Jokowi and Freeport Divestment
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Upon a mix of personal experience and theoretical reasoning, I thought for a longtime after reading the news titled “Ex banker to prepare Inalum for big things” (The Jakarta Post, 15/9). It disclosed that Budi Gunadi Sadikin, a former president director of Bank Mandiri, was appointed by State-Owned Enterprises Minister Rini Soemarno as president director of PT Inalum, a prospective parent company for all state-owned mining companies.
After having dinner with Bangka-Belitung Governor Erzaldi Rosman in early August, I talked to Budi until late into the evening in the lounge of a hotel in Pangkal Pinang. “As a banker, I could easily create millions of US dollars,” he said during our conversation. “But,” he said, “I’ve chosen to become an expert staff as offered by Bu Rini.”Why? “Because I want to do something for this nation: realizing the control of majority shares in Freeport.”
It was this private experience that gave me pause for thought. The appointment of Budi – who challenged me to a game of table tennis in response to my congratulations– was inline with the intent of the above conversation. The news in the English-language newspaper ran Rini’s explanation that Budi was the right person to carry out the duty. “Budi’s expertise is paramount to leveraging the holding company’s financial capacity to prepare the funding for the control of PTFI [Freeport] and expansion of state miners.”
Here, Rini\'s idea to appoint Budi as her expert staff is a reflection of her talent-scouting ability in seeing the potential and capabilities of this banker. This is an "astonishing" move in the business game from Rini. Because as soon as PT Freeport Indonesia (FI) officially announced it was willing to divest 51 percent of its shares to the Indonesian side, Rini already had someone who is competent in it in technical-professional terms. Budi’s appointment as Inalum president director is like a chess move from Rini in this business game. As the parent company of state-owned mining enterprises, at its conceptual level PT Inalum will officially have much greater financial leverage in collecting funds. In the hands of an experienced financial figure like Budi, even though the task definitely constitutes a tireless struggle, this ambition has the potential to be realized in technical-professional terms.
Agency performance &state figures
Of course, behind the process of Freeport’s 51 percent divestment agreement are an agency and figures that work on behalf of the state. Here, as reported by Tempo magazine (10/9), we see strong articulation in the combination of state agencies –starting from the Energy and Mineral Resources Ministry, Finance Ministry, State Enterprises Ministry, to the Law and Human Rights Ministry; from the offices of the Coordinating Maritime Affairs Minister and Coordinating Economic Minister to the State Secretariat, and on up to the Investment Coordinating Board – in achieving the objectives which benefit the nation. And behind the series of agencies, directly or indirectly, are four main figures: Energy and Mineral Resources Minister Ignasius Jonan, Energy and Mineral Resources Deputy Minister Arcandra Tahar, Finance Minister Sri Mulyani Indrawati, and State-Owned Enterprises (SOE) Minister Rini Soemarno.
Under the four are their respective deputies. Possibly, because it is believed that the whole technical incorporation process will be handled in the end by the SOE Ministry, its deputy of mining, strategic industry and media, Fajar Harry Sampurno, was cited by Tempo as a "spokesman". Through interviews with Fajar, the public was given more details about the process and results of the negotiations between the government and the President and CEO of Freeport-McMoran Copper & Gold Inc., Richard Adkerson.
At the risk of being accused of exaggeration, I want to say that the agreement is historical in "presenting the state", which – in Betawi– is called keureung (real and felt) in front of global corporate actors.
Why? Because the idea of "presenting the state" was basically initiated by the second-term government of Susilo Bambang Yudhoyono (2009-2014). Through Law No. 4/2009 on Mineral and Coal Resources, the government wanted to emphasize its stature in front of foreign mining corporations by preventing the export of raw products starting in 2014. And the law also covers provisions on the 51 percent divestment for foreign mining companies and changing contracts of work into special mining licenses. Therefore, the previous government had already built a foundation for the Joko Widodo-Jusuf Kalla government to step forward in the political economics of the mining and mineral sectors.
However, as is known, the provisions, which are non-negotiable in theory, could not be executed properly. What appeared instead on the political economic stage was "negotiations", which implied the "equality" in standing of the global corporation and the state. This happened because the state’s actions were structurally hindered. The obligation of mining corporations to build smelters, for example, came up against the state’s capability to provide energy infrastructure like electricity.
At the same time, the national economy at the outset of the negotiation process, as happened in 2013, was not able to sustain the potential of external turmoil. The current deficit of US$9.8 billion due to too-high import consumption threatened the resilience of foreign exchange. This was overshadowed by the rupiah depreciation due to the US central bank’s quantitative easing policy in September 2013, which increasingly threatened capital outflow.
These were the factors that became forced the state to maintain a "conducive" investment climate during the "negotiation" phase. Therefore, under the shadow of the threat of mass worker layoffs if PT FI did not export, the state "gave in". Under certain requirements and periods, it thus allowed the foreign mining corporation to continue exporting their raw materials, even though in certain ways, this state stance is not applicable to the administrative style of President Joko "Jokowi" Widodo. President Jokowi is highly determined to thoroughly settle this polemic before the end of his term. According to the President, it is time for Indonesia to control majority shares in Freeport. In my opinion, this determination is encouraged by "economic nationalism", rather than the technical-economic calculations, whose health is still questionable.
It is true that Indonesia’s trade balance recorded a surplus of US$1.7 billion as of August 2017 (Kompas, 20/9). It is true that foreign exchange reserves recorded a historical $127.8 billion; and it is also true that there is no threat of the rupiah depreciating, even though the Federal Reserve has raised its reference rate.
However, at the same time, the present national economy – as disclosed above -- is enigmatic: the relatively maintained economic growth is accompanied by falling consumer buying power in the real sector and deindustrialization at certain levels. In his speech on Economic Talkshow: New Economy in the Digital Era on Wednesday (20/9), President Jokowi viewed that the enigma reflected a change in household consumption patterns due to advancements in information technology, which had forced activities at conventional retail outlets (physical stores) to decline.
Communication technology has transformed markets to become spaceless and, as a result, reducing physical mobility at conventional retail sites. Along with this are changes in consumers\' preference from commodities of the real sector to "imaginative products".
The national economy’s enigmatic character is even evident inits compulsion to implement expansive fiscal policies for the sake of infrastructure development.This requires maximum tax revenues. However, a few months before the year’s end, the tax revenue target is still short of Rp 692.7 trillion (Kompas, 19/9). Amid the sluggishness of domestic consumption in an enigmatic national economy, the aggressiveness of the tax policy has the potential to reduce expansion of private corporations at a certain stage. This is problematic for economic growth efforts. While the low tax revenue reduces government expenditures, non-expansive performance in the private sector is balanced out by the decline in domestic consumption. Theoretically, aside from export performance, government expenditure, private expansion, and domestic consumption are factors that support economic growth.
However, none of these are obstacles for President Jokowi to be strict in urging state agencies and figures to realize the "economic nationalism" vision. The willingness of FI to divest majority shares to Indonesian entities, therefore, reflects the current penetrative character of the state. Here, the "economic nationalism" vision of President Jokowi has informed the technical-economic calculation.
A global ”mercatocracy” nation
All of these drive my theoretical contemplation. Long before that, Susan Strange’s The Retreat of the State (1996) had introduced the concept of “authority beyond the state”. This phrase says that developments in trade, capital, and technology in the hands of the few create new rulers whose expansion goes beyond the boundaries or territories of the nation-state. In my interpretation, the expansion of power beyond the state has made formal members of the world community (nation-states) lose their influence in forming and controlling “planetary politics”, as NormanK Swazo called in Crisis Theory and World Order: Heideggerian Reflections (2002). This concept illustrates that even though the world order (planet) is the result of its respective members’ subjectivism, and because it is plural, it is finally determined by the Übermensch (superior human), or the acme of subjectivity.
The problem is who is the Übermensch or the acme of subjectivity? In the context of a global economic system, the answer is mercatocracy. In Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (2003), Claire Cutler explains that mercatocracy consists of transnational traders, international private lawyers and professional groups with their associations, government officials and representatives of international organizations. Besides working at the global level, a mercatocracy also implants its influence at the local level for developing international trade laws and aligning national laws to it.
This performance deepens the transnationalization process and obscures differences in the activities and laws of governments and private actors. Because mercatocracy is materially related to transnational capital, differential vagueness becomes a gateway to the economic territories of nation-states for international or global private groups.
Here, we see not only the red thread of Strange’s concept of “authority beyond the state” with Swazo’s Übermensch or “acme of subjectivity”, as well as Cutler’s mercatocracy, but can also identify them: global economic capital actors who, for the sake of economic interests, form a worldwide system without nation-state boundaries. It is in this context that we must view FI’s parent company, Freeport-McMoRan Copper & Gold (MCG)— the world’s biggest mining corporation from the US. Older than Indonesia (established in 1912) with its giant business (total assets US$6,577 billion) and expanding throughout the world, MCG is part of the mercatocracy.
Seen from this context, when it negotiated with MCG, structurally, the state (Indonesia) was facing the global network of a mercatrocracy whose power articulation, to borrow Strange’s phrase, was “beyond the state”. Nevertheless, as we saw, the state under President Jokowi managed to obtain a divestment agreement from one of the giants of the mercatrocracy. The "economic nationalism" of President Jokowi has set a precedent that in principle, the state has the power of political persuasion in facing giant actors of the global mercatocracy. If all runs according to plan, PT Inalum, as the parent company of state mining enterprises, will become the "state’s hands" in the global economy.
Budi Gunadi’s duty is heavy indeed. However, aside from the arena of table tennis, isn\'t that the challenge he seeks?
FACHRY ALI
A Founder of the Institute for the Study and Advancement of Business Ethics (LSPEU Indonesia)
