Indonesia’s Economic Liberalization? Why Not!

Xenophobia emerges.

Kompas (23/5/2011) expressed concerns that strategic sectors largely owned by foreign investors. Foreigners own 50.6% of banking industry and 75 % of oil and gas mining industry. They are also dominant player in telecommunication and palm oil estate.

And recently the government moves further by wanting to review mining contract.

Is it the backlash to the invited foreigners who partake in developing our economy?

Of course foreigners aren’t to blame for the domination. Jakarta Post editorial gave the background why those sectors went to foreigners. In fact foreigners “helped” the government to buy the nationalized banks as well as palm estate aftermath of economic crisis. While in the hydrocarbon industry, which needs huge investment and high technology, can’t be provided by national players.

Economic liberalization is inevitable. It’s the best recipe for right now, because the best resources - cutting-edge technology, up-to-date management, high quality human resources and most of all, investment fund - are not invented here, but out there.

Indonesians, myself included, have already been experiencing the advantage of economic liberalization.

I always remember in 90s, I spent Rp. 20.000 - 25.000 in public phone booth every Sunday to call my parents in Pontianak. Then economic liberation came and Telkom was not a single player in communication service anymore. Since then, harsh competition had begun and resulted the price going south. Now, by using Simpati’s talkmania, it only takes Rp. 2,000 for the same call. Viva liberalization!

But, despite the upside, economic liberalization has also the downside that Indonesia has seen, particularly in banking sector.

Foreign-owned banks are driven most by profit rather than national development. Certainly they have to do so, they aren’t charity foundation. So they prefer allocating the credit for profitable personal consumption over the risky domestic manufacturing development. Unfortunately, Indonesia lets 99% foreign ownership of this strategic industry, while in other liberal countries such as US only 30%. This might in part contribute to Indonesia’s deindustrialization. In this case the government’s policy of liberating banking sector is wrong.

Finally, all in all economic liberalization is useful. However, the power of liberalization should be guided to the right places that give advantages to all of us.

* * * * *