect of food crisis has been since last years; indicated by the rise of frying oil due to CPO price in the world market, fermented soybean prices as the increase of its imported basic commodity as the allocation of soybean to produce bio fuel. The rises on CPO prices motivated Palm oil plantation extend their land and practice forced eviction to the local. Indonesia also follows the growing trend of bio fuel production. This year 14 million hectares lands are allocated to produce bio fuel, and it is expected to increase50 million hectares by the years 2030. The market oriented transformation will motivate farmers who mostly low income to

shift their plantation will threaten national sovereignty, in particular rise as a basic food. Solution to get the people out of the crisis Finding that Indonesian people are risky to food crisis, government should take a political and economic action to anticipate the affect of the rise of food commodities. Firstly government must raise export tax on food commodities and at the same time hold a control on domestic food supply to secure domestic needs. This move has been taking by Thailand and Vietnam to protect its rise sovereignty. Second, government must cancel all the trade liberalization with trade regime, WTO. Third government must take a concrete action to repudiate foreign debt and allocate it to subsidize agriculture sector to ensure food security. Government must equip agriculture sectors with Fourth, government must re activate State Logistic Agency (Bulog) Function to be in charge to maintain food sovereignty. Government must also equipped agriculture sector with modern technology to boast production capacity. ***

Role of the World Bank on Capital Investment Law Ponny Anggoro

Through Country Assistance Strategy (CAS), The World Bank approached Indonesian government to reform Law on capital investment and other related regulation to improve competitive-economic activities. Shortly after President Susilo Bambang Yudoyono inauguration in 2004, the Bank and its group including IBRD and IFC, through FIAS consultant services based in Australia, carried on a main priority strategy, investment law reform1 These group summoned Vice President Jusuf Kalla and former economic minister, Abu Rizal Bakrie. They arranged some point - the enactment of new invest-

ment law as well as regulations, in order to ensure investment flow and economic growth. Based on that arrangement, FIAS called Minister of Trade, Mari E Pangestu who was government coordinator in planning and composing the draft. FIAS afterwards, prepared consultation and draft of Capital Investment law for Indonesia which referred to Vietnam investment law, Bhutan ministry regulation. Having known the importance of integrated services, Investment Coordination Board was assigned to run One Stop Shop task. A National team on

1. The Preparation, loc cit

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Capital Investment and Export was established. FIAS also took into account its report since 1999 regarding the licences and procedure, tax incentive, equal treatment and FIAS recommendation regarding the operation and implementation of team on capital investment and national trade, FIAS prepared the draft of investment law. FIAS next assignment was preparing procedure and forming a team, method and arranging capital investment promotion strategy that differentiated government strategy. In order to fasten the process, FIAS coordinated various parties meeting, such as Indonesian Chamber of Commerce, National Economic Recovery Committee, International Business Chamber and national economists to discuss the draft of the law. Through this Joint committee, along with IFC consultant assigned by Minister of Trade (PENSA and economic researcher in Center for Strategic and International Studies), FIAS began its preparation and strategy. FIAS convinced various parties that the new law would be much better and much more comprehensive that the existing law. Taking their comprehensive preparation into the account, World Bank likely emphasized that new law would be a le-

gal foundation for every economic regulations. Enactment and implementation of new investment law enables World Bank to meet its targets to encompass investment, gain profit, secure its economic interest. On the other hand, Indonesia experienced excessive natural resource exploitation, gave more economic facility such as tax holiday, equal treatment and repatriation, low paids and less protected workers, cheap land and greater burden due to the foreign debt. The data below shows how the Bank gives service to the donors better than Indonesia. Figure 1 shows the progress in public investment. Furthermore, most of investment in province and district were joint investment between foreign and national conglomerates. Meanwhile, figure 2 reveals that the progress in public investment as it is shown in figure 1 does not reduce foreign debt. On the contrary, foreign debt increased. Figures 3 will show that Indonesia is in the donor countriesâ&#x20AC;&#x2122; and the world Bankâ&#x20AC;&#x2122;s debt trap. Enactment of Investment law that had put interest and potential of

Figure 1: Public investment return to pre crisis position (development expenditure % GDP)

Figure 2: Public debt (US$ billions)

Sources: The World Bank Indonesian people aside, conducted by the highest structure of Indonesian government, through its loan fund, had enabled the Bank to induce more influence of neoliberal economic process. Though in its report2, the Bank committed to reduce the corruption, Bank has run identical practice of corruption and bribery: use the loan and its technical assist-

ance to intensify its economic hegemony. The fact that Indonesian government accepts the Bank loan to fasten economic growth and stability, the loan has never been used for poverty reduction, as stated in the White Book.3 Andrew Steer, Head of World Bank Representative in Indonesia supported it by statingâ&#x20AC;? if white paper is implemented, credit rank and millions

Figure 3 : Sources of public debt

Sources: The World Bank 2 Ibid 3 White Paper is a realization of President Decree no 5 / 2003 regarding the package of economic policies pre and post its corporation with IMF. This book stipulates macro economic stabilization, restructurization program and financial reform and investment improvement program, export and job creation. Macro economic stabilization program consist in two policies, that is fiscal consoldiation and paymant balance( some point of action have been completed as it is targeted. (Http//www. klubsaham.com//op. Cit).. See also economic minister, Dorodjatun Kuntjorojakti statement on 29 June 2003 on Tempo Online, wednesday 30 Juni 2003.

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people lives would be restored. The statement he made on 17 September 2003 shows that the Bank supports Indonesian government and proves to the public that the government and the Bank have the same needs to put priority on economic growth through loan and investment of MNC/TNC rough than poverty reduction. (See the data above) 4

4 ibid

Analyzing the statement of vice president, trade minister and the World Bank, it is clear that they do not only impose their will but also perform public lie by enacting neoliberal economic-investment law that completely drained out all nation asset.***

“Betrays the National Interest” Constitutional court verdict that Turns down most of litigant’s claim in Judicial reviews on Law no 25/2007 on Investment law did not reflect a verdict that protect Indonesian people, that is guaranteed under constitution, from the invasion of imperialism and neoliberalism. The verdict wins only aspect of control over the land and its period of controlling the land for investment activity. It did not answer government obligation to meet the demand of the majority of the peasants, workers and the poor. The Interest of Land Dominator If we reflect to the historical fact, Law no 25 seemed to be a chain of economic and colonial politic. Such a law is not more than a next action to imperialism that made foreign investor and its capital to have power to continue its economic and political domination that exist more than four centuries. Constitutional verdict that cancels article 22 of Law on investment entitles the investors to extend its controlling rights over the land through HGU for 95 years,

“Indonesia For Sale” “No Foreign investment for Indonesia Development"

Constitutional Court Verdict

HGB for 80 years, and HPL for 70 years, did not change substantially the much longer period for the investors to earn from controlling rights over the land. The land dispute in Indonesia is not about the procedure for investors to extend their land control, but about the wide range of investor-controlled land than the land own by majority of people. Land concession for capital investment are located in more than 175 million hectares of land, much wider than farmers’ land to plant rice which are only situated in 11,8 million hectares. Secondly, government and investor act arbitrarily in controlling the land without providing conservation to preserve environment. Problem on Investment law is closedly related to economic management as a whole - the control and utilization and management of economic sources. In addition, the investment law is a form of State treatments to production, distribution and consumption of economic sources of all citizens. Therefore, Law investment is supposed to be a regulation that guarantees the economic

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sustainability, natural service continuity for the Indonesian people safety. Poor legal systems as well as unavailability of adequate protection to Indonesian people is the aspect that triggers the crisis to majority of workers, farmers and the poor. Law on investment only benefits foreign corporation and view collaborator. The emergence of such liberal law will lead to deeper and prolong crisis. Protection to national economy Law on capital investment No 25/2007 has eroded all the protection of national economy and people economy. Various facilities as tax reduction, tariff reduction and protection elimination, incentive given to investors, in particular foreign investors, contribute to weaken the national competitive power that will lead to the decrease of national productivity. The opening to strategic economic sector as agriculture, industry and trade on services and finance for foreign capital will strengthen foreign capital domination to exploit natural resources, snatching national corporation and State financial institution. The adoption of equal treatment principle to law on capital investment gives foundations to dominate natural resources, dominates the structure of capital investment in investment activities, and provides excessive incentive. At the same time, those multinational corporation , at any moment , can transfer their profit and repatriate their assets abroad. It may lead to the exploitation of national capital and ignore the work of the low paid workers in Indonesia. Protection to small-scale economy Law or political decision born by state institutions is supposed to aim to protect Indonesian people interest both in economic, politics and culture. It is

awkward if legal products of a country are enacted to protect the interest of citizen, corporation of other countries. People need to have law that protects entire nation and improve public welfare (as it is stipulated in Indonesia constitution of 1945. People do not need to have law that accommodates foreign capital interest to exploit Indonesia economy, both exploration to national resources and labors. People longing for law that ensure the people welfare as it mandated by constitution 1945 as article 33 (1), article (2), article (3) on national economic and social welfare. Therefore, there is a need to make fundamental article in the law of capital investment, as following : • Change equal treatment principle, Indonesian legal product must base on its constitution principle with the populace character. • Transfer should be limited to a certain amount as long as it does not disrupt economic stability and national finance • Repatriation must be limited to a certain scale, number and period. Repatriation will be allowed as long as repatriation does not disrupt economic sovereignty and State obligation to workers and environment. • Maintaining progressive tax on big scale capital investment as a state revenue to protect national economic bussiness and people livelihood. In this case tax is not merely the state revenue source but also national economic protection facility. • Reduction on tarrif and elimination of protection can be given as long as it does not disrupt national bussiness and people livelihood in competition with multinational business.

• Rights to control over the land, both in scale and land occupation period must be limited to maintain economic sovereignty, teritorial sovereignty, and people economic sovereignty. • Special economic zone / SEZ can only be applied to the area with a strong industrial base. • Obligates foreign investment transfer technology and skill

• Obligates foreign investor who exploits national resources to manage natural resources and stop cheap raw material export. • Obligates Multinational corporations and transnational corporations to pay labor at the existing standard of main corporations. • To protect labor forces from labor practice ala colonial and to build human justice in labor sector. • To ensure protection and access to the land and agricultural resources to farmers for the continuation of production, improvement of productivity and decent income for farmers as a majority in Indonesia population. • To ensure rights for minority, women and children as well as environment preservation. It is significant to change the law on investment based on above proposal in order to create capital investment law that protect entire nation as it is mandated in Indonesia Constitution. By: Salamuddin Daeng Jakarta, 9 April 2008

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National Update

De-Nationalization Privatization Truth and Ideology: De-Nationalization towards Re-Colonialism â&#x20AC;&#x153;Free Trade Agreement (FTA)â&#x20AC;? To Intensify The Economic Inequilibrium An Irony: Privatizing State-Owned Companies Privatization: The Neoliberal Economic Foundation Is The Free Trade Solution For Indonesia ? Debt Economy Based on Deceptive Theories Financial Crisis: a Lesson for Indonesia 70

De-Nationalization The attempts to curb the state role in the economy, has been the main policy of the regime in power at present. Various statute laws and political decisions are issued in order to replace the state positions, espeically in the economic sector with the private companies. A comprehensive efforts aimed to give the economy to the invisible hands, a free market mechanism. The issuance of oil and gas law, energy law, investment law and various other neoliberal laws, indicate the seriousness of the regime in power to eliminate the state responsibility for securing the basic needs of all the citizens. Through various policies, the strategic economic sources like the oil, gas, mineral and coal natural resources, are given to the foreign private companies. The basic industry, telecommunication industry with essential position in the international trade, are sold to the private foreigners. Not only that, the production sectors essential for the state and commanding over the populace essential livelihoods, such as Pertamina, PLN (The State Electricity Company), the state companies (BUMN) operating in the banking and financial, transportation sectors, are sold out to the privates to manage completely for mere profit taking. In order to make all the privatization affairs of the public assets work, like the state-owned companies, oil and gas industries, the State Electricity Company, national banking et al, SBY-JK government formed a body named privatization committee. The policy was legalized by The President Decree no. 18 /2006 about the Public Company (Persero) Privatization Committee. An institution assigned by the government to sell out the state-owned companies to the big capitalists, especially the foreigners. Through the committe, in 2008 SBY-JK expressed its intention to sell out minimal 34 state-owned companies to private parties by strategic sales mechanisms. The government proposed the reason of legitimacy as to improve professionalism, efficiency and the state-owned business profit. As a matter of fact, the true reason is that the government is desperate for instant cash, the state officials need cash, and the easiest way is to sell the remaining state inheritance, the state-owned companies. A range of highly planned policies of the commander in charge is to eliminate the state role in â&#x20AC;&#x153;protecting the citizen economyâ&#x20AC;?. The policy is in accordance with the TNC/MNC and multinational financial institutions (IMF & Worldbank) passionate desire to control the strategic assets and to run the market economy totally in Indonesia. the government forget that the state owned companies are economic institutions built up by the populace money saved in the state cash post, to secure the populace basic need fulfillment. EDITOR

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Privatization Truth and Ideology :DE-Nationalization towards Re-Colonialism By : Bonnie Setiawan

Privatization : Basic Comprehension Easily to understand, privatization comes from the word ‘private’ referring to an individual power or private power. This is the main root or basic essence of capitalism, placing the economic or capital control under individuals. Privatization ideology literally is a postulate centralizing on the individual control, capital control centralization on individuals. In the capitalism systems, individual complete freedom prevails in commanding and accumulating the capitals. Besides the individual command, the state or public control works too. The state and the public should have not been separate, because the state implements the public policies and runs the public address and mandate. “The State takes command over the people livelihood essentials for as much as possible people welfare”, is the basic philosophy of the inseparable state and public. In a healthy economic systems (also in capitalism systems), the borderline between the individual control and the state/public control has been clear. The individual control must not hit or remove the state/public control. However in the capitalism systems, the longer an individual command, makes his private freedom absolute in controlling the economic sources. And in a time, the individual control starts to seize hitting the public control borders. They want to keep controling everything on the earth,

not needing to know if it is under the state control, under the collective (customary) community control, eventhough in the control of others weaker. As a result, we testify that the state or public area then were turned upside down by the capitalism to be a free or open understanding area to expropriate or convert into individual ownership every times. And it is acceptable, even approved and legalized by the government in power. That is the process of what is called as Privatization. For the clearer explanation, privatization is capitalization, process of the command by the individual capitals. Privatization is generally a state company expropriated by a private business sector. But now the privatization has meant broader than mere public asset sales through public auction or direct sales, including other ways such as awarding sub-contract and concession from the governmental services; license agreement; management contract; asset, equipment or business rent agreement; joint venture agreement; and Build-Operate-Transfer (BOT) scheme. PRIVATIZATION THROUGH The Worldbank, ADB and IMF The Privatization has just speedily developed in the last 15 years, especially after The Worldbank runs the structural adjustment program and after IMF runs the Poverty Reduction and Growth Facility (PRGF) program in 1980s. both

institutions stress the trade liberation, the state deficit reduction, and repair the government capability in repaying its debts. Here the privatization is made as the global strategic choice, and since then it is implemented by various developing countries, especially the ones suffering from the macro economic inequilibrium and entangling in debts. IMF instrumentally applies through Letter of Intent, while the Worldbank provides a special loan for privatization projects through technical and financial assistance. In fact, privatization does not merely handle the fiscal problems, but is the main component of the new governance paradigm, called as neo-liberal; that is the claim for efficiency and effectiveness of the government currently thought to be substandard and in budget pressure. Privatization is the corporate paradigm, orienting to the market, looking for gain and minimizing the state role in economy. Practically, privatization is the sales of governmental assets cheaply to private sectors, even the assets that are of public livelihood essentials, such as water, electricity, gas, highway, railway etc. In the period of 1988-1995, the developing country administration receipt from the state company sales were amounted to US$132 billion, coming from the control alteration over 3,800 companies from the government to private sector. In the same period the number of the states running privatization increases from 14 to 60 countries. The Worldbank reported that in the beginning 1990s there were 80 countries â&#x20AC;&#x153;launched ambitious efforts to privatize their state owned companiesâ&#x20AC;?, with the sales value up to US$185 billion in 1990. In Latin America, the infrastructural sector privatization was dominated by the energy, transportation, irrigation and telecommunication service provider companies. While in Central Asia and Eastern Europe, the government

control release much happened in the manufacturing industrial sector, such as steel and chemical. Other related things are privatization stimulating the companies in slimming their organization structures through sharp staff and worker reduction. For Indonesia, the privatization has been executed since Suharto era, with various reasons of private sector participation in various business sectors in infrastructural development on the public interest. In fact, the privatization is meant to facilitate the economic control for Suharto crony conglomerates and for Cendana (Suharto family) owned corporations. In 1980s, they started with issuance of several statutes of the law, government regulations and the president decrees, those are : the Law no. 15 in 1985 about electricity; the president decree no. 15 in 1987 about tollroads ; the law no. 3 in 1989 about telecommunications ; the law no. 13 in 1992 about railway affairs; the Law no. 14 in 19992 on the traffic and transportation; the Law no. 15 in 1992 about aviation; and the law no. 21 in 1992 about voyage. Their points are the regulations open chance for the private corporations to participate in the service organizing in various business sectors. Next, the foreign private sectors are , moved furthertrough The government regulation no 20 in 1994 abot the stock ownership in a Corporaion established in te Foreign Investment attempts. By various regulations facilitating the privatization, since then various strategic state companies started to be controlled by foreign corporations, such as in Paiton and The State Electricity Company (PLN) case, Palyja and Thames Jaya with the Drinking Water Regional Company (PDAM), Cemex and Semen Gresik, and Grosbeak - JICT. The privatization turns out to cause many dispute cases among the government or labor union in the state companies and the foreign parties. So as since the reformation, the Corruption, Collusion and Nepotism (KKN) was uncovered so many practiced in the privatization. Therefore in 1998 was

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issued the President Decree No. 72 in 1998 about the State Company Privatization Evaluation Team by withdrawing the president decree No. 55 in 1996 about the State Company Privatization Team. However, both evaluation teams working result as been never heard. Due to 1997 economic crisis continues, Indonesia has been trapped in debts and gone to the debt crisis. Based on the conditionalities applied by the Worldbank, ADB dan IMF, the government is asked to sell the 144 state companies. The state company privatization is included in the loan requirements preconditioned by IMF to restore Indonesian economy so as poured in the Letter of Intent. In this context, the privatization is of the state company, of which most of the share ownership are controlled by the private sectors or which operational management is conducted by a cooperation between the government and the private investors. in IMF LoI on 15 January 1998, point 5 mentions that “… the 49 percent limit on foreign holdings of listed shares was abolished”.

Related with the banking privatization, point 26 mentions : “With technical assistance from the World Bank, the government has also taken steps to resolve the problems of the state banks and ensure their safety and soundness. The aim of this program is to improve their efficiency and subsequently privatize them…The state banks will not be recapitalised except in conjunction with privatisation.” While point 27 claimed: “In support of the ultimate goal of full privatization of all state banks, the government will

introduce legislation by the endJune 1998 to amend the Banking law in order to remove the limit on private ownership”. In the electricity sector, LoI IMF on 14 May 1999 point 37 mentioned: “the government is overseeing PLN’s restructuring effort. A working group of senior government and PLN officials is defining the framework of principles within which PLN conducts the renegotiations of contracts with independent power producers (IPPs) and to ensure that fair, well-structured, and transparent procedures are followed. However, all negotiations with the IPPs are being conducted by PLN on a commercial basis, without direct government involvement”. The demands of IMF, Worldbank and ADB at last bears the president decree No. 96 in 2000, determining the list of the business sectors opened for conditions of joint venture between foreign and domestic capitals, divided in two groups : (a) the ownership of citizens / corporate bodies of foreign countries, 95% maximal; and (b) the share ownership of citizens / corporate bodies of foreign countries, 45% maximal. Out of the list, we have two business sectors left which are still protected in the context of the limitation of foreign shares up to 45%, that are telecommunication and the scheduled or unscheduled commercial aviations. Other sectors have been

opened for foreign controls, although it is related with the sectors controlling people livelihood essentials. The president decree no. 96 in 2000 is the basic of the state company privatization practices in Indonesia. The last regulation literally collides with Article 33 Constitution in which the explanation part mentions : “Only the companies that do not control the mass livelihood essentials can be handled by individuals.” So as the Law no. 1 in 1967 about Foreign Investment is still explicit to state that the business sectors closed for the foreign investment in total control, that are the sectors necessary for the state and controlling the mass livelihood essentials. Article 6 of Foreign Investment Law mentions as follows: (1) harbours; (2) electricity production, transmission and distribution in general; (3) telecommunication; (4) voyage; (5) aviation; (6) drinking water; (7) public railway affairs; (8) nuclear powerplants; (9) mass media; (10) and the sectors of essential roles in the state defence among others are the weapon, ammunition, explosive substance and war equipment production, are forbidden totally for foreign capitals. The New Colonialism Investment Law 2007

The

Since the Investment Law no. 25 in 2007 was legalized, Indonesia has no more regulation power to dam foreign controls. Explicitly the law determine two basic principles of foreign investment, that are‘national treatment’

and ‘the most favoured nation’. The first is about no diversification between the foreign businessmen and the national business, instead they have to be equally treated. The second, is that no ‘discrimination’ among any foreign businessmen coming from any countries. So as the foreign businesses are permitted to control 100% maximum shares. By this investment law, privatization is uncontrollable anymore, so is the foreign power. Therefore, since the investment law was issued in 2007, we can say that the government has sold out its state to the foreign power and has privatized this state for the foreigners. In short time ahead, all the nation’s strategic assets and natural resources are going to be controlled by the foreigners, under full blessing from our government. The government has so willingly let the new colonialists have lawful authorize on Indonesia completely. PERTAMINA, since The Oil and Gas Law was ratified, has been delicately privatized formally, because it can not monopolize oil and gas resources anymore. We only need to count the days until PERTAMINA is fully privatized, that parts of its shares are traded and controlled by individual business (and foreigners). So as with PT Krakatau Steel, the strategic sector in a moment will be privatized and controlled by MITTAL, the world steel conglomerate. Also Indonesia people bank (BRI) and Mandiri Bank, whose shares will in a minute be sold out to foreign controls. This is the Indonesia bitter irony, a country to be recolonialized, on the invitation of the government themselves.

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An Irony : Privatizing State-Owned Companies

Backgrounds The people are taken aback once more hearing that in the third quarter this year the government will privatize 34 state-owned companies, carried over from 2007 as many as 10 companies.1 Sri Mulyani Financial Minister said 34 state-owned companies plus the 10 carried-over plans to give positive impact on the state budget, that is Rp 1.5 trillion plus the whole economy.

By: Ponny Anggoro The author is a program officer at Institute for Global Justice (IGJ)

Year by year since the reformation, the State-owned company privatization are increasing. The offering starts to open widely. This is challenge, if you are interested in buying the above state-owned company shares, only by

1 The companies to privatize among others are : PT Asuransi Jasa Indonesia, BTN, Jakarta Lloyd, Krakatau Steel, Industri Sandang, PTB Inti, Rukindo, Bahtera Adi Guna, PT Perkebunan Nusantara III, PT Perkebunan Nusantara IV, PT Perkebunan Nusantara VII, dan Sarana Karya, Semen Batu Raya, Waskita Karya, Sucofindo, Surveyor Indonesia, Kawasan Berikat Nusantara, Kawasan Industri Medan, Kawasan Industri Makasar, Kawasan Industri Wijaya Kusuma, BNI Persero, Adhi Karya (rights issue planning), Pembangunan Perumahan (through IPO), Kawasan Industri Surabaya, dan Rekayasa Industri (having almost 5 percent of the state shares), PT Dirgantara Industri, Boma Vista, PTB Barata, PTB Inka, Dok Perkapalan Surabaya, Dok Perkapalan Koja Bahari, Biramaya Karya, Yodya Karya, Kimia Farma and Indo Farma (both will merger), PT Kraft Aceh, and Industri Kapal Indonesia.

listing a short proposal and an MNC/ TNC partner or a state official or the Worldbank to find their MNC/TNC colleagues as your partner, you will be easily recommended by the Worldbank officials to obtain the loan from an international bank or Worldbank subsidiaries such as IFC (International Financial Corporation) and MIGA (Multilateral Investment Guarantee Agency). Besides, your investment will easily be protected if there are any conflicts, by ICSID (The International Centre for Settlement of Investment Disputes). Various big companies being generally at first relatives of President or other state high officials have got such facilities to run their business transactions in Indonesia. The same case happens in the state-owned company privatization. Privatization as part of Indonesia economy liberalization is actually issued by stage since Soeharto regime, that is since the deregulation prevails and the state-owned companies are changed into public companies. Driven by 1998 financial crisis, following the government compulsory bail out the private bank debts creating the state budget deficit, the government is asked by IMF through Letter on Intent to put into effect the Law no. 22/2001 about the state-owned company (BUMN) privatization as public companies (PERSERO). The law was then followed by the Government Regulation no. 31 in 2003. BUMN which is among the first privatized is PN Pertamina changed into PT Pertamina (PERSERO) on 9 October 2003. The success is then followed by PT Indosat stock sales, and so on. Ironically, the trade process is almost unrelated with the state interest

in getting significant income though it is always said to reduce the state budget deficit. The privatization generally prioritizes the splashes of funds to the state officials, resulted from sales revenue using the determining roles of brokers in which the shares are undervalued. Meanwhile, the workers claim for shares in the name of nationalism which is the most controversies, both economic and political. The announcement of PT Semen Gresik privatization for Cemex in 1998 and PT Indosat for Singapore Telcom & Telemedia in 2002 have incited controversies followed by political conflicts among the officials, political figures and the Minister and his colleagues in BUMN ministry. Both corporation shares are sold so cheaply. Such situation induces various questions, among others, what the real goals and aims of those sales. Can they be ensured to be effective for the state, Or they only want the state income in bulk amount of money or merely to cover the state budget deficit? Listening attentively to Tony A Prasetyantonoâ&#x20AC;&#x2122;s opinion, that there is an economic factor that BUMN are sold. Firstly, the reason of X-efficiency (Harvey Liebenstein 1966), that is the need of efficiency other than the competition. Secondly, allocative efficiency (JS Mill 1848) viewing that there are natural monopolies that make the market automatically stimulates efficiency through competition. Thirdly, dynamic efficiency of Joseph Schumpeter, requiring the management innovation. Fourth, the government spending deficit driver. The problem is when the state assets with strategic and beneficial characteristics are sold cheaply, economic

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and political activities throughout Nusantara is disturbed. By the reason of bankruptcy with burdens to pay debts, reducing unemployment or poverty, especially if the economic crisis like in 1998 causing tens of trillion rupiah budget deficit is considered, plus the corruptive trade process involving numerous state officials, the government will of course sell BUMN cheaply. Stiglitz is not surprising to say, ”developing countries are to be aware of widespread corruption in the privatization process…”, and “in many countries, privatization got the name of briberization”2 Let’s see Indonesian column on the table below. The privatization transactions were increasing drastically in 2003 and 2004, then it declined drastically enough also in 2005 and 2006. Compared with China, Indonesia acquisitions were not so big, however the financial loss suffered by Indonesia was so big. Table 1 Annual Privatization Transaction Earnings (million US$) Region / Country

2000

2001 2002 2003 2004 2005

2006

East Asia & Pacific 10,780 1,659 1,830 8,136 8,037 14,708 51,230 China Fiji Indonesia Malaysia

10,279

958

1,598 6,066 4,122 14,086 50,356 28

115

188

691

841

448

270

347 1,871

Philippines

147

Thailand

239

631

Vietnam

1,025 1,066 ..

Source: World Bank, 2007

134

486

174

119

Like monopoly games, as the buyer you can easily choose and do transaction soon on the sold-out state assets as you like collateralized by the worldclass multinational/multilateral corporation loans. 2001 data should have included the privatization, whereas then we sold out PT Telkom and PT Sucofindo, two of BUMN “the golden boys” that are actually very strategic and advantageous if the government did not carelessly sell them out. Backed up by the Law No 22/2001, BUMN sectors bargained by the government comprise mineral (PT Batubara Bukit Asam, PT Aneka Tambang), energy (PT Gas Negara), chemical and health (PT Kimia Farma, PT Indo Farma, PT Bio Farma), insurance (PT Asuransi Kesehatan Indonesia), telecommunication (PT Telkom, PT Indosat), tourism (PT Bali Tourism & Development), service (Perum Jasa Tirta), industrial area (PT Kawasan Berikat Nusantara, PT PDI Pulau Batam), infrastructures , textile (PT Primissima), farming and forestry (PTPN III, PTPN X, PT PSB, PT Perhutani), education (PT Balai Pustaka). Their criteria are generally the competitiveness of the industries with speedy technology changes and minority government share ownership, not of majority anymore. The sales method uses IPO (Initial Public Offering) also right issue (PT.Telkom and PT. Antam sales) or strategic sales.3 IPO is conducted by creating strategic sales, employee management buy out, regional government buy out and liquidation. Generally such privatization method organizes the new management using local employees with one

2 Kwik Kian Gie, “Pikiran dan Jiwa yang Terkorupsi” article, Kompas, Saturday18 December 2004, citing Joseph Stiglitz’s on Jakarta Post.

to ten foreign employees. However their salaries, benefits, guarantee and protection gaps are usually very high. So as the gap between Indonesia and Vietnam salary standard in the same class and capability is significant. Indonesia is more associated as a country with workers difficult to manage. On the other side, Indonesian workers are seen not to be able to discern themselves from neighbor country workers. This factor has not drawn wide attention of the workers or academicians. The welfare gap needs noticing very much. If the competition is very high, much less the formation of ASEAN Economic Communities several times ahead, we need to think how the corporations should treat their workers in the same standard as Singapore workers for example, for the same working class and field. Without that or trying to manipulate its probability by differing each state GDP, the factor of power and skill controls by the capital owners are unbearable anymore. The capital owners will close the way more by various trade barriers and regulations including the more daring ones in the dispute settlement and free trade agreement. Role Seizing of Donator Institutions in Indonesia Indonesia experiences such disadvantageous cases. How can it be? Let’s observe further. Generally the privatization actions are followed by management innovation, production pattern and asset restructuring. The restructuring generally causes employee ratio-

nalization in the name of innovation and efficiency. However, “the invisible hand”has always been sounding,“However, we have to privatize.” The reason was explicitly claimed and legalized by IMF in its Letter of Intent to Indonesia government in 1999 and continuously renewed in 2000 and 2003. Indonesian corruptive officials are silent (being silence will get ‘gold’, asset sales profit bulks). IMF claim is suitable with its commitment together with other donators such as the Worldbank, etc. in Washington Consensus 1992, meant for liberalization in the globalization in order to end the economic crisis in the developing countries (then the economic crisis was in Latin America states). When IMF position in Indonesia weakened, signaled by the failure of IMF concept in private debt bail out process followed by stopping the new debt agreement between Indonesia and IMF, the Worldbank tactically soon replaced and strengthened its position in the privatization and economic liberalization legalizing efforts, in place of IMF and Worldbank positions themselves. Privatization policy has actually been propagated through the Worldbank and its trade liberalization regulations are negotiated in World Trade Organization according to the convened rules in the General Agreement on Trade in Services (GATS). Regulations with preconditions create inter-state corporations eksploiting the state resources for the benefit of vital needs of the private corporation management from the service rewards.4

3 Pandu Patriadi, “Studi Efektifitas Kebijakan Privatisasi BUMN dalam Rangka Pembiayaan APBN”, www.fiskal.depkeu.go.id

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As we have explained above, the multilateral institution role is very vital in succeeding the privatization. Its �� success is worth billions of dollars. Various researches both by the Worldbank and approaching the international and national intellectuals, are conducted to find the strong proofs about the privatization prospective specialty in Indonesia. The research results concluded and legitimate terms having the same mission as the Worldbank’s, among others that privatization will result in significant profits, with efficient production costs and management, increasing tax income, spent through capital investment, with maximum men power achievement and result, and reducing debt ratio. 5 From such research, they set the program especially the law reformation process. Several times, the government statutes and issues several government regulations or president decrees about privatization and liberalization with the sectors covering them. President Decree No.18 in 2006 on the Public Company Privatization Committee (Komite Privatisasi Perusahaan Perseroan (Persero)), for example, is the decision confirming the privatization executed by the committee legally, referring to a range of rules in the previous regulations such as article 4 verse (1) of the Constitution 1945 Amandment, the Law No 1 in 1995 about the limited companies, the Law No 8 about the Capital Market, Law No 17 in 2003 about the State Finance, the Law No 19 in 2003 about BUMN, the Law No 1 in 2004 about the State Treasury, the

Government Regulation NO 41 in 2003 about the Financial Minister Authority, Task and Position in the Companies (Persero), Public Companies (Perum) and Bureau Companies (Perjan) to the BUMN Minister, the Government Regulation No 33 in 2005 about the Company (Persero) Privatization Customs and Manners, the Government Regulation No 45 in 2005 about BUMN Establishment, Management, Supervising and Divestment. The regulations are strengthened in the Investment Law ratification. The range of regulations legalizes Indonesia to set itself with the privatization for the smooth economic liberation, whereas the laws do generally not go through the comprehensive public procedures. The planning, legislative approval, until the ratification are completed unilaterally in relatively short term period. Are they disadvantageous? Let’s notice, by selling the above assets, what happened with this state? First, the state depreciated the asset sales values, which actually according to the economic standard having high sales value, such as PT Telkom of US$ 6 billion. However there is legal reason to fulfill the debt payment target and poverty reduction, the asset was depreciated to US$2 billion. Second, the state had to find other sectors to replace the employment which were rationalized (pensioned/ unemployed). These an potential problems. On the one side, the government was generally not prepared to relocate the working class. Likewise the corporations

4 Vandana Silva, “World Bank, WTO, and corporate control over water”, International Socialist Review, Aug/sep 2001 5 Dr. Suad Husnan research report, “Privatization”, presented in a seminar in Yogyakarta, 24 October 2002.

were not willing to bear the double financial costs if they participated in relocating the working class. Ironically, generally Indonesian government has never been capable in supplying better and more protective employment compared with BUMN working fields. Besides the government has not tried to profitably manage and produce BUMN. Even if there is profit, it generally goes into the pockets of BUMN, governments and political party officials.

sentially puts in effect the import duty and capital import duty exemption, and gives purchase facilities of many other economic assets, starting with Economic Partnership Agreement between Indonesia and Japan, followed by Indonesia and India, etc. Indonesia will be more shortly put to death by the corporations without the limitation of the laws legally permitting the exploitation.

The influence and fund seizing made Indonesia actually lose other things more severely, doubling loss related with the state security problems. Selling PT Telkom means to shift the state secrecies to the buyer state/ companies. Why? Because PT Telkom is a state telecommunication corporation gathering all the telecommunication gives automatically encompassing the telecommunication secrets (conversations, citations, tapping, secret give installation, radar/satellite access control, secret telecommunication space, etc) throughout Indonesia regions. We will only grimace in vain when we know our arts of pride in designing and advocating The State Secret Law is just laughed at by PT Telkom new shareholders because all of the secret telecommunication accesses have been controlled by the foreigner officials.

As above explained, BUMN privatization always cause pro and contra, because it relates with the assets of the state and the interest of the people livelihood essentials. And the antiprivatization movement is generally a kind of anti globalization/liberalization movement. For the group following Marxism, TNC/the Worldbank illegal actions of controlling the world economy and exploiting the working class, cause the community condition exacerbation. The emerging social reformation is still under the global capital pressure. The improvement of modern production contradiction causes the (machine) technology distinction effects, working class divisions, capital concentration, the land being controlled by a small number of people, overproduction and crisis, the petty bourgeois & workers, production anarchy, the widening diversities, moral degradation, familiar relationship and nationality.6

Are there other disadvantages? Of course we still have, that is Indonesia lose many economic potentials and access at its own home. The state gas has been controlled by Japan, also trade traffic and oil price controlled by Singapore and the international corporations. Moreover, the free trade agreement is going to be ratified, which es-

Anti privatization movement

While the liberal group deems that the world has been too commercial for the state to control. Overproduction causes the market to saturated. This creates crisis in which the government has to decide to raise the interest rate. At some extent, the interest rise causes

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high inflation (in US this year inflation is influenced more by food and fuel prices, and the stock trade sinks down due to the dropping prime mortgage in property business). Neo Classic like Joseph Stiglitz et al states that the big state management is too greedy and ravenous so there is imbalance of the resourceful poor countries controlled by the developed countries. Therefore we should reduce the donators and such institution roles who often manipulate the interest by various threats, among others the terrorism and global warming, not relying anymore to GDP (GDP rises, the people are staying poor). Thus, they who will succeed are only the states being prepared in technology, information, world class resource, mature experience and goods governance. We have a nuance or senses of belonging, protection and corporate business based on family atmosphere inspiring how BUMNs work in Indonesia. With the salary standard and working dynamics that are under the other big private corporation standards of the same class, almost every workers state their willingness to work in BUMNs. Working in BUMNs is like the pride and loyalty symbol of the citizens to their state assets. Ironically, such attempts are always disturbed by the government officials and political party interference. Such values and cultures are not regarded by dynamic modern corporations which demand doubling high profits in an instant for a chance to break the global borders. We can see the wide gap between the profit mea-

sures of the two business entities from the same class but of different values. Every world institutions will evaluate such BUMN conditions are unprofitable and of breakdown potentials. Many indications strengthen this opinion. From hundreds of BUMN, many of them are closed or going up and down repeatedly. The sugar producer at PTP IX in Ceper, Klaten, or Cepiring, Kendal Regency for an instance is always threatened to be closed because it is not able to give the profitable percentages of sucrose contents of the sugar cane crops. The production shortages are caused by the severely simple plantation management and old machineries with depleting capacity. The sales prices have significantly dropped. There are almost none of government efforts. Instead the government impressively seems to let the condition slowly go on to collapse and die. The Worldbank may also deliberately not help them create such BUMN restructuring, moving the private sectors to buy out the fabric stocks very cheaply. CLOSING The economic movement related with the human greedy effort to control the economy, often unlimitedly. In every systems, the economy movement will culminate at its breakdown and booming coming at any time and in an instance or through complex process all at once. See Schumpeter classical theory chart below. It shows how briefly the economic movement circles and scales the economic necessity stages attached to one another from the most successful to the crisis

6 Michel Chossudovsky, The Globalization of Poverty: Impacts of IMF and World Bank Reforms, University of Michigan, USA, Michigan: Third World Network, 1997, p. 36.

situations. Privatization wherever in the world always induces controversies. When a corporation is bought by the economic giants, the atmosphere can instantly become bright and charming. However, it is hurtful for the workers who at first suffer from sultry at the BUMN when they are laid off by BUMN new owners. They who are re-employed, will not be certainly happy in such goods atmosphere. The working atmosphere with far different motivators from the old one will affect profit and loss, causing its own tiredness. According to many media, such atmosphere will not happen if the owners of the assets are of the states as in Latin America and China countries. Although many are privatized, China government still has power to control the BUMN economic performance, so that it is beneficial instead for the state and the people. Likewise in Bolivia for example. President Evo Morales does change much to control his state assets from the US MNC and government takeover efforts. His economic strategy is called « The Trade Treaty of the Peoples (TCP)”. Let’s learn TCP, and then compare with Indonesia. Contrary to capitalist ideology, TCP debates on the trade integration principles about complementariness, cooperation, cooperativeness, solidarity, reciprocity and respect on the state sovereignty. The objective covers the aspects not included in the trade integration proposed by the Northern party, that is about the effective poverty reduction, environment and local community protection. Investment and trade are for development not for impoverishment. Middle-low

business, local/small producers, micro industries, cooperations, communityowned companies with external exchange / market facilities. TCP understands that the investment and trade do not end but for the development. TCP objective is not to liberate the market totally but for the people welfare. It promotes the trade integration model among the people by limiting the foreign investor and MNC rights, so that the national development is secured. TCP do not also obstruct to use the mechanisms that advance the industrialization or ban the protection on certain areas in the internal market advantageous for the communities. Indonesian government have no desire to act like Evo Morales et al in Latin America. The dependence on The Worldbank, MNC/TNC and the developed country roles are very strong. Thus the government is not able to create the independent atmosphere of Resesi dan krisis

Injeksi kapital oleh perbankan

Inovasi (creative destructio n)

Masamasa surut

Sistem kompetisi

Booming ekonomi

technology and capital movement to be followed by the worker independence. They only conduct the authority domination and the authority delegation to the businessmen over the workers. The workers are really abused as the production factor treated as cheaply as possible. In addition, the government attention is too little for the relatively optimal paid and protection. Moreover, the current food and fuel price rise atmosphere emasculates the workers to optimally produce. So

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as the bureaucratic apparatus are still thought to disturb the company performance. The workers recognize how differently the government treats the capital owner from the workers whereas they are from relatively same class in producing such beneficial business for the company. More terribly, the Worldbank does not show any steps to take for securing the protection and working atmosphere on Indonesian workers and assets, other than social safety net that is of alms, spatial, and ad hoc. The Worldbank only runs for the profit to certainly improve its reputation before the world, especially before the eyes of its government in US. It is time for the law on equal treatment principles to change to appreciate the people and the state

position. So as the management and ownership of the land are for Indonesian people with privilege for the poor people. In the terms of workers, their strength in doing their jobs is according to international standard with the same rights and obligations. The state has to keep its role as the land owner to limit the asset cultivation. Indeed, the regime supported by the academicians becomes the strong and the winner to bear its power merely for political prevailing not for the state or people welfare. By defending its policies without defending the state and people fate, of course a regime will collapse, because nowadays domination is hard to hold without concerning the people and the motherlandâ&#x20AC;&#x2122;s fate. That is the irony.

PRIVATIZATION : THE FOUNDATION of NEOLIBERAL ECONOMIC

There are many understandings about privatization, which is generally defined as an action of changing the common ownership status of a business into the individual/personal ownership. The privatization policy is always associated with the previous economic source which are publicly owned, such as the earth, water, air or other commonly owned sources such as the state companies which are managed commonly and whose results are used for common interest. Such public ownership status is changed into a personal/individual/ private business sector, which is managed for profit oriented business interest. Privatization is caused by many factors, both coming from in-country and from out of the country. In underdeveloped countries, the privatization is more of the outside factors, in the form of both economic and political pressures. The

foreign pressures are related with the global regime policies, which want to apply the neoliberal political economic systems practiced as a present economic globalization building. Such global regime policy is run through various loan programs to the poor countries accompanied by various requirements which contain the neoliberal economic instruments, one of which is the privatization. For the developing countries, their willingness to privatize are caused by the complex internal problems such as the budget pressures essential for the political power organization, the pressures in foreign exchanges and the pressures in other macroeconomic policies, the high demand for foreign direct investment, all of which require the foreign capital inflows to handle the fiscal and monetary problems as the consequence of the international trade. While the capital

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outflows simultaneously keep moving in a large amount, through both the debt installments, interest payments, profit transfers and asset repatriation, so uncontrollably. The whole story is the consequence of â&#x20AC;&#x153;liberation of menpower, money and goodss to moveâ&#x20AC;? becoming the main principle of the economic liberalization. The main motivation of the privatization is how to move the poor country economic wealth, into the hands of the big capital owners, notably the world economic power at present. The international financial institutions and developed countries are the right hands of the big capital owners for their own purpose. The developed countries and international financial institutions work to succeed with the capital planning, to deal with the political and legal hindrance detaining their effort to take controls over the economic sources. For the poor state governments, their willing to privatize are more based on the short-term profit consideration. Privatization increases the government revenues in the foreign exchanges. Such receipts become the financial sources to help the government to deal with the short-term problems, especially related with the State Budget (APBN). In the macroeconomic scale, the privatization increases the capital investment giving contribution to the state Gross Domestic Product (GDP) growth.

What the government gains are different from the bad consequence suffered by the people. the movement of the assets and economic sources which are previously owned by the public into the hands of the foreign businessmen, lowers the people access to their basic need fulfillment at the reachable price rates. Consequently, although macro economically, there is large economic growth in the state, at the same time the poverty increases and the unemployment spread out. The cause of the unemployment increase is that the privatization especially which is related to the state companies, is always accompanied by the efficiency practices in the form of labor usage reduction. The privatization policy seems as the foundation for neoliberal economy, an action to eliminate the role and responsibility of a state in its economy. In the systems, the state is not allowed to take role anymore in controlling the economic sources, running the production activities and supplying the goodss and services becoming the people basic needs. The whole economic activities have to go in the market systems, based on the full competition systems without the state interference. Any involvements of the state in the economic matters are regarded as the factors distorting the market systems. By: Salamuddin Daeng Researcher of Institute for Global Justice (IGJ)

Free Trade is Indonesia Solution ?

Introduction From the fuel price rise, subprime mortgage payment failure to US financial crisis stimulated by armed attack expense rise in Iraq, Afghanistan and Pakistan, the issue about free trade somehow is sinking. The whole world are leaped up and many of the economists of course rewind what John Maynard Keynes, the economist from the beginning to the middle of the 20th century, who had predicted such market and economy, if they give up to be controlled by “animal spirits.” Keynes said, “This spirit will result in growth, but the time will come when their panicking turns up instead of the way out. They have to be domesticated to secure that the jungle law does not work.” 1 Keynes period can of course be deemed different from the crisis peri-

od at present. Current economy is admittedly founded more on the global financial dynamics facing the climate change. However we must not forget that in Keynes period, in Adam Smith’s (invisible hands) even in the previous century and at the nineteenth century in Marx period (overproduction, materialism, labour exploitation, political authority from the social change), the human greed on economic sources has been considered. Positively, Keynes, Smith and Marx are philosophers, and economics is one of their majors. They are not business economists. Their thoughts are clear and simple but they have reached out to the business moral error aspects. Then they have been infuriated with the elite greed, and they take into accounts the effects on deflation, unemployment, production excess, and so

1 *Thanks for Britany A.Sembiring, IGJ Advocation & Research Staff, for contributing the data in this article E.G. Winslow, ‘Keynes and Freud: psychoanalysis and Keynes’s account of the “Animal Spirits” of capitalism’,Social Research 53 (1986), 549-578.

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on. For them, the wealth can be measured simply. The state will be wealthy and the economy will not go to the depression as long as human are not greedy. Nowadays, many economists and government officials are also businessmen, not philosophers. Thus we can estimate the economy breaking down because there have not been natural and honest contemplative faculties and wisdom of the decision makers. Therefore we can investigate also, the four issues affecting the decrease of the world financial current dynamics is actually triggered by the resistance of the society and developing countries facing the uncontrollable economy of a small group of world-level US money market practitioners. They ask for the implementation of free trade clearly behaving like animals in John Maynard Keynes measurement. The free trade era is the dream of each of the economy practitioners to expand without any customs payment. We can say that the free trade era is the era to legitimate the smuggle of trade activities once were prohibited by every parties except by the economy practitioners. As a matter of fact, almost all the communities of the non-developed countries will move to refuse it. Indonesia has too shown worry and realized the proof of being victimized of free trade. The people count and portrait that our poverty is continuously growing severely instead of diminishing. On the other hand, many problems hit US. Facing their state economic diffi-

culty pressures, the giant corporation members centered in Wall street may beforehand become more nervous finding that the mission to gain profits faces many claims and requirements proposed by the non developed countries. While the world competitors using other cleverness in the last several years can not be pressed further by US government threats. So as the turn-up of various types of stock trade becoming more uncontrollable by more individual players entering competition. It is unneglectable also the â&#x20AC;?delicate threatâ&#x20AC;? of Al Gore group scratching climate change issues proved to draw the world attention by showing the touching natural events such as tsunami in Asia and Katrina gales in New Orleans. Bank indonesia data shows that Wall Street stock movement slows down unstably, can be viewed from the graphic below :

Unfortunately, all of these are not seriously handled by Bush administration. Bush is powerless, because he comes from the giant oil corporation group having for decades dominated energy resources both in US and other countries. Various complex problems emerge in large scale and all at once. The majority of economics and politics actors are old players still dreaming US superpowerness in the world. While in front of them there have been new players, the people and the governments from the other parts of the earth starting to shift from US superpowerfulness. EU starts to control its support and participation in Iraq. China starts to spread funding everywhere. Latin America countries are US stepchildren

starting to dare its arrogance over US power. India is successful in hardware and software industries of computers and steels. All as through ignore US role in Iraq and they seem only chase economic welfare. The war counted by US seems not to be idol again among the world politic players. US army roles in Iraq wars are more factually refused, especially to be related with the financial crisis break. It is unavoidable that every giants in US becoming the main actors other than Bush are blamed for triggering the crisis threatening a depression. They realize that on one side a US governments authorize for maximally ten years period, while the corporations are experienced players having been so often going through the shifts of power and influence. They have to consider the development of uncontrollable “bubble economy”, globalizing nature and economy threats.

The crisis they welcome, and have taken into account before, by early asking of pension funds, initial incentives they are sure to be granted because their world level will trap US government to giving hands. Even Corporate Social Responsibility can also trap the government to grant bail-out funds. So they get the ‘pension funds” from Bush who gives $700 billion bailoutto thousands of financial corporations. Later the funds of helping stop the credit freezing turn out to be handed out to their ex leaders who are factually guilty.2 Bailout does not end their tactics. The old way is still effective – participating in preconditioning the new president team while keeping to control Bush while he is still in power. If not, they will try to sell the goodss and prepare everything to face everything Obama is not interested in.3 Not long afterwards, fund liquidation is quite pos-

2 The above case shows that the giant corporation is actually an old lion controlled by several CEO numbers who are so easy to play games on the state funds, that is allowed too.

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Table 1 : The percentage average of changes in tax income 2009

sible to facilitate them attempt new businesses. The premise is clear, that is ‘to help Obama’ quicken to realize his promise to improve employment, to facilitate redemption of the possibility of tax income reduction, which may be different from the expectation as shown on Table 1 below, by helping Obama levy tax on upper-middle people (up from $200,000) for the welfare of people with income under $150,000 annually,4 and reducing the budget deficit by bail-out. Tourism business, banking credits and farming/plantation expansion worldwide is enforceable. The three types

of business have been often observed not to cause too much resistence from local communities and climate change groups. How? Rather than establishing supervisory institutions as Sarkozy suggests, risky in their old exclusive position, the Worldbank dan IMF will be suggested to improve roles, however also to be more low profile, friendly to persuade the developing and underdeveloped countries to”build the new economy order which is friendly and hospitality.” Why? The Worldbank has much served them in decades by help them take advantage on liberation in every member countries. Let’s see who is accepted later, offering to IFI in-

3 It was proved with the news of the increasing sales of weapons by US weapon manufacturers and traders. Obama is thought not to like weapons so they attempted the weapon sales. Kompas daily news, Tuesday, 11 November 2008 4 Biden: “Spreading the wealth was not -- he was talking about is all of the tax breaks have gone to the very, very wealthy. For example you have right now, this year, under the old tax policy that was just -- that was put in by George Bush, people making an average $1.4 million a year, goods people, decent people, patriotic -- they’re going to get an $87 billion tax break. What we’re saying is that $87 billion tax break doesn’t need to go to people making an average of $1.4 million, it should go like it used to. It should go to middle class people -- people making under $150,000 a year.” WNEPScranton, interview with Sen. Joe Biden, 27 October 2008. See also http://www.npr.org/templates/ story/story.php

creasing roles or Sarkozy and Obama styles? Or they will use old pattern, by creating little turmoil in every non-developed countries? This is extremely dangerous! It is possibly unavoidable for Obama, may IFIs be asked to approach several NGOs and plan to construct a new structural adjustment program for tourism and crop transportation interests. Corn seeds and wheatflour of US for instance can be soon campaigned for worldwide expansion due to short harvest period. Everybody will be persuaded to eat corns and wheats. Although the money circling slower, the farmers are still happy. Financial business can be still revolved by slower and smaller wheels, but more expansive. Thus, what form of guarantees to go through for cheap food capital circle? Nothing other than free trade! What is free trade really? Free trade is open economy cooperation convention, free from capital customs and the facilities to get market shares for products, conducted by two countries (bilateral) or two groups of countries (as a matter of fact, multilateral). These products from top to bottom are from agricultural commodities (seeds, fertilizers, medicine, pesticides, etc.), mining, industries (health â&#x20AC;&#x201C; genetic, medicine, etc), financial sectors, patent rights and human resource (local workers and migrants). The idea of free trade began since WTO deadlock. In 1990s, US pioneering to areas of exSovyet Union, Central Asia and South Asia and America Pacific (Canada, Columbia, Equador, Peru, Chile, Mexico), Oceania (Australia, New Zealand, Papua New Guinea, Pacific Archipelago),

East and South-east Asia, totally 403 agreements are part of liberal economic movement whose characteristic is to give individual freedom to get and pile capital for market share as broad as possible. There are three forms of the free trade, closer economic partnership, economic partnership agreement and free trade. Actually the form of trade followed by claims of facilities, is usually conducted by the developed countries on the developing and underdeveloped countries since centuries ago. The underdeveloped countries are usually made as ports without rights to levy taxes on the capitals or commodities harboured there. Generally, the countries are first made colonials of developed countries as France, United Kingdom, Portuguese, Spain, Japan and Dutch. Currently the trade is formed by taking the governments of both the capital source and destination countries to participate in conventions on free trade. Unhesitantly, the governments are also urged to regulate on trade liberalism by establishing the world trade agencies such as WTO (1995) camuflased by leaning on United Nations Charter regulation for the world welfare. So as each of the member countries is supported by the multilateral financial institutions such as the Worldbank to direct economy liberation. Their tasks among others are to give electricity, water facilities, road and building constructions, new service systems (one stop window, currently named) to facilitate investments and all of the regulation and law ratifications paid by big funding to assure the foreign

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partners can have economy activities easily, freely, protected by local governments and â&#x20AC;&#x153;undisturbedâ&#x20AC;?. If thus, the non-developed countries are to be conquered by the foreign corporation and state interests. In various development stages, the cooperations look more friendly. The developed countries deceptively always take the developing countries in the negotiation processes. In WTO deliberations, such as in Doha Round 2001 the developing countries are possible for negotiations. In fact, the weaker partners suffer greater loss while the developed countries put heavier pressures.5 As a result, generally the weak state administrators shift the pressures excessively on their people, and the income gap are getting wider. In many countries this violence is still going on. Up to their current stage, the weak developing countries such as Indonesia has to enforce liberalism, be banned to subsidize, reduce or not give pension funds to their people or local labours. Otherwise, the developed countries continue to ask more incentives to their corporations, especially in the matter of taxes to protect their people. If our people react, the developed countries threaten to move their investment to Indonesia competitors. This imbalanced situations make con-

flicts easy to continue in developing/ underdeveloped countries not following their claims. The information era and political democracy has also given chance to weak country people to claim for economic independence through various opinions and urges. On the other side, our government stands more by the economic values built by the desire to obtain international short-term accesses such as debt or investment increases without transparency where they go. They are culprits commonly abusing the poverty measurement to ask more funds, facilitated by the Worldbank et al, to partner countries. If the poverty term is used as measurement, then it is clear for us to see the government produces the same economic strategy package reference year by year, the portrait will look the same within a decade that results in the unemployment percentage being kept contantly high and vulnerable in a decade, and the poverty will be sustained not lower than 10% number! Is Free Trade Era to Start? The obsession of the developed countries to apply free trade has started long ago. Since colonial era, a number of customs-free harbours as free trade gates, such as in Mauritius (1814) and Singapore (Raffles era, 1826) open our

5 In WTO membership, the weak partner countries have been trapped by various regulations obstructing the competing acts and gaining market access with the developed countries. There are amber box (domestic subsidies for international price), yellow box, blue box (EU domestic subsidies), green box (domestic subsidies for price/production volume) whose functions are to place US and EU to get facilities in other boxes whenever their amber boxes have to follow the demands of non-developed countries. The deliberated agreement covers 17 types, farming, waste and wastebin size, anti-dumping, customs office evaluation, government goodss procurement, import license, patent rights, dispute solution, trade regulation, subsidy and security, tariff ,pluralateral agreement among others covering dairy products, meat and civil aviation, trade policy review mechanism, trade technical inhibition, textiles and fashion.

eyes to see how easy such economic service give many benefits to investors and corporations. The same is dreamt to apply in modern ’colonies’ including Indonesia.

ing from the yearly growth average of 6.58 percent (Bank Indonesia, 2007). This advancement has presses inflation that places Indonesia more stable and sustainable economically.

In Indonesia, in the end of 1970s, the free trade idea was established in Batam after successfully making it as one of its lucrative oil export harbours. The same expectation was demanded in Sabang, Aceh. Then without the people awareness, Indonesia was once more made as the harbour for new colonials especially of Japan, US, England and Dutch by limitation of its oil shipment satked at low cost base and the exploration construction was factually legalized by Indonesian governments through debt agreement concession and oil drilling contract for decades.

The ’success story’ prevailed in 1980s to dominate economic politics news and happenings with spreading numerous thoughts about the possibility of free trade and profitability prospect to achieve. Initially they have to set a very liberal new trade mechanism besides Batam nurseries of share trade and financial deregulation. So share sales was rolled by establishing Danareksa, a capital investment corporation in 1984.

By those benefits, Batam then was targeted as a pilot project for free trade to apply later. The harbour exempts customs for goodss or assemblies from Singapore and Japan. Even Bank Indonesia data in 2007, Japan and Singapore are the main export partners in Indonesia other than ASEAN, as much as US$13,287,158,000 and US$8,860,124,000 (Bank Indonesia, 2007). Doubled profit for developed countries, Indonesia ’seemed’ to get shares of it. It was said that Indonesian economic growth advanced significantly, in which the working ages got more access and employments in electronic and automotive spare-part assembly. Even Batam site combined with Bintan and Karimun in Riau Archipelago province recently gets economic growth jumping up to 12.09 percent in the third quarter in 2007, far increas-

October 88 Package (Pakto 88) gives banking deregulation to facilitate bank establishiment. Consequently, hundreds of banks were constructed everywhere. This undertaking was followed by Jakarta Stock Exchange opening in 1992 as the center of share trade. We can see the excess until now. Indonesia is in the first economic euphoria. Liberalism era seems to drag Indonesian image to anti-crisis wealth. All of the economic philosophers and practitioners seem to have forgotten that Indonesian economic beauty-look is truly inflation-vulnerable painting because its economy is built by reliying on the profit taking and accumulation of resource funds. It is analyzed fromthe fact that the capital comes form financial multilateral debt (World Bank. IMF, ADB) and expanding foreign investment using Dana Reksa, JSE etc. All of the parties enforce preconditions based on reasoning that Indonesia will not advance without them, and command all the details of business activities.

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However, Indonesia government politic turbulence creates conflicts in many places. Batam was broken down because the economy did not come to rise while the government was continuously changed and scolding, in the bound of corruption wrapped in different dynamics. As the result, we see Batam portrait now as the free trade harbour taking the effect of impoverishment and spreading iron garbage everywhere without remaining any self-reliance at all. It looks as the holiday place for Singapore labours which is actually not its potential, because the tourism capital mostly come from Singapore and the remaining from Jakarta. Free Trade in Indonesia Indonesia has been involved in free trade agreement with Japan. May be next year by Obamaâ&#x20AC;&#x2122;s smiles, US will push Indonesia to immediately sign the agreement. As ASEAN member, Indonesia is pressed also to sign ASEANChina and ASEAN-India free trades, and possibly ASEAN-EU next month. From all the agreement bindings, the most transparent to view is the economic cooperation between Indonesia and Japan 2007 to implement this year. The story of Batam above is only a little of examples of the excess caused by the free trade in Indonesia. There is another example, such as economy cooperation agreement between Indonesia and Japan. There are 13 more types of trade asked by Japan than Indonesia. Indonesia is preconditioned to secure secret information, adopt harmonization systems, investment protection, anti-dumping, tax evaluation and tarif measurement, and no farming export.

There are no Indonesia demands of sanctions or expense refund, if the capacity building or technical assistance is not done or if there are any failures in nurse training. It is said that in 2007 there will be US$7.37 billion import from Japan and US$24 billion, especially of gas that is reported formally about 65% of the whole Japan industrial sector needs. Nevertheless, Indonesia does not hold the gas sales profit because it is used to repay Indonesiaâ&#x20AC;&#x2122;s debt, construction costs and Japan gas transportation imposed on Indonesia. Indonesia liquid natural gas price is about US$5-6 per mmbtu with the assumption of oil basic price of US$50-60 per barrel (this calculation depends on Indonesia and Japan government negotiation, the gas mmbtu price is estimated to be around 1:10 for the volatility of oil price in the international market), a very low amount compared with Japanâ&#x20AC;&#x2122;s getting benefit from using the gas in its various giant industries. Not to mention the price of Indonesia oil sold to Japan. None of Indonesian economists dares to calculate how much loss suffered by Indonesia from the bad prospectus of the economic cooperation, though it is apparent. How is Indonesia future chance? Indonesian government should have comprehended what US faces nowadays. Like the abovementioned US financial crisis commentaries, we can describe Indonesia as US. Indonesia has suffered from financial crisis in 1998 with bail-out of Rp 144 trillion6 out of the Central Bank Liquidation Aids (BLBI) fund arbitrarily given out to create great loss on the government there, unsolvable today.

Current government whose biography like of Bush does not have any courage to evade Bakrie group plea to buy their corporation shares impacted by US financial crisis. The government should have not been too weak to say no to the bankrupt conglomerate group. May the government give helps but they have to give sanction if Bakrie does not repay. They have to select also who are really weak and need help, and who are only playing fund games. If we have such government, they will certainly give quick-response to solve the problems of the crisis impact possibility, by opening employment or business opportunities by goods reserves. If the government is strong and independent enough, the financial crisis impact should not have steered Indonesia to be pressed down to open the free trade. They should have not been reluctant to be strictly suggest to their partners that they should consolidate inwards first to strengthen their economic foundation measureably and completely within two years.

systems are more opened, recognized as the positive excess of globalization. And also they get more experience in various government systems. They are all open the people critical awareness wherever including in Indonesia to claim for the same benefits and opportunities of the world business practitioners. Such awareness dispersion should have made our government not too boastful that only they and the big investors who can prosper the nation.

If our government is experienced and wise enough, they must have considered that the national political interest frameworks of free trade implementation is actually not as easy as the dreams of all the practitioners, thinkers of business and economics, who often see the economic sustainability shortly, measuring them merely from financial profit and growth.

In the last period, our reserves slightly increases but the unemployment increases also even the poverty increases higher. Besides, infant death rate turns out to be relatively stagnant by unspreading health services.

The resistence from people suffering from them is the most disturbing obstruction. While the media service

The free trade impact has made the education and health service sectors abandoned instead for the sake of a small class of political elites. The people are still quiet and prudent. Like the sea, they have just shown little waves not ’tsunami’. However from various media reports, the people can not be persuaded anymore by mere baits of services such as CSR in the free trade. That’s why, by now they, aware of their own capability and skills, are thinking of employments with the same degree of income as the investor country.

In 2003-2007, infant death rate achieves 34 per 1000 births. Reserve increase turns out not to be followed by the people welfare improvement. Even the reserves are used more to defray the shares of Indover, Bakrie and Central Bank Liquidity Aids that

6 To add with recapitulated obligation injection in the national banking, totally becoming Rp 650 trillion – 700 trillion. (Bank Indonesia, 2007)

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trade can flow fluently to the destination, and Indonesia get sunk down in debt traps, on the earth pits, wallowed by garbages, hovered by smokes.

Laju Pengangguran dan kemiskinan 19 18,5 18 17,5 17 16,5 16 15,5 15 14,5

12 10 8 6 4 2 0 2001

2002

2003

2004

2005

2006

Laju Pengannguran Kemiskinan

2007

Tahun

Source : Bank Indonesia, BPS, 2007 are political elite class assets, in relation with the global crisis and rupiah exchange rate fluctuation.h The awareness starts to be built to dare to claim the government to give decent subsidies, free from corruption collusion and nepotism (KKN), managed by proffesional, nationalistic and just government systems. While the beaurocrat officials, in state-owned research institutions and executive departments and the legislative council members, look more clear to rely their lives on the projects, popularity, professional bureaucratic and elite lifestyles. Simultaneously, we have not seen they perform really professional thoughts and discipline work capability. Such human quality just prevails in Indonesia. By such ’intellectual’ quality, who are pro-international giant corporations and financial institutions which are really exhausting projects, the free

It is easy for us to guess where the problem will flow next, by bailouts exhausting our finance, that is giving out state capitals without any sanctions will only make our government more professional beggars of excessive debts and investments, together with institutions such as the World Bank, ADB and IMF, look for deceptive political ways to blur people control. They do this to anticipate the price increase and rupiah falling down, to prevent inflation, while they have never programmed export commodities will. Moreover, they will conspirate that the developed countries such as United States, Europe Union, Japan, Taiwan, Korea, and China will together ask the certainty of the decision makers to immediately operate in Indonesia. They think this will prevent the same things, that are inflation, production and buying power decreases, unemployment increase, reasoning to help Indonesia and move the world economy to the fairer systems. Of course they will first consolidate inwards, determine new rules and policies to control the finance and economy to prevent the uncertainty in their homes before they are ready for others’ countries. We have to be aware that parts of the people and governments of these countries have been so experienced in political consolidation without bloody conflicts, swanking or any frenetic noise. Such community types are easy and quick in setting the complete free trade agenda with

profit-loss calculation economically and politically. They will clearly defend their states from all the economic dirts and obey their community demands. Therefore, they will ask Indonesia as their economic activities to gain profit for their countries, not Indonesia. It is not surprising for us to see that our government is hastily undecisive in every agreements, without preparing economic portfolios seriously, measureably, and test-properly in convening their demands. Our government personels have minimal values, are politically unskillful and are not professional in economic governance, compared with the above governments. While they set our people aside, never putting them as subjects in any transnational agreements. Our government can have consolidated like the foreign countries politics by building high nationalism and togetherness without despising the opposing groups who have truly honest desire to build this country. UNCTAD (UN Conference on Trade and Development) statements facing the financial crisis in the press release, looking more responsible

and protective of all the people of the world, than the statements of Indonesian governments of their own people.7 Whatever the condition of any governments in the world, rich or poor, including Indonesia, they should have realized that it is useless to cover trade agreements up to sacrifice public interests. Our people will at last know and view them as unfair trade ethics. If the free trade era was coercively opened by any ways and excuses, the developing country people will claim for justice from the developed country standards. Its impact will be expansive like of tsunami, if the governments convening with the economic practitioners do not ever think of clean up their greed in economy. Among various crisis in which the natural threats get bigger by excessive exploration (for example in Aceh), the world economic practitioners and government should not anymore rely on profit motto and excessive expansion, but to be more efficient and fairly treat the human and nature!

7 Third World Network Info Service on WTO and Trade Issues (Oct08/21), 29 October 2008, www. twnside.org.sg

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DEBT ECONOMY BASED ON DECEPTIVE THEORIES

Indonesian foreign debt problems have drawn attention of many groups within the last few years. Many economists and NGO elements have been calling for the deletion of the foreign debts on the base of various reasons and argumentations. One of the most prevailing reasons is that the very huge amount of Indonesian debts, interests and principal installments burdening the state budget and hitting the poor people livings, which are increasing. In the moment, the foreign debt amounts have piled up in bulk. On every due dates, our government has always been begging for the debt rescheduling. Various attempts are taken by the government to get earnings to pay the debt interest and cover the deficit on the payment schedule, such as the deficit of the investmentsavings, export-import and on the state budget. One of the attempts is by adding new debts. The debt position does not correlate only with the state budget. The debts are relat-

ed to the macro economic problems. The developing countries taking the debts from the multinational financial institutions and the developed countries rely on their natural resources as the garantie for their debts. Receiving debts means receiving the whole ideological, political and economic systems offered by the creditors. The creditor systems are then derived into the economic plannings both macro and micro economics. Even the performance evaluation indicator of the debtor state economy is based on the interest of the creditor states. The indicators are how much and how further the debtor states can give long-term collaterals for their debts, to repay the principals, interest and willingness to surrender their natural resources, and so on. So as with Indonesia as one of the biggest debtor poor country, should be willing to run the economic and political systems desired by the creditors, including to use the indicators subsequently used to evalu-

ate the debt performance. In terms of the debt management, the indicator used by Indonesia as ordered by BAPPENAS is the debt to GDP ratio1, the debt to export ratio

and the debt service ratio. Those indicators are used more to give legitimacy that Indonesian foreign debt is under the safety limit of the creditor states or institutions. The creditors have to make sure that they can continuously receive the interest and principal installments as scheduled, and that they can suck the raw materials exported from Indonesia. The above three indicators are indicators issued by the lending institutions, making the economic risks taken by the lending institutions or states as the measurement in determing the security rates of the debt to give. The debt is not correlated at all to the security measurements beneficial for the debtor state people, such as to the domestic productivity in earning revenues for the poor communities, to reduce poverty in Indonesia, increase the employment or span the social gap.

The three indicators set by the foreigners just exacerbated the sufferance of Indonesian people, that is the poor and unemployed. GDP usage tends to deceive as long as we know that GDP is an absolute growth in economy. Inclux of the debt directly improve GDP because debts create goodss and service spending. The transaction will certainly grow up GDP, ignoring whether the debt creates the people productivity or not. Besides, GDP relies heavily on the big scaled industries or projects producing big scale production, not oriented to the labor absorption, due to its

close relationship to the export capacity so as expected by the lending institutions. While the underdeveloped countries like Indonesia rely on raw material export. Using the export as an indicator to manage the debts confirms Indonesia positioned as the server to supply raw materials. Indeed, most of Indonesian exported goodss are still dominated by raw materials with little value-added. Besides, the export done by the foreign corporations operating in Indonesia is considered as Indonesian exports. This indicator usage is clearly rather irrelevant in the context of Indonesia, because soon after the cheap raw materials exported, Indonesia will receive processed goodss imported from the developed countries with considerable value-added. The above explanation delivers us to a conclusion that the biggest mistake in the economy development planning especially related with the debt, has started from the faults in determining the used indicators. The state has never been capable in issuing its own indicator to decide a debt solvency, but it leans on the creditor institutions to issue indicators. This confirms Indonesian stronger position as a mere object of the lending institutions and states to gain profit through the loans. Using such indicators presently, actually the debts given by both the multilateral institutions and bilateral loans, are to serve the activities of the creditors themselves who bind formal alliance with the corporations that are going to invest in Indonesia. So as with

1 GDP is the overall value of all the goodss and services produced in an area in a period (usually annually). GDP differs from GNP in its inclusion of the earnings from the foreign production factors working within the jurisdiction. So GDP calculates only if the production is made by domestic production factors or not. The simple formula is that GDP = consumption + investment + government spending + export -import

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the bilateral loans actually are to support the direct interest of the creditor states in the raw materials and extractive resources of Indonesia. this can be so clearly seen from Japan position as the largest creditors for Indonesia. Using GDP and export as the indicators brings the results so fatal on the development planning, because both GDP and export will not reflect Indonesian people income, but will only reflect

the production and income of merely the big corporations, most of which are foreign ones. So it is so weird that a GDP value divided by the population (per capita GDP) is made as an indicator to determine the people welfare rate. By the time GDP grows speedily, the poverty also increases sharply2. (Salamuddin Daeng) Program officer at IGJ

2 Statistical Centre Agency (BPS) survey result shows that in 2005-2006 there are more of Indonesian populations vulnerable of poverty. The national poverty value of a large number of the people living slightly above the national poverty line of US$1- and US$2-per day- an extraordinary and determinative poverty aspect in Indonesia. the analysis shows that the difference between the poor and the almost poor is very little, meaning the vulnerability to fall poor is very high in Indonesia : although the survey result in 2004 shows that only 16.7 percent of Indonesian people are grouped as poor, more than 59 percent of them have ever been poor in a year before the survey implementation period.

100

Company Privatization Object in 2008-2009 No

Company Name

PT Asuransi Jasa Indonesia

Description of Profits and Assets1 In the company financial statement of 2007, the asset value reached Rp 1,729 trillion. In the same year, the company recorded the income before tax as much as Rp 107,945 billion.

By IPO of maximum 30 percent of the new shares to . By two options of IPO, maximum 30 percent of new shares or by strategic sales to state-owned banks at maximum 99.9 percent of shares. To be by strategic sales of 100 percent shares of the government.

PT. Bahtera Adiguna

In a recommendation by PriceWater House Cooper, the acquisition value of 100% shares of Bahtera was set as much as Rp 74 miliar. The capital stocks of PT PBA was set as much as Rp 86.696.000.000,00 divided by 86.696 shares of stock with nominal value of Rp1.000.000,00 per share.

PT. Bank Tabungan Negara

In the first quarter, on March, 2008, the asset value reached up to Rp 37,121 trillion and profit of Rp 154,761billion.

Assets managed by PT Barata per 31 Desember 2004 as much as Rp 243.888 million, per 31 December 2005 as much as Rp 251.778 million, and per 30 June 2006 as Rp 247.417 million.

PT. Barata Indonesia

PT. Jakarta Lloyd

BPK verification results until 2004 show the asset value of Rp. 1.296.065,49 million. With net profit realization in 2004 as much as Rp 23.467,51 million.

PT. Dok Kodja Bahari

Up to now, the Company total debts reach Rp 1,2 trillion.

Privatization Method2

Will be through strategic sales of maximum 100 percent of shares owned by the government. By strategic sales of maximal 49 percent of governmentowned shares. By strategic sales of maximum 100 percent of government shares.

1 Summarized from various sources, among them are the Audit Report from The Financial Verification Agency (BPK), each company websites and other trustable sources. 2 The Decree of Privatization Committee was poured in the Decree Number KEP-04/. EKON/01/2008 dated 31 January 2008 about the direction of the limited company privatization annual program in 2008, delivered by BUMN Minister Sofyan Djalil in Governmental Accountability Meeting with VI Commission of national legislative councils, in the House of Representatives Building, Senayan, Jakarta, on Tuesday night (5/2/2008).

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PT. Industri Kereta Api

Beforehand, PT KAI head director, Ronny Wahyudi reported the audited performance realization in 2006 recording the Rp 14,206 billion profits. But the commissioners evaluated that PT KAI operational income was purely negative or a loss. The net profit earned as Rp 14,206 billion was contributed by non-operational revenues and the correction on a number of transactions not booked and reported as it should have been in the previous period. PT KAI performance report in 2006 got the score of 67. The score of 67 consists of the financial performance getting the point of 27, operational performance getting 34 points, while administrative performance getting 6 points.

By strategic sales of maximum 49 percent of government shares.

PT. Krakatau Steel (KS)

From KS profit-loss statement, it can be seen that the revenue during 2002-2007 increased continuously from Rp 6,388 trillion (2002) to Rp 14,928 trillion (2007). From the net profit performance, although it dropped down in 2006 (minus Rp 135,07 billion), then it drastically rose up to Rp 363,45 billion in 2007. Per 1 May 2008, KS profit was booked as amounted to Rp 411billion. From the balance sheet position, KS asset value was also increasing from Rp 7,281 trillion (2003) to Rp 10,477 trillion (2007). Though the debts also increased during 2003-2007, except in 2006 the equity value of KS also raised from Rp 4,754 trillion (2003) to Rp 5,419 trillion (2007). This showed that the positions of KS and the government as the shareholders are so strong before the creditors.

By two options, either IPO of maximal 40 percent of new shares or strategic sales of maximal 20 percent of governmentowned shares

PT. Rukindo

The total revenue during 2005, as Wardhono disclosed, was only Rp 133billion,or smaller than of 2004 which was up to Rp 193 billion. While Rukindo debt position then, the debt obligation to the partners was Rp 145billion. Having 8500 employees.

by strategic sales of maximum 100 percent of government shares

PT. Perkebunan Nusantara (PTPN) III

PTPN III is a BUMN whose activities are in the sectors of palm, rubber and cocoa plantations. It earns downstream industry raw materials to export. BUMN ministry official data shows that PTPN III has capital stocks of Rp 1,2 trillion and deposit stocks as Rp 315 billion. At present, 100 percent shares of PTPN III are owned by the government. PTPN III has a subsidiary operating in the hospital and rubber industry sectors.

IPO method with maximal 40 percent shares released consisting of new shares of 30 percent and divestment of 10 percent.

PT Perkebunan Nusantara (PTPN) IV

PTPN-IV Audited Book Year 2007 in the Shareholder General Meeting, was held on Tuesday, 24 June 2008 at BUMN Ministry Office, Jakarta. In 2007 PTPN-IV recorded income before tax of Rp 803,9 billion.

IPO with maximal 40 percent shares released, consisting of 30 percent of new shares and 10 percent of divestment.

PT Perkebunan Nusantara (PTPN) VII

PT Perkebunan Nusantara controls 7,5% of 29 million tones of crude plam oil (CPO) in the world. CPO produced by PTPN equals to 2,2 million tones. PTPN VII (Persero) in 2007 recorded the net profit of Rp252,6 billion or 114,4 percent above the planned amount of Rp220,7billion. The amount of profit acquired rises 142,1 percent compared with the last year realization as amounted to Rp177,7 billion.

IPO of maximal 40 percent shares released, consisting of 30 percent of new shares and 10 percent divestment

PT Sarana Karya

Based on the independent auditor report, the company total assets up to 2004 are Rp 9.407.629.387,66, total net profit recorded in the same year is Rp 433,4 million.

strategic sales of maximum 100 percent government shares

PT. Waskita Karya

PT Waskita Karya is one of BUMN with construction scope. Several construction projects of buildings, highways, irrigations, bridges, and airports. Until 2006, the limited company net profit reached Rp 1,94 trillion. While the revenue reaches Rp 2,8 trillion, rising from the previous year of Rp 2,6 trillion. The net profit earned was Rp 55 billion up from Rp 50 billion acquired in 2005.

IPO by issuing maximal 35 percent new shares

PT. Virama Karya

Net assets of Rp 17,443 billion, the company profit was Rp 6,996Â billion.

strategic sales of maximum 100 percent of governmentowned shares

PT. Industri Sandang Nusantara (PT Insan)

Assets managed by PT Insan per 31 December 2004 as Rp249.398,96 million and in 2005 as Rp238.784,77 million. Loss after tax in 2004 as amounted to Rp29.238,63 million and in 2005 as Rp 31.513,82 million. PT Insan sales in 2004 was Rp137.450,70 million and in 2005 was Rp141.135,53 million.

strategic sales of maximum 100 percent of governmentowned shares

PT. Ayodya Karya

PT. AYODYA KARYA is a company with main operation on developer and contractor sectors. The company was established in October 2004, office at Jalan Nusa Indah no.25a Deresan, Gejayan, Yogyakarta.

strategic sales of maximum 100 percent of governmentowned shares

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PT. Perkapalan Surabaya (Persero)

PT DPS balance sheet per 31 December 2006 was closed with the amounts of asset, liability and equity subsequently as Rp164,97 billion, Rp117,01 billion and Rp47,96 billion each. The profit-loss report for the last year on that date showed the income after tax balance of Rp734,71 million, while the Equity Change Report and Cash Flow Report for the year ended on that date showed amounts of Rp47,96 billion and Rp3,18billion each.

strategic sales of maximum 100 percent of governmentowned shares

PT. Industri Kapal Indonesia di Makassar

PT. Industri Kapal Indonesia (Persero) is abbreviated as PT. IKI, its main production is the new ship development, reparation and construction.PT IKI is the largest dockyard in Eastern Indonesia, and it is government owned dockyard.

strategic sales of maximum 60 percent of governmentowned shares

PT. Inti

PT INTI Consolidation Balance Sheet per 31 December 2006 was closed with the amounts of asset, liability and equity subsequently as Rp879,23 billion, Rp387,53 billion, and Rp488,90 billion each. The Consolidated Profit-Loss Report in the year ended on the date showed income after Corporate Income Tax balance as Rp 8,62 billion, while the Consolidated Equity Change Report and Consolidated Cash Flow Report for the year ended on that date showed the amounts of Rp 488,90 billion and Rp169,66 billion each.

strategic sales of maximum 51 percent of governmentowned shares

PT. Kertas Kraft Aceh (KKA)

KKA was threatened to close due to cash flow shortages. The short-term liability of the governmentowned paper company reached Rp 300 billion. In detail, Rp 160 billion to Bank Mandiri and Rp 60 bilion to Exxon Mobil.

strategic sales of maximum 51 percent of governmentowned shares

PT Kawasan Berikat Nusantara (PT KBN)

PT KBN total assets per 31 December 2004 was Rp378.183,03 million showed the increase of Rp 17.566,07 million or 4,87% from 2003 that was Rp 360.616,96 million. The realizable operational profit in 2004 reached only Rp 64.418,30 million or 74,62% from the budgeted value of Rp 86.327,17 million. While in 2005 (until the second quarter) it was just Rp 33.111,82 million or 48,24% from the budgeted amount of Rp68.633,63 million.

strategic sales of maximum 70 percent of governmentowned shares

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PT Bank Negara Indonesia Tbk (BNI)

Up to 2007, BNI has assets about Rp 183,342 trillion. And it is able to gain net profit of Rp 898 billion.

Through block sales (private placement) with l4,24 percent green shoe remaining and additional 15,76 percent of the governmentshare divestment

PT Semen Kupang (PT SK)

The assets managed by PT SK per 31 December 2004 as of Rp 615.103,60 million and in 2005 as Rp 652.988,43 million. The loss after tax of PT SK in 2004 as Rp 6.132,72 million and in 2005 as Rp 4.036,63 million. PT SK 2004 sales of Rp 31.346,09 million and in 2005 as Rp 29.238,04 million.

strategic sales of maximum 38.48 percent of governmentowned shares

PT Kawasan Industri Medan (PT KIM)

The assets managed by PT KIM per 31 December 2004 and 2005 were Rp89.131,92 million and Rp83.186,46 million each.PT KIM income before tax in 2004 was Rp4.029,78 million and in 2005 was Rp7.024,32 million. PT KIM 2005 sales was Rp39.077,32 million and 2006 (Semester I) was Rp17.445,75 million.

strategic sales of all the government-owned shares which is 60%

PT Kawasan Industri Wijaya Kusuma

KITW covers the land of 250 ha, out of which are used for industry complexes are 175 Ha. The rest was used for the infrastructures, social facility and environmental facility. This area is prepared in stages, the first stage of 20ha was ripened in 1996. Then 30 Ha in the second stage in 1997 and so on until 2000.Â

strategic sales of all the government-owned shares which is 60%

PT Adhi Karya

Until 31 December 2007, with total assets of Rp 4,333.167 trillion, having operational income of Rp 291,094 billion.

right issue of maximum 30 percents.

PT Pembangunan Perumahan

Based on PT PP financial statement of 2005 (audited) and of the first semester of 2006, the net profit was Rp66.908,55 million and Rp16.970,03 million each. PT PP net sales for 2005 (audited) and for the first semester of 2006 (unaudited) was Rp2.254.209,32 million and Rp941.720,96 million each. Net sales of 2005 is composed of construction service of Rp2.221.397,09 million or 98,54%, of property Rp9.122,87 million or 0,40% and of realty Rp23.689,37 million or 1,0%.

IPO maximal 30 percents

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The sales and rents of Industrial Land – Sales of Manufacturing Building for Occupation (BPSH) – Rental of Manufacture Building for Usage (BPSP) – Rentals of Small Industry Business Facility (SUIK) – Rental of Warehouse – Office Room Rental – Rental of Rooms for Gathering, Seminar, Meeting, and Wedding Party

strategic sales of all the government-owned shares which is 50%

Industrial Engineering

Until 2005, the asset value of Rp 227,438 billion, net profit of Rp 8,316 billion.

The government will divest their shares of 4,97 percents to Pusri, for Pusri to do IPO

PT Semen Baturaja

Assets managed by PT SB per 31 December 2004 and 2005 (up to September) were Rp593.123,43 million and Rp 606.387,66 million each. PT SB revenue for 2004 and 2005 (up to September) was Rp385.367,10 million and Rp314.084,87 million each; Net Profit in 2004 was Rp4.135,22 million and income before tax for 2005 (up to September) was Rp22.387,61million.

Two options : IPO strategic sales by releasing 35 percent of new shares

PT Dok & Perkapalan Kodja Bahari

Consolidated assets managed by PT DKB per 31 December 2003 was Rp663.646,81 million and in 2004 was Rp585.957,41 million. The consolidated Profit (Loss) after tax PT DKB in 2003 was (Rp71.643.33) millions and in 2004 of (Rp118.517,81) million. Consolidated sales of PT DKB in 2003 as Rp234.190,62 million and in 2004 as Rp226.541,35million.

strategic sales of maximum 49% of the governmentowned shares

PT. PAL Indonesia

In 2008 projects revenue increase to Rp1,4 trillion from 2007 realized value of Rp1,2 trillion, most of which is expected to be earned from the new ship development.

strategic sales of maximum 100% of the governmentowned shares

PT SIER

National Update :: Financial Crisis

Exhausted by Hot Money Momentum for Regime Change The Failure of Neo-Liberal and The Need of New Economic Program Lion Paper Economy Indover, Exchange Reserves, and Betrayal on Indonesian Migrant Workers (TKI) IGJ Statement Related with Global Crisis 2008

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EXHAUSTED BY HOT MONEY

efore US financial crisis hitting worldwide, Indonesia has been drowned in the multidimensional crisis. Civil economy precipitated by Asia crisis 1997 has simultaneously been riding with the state policies which are never in favour of the people interest, has brought half of 220 million of Indonesians struggling with poverty. It will bear in our mind how thousands of people in queue waiting for rations of Rp 30.000/ person, squeezing into the doorway to a donator’s house in Pasuruan, Eastern Java province, getting slipped under the feet of the crowds. 21 poor representatives, mostly old women, found dead trampled and 13 others wounded. The souls in this state are worth only US$3 each. This country has not only been suffering from the natural wealth exhaust such as of oil, gas, mineral, forest products, and other agricultural sources by putting the people at the expense, but also those activities, protected by the national statutes ratified as Soeharto’s rising to power, have been facilitating money exhaust by speculants, mostly in the name of foreign corporations registered at the global market. 1997 monetary crisis and current global financial crisis have proved a new model of national wealth exhaust by fiercer financial regime, that is the joint of the big capitalists and the administration authorities. Gigantic investors, mostly foreigners are skillful speculators experiencing more in reaping big catches of money out of the speculation pools. Speculation orientation, in like concept with the pocker game, has stimulated the exchange rate of rupiah to US$ to plummet. Free trade systems that Indonesia is devoted of has made the hot money lightly flying out of Indonesia. Meanwhile, the central bank spent out a huge amount of money to detain the jumping down of the Rupiah against foreign currencies. Like common speculants, the central bank intervenes the money market by buying rupiahs releasing foreign currencies every time the rupiah rate is degraded against foreign currencies, especially of US$. Revrison Baswier cited the central bank publication that US$7.5 billion has been casted away to intervene the stability of rupiah exchange rates during October 2008 so that we have only about US$50 billion foreign-exchange reserves left then. This process proceeds continuously until currently the exchange reserves are US$44billion left. If everyday rupiah – dollar exchange rate fluctuation then the central bank reserves of about Rp 560 trillion will be emptied just within some weeks. Among the ironic reality mingling with civil poverty, the drying agricultural funding sources, the weakening smallmiddle scale enterprise expenditures, the vulnerable national industries, The central bank has just been wasting our money as prodigal as a gambler. Who will bear the cost of civil financial source exhaust, used up just to enrich the wealthy investors of the prosperous countries?

EDITORIAL

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MOMENTUM FOR REGIME CHANGE

“The ghost has come back sweeping the earth. It is the ghost of crisis”. Thus the crisis hitting in this moment, put us in mind of the ghost of 1997-1998 crisis. The similarity of them is the same root, financial crisis, but at diverse localities. In the last decade, the crisis hit emerging markets in Southeast Asia , fusing into a multidimensional crisis especially in Indonesia. This time, it hit the most superpower state in the world, the United States of America, swiftly breaking into European countries. Starting with just a subprime mortgage crisis, the wind has become a financial sector gale breaking down the gigantic financial agencies, and it has changed into the crisis in the real sector. UNCTAD, a privileged organization of United Nations in the sector of trade and development, on Tuesday 7 October, issued a statement assessing the nowadays global financial crisis. UNCTAD called this crisis as the result of massive financial innovation changing into “mass financial destroyer weapon’, citing the billionaire Warren Buffet, who has precipitated what is called “the crisis of the century”

According to UNCTAD, sophisticatedly reengineering the modern financial systems now is proved to be a big mistake, because almost all of the actors at every stages of financial reengineering, have been exposed to the euphoria of getting big gains, so that they abandon the risks of credit failure of the debtors. Unregulated financial reengineering in US has actually gone on for a long time. This is the result of legalizing GrammLeach-Bliley Act in 1999 by US Congress dominated by the Republic, which was ratified by Bill Clinton; to replace GlassSteagall Act 1933 decreeing various regulations restricting the financial industries after the great depression in 1929. Glass-Steagall Act forbids any financial companies to hold diverse financial services, especially to become an investment bank and a commercial bank all at once, and also an insurance banking. This strictness is now broken through by the deregulation of neoliberal school of thought, especially through new financial operations such as hedge funds and private equity funds. The financial corporations now serve as commercial banks, investment

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banks and insurance banks all at once without any controls. The global crisis of the century has also reset in the bubble economy term, that is an economy looks as through it were big but factually void, and to continue blowing means the expanding will explode at last. This reminds us to Marx’s dictum. The socialist prophet said that the economic building should have come from production activities, not from financial (trade) activities. The enlarging money trading, facilitated by various complex financial instruments out of multilevel portfolio, turns out to take the world into the tremendous crisis of the century. UNCTAD also said that the arguments of the market fundamentalists who have rejected the financial market regulation, and have stated that the market will be able to effectively discipline the behavior of the banking and financial practitioners effectively, turns out to have failed. In turn, the state has to lend a hand to tackle a range of uncontrollable market results. The financial crisis changing to revert into the real crisis, will hit everybody. Europe which is affected by US crisis, is suffering from even deeper crisis becoming the crisis quake epicentrum centre. A manufacture international survey on October 1, reported on worsening situation, where the manufacturing output and orders of goodss started to sink down during September in US, Europe and Japan. The crisis will grow larger and more obvious next year (2009). In Indonesia, the government have been too busy explaining that the crisis can do nothing to Indonesia,

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that we have nothing to do with the crisis and somewhat will try to minimize the crisis impact. However until now, the government has been only trying to tinker with monetary and fiscal instruments as amulets, without making an effort to dig out to the fundamental problems. It has been obvious that since the crisis of 1997/1998, Indonesia has not really been healed. Besides the little changing political complex, we have also not experienced a changing economic regime. The governments truly preserve the crisis. And severely in turn a bigger crisis is hitting, while Indonesia has still been struggling with the last crisis. We have seen that the political crisis as Soeharto demise, has not met fundamental solution so that people have always been feeling unsatisfied with the present politics and governments. Eventhough we have had general election 2004 which was said to be ‘democratic’ and ‘direct’, the elected government has not brought any satisfactions to many elements. People want mainly the massive and extensive changes, but we realize that so far we have only been given money game and corruptive democratization, that is merely ‘Neo-New Order minus Soeharto person’, whose political practices have resulted in elite democracies, meaning in New Order elites implanted in the central and local administrative areas. Soeharto had succeeded in bearing and conserving the systems of Soehartoist and the little Soehartoes. Despite his death, his systems factually still works, through new packages and polishes. Explicitly, SBY-JK with their GOLKAR parties rising to win the General Election is the real reflection of the Neo New- Order.

This political Neo New-Order thus has been creating people dissatisfaction. The corruptions still keep prevailing systematically, and the Corruption Eradication Committee (KPK) becomes the cosmetics of the corruptive systems. KPK do does â&#x20AC;&#x2DC;somethingâ&#x20AC;&#x2122;, but not far-reaching to trap the large scale corruptors and their mother ( especially Soeharto children and cronies plus BLBI cases saving the cronies in the last crisis stage). As the result, the crisis became endemic within systems without any resolutions. Its economy is also Neo Neworder, the metamorphoses from the conglomeration of Soehartoâ&#x20AC;&#x2122;s children and cronies regenerated new conglomerates. The persons are conglomerate children or successors of the old ones. This economic regime will keep protecting and putting forward the large-scale enterprise interests. This economic regime will never become civil economy or distribution economy. The regime embraces tightly neo-liberalism. The economic cabinet portfolio consists of Barkeley neo-mafia economists. Its recipes hold grip to economic growth (means to hold the large-scale businesses only as the economic driver) and consistent free-trade enforcement (free-trade, free-exchange reserves regime and economic liberalization projects). Indonesia is a poor country with the most liberal economy in the world. As the result, its economic systems preserves the 1997/1998 crisis, because it weakens its own domestic economic powers forever, treats the agriculture

like a step sector, and abandons the national industrialization. Without giving precedence to civilian players of strong real sectors, where to mention million of small farm units and millions of small-scale industrial units, then the crisis will be the cancer in Indonesian economy. The coming superpower global crisis this time (2008), Indonesia will be swept away greater. God seems not to let Indonesia continuously be led by a Neo New-Order regime, so He has to recreate another terrifying crisis until a new pro-democracy and pro-civilian government turns out. This forthcoming crisis looks like a momentum for pro-democracy and pro-civilian movement to reschedule total reformation agenda into Indonesian political economy. They have to massively tear down the megacorruptive systems, for Indonesians to be in prevailing dignity. We have to work total changes on neo-liberal economy into populace civil economy that conforms to what article 33 of the Constitution addresses. May this be the momentum. General Election next year in 2009, may result in a surprise for a transition more directed towards economic democracy and the true democracy we imagine. The global crisis will more easily be arranged if Indonesia returns to its economic sovereignty, self-reliance in economy, so as such countries as Brazil, Russia India and China (BRIC) nowadays. ***

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Image Sources http://bona.web.id/wp-content/uploads/2008/08/jobless.jpg

The Failure of Neo-Liberal and The Need of New Economic Program

Neo-Liberalism Track record

he financial crisis di United States caused by credit failure in subprime mortgage in turn spread as a global crisis threatening the economy stability of the world. The crisis hitting the country of ’the heart of international capitalism’ has been widespread to Europe and Asia, not excluding Indonesia. To trace back, the present crisis can be reflected from 1970s Fordism-Taylorism crisis, that is a production systems involving mass labor and high added-value creation

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through practical technological development in manufacture. Simultaneously with the dominance of fordism-Taylorism production systems pioneered by Henry Ford in automotive industry, the way of thought was dominated by Keynesianism of John Maynard Keynes, among others says that a state should take a role of creating labor-intensive projects. Fordism-Taylorism emerged of exhaustsm or production maturity (Syamsul Hadi, 2008), replacing production pattern of the global capitalism systems which is productive and mass for Casino-Capitalism production pattern dominated severely by financial capital. Then the Marxists viewed that the financial capital domination in global capitalism nowadays is caused by technological innovation (communication and information technology rapid development) and deregulation by the government, besides shows a situation of over capital accumulation. To illustrate, 30 years ago, 96% of transactions using foreign exchange was related very much with real sectors, trade and long-term investment. But now, since late 1990s, we saw that 90% of transactions using foreign exchange consisting of shortterm financial flows, 80% of which last for not more than a week. Without tight regulation, speculative actions bearing such bubble economy systems will erupt whenever the trust on “the truth” of productive activities in the future is doubted. Usually this starts with the debtor incapability to repay his shortterm debt. Such as in Thailand, when the bubble economy blew up, they borrowing money for real estate project expenditure could not repay their debts. The next ten years, in America case, the crisis

started with credit failure on housing sector or subprime mortgage. This was which then triggered the low expectation level in the financial market, causing the drop of share and other security values.

Market vs Government On the broader side, the global financial crisis has made ‘classical debate’ up to the surface about how and at what extent a state should have ruled its economic development. If 1997-1998 Asia Crisis protruded the interpretation about government failure, then the global financial crisis of 2007-2008 protruded the interpretation of market failure. When the government, pioneered by America, issued hundreds of billion dollars of bailouts, this proves that at last the market can not work perfectly. Right then has made the real shift of the state function as a dishwasher after the fancy party of the financial elites ends. Since the rise of Neo-Liberalism in 1980s, moreover after the backward falling of the communist countries in Eastern Europe, opening or liberating the economy was viewed as the only way to prosperity. Trade, investment and financial liberation became taken for granted policy. The global capitalism structure given by the Neo-liberal ideology not only bore financial globalization but also gave nutrient supplement for the breed of individualism principles, in which the policies directed to privatization degrading social solidarity and nation-state autonomy erosion. The principles prioritizing the role of the state to realize social welfare and economic performance have been viewed as irrelevant and unproductive. It is interpretable that the book of ‘The Twilight of Globalization : Property, State and Capitalism’ written by Boris Kagarlitsky (1999) has resolute several options to respond the shift of prevailing policy and ways of thought orientation. Essentially, the solution is to build a state of interventionist. Even George Soros (2008) in “The

New Paradigm for Financial Markets: the Credit Crisis of 2008 and What It Means” criticized the works and mechanisms of the markets in a state. Firmly he said that capitalism and market do have to change because the basic assumptions there that all the market practitioners have prefect and equal knowledge, was unaccountable anymore. In turn the market will lift or move from crisis to another crisis, each time need intervention from the regulator (government) to heal.

State Interest: Necessary or Sufficient Condition? Global financial crisis proves that the capitalism does need review. The reason is so simple, that the financial market is the most extreme implementation of the downside of the market capitalism in which the financial sset management rules. In this context, the productivitiy and hardworking of the real sector can not just be weighted in balance with its rewards. The scientists suggest to return to Keynesianism principles. It is more of the desire to handle the instability or volatility primarily caused by the financial capital movement. They stress that every countries (at the national level) need to restrict the free movement of this financial capital. The weakness of neoliberalism, according of the ‘Neo-Keynesianist’, is the inexistence of stability in macro economy growth because the market moves too wild unregulatedly. Besides, they also stress about the necessity to direct the government role to drive the economic productivity through strategic investment in infrastructure. On the other side, the United States government attempt to save the staggered financial institution should also trigger serious discourses about ideology needs of new economy for humanities. The fact shows that the salvage is the largest ‘nationalization’ program ever done, just as the country has been labeled so far as the neo-liberalism reference. If the national

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interest was at stakes, the politicians will abandon the ideology. This will be a lesson for the policy makers in Indonesia not to give up easily to IMF or like pressures. In the context of international dimension, this will be a big homework needing active participation of the whole communities in answering and formulating the solution of the prevailing ideology battle lately. The idea is so simple, that the state may need to be a little more interventionist. The solution can be formulated by putting the interventionism of the state at some level determined by several parameters, one of them is the level of

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fluidity of capital. When the capital move easily (e.g. money), the regulation has to be tighterly applied, while the capital difficult to move (such as labor), it is worth to apply the regulation relaxation. Besides, the engagement is needed in each the regulation taken by the government. It may not exaggerating to cite and ponder of what Kagarlitsky said in Amsterdam on 17 February 2002, â&#x20AC;&#x153;the most misery in this world is when we are clumsy to think without knowing to do, then it is ascertainable that whatever we do tomorrow must be followed by the radical participation of the left socialist.â&#x20AC;?

Lion Paper Economy 1

In Indonesia economy development, especially the financial sector, there are two important occasions, those are October 88 Package (Pakto 88) about the banking and the establishment of Surabaya Stock Exchange (1989) and Jakarta Stock Exchange (privatization, 1992). Later, the two stock markets joint in 2007. Both occasions become important because of their implications on Indonesia financial sectors being more liberal and opened. Indonesia experiences problems that are unneglectable in both any kinds of economics and social science. Indonesia economy increases drastically by its growth rate. On the other hand, it suddenly goes through crisis that for a group of economists is unsolvable totally until now

. Theoretical View

conomics can be defined as a knowledge regulating various activities in the society in order to produce, distribute and exchange the goodss and service. In this definition, economics has not looked too specific. Next, for a group of economists, economics is a knowledge regulating the allocation of the limited resources, in order to achieve the unlimited satisfaction. For other group of economists, economics is a knowledge of norms and customs in the society regulating and directing the individual behavior in the social activities, including economy1. The economists adopting the first definition will approach the economic problems mathematically, while the second group will view economic problems by institutional approach. The first is called orthodox, while the secod heterodox. Between heterodox economics theory are Marxist

1 Written by Fachru Nofrian, DEA, lecturer on economic philosophy of UI (University of Indonesia) and economics of Trisakti University. 2 Trigilia, Carlo, p: 15.

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economics theory and regulation economics theory. Besides the two, there is Karl Polanyi theory about money whose thoughts inspire much the heterodox economists. In the rationality development of the orthodox economics (neo-liberal), money does not function only as exchange tools, but also as value creation. What it means that the economic practitioners, who are the businessmen and capital owner groups, can use their money in order to allocate the economic resources effectively and efficiently. Concretely, the objective is that the companies can gain profit rates as much as possible after the expense subtraction. Here, accounting becomes important to calculate the company profit rate, especially for the big companies entering the capital market. From the rationality perspective of heterodox economy (Marxis, Regulation, Polanyi), the allocation objective of the efficient and effective resources is acceptable. Heterodox also agrees with orthodox that with money the businessmen and capital owners group can gain profit as much as possible through various innovations on money. Nevertheless, the problem is the contradiction between the group of businessmen and capital owners, and the other capital owners, who are the (working) capital owners. In other words, in the heterodox economics rationality, money is not neutral anymore. 2 3 Boyer, Robert, p.

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Another implication about money that is unnoticeable by the orthodox economics is that the economic value creation which is based on money is fictive or unrealizable. For Karl Polanyi, not all of the economic factors can be commoditized through markets. The human power and money can not be reduced to the market because they can result in the damage within the capitalism systems itself. The implication on practices Lately, the world is made worried by the crisis in US, starting with the credit crisis about June 2007. The crisis develops worryingly because it happens together with the food and energy crisis the crisis chronology says that its effect was felt more seriously around December 2007 until now. Several big companies in financial sector fall down, such as lehman Brothers, Ltd and Meryll Lynch, both are BI consultants for several decades. In accordance with it, the rupiah exchange rate against the dollar are depreciated more to reach up to Rp 10.000/US$1. As a priori, there are several similarities between 2008 crisis faced by Americans and 1997 crisis in Indonesia (Asia). First, the banking credit rate indicators are similarly high. In Indonesia, since PAkto 88, there are significant changes in the banking sector, that is the bank numbers and banking credit rate are significantly increasing, from 111 banks (1988) to 240

banks (1993) and 170 (1997). While, Pande R.S. research shows that the credit rising from Rp 44,001 trillion to Rp 148,296 trillion and Rp 476,8 trillion.

a priori, the Americans must be going to draw their dollars back to their country.

Then the number of emitters in the stock market increases also. Until 1997, the Joint Stock Index reach the level of 700, putting Jakarta and Surabaya Stock Exchanges at the most dynamic stock markets in Asia. Furthermore, the market capitalization in both JSE and SSE are high. A priori, the emitter balance sheet shows that the financial assets get larger than the goodss. For example, oil and gas sector shows declining production rates, while the company share sales and profit rates can be said to increase. As the result, Indonesia experience explains that when the financial assets are considerably huge, most of the businessmen and capital owner group, can not repay the debts due to rupiah falling against dollar, so as with parts of the large banks having large receivables from and payables to the foreign banks. Simultaneously, the communities want to withdraw their money in the bank. The bank runs out of liquidity so as to collapse and simultaneously the necessity goodss are becoming scarce.

The regulation economic thoughts come from France. In the French language, economy means saving. It tells us not to force something large if its capacity is not large. If we want it to be large, we do not need any payables, but saving all types of economic sources to use in the production and sales to trade. Thus, the solution is that Indonesian communities have to save their resources. Besides, the money rates have to be managed not to differ significantly from the goodss numbers.

For now on, Americans face what happens to say as similar as Indonesiansâ&#x20AC;&#x2122; experience. Rupiah depreciation on dollars may be just little effect from the enlarging crisis in the future. However, Americans need dollars to buy their necessities. Therefore,

Regulation Offer

In order to regulate the money, the regulation offers international monetary systems different from now. Up to now, the Worldbank and IMF still dominate the world, whereas they can not regulate the capital owners and bankersâ&#x20AC;&#x2122; tending to lend or circle their money through various monetary innovations and technologies. Therefore, the regulation criticizes the globalization getting faster due to the monetary innovation. The foreign companies having large capitals can keep moving more often with their monetary innovations. The regulation offers the concept of regionalization rather than globalization. In the context of monetary institutions, we need to restructure financial systems together with Asian countries having similarities with Indonesiaâ&#x20AC;&#x2122;s.

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Financial Crisis : a Lesson for Indonesia

By: G Irwan Suryanto

The mess of the global financial market, effecting the possibility of the world recession, started with the financial crisis in America, to be explained by some “classic reasons” among others are : (i) interest rate in America has been too low in Greenspan regime, (ii) the American budget policy wastefulness in funding the war, and (iii) the financial sector changing into extreme emancipation, indicated by the banking regulatory limitation, that is Glass-Steagall Act (1933) revisión in 1990s. However, what has happened exactly? The collapse of US financial systems preceded by the collapse of the shadow banking systems simply named as sipping investment banking systems, breeding comunal Money through derivative products. At the next stage, they invested their Money in longer-term investment, while the burden to bear is the short-term obligation, creating liquidity mismatch impacting on extreme asset value dismantling, to such an extent being called as the largest after 1929 Crisis (Big Depression).

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The weakening of macroeconomy in US; not apart from the Congress’approval on salvage package of 700billion dollars; have moved to be something deeper and more serious. The fluctuation started from the failure of subprime mortgage credit, followed by the bankruptcy of many financial giants, now have spread throughout the state economy nerves. The field facts show that the housing prices drastically slump down in America, even estimated to reach 80-90 percents, so if a property costed 100million dollars, its price is 10-20 million dollars left. To put it deeper, the housing asset value in August 2007, before the crisis of subprime mortgage, reached 19.1 trillion dollars (RP 35.000 trillion) or equaled to 40% revenue (Gross Domestic Product) of the world. If such 70-80 percent of the fund “was lost”, the greatness of the loss the world suffers will reach 27.000 – 28.000 trillion rupiahs. Generally, there are two types of main

problems in the financial crisis, that are the liquidity and solvency. The fastest solution of solvency problem is the capital injection while the liquidity can be handled tactically by various slackening, such as reducing the interest rate. Even the global financial architect himself, Alan Greenspan, testified that “I am totally wrong” while responding to US current crisis. Then he clearly stated that there had to be some tighter regulation to enforce in financial sector. In the conventional economics sphere, as a matter of fact, the financial sector is the supporting systems of real sectors in production process, so as disclosed by the classical economist (just mention Keynes, Schumpeter, etc), who clearly mentioned the financial sector position in economy. But then financial sector has become some developing matter that dominates the real sectors very massively so that (currently) the real sector has to accept the role of pillow for the financial sector. The global crisis is a structural simultaneous movement, where the financial factors have burst out as bubbles not in only one or two sectors but also in almost of all the sectors, such as the bubbles in properties, cars, equities, credits, commodities, et al. the next impact of all of them is the turn of recession in real sectors. In America itself, the company of General Motor class has just laid off about 1,500 workers, will be followed by other companies to lengthen the number of unemployment. In brief, the root of the emerging problem is the disconnectivity among real sectors and financial sectors. “not matching or synchronizing ; imbalance in economic terms or inequality in more radical words; both sectors have caused the financial sectors cut from real context” as is disclosed by Walden Bello. Global Crisis Transmission Almost all the policy takers in this country assume that the global crisis exposing the domestic economy will come through

the mechanism of trade transmission with all derivations. This assumption is not wrong, although not right. Neoclassical economists try to explain that the process of propagation or transmission of global crisis and its impact on other countries, including Indonesia, is through international trade multiplier (ITM) and international finance multiplier (IFM). ITM in essence says that if a large country economy (like America) weakens or falls, automatically its import demand to other countries will decrease, causing impact chain. The problems occur when the emerging countries such as China, Europe Union countries, even Asian countries (such as Singapore, Japan, or India) trading with US will also fall down. Of course the following impact of ITM will be suffered mostly by small countries, say for example Indonesia. On the other side, IFM is regarded as a transmission that is theoretically and historically more relevant to happen in Indonesia context. IFM will operate through a balance sheet from various financial institutions and international fund manager, investing in various countries. When the share value falls, automatically the companies will lose wealth, so as the households holding portfolios, triggering demand degradation in accord from the whole people in the world. Simultaneously, the foreign investors (remember that the foreign ownership of the company shares as a whole in Indonesia reaches 60-70 percents, while of the banking world is about 5060 percents) will choose the strategy of restructuring the allocation portfolio of insecurable assets to ascertainable assets, and will end impacting on capital outflow. Massive sales will depreciate the share price and the currency value of the deported country, ending in pressing the net value of the domestic financial institution assets. The falling asset values will force the companies to recapitalize or inject capitals

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to prevent bankruptcy or breakdown so that the fund demand to domestic economy will increase. Ironically, for Indonesia, the capital flight and demand pressures happen simultaneously with the high growth of domestic credits and the lowly increasing fund of third parties. All of these potentially create liquidity crisis pressing the interest rate upwards. The falling asset values, high capital price (and its interest rate) with the consequential liquidity crisis, can be categorized as a monetary crisis if they occur in a large scale. This will continue to stop the capital flows to real sectors (in the realm of public interest), that the economic crisis phenomena will be completed in a state. The propagation of global financial crisis hitting Indonesia and continuing effect on real sectors, is exacerbated by the vulnerable Indonesia economic structure. In industry sector, the practical capacity rate of production equipments in 1996 was still 85 percent but currently (2008) is left 50 percent, even most of them has reached critical number of 30 percent. Indeed this will affect the domestic production performance, moreover if it is related with the manufacture export performance and structure, where 68 percent of non-oil & gas Indonesia export currently are primary products. Indonesia will be crushed by China because of their manufactured products, although by low value-added and technology it will be competitive to fill the ‘holes’ of existing trade. The vulnerable national economic structure is also shown by the growing dependence of national food on imported products. To compare, in 1998 Indonesia can still produce and sell

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soybean, corn and cowmilk for domestic needs. Currently, almost 70 percent of soybean products spread in Indonesia are imported. Depending more on imported products, not only of the raw materials but also of food products will indeed contribute negatively considerably to real sector development in Indonesia. A Lesson for Indonesia The whole picture above certainly shows that it is so’easy’ to transmit the effect of a global crisis to the real sector through banking and financial systems. The crisis experience in Indonesia, both in 19831984 and 1997-1998, always starts from the falls of Money and capital markets, and not from real sector crisis. This shows that Indonesia has not any freedom to face any crisis both from outside and from inside (read : the vulnerability of domestic economy structure). The dependence is primarily triggered by the same liberalisation regime just driving a more severe socio economic crisis in the future. This is the chance for us as civil societies to drive the emergence of a systems more ideal and better for us. There are several important points to think about in defining a new Indonesia economy : (i) this financial entity can be seen conventionally anymore through common institutions because the networks have been much more sophisticated, (ii) the importance of government interference thgouth regulation creation and tightening in derivative market practices so that the new innovation that is more undercontrolled , and (iii) the government must not be afraid of returning to a protective economy for international repairing.

Indover, Exchange Reserves, and Betrayal on Indonesian Migrant Workers (TKI) More ironically, there are really money belonging to Indonesian people that is kept abroad in foreign exchange in considerable amount. How can it be that Indonesian government let trillions of rupiahs be saved abroad for speculation games in derivative financial market, while the nation face domestic reserves crisis? Whereas day by day the government (BI) is severely trying to draw money abroad to enter national economy both through direct investment and financial markets in order to build the monetary stability in the exchange reserves regime. Who is Indover?

n the last few days, we have been taken aback by mass media releases that one of Bank Indonesia (BI) subsidiary operating in Netherlands has been badly affected by the global financial crisis. The Dutch courts decided to freeze the bank operation after they failed to receive liquidation bailout security from Indonesian government. There are two things stimulating our surprise. First, not many of Indonesian publics have known that BI has any subsidiaries, because BI Law states explicitly that BI should not have any subsidiaries. Second, this incident all at once disputes our government argument that the crisis will not impact Indonesia banking and economy. It turns out that at least eight national banks, both private and state owned, have their funds stuck in Bank Indover, in turn badly influencing the sustainability of the national banks.

In the beginning, Indover Bank is the branch of De Javasche Bank (DJB) established inAmsterdam in 1891. The branch establishment referred to article 5 Oktroi VII (1891-1906). The rule determines that DJB was permitted to own a representative in Amsterdam opened in May, 15 in 1891.1 DJB itself was established in 1828, formally on 24 January, 1828 by the Decree of Commissioner General of Netherlands East Indies no. 25 certifying De Javasche Bank. At the same time, Mr. C. de Haan was inaugurated as DJB President and C.J. Smulders as DJB secretary. DJB main activity was related with agricultural trade from all over Netherlands East Indies. DJB developed to become a very wealthy bank highly considered in Europe and even in the world, facilitating Dutch government to accumulate the wealth coming from Indonesia.

1 http://www.bi.go.id/NR/rdonlyres/49790779-3745-495A-B097-156B917448CB/792/ DJBberdasarkanOktroi1sd8.pdf

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DJB was nationalized into Bank Indonesia through the Principle Law of Bank Indonesia in 1951. The nationalization was processed by Indonesian government by buying all DJB shares of 8.95 Gulden value. Next, DJB in Amsterdam was changed into Indover Bank Amsterdam (IBA) because De Nederlandse Bank (DNB) issue a regulation that any circulation banks with head offices abroad were not permitted to have any branches in Netherlands. So in 1965, DJB status was changed into an independent bank central office of NV De Indonesische Overzeese Bank Amsterdam (IBA), with 100 percent of Indover shares belonged to BI.2 In the operational beginning, this bank has only one branch office, that is in Hamburg, Germany. In 1990s, another branch was established in Hong Kong flagged as Indover Asia Limited (IAL), converted from Summa International Finance (SIF) belonging to William Soeryadjaya, an Indonesian conglomerate. In the end of 1999, combined IBA and IAL total assets achieved USD 1,991 million, most of which was owned by the Central Bank that was USD 1,033 million. They provided their funds both as credit and securities as amounted to USD 1,749 million, out of which as amount of USD 1,529 million flows into Indonesian creditor hands. Indover status should have changed since the issuance of Indonesian Law no. 23 in 1999 on Bank Indonesia, which conditioning BI to divest every subsidiaries including Indover Bank before December 2000. The law mentioned BI objective as to achieve and maintain rupiah stability. To achieve the objective, BI has tasks : a). setting and implementing the monetary policies; b). regulating and keeping solvency of the payment systems; c). regulat-

ing and controlling the banks. In relation with the above objectives, all the activities of BI are not to be executed commercially, instead more directed to Rupiah value controlling, and the national banking and payment systems maintenance. That means BI should not own any operational subsidiaries like other public or commercial banks. Filled with Scandals Bank Indover being frozen by Netherlands courtesy triggers domestic controversies. Various guess responds on the bank activities. Mass media both the newspapers and televisions highlight Indover activities, concluded as full of scandals. It seems that the bank not transparent management was meant as the bank illegal misusage of the state fund, full of corruption scandals. Even the legal status as BI subsidiary is questioned. We know that it is not BI responsibility area to conduct financial investment especially abroad and to have any subsidiaries. BI is unlawfully permitted to have any subsidiaries, much less to have business activities in derivative financial markets abroad. Not only that the asset value and profitability of Indover is questioned, but also Indover Bank was reported formally to own 737.76 million Euro assets or about Rp 11 trillion. Its profit was reported as Rp 30 billion annually while normally it has profit of 2 million Euro annually on average. This report is impressively odd because it is impossible for the bank with such big assets can earn such little profit. If only the total assets were saved in country with interest rate of 10 percent annually, they will earn profit of at least RP 1 trillion. We have reasons to suspect the report of Indover asset values. Parts of the funds managed by the corporation come from

2 http://www.perbendaharaan.go.id/perben/modul/terkini/index.php?id=737

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Indonesia as the capital flight from New Order regime corruption results. One mass media reported that the former Court of Justice, Marzuki Darusman justified there are parts of Soeharto’s foundation funding saved in the bank. Marzuki did not know the exact amount, only estimated to reach as amount of US$ 1 billion (about Rp 9 trillions). The bank was suspected to be Cendana family’s and former New Order officials’ money laundering. we guess that Indover asset value should have been much more than our government (BI) reports, considering in the crisis 1997-1998 we have so much funds outflowing from Indonesia to the bank. Marzuki admitted having wondered about it without getting adequate answering explanation due to the weak controls of Dutch government on the bank. Other than that, on 10 July 2001, BI injected a bulk of US$278 million to refund the bank liquidity, named as the pledge deposit, as the replacement fund of the expropriated credit failures. Other sources mentioned that it is suspicious that half of BI reserves exchange was appropriated in Indover and used in foreign exchange games, which profit gained was used as fund resource for the current national regime to goal their plots in the Parliament. The suspicion is highly possible also considering the illogical weakness of Dutch authority controls on this financial institution. If it is, this will be another huge scandal exacerbating our financial condition impacted by the global crisis. So we conclude there are problems of Indover law status, the suspicion that it was Cendana dynasty fund laundering and the misrepresentation of Indover asset values. Those matters are serious unlawfulness to completely tackle by Indonesian law forces and the House of Legislatives, due to its relatedness with general public live-

lihoods. Other information sources told that Indover Bank historically is the terrible corruption center. For example, the Court of Justice currently is handling a US$ 1 million corruption case with the convicts are Sidharta S.P., Roby A.S. Pamudji, and Suryo Tutuko. The last news is that the investigation process has been halted by a wellknown New Order lawful facilitation, the issuance of ‘Investigation Halt Commandment Letter’ (SP3) by the Court of Justice. However, the former Attorney General Abdul Rahman Saleh was said to be going to reopen that case. Besides, there are truly so many other cases in this bank.3 Exchange Reserves Irony Indover existence is absolutely an irony in Indonesian financial systems. In the middle of the crisis sea seizing our country, the government and BI just place bulk money abroad in foreign currencies. Indover should have placed foreign capitals to enter Indonesian economy,but it have been the ….. to…. Money from Indonesia for a small click of profit takers to gain in derivative financial markets abroad. This kind of wicked systems is contrary against the logical systems of reserves adopted by Indonesia, in which the finance stability is determined by the amount of capitals circling in and out Indonesia jurisdiction. While the currency is let to float freely determined by rupiah buying capacity. The more foreign fund entering this country to exchange with rupiah, the better rupiah position against the foreign currencies, and so otherwise. Such exchange reserves systems has driven Indonesian government to make various efforts to draw money and capitals to enter home country, starting with trying to improve the direct investment and capital inflows to the financial market, to cre-

3 http://www.majalahtrust.com/ekonomi/keuangan/792.php

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Reserve Assets Position (Millions of USD)

2008

Foreign Currency Total

Amount

Jan. Feb. Mar. Apr. May. Jun. Jul. Aug.

53418.62 54444.31 56359.99 56238.79 54929.43 56830.87 57998.26 55939.37

55998.74 57125.1 58987.3 58769.99 57464.33 59452.6 60563.47 58356.43

Foreign Currency Percentage (%) 95.39 95.31 95.55 95.69 95.59 95.59 95.76 95.86

Source : Bank Indonesia (BI), 2008 ate hot money at home country. Even the direct investment activities do often not consider the capacity of the environment, area planning and the civil living sources. Not seldom the direct investment activities cause the people set aside from their management living area.

The export of cheap labour is without not only being equipped with adequate education but also certain lawful protection. Large capacities of TKI export was expected by our government to influx huge money from abroad to home country reserves.

The attempt to draw reserves as much as possible is made by the government exporting the natural resources. All of these are meant to gain the reserves as high as possible to keep the state finance stable, although the attempt often abandons domestic necessities. The factual example we see in oil and gas, coal and mineral exports in the middle of the scarcity of national energy. Many national businesses even the State Companies suffer from gas, coal scarcity due to the main energy resources are sold abroad in order to gain reserve income.

Apart from various controversies, the expectation of TKI is realizable. Currently, around five million of Indonesia labours working abroad, in 2009 the number is estimated to increase as 700 thousand to one million persons. According to BI data, from 2003-2008, Indonesian labours have contributed the amount of Rp 167 trillion reserves, posed in rating as number two after the oil and gas sector.

Betrayals on TKI The attempt to gain reserves is not only executed through export activities on goodss but also on human, that is exactly selling abroad our labours cheaply (TKI).

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Even the reserves are pure ones. In the financial systems currently adopted by our government, this kind of reserves is clearly better than foreign debts, 70 percent of which are goodss components. Even the foreign direct investment (FDI) has 40 percent of it as capital goodss. Indonesia is Bankruptable

Freezing Indovert due to liquidity crisis has stuck the funds of several banks in Indonesia : 1). Bank Lippo Rp 50 billion, 2). Bank Mandiri Rp 337,9 billion, 3). Bank Ekonomi Raharja 19.293,8 EURO, 4). Bank BRI Rp 400 billion and a number of othWorkersâ&#x20AC;&#x2122; remittances, net Year

Period

(Value)

2004

Mar.

318

Jun.

216

Sep.

246

2005

2006

2007

Total

Dec.

144

Mar.

1,052

Jun.

969

Sep.

1,143

Dec.

1,298

Mar.

1,135

Jun.

1,105

Sep.

1,202

Dec.

1,059

Mar.

1,191

Jun.

1,166

Sep.

1,181

Dec.

1,295

Mar.

1,191

Jun.

1,166

Sep.

1,181

Dec.

1,295 19,553

Source: Statistic of Indonesian Economy and Finance (SEKI), 2008 ers such as bank Arthagraha, Bukopin, PT Bank Negara Indonesia Tbk, PT Bank CIMB Niaga, PT Bank Danamon. It is unquestionable that this condition implicates directly to the liquidity of home banks and public trust.

Indover case can trigger national financial crisis, reminding that the banks involved are main operational national banks. Besides, the capital ownership structures in national businesses are dominated much by foreign institutions both in banking, finance, direct investment and trade sectors. The foreign ownership on national banking assets reaches up to 47.03 percent, improving steadily since the crisis. For example, the public share ownership in Bank Rakyat Indonesia Tbk (BRI) are dominated by foreign investors per 31 March 2007 as amount of 37.2 percent, while the domestic investors own only 5.8 percent of BRI shares. The state debt letter (SUN) ownership of foreign parties currently is as amounted to Rp 104 trillion or about 19.5 percent.4

The foreign capital ownership in insurance business is huge, for example : Aetna International Inc (AII) ownership in PT Aetna Life Indonesia is 80 percent while other 20 percent is owned by Danamon Group (Danamon Aetnalife). The foreign ownership in PT Allianz Life Indonesia does not differ much, it is said that 90 percent shares are currently owned by Allianz Group. In the insurance sector, we can say that the national ownership is out. Besides, the foreign ownership in oil, gas, mineral and coal mining sectors are at least 85 percent of the total investment. The foreign ownership in other sectors is amounted to 75 percent in the direct investment activities. How if the directly invested foreign capitals whose majority in all the above economic sectors are drawn

4 http://www.bankdki.co.id/index.php?option=com_content&task= view&id=227&Itemid=91 5 http://perpustakaan.bappenas.go.id/pls/kliping/data_access.show_file_clp? v_filename=F21719/ Jumlah%20Bank%20Diciutkan.htm

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Stocks and Bonds Issued in The Capital Market in Billion Rupiahs Tahun 2008 Jan. Feb. Mar. Apr. May. Jun. Jul. Aug.

Saham Emiten 470 472 473 473 475 478 480 482

Lembar saham

Nilai

8,242,802,944,718 8,255,530,989,390 8,340,919,421,180 8,341,546,421,180 8,344,139,983,180 8,354,246,370,691 8,365,685,701,691 8,369,726,303,374

328,996 333,571 374,439 374,766 375,705 381,028 393,314 402,751

Obligasi Emiten 173 175 176 176 177 178 178 178

Nilai 133,915.85 137,765.85 142,715.85 142,715.85 144,315.85 145,915.85 145,915.85 145,915.85

Posisi Akhir 83,401.49 86,852.42 84,071.49 86,482.24 86,547.82 82,531.62 79,159.27 78,459.47

Sources: Statistik Bank Indonesia, Tahun 2008

simultaneously both from Indonesia stock markets, government obligations and their shares in the national banking or their assets in FDI (foreign Direct Investment)? Such processes will be automatically followed by foreign currency buy-out using rupiah, to stumble rupiah exchange rate to the lowest rate ever. The condition will move people to draw their money from the banking systems for salvage. 1997 crisis experience has told us that Indonesian people themselves save their money in dollars and even big money owners move out their money abroad. This will once more turn all the national banking down. As we know, the third party funds in July 2006 reach up to 65.3 percent of the total banking assets of Rp 1.517,1 trillion.5 The amount will keep increasing year by year, such as in Bank Mandiri as amount of 245 trillion with CAR of 17.1 percent. Other factors triggering broader crisis in Indonesia is the huge foreign debt factor, as currently amounted to USD 146,226 billion. The economic crisis at last will attack rupiah exchange rate to fall down against dollar especially. This will attack private sectors and government budgets.

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The more terrible is the huge amount of foreign ownership in financial markets. In 2007, the foreign capital ownership in capital markets is 67.34 percent of Rp 601,055 trillion. If the hot money were drawn suddenly, the huge amount of foreign currency buy-out using rupiah would turn rupiah exchange rate down. This condition will occur simultaneously with the depreciation of national company assets and the loss of national banking liquidity capability. The implication is that the government will lose much financial sources, including due to the bursting foreign debts. Besides, the government will fail in setting the state budget assumptions related with : 1). The State Obligation Certificate, 2). Rupiah exchange rate to dollar, 3) inflation rate. The amount of the state expenditure will be so difficult to set. Not to mention if the government were forced to bail out the bankrupt banks, they would not have financial resources for that. Such turmoil will not only imply economically but also politically. Public will be panic, initially they will rush to withdraw their money from the banks and shift it to some trustworthy currency. Such situation will be more severe than 1997 crisis causing Soeharto resigning from his power. By: Salamuddin Daeng (Researcher â&#x20AC;&#x201C; Institute for Global Justice)

IGJ STATEMENT Related with GLOBAL CRISIS 2008 â&#x20AC;&#x153;The Global Financial Crisis is the momentum for radical correction on the national financial systems, economic systems and investment policies in Indonesiaâ&#x20AC;?

he global capitalist regime led by Transnational Corporation (TNC) and Multinational Corporation (MNC) turns out not to be able to control the economic turmoil due to their own actions. The exploitation,

speculation and accumulation have born the crisis attacking the heart of capitalism (financial sector), creating domino effect to all of the economic sectors and hitting harder the poor country economy including of Indonesia. Before, a range of free trade policies have been made through a developed country forum (G7) and WTO, as the source of sucking the developing countries. They force policies managed by debt pressures from WB and IMF, the officers in charge of driving deregulations, privatization, liberalization of trade and finance,1 to wipe off the state role and the national business capacity of poor countries to develop. We realize that the financial liberalization has triggered the very

1 the financial liberalization cover six aspects as follows : (a) interest rate deregulation; (b) credit control inexistence; (c) privatization of the state-owned financial institutions and banks; (d) inhibition inexistence for the private financial institutions or banks, including foreigners, ot enter the domestic financial market; (e) the introduction of the market-based monetary controlling tools; and (f) capital balance sheet liberalization. See http://www.ekonomikerakyatan.ugm.ac.id/My%20Web/ sembul40.htm

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destructive financial capitalism mess. Public awareness is improved that this is an economic criminality when the crisis hits US economy since the beginning of 2007. The crisis starts when the communities are forced through deceiving campaign, to drive the propensity to consume as the economic growth strategy. The people of developed countries especially US are forced to live in the swelling debts, big shopping by credit cards, debts, getting low-valued mortgage credits without any guarantee and all forms of consumerism going out of income capacity earned by the communities. As a result, happens what is called as subprime mortgage crisis, the financial institutions giving out mortgage credit facilities go bankrupt due to liquidity loss. The corporation notes to the mortgage creditors have been given to creditor institutions as collaterals. A money mobilization practice that causes the corporation is stated as bankrupt by the court, to close due to be insolvent to pay its due debts simultaneously. The financial giant Bear stern is bailout in the middle of march 2007. Howeer that action can not save US economy. The subprime mortgage crisis creeps and creates credit default on the On the financial institutions and investment brokers. Fredie Mac and Fannie Mae, the two mortgage players are responsible for mortgage credits of values estimated reaching the number of USD 5.3 trillion.

The collapse of the giant financial corporation creates bad domino effect attacking derivative financial market2 both the stock market and money market. The world main financial market falls off, the corporation share prices in the market drops sharply. The financial market Wall street wellknown by the world as the symbol of capitalistic economy invulnerability so far, drops powerlessly. Big names such as Lehman brothers, American International Group (AIG), Merril Lynch and Goldman Sach fall off. The market practitioners, giant speculators festively save their assets by releasing them from the foremost markets in the world. September 2008 will be marked in history. The crisis has paralyzed the heart of capitalism that is banking and financial institutions. Sooner or later, the crisis fluctuation shock will steadily clear away the real sector and soon hit the whole world economy including the countries in Asia, especially the countries adopting free market principles in running their economies. Knowing that the crisis is incurable by free market instruments, shamelessly the market liberalization supporters shout festively for help to the state. The government is asked to interfere and run salvage actions, in order to defend the bankrupt financial institutions, both by direct injection to the banking industries or doing bailouts to the corporation assets. Whereas before,

2 Through the derivative financial markets, various forms of financial transaction engineering are created in order to increase capital accumulation. So happens what is called as bubble economy, in which the evaluation on assets and money that the corporations trade on, is not more based on the real value but on the future expected value. When the expectation lose, at a glance the asset values are depreciated to the lowest rate. While simultaneously, the corporations use the assets as debt collaterals.

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the market fundamentalists have refused any state interference forms in economy both by regulation, subsidy and protection. Instead now they are begging the stateâ&#x20AC;&#x2122;s help. The developed countries so far promoting market liberation including financial sector liberation are not ready to be embarrassed so they immediately interfere. Federal government allocates at least USD 700 billion, while Bank of England provides 200 billion pounds or USD 351 billion as short-term loan to liquidate.3 Bank of Japan adds one trillion yen (Rp 80 trillion) to rise motivation in its financial market in as much to prevent the rail of economic recession from US. BOJ applies the liquidation policy for the twelfth time in 2008 to Tokyo money market,4 to shallow the crisis effect without significant result. The crisis spreads to whole the earth, affecting potentially the deepest on Indonesia. Besides of 1997 crisis effects not healed, Indonesian economy relies heavily on external factors (foreign capital). Almost all economic sectors in Indonesia are dominated by foreigners both in real sectors and financial markets. in the financial market, the foreign penetration capability reaches out the level of 67.34 percent with asset capitalization value in the stock market as amounted to Rp 601,06 trillion.5 In banking sector, foreign ownership has reached more than 47 percent. If the hot money in the financial market and the foreign capital in those banks are withdrawn suddenly, the foreign currency bulk purchase using rupiah

will push rupiah rate fatally down. This condition will directly hit the national banking and even other non-bank corporations. Besides, our economy and poverty will be exacerbated too. Moreover, the economic salvage plan will consume our people money (the State Company gains, state reserves and foreign debts) to save the bankrupt corporations. Furthermore, the neo-liberalist supporters in the home country that have urged the state companies to privatize, now instead ask weirdly the companies to buy back their shares in Indonesia Stock Exchange. If the crisis steadily spreads out, the state will once more bear the obligations of the banking and private sectors risky of downfall. This policy will inflict the financial loss upon the people, whereas the state still bears the payment of the interest of banking recapitalization debt as the crisis hit in 1997. In the reserve shortages, economy difficulties, and the state budget high deficit, Indonesian government turns once more to foreign fund resources as the crisis solution. And our people and state once more will bear the risk of sufferance due to the arbitrary attitudes of the minority in the state administrators, a small number of capital owners and bureaucrats. Therefore, this is the exact time for us to urge this state administrators to fundamentally correct the comprehensive Indonesian economy. The totally goods boy to Neoliberalists has to be broken down becaue Neo-

3 http://www.detikfinance.com/read/200...-besar-besaran. Tokyo (ANTARA News) -. 4 See http://www.antara.co.id/arc/2008/10/2/boj-tambah-dana-ke-pasar-capai-setriliun-yen/. 5 Wednesday, 25 July 2007 | 18:20 WIB, TEMPO Interaktif, Jakarta

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liberalism has proved to totally fail out and bring economic disaster to Indonesia. a decade since 1997/1998 crisis, Indonesia economy still adopt financial market and reserves systems keeping it in vulnerable and flair states. To save Indonesia from the global financial downfall, we have to massively dismantle economic and financial systems. The National Labour, social and peasant movements have to re-urge the government to correct radically our economic, financial systems and investment policies through : 1. Tigh regulation on all the speculation activities, both in stock markets and money changers to limit hot money in and out flows; and setting high tax tarrif on all forms of speculation activities in stock, commodity and money markets. In the future, all products of speculative finance, including monetized games in food commodity, and hedge fund should be forbidden. 2. Stop the foreign exchange reserves systems, clean up the monetary and financial systems, and revitalize BI role to stand for civil

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economy. Financial and monetary systems should be dedicated to civil economy, small farming and poverty eradication. 3. Limit the foreign domination in strategic economic sectors in home country, drive to regain control of the state over oil and gas, energy, mineral resources, and the state command over the essential production branches concerning public livelihood requirements. 4. Subsidy increase, especially in energy and expand the national economy protection as a strategy to strengthen the real sector, national industrialization and civil economy development. 5. Refuse to abuse civil money for fund injection to crisis affected banks and refuse bailouts to corporation in bankruptcy. 6. Use this crisis momentum to turn back to the economy as a whole consistently complying to the mandates of articles 33 and 34 of the Constitution 1945, that is non-capitalistic economy refusing neo-liberalism based on economic democracy and cooperativeness.

National Update :: De-Industrialization

Self-Industry Eviction Being Self-Reliance: Could it Be? Industrialization: â&#x20AC;&#x153;What and How Indonesia isâ&#x20AC;? To Break the Economy Inherited by the Colonial To End the Stagnancy through National Industrialization The State Gas Company Abundantly Lucrative among Mass Queue on Gas Deregulation Package Policy Series 1983-1995 Related with Indonesia Industrialization

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Self-Industry Eviction The current mess of national economic condition is not literal occasion, not only due to monetary crisis in 1997 or global financial crisis in 2008. Indonesia economic bankruptcy sources from vulnerable economic structure and industrialization that is inherited from colonials and continued by New Orde regime and its successors. Various prevailing laws that are inherited from colonials create an economic structure dedicative to foreign capitals and become the root of problem of the weak national economic capability and small-scale economy. Domestic economic activities are seen from the sectional and territorial viewpoint, consisting of fragmented business managed individually without being integrated to one another. Such picture can be seen easily in business activities in primary sectors like mineral mine, plantation, fishery without their supporting industries. We have never had any mine sources processed downstream to the end of mine operation. Plantation products are exported at raw stages, small-middle scale entrepreneurships grow wildly without any strong relationship with large entrepreneurships. Meanwhile, the existing industries are continuously hit by the state policies that never take side with the people. the fertilizer industry breaks because of bad energy policies that do not take side with national interest. The fertilizer industry unimaginably suffers from gas scarcity while simultaneously Indonesia ranks as the big ten LPG and natural gas exporters. Steel and iron industries do not grow as fast as mineral and coal mine exploitations. Textile industry is crushed by fuel price hike policy and trade liberalization. The industries having most of the people work in, are slowly broken by pro-market governmental policies. Expensive domestic economic cost and pro-free trade policies accelerate the national industry bankruptcy and incite unilateral dismissal here and there. Instead of being responsible for them, the government neglects the problems by issuing Four Minister Joint Decree as a practice to surrender the industrial and labour problems to the market mechanism that will surely put the risk of financial loss to the laboursâ&#x20AC;&#x2122; side and profit to the business capitals. Acting like a drunkard, in the middle of economic crisis our government practice devide et impera for the laboursâ&#x20AC;&#x2122; cost. The government should have learnt from other (developed) countries which in the middle of global crisis gale, strengthen their economic planning, improve the state controls through various tight economic regulations, make policies that protect their industrial economy, and broaden social security for their people. otherwise, Indonesian government just issues policies attacking domestic industries and economy in one package with impoverishment of labours, peasants and the poor. Editor

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Being Self-Reliance ; Could It Be? “Stop being a porter nation, be self-reliant.” so is the slogan often expressed by prodemocracy activits, in various seminar, discussion forums and even written on pamphlets while down-street actions responding current Indonesia crisis. A reasonable call, seeing the nation capacity, especially in terms of natural resource wealth which is curbed by the foreign capitals.

n plain view, we see that Indonesia1 is a rich country. The country has about 17,504 large and small islands, with an area of up to 1,904 million km2. Indonesian waters extend along 81,000 km between Indische (Hindia) ocean and Pacific ocean. The world compares this country as the pearl string of the equator. It supplies the prerequisites for the breeding for plants and animals. They all make Indonesia as an area with the third widest tropical forest in the world. The forest covers more than 101 million hectares with the most complete flora wealth in the world. Besides, Indonesia waters are rich of diverse sea livings. Its coral reefs equip the beauty of the islands traversing Sabang to Merauke. Indonesia land fertility is the main producer of essential commodity in the world. It is recorded that this country is the 6th biggest ore producer, 6th biggest tea producer, the 4th coffee producer, the 3rd cocoa producer, the 2nd CPO producer, white pepper no

1, black pepper no 2; spices no 1, the 2nd natural rubber producer, the 4th synthetic rubber producer, the 1st timber producer, the 6th fish producer in the world.2 Not only is fertile its earth surface, where plants and animal breed and grow, but also Indonesia earth bowel contains abundant wealth, both oil, gas, coal and various types of mines. By and large, the natural resources are the commodities of important position for the world trade, commerce and economy at present. In oil and gas sector, Indonesia is included in the big 20 oil producer countries in the world (54.8 million tons, 2005).3 In 2005, Indonesia is the biggest natural gas producer compared with every countries throughout Asia Oceania and Africa (2,606 Trillion Cubic Feet), and is included in the ten biggest gas producers in the world (Russia, US, Canada, Iran, Algeria, UK, Norway, Montenegro, Netherlands,

1 Indonesia is located on the coordinate of 6°LU - 11°LS and 97° - 141°BT and between the two continents of Asia and Australia/Oseania. Indonesia comprises 5 big islands, that are Java with 132.107 km² area, Sumatra of 473.606 km² wide, Kalimantan with 539.460 km² area, Sulawesi with area of 189.216 km², and Papua of 421.981 km² area. http://id.wikipedia.org/wiki/Indonesia 2 World in Figure 2003, The Economist,USA, http://km.itb.ac.id, Arah Teknologi Kita,26/06/2006)

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Indonesia). Other data mention that in 2008, Indonesia is on the big seven gas exporters in the world (1. Russia 182 billion cubic meters (14.7% of estimated total world exports), 2. Canada 101.9 billion cubic meters (8.2%), 3. Norway 78.1 billion cubic meters (6.3%), 4. Algeria 62.6 billion cubic meters (5%), 5. Turkmenistan 58 billion cubic meters (4.7%), 6. Netherlands 50.2 billion cubic meters (4%), 7. Indonesia 29.6 billion cubic meters (2.4%), 8. Malaysia 29.1 billion cubic meters (2.3%), 9. Qatar 26 billion cubic meters (2.1%), 10. Trinidad and Tobago 21 billion cubic meters (1.7%).4 Our oil wealth has been exploited for more than 100 years. Telaga Said mining is the first oil mining found in Indonesia in 18855, then exploited by a British & Dutch-owned company of Royal Dutch6 operating since 1892, all at once initiated the history of the beginning of the oil and gas resource exploration in Indonesia. Then in 1944, Minas oil well was found by Caltex7 in Riau, was the biggest well in the Southeast Asia then.8 Nevertheless, Indonesia natural oil resource is still

largely available so continuously be preyed by the big world corporations. Other than that, Indonesia has about 60 oil basins, 38 among them have been explored, while we still have the rest. There we have incredible energy resources, achieving about 77 billion barrels of oil and 332 Trillion Cubic Feet (TCF) gas. While the production capacity in 2000 was just 0,48 billion barrels of oil and 2,26 TCF gas.9 Indonesia is also the main power in supplying other energy sources for the world. The country is included in the big ten coal producer in the world, even we are the 7th of 10 coal producers. The difference is that all the other coal producer countries above Indonesia have used up maximally their energy resources to meet their domestic energy demands. Indonesia is the second biggest coal exporter in the world after Australia, higher than China, US and Russia. Most of Indonesian export are absorbed by the industrial countries such as Japan (25 percents of total export)10 and other industrial countries to meet their energy demand. Japan is the biggest coal importer in the world, mostly

3 British Geological Survey. 2002-2006 4 http://import-export.suite101.com/article.cfm/leading_natural_gas_ exporters 5 In 1885 for the first time, oil can be produced commercially in Telaga Tunggal-1 well, Northern Sumatera. The concession area is formally called as Telaga Said. 6 Royal Dutch Shell plc is a main energy company, one of the big four oil and gas private company in the world (together with BP, ExxonMobil, and Total. Shell also has a rather considerable petrochemical business, Shell Chemicals and renewable energy sector developing wind and solar energy. The company headquarters is in Den Haag, Netherlands and its legal headquarters is in London, Great Britain.. 7 Caltex is an oil company from the United States, a joint venture company between Texaco and Chevron, the biggest oil producer in Indonesia with production of 690.000 barrels daily. 8 TIFA Foundation, a study result about Extractive Economy Transparency in Indonesia” on 12 July 2005. 9 Liberalisasi Sektor Migas Indonesia,by Hady Sutjipto, S.E., M.Si. Senin, 18 Juli 2005, from the writing of Dr. Kurtubi “The impact of oil industry liberalization on the efficiency of petroleum fuels supply for the domestic market in Indonesia,”, head office Pertamina and Pusat Kajian Minyak dan Energi.

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from Indonesia. Not only that, Indonesia has even since long ago known as a country rich of mining materials. Our mineral resource is the most prominent in the world and the main several mineral producers. A survey institution recorded that in 2005, Indonesia produced bauxite as the big 7th of the world (7 million tones), 2nd copper producer (1.06 million tones), the 6th in gold (143,205,000 kilogrammes), the 3rd nickel producer (150,000 tones), the 11th in silver production ( 328,700 kilogram). 11 Indonesia is the second biggest tin producer in the world after China12, the tin production is 110,000 tones per year or one third of the world total production. The tin sedimentation in Indonesia is continued from one of the richest tin track in the world, traversing from South China, Myanmar, Thailand, Malaysia, to Indonesia. In Indonesia, the tin belt covers the islands of Karimun, Kundur, Singkep, Bangka Belitung, Beling, and Bangkinang area

plus the Islands of Anambas, Natuna and Karimata (Noer, 1998). The biggest timah mine is on the islands of Bangka, Belitung, and Singkep (PT. Timah Tbk, 2006).13 That Indonesia is rich of mining sources, both oil gas and minerals have been the conclusion of every elements. A global movement to promote transparency in extractive industry sector, EITI (Extractive Industry Transparency Initiative) criteria, mentioned that Indonesia is one of the Resource Rich having strategic position in the world trade. The above description shows us that Indonesia has immerse capability to sustain itself, without any needs to rely on other nations. Even if the natural resources are not sold out cheaply to the foreign capitalists, but used properly as the capital for the people economic development and industrialization, then it has been so easy for Indonesia to be self-reliant.

10 http://www.worldcoal.org/pages/content/index.asp?PageID=188 11 British Geological Survey, 2008 12 Starting with the establishment of a Billiton company (Billiton Maatschappij) in the beginning of 1852 on Belitung Island. Prince of Hendrik, a younger brother of King of William III, a Dutch Royal family, played an important role in smoothing the way to obtain the concession permission for 40 years to exploit the tin in Belitung. Actually the Dutch colonial government had beforehand issued a regulation to close any mining exploitation in regions outside Java from the private companies. Data was taken from Jaringan Advokasi Tambang (Jatam) website, 2006. 13 http://www.ubb.ac.id/menulengkap.php?judul=PEMANFAATAN%20LAHAN%20 PASCA%20 TAMBANG%20TIMAH&&nomorurut_artikel=54

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Industrialization : “What and How Indonesia is”1 Indonesia has moved towards deindustrialization before reaching the industrialization stage. This means Indonesia is going through negative deindustrialization. So as said by Prof. Dr. Ine Minara Ruky, the Indonesia University (UI) Economic Faculty lecturer, in a Economic Justice Forum FGD held by Institute for Global justice, 10/12/2008 The discussion with theme of “Industrialization, investment and Labour in Indonesia : an Attempt to Find Alternatives” is part of a range of research by IGJ on heterodox economy. Prof. Minara elaborately explains that industrialization started from the theory base until the practice in Indonesia. According to her, so many misinterpretation in defining industrialization, such as

it is like building an industry. Whereas the industrialization concept is social economic change, where the people was transformed from the stage of preindustry where the percapita income is lowly accumulated, to industrialization stage. So, the industrialization is not only economic transformation but also social transformation. The economic and social changes are related with the technological findings,especially energy production development in large scale and metalurgy (steel and iron). The industrialization growth of a country is measureable from how the steel and iron industry contribute to the total industry. The industrial structures get stronger, signaled by the contribution of iron and metal industry getting larger than the other industrial contribution towards the total industry. Industrialization in Indonesia In economics, industrialization is a condition signaled by industrial sector getting more important in the

1 Summarized by Salamuddin Daeng, Program Officer Institute for Global Justice - IGJ

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economy. To get that point, look into the production structure in GDP that contains economic sectors contributing the economy, including industrial sector. Industrial sector contributes to GDP significantly and shows improvement in the last 27 years. It explains that there is change in economic structure, that is the increasing industrial sector and decreasing agricultural sector contribution. From that aspect only we can conclude that Indonesia is industrialized. However it is not enough, we have to see further how the industrial and other sectors especially agricultural really are.

and the increasing usages of machineries in agricultures improving the agricultural activities and food supply for urbans. The successful industrialization can not be seen only from the economic sector, or the agricultural sector contribution to GDP or per capita income or productivity only, but also from whether there is philosophical change in the community or behaviour change in the transaction. In a country, traditional norms are still strong to hinder the efficient transactions. For example, when the community still restricts women ability to work in factories, or other discrimination forms towards

PDB SEKTORAL TAHUN 1980 AGR

11%

25%

MINING MANUF LGA CONS THR

16% 5% 0%

18% 13%

TRANS BANK SERV

In a country, an industrialization is said to be successful if the community is transformed too, from agricultural community to industrial community. Throughout the industrialization process, the people per capita income increases and productivity improves. So observing industrialization, it is not enough to see only from the agricultural contribution to the economy, but also from the per capita income and productivity. Besides, other industrialization characteristics are urbanization of people from villages to towns, activity shifts from household to factory production

certain groups, the industrialization will go slower. Citing the opinions of the three Berkeley University researchers, Edward Miguel, Paul Gertler, David I. Levine, June 2002, that the industrialization in Indonesia starts from the first to fifth Five Year Development Planning (Repelita I-V). Indonesian economy is planned and built through industrialization. Until 1990s, the industrialization is recognized by the world. The three Berkeley researchers conclude that the industrialization in Indonesia is designed by setting the ideology that â&#x20AC;&#x153;the government is the

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driver of community groupsâ&#x20AC;? and â&#x20AC;&#x153; traditional cooperativeness â&#x20AC;&#x153;. However, according to the three researchers, cooperativeness or collective actions, do not drive industrial growth. In its process, the individual actions are just more dominant. While, the local industrialization leads to social capital reduction. The group characteristics which is helping one another, and the communal care are the social capital in a country that is just scraped down. They show also that the industrialization is destructive more to the community, especially to the villagers. While local industrialization leads to social capital reduction. The statement adds the credibility on the opinion that the industrialization sometimes socially destructive, and there is possibility that the industrialization has side-effect on the villagers, opening the way towards the social unrest in Indonesia. The erosion of cohesive forces that beforehand united the villagers causes criminality, violence, and unrest among the fired workers returning to their villages in the Java island interior during and after Asian Financial Crisis in 1998 causing the social instability in Indonesia (Breman, 2001). The forces that have joined the villagers, so closely in cooperativeness et al are eroded that generally the communities of iNdonesia has been contaminated by violence, unrest et al. The industrialization in cities fails causing dismissal. The villagers having migrated to the cities are working back in the villages, being disappointed that turn out to be social instability. Ine Minara reminded that the indus-

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trialization running well can stimulate the economic growth as a whole. From the condition we see now, the increasing roles of industrial and other sectors in GDP are followed by decreasing role of agricultural sector and its quality, productivity, not to supply the urban food needs. So the industrialization is said to fail. If the food productivity is low and does not meet food necessity, that it can be fulfilled by depending on import, absolutely it causes low or unqualified growth. If a country imports its foods to fulfill the people needs, the per capita income having increased of industrialization will be sucked out of the country. So we have multiplier effect out there, not in the economy area in the country. The income and productivity increases are just used to defray the agricultural import. Successful industrialization requires significant increase of agricultural productivity. A big mistake of Indonesian industrialization is that we leave the agricultural sector behind so the agricultural productivity is low. Conceptually it is said that industrial development is supported by agricultural development. Although we have once rice self-sufficiency, but the policy to self- suffice the rice has excess to victimize many things. Agricultural sector grows unstably and agricultural production is not enough to supply the food necessities. Besides, agricultural results other than rice needed by the industrial sector are still imported such as soybeans, corns and so on. On the other side, Indonesian agricultural products as the commodities of CPO, cocoa are still exported in raw or unprocessed form.

From the industrialization side, it is a setback. Developed industrialization requires processed food exports. What Indonesia has now is similar to the condition at VOC age. The Dutch corporation is very rich by selling spice commodities and other agricultural products. The commodity price rise before global crisis induces conclusion that the agricultural sector improves especially export. Actually it is an industrially setback. The condition in an industrialization is that agricultural productivity is high, market functions and the government is stable. Industrialization is an economic development stressing on the industrial development in stages and continuously coupled with consistent policies at each stage, to achieve higher goals in the long term. If such industrialization succeeds, a country will get strong foundation, to arrive at the stage of take-off. Although many countries like Britain does not go through the stage of take-off, but in its industrialization it is established and continuous. When the industries have been established, it can shift to other sectors. When the other sectors grow and in GDP industrial sector decrease while other sector role increase, we can say it is de-industrialization, but the positive one. Industrialization is a long â&#x20AC;&#x201C;term process which can not be leapt over. A big mistake when a government is overoptimistic, jumping far over to build an industry but actually it can not support the industry economically and socially, such as by the education, skill, prevailing values, philosophy, and so on. Compelling to build such industries needs continuous protection that

will not make the industries strong. For example when iNdonesia undertakes Repelita stages, one time iNdonesia jumps up by building aircraft industry, while then we are not strong enough to support it. In the initial stage, the main point is we can not leave the agricultural sector behind. If not, we experience quasi- industrialization. We will not have firm economy, stable government and goods macro economic environment and without supporting long-term strategy. Indonesia Gets Out of Track One of the theoretical approach states that the industrialization can be done through catch-up growth. The countries doing industrialization lately such as Eastern and Southeast Asians, can imitate the industrialization in the developed countries. Indonesia imitates the technologies of the developed industrialized countries. That way makes us possible to develop our economy to catch up with the developed countries. BUT WHY are there countries lately industrialized and failed, like iNdonesia? A Russia researcher, Alexander Gerschenkron, states several characteristics of countries that do industrialization lately : (1). Speed and incredible growth (Indonesia has once grown by 40%), (2). The stress is on work-inprocess, not consumption goodss, (3). Stress on big-scale factories, (4). Depending on lent technologies and possibly the foreign financial aids, (5) government importance as the industrial development promoter, (6). Inexistence of ideology supporting the industrialization and (7). Passive roles of agricultural sector

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When Korea does industrialization and starts to leave agricultural sector, it realizes and returns to manage the agricultural sector back to the process track, the industrialization while strengthening agricultural sector. Taiwan is very successful from the beginning, the country does not meet difficulties in the transformation and developing the agriculture, especially related with land reform as their precondition. Other countries do industrialization lately and get out of the industrialization rail like Indonesia since 1990s, when Indonesia stresses more on trade liberation and its industrial policy stressed more on trade policy rather than industrial policy. So the social precondition is not met that it can not catch up. We need adequate social ability to catch up, that is the community has to be advanced enough to adjust the technology from the developed countries. Besides, the social potentials can not be used of. Thus in the industrialization, human resource investment is very important, furthermore it can create the linkage between the education and industry together with the philosophical change and perceptions supporting the development. The inadequate industrialization precondition makes the catching-up power of the underdeveloped countries like Indonesia will be crippled and stagnate. So what occurs is the otherwise de-industrialization. It is not only signaled by several company bankruptcies or sporadic dismissals, but also by the industry becoming less important in the economy, that the industrial contributor in the long-term

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economy delines and there are permanent characteristics in the long-term. For example, in several years continuously the industrial contribution is declining to GDP. During consecutive three years from 2004 to 2006, the condition was signaled by the mean economic growth of 6.7% but the industrial growth tending to decline continuously under 6%. In the crisis, the industrial contraction is very high of 10.32 %. While in 20022003 it increases and back declines in the following year, besides the declining human power absorption. During 1980-2007, the human power proportion contributes under 13 percent to the total human resource absorption only in certain years, and year by year there is not improvement in the capability of all the industrial subsectors to the human resource absorption. It can be clearly seen that there is only the capital-intensive industry by relatively low human resource absorption. Besides, GDP elasticity to the human resource absorption indicates unqualified growth. The elasticity counts how much the percentage increase of GDP to the human resource absorption increase. Before the crisis hits Indonesia, every one percent of GDP growth cause 0.43 percent change in the human resource absorption. But after the economic crisis, every 1 percent of GDP increase results only in 0.2 percent of huma resource absorption. This means that GDP elasticity to the human resource gets smaller indicating that the technology used in the industrial production process put aside the human resource. So we have to be careful with the statement that to have more human power

in handling the unemployment, we can stimulate the economic growth. The fact shows that human resource absorption in Indonesia is not influenced by the economic growth. Any economic growth does not automatically cause the declining unemployment. If the production technology in the industry does not change, high economic development can not be expected to absorb the large unemployment. De-industrialization in Indonesia Currently, in general Indonesia does not show the signs of industrialization. The industrial sector is counted as failing to stimulate the economic growth and sustainable development. This causes disoptimal economic and social development results. When the reformation happens, Indonesia gets out of the industrialization rail and the industrialization stops. We can conclude that Indonesian industrialization has not succeeded while at the same time Indonesia has de-industrialized, the negative one. In negative de-industrialization, the industrial sector contribution decreases and the unemployment is high. De-industrialization can be positive and negative. It can be a proses of industrialization. If the manufacture contributes to total employment and output in declining state, but without the fall of employment or output rates of the manufacturing correlated with high production, growth and without unemployment, it is positive de-industrialization. Meanwhile, negative de-industrialization can also be signaled by the human power shift partly or absolutely out of the manufacturing into agriculture,

shift of human power from formal to informal sectors. Citing Lewisâ&#x20AC;&#x2122; opinion, when we want to industrialize, the workers have to increase production in food sector, repair paid and income rates and broaden the market for the industri and widen the way to industrialization. Besides, domestic industries can get domestic market as a result of higher income from the agricultural workers. Thatâ&#x20AC;&#x2122;s why the industrialization must not leave agriculture. Indonesian de-industrialization characteristics are signaled by : (1) menpower absorption number. Industry is the least in absorbing menpower compared with other sectors. From 1980 to 2007, Indonesian menpower with age above 10 years absorbed by the sector is not more than 13 million people. (2) the fluctuation of growth movement has no pattern since 1980. The peak is in 2004 of 6.38 percent, but in the three consecutive years, the growth number are continuously sinking. (3) since 2005, the manufacturing added-value to GDP are declining. Sectoral data analysis on the four-column Indonesia Input-Output Table conducted by Hayashi (2005), sows that output proportion of agricultural result processing industry (including fishery and forestry) in the output total between 1995-2000, gets smaller (4) Non oil and gas export composition in 2003-2007 also shows setback in industrial sector. Processing industry export-oriented result is smaller. â&#x20AC;?Indonesia just shows the character-

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istics of a country is in negative deindustrialization process before it succeeds in industrializationâ&#x20AC;?. The declining Indonesia economic growth accompanied with high unemployment rate strengthens the conclusion. To compare with neighbouring countries in Eastern Asia, according to Hayashi (2005), Indonesian industrialization seems to move backwards. Besides, other industrialization success measurement is the economic social measurement, shows GDP growth speed does not measure the living quality standard which should be better by the industrialization success. The better index to review the development result and a national welfare is the Index of Sustainable Economic Welfare (ISEW) or Human Development Index (HDI). Seen from HDI, Indonesia are also not included in the successful countries, and on average it is still under ASEAN member countries. Re-industrialization by the State as a Solution Observing current Indonesian condition, Prof. Ine Minara states that reindustrialization is a solution to get out of low equilibrium trap. Industrial development is the solution for economic and social problems. The industrial development is a development agent so it is accompanied by changes giving benefits to improve the national welfare.

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Industrialization investment is stressed not only to build factories, but the factories and the built sectors have to strengthen one another. The development stages must be clear and measureable, accompanied by consistent policy. Besides, the decision is related with the production ways, locations, and how the distribution results are not wholly given to the market. However, it does not mean that all investments are under the governmentâ&#x20AC;&#x2122;s control. It is not a choice. According to INe Minara, re-industrialization has to be coordinated through the state role and needs control of the central government. So in decentralization context, we need to develop the communication give at regional area, at the levels of provincial, municipality and regency. We need not the centralized coordination at the governmental level, but the strategic coordination among government at every sectors and levels. A State role is something different from giving the economy to market mechanism. Market will be a trap for industrialization if we have no regulations. This is because a market can not regulate itself, so the governmental intervention is needed to correct the market failure. The elimination of the state as an explicit actor is a fundamental mistake in the arguments of the developmental theory experts.

To Break the Economy Inherited by the Colonial

he economists described current Indonesian economic crisis as the vicious circle : low income, low growth, low capitalization, weak human resources, low technology, low paid, back to the low income. All forms an unending vicious circle accompanying Indonesian economic stagnancy. The country economy will keep being at the underdeveloped state and the worsening condition day by day. Lately, the economy gets more dependent on the informal sector. The formal economic sector is in a mess. the industries which is not so many go bankrupt, not only due to being hit by the crisis but also not having strong foundation. In addition, the high cost economy caused by fuel and electricity cost rises, infrastructural destruction especially trans-

portation, corruption cause the national economy does not have competitiveness against the foreign efforts. While at the same time the government is active in promoting the free market by eliminating subsidy protection, tariff accelerating the national economy bankruptcy process. In a crisis, the informal sector becomes the last bumper to hold that the economic crisis from spreadout. The workers dismissed even the businessmen

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in formal sector move to informal sectors by force because can not face the domestic and foreign economic pressures. At a glimpse we have no problem with such problems, but by further review we find it is such dangerous. The state economy fails to develop, the state fails to build strong economic structure, the production activity is not well consolidated in a strong production organization. There are missing links among one sector and another moving individually and gradually slower. One of the important parts making Indonesian economy movement not optimal is that there are no any industrializations running as a development machine and the economic growth that is able to progressively move the economy, the industry consolidating the whole production sectors in a sustainable production work. Such phenomenon is called in a term of de-industrialization, that is a state where the production activity does not depend on the strong and integrated production organization so it loses its ability to give production added value on the present production sources. The condition causes big resources entering the market and trade especially foreign trade in their raw forms, crude oil, mine coal and unprocessed CPO, latex and many agricultural, plantation and forestry products of Indonesia. Most of the people are not integrated in the export production activities of the state economy main products. While the production activity of majority of the people is on the less main sectors, tending to be production activity worked subsystematically and their production results not entering the factories producing economic added values. Rice, sweet potato, corn, crops ending in the kitchen without any manufacturing process. Gold, metal, tin, bauxite, gas, crude

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oil, CPO end only as the profit for the giant exporters and brokers. On the other globe side, on the southern neighbours, their economy has entered the much better industrialization. How the condition can be, why in this country we have not grown any manufacturers, processing machines, industrialized agro-products accompanied with the researches in order to improve the technology and develop the expertise in order to product. A not goods condition for Indonesia and its people, but it is goods for developed countries getting natural resources from Indonesia. a condition is to change by first understanding the economic history and practices. Thus we can find the main problems from the economy stagnancy and the concrete solution. To Halt the Colonial Investment Model The current Indonesian economic practices, especially that is related with mining resource exploitation, is not different from the natural resource exploitation practices in colonial era. Then we are spice exporter, and agricultural sources under the exploitation of VOC corporation. Now we export gas oil and mineral under the oligopoly of foreign corporations, Newmont, Freeport, Exxon, Chevron et al. along the history both in the colonial era and at the moment, Indonesian export is always higher than import.but all is raw material exports done by foreign companies investing in Indonesia. What differs is the colonial practices nowadays are executed through foreign direct investment flowing from the rich countries and orientating to natural resource exploitation. The tend to such investment are mostly caused by high demand on primary products in the developed industrial countries. The primary products consist of mineral, foods and energy sources. Market demand on the

primary products is the main motivator of the high investment interest. Such foreign investments tend to centralize themselves to the industries working for the export of the intended raw materials or primary sources. The investment flows to the lowincome countries in the form of direct investment for export destination and little of it is planted in the production industries for domestic market. Such phenomenon has gone on for long, called as the traditional foreign investment pattern. Since the 19th century, the private investment abroad tends to get far from the industries working for domestic market in developing areas. Instead, they focus on primary production for export to developed industrial centres. Such investment seems real from British investment in the nineteenth century. That also becomes the main characteristics of US investment in 19201. Bonnie Setiawan explains that investment in the beginning is an activitiy related with trade in the colonial regime. Investment from a country to another country in the past is possible only in colonialism domain. In pre-colonial era, the goodss are traded from country to country. By colonialism, it is not only goodss barter, but also productive capital investment is made possible. Therefore, the investment history is always related with what is called as â&#x20AC;&#x2DC;colonial investmentâ&#x20AC;&#x2122;, that is about two things : (1) the old investment to exploit the natural and agricultural resources; (2) new investment to control the local market, cheap labor and raw material controls to be competitive in the international market. In the colonialism era, both things

are secured, meaning that the colonies will always receive various exploitative dominative investments from its colonizer countries (maximal economic surplus suction). By de-colonization, the investment relationship becomes a little different, but still in the same narrow-mindedness. Colonial investment changes into neo-colonial investment, in which the relationship between the formerly colonizer and the former colony still contains the relationship of exploitation and domination in the trade regime but in different portion. 2 The investment The investment regulations since the beginning has been more of trade regime, not about the complex relationship between the investors and the invested countries. Investment should be a complex issue, because it is related with the relationship among sovereign countries. In the colonialism period, the accumulation is primitive that depends especially on the economic extra-power or political and armament power. After colonialism, the economic extrapower changes into neocolonialism power, that is the indirect colonization through various international instruments, especially in the trade sesctor. Thus we always face the narrowminded concept about investment, that is the extention of the trade. And narrowmindedness in understanding the investment will we always encounter. With such investment, the formation of the national capitals coming from abroad tends to be difficult effort. The underdeveloped countries do not only face problems of low income but also the inavailability of supporting infrastructures to improve the investment appeal itself. It is quite reasonable that the developed industrial contries operate their companies

1 Nurkse, 1964, Masalah Pembentukan Modal di Negara-negara jang Sedang Membangun, Ragnar Nurkse, A Professor on Economics, Colombia University, New York, translated by Drs. 2 Penegasan Tentang Investasi Kolonial, Institute for Global Justice, Jakarta, 2008.S.H. Hutagalung, Bhratara, 1964, Djakarta.

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in the underdeveloped counries to find primary production activities, to continue in the developed countries. The above developed country investment is the main feature of foreign investment along the New Orde command and afterward regimes. Such investment is the continuation of colonial era investment practices, especially of the liberal colonial era (since 1870s). From the period until now, the FDI can develop the plantation, mineral and oil mining as the export sources for the developed countries investing in MNCs. As a result, most of primary sources from Indonesia is exploited by MNCs for export, and so little ot them are processed in home country to produce added values and create new production sectors absorbing more menpower. Lately, oil and gas start to process in home country industry starts to process oil and gas, but it contains only parts of crude oil and little parts of gas. The most part of the commodities are still exported to the developed countries. The export with low added values cause little amount of the profit to receive by the country. The companies getting exploitation licenses can only contribute the relatively small amount of reserves and taxes. Profit sharing in other forms such as royalties in mineral exploitation is also so little. While plantation commodity export produceS also so little benefits for the people. The fact shows that in the location where the mining exploitation activities was undertaken massively, the poverty is relatively high. The condition is proved by the economic condition in Aceh, Riau, Nusa Tenggara, Papua and other regions in Indonesia. The colonial-minded foreign investment pattern impacts badly to the national economy, especially to the important source availability for the national industry. The raw material export has

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caused the minimal primary source to get from home country economy to develop. For exmpale, the gas scarcity for fertilizer industry and coal energy scarcity met by the state electricity company. Several national fertilizer industries go bankrupt due to gas scarcity. The state electricity company can not supply the domestic electricity need maximally. In Riau Islands which is rich of gas, in Kalimantan that is rich of coal, the people do not get electricity supply sufficient for industrial and household needs well to support the economy in the regions. Not to mention, the important production sectors for the state and controlling the populace essential livelihoods like PLN, Pertamina, PN Gas have to buy the oil, coal and gas raw materials from their own country with relatively expensive market price from the foreign companies. As a result, the state companies manage the energy sources in limited amount in very high costs to get crude oil. This induces the expensiveness of the fuel, gas and coal to pay by the national and Indonesian people attempts. Indeed, the state companies operate in the same manner as the commercial-oriented private companies. In the tradition of colonial investment, the attention on people welfare seems to be impossible. Economically, the welfare can grow only if we have big production, big paid, big income, big productivity, which in turn will drive big capital formation, the strong industry expansion and fast economic growth in the economic internal sycle. Such thing is unrealizable if the most strategic production sources are exploited for the foreign company export interests. To End the Foreign Capital Domination In neoliberal economy view, it is said that the capital/money does not own a state. Money moves based on mere market law. An unreasonable view sees that

the states are active to strengthen their currencies even by uniting the currencies (such as EURO). The current global financial crisis proves that money is bound to nationalism, the developed countries draw and save their capital/money to face the crisis. This is the foundation why economy nationalism is still relevant and will be relevant much less in the context of semicolonial state like Indonesia, where the systems of economy, law, political structure and culture are the colonial inheritance. It is a condition dragging Indonesia to be still under the domination of the developed countries. Even in the home country, the foreign power has been dominant in economy. Indonesia economy statistics shows that Indoensia economic structure is dominated by bigcompanies comning from abroad or we call as foreign capitalists, that are a group of companies coming from the developed countries. Some of the countries where the companies are based in are the countries formerly occupied Indonesia directly. They command over the main economic sources in this country, starting from oil, gas, mineral, plantation, services and financial compannies. The foreign company practices in Indonesia are seen as the corporatocratical form run through the cooperation with the state authority elites. John Perkins (Confessions of an Economic Hit Man, 2004) describes the corporations, international financial institutions and the government join to unit their financial and political power to coerce the world follow their will in order to build global imperium. Amien Rais (Selamatkan Indo-

nesia!, 2008) says the Corporatocracy as the power systems controlled by various big corporations, international bankings and the governments. The foreign corporation controls over than 85 percent of the exploitation in Indonesia oil and gas sector. While the foreign ownership other than the sector in the FDI is more than 75% of the toal investment. More than 95 million hectares of land has been surrendered to the oil corporation in the mainstream in order to exploit the oil. More than 40 million hectares have been surrendered in order to exploit the mineral and coal, about 7 million hectares are surrendered for plantation corporations and about 31 million hectares are surrendered to the forestry corporations. Not only in the extractive sector, in the financial sector, the foreign corporation takes more dominant place. The foreign ownership on the national banking assets reach 47.02 percent, improving gradually since the crisis.3 In other financial sector, the foreign capital ownership also happen in considerable amount. In 2007 the foreign capital ownership in the capital market is amounted to 67.34 percent valued as Rp 601,055 trillion.4 Also, foreign ownership of the state obligation certificate (SUN) currently increases about Rp 26 trillion or reach Rp104 trillion, compared to 2008 beginning state of Rp 78 triliun. Now the foreign portion of SUN 19.5 percent or Rp 104 trillion, increasing compared with 16.6 percent or Rp 78 trillion in the beginning of 20085. The large foreign ownership in the whole national economic sectors become the sources of the national capital

3 Tuesday, 9 September 2008 | 07:50 WIB, Deputi Gubernur Bank Indonesia (BI) Muliaman Hadad, Monday (8/9) in Jakarta 4 Wednesday, 25 July 2007 | 18:20 WIB, TEMPO Interaktif, Jakarta 5 http://www.bankdki.co.id/index.php?option=com_content&task= view&id=227&Itemid=91

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and asset amortization. The profit obtained by the foreign investors are generally transferred back abroad in the forms of amortization, profit transfer and so on. The condition causes that the net capital is still negative, that is capital outflow is larger than the capital inflow6. It means that the profit obtained by the foreign capital investment is relatively larger than the benefit got by the national economy. Not only that, the large capital flows from the sources will influence much the exchange value volatility which always puts the state financial position in difficulty.

the concessions they own to the foreign capitals, to get fees, minority share ownership, etc. Simply, the national practitioners will never have control over their own natural richness in their own country.

The foreign domination has to be shifted as the precondition to form the national economy new order. The process can be conducted through the thorough economic planning by reorganizing the domestic economic activities and special economic treatment organized by the state companies and the business operated by the small people.

The Law no.1 in 1967 on Foreign Investment in New Order era gives strategy for the national capital enlargement by becoming the servants to the foreign capitalists, especially in the mining sector. What happen in PT. Freeport Indonesia, the biggest gold miner in Indonesia and PT. Newmont Nusa Tenggara, the richest mineral miner in the world show the roles of the national capitals as the servants of those foreign corporations on the business sectors not interesting to other foreign companies. So as with the oil and gas sector, after the issuance of several laws such as no. 22 in 2001 about oil and gas, the foreign capital becomes the controlling power over the oil fields throughout Idnoensia. More than 85 percent of crude oil and gas production are from the hands of foreign corporations such as Chevron, Exxon, British Petroleum (BP), etc.

To End the Practices of National Elite Broker How about the national practitioners, national owners in relation with the foreign capital corporatocracy practices in Indonesia? The national practitioners seem as the subordinate of the foreign capitals dominating Indonesia economy. Some call them the mentalities of inlander, servant, slave and various other coarce mockeries. We need a long discussion to understand completely why national elites have such moralities. However as they behave, the national practitioners are fond of becoming the foreign company subcontractors, such as a catering for giant mining companies of Newmont, Freeport, Exxon etc. Or even merely a land broker, for example selling

Even the national businessmen use the Constitution to drive the state to ratify the laws that make it possible for the national capitals to support foreign capitalists. The national practitioners work in the executive and legislative institutions to create a constitution opening the wider way for the foreign corporations.

The foreign capital power has put aside the national practitioners forced to the downstream sectors. After PERTAMINA rights on the oil and gas mainstream sector was mutilated through the Law no. 22 in 2001, the national capital owners festively control the downstream sector, become the sellers of oil and gas and co-

6 Monday, 1 April 2002, Merangsang Investasi, M. Sadli, Senior Economist, former Minister of Mining, http://www.korantempo.com/news/2002/4/1/Opini/95.html.

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erce the constitution so that they can sell the oil by very expensive price. Thousands of national practitioners in downstream sector are the oil fuel distributors, agents, and retailers. The national capitalists are the supporters of the sales price rise of

fuel products such as premium, kerosene and solar, lately becoming the main support for gas sales price rises for the households. From all the fuel domestic trade, the national companies get revenue more than 500 trillion in 2008, an amount as twice of the expenses they need for fuel production.

While in gas sector, The National Gas Company Co. Ltd., (PGN) controls more than 90 percent of gas trade in Indonesia. Although it takes profit year by year, the company continuously drives gas price rises in order to double its profit. The national capital power is mostly in retail business of goodss produced by foreign capital. This drives the widespread outlet and shopping centre constructions in almost the whole Indonesia regions. Money enlargement planning of the national practitioners is done also by stimulating the import policies of agricultural products such as rice, wheat, soybean and other food products. National capital enlargement occurs through other retail business such as automotive product trade by finding the chances to be outlets of foreign capital industry in this sector. The retail business also bears profit for the national practitioner capital in the banking sector through cheap credit expansion of automotive products such as cars and motorcycles. It is a kind of credit expansion practices po-

tential to be â&#x20AC;&#x153;subprime mortgageâ&#x20AC;? in Indonesian version. Economic trends relying on the consumption sourced from the imported goodss additionally proves the national bourgeois elite broker practices. Besides the fact of the exploitation of the mainstream sectors of the oil and gas, mineral mine, plantation production, most of which are controlled by foreign capitals and worked for the interests of export and the state-owned basic industry sales to foreigners such as steel industry is the fact confirming the argumentation that the national elites are really brokers. Such behaviour of the national economic practitioners retard the progress Indonesia could have got from the abundant resources. Either they admit or not, the state does exist. A state is reflected from its economy. And a state economic power is seen from the capability of the practitioners, that are the citizens. If thus, a state organization should bear a strong economic organization run by the citizens, not dominated by the foreign practitioners, who actually work for their or their countriesâ&#x20AC;&#x2122; sake. To release the State Dependency on Debts The debts are still the big problems for self-sufficiency. Debts will incur interests, the obligations to install the principals getting bigger and bigger. Not only that the debts incur wide political implications, inevadeable pressures of the creditors. Such conclusion has been public views. Throughout the history, poor countries can not get their debts smaller, instead other-

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wise the debts get bigger following the poverty scale enlargement. While the poor countries generally use the foreign debts to prepare the infrastructures in order to expand the foreign investment. Until 2008, foreign debts have reached the number of more than Rp 1,400 trillion, most of which come from the developed countries and international financial institutions operating in Indonesia in order to support the big corporation interests, that are the interest to keep holding their control over the most strategic economic activities in Indonesia. The foreign debt is the foreign capital having direct significance with the corporation interests. Foreign debt both in the form of projects and programs are related directly with the corporation interests. The debts are sourced from the developed countries and international financial institutions, both are multinational corporation tools to expand their economic scales. As a result, developed countries such as Japan, US and EU are the biggest debt source for INdoneisa. The debt projects result in big income as the interests for the developed countries and the financial institutions, while the foreign businessmen get the state policies and infrastructures funded by the debt in order to support the foreign investment. The debt interest to support the foreign investment in order to find natural resources is factual. Japan as the larg-

est creditor is in turn the largest receiver of Indonesian natural resources. Japan is the largest receptor of gas, concentrates, oil and coal exports of Indonesia. Without the companies funded directly by the investment, Japan industry will meet difficulties absolutely. So as with the debt from the Worldbank, all of them are aimed at the countryâ&#x20AC;&#x2122;s building institutions supporting investment and to promote the economic growth. In every regulations of the development loan for Indonesia, WB sets the priority of the debt to aim to support the investment climate repair, public financial management and other key priorities.7 While the other two institutions under WB dealing with private sector is International Financial Corporation/IFC8

and Multilateral Investment Guarantee Agency/ MIGA9, allocate directly their funds to enlarge their economic scale. IFC is the private investment agency from WB group, offering long-term debt and capital investment. IFC investment is given through private corporations to fund private investment projects in the underdeveloped countries rich of natural resources. The company secured by MIGA in Indonesia, that is Grasberg Mine, West Papua, PT East Java Power Co, (in 1997). In 1995-2000 budget year, MIGA secures two other projects in Indonesia. in 1997, US West International Holding, Inc. and Chase Manhattan Bank (on

7 The annual report is also available from www.worldbank.org. 8 Established in 1956, with 178 members, portfolio commitment : USD 2.6 billion (USD5, billion is syndicate loans). Bookkeeping Commitment 2006: USD6.7 billion for 284 corporation projects in 66 states. IFC head office is inWashington, DC, with branch offices throughout the world 9 Founded in 1988, with 167members, Cummulative guarantee has been issued: USD 6billion, IN Recordkeeping 2006,the guarantee has been issued as USD0.3 billion

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behalf of a group of creditors) receiving a guarantee of USD 14 million for capital investment and debt for expansion and operation of telephone networks in West Java. 10 In 1996, MIGA published USD 50 million as collateral for Capital Indonesia Power I C.V., a subsidiary of General Electric Capital Co., from US. GE Capital looks for insurance for USD 61.2 million capital investment in the construction and operation of 615 megawatt two coal powerplants in Paiton Powerplant, Eastern Java11.

Other financial institutions giving large credit for Indonesia is part of the same scheme. The financial institution is involved in the same race to give loans to Indonesia in reward of interest and big natural resource for foreign private companies. In August 2006, ADB approved the loan for private sector related with infrastructural development. ADB gives loan of USD 350 million for Tangguh Gas Field Development Project in West Papua by British Petroleum (BP). Besides, Gas Pipeline project from Sumatera to West Java by PGN also get loan USD 80 million. The loans use commercial interest of LIBOR + 20 point base, plus commitment fee.12 Indonesia dependence on foreign loan causes all the law and policies born especially in the economic sector inherit the colonial economic

principles. The raw material export oriented economy positions Indonesia as the processed product market. The processed product is also traded through the debt, most of which was proved to form as project with the same meaning as the products sold in the form of credit from the developed countries, to bind Indonesia more dependent on the products of the developed countries. Precondition for the national economic progress is the national economic self-sufficiency. The efforts to realize such thing is the national sovereignty realized in the policies restricting the domination of foreign capital and national private in domestic strategic economic sectors and to motivate the state to take control over the oil and gas,energy and mineral sources and authority over the essential production sectors related with people livelihoods. To Minimize Hot Money Outflows This country does not only suffer from the exhaustion of natural richness of oil, gas, mineral, forestry and agricultural resources by putting the people at a total loss, but also such activities protected by the national statutes open the way for money exhaust by speculants, most of whom on behalf of the foreign companies having business in the financial market such as stock, obligation and foreign exchange market. Monetary crisis 1997 and global financial crisis since the middle of 2008 proves the new exhaustion model

10 http://dte.gn.apc.org/Aif16.htm 11 Factsheet LKI published by Down to Earth, Kampanye Internasional untuk Lingkungan Hidup yang Berkeadilan di Indonesia. http://dte.gn.apc.org/Aif16.htm 12 Wednesday, 1 November 2006: ADB Tawarkan Pinjaman US$ 4 Miliar JAKARTA, Investor Daily

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of national wealth by the fiercer financial regime, the joint power of big capitalists and political authority. National finance and wealth suffer distortion due to the rules in liberate exchange sytems Indonesia adopts currently. The giant capitalists, most of whom are foreigners, are tactical and more experienced speculants. They know more when to make profit in the speculation activities in the financial market and when to transfer their money abroad. Vulnerable regulations make it easy for the hot money to move out of and into this state. Often the smaller local capitalists do not realize having lost their wealth because of the profit taking of the foreign practitioners. The condition impacts on the national company activities in the real sector. The loss suffered by the companies in the financial market induces the salvage action of efficiency in real sector businesses. Such steps are often translated into paid cutting and mass dismissals. The Four Minister Joint Decree issuance some time ago, responding to the financial crisis, proves the arbitrary policy from the countries and businessmen operating in Indonesia. Not only that, the profit taking action by foreign speculants in the financial market causes rupiah exchange to fall against the dollar. The people are of course made disadvantageous by the condition, exchange value fluctuation in September â&#x20AC;&#x201C;November 2008 causes the assets and people money are depreciated about 10 percent on average. Meanwhile, the state through Indonesia Bank forcibly wastes money in bulk amount to detain the speed of rupiah exchange declining towards foreign currency. Like the common speculants, Bank Indonesia interferes financial market by buying rupiah using reserves exchange owned every time rupiah value

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decrease against the foreign currency especially USD. According to Revrisond Baswier, Bank Indonesia data mentions USD 7.5 billion (+/-Rp 75 trillion) was taken out by Bank Indonesia to interfere rupiah exchange value stability along October 2008 so that the reserves is USD 50 billions left. This process continues until now the reserve exchange is USD 44 billion left. How if everyday the rupiah decreases against dollar? Is our exchange reserves of Rp 560 trillions to empty in several weeks only to stabilize the exchange value? It is an ironic fact that among the people poverty, farmer funding source is dried, small scale business funding weakness, vunerable national industry, Bank Indonesia just waste money like a gambler. As a result, populace financial source is exhausted to enlarge the capital and the capitalists from the developed countries.

Financial management in the same manner as adopted by Indonesia these days causes Indonesia people and country lose sovereignty and swung out by external situation and speculant attitudes. Actually we have sovereignty to determine our own luck, by more principally change the regulation related with foods, energy and finance that stand more by people side for public interest not dedicative to free market regime. Besides, the statistic data got from research over several developed countries shows that high credit and profit do not correlate with productivity, growth, and capital accumulation rates in the developed countries. In other words, profit accumulation is separated from capital accumulation. Every go public companies just take profit from money trade, without having to accumulate first. Simultaneously, most companies in the capital

market are also owners of a number of banks. Thus, money profit is profit for the capitalists. They having big capital will get more profit, while the ignorable real sectors make the poor get more poverty. We have such wide gap between the capitalist earning who usually have high official or managerial ranks in the companies, and their employees. Therefore, we need some policies to secure the financial sector in order to make it as the base for national economic development, among them are 1). Tight regulation on all the speculation activities, both the stock exchange market and currency transactions in an attempt to limit the inflows and outflows of hot money; and high tax levying on every kinds of speculation activities in the stock market, commodity market and money market. In the future, every kinds of speculative financial products including those playing in the food commodities and hedge fund are to ban. 2) to stop exchange reserves systems and tidy up monetary and financial systems and to revitalize Bank Indonesia role to stand by the civil economy. Monetary and financial systems have to dedicate to fund the civil economy, small farming and poverty abolishment efforts. 3) to stop the people money usage to inject the fund for the crisis-affected bankings and to bailout the bankrupted companies. 1997 crisis experience become a

valuable lesson that such action harming the state and the people. The above conditions are the main factors contributing to de-industrialization in Indonesia, the economic problem resulted from the continuation of the colonialism practices over the country resources both natural and productive power. The colonialism arouse through the free market strategy supported through the laws and policy of Indonesian government. Capitalistic economic systems gives huge benefits to a small number of people that are the minority of the capitalists, but have plunged this state into an economic underdevelopment compared to other states. We have now not only the failures of project or programs eradicating the economic problems that are promoted by the developed countries and international financial institutions, but it is more the failure of the market and neoliberal strategy in solving the national economic and civil economy problems. The whole of the strategic steps as suggested above, can base the economic structure reformation that make a new era possibly start towards the national industrialization pro- majority of the people interest. By: Salamuddin Daeng Researcher - Institute for Global Justice

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To End the Stagnancy through National Industrialization

he opinion of the importance of industrialization1 run through the

state role, not a new one among the academists, practitioners and even in the social movement in Indonesia. in various discussions, seminars both held by the governments, academicians and even NGOs, the industrialization problem is the theme most often talked about. The strengthening talks on industrialization is related with the economic stagnancy faced by Indonesia, both after 1997 crisis and the condition incurred by the current global crisis. De-Industrialization and Economic Underdevelopment What happens in Indonesia is the de- industrialization process. In 2002,

United Nation Industrial Development Organization (UNIDO) an institution concentrated in analyzing industrialization problems, placing Indonesia at the lowest industrialization rate among ASEAN countries. Indonesia is at the 38th rate while in 2000 Malaysia is on the 15th rate, Philippines is at the 25th and Thailand the 23rd (Tempo Interaktif, Selasa 08 Maret 2005). Based on UNIDO criteria, Indonesia is not in the group of the countries in industrialization process, but also has not been included in the semi- industrialization countries. According to UNIDO, a country enters non industrialization group if the ratio of the bruto added value of processing industry to GDP is not less than 10 percent, a country in the process of industrialization is between 10 â&#x20AC;&#x201C; 20 percent, â&#x20AC;&#x153;semi industrilized countryâ&#x20AC;? is more than 20 percent and the industrialized

1 Industrial development which consists only of constructions of individual factories is not on the industrialization track. Therefore, deindustrialization is also inaccurate to be associated with the bankruptcy of one or two factories.

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country is more than 30 percent (Moch Arsyad Anwar, 1987, in Ruky Ine, 1990).2 Prof. Dr. Ine Minara S. Ruky (2008) explains that de industrialized Indonesia is shown by the low absorption of industrial menpower, slowing industrial growth which tends without pattern, decreasing the industrial investment demand, the decreasing manufacturing sector added value which also tend to be without patterns, the output proportion of agricultural sector (including fishery and forestry) getting smaller and lowliness of the relationship between mining sector and processing industry. Structurally, de- industrialization is signed by the large contribution of agricultural sector in GDP framing, the large proportion of the menpower number in primary sector rather than other sectors and the low portion of manufacturing sector menpower of the total menpower.3 Next it is explained that de- industrialization does not mean no growing industries. Thus it is recession phenomena. De- industrialization is not momentary performance that steps backwards by a policy such as fuel price rise. De- industrialization shows the phenomena staying in several years and consistent in many economic indicators. So there is cotemporary setback of the phenomena. De- industrialization can also be parts of a long cycle of the economic development process. The de- industrialization does not only relate with the low contribution of industrial sector in the economic establishment and the low absorption of menpower in the industrial sector, but far principally to an economic disintegration practice especially between the natural resource exploitation of the raw materi-

als and other economic sector and the low output number of the primary sector (agricultural and plantation commodities, mining of gas, oil, coal, mineral) entering the processing business. The condition causes primary source export increases but the processing industrial export decreases. At one side, it causes unlimited natural resource exhaust, on the other side such practices do not result in high economic added value. That condition keep placing Indonesia economy at the underdevelopment state compared with other countries even within ASEAN region. the National Industrialization has to Victimize Energy and Mineral It is undeniable that the energy sector is one of the most strategic sectors in the economic development and people welfare. Without goods management of energy sector, a national economy can be sunk down into a crisis cavity, moreover in the global economic waves right now. Furthermore, oil and gas sector is potential to contribute to the industrial development in Indonesia. With an a priori, current deindustrialization corresponds with the decreasing various macro indicators in the oil and gas sector. In Indonesia, oil and gas distribution and production held by the private companies. Most of the upstream sectors are controlled by the foreigners, while the downstream sectors are controlled by the national companies together with the foreign ones. In the last few years, crude oil production in Indonesia decreases, while cost recovery spent by the state increases continually. While at the downstream, oil

2 Inne Minara S. Ruky, 2008, Industrialisasi Indonesia dalam jebakan mekanisme pasar dan desentralisasi, sent in her professor inauguration speech, Professor on Economics, Economy Faculty, Indonesia University, Jakarta 3 Inne Minara, Op. Cit. Hal : 2-8

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fuel production decreases. Fuel production business activities are mostly still controlled by PERTAMINA and not managed well. Many old mills without new mills added. The low technological rate and lack of innovation in the production process at last make Pertamina import crude oil from Singapore or Saudi Arabia. In the middle of the world crude oil price fluctuation, the fuel price rise is at last unavoidable and burdening the people. Various explanation attempts on the low productivity of PErtamina has been much uttered, one of which is about efficiency, both technical or organizational. Pertamina is often regarded inefficient, including its relationship with the state. With the mean production cost of crude oil is still low, Pertamina should have been efficient. Because the inefficiency, many technical and organizational opportunities are lost and the state suffers significant loss. In order to handle the inefficiency, the government tries to reform the relationship with PERTAMINA. There are two important steps, the first is to form Oil &Gas Management Board (BP MIgas), while the second is PERTAMINA privatization. First, BP MIgas is an independent, self-enforcing or self-regulating institution. It functions to appoint the party to undertake the exploration. This is not a production organization. Second, PERTAMINA changing into a private corporation can have bad implication on the economy. Changes into a limited company causes its orientation tends to the effort to get merely the profit, not in order to secure the energy provision for national industry and civil businesses. The policy to set the oil price at the economy price level for industrial sector and the expensive fuel price for the people causes the national industry losing competitiveness and people business are bankrupt. While the mineral management,

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most of which are conducted by the foreign companies are activities aimed to exploit the raw materials to supply export needs. Every tons of mineral wealth exploited will not contribute much for the national economic empowerment. The mineral wealth management through the working contract mechanism shows a mechanism of natural resource exploitation of colonial model. The corporations get concessions to control over the regional land and all of its natural resources there completely, where the companies have absolute rights over the region. The colonial inherited law causes the mismanagement of mineral and energy sources leading the loss for people. The law no. 11/1967 about mining is the base for working contracts leading disadvantageous loss for the country heavily. Royalty sharing by the mineral mining companies are too little to earn something for Indonesia. Besides, the law and the accompanying working contracts caused the state to lose control over the mineral and coal wealth. The state only earns the revenue from tax and royalty in relatively small amount. The royalty received from the mineral mining company throughout Indonesia is not more than 3 percent of the total revenues of the foreign corporations. While on the other side, the corporations have received much tax incentives related with the capital goodss imported. At the macro level, the state will receive money as reserves from the natural resource exports, but at the same time the reserves will flee back abroad in the form of profit transfer, amortization expended by the capital goodss, most of which come from abroad, interests and money transfer to buy other capital goodss. Oil and gas and mineral are two economic sectors that Indonesia surpasses the whole world. The policies in oil&gas and mineral management have

to be changed radically. The business in both sectors has to change from the way it is run for almost two centuries, when the foreign-oriented exploitation and production cause no significant contributions for the national industrialization and capital formation. Besides, exploiting the wealth to reap the tax, royalty and profit sharing earnings (not oil but money to share) has caused high distortion of the living environment. The monstrous disasters throughout Indonesia during the last ten years like floods, avalanche, droughts, even earthquakes are inseparable from the damaging ecological systems due to unplanned mineral, oil&gas also forestry product exploitation in the long term. Oil and gas production and exploitation ahead is to use as important source to build the national industrialization. Unlimited exploitation is aimed for export ignoring economic sustainability and strength are harmful matter to halt. Thus the two economic source productions can be limited according to the necessity for national businesses in order to improve the productivity. The State Coordinates the Industrialization Strategy Many elements of this nation promote back industrialization as the longterm strategy in the economic development. Even the industrialization is an effective strategy as a leap to get out of the â&#x20AC;&#x153;developing countryâ&#x20AC;? trap or even the poor countries taken by Indonesia during the last decades. More specifically, the thought of the state role need in the reformation of industrialization reemerges after the failure of private sectors especially when the company goal to make a profit (or increase the stock value) is contrary with the national development objectives, supported also by an argument admitting that the market power will not give opti-

mal result so tht the state intervension in the industrialization process is something referring to the domestic historic and empiric facts. The choice to industrialize coordinated by the state of course have certain consequences on the existent policies. Various domestic regulations just get the state role out of the economy. Many stateowned companies that were once parts of the industrialization programs and the state earning sources, are just moved to take over through privatization scheme. Even one law regulating investment related closely with industrialization affairs, that is the law no. 25/2007 just directs towards the plan to improve the foreign private domination in Indonesia economy. Not only that, so as explained in previous parts, that the developed country efforts to search for primary sources from Indonesia is a practice keeping Indonesia economy far away from industrialization. Related to it, the private sector, most of which are dominated by foreigners are difficult to rely on to drive economic transformation towards industrialization. In the middle of such trend, both in the theory platform founding the industrial policies and objective conditions of Indonesia nowadays, the industrialization efforts coordinated by the state is something relevant and rational. Industrialization consequences coordinated by the state are the decisions referring to goodss and services to produce, by any ways of production, anywhere the locations are and any kinds of the product distribution, can not be like now that are just individual decisions. If the industrial development is directed to certain goal achievement, like menpower absorption, then the decisions can not be completely given out to the market mechanism. But to implement the investment program coordinated does not mean that all the investment are under the govern-

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ment control. The industries coordinated through the state role is covering the comprehensive regulation related to primary source exploitation activities, regulations about the domestic processing liabilities, regulations related to decent paid policies throughout the sectors related directly to the natural resource exploitation and processing industries and processed product distribution priority for meeting the domestic demand and profitable exports. All of these have to be regulated through the domestic production organization in which every sectors integrate well in direct linkage with other sectors. Industrialization planning can start by recalculating the primary source availability, natural service going on in supporting the production and productivity sustainability and protection over the civilian governance that has not entered and been integrated into the processing industries, such as the traditional animal breeder, farmer and peasants, fishery business and customary community rights protection. The recalculation has to be laid in order to save the livelihood of all the economic sectors in which the communities rely their lives without discrimination.

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In this matter, strict planning has to be revived by totally different way with current conditions in which the economic development tends to stake on the economic macro assumptions and even on the speculations. The planning include the regulations in the investment, finance, industries and trade orientating inwards all at once the protection of national economy and menpower from the global competition. The new policies in the investment, finance and trade are the policies really different from the former policies which make Indonesia a land of colonial model exploitation, dragging the people into the cultural and economic underdevelopment and environmental destruction. The new policies have to be able to make the primary sources as oil, gas, coal, mineral, plantation commodity and forestry products as production enlargement sources and sustainable national productivity becoming the industrialization essence. Thus we know why we have natural resources, how to manage and for whom the natural wealth is beneficial. By: Salamuddin Daeng Researcher - Institute for Global Justice

The State Gas Company ABUNDANTLY LUCRATIVE AMONG MASS QUEUE ON GAS”*

ndonesia is a country with abundant gas wealth. In 2005, Indonesia is the biggest natural gas producer compared to the entire countries in Asia Oceania, Africa and among the big ten countries producing gas in the world. Even in 2008 Indonesia is at the 7th rank among 10 largest gas exporter countries in the world1. Until now, our gas reserves are estimated to reach 187.09 TSCF and by present production speed, the reserves can be productive for 62 years. Most of the gas exploitation activities in Indonesia are still attempted by export-oriented foreign companies. The national companies and state-owned companies purchase gas materials from the foreign companies operating in the upstream sector. Until 2007, out of LPG total production as much as 1.079 billion MBTU, 712 million MBTU or up to 66 percent of it is exported.2 The gas business activities in Indonesia are implemented through a profitoriented business entity, The State Gas Company (PT.PGN). it was established in 1965 with the name of Perusahaan Negara Gas – the Gas – State Company. Then in 1995 it became PT. Perusahaan Gas Negara (Persero) – The State Gas

Company, Co., Ltd. The status change means it becoming commercially profit-oriented3. The gas company stock ownership consists of 65 % national and 35 % foreign. The national ownership consists of the state and national public ownership. The company shares have been published in the National Stock Exchange. In 2006, the stock trade volume was 2.334.428.500 shares of 4.536.965.305 total shares owned. On the highest price rate (FY) Rp 13.950 per share, the company market capitalization in 2007 reaches Rp 69.6trillion, while the foreign ownership consists of the foreign stocks owned by Morgan Stanley & Co INTL PLC – IPB, and Bank of Newyork. Other capital source is the debts to foreigners through the financial institutions abroad. The company debts to the foreign private parties like the ones gained through Euro Bond I Issuance as amounted to 150 million USD (in Singapore Exchanges Securities Trading Limited) in 2003 and Euro Bond issuance of 125 million USD (in Singapore Exchanges securities Trading Limited) in 2004.

*) Written by Salamuddin Daeng - Researcher of Institute for Global Justice 1 British Geological Survey, 2002-2006 2 Bank Indonesia, 2008, http://www.bi.go.id/biweb/Html/SekiTxt/T3x608.txt 3 PT. PGN “Annual Report” 2007

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The State Debt funded by Business Although it is profit-oriented, the company is funded by the very large amount of the state debts, sourced from the world financial institutions like World Bank, Asian Development Bank dan foreign state banks through ODA (Overseas Development Assistance) bilateral direct loan scheme. Japan Bank for International Cooperation (JBIC) is a Japan governmental bank which is active in giving out loans to PT. PGN through ODA4. On 27 March 2003, JBIC signed a loan agreement with Indonesia government in the frame of special ODA (Overseas Development Assistance)5, as much as 49,088 billion yen. The loan is aimed for Gas Pipeline Project from Southern Sumatera to West Java, to cultivate by PT. PGN. Beforehand, in the first three years, the project is funded by the Worldbank. After the world financial crisis hit Indonesia in 1997, the project is stopped and the Indonesia government then proposed ODA proposal to Japan for the funding. Other gas distribution line funded by loans is the gas pipeline from Bojonegara station to Anyer and Merak funded by JBIC. So as with other gas pipelines. The public questions as why the company funded by the state debt is profit-oriented?

Gas Supply from The Foreign Companies The oil and gas upstream activities in Indonesia are fully worked by the business entity and mostly by the foreign capitals. Until 2005, more than 95 million hectares have been controlled by the foreigners through the oil and gas production contract scheme (PSC). The foreign control equals to 48 percent of Indonesia land area. The oil and gas production undertaken by the foreign companies are sold by market price, both for the export market and domestic market. Often the price abroad is cheaper than domestic price. The domestic state companies such as PT. Pertamina in the oil processing and PT. PGN in gas management sector buy crude oil and gas by market price. Both state-owned companies then sell their processed products to Indonesians in lucrative prices. The national oil and gas companies, in terms of Pertamina and PGN are highly dependant on the raw materials supplied by the foreign oil companies operating in the upstream sector. The largest oil and gas upstream producers currently are Chevron, Exxon, Connoco Phillips et al. they are Multi-National Corporation (MNC) coming from the developed industrialized countries. While the foreign oil and gas companies are highly export-oriented. The

4 This special ODA loan is imposed of 0.95 percent interest in 40 year period with grace period of 10 years. The special ODA loan is a concessional loan facility focused on Asia economy. The facility is launched in December 1998, among others intending to fulfill the needs of infrastructure construction in the area, other than improving the chance for Japan companies to participate in the funded projects. 5 The loan signature was done by JBIC governor Kyosuke Shinozawa and RI Embassador for Japan, Moh. Abdul Irsan.

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Table : Export Value and Volume of LNG, LPG and Natural Gas (in thousands)

Year 2002 2003 2004 2005 2006 2007

LNG MMBTU USD

LPG MT

USD

1,311 1,171 1,102 1,076 365

323,286 325,752 366,100 476,691 175,136

1,358,293 1,392,973 1,322,910 1,214,838 1,172,360

5,594,950 6,743,946 7,303,667 8,734,230 9,953,127

1,079,825

9,758,318 337

Natural Gas MBTU USD 99,425 169,865 223,068 249,854 265,200

210,423 293,322

391,799 695,197 1,010,313 1,509,249 1,910,384

Total USD 6,310,035 7,764,895 8,680,080 10,720,170 12,038,647

2,442,899 12,411,640

Source : Bank Indonesia, 2008

cause is the companies are funded by the foreign governmental banks and bound by sales contract with the companies operating in the developed countries. So the companies prioritize exports than selling the oil and gas to the national companies. The scheme of oil and gas management in the upstream sector causes the first, no state controls through the state companies on the oil and gas sources in order to national energy sovereignty. Secondly, the expensive price to accept by the state companies in the crude oil and gas management sector causing the state companies bearing large production costs. Thirdly, Indonesian communities have to receive the large effect in the form of gas price rise, energy price and energy scarcity all at once. Dredging Profit of The Poor PT. PGN is the only one state-owned company given privileged facility and authority by the state to run gas business in home country. The company is treated as if it were a public company to secure fulfilling the populace energy needs. As a matter of fact, it is not so. PT. PGN controls 93 % of national gas market shares, not less than

a commercial company managed as a private company to reap profit as much as possible. The gas business is very attractive and promising very huge gains. The dependence of Indonesians both industries, households and transportation on BBG gets higher. In 2007, the national industry sector absorbs 98% of total gas sales while the households absorb only 2 percent. The years ahead, the gas absorption rate of household sector will jump up, in accordance with the government converts the oil fuel usage into gas fuel. Even the gas sales to the households start to enforce in 2008 through the conversion program of kerosene into gas fuel. So the conversion program is not merely a strategy to save BBM Subsidy but a new attempt to open the market for gas sales by taking over the MT market forcibly through the government6. When the gas market gets clearer, PT. PGN through the government will attempt to take profit as much as possible from gas fuel sales. The government plan rises gas fuel price for

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households in the last September, is a part of the plan to dig out such profit. Although the plan fails to implement, however it took chance to incur panic. Long queues to get 3 kg gas fuel reoccur in big cities throughout Indonesia. The very large economic dependence on gas fuel causes the gas company get the big profit. In 2007, PT. PGN is able to grip the sales value of Rp 8.8 trillion and also get net profit above Rp 5 trillion per year. With the clearer market share of domestic households as a result of kerosene convertion into gas, and the government plan to raise gas fuel price, will improve the profit PT. PGN gains. PT. PGN in 2006 can pay tantiem7 reaching Rp 6.9 billion for 5 top managers or about Rp 1,3 billion/person, not to mention other facilities and bonuses given to its top management lines. For CSR, it expends only Rp 8.2 billion or 0.26 % of its operational profit. A too little amount donated by the company for its responsibility to Indonesians so as regulated by the law. So what Indonesians can do of the presence of such state company? The company built by the government capital turns out not to be able to secure fulfilling the basic needs of the citizens at the market price rate (lucrative for the company), who have to queue for hours first in line to get the tubed gas. actually, the companies are built by the government investment,

also by the foreign debt paid by the citizensâ&#x20AC;&#x2122; taxes. Recommendation The energy management scheme both in fuel and gas fuel procurement is so inefficient and vulnerable to incur an energy crisis. The domestic gas fuel producer company relies on gas fuel supply from the upstream operating companies. While the foreign companies operating at the upstream sector are export-oriented to sell their gas products at market price. By such natural resource management, it is so impossible for the people to get gas fuel at the price affordable by the income of majority of the people. Even if Indonesia has unlimited gas wealth and production, it will not affect the price that the citizens must pay. Gas product sales price will keep to be based on the market price. Besides the people will be so vulnerable to every scarcity of gas because most gas sources that are present in the country will be produced for export interest. Principally, we need a state company controlling gas from upstream to downstream. The company is not profit oriented but the public service. Besides, the company should secure the national gas necessity fulfillment (transportation, industry, electricity and households) for the national industrial development, national energy security and people welfare.

6 It incurs panic everywhere. Thousands of household wives are compulsive to queue to get fuels because the kerosene fuel is drawn from the market. 7 Tantiem is a type of facilities or highest management benefits given by a company, as parts of the profit value at the end of a fiscal year.

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Deregulation Package Policy Series 1983-1995 Related with Indonesia Industrialization Reformation June 1983:Banking Deregulation April 1984:Taxation Reformation April 1985: President Instruction No.4 May 1986:May Package October 1986:Import Deregulation January 1987 June 1987 July 1987 December 1987:Capital Market Reformation

October 1988 November 1988 Minister Decree No. KM 83/ November 1988 Governmental Regulation No.19/November 1988

Main Contents The abolition of Central Bank control over the interest rate; liquidity credit subtraction; credit limit elimination VAT recognition The customs tariff service abolition; the private company SGS tasked to assess the tariff; the abolition of limitation in foreign ship usage â&#x20AC;&#x2DC;duty drawbackâ&#x20AC;&#x2122; enforcement; export-import administration procedural simplification; foreign ownership in export sector up to 95%; joint venture can use export facilities. Import license abolition; tariff decrease for certain goodss; tariff decrease for goodss needed for production process; BI swap requirement abolition. Import license abolition. Imports are tranferred to public importers. Investment Deregulation and license capacity; opening the closed export sector. Textile export quota allocation rationalization Capital market deregulation; governmental role reduction in stock slaes; foreign investors can buy stocks; Deregulation in tourism and hotel sector; change of export requirement category from production quantity (from 85% to 65%). License opening for new banks and foreign jointventure; reserve requirement are decreased from 15% to 2%. Plastic and steel import monopoly abolition; shipping deregulation Shipping Deregulation; reordering several regulations in navy concessions. Foreign business activity ending in trade sector. The foreign investment can sell their own products for domestic market up to distributor level, through joint-ventures.

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President Decree No.60/

Capital Market Deregulation

Advanced capital market Deregulation. Formation of capital market executor and director. Private Company (PERSERO) establishment to widen the opportunity of people to own shares.

December 1988

Insurance industry Deregulation

Desember 1998:

May 1990 Trade Minister Decree No. 140/Kp/V/1990 (28 May 1990)

Continuation of administration procedure simplification and subsequent tariff decrease. Cancellation of Confirming Coffee Listed Exporters and Common Marketing Board of Indonesia Coffee Exporters.

February 1991

Continuation of October Package 1988. Bank asset â&#x20AC;&#x2DC;Capital Adequacy Ratioâ&#x20AC;&#x2122; is recognized as 8%.

June 1991

The continuation of import tariff decrease; opening certain sectors for new domestic and foreign businessmen; import systems simplification to approve special for raw materials and work-inprocess; quota abolition on raw material supply for palm oil.

July 1992 May 1993 June 1993 October 1993 Minister Joint Decree: No.310/kpb/X/1993 and 232/M/SK/X/1993. Minister Decree N0.311/ Kp/X/1993. Trade Minister Decree No.853/KMK.01/Oktober 1993. Minister Decree 230/M/ SK/10/1993 May 1994

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Further decrease in non-tariff barriers; further tariff decrease; several business area reopening for domestic and foreign investors. Credit expansion Automotive industry deregulation; further tariff decrease; several business area reopening for domestic and foreign investors. Further decrease in non-tariff barriers Import rule Simplification of machines, machine equipments and other capital goodss in old conditions is permitted by direct consumption companies and companies operating in the machine maintenance, repair and restoration. Import exception on machines, machine equipments and other capital goodss in old conditions for small industries. Import Duty and Additional Import Duty Exemption on raw material import for certain electronic component production. Industry Minister Decree Change No.291/M/ SK/10/1989 about manners and customs of the industrial area technical standard and permission. Foreign investors are permitted to have 100% stock shares

69 19

73 19

Exchange value system consistent with market

Devaluation

71 19

Stabilization Period

Import Increasing license moderate system protection deleted Foreign investment opened & export scheme bonus

66 67 19 19

75 19

79 19

81 19

Import Substitution

77 19

85 19

91 19

Tariff decreasing

89 19

97 19

Protec tionis m

99 19 03 20

Regulation: special license, IP, IT prod. tt.

01 20

Post Crisis

Deregulation of economy and Implementation liberalization of of Law No. 5 trade

Tariff deregulation

95 19

Liberalization of economy & trade reform

93 19

Deregulation, Liberalization of Trade

Expanding foreign ownership

Deregulasi Tariff decreasing

87 19

Liberalization of trade & investment

Trade system reform

83 19

Asian Crisis

Economic growth data source, BPS data, Processed, Source: Ruky, Ine (2004)

This picture is made based on the frame made by Hofrman, Jones and Thee (2004).

Note :

-15

-10

-5

Picture 4-1: The History of Economic Policy in Indonesia

Economic Crisis

Growth (%) PDB

Regulation: special license, IP, IT prod. tt.

May 1995 Further decrease of tariff and non-tariff; import tariff decrease program announcement in stages (1995-2003)

Financial Minister Decree No.222/KMK.01/ Mei 1995 Schedule of Decreases of Import Duty and Additional Import Duty Tariffs on automotives to increase Domestic Production Efficiency. Decreases in Stages until 2003.

Government Regulation 23 May1995 Industrial business license Simplification.

Source : Basri (2001) and various other sources, in Ruky (2004).

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Social Movement Update

Agrarian Reform Movement amidst the De-Industrialization and De-Agrarian Debts and Development Funding: Searching for Alternative Ways Issues and Perspectives of Privatization The State, Market and Global Capitalism: Critical Reflection on Financial Crisis 2007-2008 Gerak Lawanâ&#x20AC;&#x2122;s Statement on Capital Investment Law Judicial Reviewâ&#x20AC;&#x2122;s Verdict Sugar Industri Revitalization among the Sluggish Sugar Trades

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Agrarian Reform Movement amidst the De-Industrialization and De-Agrarian By: Iwan Nurdin1

Preface This year, Workers demand alliance (ABM) – National confederation poured into the street of Jakarta on the May Day commemoration. Other than demanded fulfilment of workers’ rights, the Alliance also raised farmer’s issues, in particular land issues. Therefore, it is important for various parties to listen to the voice of workers and farmers due to the demand they raised to response current US crisis that drag the global economic and

food economic into crisis. Even IMF, lately warned on the food shortage in various countries is able to trigger civil war. Interdependency of financial structure and global production add to susceptible structure of national economic will hold-up economic, therefore the global economic recession will influence job creation in this country. In such situation, workers’ position and

1 Is a coordinator of advocacy in Agrarian Reform Consortium. website: www.kpa.or.id e-mail : iwan_selamat@yahoo.com blog : adisuara.blogspot.com

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bargaining position is weakening. Whereas, workers are threaten by price rise that drop their purchasing power. Decelerate on national economic continues de-industrialization phenomena. Foreign investment which designed as locomotive of growth for the past ten years met its failure. Electronic companies, clothing, textile relocates its production base out of our countries. Therefore, bases of real sector growth and export for the past few years are dominating by natural resources extraction such as mining, plantation, forestry and sea fishery. Situation of Farmers community It is strange to find out that in this father land, de- industrialization symptom came in conformity with deagrarian process. De agrarian terms is a social condition where less farmersâ&#x20AC;&#x2122; family and vanishing peasant community and Weaken role in social and politic. 1 De agrarian in Indonesia can be identified from three conditions: first, lost of farmers familyâ&#x20AC;&#x2122;s land due to dullness and conversion in conformity with the 1 Noer Fauzi, 2005 2 Henry Saragih:2007; Khudori: 2008

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massive existence of plantation corporation, food agriculture in large scale. Second, less discourse rise in the national level regarding the farmersâ&#x20AC;&#x2122; family issues. Only investment, production and trading are widely discussed in this sector. Third, urbanization grow higher. Job creation in non agriculture sectors should be well planned in responding to such situation. However, priority to FDI-supported Industrial development has removed this relation. Since , Foreign Direct Investment did not lay its bases to material and historical bases of social and economic situation but more caused by economic relation on production and global consumption. De-agrarian, in fact, become one factor that contributes to current food shortage. Agriculture products become raw material for bio fuel industry. 2 De-agrarian and de-industrialization will ultimately cause higher unemployment. This is social base that agrarian reform movement in Indonesia should be aware of. Without mean to simplify, the other thing need to be change is the structure production and agriculture con-

sumption has been dominated by global network. Production and consumption of fermented soybean cake which was happened recently in Indonesia are the true fact where the Indonesian producer and consumer of soybean farmers depend to soybean farmers in far away land, USA..

At that time, Agrarian reform was conducted in two major action: (1 nationalized mining and plantation industry; 2) In corporation with farmers organization to distrubute Stateâ&#x20AC;&#x2122;s land, abonded land, large-owned land, teritory of juridiction, private company land, and absentee land to peasent.

Such situation explains the farmers are the subject who are frequently describes as a society that are bunged up from global prodiction. They may consider as subsystem in capitalistâ&#x20AC;&#x2122; economic clasic or marxist that most of them are truely changes, or even dramatically changes.

The first staged was to nationalized foreign company, in particular, oil, gas and mineral companies which are nationalized under Sukarno government. The next are the nationalization of foreign owned plantation and forestry corporations which were also succesful under Sukarno government. Unfortunately, the nationalized companies were not well-managed and controlled by government. Unfortunately poor control and manage to nationalized companies has creates coruption among political forces and army. It swerve from the aspiration to have progressive capital in national. While the land distribution to peasent through landreform mechanism met great failure due to resistance and oppposition from various political group.

Current situation has placed farmer to stand face to face with neoliberal capitalism system which complexity of the local, national and international problem are very much the same with workers and other oppressed people. Agrarian reform position. In Indonesia, agrarian reform in the era of 60s is able to be a base of national development planning, in particular after Indonesia annuled Roundtable conference. Agrarian Main law aim to strengthen the structure of national capital to strengthen national economy and to create non capitalist social order.

The coup to Sukarno government had drastically changed political pendulum. The management of agrarian reform (to agrarian main law includes earth, water and air and its natural re-

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sources) was begun to re open to the foreigm company. In the era of Suharto government, forestry and plantation are controlled by army-backed bussiness man and mining was given to foreign corporations with the low sharing for Indonesia. Such a anti land reform policy, in fact there were many cases of land raid during Suharto era. Moreover, nationalized companies are corrupted. After Suharto was overthrowned, the liberalization continues as it directed by IMF and WB. Strategic Companies and national bankings which strategic to public were sold. Ten years implementation of IMF and WB, economic crisis is deepen and intensified. This recipe is not aim to

strengthen national economic but to change economic structure of production, consumption and services into established global economic order where capital been dominating This is the time to reemerge national agrarian reform agend. This agenda was firstly raised by workers organization who became victim of eviction due to the extention of plantation and forestry company It is likelly, national eforts to integrates the struggle and social oppressed class and broaden the knowledge that agrarian reform is a struggle to reclaim all agrarian resources to peopleâ&#x20AC;&#x2122;s hand. This is not farmers agenda, but a peopleâ&#x20AC;&#x2122;s agenda that urge State obligaton to conduct. Jakarta, 8 May 2008

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DEBTS AND DEVELOPMENT FUNDING: SEARCHING FOR ALTERNATIVE WAYS IVAN A HADAR1 “There is a real need for significant debt reduction or restructuring not only for the least developed countries but also for middle-income developing countries.” (Susilo Bambang Yudhoyono)2 Summary The above SBY statement, is in accordance with Financial Minister Sri Mulyani said, that ”one of the main difficulties for the government to achieve the national development objectives, including the millenium development goals, is the foreign debts. On that ground, Indonesia will continue to call for debt abolisment.” 3 However, various statements of the importance to abolish debts and recommend debt sustainability are still as far as an opinion. To fund the 2006 state budget needs, for example, the government made another debt of US$3.44 billion in the last CGI meeting, June 2007. the principle of ”cover the hole by digging another” still prevails, putting aside the simple logics that to delete the debts, Indonesia also has to avoid making new debts. The government did promise to consistently apply the policy to make debts if needed, in long-term, soft interest, while continuing to reduce the portion of export credit. There is also a plan to reduce the debt to GDP ratio from about 50 percent to 30 percent in 20094 evenif

it works, the ambition is regarded not to be adequate. Because the debt matters are related with the adopted development paradigm. Theoretically, Daseking and Kozack5 predict, the countries like Indonesia will fail to achieve the millenium development goals as to cut the poverty in a half in 2015, except having high economic growth, strengthening institutions, run the pro-small people policies, and not being trapped in debts. At present, the interest and foreign debt installment of the government absorbs 31 percent of tax. Such an amount should have been effective to build infrastructures and other social investment. The following are several strategic suggestions to get out of the debt trap to consider. First, the maximum limit for public debt payment, especially foreign debts. This will increase the fund source availability for domestic economy. Such maximum limit setting is needed to have a ground of a statute for the government to use as a lawfulness and negotiation tools. Next, we need a regulation about the new debt limitation directing to zero new debt.

Second, debt principal reduction can be achieved by several steps, among others are : (a) debt abolishment through finan-

1 MDG Target National Coordinator (BAPPENAS/UNDP) 2 In the meeting of Financing for Development, New York, 14 September 2005 3 Sri Mulyani, cited from Koran Tempo, 24 October 2006 4 Kompas, 11 January 2006 5 Daseking, C and Kozack, J. “Avoiding another debt trap”, Finance and development, December 2003

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cial engineering and creditor commercial renegotiation combination; (b) debt stock reduction through international arbiter; (c) public foreign debt negotiation on the geopolitics and strategic levels; (d) liberal renegotiation, especially with Japan. Introduction Since the last few year, Indonesia debt stocks around US$75-80 billion, does not support the economic growth anymore. But it becomes one of the vulnerable threats for macro economic stability, both through fiscal deficit pressure, social distribution imbalance in the state budget and pressure on exchange reserves. Both domestic and foreign debts of the government equal to about 50 percent of GDP. So it dangers fiscal sustainability if it is mismanaged, furthermore the interest and principal installment payment will peak in several years ahead. 6 2005 data shows that how burdening the due principal and the expense to bear. For example, the interest expense reaches Rp 42.3 trillion, comprising domestic obligation (State Debt Certificate/ SUN) interest payment of Rp 40.9 trillion, discount Rp 1.9 billion and other liabilities of Rp 1 billion. While the foreign exchange obligation certificate, of which the interest expense of US$132.3 million. 7 The amount has not included the foreign debt about US$78 billion or about Rp 725 trillion with 2006 installments of about Rp 90 trillions. The debt et al payment rescheduling has been conducted8, but the strategy

is not sufficient and inadequate to handle the entangling debt problems. The debt scheduling only extend the problem while the expense is the same. Until now, the government has not ever tried to reduce the debt stocks. The government keeps following the classical debt management ala IMF and Worldbank although all the country has proves it does not work in repairing the debt sustainability. Therefore, besides the rescheduling, we need a more comprehensive strategy to reduce the stocks. Several approaches can be chosen to implement simultaneously.The first approach, what was offered by J. Mohan Rao criticizing ortodox approach (like what now becomes the governmental development strategic policies) based on neo-liberalism and subjecting to top down globalization, and loyal to the thought that there is no alternatives. The impact is that during the last two decades, the domestic growth gets slowing down while the gap widens. The solution is to reposition the macro economic regime to be more progrowth with even distribution, in which the growth is combined with the public investment. The outcome is the multiplier effect because it stimulates the private investment flow and draw back the capitals that were fled during the crisis. The public investment funding can be gained from the additional revenue mobilization. Furthermore, to secure more the exchanged value, we need partial controls over capital traffic, integrated with tackling the poverty by pro- even distribution policy. The shift needs to be accompanied by debt write-off effort, especially the odious debts and criminal debts from the ir-

6 See ToR of Paralel III.1 session of ISEI XVI Congress 7 Yuliani Yunindri, â&#x20AC;&#x153;Ranjau-Ranjau Makroekonomiâ&#x20AC;?, Jawa Pos, 10 Mei 2006 8 he principle of foreign debt management so far is : (1) to reduce the state budget deficit in steps towards balanced budget (2004 targeted, but failed!); (b) to reduce the debt to GDP ratio; Economy Minister targeted foreign debt to GDP ratio cut to 30% in 2009; (c) to improve debt management capaciy; (d) to take notice to new debt policy, be more prudent; (d) to motivate foreign investment in various forms and to develop investor trust in general; (e) to attempt for debt rescheduling through PC3 forum (succeeded); (f) to attempt for Debt Swaps facility (Debt for Nature Debt for Poverty and so on; succeeded in Paris Club 3)

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responsibly chargeable regime.(bertanggung gugat) The second approach, the technical approach of Nancy Birdsall and Brian Deese seeing ‘Enhanced HIPC (Highly Indebted Poor Countries) Initiative’ failed to secure the sustainable growth in the debtor countries. To deal with it, they suggest nine concrete steps, among others is to increase the debt reduction in such a way that the debt payment expense of the poor countries are left not more than 2% of GDP, to appropriate the rest for the government to supply basic social needs. Then, the HIPC pioneering scope expands to facilitate those non-HIPC poor countries (such as Indonesia). And to protect the poor country from external shock such as commodity price changes interrupting their income. To defray the above three steps, they suggest the usage of IMF gold, formal aids improvement and multilateral bank contribution increase. In the long term, Birdsall and Deese suggest the debt giving efficiency and selectivity improvement. Next, the increase of the creditor accountability-in-court9 and HIPC procedural simplification. The third approach is from Francis Lemoine giving concrete suggestion for Indoensia. Lemoine questions IMF and Worldbank analysis regarding that Indonesia debt expense is technically sustainable in the long-term and in the short term reduces Indonesian debt problems into the government budget liquidity problems. This drives to select the partial solution based on paris club. The problem is Paris Club did not significantly reduce the debt present value so evenif the short term liquidity

hindrance can be relatively past, the debt stocks are still large. The next approach is from Pedro Morazan and Irene Knoke who argue that to comprehensively get the debt solution and give real benefits for the poor debtor countries, international mechanism need to radically change in solving the debts. IMF Worldbank, Paris Club and London Club mechanisms are only the creditors’ tools to protect their interests, not to restore the debtor country financial position through the debt abolishment. Therefore, they suggest a neutral arbiter where the debtors and creditors can be represented equally, added by one commonly appointed vote. Alternative strategy Based on the above approaches, the alternative strategy to develop to reduce the foreign (government) debt expense among others are : Firstly, enforcing the maximum limit for government debt payment especially foreign ones, to spare the larger fund and resources for the domestic economy. The fund management should be done by maximum transparency monitored by a multistakeholders’ forum involving the public widely. The fund can stay as a part of the state budget or included in a Trust Fund not for use to invest in capital markets and money markets. The fund is worthily prioritized for (among others): (1) labour-intensive program in villages; (2) the program credit subsidy for the real sector restoration based on small-medium business (UKM) and priority sectors; (3) funding the social sectors especially education and health.

9 For example, related with Sumitro Djojohadikusumo giving signals that Indonesia debts are corrupted as 30 percent, also an independent survey institution appointed by IMF and Huber Neiss’ admission about the misformulation of Indonesia crisis solusion by IMF and last Paul Wolfowitz admitting that the Worldbank are responsible foo for the corruption and poverty in the developing countries.

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This is harmonious with the suggestion of Birdsall and Deese10 that “En-

hanced HIPC Initiatives” uses the debt expense ratio directly related with the povert (for example it is better to use debt service to tax ratio than the debt servive to export ratio; there is also MDGs achievement calculation approach).

The maximum limit setting needs to lean on a law that the government can use it as the law foundation all at once to negotiate with the creditors. The statute regulation should include : • The maximum limit of the government debt payment annually budgeted, for example 10% of the total state revenue coming from tax and non-tax. • The government should use term arrangement in negotiation with the creditors. • The regulation of the fund management that should have been used to pay foreign debt both in the state budget and Trust Fund. The maximum transparency and stakeholders’ forum become inseparable part from the fund management. • The regulation about the fund usage priority. The next step, we need to regulate the new debt amount limit for the government to possibly directing towards zero debt for government foreign

debts. Also, regulating the maximum rate of tax increase and subsidy reduction so that the state revenue can be calculated reasonably will make the chance smaller for IMF and the Worldbank to pressure the government to increase the debt payment by enlarging the state revenue target (including especially through subsidy cut for the public services). Secondly, several steps to reduce the debt principle is to take: a. Debt abolishment through the financial engineering combination and commercial creditor renegotiation. One of the ways to practice is through various forms of financial engineering form such as debt to equity swap.11 b. debt stock reduction through international arbiter. The basic idea is the bilateral and multilateral creditors (the worldbank et al) are responsible for their failure to secure the debtor goods governance in the debt management. It makes the postulate of odious debt up to the surface or odious debt where the creditors facilitate the hair cut to compensate the odious debt. c. The negotiations at geopolitical and strategic levels. Indonesia is not in the HIPC scheme, not only because does not meet the criteria on the revenue side, but also from the debt to export ratio. The

10 Birdsall, Nancy. dan Deese, Brian (2003): “Perluasan Peringanan Utang Sebagai Landasan Tatanan Global Baru” dalam: “Arbitrase Utang Penyelesaian Menyeluruh Masalah Utang Luar Negeri Indonesia”, INFID Jakarta 11 For example, a company will invest as amounted to USD 70 million. Through the commercial negotiation, thegovernment debt is tradeable in the secondary market with discount (such as 30%). The company broker will buy the rupiah government debt of USD100 million at USD 70million. The government is willing to pay as much as USD 80 million ( for instance) to the company. But also as much as USD 70 million but compensated by tax facilities. The result is the USD 100 million debt was paid by FDI about 70-80 million, while the governmental debt is written-off as 20-30%. Through this we do have infaltoir risk especially when the government fund was got directly from money printing. Therefore, Bank Indonesia is needed to be really independent to avoid such thing.

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government together with the Worldbank claim that Indonesia gets better terms in Paris Club (PC) 3 compared with of PC 1. due period for example increases from 11 years becoming 18 years for non-ODA (Official Development Aid/Assistance) debts. The grace period rises from 5 years to 10 years for ODA, and there is interest rescheduling. However, based on European Network on Debt and Development (EURODAD) report, the terms Indonesia got is worse than other countries did. Indonesia got only Houston Terms. By this scheme, Indonesia gets excuse as interest rate rescheduling according to the initial concession interest for more than 20 years with 10 year progressive payment. While for non-ODA debts, the basic rate rescheduling is more than 15 eras with progressive payment or 2-3 years increasing annually.12 Ac-

tually Indonesia could have got Naples Terms, debt forgiveness up to 67% from the total non-ODA debts (as what Nigeria has got13). The grace period for ODA debts even can be extended to 16 years, with discounted interest rate for 40 years. This scheme should have been got by Indonesia because the creditors should have been responsible for the unmanaged debt. Moreover, according to Nancy Birdsall and Brian Deese, Indonesia debt expense has arrived at the level which detains economic growth. Actually the Naples Terms can give Indonesia the debt exemption up to 67% from total non-ODA debts

(like what Nigeria has got14). d. Bilateral renegotiation, especially with Japan. About one third of Indonesia outstanding debt is due to Japanese. Japanese strategic interest both to dam China ambition in its multinational restructuring to its desire to resist China product invasion to Indonesia domestic market, is negotiation potentials. Thirdly, to have additional indicators. Classical debt management usually uses outstanding debt to GDP or debt ratio as its main indicator, effective for short-term, long-term, both domestic and foreign debts. For ”debt payment ability” variable they use debt service ratio to compare the debt payment liability, both the principal and interest with export revenues. This approach neglects the fact that the government debt payment having social justice consequences.. Each rupiah allocated to pay the debt principal and interest has social opportunity costs. Because each rupiah spent can be reallocated for labor-intensive program, health, education, infrastructural investment, tax reduction and various alternatives of the other fiscal spending and revenue posts. Distribution effects or trade off of the debt payment are totally ignored. Therefore, we need an additional indicator, that is the ratio of debt principal and interest payment to the state budget or tax revenues. This is the debt service ratio to fiscal revenue (DSRFR). If the ratio is compared to the proportion of the revenue posts and or other fiscal spending, we get a description how far the social justice aspects are accomodated in the debt management.

12 Lemoine, 2003, op.cit. 13 See: Ivan A. Hadar, “Solusi Utang Indonesia: Belajarlah dari Argentina”, Kompas, 4/5/2005 14 See: Ivan A. Hadar, “Solusi Utang Indonesia: Belajarlah dari Argentina”, Kompas, 4/5/2005

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For Indonesia, the ratio also shows more the necessity of government debt management reorientation, by refocusing on the debt stock reduction, not shifting the debt to the future generation or new debt additions. Thus, we will have additional consequences, where the new debt should not be used to fund the state budget consumption, but more focused to fund the development. Besides the debt ratio and fiscal revenue that are general, we need more specific ratios such as ratio of the debt to human basic needs. Human Development Report issued by UNDP (2004), has identified the most important human basic needs, that are education, health, food and physical security. This still prevails, even more urging. Each sector needs fund that have been calculated in the report, so we get the ratio of debt or the human basic need fulfillment. Fourth, Integrated debt Management Office establishment. Currently the debt management is handled by several institutions, that are Financial Ministry, the central bank, Economy Coordinator Ministry and partially by National development Planning Agency. Front office function to seek foreign debt since the crisis has not been coordinated. While middle office functions to analyze the risk has not been optimal. For example, through the analysis of the debt manageability, risk analysis and payable rate, etc. That needs integrated debt management office that does not follow the conventional debt management strategy. Rescheduling and reprofiling are still

needed but they can not be used as the main debt management strategy. Debt management office should have existed to offer unconventional debt management needing negotiation techniques and financial reengineering such as hair-cut, write-off, Brady bond, debt converted into equity, debt for nature swap.15

All the foreign loans should flow through one door so that all the debt can be recorded well and known exactly how much the state has to bear. To realize the plan, the government is really working with the Foreign Debt Draftbill to replace various governmental regulations on it. The governmental idea should be looked into, not only because the foreign debt management is currently unordered, but also because Indonesia reliance on the foreign debt has been like drug addicts. Even the success of getting new loans is regarded as a pride. New loan means put Indonesia plunged deeper into the debt, much less if the foreign loan dictum as the complement takes role shifting to be budget deficit covering master. Parts of the elements even call the foreign debt as â&#x20AC;?odious debtâ&#x20AC;&#x2122;. Besides it is not utilized well and not give productivity, also it is corrupted. Therefore, to reorder foreign loan is not only worthy, but it should really be regulated in a statute. However, apart from the idea, which is in unknown time realizable, we need of course see first how

15 In general, the principles of Indonesian foreign debt management so far are : (a) Reduce the State Budget deficit amount in stages towards balanced budget; (b) Reduce ratio to GDP becoming about 60% (2004) and 30% (2009); (c) Improve debt management capacity; (d) Notice the policy to draw new debts, to be prudent; (e) Move the foreign investment in various forms and develop investor trust in general; (f) Attempt for the debt rescheduling (achieved, for example, in Paris Club) 3); (g) Attempt for debt swap facility (debt for nature; debt for poverty, and so on â&#x20AC;&#x201C; achieved also in Paris Club 3).

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the foreign debt problem portrait in Indonesia is. First, so far there is no quantitative limit that is clear and detailed. The government is implied to unlimitedly seek foreign loans. Even, the conventional ’limit’, such as the debt to GDP ratio is almost ignored. It effects the foreign debt totally continiuing to rise, but also the allocation of the fund does not spread fairly. So there is some economic sector with very high foreign loan while the other sector not. While the banking micro sector has certain limit for leverage and or BMPK (Given Credit maximum limit), but in the foreign loan especially about the limit, the government can be said not to comply with the risk management. Second, the foreign loan usage is not efficient. Sumitro Djojohadikusmo has since long remind the foreign loan leaking up to 30%. In a forum, Sri Mulyani has once signaled much enough ”unnamed” debt. None of the ministries felt responsible and utilizing it, while the state keep paying the commitment fee and the interest16. Third, there is a mis-match in utilizing the foreign debt. The short-term loan used to long-term investment. Some is also used to fund an undertaking without reserves earned, even also not do hedging so there is high risk of exchange rate.

past, we once heard about Debt Management Unit (DMU) being established to tidy up the foreign loan. The government prioritizes DMU as one of the instruments to reduce the foreign loan, eliminate the leak rate, negotiate with the creditors about the interest rate and term. In other words, DMU functions to reconstruct the foreign debt management, from planning, utilizing, controlling and repayment. Besides, the crisis of current foreign loan has driven several parties to suggest that the government asks for debt relieves to the creditors. For reasons, first, Indonesia is a “goods boy”, never evading. It is worthy for a “bonus” from the creditors. Second, Indonesia is one of the countries with the worst crisis in the world. Other reasons, the Worldbank should be responsible for Indonesian debt leaks, because the Worldbank have always been praising though they know many leaking in utilizing the loan. We wait for the confident government representing the nation, giving up unreasonable pride and ’anxiety’ to claim for writing-off (parts) of the debts, at least the odious debts and the debts being the responsibility of the creditors such as the odious debts created by the authoritarian government without people approvals. The anxiety of being solicited from the international friendship if asking for debt relief or haircut, will in turn decrease Indonesia bargaining power in everything, undeniably in the experiences of Argentina, Nigeria and New Order Indonesia when the old order inherited debt was written off more than 50 percent.

The government has never tried to reorder the foreign loan. Several times

16 In a meeting with INFID, in the beginning of 2005, Jakarta

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Issues and Perspectives of Privatization Privatization term emerged in Washington Consensus, a consensus produced by US Treasury under Reagan cooperating with British government under Thatcher’s control. Essentially, it is about fiscal efficiency concept, interpreted as subsidy minimization and the maximalization of debts, investment and trade free market, capital market liberalization and bankingfinance, and privatization. By: Ichsanuddin Noersy *

In Indonesia itself, Washington Consensus started on 1 June 1983 by applying free interest rate and banking net asset hedging. Simply stated, since 1 June 1983, the outstanding money control does not stick to the credit and interest rate, but shift to inflation targeting. So the framework becomes clearer. The systems is related with interest rate, exchange rate and inflation, in turn with fiscal pressure. Therefore, the relationship between this condition and privatization indicates more clearly Washington Consensus implementation in Indonesia. There are some points grounding neoliberalism paradigm in Washington Consensus, that are : private ownership, competition and free market, market mechanism, market failure as the wisest an most efficient judge, and caricatural programs such as Community Development, Community Development, Corporate Social Responsibility, Scholarsip dan Funding NGO. All the abovementioned points were convened by neoclassical economists, which essentially intended in enlarging the capital accumulation. But how the capital accumulation can be enlarged without being followed by international economic principles? And how the in ternatioanl economy can work if the state still protect? This is the basic logics of neoclassical paradigm. There are 11 issues accompanying the implementation of Washington Consensus,

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that are liberal democracy, country risk, human rights. Special on human rights issue, I have said in the Human Rights National commission meeting, that fighting for Human rights and anti-violence without economic social cultural rights are null. This economic sociocultral rights is the right to get decent livings, working, education, health, housing and public service. The next issue is the environment. In the An Inconvenient Truth film, Al Gore described this issue so smartly. He explained about a kind of double standards behind the environmental issues. Then we have the issues of gender, goods corporate governance, corruption index, competition index, multiculture, local wisdom and the last issue, the failing and bad governance in providing public service. The most related directly with the privatization is the eleventh or the last point, that is the failing and bad governance in providing public service. Why? Because what is done is only make bureaucractic a business, so that we do not know any “public goodss” or “public services”. There is only “commercial goodss” or “commercial services”. The privatization are executed starting from the concept or outsourcing several types of jobs, giving the management rights, IPO. Strategic partnership, utility rights on public goodss, depending on private suppliers to meet service needs, unbundling services and

public goodss, and asset securities. In the perspective of political economy, the privatization can be seen from the view towards the foreign debts. Foreign debts have given fiscal pressure and balance of payment pressure effects. Because the debtor countries can not afford to pay the debts or exactly because the economic policies are based on the efforts to run after the economy as high as possible, they are forced to give mining concession, trade liberation and banking finance and the state company privatization. Based on Marion Fourcade and sarah L. Babb researches publicated on the American Journal of sociology, the privatization process experienced by Indonesia are experienced too by four other states that are Chile, Britain, france and Mexico, starting with the balance of payment crisis. Stiglitz and Noriah themselves saw privatization as the resource expropriation and economy surplus of the debtor state abroad, especially to the creditor states or the investor countries. But the debtor countries are supposed to lend until the economic resources are shrunk and the market becomes marginal, all at once the people buying power breaks down. For example are Nigeria and Argentina. Now Argentina succeeds to awake after it dares to resist. In the end, the debtor country later will only become a ‘territory”, not a state anymore, as delivered by Michael Hudson in Super Imperialism. The redundant is many economist views randomly compare the corporation efficency and the efficiency in the government organization. Theoretically, the term of “economical” is in accordance with the government. Therefore, it is unsuitable enough to compare the term of “economical” on the government that is responsible to give protection, to advance the public welfare, to build people intelligence, give justice and safety, with the dogma of “efficiency” in corporations. Other redundancy is the matter of shifting

from the welfare state into the corporate welfare. For the market mechanism observers, the shift is not problem or a matter at all, though it end with the richer the capitalists. For the institutional economists based on the welfare state, although they do not use the ethatic principle, the shift is merely to prove the concept of nightwatch state that will continuously repeat, that is a state will merely be a capitalist shield. The concept of nach-wäctherstaat emerging since Europe arouse has not changed until today, because the state occupied by the bureaucrats and politicians is a maid for capitalists or borjuis. In several developed countries, the current privatization has faced much resistance. For example, the electricity power plant privatization in Britain causing the more expensive electricity tariff and the difficulties of the government to regulate the electricity supply guarantee. In US, this happened in the thirteen federal states, so that the powerplant privatization in both countries is stopped. In the beginning of 21st century, US Congress also resists Unocal sales to CNOOC and the port access to Dubai Port. In Japan, the post company privatization induced long debate and dispopulrize prime minister Koizumi. In the end, under Shinzo Abe, the postal privatization was executed by selling the postal company shares to domestic communities. Indeed, Indonesia has economists points out the sucess of privatization, by presenting the privatization in Korea, Russia and China, as often deliverd by Mohammad Ichzan and Chatib Basri. I can explain easily the reason for ‘the success’. Russia through Gazprom currently control 80% gas supply to Europe Union. While Korea, experiences actually a synersy between domestic power and US power. For example, is how Motorolla success was taken over by Samsung and LG. So as when we see China. In Siemens case, China produce HuaWei. In Audi

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case, China produces Cherry. The fact is we misview, because China actually never gives chances for foreign ownership more than 50 percents. In my visitation to several industrial province in China, including to Shanghai which is said as the most capitalistic province though, China does not randomly give such opportunity. According to my opinion , the other way to view the privatization in Russia, Korea and China has not been comprehensive. There are things they have not disclosed. Such as Korea which has never actually released its industry to foreigners. Even Korean steel products wer banned by US which seemed to be afraid seeing industrialization in Southern Korea. So we can not arbitrarily conclude the mass essential livelihood shift to private ele-

ments, both in Korea, Russia, and China. Privatization on public sectors actually is rotten alliance of politicians, bureaucrats, corporations and intellectuals in whose paradigm, the market is the moralistic judge. The main motive is the chair and money for the self, family and relative of theirs. We will never be able to build a domesticsustenance based industry as long as we think about privatization. This is an impossible. Our capability to build the industry depends on the government commitment in running the constitution, limiting the sectors or business types to privatize. Besides, the government should also prevent privatization as the economic resource expropriation and national economic surplus to foreigners, or to prevent the privatization as â&#x20AC;&#x153;robbing â&#x20AC;&#x153; our dignities.

* Ichsanuddin Noersy is an economic observer. This paper was delivered in the Focus Discussion Group (FGD) of Forum Keadilan Ekonomi (FKE), Institute for Global Justice (IGJ) 9 Juli 2008, disarikan oleh Joko Arif

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The State, Market and Global Capitalism : Critical Reflection on Financial Crisis 2007-20081 INTRODUCTION The financial crisis in the United States due to credit failure in subprime mortgage at last spread out as a global crisis threatening the world economic stability. The crisis hitting countries of international â&#x20AC;&#x153;capitalism heartâ&#x20AC;? has broadened to Europe and Asia, including Indonesia.

1997-1998. Among other policies taken are withdrawing dollars owned by companies abroad, pushing the state companies (BUMN) to buy back, preventing their shares drop down further, and raise the public bank-saving fund amount to be guaranteed by the government, that is from 100 million rupiah to two billion rupiah.

The world leaders give serious response facing the crisis regarded the worst since the depression in 1930s. US government has provided bail out fund of 700 billion USD. Before, US government has expropriated Fannie Mae and Freddy Mac corporations by injecting 200 billion USD fund, besides expend 120 billion USD fund to help AIG. England government provided bailout of 50 billion poundsterling (87 billion UD), and taking over Bradford and Bingley. Germany government outflows 68 billion USD funds to save Hypo Real Estate from bankruptcy.

According to the analysts, the crisis will be dampened at least within two years. It means, the impact felt now can be said to be at the beginning stage. Indonesia integration in the international economy realized in liberal policies in trade, investment and financial sectors will keep bearing the impacts hitting people livelihoods. How is the global capitalism systems nature nowadays, bearing a range of crisis coming one and another? How to build economic structure which is strong, deep-rooted, and unshakeable by the dynamics in the global capitalism systems?

In Indonesia, the crisis impact can be seen clearly, for example in rupiah exchange rate depreciation for dollars. Besides, Indonesian export commodity prices such as palm, coal and coffee are depreciated. The administration under President SBY tried to coordinate to prevent the crisis escalation to repeat as in

From Fordism Crisis to Neoliberalism Crisis The emerging financial globalization with speculative character which at last bears global financial crisis, can be traced back by viewing the capitalism look in 1970s. then the clear signs of

1 A Paper for A Day Seminar about The Global Crisis at the Institute for Global Justice, Jakarta, 24 October 2008.

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exhaustion have turned up from the economic growth regime moved by “FordismTaylorism Systems”, a production systems involving mass-labours and creating high value-added through practical technological development in the manufacturing sector. Fordism-Taylorism production relationship involving massive labours works in accordance with Keynesianism school of thoughts domination in 1930s period until the beginning of 1970s, driving the government or state to create employment through labour-intensive projects. Despite advocating free market in broad scale, including in international finance and trade, in many things the school of thoughts laid by John Maynard Keynes (1883-1946) believes that the government role will be useful and needed for problems unsolvable by the invisible hand. Fordism-Taylorism mass production systems started to go through crisis especially after the decade of 1980s, because of the declining global productivity and its incapability of providing a space for the faster capital movement, including in the financial sector. Keyneysianism which was once dominant concept started to be shifted by neoliberalism pattern of thought. Friedrich von Hayek (1899-1992) has roled significantly in directing the economic prespectives back to the classical iberalism principles which stresses on the market freedom, economic efficiency and reducing the governmental interference in the economy.2

Structurally, the shift from Keynesianism to neoliberalism shows the new pattern in the industrial orientations

and systems of the developed countries. Other than the state role erosion in the economy due to the production internationalization by the multinational corporations, 1980s decade testifies the quick evolution from a ”productive capitalism systems” to a capitalism systems dominated by the activities based on only the capability to seek speculative profit in capital and money markets. The capital accumulation process has shifted from productive characteristic to speculative gambling, which Susan Strange calls as Casino Capitalism3. Thirty

years ago, according to Naom Chomsky, about 90 percent of the transactions using foreign currency reated with real sector(long-term investment and trade). However, more than 90 percent now consists of long-term financial capital flows, more than 80 percent even less than a week-term, directed to speculations4.

Marxist group views that the financial capital domination in the global capitalism nowadays, is caused by technological innovation (communication and information technology speed) and government deregulation, also shows overcapital accumulation. Broadly speaking, it refers that the investment in the productive real sector is not regarded lucrative anymore. The finanial sector growth has to lay in the incapability context of productive sector to provide considerable gain in the view of the capital owner. By investing in the forms of shares, bonds and other securities, the individuals do not intend to withdraw themselves from the productive

2 Susan George, “A Short History of Neoliberalism”, in . Walden Bello, Nicola Bullard & Kamal Malhotra (eds), Global Finance: New Thinking on Regulative Capital Markets, London and New york: Zed Books, 2000, p. 27 3 Susanne Strange, Casino Capitalism, Manchester and New York: Manchester University, 1997. 4 Susanne Soederbeg, The Politics of New International Financial Architecture: Reimposing Neoliberal Domination in the Global South, London: Zed Books, 2004, p. 11

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activities, rather they sell and buy the values claimed in the future from productive activities. They claim the ’future royalty’ from productive activities5. Without tight regulation, speculative actions bearing bubble economy systems will blow up whenever the trust on the future productive activity ”truth” is doubted, starting with the incapability of the debtors to repay their short-term loans. Asia crisis started with the incapability of several conglomerates in South Korea to pay their short-term loans to the financial institutions acting as creditors. In Thailand case, when the bubble economy blew up, they who lent money to fund real estate projects could not pay their loans. Ten years later, in US the crisis starts with credit default or the insolvency in subprime mortgage. This then triggers degradation of trust in the financial market, resulting in dropping values of the shares and other securities. Amone others, the share trade in Wall Street suffers loss of USD 8.33 trillion since the end of last year6. Unfortunately, such economy ‘fertilized’ by the international financial institutions such as IMF is protected steadily by our government. The main argument is to prevent the crisis contagion or escalation causing economy paralyze in all sectors. To a certain extent, such argument is justifiable, but it is also risky of moral hazard for the financial industry practitioners themselves. Responding IMF bail-out to cover the private sector debts in Asia Crisis, Joseph E. Stiglitz stated in standard comprehension, that a creditor facing bad debts should have borne it as his business risk. However IMF programs just supplied

loans to the developing country governments to bailout the creditors. As a result, the creditors anticipating IMF guarantee did not go to the debtors as the legalized payers, on the pretext that their government supported by IMF acted fast at last. These happened in Russia, Thailand and Indonesia. the creditors are just stimulated to dare taking risks, instead of screening more prudently and seriousy. IMF just provides services to the speculators, through ‘helping’ loans spread out by the government lent by IMF, such as written by Stiglitz, ”The (IMF) money doesn’t disappear into thin air. It goes into somebody’s pocket – much of it into the pockets of the speculators. Some speculatorsmay win, some may lose, but speculators as a whole make an amount equal to what the government loses. In a sense, it is the IMF that keeps the speculators in business”7. The same logics seems to apply in the bailout provided by US and Europe country governments. The bankers and financial business pracatitioners have proved not to do their tasks properly, managing the risks and allocating the capital prudently. Knowing the government will take an action if it risks massive loss, they change into the casino gamblers on others’ funds. They miscalculate in allocating a large amount of funds for housing sector that turns out to be insolvent. Loose regulations, money and monetary policies are a combination of dangerous poison formulas8, shaking the global systems

dominated by neoliberalism. Thus, the current global financial crisis is the neoliberalism crisis. If so, where is the global capitalism going to move?

5 Ibid., p. 12. 6 TEMPO, 19 October 2008. 7 Joseph E Stiglitz, op. cit., p. 198-199. 8 Joseph E. Stiglitz, “The Way Out: How the Financial Crisis Happened and how it must be fixed”, TIME, 27 October 2008.

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The State, Market and Economic Development : Retrospection Efforts To handle the global crisis, the implicit expression of the prominent statement of the administration leaders such as Nicolas Sarkozy, intellectuals such as Joseph Stiglitz, and even “repentant speculator” such as George Soros, is the necessity of the regulation to prevent the actions of market practitioners threatening the balance and efficiency in allocating the economic resources. According to the regulation theory followers, capitalism functions effectively if a mediation tool named as regulation is made effective to ensure that the distortion and contradiction created by the competition and capital accumulation activities keep guarded to work in one accord or compatible with the social cohesion and economic growth in each country9.

liberalizing the economy is seen as the only way-out to achieve prosperity. The trade, investment and financial liberalization become the policies as if taken for granted. The global capitalism structure inspired by neoliberal ideology does not only bear financial globalization, but also the intensifying individualism principles, the degradation of social solidarity and the erotion of the nation-state autonomy. The principles prioritizing the state role in realizing the social welfare and improving the economic performance are seen as irrelevant and unproductive matters. The commitment of the state to stand for the weak having a seat in Keynesianism is replaced by the market fundamentalism producing Darwinism principles in the social and economic systems.

On the broader side, lately the global financial crisis has made the classical dispute on the surface on how and how far the state should have roles in the economic development. If Asia Crisis 1997-1998 forwards the interpretation about the government failure, the global crisis 2007-2008 forwards the interpretation of market failure. When the government, pioneered by US, spends hundreds of billion dollar bail-out, it proves clearly that at last the market can not work perfectly. Is a state at its place to function as “the dishwasher” after the speculation party celebrating chaotic world involving the financial elites with lifestyle of luxury?

The scientists suggesting that we return to Keynesianism principles actually expect to tackle the instability or volatility rates especially caused by financial capital movement10. They stress the need of each state (at national stage) to limit the free movement of the financial capital. The weakness of neoliberalism, in the eye of “neo-Keynesians”, is the inexistence of stability in the macro economic growth due to the unregulated market moving too wildly. Besides, they also stress about the importance to direct the government role in stimulating the economic productivity through the strategic investment in infrastructures. China model as mentioned by Stiglitz et al is the example of successful investing strategically in infrastructures to stimulate stable growth11.

Since the neoliberalism awakening in 1980s, and much less after the setback and the collapse of the communist states in Eastern Europe, choice of opening or

China Model are much mentioned by international mass media as the example of the state capitalism success to imitate much after the failure of the Anglo-Saxon

9 Michael Dunford, “Globalization and Theories of Regulation”, in Ronen Palan (ed), Global Political Economy: Contemporary Theories, London & New York: Routledge, p. 144. 10 See for example, Joseph Stiglitz, Jose Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis & Deepak Nayyar, Stability with Growth: Macroeconomics, Liberalization and Development, New York: Oxford University Press, 2006. 11 Ibid, p. 69.

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model (US) to dam the financial crisis. This model is signified by the policy to stimulate private business and invite foreign investments. Accordingly, the government keeps controlling the key industrial sectors such as oil and automotive.12

Without despising the success of China economic development success, at least we need to notice two things. First, China development model are export-oriented too much that China depends heavily on international markets, especially big state markets such as US and Europe Union. The economic recession hitting US due to the global financial crisis must have influenced China export that places US as the biggest market. Such dependence, especially as the crisis hitting the export-destination country, is absolutely disadvantageous. Second, China development model highly rely on extra-cheap labour, opening wide probability of excessive exploitation on labour groups. This can be indeed the source of humanitary concern. Some notes for Indonesia This crisis is and is going to influential for Indonesia, although, in my opinion, it will not be so severe as the crisis 19971998. Remember that 1997-1998 crisis contained political elements because we went through the delegitimation of New Orde regime and the democracy transformation that incites prolonged undulation. This factor combined with the IMF supported - government failure in handling the crisis effectively, causing the economic crisis as though will never leave Indonesia.

Nevertheless, for SBY administration, this global crisis gives a strike. Without adequate control of the communities, SBY administration has enlarged its dependency on “cheap fund” in the financial sector to cover the state budget deficit. The percentage of the foreign ownership in the state debt certificate (SUN) per August 2008 is Rp 104.7 trillion, while those in Indonesia Bank Certificate reach up to Rp 65 trillion13. The foreign investors are

predicted to sell SUN they keep. The securities sales are changed into dollar buyout causing the rupiah to sink down. The foreign fund flight potential is imbalanced with Indonesia reserves of just 57.1 billion USD. Due to the global financial crisis, government is forced to change the funding source of the state budget deficit, from the issuance of the State Securities (SBN) to the foreign debts. The state debt issuance target is declined from 103.5 trillion rupiah to 54.7 trillion rupiah. otherwise, the program debt coming from the foreign financial institution, among others are the Worldbank and the Asian Development Bank, increases from 23.8 trillion rupiah to 45.7 trillion rupiah14. This means to swing from the debt dependency in the capital market to improving the dependency on the foreign debts.

The debt payment installment until now still traps the state budget. In the budget planning 2009 read by president SBY, the payment of the debt interest and principal portion is recorded as almost 15 percent, far larger than the budget of the combination of six departments/ ministries. Moreover, if we add the interest installment up to Rp 110 trillion, the total debt payment is almost Rp 170 trillion. It is far higher than the budget of Public Works Department (Rp 35,7 trillion), Defense De-

. 12 Joshua Kurlantzik, “Central Command”, in Time, 27 October 2008. 13 Tempo, 11 October 2008. 14 Kompas, 14 October 2008

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partment (Rp 35,0 trillion), National Police (Rp 25,7 trillion), Religion Department (Rp 20,7 trillion), Health Department (Rp 19,3 trillion), and Transportation Department (Rp 16,1 trillion)15. Currently, the government debt is noted about Rp 1.300 trillion or more than the total state budget 2009 as Rp 1.222 trillion. Out of this, the bond portion including recapitulated bonds injected to the banking at the financial crisis in the last decade, is still bulk. Referring to the latest record, we need Rp 35 Trillion annual fund to pay the recapitulated bond interest. A massive amount mingles with the desperate nation of the abundant budget fund. More ironically, the recapitulated bonds are injected to the banking because Bank Indonesia Liquidation Aids (BLBI) obligors corrupt state funds. Recapitulated bonds injected to the banks in the end of 1990s decade reach Rp 700s trillion with interest to pay almost Rp 100 trillion annually. Such large amount was taken from the tax paid by the people who know nothing ever about recapitulated bonds nor BLBI. It is lasting debts to pay also by our heirs. Therefore, we have to find comprehensive solution to unload the debt inherited by New Orde regime from our inheriting generations. The foreign creditors should give a haircut bilaterally or multilaterally because we all know that most of the previous debts were not effective. The government has to reduce the budget load from the recapitulated bonds as national debts. Moreover, many of the bank ownership have changed. The global crisis gives several other lessons. First, the market failure is the naked fact that we can take to stimulate reorientation or even deconstruction from the thought pattern of market fundamentalism so far adopted by the governmental economists. Second, the importance of 15 Jawa Pos, 16 August 2008. 16 Seputar Indonesia, 22 October 2008

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accumulating the home country market by improving the people buying power synergized with the drives to empower our people for private business ownership and to improve the national product competitiveness. Import product domination can we see easily in the markets of vegetables, fruits and other staple goodss. The Indonesia Textile Association (API) reported that the domestic market control by the textile producers and the national textile products have sunk from 57 percent (2005) down to 23 percent (2008)16.

Third, realizing the proper industrial strategy will reduce Indonesia dependency on primary commodity product export unchanging since Dutch era. Fourth, to strengthen the real sector not limited only to the program and deep-rooted real action, especially for the middle-small scale business (UKM) proving to have strong power going through crisis 1997-1998. A report shows that about 70 percent of smallmiddle scale business products have been altered by imports. Sixth, rewarding more in the form of law protection and awarding various better facilities for Indonesian labour elements abroad who take reserves into Indonesia as amounted to 60 trillion rupiah (2006). They do not only give more funds into the country, but also support the economy of their home area. Indonesian power facing the prolonged crisis is not due to the reformation resulted government, but minimally for parts of it, is due to the supports of TKI bloods, tears and sweats of Indonesian Labor (TKI) abroad. Last but not least, the global financial crisis may become a goods trigger for productive discussions about Indonesia development direction in the future. Neoliberalism adopted by the govern-

ment so far absolutely is a choice without any promise of goods future for Indonesia. Epistemologically, neoliberalism characterizes anti-development, because it negates the development planning aspect and the importance of the government role as public interest representatives. Nevertheless, the decision to be introvert, with economic jargon of “independent”, exactly is a too extreme choice to make. The economic setback experienced by China in Mao Zhe Dong era, Myanmar under junta military, North Korea under Stalinist era, and Indonesia in Old Orde era are examples how introvert economy usually correlate with poverty and underdevelopment. Without being a priori to various responsive opinions, I

think the global financial crisis remind us back how important to strengthen the national independence by creating a national economic structure which is strong, deep-rooted, just and “unshakable” of the global capitalism dynamics. The independence does of course not mean the same as being introvert. The mentality of dependence on funds and solution offered by the foreign parties, having an agenda different from the people interest in this country, is a reflection on the nation confidence crisis to tackle honestly and immediately. Syamsul Hadi, Ph.D International Relations Department Lecturer of UI Depok

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http://www.spi.or.id/wp-content/uploads/2008/01/img_6953.JPG

Gerak Lawan’s Statement on Capital Investment Law Judicial Review’s Verdict Democracy Greeting,

Tuesday, 25 March 2007, Constitutional Court has recited the verdict upon petition suit of Legislation No. 25 / 2007 on Capital Investment. However, only Article 22 (Business Utilization Right, Building Utilization Right, and Utilization Right) are cancelled. Judge considered the rest article is constitutional.

Gerak Lawan consider the Verdict of constitutional court “did Not Meticulous”

First, the issue of the same treatment that did not differentiate the country origin (Article 3) considered constitutional. Whereas, country shall directs its development priority to national interest. 1945 constitution distinctly stated that economy system must be based on democracy of economic and the production branches that regulates people’s lives must be authorized under the State for people’s prosperity

Secondly, the anxiety of capital flights that allows asset transfer at any momement and any where (article 8) is unreasonable. The fact that it is clearly shown clear corelation between repatriation asset with policy of massive dismissal.

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The Constitution Judge, Maruarar Siahaan give dissenting opinion upon Constitution Court’s verdict, it is one of the evidence that Constitution Court’s verdict isn’t meticulous Though Constitution Court cancelled article 22, it doesn’t stop liberalization on agrarian resources. Indeed, Constitution Court stated that problem around land dispute will be referred to Agrarian Main law of 1960, but in a real practice, that law has never been used as legal bases. In fact the land dispute issues are usually refer to Forestry, Oil and Nature gas, Water Resources, law that that benefits international capital n limits people’s access to natural resources and function as an effective tool to criminalize the mass people’s fight,

People’s movement against neokolonialism, therefore, states the following (GERAK LAWAN): 1. All Constitution Judges, Government, Parliamentarian, Politic Parties and Businessmen, an agent of international capital must responsible for liberalization on natural resources, labors, and economic that has re colonized the nation, increase agrarian dispute, massive dismissal, starvation and other people’s suffering.

2. As a consequence of implementing 1960 agrarian main law, States must run agrarian reform and revoke legislation which in contradiction to agrarian main law.

3. Gerak Lawan will continue people’s movement consolidation to strengthen anti neo-liberalism - imperialism’s struggle and to defend the constitutional rights of Indonesian people.

Jakarta, 31 March, 2008

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Sugar Industri Revitalization among the Sluggish Sugar Trades By: Sulastri Surono Background Agribusiness is definable as the business activities full of uncertainty and risky. Being related with natural resources and commonly produced by season, make the agribusiness identical with the unending fortune betting field. The problem complexity gets more dilematic reminding the agribusiness persons facing the very tight competition after Indonesia bound itself to WTO agreement. By Indonesia entering Agreement on Agriculture (AoA) in 1995 in WTO and submitting to Letter of Intent IMF in 1997, the agricultural liberation ocurred so radically. As we know, the agricultural liberation is to give the agricultural systems and Indoensian peasant fates to the free fight liberalism, the strong will win and the weak will lose. The strong are the importers, big traders, multinational corporations controlling seeds, fertilizers, medi-

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cines, production facilities, machineries, transgenic plantation, big agribusiness corporations, landlords and state officials getting benefits from MNC (Multinational Corporation). The weak are majority Indonesian farmers and villagers, whose business is of small/micro scale. They live in poor subsistence. Many farmers do not own land so they are always defeated in various agrarian disputes and cases. Distortion and unfair trade practices happen. The developed countries relying on industry, high technology and high per capita income generally protect their farmers, who are not much notably. While the poor countries, agricultural and other natural resource based in their development, tend not to be so friendly to their own farmers, although the farmers are majority and the main contributors to the economic, political systems and the democratic journey of a state. At the world level, sugar

is one of the strategic commodity which is so regulated through three mechanisms commonly used, that are domestic subsidy, import protection through high tariff, and supply control. Besides, the sugar cane farmers in the sugar producing countries in the world are protected much from import by very high Import Duty. For EU, for example, sugar Import Duty is 240 percent, US 155 percent, India 150 percent, Philippines 133 percent, and Thailand 104 percent. While Indonesia levies Import Duty of only about 25 percent. This reflects lack of governmental protection over domestic sugar cane farmers. Brazil is the main producer of the world sugar this time, because Brazil produces by very cheap costs, but it is not purely because of efficiency and fair business practices. Brazil export and production improvement because of massive subsidy program of sugar sector related with fuel procurement known as the Brazilian pro-alcohol program. Thatâ&#x20AC;&#x2122;s why, such subsidy is not mattered because it is protected under the policy of subsidizing the plant fuel procurement. Sugar cane production in Brazil does not produce only sugar, but also it produce derivative products with high economic and strategic values, that are ethane as biofuel. About 40% automotives in Brazil uses fuel of ethanol made of sugar cane sap and trickles. So it is so reasonable that cane sugar-based fuel production cost is so cheap and sugar price is cheaper.

Related with the supply control policy, Brazil government controls sugar supply as follows : when the fuel market price decreases, ethane production is reduced (sugar added), otherwise when the fuel price increases, ethana is produced more (sugar reduced). Our neighbour, Thailand, known as the main sugar producer in Asia, takes the same step, similarly to EU. Since 2000, Thailand government provides sugar industry restructurization fund up to US$ 1 billion, secures the price at the level of the cane sugar by funding US$ 330 million, and provides production credit scheme for the farmers. We do not need and can not force the developed countries to withdraw the subsidy for their peasants. That is their rights, and their own money. The problem is when the highly subsidized commodity entering freely our market. Does the free trade argument make us to choose not to protect the farmers cause it does not coincide with globalization spirit? The question, how are our small farmers to dilepas to naively fight at their homeland against the world giant companies? The world giants are equipped by various weapons such as domestic subsidy, high import duty, export subsidy, and various forms of other agricultural supports. The trade liberation, including those prevailing for sugar, is not never perfect, but always full of distortion and injustice. Its logical consequence, the government policies on behalf of the cane sugar farmers are needed to make the playing field, at least not too far away from what other countries do.

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Sugar Price and Production Development in the World Market Indonesia sugar economic performance and policy are influenced by the world sugar market, and the national sugar policy effectiveness in dampen the world market fluctuation. Pictur 1 shows the production and consumption. The world sugar production tends to fluctuate, while the consumption is relatively constant. In 1994-1995 until 2007-2008 the mean production rise is 2,72% per year, while the consumption rise is only 2,22%, meaning that the production rise is higher than the consumption rise. In the middle of 2004 the fuel price rise and sugar policy reformation happen in Europ Union. Then some efficient sugar producer countries such as Brazil, Australia, India and China increase their production in 2007/2008 so that the world sugar market is predicted for their supply excess so that the world price is kept low. To protect domestic sugar industry, almost all the countries protect their domestic industries through tariff barrier and non-tariff barrier. This causes the world sugar market is distorted. Besides the fluctuative production, the world trade price tends to fluctuate at the low rate and highly at the higher price (Picture 2). The high price is in short period of time and low price in the longer period

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of time. So the sugar production is less responsive to price changes, this reflects that the investment of sugar industry is of long-term. Sugar Industry in Indonesia History records that Indonesia was once the second largest sugar exporter in the world after Cuba in 1930s with production reaches 3 million tones. The technology develops fast, even Indonesia was once a most important lighthouse of the world sugar reference, because the sugar research institution success in Pasuruan. But the history tracks bitter records because near to the end of the 20th century, Indoensia becomes the second largest sugar importer in the world after Russia. Related with the sugar as the strategic vital commodity in Indonesia food economy, it is not exaggerated to say that outside of the rice dominance, sugar symbolizes the national food sovereignity precision. Sugar industry is the oldest in Indonesia. There is an impression that the government deliberately creates cheap foods on the reason of inflation, but it does not see the producing farmer interest. Sugar is victimized also although its consumption is only 12.6 kg/capita/year so it lowly contributes to inflation. In January 2008, sugar contribution to the inflation is only 0.01, even in August-December 2007 is zero, while 2007 inflation reaches 6.59 percent. Sugar price is too low so it potentially reduces the farmer animo to improve their business productivity.

It is not surprising that import was jumping up. In the sugar policy, the government prefer refined sugar industry importing raw sugar in large amount to motivating investment in sugar cane plantation. The government easily sells out refined sugar import license for foods and beverages industries. It has to be corrected by integrated sugar policies. Inefficient Sugar Industry How severe is the domestic sugar industry? The low price of domestic sugar, is the resultant of many factors, among them are the intrusion of imported refined sugar to white sugar consumers, while it should be only for foods and beverages industry needs. The low price causes the production fluctuate. And the domestic sugar production is still at the low level targeted by the government due to declining area, productivity and sucrose content rate. At the villager production scale, we have to use the ratoons repeatedly until tens times, because we have no fund to lift up the ratoons. Besides, the sugar cane farming is set aside by other commodity earning higher revenue such as paddy, corn, crops and horticulture. Therefore, sugar cane plantation area depreciates sharply especially for paddy fields. More than two third of sugar cane production comes from the dry field whose productivity is lower 15-20 percent than the wet field sugarcane. The sucrose content is so low too because the low factory efficiency

and low quality pressed sugar cane due to imbalanced fertilizer composition. The sugar factory, generally old enough, that are more than one century old, use sulfur gas. sucrose content is increased so far only to be around 7 percent as a way to improve production. One percent rise of sucrose content will add 300,000 tons of production, an example contributor to self-sufficiency program targeted by ceremonial government in 2009. State-owned sugar companies face significant obstacle, that is the involvement of the large number of human resources, that make the overhead costs very high. And the cane sugar area which is owned by the state company (Tebu SEndiri/TS) is only one fifth of the community owned cane sugar area (Tebu Rakyat/TR). So the state-owned company productivity depends highly on the willingness of the farmers to plant sugarcane. This time, in several state-owned companies the production costs of TS is higher than of TR so the state-owned company is planning to convert TS area into TR area, only to increase the high dependency of sugar factory productivity to the TR farmers. Sugar cane productivity decline, from 100-120 tones per hectare in the Dutch era to about 70 tons per hectare caused by many factors, is not because of lack of mastering the plantation techniques, but because the input (especially fertilizers and menpower) price getting more expensive and the dry field farmers merely rely on rainfall. No precision in determining when to start pressing, which farm to cut,

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and how to monitor the ripeness, how to cut the clean sugarcane and how to manage better cut and load including the efforts to prevent plantation fire. Otherwise, private sugar factory located in Lampung such as PT Gunung Madu, PT Gula Putih Mataram, dan PT Sweet Indo Lampung get more certainty on land provision because they get the land from the broader rights of tenure by long lease, (HGU), basically the dry land. Revitalization The sugar industry revitalization reverberation turns up and down as if it follows the rhytm of ambiguity of the policies flowing in the sugar industry. Sugar Factory (SF) revitalization whose credit ceiling reaches Rp 9.7 trillion of the State-owned banking syndicate has been liquidated to four state-owned sugar plants that are PTPN XIV, RNI, PTPN X and PTPN XI. The not small revitalization fund, jumps high out of the corporation financial ability to bear, moreover in the last few years, SF gets profits. At first, the banking elements are reluctant to give SF revitalization credit, reminding the very high risk and value. Under the Vice President Jusuf Kalla coordination, the banking was met with SF so the revitalization credit can be liquid. The revitalization credit is used to repair the machine and factory equipments, as most of the SF are old colonial inheritance, most of which are located on Java Island. The program

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seriousness and continuity are really waited by many elements because its success means so much not only to arrive at sugar self-sufficiency program in 2009, but also for local resource utility optimalization in the context of acceleration of the state welfare and regional economic development. This credit is very important, on-farm is used for ratoon lifting program, repairing the processing management in the factory that the sucrose content can be increased. While off-farm, the revitalization fund is used to replace old machines by new ones, and to improve the grinding capacity. The machine limitations cause the factory grinding day on average longer so the sucrose content decreases because the sugar cane waits too long in the factory. Currently we have got 70% sucrose content and after realization up to 8%. HOW IS CURRENT DEVELOPMENT OF SUGAR PRICE? Entering the grinding season in 2008, the sugar price in the domestic market goes through incredible decline that is about Rp 4.500/kg, below the bailout from investors that it Rp 5.000/kg. The low price of local sugar is influenced by the abundant domestic stocks due to ineffectiveness of refined sugar trade that is banned for competing with sugarcane based local sugar. It can be seen during the last five years, domestic and imported sugar production tends to increase continuously, so that national sugar supply

improves. The sharp improvement in 2007 supplies 5.4 million tons, far exceeding the national demand of only 4.0 million tons. The excessive supply effects badly to the price at the producerâ&#x20AC;&#x2122;s level. Refined sugar consumption for the industry data is marked up about 800 to 900 thousands tons, covering the household class, small scale foods and beverages industry demand as the consumers. Factually in the field, the household class, small scale industry does not use the refined sugar as its materials, but the local sugar or bowl-shaped sugar (made from sugar cane, coconut and palm). The excessive refined sugar is sold freely to a number of moder supermarket in 1-2kg package. The falling sugar price is not only caused by the intrusion of refined sugar price as mentioned above, but also because of excessive stock of 2007 production as balanced of 450 million tons not entering the market but piling in the state-owned sugar factory warehouse. While 2008 grinding yield based on September taxation is amounted to 1.7 million tons, has been waiting to enter the market too. It results in the saturated market of local sugar until the price falls under the bailout fund. If the condition is left prolonged, it potentially threatens the national sugar industry sustainability. Next, the farmers are not interested in the sugarcane plantation as it is not profitable anymore. The sugar factories revitalized by big investment will lack of materials, so that they operate in suffering loss

condition, so many sugar factory operations are risky of being frozen. For example, out of 16 sugar factories under PTPN XI, there are only 4 factories getting profit, the rest suffer loss. The domestic market has two sources of refined sugar. First, the refined sugar of domestic production based on imported raw sugar and the second is the directly imported refined sugar by the foods and beverages industry. Domestic refined sugar production until Semester 1/2008 reaches 900,000 tons (equal to 1.8 million tons per year) while the direct import by foods and beverages industry is 305,000 tons (from the semester 1/2008 import plan as 400,000 tons). In detail, national sugar supply during the last 5 years are shown on Table 1. The low price of sugar will determine so much the farmer choice in sugarcane plantation. The low price motivates the farmers to convert their farms to paddy or corn fields. A Eastern Java report says that one third of the sugarcane farm has changed into corn field. This impacts significantly on the setback or failure of the sugar national industry self-sufficiency program scheduled by the government to realice in 2009-2014. The sugar industry revitalization program by Rp 9.7 trillion budget are threatened to fail because of the sugar industry suffers lack of sugarcane materials supplied by the farmers. then the sugar factory insolvency is other risk of incapability to repay the revitalization credit used for incomplete operation.

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Table 1 National Sugar Supply Development 2003-2008 (thousands tons) Year 2003 2004 2005 2006 2007 2008**)

National Product 1,631,5 2,051,6 2.242,7 2306,13 2.448,1 2.703,7

I m p o rt Raw White Refined Import Sugar Sugar Sugar Value 827,4 647,9 516,3 1.991,6 780,4 256,5 464,2 1.501,1 1.320,7 453,1 629,E 2.403,4 1.023,5 216,4 462,7 1.702,6 1.903,9 448,4 606,7 2.959,0 1962,0 127,0 606,0 2.966,0

Total Supply*) 3.623,1 3.552,1 4.646,1 4.009,2 5.407,2 5.398,7

Sumber: Processed by AGI Secretariat. *) not included are end-of-year stocks, around between 0.5-0.8 million tons. Especially, at the end of 2007, AGI assesses sugar value is as 1.8 million tons, while Sucofindo values 1.2 million tons **) Planned

Refined Sugar Almost all of the sugar factories on Java Island process sugarcane into sugar by sulfitation, using sulfur as supporting materials. Such process is inefficient (the percentage of the sugar produced compared to the sugar contained in the ground sugarcane is small), so the production costs become higher. In addition, the old machines are getting more porous due to sulfur, distorting the sugar quality. That is why foods and beverages industry would rather import refined sugar than use the local sugar. The refined sugar factory presence was at first meant to help meet the sugar demand for foods and beverages industry, got facilities in the field, of a kind of infant industry exempted of Import Duty. The govern-

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ment apply five percent Import Duty policy for the first two years ( The Financial Minister Decree no. 135/ KMK.05/2000). The same rule of the Import Duty facility is in effect too for the expanding refined industry. As result, in a relatively short time, refined sugar industry develops very fast, with five big industries on Java Island with capacity about two million tons, including those officially opened by President SBY in the beginning of January 2007 in Cilegon, Banten. Four of five factories have produced almost 70% utilized capacity, that are : PT Angels Products (500 thousands tons), PT Jawa Manis Rafinasi (500 thousands tons), PT Sentra Usahatama Jaya (540 thousand tons), PT Permata Dunia Sukses Utama (390 thousand tons), and PT Dhamapala Usaha Sukses (250 thousand tons). The last one have not operated, instead have im-

ported about 28 thousand tons. In 2009 ahead, we will have other three refined sugar factories with 850,000 ton capacity or USD 100million total investment, in Ujung Pandang of 200,000 ton capacity, in Cilegon 250,000 tons, and Lampung 300,000 tons (Republika, 23 November 2007) Closure Nowadays the domestic sugar market is over-supplied, caused by : (1) high direct import of refined sugar and of raw sugar for the refined sugar industry, (2) the intrusion of refined sugar products to the local white sugar market. The oversupply has pressed the domestic sugar price to such low level that reaches below the bailout fund. This moves no bailout investors to be willing to fund the sugar bulk purchases from the farmers. The low price of domestic sugar in the market affects : (1) to reduce the farmer animo to have sugarcane business, instead motivate them to convert their fields to other crop cultivation, and (2) to reduce sugar productivity. The state-owned sugar factories relying on sugarcane materials from TR plantation suffer lack of material supplies. On the other side, the production technology used by the state-owned sugar factories have not been efficient anymore. Those factors threaten their sustainability and national sugar self-sufficiency. Therefore we need the revitalization attempts on them. It needs huge fund, with the budget ceiling of Rp 9.76 trillion. However because the domestic

sugar price is so low and the factory utilized capacity is low too, they impact on the sugar factory profit decreases. In turn, it decrease the capability to repay the revitalization fund. While the investors need the security to have their invested funds returned intact. The national sugar condition is branching off. Without the comprehensive solutions in near time, the sugar industry and sugarcane farmers will go bankrupt. The sugar self-sufficiency program schedule is threatened to realize. The modern sugar industry worthiness, capital-intensive one, are determined much by the integrated support of the material availability and decent market price. This will realize if the farmers are peacefully secured in their lives planting the sugarcane. The security is threatened by the imported sugar floods to domestic market with irrational price. Sugar is the strategic commodity, not only the people essential necessity, but also whose production process involve many sugarcane farmers. To keep the sugar price at the relatively profitable level is an important problem for the government to take notice of, to get the sugarcane farmer animo. If the states see it is important to reheal and develop a state-owned company producing this kind of strategic foods, it is needed to interfere. The scheme to take will be not enough by common steps, like ad-hoc or puzzling which are often broken on the way in the same

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manner as usually. We need a longterm strategy and short-term pragmatic one. The consistency and strong political will from the government is needed to pro-the industry whose production process utilize the local resource competitive prominence such as sugarcane based sugar industry. Suggestions 1. We need to reorder the national sugar policies to be one-door step, including the import recommendation of various types of sugar which ideally can be done by Indonesia Sugar Board (DGI), including import recommendation of various forms of sugar which can ideally be taken by the Indonesia Sugar Board. 2. To face the decreasing trend of local sugar price due to the prevailing refined sugar in the public market as the direct consumption sugar, we recommend the government that : the protection of the sugarcanebased sugar industry is still needed, at least until the transition age towards the realization of the strong competitiveness of the sugar industry, and the comprehensive

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sugar trade liberation implementation. Therefore �� we need consistent and effective sugar policies. therefore we should use our rights to apply the tariff as a fair defensive policy, not by trading often creating rental economy which will automatically put the people at risk of loss. To raise the tariff several folds from current level will not violate WTO agreements. Our customs tariff is still so low, about 25 percent, so far below the maximum limit allowed, until 95 percent. simultaneously, the sugar factory restructurization that is mostly old to do. We have actually been left behind, reminding Europe, America, Brazil, Australia, and several countries in Asia, such as India and Thailand, who have done first. One condition is the long –term commitment on the price stability. the sugar suage separation policy effectivness by allowing only refined sugar usage for middle and upper scaled foods and beverages industry, so as meant in the beginning of the refined sugar factory construction, to follow by the strict sanctions on the companies misuse the rules.

APPENDIX Table Appendix 1 The Sugar Production and Indonesia Position

World (000 tons)

Indonesia

No.

Year

Cane Sugar

Cane Sugar Beet

Total

1 2 3

1995/96 2000/01 2004/05

86.540 94.373 105.207

36.773 36.591 37.302

123.313 130.964 142.509

2.100 1.732 2.230

2,42 1,83 2,12

Percentage to Total Cane Sugar in the World 1,70 1,32 1,56

2606/07*)

123.000

34.520

157.520

2.442

1,98

1,55

2,43

1,7

Percentage Cane Sugar of the World (000 tons) Cane Sugar

Source: F.O. Lichfs (2005) Vol 137 lnternational Sugar and Sweetener Report, Vaorl d Sugar, FAFRI 2006 Agricultural, Outlook DGI dan AGE processed *) Temporary Values

Table Appendix 2 Performance of Indonesian Sugar Industry

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007b

Cane Harvest Area (000 ha) 496,9 400,0 378,1 405,4 391,1 388,5 393,9 375,2 340,3 344,8 381,8 384,0 395,0

Sugar Productivity Production (ton/ha) (000 ton) 2.104,7 2.160,1 2.187,2 1.928,7 1.801,4 1.780,1 1.824,6 1.901,3 1.991,6 2.051,6 2.241,7 2.266,8 2.400,0

4,24 5,40 5,78 4,76 4,61 4,58 4,63 5,07 5,85 5,95 5,87 5,90 6,08

Sugar Rendement (%) 6,98 7,32 7,84 5,49 7,01 7,40 7,02 6,88 7,21 7,12 7,12 7,12 7,20

Source: BPS (2008), http://www.bps.go.id/sector/agri/kebun/table1.shtml

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SEZ Update

“The Proof of Indonesia Land being Sold by Singapore” Batam Bintan Karimun Free Trade Zone for Singapore’s

http://www.neobatam.com/images/batam/barelang.jpg

Sake

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“The Proof of Indonesia Land being Sold by Singapore”

By: Edy Burmansyah1 “. . 40 types of industrial products agreed in FTA to supply to America, parts are produced in Batam and Bintan. The goodss are later owned by Singapore,” said Ismeth Abdullah, Batam Authority Chairman, now the Riau Islands Governor.

ar before Indonesia runs Free Trade Agreement (FTA) with Japan and Europe Union, on 23 July 2003 Singaporean government convened FTA with United States. In the FTA, Singapore took in two islands in Indonesia, that are Batam and Bintan, two islands in Riau Islands (Kepri) area. The inclusion of Batam and Bintan into Singapore-USA FTA got approval of Indonesian government. The then gov-

ernment regarded that Batam and Bintan inclusion into Singapore-US FTA would give benefits in drawing Foreign Direct Investment/FDI especially coming from Singapore, because the products of Singaporean industries on the two islands would be exempted from import duty to US market under Integrated Sourcing Initiative (ISI) scheme. Bilateral agreement between Singapore and US about FTA included Integrated Sourcing Initiative (ISI) scheme, that permitted any producer areas outside of Singapore to register for entering their products to US by utilizing all the Singapore Free Trade facilities, on the condition meeting Singapore – US FTA points and having their products labeled as “made in Singapore” or “Singapore content”, though they were made in other countries.

1 Institute for Global Justice – researcher, staying in Batam

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As what is said by Ismet Abdullah, the then Batam Authority Body (BOB) chairman (Kompas, 19 May 2003), “…. 40 industrial product items convened in FTA to supply to US, parts are produced in Batam and Bintan. The goodss will later belong to Singapore.” Based on Singapore-US FTA, high-tech goodss produced in Batam will be exempted from import duty when they are thrown into US market through Singapore. The intended products among others are magnetic disk, semiconductors, various electronic components and semiconductors, and the medical equipments. Based on Investment Coordinating Agency (BKPM) data, more than 150 foreign companies in Batam and Bintan produce like products to draw benefits from Singapore-US FTA by way of ISI scheme. To include Batam and Bintan Islands in Singapore-US FTA, the two countries demand Indonesian government to repair the infrastructures in Batam dan Bintan islands to support the Singapore investment flow. The facilities of “entering US markets” and “inviting bigger foreign investments” may be parts of Indonesian government consideration to intensify investment on Batam island. Until the end of 2007, total Indonesian government investment on Batam amounts to US$ 2.61 billion.

Even there is an indication that Batam development has been funded by foreign loans, at least reflected from the

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budget allocated by the government for BOB. The budget allocation for BOB of Financial Ministry version as amounted of Rp 282.4 billion, Rp 248 billion for 2008, and in 2009 Rp 215 billion. In 2007 out of Rp 282.4 billion allocated for BOB activities, Rp115 billion came from foreign ration/loan. In 2008, the budget allocation was declined as Rp 248 billion, of which Rp 180 billion was foreign loan/ration. While in 2009, from Rp 215 billion, Rp 75 billion among them sourced from foreign loans. One of the projects in BOB funded by foreign loan is e-government development project, sourced from South Korean government soft loan as amounted of US$20 million or equal to Rp182 billion.

On the other side, BBK given status as Free Trade Zone/FTZ is not merely for the consideration of emergency as Indonesian government reasoned as issuing the regulation in lieu of the law (Perpu) No 1 in 2007 about Free Trade Zone, however for the consideration to serve the neighbouring country economic interest. It is proved from the investment data based on the state origin, that more than half of the investment in Batam comes from Singapore, as follows:

Foreign Investment Value based on The State-Origin No

Country

1 2 3 4 5 6

Tunisia Mauritius Denmark India China Switzerland Saudi Arabian Germany Cayman Island Hongkong Australia Great Britain British Virgin Island Korea USA Taiwan Malaysia Japan Singapore Total

7 8 9 10 11 12 13 14 15 16 17 18 19

June 2006

Percentage

(US$ 000 ) 480 800 873 900 5,055 1,250

(%) 0.06 0.10 0.11 0.11 0.63 0.15

1,950

0.24

1,987

0.25

2,178

0.27

2,800 3,621 3,282

0.35 0.45 0.41

8,556

1.06

10,810 18,934 33,014 58,222 127,319 526,592 808,623

1.34 2.34 4.08 7.20 15.75 65.12 100.00

Source: Development Progress of Batam, second edition of 2006

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More, since the beginning Singapore has high interest in both islands. Since the beginning of 1980s decade when Singapore industries grew speedily, Singapore needed relocation sites for lowly value-added product assembly. To counter this problem, in 1988 Singapore launched its economic restructurization program, with the concept to shift from labor-intensive industry to highly value-added industry. Batam and other islands in Riau Islands (Kepri) was selected as the most logic alternatives for relocation as resulted from the Study done by MAS (Monetary �� Authority of Singapore) dan EDB (Economic Development Board). From the start of their development, Batam and Bintan are meant as Singaporean competitor, in the way they just develop as Singaporean complement. Unfortunately, at the next stage, Batam even contributes largely to the destruction of national industries. As cited from Kontan daily newspapers, the October 30, 2008 edition, the government makes policy to close all the international trade from Batam Island for certain products, among others are garments, electronics, foods and beverages, toys and shoes. Batam island is regarded as the most vulnerable place for smuggled products to transfer to Java Island markets. It means that Batam contribute to the garment industry destruction on Java Island.

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The Trade Ministry, Service and Outstanding Goodss Supervising Director Sahrul Sampurna as cited by that newspapers said that the exclusion of the ports and airports on Batam Island as the certain commodity import transportation track means that the commodities are banned to pass Batam. Otherwise, they expect raw materials and capital goodss to enter Batam. As we know beforehand, in order to secure the domestic market from the global crisis impact, the government has announced 10 security steps, among them are preventing illegal importation starting from November 1, 2008. The importation prevention policy consists of two main policies. First; to issue the rules on certain commodity importation that is garment, electronics, foods and beverages, toys and shoes, to import only by listed importers and verification obligations on loading ports. The second; to determine certain ports opened for certain goodss, that is the ports of Tanjung Priok, Tanjung Emas, Tanjung Perak, Makassar and Belawan, and the airports of Soekarno Hatta and Juanda. . Besides regarded as the smugglingrisky area so that it contributes to the national garment industrial destruction, Batam privileges are also used by a number of foreign businessmen as transit (warehouse) site for commodities they produce before being

resent (reexported2) to export destination country by 0% percent US Import Duty preference facilities, for certain commodities owned by Indonesia to certain country markets. For example ; Chinese textile products exported to Batam, the product labels are changed (made in Indonesia), next from Batam sent to US exempting from import duty. The textiles labeled as â&#x20AC;&#x153;China products made in Batamâ&#x20AC;? has seized quota of textiles produced by Indonesians. The misery is that parts of the textiles imported from China penetrate to markets on Java Island. The exemptions of Import duty, Value-Added Tax, Luxury Sales Tax, and several other tax types as the logical consequence from the misusage of the Special Economic Zone status, potentially destroying the national industry. While the state loss potentials from the incentives is relatively big. In 1998 the loss potentials receivable due to such levies are estimated as amounted to Rp 1.3 trillion. Even the big loss grounded the Govermental Regulation (PP) no. 39 in 1998 about the IMposition of Value-Added tax and luxury sales tax (LST) in Bonded Zone of Batam Island Industrial Area. But the regulation was not applied until the issuance of PP no. 63 in 2003 on the application of the Import duty, VAT

and luxury sales tax for four commodities, that are; electronics, tobacco, automotives, and alcoholic drinks. While the tax revenue is Rp 1.8 trillion. The Import duty, VAT and luxury sales tax are estimated to add the state revenue pockets up to more than Rp 4 trillion. A rather considerable amount. Batam contribution to national revenue are not comparable with the investment given out by the government. In 2007 the government funded the amount of US$ 2,606 million, while Batam contribution to state revenues was Rp 1,81 trillion, plus Batam municipality real revenue that was only Rp 273,62 billion. As a FTA with fiscal incentives, the zone should have performed well, but if we see the trade balance report, in the last three years the import is larger than export. Total exports in Jan-Nov 2007 was amounted to US$ 6.36 billion while the import value during the same period was US$ 8.09billion, or minus of US$ 1.73 billion (see the table). Even to compare with the Jababeka industrial area (West Java), Batam export in 2005 is three times smaller. Total export from Batam was only US$ 4.5 billion (BPS data), while Jababeka was US$15 billion (Exim Bank data, Jakarta).

2 Reexport is an activity of resending exporter country products to its countries and/or exporting them once more to another country. The reexported products usually go through the processes of packaging, labeling or sorting in the related countries.

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At last, the SEZ becomes the prey for Indonesian economy surplus sucking by the foreigners and therefore Indonesian government seems to have to reconsider and

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review the BBK FTZ policy application so the area development becomes parts of Indonesia development, not merely a development in Indonesia region.***

Batam Bintan Karimun Free Trade Zone for Singaporeâ&#x20AC;&#x2122;s Sake

By: Edy Burmansyah 1

In a state speech on 15 August 2008, President SBY said that one of the governmental priorities in Customs Tariff sector in 2009 is to enforce completely trade cooperation applied between Indonesia-Japan by the scheme of import duty tariff reduction, and the FTZ enforcement in Batam, Bintan dan Karimun Islands area (BBK). The abovementioned SBYâ&#x20AC;&#x2122;s policy will certainly expand Japan and Singapore business in Indonesia economy. The two country business expansion becomes one of the crisis root sources on Indonesia.

Singapore Business Relocation BBK FTZ to be in effect soon is only the plan advantageous for Singapore economy. It is undeniably understood from tracing back the history of the area development. By the New Order sacrificing tens of trillion rupiah out of the people budget, the project relocated lowly

value-added factories from Singapore. Since the beginning of 1980s decade when Singapore industries grew speedily, Singapore needed relocation sites for lowly value-added product assembly. In 1988, Singapore launched its economic restructurization program, with the concept to shift from labor-intensive industry to highly value-added industry that put it as the main player in the global investment. Singapore total foreign direct investment jumped from S$1,5 juta in 1976 to S$16,9 billion in 1990 and to S$28,2 billion in 1993. Batam and other islands in Riau Islands (Kepri) was selected as the most logic alternatives for relocation. The Study done by MAS ((Monetary Authority of Singapore) dan EDB (Economic Development Board) concluded that industry site on Batam island will support Singapore as the FDI milestone here. To follow up the program realization, the then prime minister, Lee Kuan Yew suggested to President Soeharto about the importance of Singaporean companies

1 A researcher at Institute for Global Justice/ IGJ, sent in a discussion forum and press release in IGJ Public Gallery, August 2008.

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getting investment facilities on Batam Island. Jakarta welcomed the suggestion warmly because the initiative was in accordance with the deregulation spirit and open door policy to draw foreign investment. Indonesian government, then, published the policy change in October 1989. To note is the permission for foreign ownership on Batam island up to 100%. In BJ Habibie leadership as the Batam Industrial Development Authority Agency chairman (Batam Authority-red), industrial development plan got more depending on Singapore. Then, Habibie proposed a theory known as â&#x20AC;?Balloon Theoryâ&#x20AC;?. In BJ Habibie view, if the balloon is continuously blown, its pressure gets bigger and in some extent the balloon will blow up because the room capacity is limited. So as with Singapore with area shortage, some time in the future it will the same experience as the baloonâ&#x20AC;&#x2122;s .so it needs other smaller ballons to the capacity excess. This is somehow the departure point to move the Batam growth acceleration during the last three decafdes. If Singapore wis baloon I, then baloon II is Batam, while Baloon III is Galang dan Rempang Islands, while Baloon IV is Bintan. Baloon I is expected to positively synergize with baloons II-IV, without the need to reduce Baloon I quality. Two years later, in 1990 to be exact, Singapore repositioned its industrial restructurization program realized in R 2000 (regionalization 2000) program aiming at developing urban industrial area in another country as a new production activity site with facilities similar as the one in Singapore. The moved companies will only establish their factories in the purpose country while their headquarters will be still in Singapore. That way, Singapore will role as their business operational base. In its way, Singaporean government smoothly negotiates investment facilities and conditions needed for its devel-

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oping industrial site. Asian (Indonesian) political management style which is not transparent, legalistic and decision making more based on relationships involving personnel, network and sub rosa(behind the scenes) conventions, facilitated Singapore in proposing privileges and protection for its industrial site. The negotiation to be awarded special treatments went smoother by briberies and kickbacks. To smoothen the step to get investment facilities, Singaporean government usually sent its senior officials to find institutional frameworks for the projects (for example, Indonesia-Singapore Joint Working Group and Joint Steering Commitee Meeting Framework Agreement in Economic Cooperation in the Island of Batam, Bintan and Karimun,). The institution then set the investment conditions to negotiate with the country where the industrial site will be relocated. To Strengthen Singapore Domination We do not know how much fund Singapore used for industrial regionalization plan. But in 1994, the government announced about 2-3 percent of the central bank fund was in the initial stage directed for the infrastructural project development in Asia. The very ambitious project fund was estimated to grow to 20-30 percent within 10-15 years ahead. Batamindo Industrial Park (BIP) and Bintan Industrial Estate (BIE) are the first industrial areas Singapore developed successfully in other country. BIP and BIE are also developed by direct business connection and telecommunication to Singapore from Indonesia. The business connection is controlled by Singapore Economie Development Board (SEDB). Each Foreign Direct Invesment (FDI) entering BIP and BIE areas have to pass SEDB, even in its way all FDI entering Batam and Bintan must also pass SEDB. With a networks widespread to many MNCs throughout the world, in fact Batam and Bintan are

controlled by Singapore to draw investment. More than 50% foreign companies operating in Batam and Bintan are Singporeans, or other countriesâ&#x20AC;&#x2122; companies whose operational bases are in Singapore. Out of the total foreign investment entering Batam, there are 186 Singapore investors with total value of US$ 10,307 million. Batam dependency on Singapure can be seen from the following facts: 65% of imported goodss entering Batam are from Singapure. 69% of exports from Batam are for the neighbour country that is only about 45 minutes away by ferry. 70% of Batam tourists are from Singapore. Factually since the beginning Batam development is aimed at meeting Singapore interest, not to build the national economic sufficiency nor to make Batam as national economic locomotive. This condition is exacerbated by MoU being signed in common between President SBY and Prime Minister Lee Hsien Loong on 25 June 2006 about the establishment of Special Economic Zoneâ&#x20AC;&#x201D; SEZ. To follow up the MoU, Indonesia government subsequently issued the governmental regulation in lieu of the law No.1 in 2007 that was next changed once more into the Law no. 44 /2007 about the free trade zone. In the next development, the government issue three governmental regulations, each of them arePP No. 46, 47 and 48 in 2007 about Batam, Bintan and Karimun Free Port and Trade Zone. Batam, Bintan and Karimun Free Port and Trade Zone practically strengthens Singapore domination here, making BBK subordinate to Singapore and exploits Indonesia potentials to complement the country needs, not as a competitor such as aspirated highly by Ibnu Sutowo (Pertamina ex- head director) when opened the island for the first time. On the other side, FTZ setting does not guarantee that the zone per-

formance will be better than beforehand. Statistically, Batam performance in drawing the foreign investment does not shown goods achievement. I 2006, local and foreign private investment is comparable as 57% to 43%. In other parts, although the (domestic and foreign) private investment shows increase, but it is low in men power absorption. In 1998, total private investment reached US$ 5,166 Million, rose toUS$ 5,351 million in 1999, and in 2002 it increased to US$ 6,113 million, the increasing trend is not followed by the capacity to absorb menpower. In 1998 productive age absorption reached 53.02 percent, declining to 41.76 percent in 1999, and then decreased to 34.01 percent in 2000. Learning to Develop FTZ from China Taking BBK FTZ into effect is far from what prevails in China, such as ChinaSingapore Suzhou Industrial Park (CS-SIP) or Suzhou industrial area in China, and Wuxi-Singapore Industrial Park (WSIP) or Wuxi industrial area. Although in the beginning both areas were developed in cooperation with Singapore, in the way they could not grow fast. Until then Singapore give up its ownership to the local government. After being managed by the local government, their development just grew very fast. Suzhou industrial area is formally operated on 12 Mei 1994, the most controversial urban industrial area. It is the biggest joint venture project in China both in cost calculation (US$ 20billion) and space size (70 km2). It is projected to be occupied by 600.000 population. Joint Venture involved investor consortium of Singapore and China Industrial Park Development Company (CSSD). China consortium consists of 12 organizations generally owned by China government holding 35 percent shares in CSSD. Singapore consortium consisting of 24 organizations generally of the companies having linkages with governments, SEDB

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and JTC International, and two organizations involved with other industrial area, SembCorp Industries. CSSD itself was controlled by an agency formed by local government, that is Suzhou Industrial Park Administrative Committee (SIPAC). Direct competition tightly happens against Suzhou New District, an affiliation project with Suzhou municipality with the same purpose, to develop industrial, trade and modern urban housing areas. The district development will be started some time after CS-SIP development and the area is more interesting for trade center, and housing, also by the foreign investors. The advantage is low paid workers, closeness with airport and one stop service systems adopted from the model made by CS-SIP. Suzhou New District development also costs high with the facility at the same rate as CS-SIP. Nearing the middle of 1998, the area developed with US$ 3.4 billion has drawn 88 manufacturers with project values US$ 30 million on average. While Suzhou New District project achieves close to the target, CS-SIP is otherwise especially for trade and housing areas. Singapore disappointment is shown by an open statement by then Senior Minister Lee Kuan Yew on the commitment of China as the partner on that project. In June 1999, Singapore disappointment to Suzhou municipality climaxed by the announcement that Singapore has reduced its involvement. Singapore consortium transferred 35 percent of the share majority ownership in the project at CS-SIP to China consortium in 2001. Before a number of shares were transferred, CS-SIP had drawn 113 projects. More than 91 foreign companies operated with workers absorbed as 14,000 persons. But the investment started to come in much afterwards so that the area got profits for the first time since it was established. 2001 profit is US$ 7.5 million.

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Nearing June 2001, the industrial area had 193 investment projects of more than US$ 5.1 billion. CS-SIP growth continued in 2002, with new investment coming about US$ 15.4billion. The incoming tenants are mostly from America and Europe and 73% of the investment is electronic, information technology and other high technology segments. The industrial area becomes the investment center for 500 companies and 40 of them have investment above US$ 100 million. Wuxi-Singapore Industrial Park (WSIP) development started in 1994 and opened formally in 1996. The industrial area located in Jiangsu province, 130 km away from Shanghai and 80 km from Suzhou. Wuxi population was 4.3 million people with per capita income about US$ 2,000, one of the highest in China cities. Therefore Wuxi entered high-technology development zone so that way electronic and electricity, computer and computer peripherals, system control and instrumentations, precision engineering, telecommunication components, medical products and medical treatment, automotive and airline components, and supporting industries. In the beginning, 70 percent shares of the industrial area were owned by joint venture of Singapore 30 percent, the rest owned by Wuxi municipality. Singapore consortium was led by SembCorp Industries (SCI), with other main investors was Temasek Holding (Singaporean government main holding company), and Salim/KMP Group. WSIP key investor is the multinational companies operated in Singapore such as Siemens, Seagate Technology, Sumitomo, and Matsushita, SEDB assistance in taking the first tenant there has felt so beneficial. However, the total investment to draw was still under CS-SIP. Also the target to invite high technology industry did not work because the incoming industry was relatively low valued, mostly from Asian countries. From the total US$ 450 million investment coming in

1996 with 6,000 workers absorbed at the end of that year, investor interests were declining. It resulted in the investment growth more in the form of expansion of the existing investors. The higher tax and capital customs levies in 1996 reduced more investors in high-tech. WSIP export value in 2001 was US$ 1 billion with 16.000 workers. That year WSIP developed the second phase, covering 235 hectare area. However the long-term prospects are unclear. Since the first time operation, WSIP suffered loss. In the first year, the loss was Sin$ 3.8 million and Sin$ 4.3 million each for 1998 and 1999. In 2000, the area could only cut its loss to Sin$ 2.8 million. In the middle of 2002, a consortium led by SCI signed an agreement to reduce its shares to 49 percent in WSIP that was effective in 2003.

The management control and share transfer, according to SCI will increase investor interest and the operational efficiency. SCI bore the loss of Sin$ 48.3 million for the action. Partner China taking parts of SCI shares then built the third phase of WSIP doubling the area size. So as with CS-SIP, soon after China signed, WSIP showed the result as CS-SIP.Seeing the most current development of BBK FTZ application plan, we claim the government to review the special port and trade area of BBK with Singapore. BBK FTZ of Singaporean version does nothing beneficial for Indonesia. Singapore is not a security for FTZ to meet Indonesian expectation. The failure of Singapore in China is a reference for Indonesian government to review its cooperation policy with Singapore. ***

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IGJâ&#x20AC;&#x2122;s Recommendation on ASEAN Culture Establishment Abolish Broker Culture, Build Social Solidarity Instead Cooperativeness Keep the Mountain Well

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IGJâ&#x20AC;&#x2122;s RECOMMENDATION ON ASEAN CULTURE ESTABLISHMENT Culture is a process of human collective works in order to defend and develop their existence through a production colour process in the developing space and time span. Understanding the culture will be easier if we divide it into three main elements: 1. The values devoted 2. Rituals or activities practiced 3. Physical result from the community production While ASEAN is understandable as a regionalism entity if we try to understand that in the world that is growing narrower we can classify it in the areas of political economy, security and defense, and in the local, national, regional and international scopes. So, the regional entity is an entity of the communities currently live in the unity of the nations living in a specific region. We see that ASEAN has the cultural diversity within the communities living between Asia and Australia continents, bordered by Pacific and Indonesia oceans.

Cultural Problems In the world that goes borderless, in Southeast Asian region we still see many imbalance and difference in the community-produced culture and colour development. In many countries human rights are still violated, democracy is still merely the state symbol. In the production colour, most is still in the agricultural colour more dominant from the industrial colour but one or two countries turned up forming capitalism economy at the advanced stage, leaving their other regional brothers behind so that economic solidarity became difficult to build and the economic competition to suck one another is and

will be greedier.

Cultural Recommendation In neoliberalism era, a genuine awareness should be built more to become strongholds to determine the communal living goals and fates, including at the regional level. 1. To return the cultural strategic position into one of the main grounds in making decisions and political economic power planning, so that the built up strategy will be more comprehensive and holistic dignifying the humanitary values above the mechanism and bureaucracy. 2. To create the cultural space to move broader by expressional cross-region, not to unite the cultures into the homogeneous one, but more to exchange, cross and collaborate the cultures present in Southeast Asia region to traverse a rainbow of culture enriching the human cultures on earth. 3. To build a political economic solidarity so that it becomes a community order that is firm in facing the threats of the economic pressure forms that is growing more complex and global. 4. Refuse all forms of commercializing the cultural products and all the efforts to recognize the copyrights as private ownership so that the cultural forms can be developed collectively in long time span. Jakarta, 8 August 2008 Revitriyoso Husodo Cultural Manager Program Institute for Global Justice

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Abolish broker culture, build social solidarity instead By: Revitriyoso Husodo

The 21 persons being killed because of struggling to defend their lives by seizing on rations of only thirty thousand rupiah per person in the 3rd neighbourhood area, Purutrejo subdistrict, Purworejo District, Pasuruan regency, east java province, short time ago, is like the tip of an iceberg of the acuter economic disaster. It is the effect of the cultural damage that starts from the level of central government, followed by the lower bureaucratic authorities whose structural policies are taken only for their small group power or economic interests but not for the state welfare as a whole. The cultural damage has incited at least three more complex problems. First, the broker (calo) culture breaks to erode the governmental independency in dealing with the developed country and MNC interest threats. Our governments tend to subordinate to the foreign interest so that they lose their autonomy in making decisions. In this term, it is not dialectical when their policies tend to destroy themselves, representing the state, both economically and politically. This can be seen from the decision to ratify the Investment Law which harms severely the government and the

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public. In trade sector, the government tends to set the import duty lower than the sending country expectation. The state tends to abolish the civil subsidy, while the term of subsidy is not accurate, because the people are the rightful owner of the whole wealth on their own motherland. Second, the choice named as solutions are mismanaged without problem solving, instead they create new problems. In economic sector, we have not any changes, as the President said that the State Budget Draft 2009 subsidizes for foods, fertilizers and seeds as amounted to Rp 32 trillion only, too far smaller than the whole subsidy amount of about Rp 1.022,3 trillion. Furthermore, the assumption of the world oil price of 100 USD/barrel is risky of jumping prices, although the selling country should get windfall profit. In the term of oil and gas energy, from upstream to downstream the oil production is controlled by the foreigners then the fuel supply rests on import without trying to maximize the state-owned companies such as Pertamina to produce and use at least of eight refineries owned for domestic consumption. Even there is a plan of mono-culture on the farms on the motherland in dealing with the energy crisis, the environmental destruction and the extraordinary culture! The third, the plummeting people life quality is accompanied by the destruction of this nation. The destruction rate can be observed from the health tragedy accumulation such as the above Pasuruan incident, the prevailing beef and chicken imitations, both water-filled and

waste-meat, malnutritioned toddlers and dangerous imported food stuffs. This is exacerbated by massive unemployment improvement inciting criminality among the societies. Just count down, to see other economic tragedies break and put the social order in a mess. Cultural Solution The solution to take to create the just prosperity on the acute nations in a mess at the economic level is the first to start struggling at the suprastructural level by building the social solidarity culture to fight against all forms of oppression. Pasuruan itself is a joint of trade coastal area and farming mountain at the East Java horseshoe. It has long history of struggle against the colonialism especially as being led by a rebel’s slave named Untung Suropati titled as Raden Adipati Wironegoro. For more than twenty years, his administration was full of fighting against VOC (Vereenigde Oostindische Compagnie) economic colonization (1686-1706). VOC centre was in Batavia on Java island where they monopolize Nusantara Archipelago trade for the Dutch’s and its interests in building the dams and windmills to pump seawaters downwards. That’s why Java Island was often called as the Dutch’s buoy, while the Javanese was said as sinking in the colonization. Both parables are literally understood. Now is the time for the central government to be braver to fight against the neoliberalism order in which the economic big monopoly comes from both outside and inside the state. The monopoly is disadvantageous for the micro, little and middle economy

which is the pillar of the strong national economy. The community themselves have to repair their culture by reviving the cooperativeness culture to build the economic fortress in the current of the globalization. The state borders are fading away by the developed country and MNC pressures to eliminate the state role in protecting its national economy. Both acknowledgement above can confirm each other that we need to build people representative bridge that is more proportional and accommodative of the government and the people, and of the central and local administrations. All of these will create relevance between the community necessities and complains, and the governmental policies. Second, to fight the independence in building political economy by sufficient subsidizing for national industrialization development and protecting the foreign capitals and products to enter the beloved Republic Indoneisa state. The subsidies can be split into two forms. First is the subsidy for industrial infrastructure development such as energy, production tools and needed knowledge. Second form of the subsidies is the funding and price regulation to create the prices reachable by the local consumers. While the imported products have to be protected through the tariff as high as possible especially those which are produced in home country. That’s how the state can protect the economy of the people that have become its citizens. “ thank you, Mothers (all the victims are women) who are martyrs in the struggle to build the awareness of social solidarity culture, wherever.

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“COOPERATIVENESS KEEP THE MOUNTAIN WELL” FESTIVAL GUNUNG SALAK 16,17,18 OKTOBER 2008 At Cihideung Udik Village, Ciampea District, Bogor Not long before, a cultural event inspiring cooperativeness culture revitalization as a local weapon of wisdom facing the economic globalization was held at the foot of Salak mountain, borrowing the momentum of The World Food Day, 16 October 2008 and the International Day of Poverty Abolishment, 17 October 2008. Salak Mountain Damage This mountain has several peaks, among them are Salak I and Salak II Peaks. The peak geographic point is at 6°43’ LS and 106°44’ BT. Their heights are Salak I 2.211 m and Salak II 2.180 m above sea level, and the third peak named Sumbul with height of 1.926 m above sea level. Administratively, Salak Mountain are included in Sukabumi regency and Bogor regency, West Java province. It has flora variety richness such as pine trees (Pinus merkusii) and fragrant wood (Altingia excelsa). And as common downhill forest in Java, it has also tree types of flowers (Schima wallichii), saninten (Castanopsis sp.), pasang (Lithocarpus sp.) and various types of huru (Lauraceae tribe) at its submontane forests. Even in several montane forest areas especially in the direction of Cidahu, Sukabumi, we can also find the scarce plant types of raflesia (Rafflesia rochussenii). At the forest borders, or near the streams, people plant red caliandra types (Calliandra calothyrsus), the flowering dadap cangkring (Erythrina

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dok IGJ

variegata), Africa woods (Maesopsis eminii), jeunjing (Paraserianthes falcataria) and every kinds of bamboo. (source: Wikipedia) Diversity of protected fauna are also found in Salak Mountain surroundings, started from toads and frogs, reptiles, birds to mammals. Research of D.M. Nasir (2003) from Jurusan KSH Forestry Faculty IPB, has got 11 types of toads and frogs in Ciapus Leutik riverbed, Tamansari village, Bogor regency. The types are Bufo asper, B. melanostictus, Leptobrachium hasseltii, Fejervarya limnocharis, and R. hosii. In Cidahu also it is recorded the existence of horned trog (Megophrys montana) and flying toads(Rhacophorus reinwardtii). Various types of reptiles, especially lizards and snakes, are on this mountain, several examples of which are chameleon of Bronchocela jubata and B. cristatella, garden lizard of Mabuya multifasciata and river monitor lizards of Varanus salvator. Snake types in Salak Mountain are not much known, however some of them are recorded starting from ular tangkai (Calamaria sp.) which is shy and small, snail snake (Pareas carinatus) to flower phyton (Python reticulatus) as long as several metres. Salak Mountain has been known long before as an area rich of birds, as recorded by Vorderman (1885). Hoogerwerf (1948) obtained not less than 232 bird types here (Java totally: 494 types, 368 settling types). Several types that are important enough is java eagle (Spizaetus bartelsi) and several other eagle types, red jungle flaws (Gallus gallus), and horse bird Garrulax rufifrons. So as reptiles and frogs, records about Salak Mountain mammals are not too much. However we can find

several types such as leopard (Panthera pardus), owa jawa (Hylobates moloch), lutung surili (Presbytis comata) and anteater (Manis javanica) (Wikipedia). However the flora and fauna richness are put by the forest function alteration. This matter is exacerbated by illegal logging, illegal gold miners, visitor vandalism, garbage littering, and wild hunting of wild animals protected in Halimun and Salak Mountain National park, ratified by Forestry Minister Decree no. 175 in 2003. The decree is about the function changing of protected forest area, permanent production forest, limited production forest, in Halimun and Salak Mountain forest groups of 113,357 ha, becoming HalimunSalak Mountain National Park in West Java and Banten provinces. Before the forest area management is under Bogor Forest Management Area under Public Company Perhutani (Indonesia Forest Company). While Salak Mountain area is like the most mountains spread out on Java island and other islands in Indonesia, experiencing damage due to prevailing illegal logging and forest alteration into housing function. This results in erotion and hard floods in the cities downhill. In the wet seasons, streams such as Cihideung, Cinangneng and Ciliwung rivers take in unbearable floods due to deforestation at the upstream. Meanwhile, global warming phenomena has heightened the sea level so that Java island map seems to have to be redrawn because the coastal lines are more deeper entering land areas. Agricultural Productivity Decline at Salak Mountain Foot Salak Mountain Foot is the farming area narrowing in size and various damaging piling into the weakening food sustenance in its supported cities, such as JADEBOTABek (Jakarta-Depok- Bogor – Tangerang – Bekasi) Organic agriculture has developed for generations here as we can meet in customary ceremonial celebration of Seren Taun, a ceremony to give thanks for

the abundance of vegetables (leafy vegetables, amaranth, katu, lighter coloured mustard greens, mustard greens), fruits (rose apples, guava, durian, rambutan) and umbi-umbian such as potatoes, sweet potatoes, taro, juicy tubers, cassava (Sikep hejo buah beti) all at once wishing for the same harvest next year. However nowadays, they experience shortage of water supply as the vital agricultural precondition due to the massive exploitation of clean water for commercial business, so that the agricultural productivity drop drastically. World Food Day (16 October) As always on each 16 October during the last 27 years, the World Food Day becomes the birthday of FAO (Food and Agriculture Organization), a food agency of the United Nations, is worthy to commemorate on the whole earth without excluding at the Salak Mountain Foot food barns to always remind all elements of the food sustenance above all economic interests. The mountain, for hundreds of years has become the food barn for people downhill. As we can thoroughly trace from the historical track since VOC imperialism, Darmaga area, is really the trade harbor (‘dermaga’ in Indonesian) of food substances such as paddy, coconut and cattles which then flowed emptying into Batavia. However nowadays the agricultural sector handling does not somehow take sides with the farmers who feels no protection from the products entering Indonesia while the government gives no subsidies for national agriculture. Agreement on Agriculture convened by the governments in WTO really destroy our national agriculture. International Day for Poverty Abolishment (17 October ) One billion of people strive for living under US$1 daily income, 114 millions of children do not have access to basic education and 584 millions of women are illiterate, more than 11 million - under 5 years

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of age - children die each year because of preventable diseases. UNICEF found that malnutrition of under 5years old children increases in Indonesia from 1.8 million in 2004 to 2.3 million in 2005. Open unemployment reaches 10.55 million people, poverty explosion in 2006 become a number of 128.94 million people. The agricultural productivity accumulating with current energy crisis and economic crisis impoverishes the communities at Salak Mountain area with impact on quality degradation. Then, the commemoration of the International Day for Poverty Ablishment this year should not be mere commemoration, but also it has to do problem mapping, solution formulation until then end with the concrete actions directing the attempts to prosper the communities. From the above problem accumulation, we have to act comprehensively involving as broad as possible the community groups in attempting to formulate the solution together, cooperatively. It will be very beneficial and efficient for us to use the method which has touched the problem roots by improving the community awareness thorough the local customary forms. So we need some organizing events such as a festival lifting up the problems and potentials of Salak Mountain while bringing back the local wisdom as the existing problem soling, one of them is cultural cooperativeness. Revitriyoso Husodo / Program Manager of Culture & Campaign at IGJ

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