Nationalization

May 7th, 2007, in Business & Economy, by

On nationalizing foreign businesses.

One of the four deputy heads of the People's Consultative Assembly (MPR), AM Fatwa, on 4th May called for the nationalization of vital industries in Indonesia such as the oil, gas, and mining industries.

A.M. Fatwa, who has a professional background in the religious organisations of Muhammadiyah and Majelis Ulama Indonesia (MUI), echoed the oft-heard sentiments of his party's leader, Amien Rais of Partai Amanat Nasional (PAN), in saying that the current government did not have the courage to take back the natural resources wealth of the country from foreigners.

A.M. Fatwa
A.M. Fatwa.

Foreigners had had control of the wealth of Indonesia for dozens of years now and Fatwa hoped that president Susilo Bambang Yudhoyono would soon summon the courage to return these assets to the state, such as the Freeport mining operation in Papua.

His position had constitutional support, he said:

In the 1945 constitution it says "the land and water and natural wealth is held by the state and is to be used for increasing the people's prosperity." It's very clear that all natural resources are meant to be controlled by the state but in practice we allow foreigners to control them.

Fatwa urged the president to announce to the people and the world that he would restore Indonesia's economic integrity and independence, similar to what Bolivian president Evo Morales had recently done. okezone


26 Comments on “Nationalization”

  1. avatar WP says:

    As if living on a ring of volcanos isn’t already dangerous enough, we have to host politicians whose popularity is built on suicidal ideas. 🙁

  2. avatar Andrew says:

    Nationalization isn’t going to bring any benefit until Indonesians can manage those assets professionally (and with integrity and honesty).

  3. avatar Mohammed Khafi says:

    Are they all blind to the real problem in our government, that of corruption, which is costing the nation and the people billions of Rupiah per month? Nationalising these industries would put them even more at the mercy of the corrupt in our government and would benefit us not at all.

    Peace

  4. avatar Dimp says:

    Hi MK,

    How else can they get their grubby hands on the vast amount of money that the foreigners have now? They are just thinking this for the benefit of Indonesians (these officials are Indonesians too).

  5. avatar WP says:

    Dear all,

    I was thinking of the retaliation from foreign investors and their governments. Economic sanction comes to mind, and mass withdrawal of foreign investors. If the economic crisis of late 90’s is still fresh in mind, this would smash us into another one.

    I find it frigthening that we have senior politicians circulating ideas like this. This shows just how immature our politics is. If these politicians really care about the people, they should step off. Their severe lack of understanding (e.g. in laws and economics) makes them more a threat to the nation.

  6. avatar Andrew says:

    Nationalization = government monopoly = no competition = no incentive to strive = poor performance = widespread corruption.

    Just look at Pertamina.

    I’m actually thinking the opposite. We should privatize (almost) everything.

  7. avatar Dimp says:

    Hi Andrew,

    I’m actually thinking the opposite. We should privatize (almost) everything.

    I think they already are “private” companies, as only selected “individuals” who benefit from these so called “public” companies.

  8. avatar Andrew says:

    Haha, Dimp – you got it right, they’re “perusahaan babe gue”

  9. avatar Sputjam says:

    During the time of suharto, the price of fuel in Indonesia was subsidised. When that happens, billions of dollars worth of Indonesian subsidised fuel were smuggled overseas and sold for slightly less than market price. The profits made by these smugglers were never brought back into the country. And the loss due to subsidy were paid for by the local taxpayer. Hence money which could have been spent on building roads and schools in rural areas were in fact supporting illegal traders and pople who can afford motorcars. And as Pertamina caanot make any money due to subsidies, they never bothered to explore new oil fields.
    Hence, the problems faced by the national oil company Pertamina was partly due to state ownership.
    In freeport, money is either sent back to the headquarters of the mining company or the taxes collected goes to jakarta, leaving peanuts for the natives. If Freeport is nationalised, then 100% of that money goes to jakarta. The locals can only benefit by working as a miner.
    Venezuela and Bolivia have gone on with the nationalisation programme. It will be interesting to see if their experiment succeed.

  10. avatar Dimp says:

    Hi Sputjam,

    No matter “who” actually owns the company, as long as the management is corrupt then there is no hope for Indonesians. The only reason this guy is suggesting nationalization is because he thinks that him and his friends can get his hands on more money than ever before. If the company is own by foreginers, then the foreginers will only pay “loyalty” to the Indonesian government, and the officials can only scam this “loyalty”. When the companies are owned by the government the corruption is virtually unlimited, they can actually get more than what the companies are actually worth by these so called “subsidies”.

  11. avatar DoOs says:

    On nationalizing foreign businesses.

    What foreign businesses exist in Indonesia? Most of them are injecting out of Indonesia fast to Vietnam and China. Focus on economic improvements by bringing more injections from foreign investment and IT (not loans).

    One of the four deputy heads of the People’s Consultative Assembly (MPR), AM Fatwa, on 4th May called for the nationalization of vital industries in Indonesia such as the oil, gas, and mining industries.

    I don’t think our vital industries are of foreign investments. Furthermore if nationalization is deployed as a system for vital industries, no competition and advancement (monopoly). This man, AM Fatwa, should read books, read about the European History of trade – an important key factor that resembles his decissions.

    A.M. Fatwa, who has a professional background in the religious organisations of Muhammadiyah and Majelis Ulama Indonesia (MUI),

    Lol professional? He doesn’t even account his decissions with history. He mistakenly define the word foreign investment. He runs religious oranisations which does not cause economic development, does not even generate profit. I bet my collagues is way smarter than him. I think he should get lost.

  12. avatar Sputjam says:

    Do not see negativity concerning Indonesia. Even in jakarta you can see hordes of foreign investments coming in. Hypermart operators like Carrefour/jardine matheson (Hero), satellite operator indosat (singtel major shareholder), numerous mobile phone operators partly owned by foreign telcos from the region (singtel/tm/maxis), foreign owned banks etc. You tell me which other country in south east asia have opened up as much as Indonesia? In fact Malaysian owned maxis have just delisted on the KLSE (KL stock exchange) as its Indonesian and indian business may be bigger than in malaysia. Maybe they are thingking of breaking up the company into three separate entities in order to seperate from the malaysian unit.

    Indonesian middle income group is about 40 million people. Twice the population of malaysia. Look at kalimantan and sumatra, and you will see the reason behind the annual haze festival. Huge areas jungles being chopped down to make way for giant plantations companies, many from overseas.
    These people know the true potential of Indonesia. It is undervalued due to added risk. But most went in immediately after the riots of 1998, when assets was at its cheapest. It is still cheap now, when compared to china and india.

  13. avatar Colson says:

    I have to admit that all difficulties and objections mentioned above are real.

    Only, maybe, perhaps, it’s unwise to dismiss the idea offhand.

    Of course Chavez – a self proclaimed socialist – tries to tackle the problems in his country, in this way. And Putin – a kind of Czar-capitalist – has been taken similar actions in Russia. He took back from private robber-capitalists what they had stolen from the nation (vide Suharto). They got good reasons and some success. Maybe their (social-) economic policies will in the end be less dependent on wild west capitalism and on institutions like Worldbank and IMF. Or on companies like Shell, Roche etc.

    If the government of Indonesia would be willing (quod non, I’m afraid) and able (quod non, I’m afraid) to ungear Indonesia or at least reduce its dependency on neoliberalism, it might help.

    Well, I mean, it could be an interesting mind-experiment for an involved Indonesian think tank.

  14. avatar Naga says:

    “Of course Chavez – a self proclaimed socialist – tries to tackle the problems in his country, in this way. And Putin – a kind of Czar-capitalist – has been taken similar actions in Russia. He took back from private robber-capitalists what they had stolen from the nation (vide Suharto). “

    Chavez is yet to prove he is a competent manager of anything other than his personal image, he is already clamping down on media dissent, the first sign of a dictator; he is also yet to funnel any revenue into social programs.

    Putin stole assets that were legitimately purchased by opportunistic capitalists, it was not their fault the govt sold the assets at cheap prices, hence capitalists=clever, govt=stupid. Putin is now sending Russia backward at a breakneck speed, he is a cold war anachronism who is only concerned with centralising power, he couldn’t care less for legitimate development.

    A.M. Fatwa, like his flunky Amein Rais are only playing lowest common denominator nationalist politics, it is cheap and easy to blame foreigners for everything, because it will elicit emotional responses from the demography they are targeting, i.e. the uneducated masses and other nationalists in the DPR/MPR.

    All foreign firms must pay tax, no exceptions, they cannot avoid it. The govt has earned more wealth from oil, gas and mining revenue than all foreign firms put together, just for doing nothing.

    The critical question to be asked by all Indonesian ‘warga’ is…

    WHERE HAS ALL THAT MONEY GONE?

  15. avatar Cukurungan says:

    WP Said:

    Dear all,
    I was thinking of the retaliation from foreign investors and their governments. Economic sanction comes to mind, and mass withdrawal of foreign investors. If the economic crisis of late 90’s is still fresh in mind, this would smash us into another one.

    Cukurungan:

    I didn’t think so because basically the primary Indonesia economic activities are the following:
    1) Oil and gas industry
    2) Mining Industry
    3) CPO and rubber agroindustries
    4) Forests and pulp industry
    5) Fishery and agricultural product
    6) Export TKW
    7) Cement Industry

    Industry or economic activities beyond the above is only pseudeo economic activities or it does exist because of those primary economic activities.
    Indofood and Telkomsel will be death if the above primary industry gone.

    The most foreign investment here were mainly to produce consumption stuff and service being paid by the hard money came from the above primary industry.

    Therefore, there is no more myths about foreign investors becomes economic drive in Indonesia, if you don’t believe check yourself indicators economic Indonesia, there is almost zero influx investment but our export hit its records high. It is not because foreign investment or our workers increase their productivity but it is only God Gifts that our comodity export now has better prices.

  16. avatar Naga says:

    “Industry or economic activities beyond the above is only pseudeo economic activities or it does exists because of those primary economic activities.
    Indofood and Telkomsel will be death if the above primary industry gone.”

    Totally wrong, Indofood is/was the biggest coy in Indonesia for a reason, because the country lives off its products! This country is fuelled by freeze dried noodles and spice sachets.

    How can that be psuedo economics when there is a real market providing the demand?

    “The most foreign investment here were mainly to produce consumption stuff and service being paid by the hard money came from the above primary industry.”

    Most foreign investment is linked to providing services, primary industry is funding nothing, because nationalist politicans keep stealing all the tax revenue, hence the govt is virtually bankrupt, that is why you have no govt services!

    “Therefore, there is no more myths about foreign investors becomes economic drive in Indonesia, if you don’t believe check yourself indicators economic “

    Check what? Where? You’re better off reading Bloomberg, then you’ll actually be able to recite reasonably accurate info.

    there is almost zero influx investment but our export hit its records high. It is not because foreign investment or our workers increase theirs productivity but it is only God Gifts that our comodity export now has better prices.

    Exports are high only because the rupiah is a weak currency! Hence Indo products are attractive on the world market. There is no foreign investment because nationalists want to maintain their rent seeking networks; opening up to foreign competition would make a lot of Javanese politicians poor.

    Commodity prices are driven by foreign demand (i.e. China) and Indonesia has dragged their feet in the mining industry to the point where they have missed out on the boom; it is too late, Australia is capitalising on the commodity boom due to good management, energy and foresight.

    Market forces are not driven by mythology.

  17. avatar Piddy says:

    It is an established pattern that once third world countries become better developed they renegotiate their colonial era contracts. Every country has done so, and it has worked out for their long term interests.

    However, nationalization rarely works. It would be best to leave mining in private hands, and to have the government keep their hands out of the management of the oil and gas resources.

  18. avatar Cukurungan says:

    Naga:

    Totally wrong, Indofood is/was the biggest coy in Indonesia for a reason, because the country lives off its products! This country is fuelled by freeze dried noodles and spice sachets.
    How can that be psuedo economics when there is a real market providing the demand?

    Cukurungan:

    There’s no question that Indofood providing the domestic market demand but those demand appeared because of those primary activities and not otherwise.

    The indofood became the biggest coy because there is the huge customer of the indofood have incomes from those main business activities and Indonesia has hard currency to import the basic material of the noodles because also the money came from those primary business. Imagine, do you think indofood could survive if Indonesia has no money from those primary business?
    In other hand our coal mining, latext and cpo industry will still survive even without the dry noddle. It means the dry noddle market available is created by those activities not otherwise.

    Indonesia Mining Industrie are still very atractive and potential. Don’t compare with Australia because even only our tailing or mining waste is equal to what Australia considered as product. Freeport even ranked is the lowest cost copper and gold producer on earth.
    When China need to kill 127 thousand people yearly to produce Coal while Indonesia only need cangkul and ember to becomes the big coal exporter.

    Nationalization is only the way to ensure Indonesian prosperity in the long run, otherwise Papuanese will heritage the collateral damage Jayawijaya.

    I always remind my amungme brother that every time Freeport increase its Production is equal to decrease of the Amungme prosperity in the future.

  19. avatar Guy says:

    Hi Everyone,

    I was thinking, with all the comments you all provided in regards with the Indonesian government being corrupted. what can we do stop these? All I hear is people yapping about the government being irresponsible to what they’re supposed to do, but I hear less people who aren’t interested in getting into actions to these matters. I can see the irony of myself yapping too but at least it’s a start for me to discuss these concerning matters. I am all ears to what your comments are.

  20. avatar WP says:

    I was thinking, with all the comments you all provided in regards with the Indonesian government being corrupted. what can we do stop these? …. I am all ears to what your comments are.

    So basically you ask us if we want to become a politician. 🙂 Because that’s the only way one can directly influence how this country is run.

    I suppose I have the insight needed for one; but I won’t become one. Basically because I am a coward. 🙁 I’m not prepared to put myself and my family in the line of fire, so to say.

    But as for improving government, the way things are right now, I don’t believe there is a quick exit from the current situation. It will be a long and tortuous journey towards an illusive dream called equality and prosperity.

    There are however hopes for provices; if they are smart enough and brave enough to resist the political domination of Jakarta. There may be a quick way out (for these provinces) if one is allowed to *hire* a foreign governor. Multinationals do that (hiring top international director), I see no reason why we can’t hire a top governor.

  21. avatar Oigal says:

    Woo HOO…Then we can have the perfect state just like Zimbabwe.

    Qaulity elected officials we have in this country ..not

  22. avatar Sputjam says:

    This is a misconception :-

    All foreign firms must pay tax, no exceptions, they cannot avoid it. The govt has earned more wealth from oil, gas and mining revenue than all foreign firms put together, just for doing nothing.

    During the time of suharto, the wealth obtained from foreign oil firms in oil and gas taxes and profit sharing was eventually used to subsidise the rich in jakarta in the form of cheap petrol and diesel for their large limousines and SUV’s.

    All Indonesians must understand that wealth in any country depends on the most important commodity, which is their very own human capital resources. Even in scarce commodity country, if the government can manage their human resource efficiently, they will be developed, example, Japan/Korea/Singapore/Sweden/denmark/switzerland.

    Forget about how much money was collected from Freemont or Exxon Mobil through Pertamina. Get into your pants and start being more productive and helpful to everyone you encounter. It is that easy. In no time, Indonesia will become a developed nation with this atttude.

  23. avatar Achmad Sudarsono says:

    I wanted to stir up a bit of sh*t by endorsing A.M. Fatwa’s ideas – but it’s just too depressing. It’s really sad what an imbecile he is. He’s talking like it’s 1951. I really do find it hard to believe how stupid this man is. The irony is that his daughter works for ‘foreigners’ — she’s a radio journalist with the Australian Broadcasting Commission in Melbourne – Dian Islamiati.

  24. avatar Teng says:

    Maybe Pak Fatwa ought to take a look at the economic state of Indonesia in the late fifties, after they nationalized all Dutch companies.

  25. avatar Achmad Sudarsono says:

    Yes, that’s what I was talking about. It’s popular with political parties because they tend to get rewarded for nationalizing the business. This was especially the case in pre-1965 Indonesia when there was virtually no new foreign investment and the sources of party funding were few. Pertamina’s roots go back to army companies in the 1950s. What a success it has been.

  26. avatar Raden says:

    I may comment this topic in very late stage but I agree with Cuk, I knew that Pertamina only generate revenue more than Rp 300 triliun, or approx USD 37.5 Billion. This is huge as compare to Indonesia’s 2006 GDP of USD 215B, so Pertamina only contribute around 17% of total GDP, plus others then I agree if Oil&Gas, Mining are the top 2 source of Indonesian income.
    A.M Fatwa want to nationalize them ? why not, it maybe good for Indonesia in the long run but with one condition, the government must create conducive climate to recall all the Indonesian Petroleum experts who can not stand living in our country because of whatever reasons.
    I keep on hearing our oil & gas experts are working with MNC or Petronas to sell their expertise for better dollar, yes it is true but that is the fact ! if only those are willing back home and build Pertamina & others

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