Hard Wiring Malaysia Inc.

February 4, 2016

Hard Wiring Malaysia Inc.

by Dr. Munir Majid


Given many present challenges and new commitments, it is time to take a relook at Malaysia Inc.

DURING his time as Prime Minister, Tun Dr Mahathir Mohamad introduced the Malaysia Incorporated concept  inspired by the practice in Japan when he took office in 1981.

The good idea did not always work well in practice as some businessmen took advantage of their close association with the Government – usually the political leaders like Dr Mahathir himself – to ram things down the official throat. There was also the opportunity of enticement that was not always avoided. In time Malaysia Inc. became discredited.

However, the need for official and private sector cooperation for the benefit of the economy is perennial. The good and the bad of it depends on the conduct of the parties – as in any association.

Given many present challenges and new commitments it is time to take a relook at how Malaysia Inc. could be hard-wired in the interest of the nation.

Of course, Malaysia Inc. has not quite gone away even if it may have been left to wander. At the strategic level of the macro economy various bodies exist or are formed to address the broad issues.

Dialogues between the government and private sector take place as a matter of course, whether fixed or ad hoc, like the budget dialogues and those called by International Trade and Industry Ministry.

Particular industry sectoral concerns are also heard and furthered. Industry groups and business organisations form themselves to lobby their cause. Some get very political and others very technical with different levels of success. Professional bodies too air their views or grievances to expand or protect their turf.

There is thus plenty of occasion for private sector representation with government and officials. This, however, needs to be taken to the next level of projecting or protecting particular Malaysian interests in specific contexts in a highly globalised world.

It is a pity the TPPA debate was polarised and became a stick with which to beat the government. This should not, however, obscure the fact there are some valid contra arguments which could do with closer examination, even if Parliamentary approval has been obtained for the TPPA to be signed.

The test of good government is to engage wider society for the good it wishes to achieve.

The government led by Dato’ Seri Najib Tun Razak has been under attack for so long for the 1MDB issue and the huge donation of money that went into Najib’s account that Malaysia is in grave danger of losing the plot.

Malaysia will continue well after Najib. Malaysians – the government, the officials, the private sector and civil society organisations – should look into that future and think about the welfare of Malaysia.

Even if political leaders are distracted and are concerned only with the short-term, governmental institutions must function with a sense of permanence and the strength of great professionalism.

Look at Thailand where the bureaucracy and the private sector and opinion makers have continued to perform despite the frequent and often violent changes of government. That country would have gone to the dogs without them.

With respect to the TPPA, it would be necessary for the bureaucracy in Malaysia to be strengthened by the establishment of a high level committee comprising officials, businessmen and professionals, and functional bodies, to monitor its impact on the Malaysian economy and society at large.

Additionally, given the nervousness caused by the Investor-State Dispute Settlement (ISDS) provisions, it would be a good idea to set up a national technical committee in the Malaysia Inc spirit to simulate situations where the country might be dragged to court or, indeed, where Malaysian investors abroad could protect their interests.

This technical committee could also prepare a calm and collected background paper on the ISDS to get the national mind round it.

A better hard-wired and effective Malaysia Inc machinery should also be formed in respect of the ASEAN Economic Community (AEC). I can think of at least two worthwhile committees: one to identify opportunities and the other the challenges, particularly for the small and medium enterprises.

From my experience with the ASEAN Business Advisory Council, I find specific, focused and project work to be of greater benefit than the big ticket meetings – the so-called dialogues – where often the most tangible outcomes are photo shoots with ASEAN leaders and ministers.

There is a lot of work involved in hard-wiring Malaysia Inc. Industry bodies and persons must be truly committed. It is necessary for private sector representative bodies to be strengthened with both financial and human resources.

The internal organisation and processes have to be less political and more technical. It is all too easy – and lazy – to play racial politics also in bodies purportedly of commerce and industry.

On the official side, there is often a rush of meetings which comes in through one door and goes out the other. There has to be a discipline of detailed record-keeping and scheduling which do not result in good effort being wasted.

I remember many, many hours put in for a report on Malaysian foreign policy and its institutional support, leading up to a meeting chaired by the Prime Minister, with specific decisions made and absolutely nothing followed up after it. That was a couple of years ago.

This kind of waste obviously is not only discouraging but also causes loss of faith in the process of cooperation in a positive Malaysia Inc. spirit.

There is thus the unavoidable need for leadership and good management. In Malaysia we want almost entirely to rely on the Prime Minister.

This results in the centralisation and personalisation we all too often complain about. What about the other ministers? What about industry leaders getting together and bringing a strong proposal forward to them? What about top civil servants engaging members of the private sector or civil society with an idea?

We cannot keep mouthing the same points about the economy or social problems – like Malaysia has great economic fundamentals or that we are a model multi-racial society – just to curry favour. It will not solve anything.

Malaysia faces many serious political, economic and social problems. We seem to be stuck with the political, which would certainly ensure we will come unstuck with the economic and social challenges. We have to address the two latter challenges as well.

The world does not wait on Malaysia sorting out its politics. Indeed the rest of us Malaysians not involved in politics must act, especially those in the private sector, to secure our country.

A strengthening of our increasingly weak sinews through really a quite modest proposal to hard-wire Malaysia Inc would be a good start.

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE IDEAS (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

Malaysia’s Million Ringgit Man’s Leap of Faith in TPPA

January 28, 2016

Malaysia’s Million Ringgit Man’s Leap of Faith in TPPA–Good For Malaysia and Malaysians

by Tan Sri Shahrir Samad



When I first heard of the Trans-Pacific Partnership Agreement (TPPA), I, like most parties, felt very uncomfortable and anxious at the thought of Malaysia entering into negotiations for an agreement that was led and dominated by the United States of America.

It is for the above reason in 2013, I supported the forming of the TPPA Parliamentary Caucus as was suggested by Lembah Pantai MP.Around 2014, I had the opportunity of highlighting my concern regarding the TPPA to Datuk Seri Mustapha Mohamed, the Minister of International Trade and Industry (Miti).

Would the US be able to recognise and agree to all of our list of demands?What about the carve outs and exceptions that we needed? I was inclined to believe that the TPPA would jeopardise our development policies since they did have a history of changing the negotiation goalposts in the past.

Initially, in the conversations that I had with Michael Froman (American Trade Representative), I was under the impression that he did not comprehend the importance of the Bumiputera agenda to us. However, when I learned that Japan had decided to join the TPPA, I perceived this as a positive development as it indicated that the TPPA was not entirely dominated by the US.

In my capacity as chairman of the Barisan Nasional Backbenchers Council (BNBBC), I had attended various TPPA Parliamentary Caucus briefings.

I was periodically appraised of Malaysia’s standing throughout the TPPA negotiations.Instead of blatantly getting emotional and rejecting the TPPA right from the very beginning, I had decided to keep an open mind.

However, that had not meant that I supported the trade pact agreement. Nevertheless, after various engagements and briefings with the negotiators, I slowly started to warm up to the TPPA.

The way that the negotiators had carried themselves while describing, explaining and briefing us had indicated that they were all very capable and accomplished individuals.Through their clarification and justification of their stance on the individual chapters, I had managed to gauge the firmness and decisiveness of our negotiation team on facing disputable issues such as the Bumiputera policy, status of Islam, capital control, halal certification and environment.

What a lot of people do not realise is the reason the Malaysia-US Free Trade Agreement (FTA) in 2007 had collapsed was because importance of the Bumiputera policy was flatly rejected by the US as being protectionist and discriminatory.

Undeniably, the TPPA negotiations were demanding. There were numerous instances where our representatives had left the negotiation table when they had failed to reach a consensus. Meanwhile, back home in Malaysia they were being faulted for trying to sell the country. I cannot imagine what that must have felt like!

After the TPPA negotiation text was released in December 2015, I was pleased to see that all 12 TPPA nations had come to the consensus to accept the Bumiputera policy.The TPPA enables our policy makers to empower the Bumiputera through its policies such as 30% allocation of government procurement.

The outcome of the TPPA negotiations proved to be in favour of Malaysia as we received a lot of exceptions, carve outs and flexibilities. The threshold in construction services given to Malaysian companies was the highest compared to the other TPPA nations.

The 20-year transition period should be more than sufficient for them to embrace the new challenges faced.The hike in medicinal drug prices is not an issue. The TPPA does not change our domestic policies on patents. Halal requirements are carved out from the trade requirements thus allowing us to continue implementing halal requirements related to importation and exportation of food products.

The much feared Investor-State Dispute Settlement (ISDS) tribunal issue was re-evaluated with great concern.The previous ISDS under the other FTAs seemed to be less just and fair to the government. When there is a dispute, the government has the right to interprete matters related to investment through the TPPA Commission.

The burden of proof now lies with the investor and not the state to prove losses suffered. Investors cannot claim losses based on projected future profits.Instead, they can only claim losses based on initial investments made. Ultimately,we must remember that the TPPA does not restrict the government in enforcing administrative actions to regulate policies concerning public health, national security and matters of the environment.

To sum it up, the much maligned agreement is nothing like the actual TPPA text. For that, we have the Miti negotiation team to thank for.

What about the cost of joining the TPPA? Admittedly, new challenges are bound to exist with the formation of the TPPA. For example, SMEs and Malaysian GLCs will have to learn to adjust their business models and operations as they compete with companies from other TPPA countries.However, let’s not forget that we are not changing for the sake of change. We change because these changes come with greater incentives.

TPPA provides an avenue for market access, especially to four new markets (US, Peru, Mexico and Canada).Currently, 18% of our SMEs are already exporting their products and services to other countries. With the TPPA, the possibilities are endless!

The TPPA will give us a competitive edge as it requires us to discipline ourselves in trade and investment matters. This ensures conducive investment avenue, healthy competition and overall improving society through multi-products and the increased availability of high-paying jobs.

Remember, the TPPA is still going to be implemented with or without Malaysia. Vietnam will overtake us if we are not part of the TPPA.We would have to say good bye to high-value investments because countries such as Vietnam and Singapore will look more and more attractive to said investors.

What is worse is that in order to be more competitive, our home-grown companies might even decide to relocate and invest in TPPA countries.Should we decide to join the TPPA in the future, it would not be on our own terms as we were not part of the negotiations and therefore would have to accept the TPPA that had originally been agreed by the founding members. The changes we would then have to make to our laws would be more difficult and painful.

For some strange reason, there are those that are sceptical with the ability of Malaysia to compete with developed nations.They believe that Malaysian companies are not equipped with the expertise required and that Malaysians are inferior to the westerners. This view greatly saddens me.

Do they need to be reminded that a Malaysian consortium currently runs the best property development project in London?Malaysians are also the ones that had planned the Dawn Raid in 1981 which shocked the London capital market when we acquired Guthrie.

Currently, three Malaysian scientists have been named as the world’s most influential minds. To me, these examples (and there are many more) justify Malaysia’s standing as a globally acclaimed success.If it was possible for “Malaysia Boleh” back then, why would it be any different now?

Today, our young generation has become more inter connected. By utilising technology and its advancements on social media, they are now venturing into sharing economy model which has revolutionised the way business is conducted.

More and more of these startup companies have been created and now some have become very lucrative. Recently, two young Malaysians successfully reinvented the way we hire lorries via TheLorry.com. They have been so successful; a Singaporean company has decided to invest US$1.5 million to expand their business in Southeast Asia.

On another front, FashionValet.com has managed to secure a multi-million dollar investment deal from a San Francisco-based venture capitalist. Currently they operate in four different ASEAN countries (Brunei, Singapore, Indonesia and Malaysia).

These examples clearly illustrate young Malaysians are capable of keeping up with the times and embracing change. Not only are these young Malaysians able to compete in today’s global arena, they are triumphant in doing so.

Competition is not an alien concept to Malaysia. Ever since our independence, we have strived to be competitive. Nothing has changed as we will only continue to do so now and in the future.

Over January 25 and 26, the Malaysian Parliament will discuss, debate and vote on the merits of the TPPA. Some will say that the ruling party will bulldoze the TPPA through Parliament because we have the numbers.

I want to emphasise that the BNBBC will not blindly support the TPPA simply because we have to toe the party line but rather, we support it because we truly believe that the TPPA will benefit the country and its people.

I believe that Malaysia should be unafraid to take our place in the world. Change is a constant and it is a fact of life. The TPPA is my leap of faith in Malaysia and in Malaysians.

* Tan Sri Shahrir Samad is chairman of Barisan Nasional Backbenchers Club and Johor Baru MP.


TPPA is good for Malaysia–Tan Sri Sheriff Kassim

January 16, 2016

TPPA is good for Malaysia–Tan Sri Sheriff Kassim



Let’s hope you are right, Tan Sri Sheriff Kassim

I agree with our Honourable Prime Minister that in view of the challenging economic scenario for 2016, a recalibration of the federal government budget is inevitable to take into account the continuing drop in the world price of crude oil.

Thankfully, due to the fiscal reforms introduced last year with the introduction of the goods and services tax and removal of fuel subsidies, the country is now better prepared to address the sharp fall in the price of crude oil and its impact on government revenue.

We can expect that while the calibration may involve expenditure cuts to the budget for this year and possibly next year too, the adjustment will not be too drastic – not like in previous economic downturns.

Malaysia is today confronted with poor sentiments among consumers due to the anticipated one-time effects of the GST and the depreciation of the ringgit, all feeding into the cost of living. There is a wait-and-see attitude in the private sector about how the 1Malaysia Development Bhd (1MDB) issues will be resolved and when the political infighting will end.

At the same time, the external economic outlook is not looking better. There are fresh worries about the sustainability of growth in the two largest economies in the world – the US and China, and with the geo-politics in conflict zones getting more complicated, there is likelihood of greater volatility in the world economy.

Despite these short-term worries, several Malaysian corporations are planning to increase their investments abroad in search of bigger markets and higher returns, as seen in the announcement from Khazanah Nasional Berhad recently.

The President of the Federation of Malaysian Manufacturers (FMM) also said at the Malaysian Economic Association (MEA) forum recently that many of its members are looking at external markets for growth as Malaysia is too small a market for expanding further. Sixty percent of its members are SMEs. They too are looking abroad for new opportunities.

It is therefore not surprising to see from the Malaysian government statistics that we are already a capital exporting country, with the outflows of investments outpacing the inflows of foreign direct investments.

This trend is clearly happening with the major GLICs – Petronas, EPF, Sime Darby and several private sector corporations. Basically, they have no choice but to go abroad. The government itself is encouraging Malaysian corporations to become global champions. When they go abroad, they will choose the countries which are safe for their investments – countries which practise high standards of governance.

One smart decision that the government can take to lift up business spirits and give a helping hand to the Malaysian corporations venturing abroad is by joining the Trans-Pacific Partnership Agreement, or TPPA, because this will open up their opportunities to have access to the biggest trading block in the world.

Investor sentiments will be encouraged that as a TPPA country, Malaysia is showing a commitment to the high standards of governance that are becoming the common expectation in international trade.

Our corporations should not have a problem meeting the high TPPA standards of doing business wherever they go because for the last 10 years, our regulatory authorities like the Securities Commission, the Bursa and Bank Negara Malaysia have been introducing guidelines on the codes of conduct and ethics, integrity and transparency to raise the standards of governance in the corporate sector.

Indeed, our standards are as high as those found in the most advanced countries. In Malaysia, it is mandatory for company directors and top executives to attend training on good corporate practices so that we can be prepared for the competition on the world stage and for attracting world class corporations to establish themselves in our country.

The TPPA is the most comprehensive, high standard trade agreement to date as its provisions on governance make it binding on member countries, unlike the ASEAN Economic Community agreement which is so loose on the obligations of member countries that business leaders are left wondering whether the AEC is serious about creating a regional free trade area.

Although Malaysia should not ignore ASEAN, this regional economic community is not a substitute for the stronger TPPA framework of trade in goods and services, which is governed by clear rules on transparency and integrity on the part of corporations and governments, so as to make the playing field level for all players.

No doubt the TPPA provisions on intellectual property rights, settlement of investor disputes (ISDS) state owned enterprises, government procurement, minority rights, labour standards, human rights etc go beyond trade issues but in modern day trade negotiations with developed countries, these are often the stumbling blocks for the West to open up their markets to developing countries that are in violation of these universal principles of justice and fair play.

Now that the TPPA has laid down the rules, it will facilitate the flow of trade as well as foreign investments to and from the developed countries. How much benefit this will bring to our GDP is a matter for discussion. Some estimates say the benefit will be minimal, only about 1% to 2% additional growth, while other estimates say 8%.

Malaysian manufacturers and exporters are saying that whatever the econometric models say about the benefits from TPPA, the fundamental point is that when free trade opens the doors wider for business, our corporate leaders, including the SMEs, will know how to grab the opportunities that come their way, either locally or in foreign countries.

Critics of TPPA argue that since the governance standards require that member countries must allow a separate legal authority to be set up, called ISDS, to settle investor disputes with the host country, Malaysia will be sacrificing its sovereignty if we join the international trade treaty, especially as it is driven by the US for its own strategic reasons.

US and European multinationals have also been prolific in suing foreign governments, including Australia. Critics argue that our legal system is already good and should be allowed to sit in judgment when a foreign investor sues the government for breach of promise.

They also recognise that there are flaws in our legal institutions and lack of trust in our courts, which explains why, even now, most commercial agreements with foreign partners stipulate that the arbitration on commercial disputes be done outside Malaysia, preferably Singapore.

These flaws, they argue, can be rectified by us internally without being forced to do so by outside parties. The truth is that without outside pressure, it’s unlikely third world countries will introduce the reforms to make their justice system independent and trustworthy and since its going to be difficult to make all countries raise their standards to the same high level of governance, the best solution is to have a separate system to deal with investment disputes involving foreign corporations.

I think this is an acceptable arrangement, given the reality that most large corporations prefer to operate abroad in safe countries. Indeed, as our own corporations have said, they too would feel safer to be in TPPA countries because of the ISDS provision, which is a much more binding requirement than in the other existing free trade agreements.

It is these high standards of protection against abuse of power by host country governments that make the TPPA superior to the free trade agreements that we have signed before with several countries.

MITI has explained that the ISDS under the TPPA has incorporated several safeguards against frivolous and unfair claims against the governments of host countries and that it will be more transparent to the public. These safeguards have been introduced at the insistence of the smaller countries in the final stages of the negotiations.

I believe that members of Parliament should support Malaysia signing up to the TPPA because the broad political consensus will have a positive impact on public sentiments, which in turn will help to create the feel good factor in the economy.

With Malaysia committing itself to the high standards of governance under the TPPA, this will give support to our sovereign ratings and help the ringgit to strengthen to a level closer to its fair value.

A more cheerful market sentiment is what we need in these trying times, especially for the working public. Many are now worried about their job security. When the mood in the market is more cheerful, workers will be less worried about retrenchment. Their families will be confident to spend more and with stronger consumer demand, this will help the country’s GDP to grow, despite the external uncertainties.

Parliament can help to boost up public and market sentiments by voting for the TPPA.


Top Malaysian Economist Jomo questions TPPA for Malaysia

January 11, 2016

Top Malaysian Economist Jomo questions TPPA for Malaysia

by Adrian Wong Gah Junn http://www.malaysiakini.com Jomo KS

While the Malaysian government is keen to sign the Trans-Pacific Partnership Agreement (TPPA), why countries such as Thailand and Philippines have opted to distance themselves from the treaty?

This is a question leading Malaysian economist Jomo Kwame Sundaram posed to the Malaysian government and public.”Why is Thailand is not interested? Why is the Philippines, which is very close to the US, not interested?

“Are there are so many benefits that the Philippines and Thailand can’t see?” he asked reporters, after attending the 2016 TPPA Forum, in Kuala Lumpur, organised by Malaysian Economic Association.

However, according to news agency Reuters, Thailand’s Deputy Prime Minister Somkid Jatusripitak has said Thailand is “highly likely” to seek membership of TPPA, while the Philippines is certain to join TPPA, reported the Manila Times quoting Philippines Department of Trade and Industry (DTI) Secretary Adrian Cristobal Jr.

In the case of Indonesia, Jomo explained, some might argue that the nation has experienced a change of government, coupled with a stronger sense of nationalism, that caused them to pull out of the TPPA.

“As far as Singapore is concerned, they have made more concessions than what is required in the TPPA. So for them, it’s painless, completely painless.Brunei is a small country, it is not trying to develop, it hopes its oil will go forever.In the case of Vietnam, it was at war with China about 35 years ago. It is having a lot of problems with China and is very frustrated with the Chinese government. It has made a strategic decision – embrace the US,” the former United Nation senior official said.

By signing TPPA, Najib government will be abandoning his late father Abdul Razak’s commitment to make ASEAN a ‘zone of peace, freedom and neutrality’ he argued.

Exclusion of China

It is no secret that the main US motivation for TPPA, he said, was to exclude China.”One can understand why Vietnam, an erstwhile US enemy, was keen to join the TPPA, in order to strengthen its hand in its often difficult bilateral relations with its giant neighbour.But why is the Malaysian government so keen to join, considering the dubious economic benefits as well as the huge risks involved?. In response to President Barack Obama’s ‘pivot to Asia’, Prime Minister Najib may want to signal his own pivot to America’,” he said.

Others speakers at the forum included Bank Muamalat chairman Munir Majid, Federation of Malaysian Manufacturers president Saw Choo Boon and Universiti Malaya law professor Prof Gurdial S Nijar.

Munir and Saw were of the view that TPPA would bring more benefits to Malaysia than disadvantages, but Jomo and Gurdial disagreed. Saw pointed out that Malaysia is already working under seven bilateral free trade agreements (FTA) and five regional FTAs, but the domestic market is still small.

Even a one percent growth projection over a period of 10 years, which was one of the scenarios provided by PricewaterhouseCooper (PwC) in its cost-benefit analysis, would be welcome.”The TPPA can’t be worse than what we already have. Even if it is one to two percent growth, we need it. Give it a try. If you don’t like it, you can opt out of it later,” he said.

However, this led to criticism by Jomo. In the “game” of TPPA, countries such as the United States are professionals. Malaysia, on the contrary, is merely an amateur, he said.

The discussions among TTPA proponents, he added, were mainly “one-sided”, which emphasised the benefits without taking the costs into account.

“It’s like saying ‘let’s go in, then we learn how to swim’. That’s not how the world works, it’s very naive.We are going to an unknown territory, whereas these people are very experienced. They have drafted these things many times, and they keep improving each time they draft. Yet we think we are very smart (by signing it),” he said.

Insignificant economic gains

Regardless of what economic model is applied, be it computable general equilibrium (CGE), which was used by PwC in its report, or the UN Global Policy Model (GPM) provided by Jomo, they all led to one conclusion: TPPA brings insignificant economic gains to Malaysia, but the price paid is huge.

According to Jomo, UN GPM finds that:

  • TPPA will generate net GDP losses in some countries, though not Malaysia;
  • Economic gains will be negligible for other participating countries – less than one percent over 10 years for developed countries, and less than three percent for developing countries;
  • TPPA will lead to employment losses in all countries, totalling 771,000 lost jobs;
  • TTPA will lead to greater inequality, with a lower labour share of national income; and
  • TPPA will lead to losses in GDP and employment in non-TPPA countries.

Companies suing governments

Gurdial, on the other hand, analysed the treaty from the angle of investor-state dispute settlement (ISDS).TPPA proponents claimed that the mechanism can protect the government from being easily sued by companies, he said. However, he pointed out that there were still abundant instances of companies suing governments over policies that they claimed interfered with their ability to earn money.

In 2014 alone, he said, there were 608 cases against governments, mainly by American corporations, with 60 percent in developing countries.

“We are now suspending bauxite mining operations because of public health and environmental hazards. Imagine with ISDS, if a foreign company was involved in mining and we stopped them, we could get sued.”


Indonesia : Freeport Mine Scandal

January 11, 2016

Indonesia : Freeport Mine Scandal–A Case of Ideology, Rent Seeking and Foreign Capital

by Gustidha Budiartie and Eve Warburton


Competing factions of politico-business elites are fighting a war over a lucrative mine contract and President Jokowi is caught in the middle.


The Speaker of the Indonesian Parliament, Setya Novanto, stepped down from his post last week (December 15, 2015).The powerful Golkar party operator was on trial in the Parliamentary Ethics Committee for allegedly meeting with American copper and gold mining company Freeport McMoran to arrange a private business deal. Setya beat the Committee to the punch, stepping down before it could formally request his resignation.

The scandal is a dramatic twist in what have been long and fraught negotiations between the government and Freeport over the company’s contract extension. Those within government and parliament who oppose the extension do so on nationalist grounds, arguing that the American miner should no longer exploit and benefit from Indonesia’s natural riches. Those who support an extension argue that neither state-owned nor private Indonesian companies have the capital or expertise to run such an operation.

But the Setya affair demonstrates there is another dimension to this conflict. The Freeport contract is the site of a factional war between different politico-business networks, and President Joko ‘Jokowi’ Widodo appears to be caught in the middle.

The scandal

In mid-November,2015, Indonesia’s media erupted over the publication of a transcript of a meeting in which Setya, and shady oil-man, Riza Chalid, met with the President Director of Freeport Indonesia.

In the recording, the pair offers to expedite the company’s contract extension in return for shares in an electrification project that will service the Freeport mine. They named the Coordinating Minister for Politics, Law and Security, Luhut Panjaitan, as a key enabler. Luhut (pic with Jokowi below) is an old business partner and close confidant of Jokowi.


What made this proposition particularly scandalous was that Setya and Riza presented themselves as gatekeepers of the Presidential Palace, with special access to and influence over Jokowi. At one point in the transcript, Riza even suggested that President Jokowi would “fall” should he attempt to prevent the contract extension.

The covert recording was made by President Director of Freeport Indonesia, Maroef Syamsuddin, who happens to be former Deputy Director of the State Intelligence Agency (BIN). Minister for Energy and Mineral Resources, Sudirman Said, went public with the transcript and reported Setya to the Parliamentary Ethics Committee.

The Minister is on the war path, determined to assert control over the contract negotiations and isolate other players like Luhut, Setya and Riza. While Jokowi has often been equivocal in his support for Sudirman Said, Vice President Jusuf Kalla has backed Sudirman from the start, and called for Setya’s resignation.

The controversial contract

The Freeport contract is far more significant than a typical mining contract. The American company has run the most profitable gold and copper mine in the world out of Indonesia’s Papua province since 1967. As it readies for an 18 billion dollar underground expansion of the mine, the company is seeking an early extension of its contract, which expires in 2021.

Negotiations with the government have dragged on for years. In part, this is because the mining company has a troubled history in Indonesia. Its Grasberg mine is situated in one of Indonesia’s poorest provinces, where a low-level separatist conflict has simmered for decades. Freeport has been accused of human and labour rights abuses, and has a checkered environmental record.


Many Indonesians also feel Freeport has not approached the contract negotiations in good faith. The company has threatened to take Indonesia to international arbitration for not honouring the terms of their original contract.At the same time, Freeport itself has avoided fulfilling some parts of that contract. For example, the company has only divested 9.36 per cent of its shares, when the contract mandates that 39 per cent should have been divested to local parties by this stage.

For all of these reasons, Freeport is controversial and unpopular with the public. Media and politicians often frame the contract negotiations as a test of Indonesian sovereignty. So extending the contract is politically sensitive, and the government must be seen to be getting the best possible deal.

Brokering a deal

Minister Sudirman Said recently indicated that the government would extend the contract in return for significant concessions from the company – everything from increased royalties and local content to a commitment to building refining facilities.

Sudirman has long argued that Indonesia needs this investment, and that local players have neither the financial capacity nor expertise to take over the mine. The problem is that providing the company an extension now requires changing a government regulation that mandates mining contracts may only be extended two years prior to expiry – in this case 2019.

Some insiders suggest that Said is a “Kalla man”, and that his approach to the Freeport contract is, in fact, part of a larger plan to facilitate the advance of Kalla’s private interests, including in the businesses that service the Freeport mine.

But such claims remain unsubstantiated, and to most observers Said represents the closest thing to a reformist that the Ministry has seen in years. Even if the Vice President does have his sights set on service contracts, there are many within the Indonesian mining industry and the Ministry for Energy and Mineral Resources (MoEMR) who argue the extension is necessary.

Either way, Said’s position on this matter, and his combative style, brings him into regular conflict with other powerful members of the executive – particularly Luhut Panjaitan, a political ally and business partner of Jokowi.

Luhut makes both a legal and ideological argument against extending the Freeport contract. First, he says, the regulations should not be changed for the benefit of a foreign company. Second, the state should acquire the mine once the contract expires, he argues, and only then invite Freeport to participate in a joint operating agreement with state owned company, Aneka Tambang.


Luhut’s position is a popular one with the public and some members of the executive and parliament. Rizal Ramli, one of Jokowi’s coordinating ministers, makes similar arguments against an early extension of the contract. This approach resonates with the broader, more assertive nationalist mood that has characterised political discourse in recent years, particularly when it comes to resource sectors.

Opportunists like Setya leverage the nationalist mood for their own private benefit. In fact, the transcript makes Luhut’s nationalism appear disingenuous, too. Setya and Riza implicate him in their attempted deal, though Luhut denies any involvement.

Like many within Indonesia’s politico-business class, Luhut has interests in the mining sector. In fact, he’s spoken openly about meeting with Freeport back in 2012 to discuss acquiring company shares.

The fallout?

The Indonesian public was understandably incensed by the transcript. A flurry of memes and videos supporting Sudirman and disparaging Setya did the rounds on Twitter and Facebook.

The popular current affairs show, Mata Najwa, dedicated several programs to the case, and attacked Ethics Committee members for their own ethical transgressions. Various petitions circulated via social media, calling for Setya’s resignation; some called for the Ethics Committee and even the entire parliament to be replaced.

The investigation by the Ethics Committee reeked of political manipulation. Golkar quickly stacked the Committee with party members loyal to Setya, and their treatment of Minister Said revealed blatant bias.

Given the hearing’s politicisation, many observers were surprised that the majority found Setya had indeed committed a serious ethical violation. Mounting public pressure probably contributed to Setya’s resignation.But it appears that Setya loyalists in the Commission were merely pushing for a second hearing, in order to stall a decision. In the end, Setya offered to step down on condition that the case against him is brought to an end, and that he be made Golkar’s caucus chairman.

Not only did Setya escape serious punishment, he was given a strategic role in Parliament.He is a key political broker, skilled at extracting and distributing rent, and is clearly indispensible to Golkar and party chairman Aburizal Bakrie. It was always going to be hard to punish Setya for his transgression.

Luhut and Setya are primarily responsible for organising parliamentary support for the government’s policies and its budget. Opposition parties have been relatively quiescent since Jokowi came to power, and most political analysts put this down to wheeling and dealing – and probably the distribution of largesse – between Luhut, the former House of Representatives speaker and the leaders of opposition parties.

So even though Jokowi was reportedly furious at the content of Setya’s meeting, the President was in a difficult position politically. Striking at Setya might snare Luhut, and could threaten the deal-making that has helped his government to function.

Ideology, rent seeking and foreign capital

Observers frequently scratch their heads, wondering why the Indonesian government appears so bellicose with regard to foreign companies, particularly Freeport, when at the same time government leaders reiterate that the country badly needs investment. The assumption is often that state officials are myopic, naïve and corrupt in their approach to the business community. But this proposition is unsatisfying.

The reality is that the structure of the Indonesian economy necessitates foreign investment, but structural features of Indonesian politics often inhibit it.While some within the Ministry of Energy and Mineral Resources and the political elite would prefer to extend the contract (with significant concessions from Freeport of course), they face widespread and assertive nationalist sentiment, and a political system that is built around extraction.

As more and more foreign resource contracts approach expiration, the question of who should control and profit from Indonesia’s resource sectors becomes increasingly contentious. Popular nationalist narratives of indigenous ownership dovetail neatly with the goals of an aggressive politico-business elite that sees lucrative resource projects as ripe for the picking.

And politics is expensive. As the system currently operates, political parties need business types like Jusuf Kalla, Setya Novanto, Aburizal Bakrie and Luhut Panjaitan to fund campaigns and purchase political deals. These politico-business elites expect to be repaid with preferential access to lucrative resource contracts, and Freeport is the gold prize.

Jokowi made a strong public statement against Setya’s actions, and made it clear he expected Setya to resign. But Jokowi is a political outsider, and lacks influence in Jakarta’s elite political networks. The President’s weak position means that rent-seeking competition around the Freeport contract is creating deep fissures within the executive.

In the coming weeks, this current scandal will fade from the front pages. Setya will survive, and Riza will remain abroad for as long as it takes to broker a deal for his protection. Luhut’s relationship with Jokowi will probably weather the recent storm as well. Freeport’s contract negotiations will almost certainly be pushed back to 2019.

But the case remains significant. Setya was forced to resign as Speaker, and politicians may be a little more cautious next time they sit down to extort rents from a foreign company. And Indonesia’s public was able to witness, in fascinating and nauseating detail, the mechanics of rent seeking at the highest level.

Some may begin to interrogate the nationalist pomp of their leaders. Leaving Indonesia’s copper and gold in the hands of an American company might be hard to swallow, but is passing it to the political oligarchs any better?

Gustidha Budiartie is a Jakarta-based journalist. Eve Warburton is a PhD candidate at the Coral Bell School of Asia-Pacific Affairs, the Australian National University. 

Malaysia’s Foreign Minister Defends TPPA Deal

January 8, 2015

Malaysia’s Foreign Minister Defends TPPA Deal

by Bernama


The talks on the Trans-Pacific Partnership Agreement (TPPA), led by the Ministry of International Trade and Industry, were extensively deliberated to ensure that Malaysia’s position is protected and safeguarded.


Malaysia’s Foreign Minister Anifah Aman

In a statement today, Minister of Foreign Affairs, Datuk Seri Anifah Aman, said the PricewaterhouseCoopers Malaysia (PwC) report said that by participating in the TPPA, Malaysia has the opportunity to shape the TPPA text and annexes and secure extensive safeguards.

“In the event of non-participation, these extensive safeguards would be forgone and Malaysia may not have another opportunity to secure such carve-outs that protect our domestic interest in the future,” he said.

Anifah said this in response to the statement by member of Parliament for Kelana Jaya, Wong Chen, who said ‘Malaysia’s foreign Policy had become one of the worst in the world since Prime Minister Datuk Seri Najib Razak assumed office’.

He said Wong has also twisted the report published by PwC and said politics motivated the trade deal.Anifah said the PwC’s report warned that Malaysia’s non-participation in the TPPA would result in a decline in gross domestic product by between US$9 billion (RM39.5 billion) and US$16 billion over 2018 to 2027.

“It also said the overall investments are also projected to decline by between US$7 billion and US$13 billion over the ten-year period,” he said. Anifah said the non-participation in the TPPA would also limit the market access of Malaysia’s firms to the TPPA countries, particularly in terms of non-tariff measures.