Review of Industrial Organization 21: 205–224, 2002.
© 2002 Kluwer Academic Publishers. Printed in the Netherlands.
The Evolution of Competition Policy in Indonesia
MARI PANGESTU, HARYO ASWICAHYONO, TITAK ANAS and
Centre for Strategic and International Studies, Jalan Tanah Abang III/27, Jakarta 10160, Indonesia
Abstract. This paper assesses the evolution of the new Indonesian competition law passed in 1999,
and the creation of the Competition Commission. The ﬁrst half of the paper traces the debate and
process of deregulation and liberalization that preceded the introduction of the law. Whilst deregula-
tion did lead to increased competition and efﬁciency, distortions to competition in the goods sector
still persisted due to ad hoc and non transparent measures taken due to government interventions and
vested interests. The services and infrastructure sectors were only partially liberalized. The second
half of the paper evaluates the debate on competition law and assesses its introduction and imple-
mentation. In the brief period of implementation to date, the tension between a pro-competition and
an anti-bigness interpretation of the Law is evident. The paper concludes that ambiguities in the law
should be eliminated, that the competition agency focuses on advocacy and introducing transparent
procedures rather than hastening towards concluding investigations, and that competition issues faced
by independent regulatory agencies in the services and infrastructure sectors should be introduced
Key words: Business practices, competition law, competition policy, unfair economic reforms.
JEL Classiﬁcations: K21, L4, L5.
In the wake of falling oil prices in the mid-1980s, the Indonesian government
recognized the need to have a competitive environment. The focus of deregula-
tion was to diversify the economic structure away from oil dependence and state
dominance of economic activities, directly or indirectly. In the 1990s, bolder and
wider policy reforms were related to Indonesia’s regional commitments under
the ASEAN Free Trade Agreement and its WTO commitments, and inﬂuenced
to some extent by the APEC process. Whilst all these factors led to a relatively
comprehensive deregulation program that yielded positive results in terms of non-
oil exports and economic growth, the deregulation focused mainly on cross-border
barriers, removal of entry barriers and streamlining. There was a lack of focus
on removing domestic policy constraints, lack of liberalization of the services
sector, and inappropriate sequencing of policy reforms. There was also a lack of
effective institutions and regulations to implement the deregulation or to ensure