Competition Policy and Structural Reform: Indonesia s Experience in Developing Competition Regime

Transcription

1 Competition Policy and Structural Reform: Indonesia s Experience in Developing Competition Regime Introduction Initially the competition regime design in Indonesian economic policy is much emphasize on the state s effort, through the establishment of many state owned company, to fulfill people s need. Alongside with economic development and progress of global circumstances, economic participation from the private sector is inevitable. Until recently in the period of 1980s then Indonesia started to realize the need to foster economic performance through hefty involvement of private sector. Privatization policy and deregulation as part of competition policy instrument is used to support economic development. Generally, in 1980s the structural adjustment process has resulted in tremendous economic performance. In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. The steps were aimed primarily at the external and financial sectors and were designed to stimulate employment and growth in the non-oil&gas export sector. Annual real GDP growth averaged nearly 7% from The structural reform and policy deregulation includes real exchange rate devaluation policy, tax reform, export promotion of non-oil and gas, endorsement of foreign investment, efficiency of state owned company, and financial deregulation. Those sets of policy foster non-oil&gas export especially from labor-intensive industries that eventually bring improvement to the income distribution. High levels of economic growth from masked a number of structural weaknesses in Indonesia's economy. The economic foundation is not built solely on 1

2 business acumen but distorted with widespread violation of prudential regulations, non-tariff barriers, rent-seeking behavior by private and state-owned enterprises, domestic subsidies, barriers to domestic trade, and export restrictions. Those anticompetitive practices among others: orange trading policy in Pontianak, the establishment of clove marketing board (BPPC), national car project, etc. Ultimately in the mid of 1997, these weaknesses throw Indonesian economy to its fall, the economic and financial crisis. The economic declining, which is stimulated by highly concentrated market and anticompetitive practices, has increased awareness of Indonesian people regarding the urgency of having a solid competition law. Coupled with internal and external pressures to launch reform on economic regulatory system, the political parties agreed to enact competition law as an instrument to establish sustainable economic development, and to promote the growth of economy and the functioning of a reasonable market economy. Obviously, the enactment of Indonesian competition law (Law No.5/1999) makes apparent Indonesian commitment in establishing competition regime. Implementation of Competition Regime The law No.5/1999 concerning the prohibition of monopolistic practices and unfair business competition was introduced in The objectives of the law are to safeguard the public interests and to increase the national economic efficiency as one of the efforts to increase the people s welfare: to establish a conducive business environment ensuring equal opportunities for big, medium, and small businesses; to prevent monopolistic practices and other unfair business competition; and to create efficiency in business sector. The law covers a wide spectrum of anti-competitive 2

3 behavior, ranging from prohibited business activities and agreements to abuse of the dominant position, including those related to Merger and Acquisition (M&A) practices. While all other rules related to the prohibited business practices have been provided by the law and have become to be effective since the third quarter of 2000, the technical implementation rules for the M&A will be in the separate provision and now in the process of completion. After the enactment of competition law, promotion of competition is much improved and private sector participation is expanded to accelerate economic growth. Progress of economic development policies shows Indonesian commitment to market based economy. In this period policymaker starts to take measures to address anticompetition practices, amongst other through fostering deregulation, market openness policy, and privatization of state owned company. Though, state intervention is open and still undertaken in order to address market failure. The intervention is done proportionately to avoid the occurrence of government failure as happened in the previous period. In the following years after the endorsement of competition law, KPPU, Indonesian competition authority, was established. Alongside with its primary objectives which are to enforce competition law and to recommend the Government concerning competition policy, the KPPU actively promoting healthy competition principles in Indonesia. In supporting its recommendation to the government, the KPPU launched industrial and policy research. Those research activities include evaluation on utility sector such as electricity, oil & gas; highly concentrated and strictly regulated industries. 3

4 Instance of the KPPU s policy recommendations is as follow: 1. In the airlines industry, KPPU encourage reform to increase competition pressure through prohibiting price consensus behavior among airlines service provider, the impact of this action is tremendous and gives direct benefit to the consumer. 2. To deter abuse of market dominance position in carbon black industry, the KPPU strongly support the market openness policy to import competition from abroad, the objectives are to discipline the incumbent and to maintain dynamic market efficiency. Above all, the promotion of competition efforts from the KPPU is taken in all business fields and is increasingly maintained. In supporting the implementation of competition regime, advocacy to the policymaker is inevitable effort. In this regard, communication to establish formal competition policy harmonization program for all Indonesian stakeholders is prominent. Even with slow pace of progress, the KPPU has put its initial efforts to establish the program with focus on promotion of healthy business competition values that will give highest benefit for Indonesian people. From competition advocacy efforts, valuable insights about anticompetition policies are attained. Based on its basic nature, policies that altered competition principles could be categorized into three sets of classification. First, set of policies that give more incentive to the dominant or certain business actor. Those policies tend to creating entry barrier for competitor and in the end resulting abuse of dominant position behavior of particular business actor. Secondly, set of policies that facilitate the emergence of anticompetitive agreement, such as exclusive and closed 4

5 agreement, between business actors. Implication of such agreement is clear, creating entry barrier and limitations to the counter part of the agreement thereof. Third, sets of policies that were driven by the government in order to achieve non efficiency goal, the merits of market competition may have been doubted. The action in which the market mechanism is intervened is taken in form of highly regulated industry or limited access for business actors. From competition aspect, this is a drawback since its hindering efficient functioning of the market in the related industry. Ironically sometimes the problems that try to be solved through these policies are caused by non economic aspects such as smuggling, tax evasion or any other compliance avoidance. The end result of such intervention then distorting the ongoing competition mechanism. From Indonesia s experience could be summarized that the lack internalization of competition values in the government policies is more caused by the lack of awareness concerning competition principles, especially Indonesian competition law. In practice, competition authority faces challenges not only from business actor but also from the government. In this regard, to make effective the implementation of competition law, the Indonesian competition authority should put special emphasize on deterring anticompetitive regulations in all economic activity, evaluating economic impact of investigation, and balancing public and business actor s interests. Challenges and Lessons Learned Generally, restrains faced in implementing Indonesian competition regime comes from the lack of understanding regarding competition values and the benefit of competition, position of competition authority in national structure and of resources and expert in 5

6 the field of competition. In addition, competition was a value that is not inherited from Indonesian ancestor. Indonesian society is giving more gratitude to harmonize social system. From Indonesia s experience, several factors have been major issues in developing competition regime, such as: 1. Competition Authority Independency The existence of independent nature of competition authority has become precedent that competition policy harmonization is difficult to undertake. Different regulatory body shows unfriendly response with regard to this. To make it effective, competition authority advocacy in enforcing competition law as transparent as possible and presenting positive impact of competition regime to the public is imperative. 2. Political Support Sometimes the positive impact of competition regime is not well known by the Indonesian people, it is for this reason the advocacy program is needed. One of the effective approaches to meet the peoples support is through promotion of competition to the parliament and society. Support from the political parties is inevitable since its represent majority of Indonesian people, without endorsement of the parliament it would be difficult for competition regime to be exist. In this regard, Indonesian parliament put great support for effective implementation of competition regime and commit to the nation wide structural reform agenda. 3. Multidisciplinary Background of Competition Authority Comprehensive competition regime requires multidiscipline understanding to address anticompetitive activities and to manage competition process in the market. With regard to this, the competition authority should be support with high quality commissioner. From the commencement until now, Indonesian competition authority is qualified under such qualification. Various discipline and experience of the commissioner of competition authority is supremacy in the process of decision making 6

7 through democratic commissioner s meeting. 4. Human Resources The lack of experts in the field of competition law and policy slowing competition advocacy and hinder the enactment of required regulations to support competition law. In addition, the lack of competition experts has undermined the quality of competition case investigation and creating difficulties to put into practice competition principles in the development policies. 5. Legal Infrastructure From the recent experience, enforcement of competition law as part of comprehensive competition regime requires sufficient legal infrastructure such as competition guidelines, case handling procedure, coordination mechanism with other competition law enforcer, etc. Those sets of regulations are needed as it increases transparency and gives confidence to the business actors. 6. Public Advocacy Until now, competition campaign to advocate the public regarding competition values is limited. The comprehensive concept to socialize competition values, to change private sector behavior, and to disseminate information and transparency of performance of competition regime and authority to the public is need to be improved. Based on Indonesia experience those sets of advocacy instrument are prominent and difficult to meet the objective, especially when to give as simple as possible understanding regarding competition values as it practices in Indonesia. 7. Trade Liberalization Trade liberalization gives opportunity for exercising Indonesian competition law to anticipate dynamic and complex features of trade strategy. The problems faced are on implementing competition regime that supports national interests. With the reluctance behavior from other stakeholder with regard to integration of domestic and 7

8 international competition regime, competition authority should be the focal point to foster the convergence of competition regime worldwide. Conclusion The establishment of competition authority as vocal point in promoting competition regime is imperative. Coupled with support from all stakeholders, especially political endorsement, development of competition regime will be hastened. Advocacy to the policymaker will eventually face obstructions; nevertheless, approach to enhance understanding of healthy competition principles should be maintained and improved. As effective part in promoting competition, transparency and public awareness are needed, information regarding positive impact of competition regime should and must be disseminate to the public as accountability check and balance. Considering competition authority function in developing competition regime is vital, it should be given a chance as regulator of the last resort for economic policies wide problem, so the transparency regarding competition and non-competition issues is clear. 8