Braithwaite, John and Drahos, Peter. Global Business Regulation, Cambridge University Press, Cambridge, 2000.
Burt, Eric M. Developing Countries and the Framework for Negotiations on Foreign Direct Investment in the World Trade Organization. Int’l& Poly 1015, 1997.
Dunkley, Graham. The Free Trade Adventure: the WTO, the Uruguay Round and Globalism – A Critique, Zed Books, London, 2002.
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Hall, David. Globalization, Privatization and Healthcare – A Preliminary Report, PSIRU, Greenwich, 2001. Also accessible online in URL , http://www.psiru.org
Mashayekhi, Mina. GATS 2000 Negotiations Options for Developing Countries, South Centre, Jenewa, 2000.
Raghavan, Chakravarthi, Developing Countries and Services Trade Chasing A Black Cat in a Dark Room, blindfolded, TWN, Penang, 2002.
Sinclair, Scott. GATS: How the World Trade Organization’new “Services’ Negotiation Threaten Democracy, Canadian Centre for Policy Alternative, 2000.
Sexton, Sarah. Trading Health Care Away? GATS, Public Services and Privatization, The Corner House, Briefing Paper, July 23, 2001.
International Trade Centre/UNCTAD and Commonwealth Secretariat, 1999. Business Guide to the World’s Trading System, second edition, 1999.
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www.bps.go.id (the website of the Central Bureau for Statistic)
www.twnside.org.sg (the website of Third World Network)
www.southcentre.org (the website of South Centre)
www.wto.org (the website of the World Trade Organization)
CASE STUDY ON GATS AND INDONESIA: DIVESTMENT OF PT INDOSAT Tbk, PRIVATIZATION OF TELECOMMUNICATION SERVICES IN INDONESIA Privatizing and divesting processes of state-owned companies in Indonesia have been incessantly done in Indonesia over the past two years. There are many driving factors that may contribute to them. The first one is the commitment of Indonesia in the Letter of Intent (LoI) of IMF demanding the sale of state-owned assets in order to patch the deficit in the National Budget of Revenue and Expenditure. The second one is the commitment of Indonesia in liberalizing the telecommunication sector in GATS (General Agreement of Trade in Services). And the third one is the pressure of liberalization wave in all sectors, goods, services, and money all over the world.
One of many state-owned companies privatized is PT Indosat Tbk., which is one of the telecommunication service providers in Indonesia besides PT Telkom Tbk. Theo two companies have previously been owned by the Indonesian government. PT Indosat Tbk was in 2000 the third world’s biggest telecommunication operator in the term of profit margin, while PT Telkom Tbk was in the fifth position. Previously, Indosat had been in the second position and Telkom was in the fourth.45 For the aspect of annual revenue growth, Indosat is in the38th position (30.78 percent), while Telkom is in the 60th position. However, for the aspect of market capitalization, Telkom occupies the 64th position with the amount of 2.7 billion US dollars and Indosat with the amount of 990.2 US million dollars. By the aspect of EPS growth, Indosat goes into the 7th position and Telkom is in the 14th position. Meanwhile, SingTel, which has 40 percent shares in PT Bukaka SingTel Internasional, which is the operation partner of Telkom for the East Indonesian region is in the 18th position for the aspect of net profit growth. For the growth aspect, its profit margin occupies the 130th position and the 47th position by the aspect of market capitalization and the 19th position by the EPS growth.
As a state-owned company bought from ITT (International Telephone and Telegraph) in 1980 by the then Minister of Financial Affairs, JB Sumarlin and Muchtarudin Siregar, who then became its high commissioners, the performance of Indosat was highly maintained in its professionalism and business cleanliness. That is why Indosat smoothly went public in the year of 2004 because the sale of its shares into the stock exchange was successfully done without the intervention of any other party.
But that was a story from the past. Through the privatizing project of state-owned companies, Singapore Technologies Telemedia Pte. Ltd. (STT) has won the divestment of 41.94 percent Indosat share as much as 5.62 trillion rupiah. The purchasing price was 12,950.00 rupiah for each share, which was 50.6 percent higher than the closing price at Jakarta Stock Exchange last December 2002 which was 8,600 rupiah for each share. The price was also above the bookvalue of Indosat shares as much as 10,400 rupiah. The brave action of STT in purchasing Indosat’s share with the price of 12,950 rupiah had certainly been taken into account.
Generally, the report of Financial Market Trends from the privatizing activates in OECD and Non OECD states that the telecommunication sector is still the biggest segment of the privatization program, both in Indonesia and in the world. Although the interests of telecommunication sector in the world has relatively and critically declined following the bubble burst hitting the telecommunication sector after the Worldcomgate46.
Concisely, there are several things that can be observed out of the divestment result. Firstly, STT, which dominates 41.94 percent of Indosat’s shares along with SingTel, which dominates 35 percent share of PT Telkomsel (a cellular phone operator) is the subsidiaries of a company owned by the Singaporean government, Temasek Holdings Pte. Ltd. SingTel provides broadband services, multimedia services, and telephone services. Its business networks exist in many countries, like China, the Phillipines, Hongkong, Macau, Malaysia, and Taiwan. Through the ownership, the telecommunication industry in Indonesia is dominated by Temasek Holdings. The great dominance of Temasek Holdings can cause the company to be the monopolizing company in Indonesian telecommunication. It is something to note that Indosat is currently estimated to have 2.8 million customers and Telkomsel to have 4.5 million customers47. By such a monopoly, then the company is the determiner of price of the product.
Secondly, Indonesia has enacted the Law no. 5 year 1999 on Anti-Monopoly. As the monopoly of telecommunication service in the hand of Indosat and Telkom ended through the divestment, it does not mean that there is no longer monopoly. The monopoly still exists. This divestment scheme moves the monopoly into a foreign company that is Temasek Holdings.
Thirdly, telecommunication service business is generally divided into three parts: local connection, long distance connection, and international connection. Out of those three parts, the local connection service is an intensive capital business because it has to build networks. This provokes a question whether the new owner has a commitment to install a fixed connection considering that to install a fixed connection needs the investment of 800 dollars, while for cellular business, it is only 300 dollars. There is an anxiety that the new owner will be more attracted to cellular business rather than to the fixed connection. Furthermore, if we see that the Singaporean market, which is relatively stagnant with 68 percent of its population, has cellular telephone while in Indonesia only about 4 percent. The fixed connection installment business will be subcontracted to another party so that the cost can be higher and it may cost the consumers/the people higher to get a fixed connection service. Therefore, the aim of privatization and divestment that is always based on an argument to make companies more efficient, competitive, and that it can offer a cheaper price, is questionable.
The fourth one, the privatization program in many cases will be followed by the employee rationalization. This will clearly adds the number of unemployed people, which is now about 50 million.
The acquisition from the Indonesian government to the Singaporean government will change the map of Indonesian telecommunication business. Out of this, critical questions come up.
If the aim of privatization is to improve the condition of state-owned companies, isn’t Indosat a company with good condition? Why the ownership of a telecommunication company which is influential to the life of many people and which becomes a standard of the national development is shifted to a private company?
What is behind the divestment and why has it to be Indosat? How it is related to the existing rules, such as the Law no. 36 year 1997 on telecommunication, the investment law, the Law no.5 year 1999 on Anti-Monopoly, and such other rules – do they go in line with each other? Will the process improve the prosperity of the people, specifically in getting the telecommunication services, like the instalment, tariff, and quality improved?
Such questions are likely not to be responded in the middle of service liberalization wave, in which telecommunication service is one of the targeted fields of the big capital owners as it is prospective in bringing about break even point and profit. Furthermore, the divesting process has just been going for less than one year. But one thing clearly seen in the process is the attempt of big capital owners to dominate the market and to secure the future market. On behalf of transparency, private involvements, effectiveness, consumers’ interests, and other claims of benefit, in the end, the divesting process has only shown us clearly a legalized forcing of acquisition and a new model of monopoly.
1 Program Officer and Researcher for The Institute for Global Justice, Address jalan Diponegoro no. 9 Menteng Jakarta 10310 Indonesia ph. 62 –21 3193 1153 fax. 391 3956 e-mail email@example.com
2 PhD Student PREST - Institute for Policy Research in Engineering, Science & Technology The University of Manchester. The Business Watch Indonesia – address Kompleks Anggrek Krisan no.11A Rt.04 Rw.09 Desa Jayan, Blulukan, Colomadu Karanganyar Central Java Indonesia Phone: (62-271) 702 3310 e-mail firstname.lastname@example.org
3 An interview with Barens Saragih
2 Kompas, August 7, 2003
3 See INSA Journal no. 56, 2002
4 For instance, Indonesia ships entering the territorial waters of Denmark needn’t pay the freight tax as much as 2.64% of the total amount of load and vice versa. The regulation seems to be fair but actually it inflicts Indonesia in a loss because Danish ships can enter Indonesian territorial waters more often (let’s say 3 times a week) than Indonesian ships entering Danish territorial waters, which is very seldom, probably even only once in 10 years.
5 The percentage of Indonesian export bought with FOB price reaches 90% (INSA Journal, no. 56, 2002)
8 It’s not easy to define the concept of ‘service’, even the American delegation that pushed the establishment of service issue in Uruguay Round negotiation meets difficulties in defining it (Halida Miljani’s interview).
10 For the sake of this research writing and in order to protect the data provider, the names of informants are not mentioned. The researcher (IGJ and BWI) is responsible for this purpose.
11 An Indonesian negotiator even says, “It gets worse if since the beginning, the negotiation runs like a feather-weight boxer fighting against a heavy-weight one”
12 For the sake of the same concern, this research doesn’t mention the name of that person.
1In the publication of International Trade Centre/UNCTAD and Commonwealth Secretariat titled of Business Guide to the World Trading System, the second edition 1999, 12 sectors are mentioned, sector 1 to 11 belong to the same category, while sector 12 belongs to ‘other services not yet mentioned in sector 11 above.’
14 See www.twnside.org.sg
15 The red line illustrates the value of Indonesia’s oil and gas sale, the blue line shows the value of imported goods and services in relation to the production and sale of oil and natural gas, such as the payment for production-sharing contracts, consultants, and the cost of shipment. While the green line indicates the value of revenue calculated from the export value subtracted by the value of imported goods and services in petroleum affairs.
1This part will specifically discuss on Indonesia’s Schedule of Specific Commitment, GATS/SC/43, April 15, 1994
1Even until now, there has been only few researches still attempting to make ‘an analysis on cost and benefit’ or ‘cost-benefit analysis’ in the liberalization of service sectors. The Central Bureau of Statistic itself states that the statistical computation in this sector is still unable to do due to methodology, human resources, and financial factors that are not contributive.
Almost all-governmental informants also admit this problem stating that Indonesia is not the principal proponent of trade in services. It might be only tourism service, which brings money for Indonesia, while other services are economically hard to explain as for why they are put as a commitment. Except that it is due to the request of the service-proponent countries.
Schedule of Specific Commitment mentioned above is complemented with Schedule of Specific Commitment 2 GATS/SC/43, April 11, 1997.
20Schedule of Specific Commitment mentioned above is complemented with Schedule of Specific Commitment Supplement 3 GATS/SC/43. February 26, 1998
21 See Box “Measuring Intangible Goods”
22 Cross ownership between Telkom and Indosat occur in several companies. In Satelindo, Telkom has 22.5% share and Indosat has 7.5% share. Telkom is also in control of 42.72% of all shares of Telkomsel, the biggest cellular phone operator in Indonesia, while Indosat 35%. In Lintas Arta, a company in data communication business, Telkom is in control of 37.66% of its shares and its other 32.64% share is owned by Indosat. Then in Patrakom, Telkom has 30% share and Indosat 10%. The Indosat’s share ownership in Telkom’s partner in the cooperation scheme is recorded as much as 30.55% in Mitra Global Telekomunikasi Indonesia (MGTI) and 13% in Pramindo. Accordingly, the telecommunication business in Indonesia is generally dominated by Telkom and Indosat, either in the scheme of full or cross ownership or joint venture.
23 Currently, Telkom has 8.8 million units of telephone connection with 7.2 million customers, while Indosat only has 20,000 units of telephone connection in Jakarta, Surabaya, Medan, and Batam.
24 In its development, related to the business demand, the rule cannot be wholly put into practice. In the international market the government applies duopoly system, that is to allow Satelindo to have 008 access code, which is owned by Telkom-Indosat-private companies to compete with Indosat that has previously come to presence with 001 access code. In the domestic market, Telkom involves a partnership in its operation through the scheme of cooperation. There are two partners of cooperation in which Indosat owns some of the shares. The first one is Pramindo, which operates the Regional Division I Sumatra. And the second one is MGTI, which manages Regional Division IV Central Java/Yogyakart Special Region.
25 InArticle 4 verse 1 of the Law no. 36/1999: Telecommunication sector is in the control of the government and its nurturing is done by the government as well. What the nurturing means is listed in Article 2 which includes the policy establishment, regulation, supervision, and controlling. So, according to the Law, the government still fully holds the regulatory function along with the function of establishing telecommunication policy. But one thing to remember, that the explanation of The Law no. 36/1999 Article 4 verse 2 mentioned above implies that the currently regulatory function held by the government can be delegated to a regulatory board according to the development of condition. It means that there is no binding power to keep the government’s position as a regulator
26 In the nurturing of telecommunication sector, for instance, the involvement is regulated through an independent institute like what Article 5 verse 1-5 of The Law no. 36/1999 and the Governmental Regulation no. 52 year 2002 verse 90-94 say. The independent institute mentioned above means an umbrella board to accommodate the aspiration of operators, vendors, users,and professionals to be conveyed as an input for the government.
27 In addition, since 2000 The Law no. 5/1999 on the prohibition of Monopoly Practice and Unfair Business Competition.
28 Compare this with Schedule of Commitment of GATS in the telecommunication sector.
29 Operating prohibition for maritime transportation companies that do not have such a ship has been valid since 2001 but because the Decree of Transportation and Telecommunication Minister (KM no. 33/200) which gives a chance for the maritime transportation companies to have such a ship within two years has been issued, the sanction is postponed to the year of 2003. The company imposed by this sanction has all this time preferred running a ship agency business, because this kind of business needs less capital than one for buying a ship. Even any company which has such a ship is only authorized by the foreign owner completely with the ship documents, but the status of the ship is still a foreign-flagged. Consequently, the status is unpaid or purchase lease. While the rule is the flag of the ship which has been owned has to be replaced with red and white.
30 For instance, Vietnam is presently more developed than thirty three years ago because its government has deep concerns one of which is manifested by giving a bank loan almost without any interest to the business of maritime transportation. While in Indonesia, the maritime transportation sector is imposed of interest above 15% so that there is no local investment in the maritime transportation.
31 There are some aspects in the Law no. 10/1998 on the banking sector considered as burdening the doers of such business, specifically in the permission and collateral aspects. For an instance in the permission aspect, small and medium scale business doers should merely have a letter of business permission without being burdened to have other kinds of permission. Then, as for the collateral, small and medium scale business must meet all technical requirements of the bank which is considered as very hard for the small and medium scale business themselves.
32 According to Indonesian Chamber of Commerce, the ideal rate of interest for small and medium scale business is under 10% each year. In the developed countries, including in ASEAN countries like Malaysia, Thailand, etc. the applied rate of interest for such a business is under 10% as well.
33 The law no 16 year 2000 on the General Rules for Taxation, the law no. 17 year 2000 on the Income Tax, the law no. 18 year 2000 on the Value-Added Tax of Goods and Services and the Tax on Luxury Goods Sale, the law no. 19 year 2000 on the Collection of Tax with Compulsory Letter, the law no. 20 year 2000 on Right Procurement Duty of Land and Building and the law no. 14 year 2002 on the Court of Tax
34 According to the Minister of Financial Affairs, IMF suggests that Indonesia applies a single tariff, specially for the Income Tax.
35 According to the Minister of Financial Affairs, the plan on amendment is done by considering the aspects of efficiency and competitive power toward ASEAN countries (Singapore, Malaysia, Thailand).
36 The bill on Tourism also refers to the law related to tourism, such as the law no. 5 year 1992 about Culturally Conserved Artifacts, the law no. 9 year 1992 on immigration and et cetera
37 Look at (Braithwaite & Drahos, 2000). Initially, USA insisted on the full inclusion of service issue into the GATT negotiation, but this idea was rejected by the developing countries, many of which were service importers. Led by India and Brazil, the developing countries argued that investment policy was related to the rights, sovereignty, and the elements of economic policy. GATT was made for the trade of goods instead of for managing the trade of service. Besides, the developing countries were also afraid of corruption, which might occur in many multinational companies and of their authority to control their own national development to lose if the investment policies were to liberalized. See also (Burt, 1997)
38 One of them is Prof. Jagdish Bhagwati. Bhagwati (1984) and Sampson and Snape (1985) are the people who develop fours typologies which is then adopted by GATS as four modes of supply. See ESCAP, 2000.
39 See Jim Shultz’s report from The Democracy Centre, and also Shultz (2000), which describes ‘Bolivian Waterwar’. Those two can be accessed in URL http://www.democracyctr.org/watewar/index.htm
40 In its 1998 report, the World Bank records that “…around 40% of its portfolio projects in the health sector, nutrition, and demography and almost 75% of Sub-Sahara projects in Africa covers the establishment or expansion of userfee. See in (Sexton, 2001)
41 See (Sexton, 2001)
4 EU-internal transaction was not included. EU-15 internal transaction in commercial services has reached 710,8 billion EUR in 2000. In these services, EU-15 has contributed in about 42 percent in export and 41 percent in import for total world transaction.
5 Repair services and the expenditure of foreign government and international organization in US, not included mail and courier services.
42 The table is taken from Eurostat News Release 117/2001, November 8, 2001, “The EU Figures for the Doha Conference.” Source of data: IMF. The data does not include the internal transaction of EU. The commercial service doesn’t include the services provided by the government.
43 In the developing countries, specially those who follow the formula of IMF, the problem of providing basic services for public moves in accordance with the deregulation-liberalization-privatization pattern. Perhaps, with the different names or terminologies, but the essence is just the same: involving the private sector (specially the international private sector) systematically and the process of providing services for public. And certainly, Indonesia belongs to the developing countries obeying the formula of IMF.
44 So is as stated in the first draft of the 5th WTO Ministerial Meeting in Cancun (September 9-14, 2003). What is stressed there is that the member countries should immediately open domestic market for services through the request and offer mechanism and the implementation of mode 3 through the presence of commercial service company. While the issue and will of the developing countries such as to set ‘safety networks’, the balancing of producing capacity, and the implementation of mode 4 to liberalize the migration of manpower are neglected.
45 According to the analysis result issued by Business.com, the prominent directory site in USA of which shares are owned by Financial Times. In its report, Business.com analyzes all telecommunication operators listed in the stock exchange, specially in USA and Nasdaq, on the basis of the financial statement of the third quarter of 2000 and the financial statement of 1999 and 2000 (see Basins Indonesia, February 26, 2001).
46 See the analysis of Lin Che Wei on Kompas of November 8, 2002
47 See the analysis of Nur Feriyanto on Kompas of January 15, 2003