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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

ECONOMIC REFORM WHEN THE CONSTITUTION

MATTERS: INDONESIA'S CONSTITUTIONAL COURT

AND ARTICLE 33

Simon Butt & Tim Lindsey

To cite this article: Simon Butt & Tim Lindsey (2008) ECONOMIC REFORM WHEN THE

CONSTITUTION MATTERS: INDONESIA'S CONSTITUTIONAL COURT AND ARTICLE 33, Bulletin of Indonesian Economic Studies, 44:2, 239-262, DOI: 10.1080/00074910802169004

To link to this article: http://dx.doi.org/10.1080/00074910802169004

Published online: 31 Jul 2008.

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ISSN 0007-4918 print/ISSN 1472-7234 online/08/020239-23 © 2008 Indonesia Project ANU DOI: 10.1080/00074910802169004

Economic Legislation Series

ECONOMIC REFORM

WHEN THE CONSTITUTION MATTERS:

INDONESIA’S CONSTITUTIONAL COURT AND ARTICLE 33

Simon Butt Tim Lindsey

University of Sydney University of Melbourne

Article 33 of Indonesia’s Constitution requires the state to ‘control’ important branches of production and natural resources. The meaning of ‘control’ has been a matter of signifi cant debate since Indonesia’s independence: does it require the state to manage directly, or is regulation enough? The government has recently sought to break down government monopolies and attract private investment in key sectors. To this end it has enacted a raft of new statutes, but they have been challenged in Indonesia’s new Constitutional Court. The Court has opted for the ‘direct manage-ment’ interpretation of article 33, striking down statutes that implicitly interpret it as requiring government regulation only. This paper discusses these decisions and, more broadly, problems arising from judicial intervention in economic policy forma-tion. It also considers how the government has sought to circumvent the decisions, and the possible consequences of state non-compliance for the Court’s future.

CONSTITUTIONAL REFORM

President Soeharto resigned in May 1998, bringing his three decades of authori-tarian rule to an end and ushering in the so-called ‘era of reformasi’. Within a year, Indonesia had begun amending its previously ‘sacred’ (sakti) Constitution of 1945. This process was repeated three more times, once each year, until on 10 August 2002 the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR), Indonesia’s highest legislative body, completed the last of four major constitutional amendments.1

The result was a radically revised and newly liberal-democratic political sys-tem and the substance of the constitutional amendments was extensive. They established, for example, new organs of state, including the Dewan Perwakilan Daerah (DPD) or Regional Representative Council, a form of senate to represent Indonesia’s 33 provinces, and a Judicial Commission to supervise judicial conduct and recommend candidates for appointment as Supreme Court justices. They also democratised Indonesia’s political system, introducing, for the fi rst time, a mechanism for the direct election of the president and vice president. Agreement was also reached that appointment (as distinct from election) of members of the

1 For details of these amendments and the text of the Constitution before and after the amendments, see Lindsey (2002: 244–301), on which this and the following paragraph draw.

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legislatures would be completely abolished over time, thus ending the long-stand-ing practice of reservlong-stand-ing seats for the military.

The amendments likewise hugely curtailed the president’s constitutional pow-ers, preventing any future president from holding offi ce for more than two ve-year terms (art. 7) and restricting the president’s legislative powers in favour of the Dewan Perwakilan Rakyat (DPR) or legislature. The president’s ‘power to make legislation with the agreement of the DPR’ was replaced by the power only to ‘introduce Bills into the DPR’, and presidential power to veto legislation was lost entirely.2

The amendments also redefi ned and scaled down the MPR’s role; abolished the controversial Elucidation to the 1945 Constitution; and strengthened the troubled post-Soeharto regional autonomy process by granting formal constitutional status to local governments with elected parliamentary bodies. These were given new and broad law-making powers restricted only by the reservation of a few residual powers by the national government (art. 18). The amendments also resulted in a dramatic expansion of human rights provisions to embrace most of the Universal Declaration of Human Rights (chapter XA, art. 28).

Most importantly for the purposes of this paper, however, the third and fourth amendments required that Indonesia’s fi rst Constitutional Court (Mahkamah Konstitusi, or MK)be established by 17 August 2003, as the adjudicative corner-stone of this ambitious new system.3 Law 24/2003 on the Constitutional Court (hereafter ‘the MK Law‘) was eventually passed on 13 August 2003, just four days before the deadline. Soon after, the MK’s nine judges were installed by presiden-tial decree and the Court began accepting cases.4

THE CONSTITUTIONAL COURT

Article 24C of the amended Constitution provides for the jurisdiction of the new Court, granting it the power to make fi rst and nal—and binding—decisions in the review of statutes (undang-undang) against the Constitution; to determine

2 Article 20 now provides that bills come into force automatically 30 days after being passed by the DPR, even if the president does not endorse them.

3 Transitional Provisions, art. III: ‘The Constitutional Court shall be formed at the latest by 17 August 2003 and before its formation its authority shall be exercised in full by the Supreme Court’. Although the Supreme Court (Mahkamah Agung, MA) was required to exercise the jurisdiction of the Constitutional Court until the latter was established, in practice, cases were registered with the Supreme Court but it did not hear or decide any of them. The Supreme Court simply transferred all these cases to the Constitutional Court upon its establishment; for details, see Lindsey (2002). On the Supreme Court generally, see Pompe (2005).

4 Article 24C(5) of the Constitution provides that MK judges must have high levels of integrity, be of impeccable character, be fair and just, have a complete understanding of constitutional and administrative law, and not hold government offi ce. The MK consists of nine judges. The DPR, the president and the Supreme Court put forward three candidates each (art. 24C(3); MK Law art. 4(1). The nine judges can serve a maximum of two fi ve-year terms. They elect from among their number a chief and deputy chief justice (art. 24C(4); MK Law art. 4(2)), who can hold offi ce for three years (MK Law art. 4(2)). (Unless otherwise stated, all references to ‘articles’ are references to articles of the 1945 Constitution of the Republic of Indonesia as amended.)

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disputes concerning the authority of the state organs whose power is derived from the Constitution; to dissolve political parties; and to determine disputes on the results of a general election (art. 24C(1); MK Law art. 10(1)). It also has the power to make decisions concerning the opinion of the DPR about alleged viola-tions of the Constitution by the president or vice president—in other words, the power to have the fi nal say in any impeachment proceedings (art. 24C(2); MK Law art. 10(2)).

The MK’s most commonly exercised jurisdiction has thus far been reviewing the constitutionality of statutes (art. 24C(1); MK Law art. 10(1)), that is, determin-ing whether the legislation enacted by the DPR is consistent with the principles contained in the Constitution and, in particular, the new Bill of Rights in chap-ter XA. The MK cannot, however, review other types of laws below the level of statute, such as government, ministerial and presidential regulations (peraturan). These lesser laws fall fi rmly and exclusively within the review jurisdiction of the Mahkamah Agung (Supreme Court, MA) (art. 24A(1) of the Constitution). As will be seen below, this division of the review jurisdiction between the Constitutional and Supreme Courts is highly problematic, largely because the Supreme Court has not exercised its review jurisdiction regularly or vigorously, and government has thus come to see the issuing of regulations rather than statutes as one way to avoid the MK’s intervention in its legislative program.

The power of courts to review statutes is commonly referred to throughout the world as ‘judicial review’ (Butt 2007),5 and the MK has exercised its powers of review with regularity and enthusiasm—the fi rst court to do so in Indonesia since at least the late 1950s (Asshiddiqie 2004; Stockmann 2007). Some argue that the formation of the MK was, at least in part, a response to the 2000 constitutional crisis in which a lengthy stalemate between then President Wahid and the DPR resulted in his controversial impeachment and ultimate dismissal by the MPR (see, for example, Lindsey 2002: 260, note 26). This dramatic episode clearly did help to persuade the MPR to create the new Court. However, the MK’s forma-tion was also, in a broader sense, a response to the long absence of the effective exercise of independent judicial review—the result of a deliberate policy of the Soeharto regime—and to a campaign for the re-introduction of judicial review by various lawyers’ groups over many decades. The lack of independent processes of judicial review, and consequently of developed judicial doctrines of constitu-tional interpretation, contributed signifi cantly to the arbitrary and authoritarian nature of Soeharto’s rule (Lindsey 2002: 260; Harman 2006; Lubis 1982).

The MK has so far made important, if often controversial, contributions to the implementation of the amendments to the Constitution that brought it into being. It has also generally provided a fair and effi cient forum for testing the new demo-cratic electoral system established by those same amendments. Against the odds, it appears to be emerging as a professional and determined—even energetic— guardian of the new Constitution (despite the fact that its Chief Justice, Professor

5 Confusingly, the term ‘judicial review’ is often used in Indonesia as an English transla-tion of peninjauan kembali, the fi nal stage of appeal in the Supreme Court. Peninjauan kembali (PK) literally means ‘reconsideration’, and refers to a review on the papers of a Cassation (a form of appeal) decision of the Supreme Court by a different panel of judges within the same Court. The PK is the fi nal level of ‘appeal’ in the Supreme Court.

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Jimly Asshiddiqie, was once one of the more trenchant critics of that document) (Sidin 2004; Harman and Hendardi 1999; Harun 2004). This has sometimes brought the new Court into tension—and even, as this paper will show, confl ict—with the executive branch. This tension is likely to continue in the immediate future, as Indonesia explores the implementation of its new trias politika (‘political triad’ or separation of powers) arrangements through constitutional cases. The implica-tions of this process for economic policy in Indonesia are, in a broad sense, the subject this paper takes.

ARTICLE 33: THE PEOPLE’S ECONOMY

Article 33 of the Constitution was originally inspired by a broad mix of leftist, nationalist and anti-colonialist ideals that were infl uential at the time the Con-stitution was drafted in 1945 (Venning, no date; Susanti 2002; Hadiz 2004: 152; Al’Afghani 2006; Hatta 1946; and, generally, Swasono and Ridjal 1992: 5–8). Despite being a constant source of theoretical and political controversy, the article has survived the shift of the Indonesian state from the left under Soekarno to the right under Soeharto, and the major overhaul of the Constitution that took place after Soeharto’s fall. Its controversial nature was particularly apparent during the economic crisis from 1997, when its proxy, the ‘people’s economy’ (ekonomi rakyat) discourse, was revived in opposition to policies favoured by multilateral lenders and donors, including the IMF and the World Bank. These policies were intro-duced as part of the conditions attached to balance of payments support loans made at the time and—initially at least—were supported by Indonesian policy makers, however grudgingly.

The article 33 cases examined by the Court have focused on recent attempts by government to dilute its involvement in key economic sectors (McLeod 2002), largely in an effort to encourage private sector investment in infrastructure. These cases have become a lightning rod for a wide range of popular grievances, includ-ing mistrust of entrepreneurs; allegations of widespread collusion between gov-ernment and business; and a sense among NGOs that reformasi (post-Soeharto reform) has not materially improved the circumstances of ordinary Indonesians. The cases have also become the forum for a revival of a long-standing and per-sistent—if (until recently) frequently marginalised—ideological debate about the economic and regulatory relationship between state and subjects in Indonesia, which dates back to the years before independence in 1945, and which invari-ably refers to article 33. The dilemma for policy makers now arises, essentially, from the preservation in almost sacrosanct form of this single clause of somewhat vague, leftist terminology in the Constitution of a state in which communism is still illegal and which has committed itself (albeit not always enthusiastically) to global norms of free-market deregulation and privatisation.

The article 33/privatisation cases in the MK show that the hoary article 33 ‘peo-ple’s economy’ contest between state and market approaches and between global economic orthodoxy and local political discourses is still alive in post- Soeharto Indonesia and that the MK has even revived it. The debate now has potentially enormous implications for both politics and the economy. In particular, it bears on the continuing process of transfer of state assets into the hands of private business that forms so important a part of economic reform orthodoxy in post-Soeharto

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Indonesia, and that was a central feature of the post-1998 reform agenda spon-sored by the IMF, the World Bank and other donors.

This paper aims to show that, through its interpretation of article 33 of the Constitution, the MK has attempted to thwart government efforts to provide greater scope for the private sector to participate in the branches of production and exploitation of natural resources referred to in article 33. The authors of this paper, both lawyers, have deliberately tried to avoid engaging in debate about economic policy questions such as the desirability or otherwise of privatisation. We have also refrained from speculating upon the possible social, economic or other consequences of the MK decisions. These are important questions, but they are beyond the scope of this paper.

The paper discusses the political implications of the Constitutional Court’s use of its new judicial review powers in cases involving article 33 of the Constitution. The fi rst three paragraphs of article 33 (which were left virtually untouched by the constitutional amendments) provide as follows.

(1) The economy shall be structured as a common endeavour based upon the family principle.

(2) Branches of production that are important to the state, and that affect the public’s necessities of life, are to be controlled by the state.

(3) The earth and water and the natural resources contained within them are to be controlled by the state and used for the greatest possible prosperity of the people.6

These paragraphs together form the key constitutional provisions dealing with the Indonesian economy, and are sometimes referred to as defi ning ‘the family principle of the economy’ or ‘the people’s economy’.

THE ARTICLE 33 CASES7

In its fi rst three years of operation, the MK heard four cases in which applicants objected to government attempts at privatisation of important ‘branches of pro-duction’ or natural resource exploitation, or to government steps to allow a more active role for private sector enterprises, arguing that this was contrary to article 33.

In the Oil and Natural Gas (Migas) Law case (MK Decision 002/2003), applicants sought a review of Law 22/2001 on Oil and Natural Gas. In its decision, the MK made slight alterations to the Law to bring it into line with the requirements of article 33 (Hukumonline 2004a).

6 The fi nal two paragraphs of article 33—less important for the purpose of this article—are as follows:

(4) The national economy is to be run on the basis of economic democracy, and the principles of togetherness, effi cient justice, sustainability, environmentalism, and independence, with a balance between advancement and national economic unity. (5) Further provisions to implement this provision will be legislated.

7 The MK publishes its decisions at <www.mahkamahkonstitusi.go.id> and in hard copy. In this paper we refer to the soft-copy versions, as found on the website.

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In the Forestry Law case (MK Decision 003/2005), a group of many applicants unsuccessfully disputed the constitutionality of Law 19/2004 on the Stipulation of Interim Law 1/2004 on Amendments to Law 41/1999 on Forestry as a Statute (Hukumonline 2005a).

In the Water Resources (SDA) Law case (MK Decision 058-059-060-063/2004 and 008/2005), almost 3,000 individuals and several NGOs requested the MK to review Law 7/2004 on Water Resources. A majority of the MK upheld the con-stitutionality of the Law, largely because the MK believed that under it the state retained control over the sector (Hukumonline 2005b).8

In the Electricity Law case (MK Decision 001-021-022/PUU-I/2003), three appli-cants requested the MK to review the constitutional validity of Law 20/2002 on Electricity. The Court’s decision is discussed below.

These four article 33 decisions raise questions that are now of critical impor-tance for economic policy in Indonesia. Many of these questions arise because the meanings of key terms used in article 33 are not self-evident (not least because of the somewhat obscure and grandiloquent style in which the original docu-ment was drafted). They also arise because these terms have never been subject to defi nitive or binding legal interpretation, by reason of the absence until 2003 of any power of judicial review. Since then, both policy makers and the MK have been forced to confront a series of related and complex legal questions. What does ‘controlled by the state’ mean? How much scope is there for private sector involvement in these sectors? Is the state’s obligation with respect to important branches of production essentially the same as its obligation with respect to natu-ral resources? How is an ‘important sector’ to be defi ned? What is the meaning of ‘common endeavour’? What is ‘social justice’? Does article 33 require the MK to assess government policy? In this paper, we try to answer these questions through an examination of the reasoning relied on by the MK judges.

Before we do so, it is important to note that decisions of the MK are, in general, more lengthy, discursive and argumentative than decisions of other Indonesian courts. The Electricity, Migas and SDA Law cases were, however, exceptionally long, even by the MK’s own standards.9 This allows us to evaluate the reasoning contained in the MK’s decisions, something to which decisions of other Indo-nesian courts are usually nowhere near so amenable. In fact, the case fi les reveal a multitude of arguments and issues, too numerous for us to cover here. For rea-sons of space we therefore focus our discussion on the Electricity Law case—the fi rst case ever heard by the MK—and, to a lesser extent, the SDA case. We also refer briefl y to aspects of the Migas Law case.

The Electricity and SDA Laws

Both the Electricity and the SDA Laws spawned signifi cant controversy in the media and debate in the DPR, particularly because they sought to privatise ele-ments of the sectors with which they respectively dealt (Hukumonline 2002, 2003a, 2004b, 2004c, 2004d; Walhi 2004a). They also sparked fears that prices would rise in these sectors if state control were relinquished (Hukumonline 2004e; Walhi 2005a).

8 Two MK judges dissented, however (Hukumonline 2005c).

9 The SDA Law case was 132,186 words, the Electricity Lawcase was 89,335 words and the

Migas Lawcase was 55,683 words.

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The SDA Law, which replaces Law 11/1974 on Irrigation, allows the private sector to ‘play a role’ (berperan) in, and impose a fee for, the provision and man-agement of some types of water resources, such as drinking water and water for irrigation (see, for example, articles 7, 8 and 80 of theSDA Law) (Walhi 2003, 2004a, 2005a; Tumiwa 2003). This is refl ected in the Law’s Introductory Considerations:

… in line with the spirit of democracy, decentralisation and openness in the com-munity, nation and state, the community must be given a role in the management of water resources [part d].

This ‘community’ role would, it appears, include private sector participation in the management of water resources. The applicants objected to several provisions of the SDA Law that allowed for this participation. One such provision was article 45(3), which states:

[t]he exploitation of water resources … can be performed by individuals, by legal entities, or in cooperation with legal entities.

The applicants noted that:

[t]here is concern that [privatisation] will lead to a relinquishing of state responsibil-ity for fulfi lling the people’s right to water. In other words, the state’s responsibility will be transferred to individuals or private entities, both national and foreign ... This means that profi ts will become the main purpose of those entities, not the ful lment of basic rights.

The view that profi ts and rights are inherently at odds is often expressed in politi-cal discourse in Indonesia (although rarely refl ected in formal policy). In this vein, article 45(3), the applicants continued, contradicted ‘the soul and spirit’ of the Constitution, as contained in its preamble, which sets out the state ideology, the Pancasila, and its call for ‘the realisation of social justice for the Indonesian people’ (SDALC 2003: 41).10

A further, widely stated objection to the SDA Law has been that it introduces a new ‘right to exploit’ water resources (hak guna usaha). According to some

10 The full text of the preamble is as follows (we have italicised the words of the Pancasila state ideology). ‘Whereas freedom is the inalienable right of all nations, colonialism must be abolished in this world as it is not in conformity with humanity and justice. And the mo-ment of rejoicing has arrived in the struggle of the Indonesian freedom movemo-ment to guide the people safely and well to the threshold of the independence of the state of Indonesia, which shall be free, united, sovereign, just and prosperous. By the grace of God Almighty and impelled by the noble desire to live a free national life, the people of Indonesia hereby declare their independence. Subsequent thereto, to form a government of the state of Indo-nesia which shall protect all the people of IndoIndo-nesia and their entire native land, and in order to improve the public welfare, to advance the intellectual life of the people and to contribute to the establishment of a world order based on freedom, abiding peace and so-cial justice, the national independence of Indonesia shall be formulated into a Constitution of the sovereign Republic of Indonesia which is based on belief in One Almighty God, just and civilised humanity, the unity of Indonesia, democracy guided by the inner wisdom of deliberations among representatives and the realisation of social justice for all of the people of Indonesia.’

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commentators, this makes water a commodity, when in fact (they argue) it is a basic right that should be accessible to all (Sekitarkita, no date; Tumiwa 2003; Hukum online 2004e; Walhi 2004a).11 This view somewhat naively assumes that it is within the power of government to guarantee such access.

As for the Electricity Law, Hukumonline, Indonesia’s leading legal information and commentary website, has described its effect as changing the sectoral policy from monopoly to competition (Hukumonline 2003b). Before the Law’s enactment in 2002, the state electricity company (PLN, Perusahaan Listrik Negara) was, in essence, the sole distributor, transmitter and seller of electricity.12 The Law, how-ever, provided much greater scope for private involvement in the sector. Using the rhetorical (and sometimes vague) style that is common in Indonesian legisla-tive drafting, the Introductory Considerations of the Electricity Law state that:

[e]lectricity must be provided effi ciently through competition and transparency in a climate of healthy industry, through regulations that treat all business entities equally and provide a just and even benefi t to consumers [part b].

In the framework of fulfi lling the national need for electricity and the creation of healthy competition, equal opportunity to participate in the electricity industry must be given to all business enterprises [part c].

Consistent with this theme, the Law prohibited government monopolies in des-ignated ‘competition areas’, divided the ‘provision of electricity’ into several activities, including generation, transmission, distribution and sale, and allowed different entities to perform these activities (Electricity Law arts 8(2), 16 and 17). Only in areas ‘not ready for competition’ could the state retain its monopolies.

The applicants in the Electricity Law case focused on some of these aspects of the Law as bases for constitutional argument before the MK. It is to these arguments that we now turn.

The Electricity Law case: parties’ arguments

The applicants in the Electricity Law case contended that a myriad of their constitu-tional rights had been damaged by the Electricity Law.13 We will limit our discus-sion, however, to the arguments relating to article 33.

The fi rst applicant argued that the privatisation of electricity—an important branch of production—contradicted article 33 of the Constitution (ELC 2003: 342–3). The second applicant argued that the Law’s ‘unbundling’ of the provi-sion of electricity—that is, dividing its proviprovi-sion into generation, transmisprovi-sion,

11 Some commentators have gone so far as to suggest that this new right was introduced by the World Bank (Hukumonline 2003b). As one legislator said during the DPR debates over the SDA Law, ‘Even the Dutch recognised water as a resource owned by the people’ (Estananto 2004).

12 While private power companies existed in Indonesia before 2002, most had exclusive power purchase agreements with the state-owned PLN (see, for example, Hall and Lobina 2004).

13 The fi rst applicant alleged that its rights under articles 1(3), 28C(2), 28D(1), 28H(1), 33(2) and 33(3) of the Constitution had been damaged; the second applicant alleged a breach of articles 27(2), 28D(2), 28H(1), 28H(3), 33(3) and 54(3); and the third applicant claimed that its article 28A, 28C(1) and 28H(1) rights had been breached.

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distribution and sale, allowing different entities to perform these functions, and then allowing state companies to transmit and distribute electricity—undermined the state’s control, as required under article 33(2) of the Constitution. In this way, there would ‘no longer be protection for the majority of people who could not afford ... electricity’ (ELC 2003: 343). The third applicant argued that free competi-tion would cause an electricity crisis in Indonesia, as was already occurring out-side Java; criticised unbundling; and argued that leaving the market to determine prices was inconsistent with article 33’s emphasis on the people’s prosperity (ELC 2003: 343–4).

In response, the government put forward several arguments. First, it empha-sised that the Law was ‘desirable’ because the government was having diffi culty meeting demand for electricity by itself.14 Private sector capital was therefore nec-essary to meet this demand. Second, the government contended that competition would help to make the provision of electricity more transparent and effi cient; it would also help to ensure a ‘suffi cient supply of electricity throughout Indonesia at an affordable price’ (ELC 2003: 337, 340). Third, the government argued that it had decided to focus on regulating rather than operating the sector, because ‘gov-ernment’s function is to govern’ (ELC 2003: 338). In this context, it claimed that it would still ‘control’ the sector: it would determine policy, regulate and super-vise the sector under the Law (ELC 2003: 337, 340); it could, therefore, ensure that those operating in the sector were providing equitable electricity distribu-tion. Fourth, the government acknowledged that ‘competition’ in the electricity sector would not be successful through the whole of Indonesia. In anticipation of this, it had allowed monopolies to remain in areas where competition would not ensure the adequate provision of electricity (ELC 2003: 338). In these places, prices would be set only to recover costs (ELC 2003: 338). Fifth, the government noted that it would maintain complete control over some sectors of the electricity industry. The state would remain in control of distribution and transmission, and the private sector could be involved only in the production and sale of electricity (ELC 2003: 338).

The Electricity Law case: the Court’s decision

The Court’s decision focused on the state’s obligation to ‘control’ important branches of production under article 33(2) of the Constitution. It held that arti-cles 16, 17(3) and 68 of the Law, which sought to introduce competition and ‘unbundling’ in the electricity sector, confl icted with article 33(2) of the Constitu-tion because they would, in fact, result in a relinquishing of ‘control’ in the sense intended by that article. It therefore declared these articles no longer legally bind-ing (ELC 2003: 349–50).

The Court also found that competition and unbundling were at the ‘heart’ of the Law, however. Quite extraordinarily, it therefore declared the entire statute invalid on the grounds that it was not in line with ‘the soul and spirit’ of article 33(2) of the Constitution, which, according to the Court, ‘forms the basis of the Indonesian economy’ (ELC 2003: 349–50). The Court argued that it had no choice

14 Indeed, a government expert argued that PLN was incapable of meeting demand for electricity, despite the latter’s ‘being second only to food in importance to human life’ (ELC 2003: 339–40).

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but to do this, because it believed that to rule invalid only a small part of the Law would ‘cause chaos that would lead to legal uncertainty’ in the Law’s application (ELC 2003: 349–50).15 The MK then reinstated the previous Electricity Law (Law 15/1985) on the logical basis that article 70 of the 2002 Law—which declared the 1985 Law to be no longer in force—was itself no longer valid.

The most important aspect of the MK’s decision was its fi nding that merely regulating the electricity sector was insuffi cient to constitute ‘control by the state’ as required by article 33(2), although, of course, the term ‘regulate’ is a broad one that can bear almost any form of interpretation. Before returning to a more detailed discussion of this point, however, it is useful fi rst to dispose of some of the Court’s responses to other arguments raised by the parties.

The MK rejected most of the government’s arguments in favour of privatisa-tion. First, the Court held that the increased transparency and reduced corruption that competition was presumed to bring were outweighed by the importance of the state fulfi lling its (binding) obligations under article 33 (ELC 2003: 348–9).

Second, the MK expressed doubts that privatisation would necessarily improve capacity, quality and price. The Court emphasised the testimony of an English expert,16 who argued that restructuring of the electricity sector in Britain did not result in lower prices and greater effi ciency. Instead, the Court said, many jobs were lost and investors enjoyed high returns (although, of course, the higher returns might just as well have been relied on to indicate improved effi ciency). The expert also stated that Thailand, South Korea, Brazil and Mexico had delayed or ‘put off’ restructuring for these reasons (ELC 2003: 342). The Court stated that the suggestion that the market would naturally provide available, evenly distrib-uted and affordable electricity was ‘far from realistic’ (ELC 2003: 331). It asserted that a perfect market mechanism does not exist, quoting—inaccurately and con-fusingly—part of a passage from Joseph Stiglitz (2002: xii): ‘... [the] presumption that markets, by themselves, lead to effi cient outcomes … failed to allow for desir-able government interventions in the market, measures which can ... make every-one better off’.17 (Few if any economists deny that government intervention may be called for in certain circumstances, of course, but ‘desirable’ here could mean many different things, and state ownership is not itself always desirable in terms of overall well-being).

In any event, the Court held that the government could improve the sector and attract private sector capital without privatisation. According to the Court, PLN could seek fi nancial assistance from, or work in partnership with, the domestic or foreign private sector. The judges also suggested that PLN delegate its functions to another state enterprise, national or regional, with PLN as a holding company, although they did not explain what this might achieve (ELC 2003: 348).

15 The Court did not, however, go so far as to invalidate contracts or licences signed or issued under the Law, allowing them to continue until they expired.

16 David Hall, Director of Public Services, International Research Unit, University of Greenwich, London.

17 The full passage in Stiglitz’s Globalisation and Its Discontents reads: ‘The IMF’s policies, in part based on the outworn presumption that markets, by themselves, lead to effi cient outcomes, failed to allow for desirable government interventions in the market, measures which can guide economic growth and make everyone better off.’

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Third, the Court held that the state’s obligation to ensure public prosperity would not necessarily be fulfi lled by allowing competition, because the private sector would give priority to its own profi ts and would concentrate on estab-lished markets—primarily in Java, Madura and Bali. The Court believed that cross- subsidies from these established markets would be required to support ‘less competitive’ parts of Indonesia, and that these subsidies could not be obtained from the private sector (ELC 2003: 347). In this context, competition would ‘tend to undermine state enterprises and might not guarantee the supply of electricity to all parts of the community’ (ELC 2003: 347).

CONTROLLED BY THE STATE?

As indicated earlier, a crucial issue in all four article 33 cases has been the Court’s interpretation of the phrase ‘controlled by the state’, contained in both article 33(2) and article 33(3). Clearly, the Court considered article 33 to be one of the Constitution’s most fundamental provisions. In the Electricity Law case, for exam-ple, the Court even observed that state control over important areas of produc-tion ‘could be said to be the entire paradigm and legal ideal of the Constituproduc-tion’ (ELC 2003: 330).

In the Electricity Law case, the Court’s discussion about the obligations this phrase placed upon the government was extensive, and was referred to in the Migas and SDA Law cases. The judges discussed whether ‘controlled by the state’ in article 33(2) required only that the government regulate important branches of production, or whether it imposed more onerous obligations, such as that the state own and operate the means of sale, supply and distribution—even if this required prohibiting the private sector from operating in those areas. Further, was the state required to take control over branches of production that the private sector was already running, if those branches became important enough to fall within article 33(2) (ELC 2003: 329–30)?18

The Court referred to expert testimony provided during hearings by Professor Dr Harun Alrasid, a highly regarded Indonesian constitutional law expert, who interpreted ’controlled by the state’ to mean ‘owned’ by the state (ELC 2003: 332). It also referred to the written submission of the state enterprises minister, who interpreted ‘controlled by the state’ to mean regulated, facilitated and operated by the state, but ‘dynamically moving towards the state only regulating and facilitat-ing’ (ELC 2003: 332).

The Court took the view, however, that article 33 required more than owner-ship over important branches of production in the civil law (hukum perdata)sense. Because ‘state control’ exists within the Constitution’s framework of ‘public law, political democracy and economic democracy’ (which it did not defi ne), the Court stressed that the Indonesian people have ultimate power, and thus hold collective ownership, over those branches of production (ELC 2003: 333). It argued that the civil concept of ‘ownership’ was therefore insuffi cient because it did not, in itself, necessarily provide for the welfare of the people or social justice, as is required in the Constitution’s preamble. The Court said:

18 The MK stated (ELC 2003: 330) that any such take-overs must be carried out in accord-ance with just laws.

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Viewing the Constitution as a system as was intended, ‘controlled by the state’ in article 33 has a higher or broader meaning than civil law ownership. The concept of state control is a public law concept related to the principle of people’s sovereignty adhered to in the Constitution, in both politics (political democracy) and economics (economic democracy). Within this concept of people’s sovereignty, it is the people who are recognised as the source, the owners and also the holders of the highest au-thority in the state, in accordance with the doctrine ‘from the people, by the people and for the people’. This concept of highest authority encompasses public collective ownership by the people.

If ‘controlled by the state’ means only ‘ownership’ in the civil sense, then the control will be insuffi cient to achieve the ‘greatest prosperity of the people’, render-ing the mandates to ‘advance public well-berender-ing’ and ‘to create social justice for all Indonesian people’ in the Elucidation to the Constitution impossible to achieve. Nevertheless ... civil ownership must be recognised as a logical consequence of state control, which also encompasses collective public ownership by the people over the sources of those [natural] assets (ELC 2003: 333).

Further, the Court refused to accept that ‘controlled by the state’ could be interpreted merely as referring to the government’s right to regulate. According to the Court, the government would have inherent power to regulate even if the phrase ‘controlled by the state’ were not contained in article 33 (ELC 2003: 333). ‘Controlled by the state’ must therefore have a broader meaning. The Court argued that, in light of the people’s sovereignty over all natural resources and public ownership of those natural resources, the people, through the Constitu-tion, had ‘provided a mandate to the state to make policy, organise, regulate, manage and supervise to achieve maximum welfare for the people’ (ELC 2003: 334). It said:

The government exercises the state’s administrative function by issuing and revok-ing permits (vergunning), licences (licentie) and concessions (consessie). The DPR, us-ing legislative power, and the Government, through Government regulation, exer-cise the regulatory function of the state (regelendaad). The management (beheersdaad) function is exercised through share ownership mechanisms and/or through direct involvement in the management of State-owned Legal Entities ... through which the state, that is, the Government, uses its control over those natural assets so that they are used for the greatest prosperity of the people. Similarity, the state, that is, the Government, exercises the state’s monitoring function (toezechthoudensdaad) ... to ensure that the state’s control over the sources of assets is truly exercised for the greatest prosperity of the people (ELC 2003: 334).

SCOPE FOR PRIVATE SECTOR INVOLVEMENT?

The Court interpreted article 33(2) to require state control over important existing branches of production—even if this means prohibiting the private sector from operating in those areas or leads to the state taking over from the private sector areas that have become important (ELC 2003: 329–30). Signifi cantly, however, it did not prohibit all private sector involvement in the electricity industry. Rather, the Court held that the government could allow private sector involvement, pro-vided that it did not extinguish its own control (ELC 2003: 336). The Court also stated that the civil ‘ownership’ included in the concept of control did not require 100% government ownership. Rather, the MK required only that the government

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own suffi cient shares in the enterprise to enable it to ‘control’ decision making and policy making (ELC 2003: 334–36, 346).19

Further, the Court stated that the government could, from time to time, re-assess the ‘importance’ of these branches of production. If the government thought that a particular industry—such as electricity—was no longer of suffi cient importance to the people, then policy, organisation, regulation, management and supervision could be left to the market (ELC 2003: 335).

To support this stance, the Court engaged in ‘historical interpretation’, in which it refl ected on the Elucidation to the 1945 Constitution as it stood before it was deleted during the amendment process.20 This severely strained the limits of the MK’s authority, given that the purpose of deleting the Elucidation was precisely to prevent its being used to interpret the Constitution. Be that as it may, the MK emphasised that there should be economic democracy for the welfare of all, and that the government should remain in control of important areas of production, because if production were to fall ‘into the hands of someone powerful, the com-munity could suffer’, a claim the Court did not explain further (ELC 2003: 331). The MK also referred to the interpretation of article 33 proposed by Indonesia’s fi rst vice president and ‘founding father’, Mohammad Hatta (ELC 2003: 332). According to Hatta, the Indonesian government should control essential areas of production, but if it could not meet demand, then it should seek foreign loans and, as a last resort, allow foreigners to invest in production (ELC 2003: 331–2, citing Hatta 2002: 231).

It is critical to note here that the Court has left it to the state to decide whether particular branches of production are ‘important’ and therefore subject to state control. In the Electricity Law case, for example, the Court accepted that electricity was suffi ciently ‘important’ because the importance of electricity was emphasised in the Law itself (ELC 2003: 345). This is signifi cant, because it could potentially give latitude to a government legislatively—and thus, in all likelihood, defi ni-tively—to re-categorise a branch of production as no longer ‘important’, thus removing all legislation on that branch of production from the jurisdiction of the MK (at least so far as article 33 is concerned).

IGNORING THE DIFFERENCE BETWEEN ARTICLES 33(2) AND 33(3)?

It appears that in the Electricity and SDA Law cases the Court ignored a subtle but important difference between the text of articles 33(2) and 33(3) of the Con-stitution, thus creating signifi cant potential problems for rational regulation of energy and resources in the future. Clearly, articles 33(2) and 33(3) require state control over branches of production and natural resources respectively, but they impose different obligations upon the state. Under article 33(3), the government is required to use its control over natural resources ‘for the greatest public welfare’.

19 Similar comments were made in the Migas Law case (MLC 2003: 210–11).

20 The Elucidation is the formal explanatory memorandum that accompanies most Indo-nesian regulations and is often read as if it were part of the regulation itself. The Elucida-tion to the 1945 ConstituElucida-tion has always been controversial, however, because, when the Constitution offi cially came into force on 18 August 1945, the Elucidation was not included. It was promulgated in the Government Gazette in 1946.

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On its face, however, article 33(2) does not explicitly require that ‘important’ branches of production be managed to further public welfare; it merely requires that the state ‘control’ them, leaving the purpose of doing so unstated.

It should be assumed that the differences between these two provisions were deliberate. It is, of course, possible that the drafters of the Constitution did intend the state to use both natural resources and branches of production to further public welfare, but simply neglected to convey this in the Constitution by mistake, per-haps through a drafting error. Against this, however, it would seem obvious that if the drafters had, in fact, intended no distinction between natural resources and branches of production, then they could quite easily have referred to both in one provision, requiring the same level of state control to be maintained in the inter-ests of public welfare. In any case, the provision has survived successive rounds of constitutional reform in its original form, suggesting that its wording has received legislative reconsideration and has thus implicitly been reconfi rmed.

Accordingly, the Court’s failure to differentiate these two provisions raises sev-eral questions. Has the Court simply overlooked the difference between them? Or has it presumed that the purpose of controlling the supply of ‘life’s necessities’ (such as electricity) is no different from that of controlling natural resources (such as oil and gas) and that, therefore, the Constitution’s distinction between them is meaningless? This might be a logical stance, but the Court did not expressly justify or even adopt it.

Further, it is quite possible that the drafters envisaged that the level of ‘state control’ required by article 33(2) was different from that required by article 33(3), given that they appeared to attach more signifi cance to natural resources than to branches of production. Could it be, for example, that a stronger level of state control over natural resources was required to ensure that they were used for the public benefi t, but that a weaker level of state control (such as regulating and strictly monitoring the compliance of private sector operators) was justifi able for important branches of production, because the state was not required to exercise them for the greatest public welfare? The Court did not discuss this issue at all.

Further evidence exists to suggest that the Court simply misunderstood the differences between these two provisions. Oil and natural gas are clearly natu-ral resources and, therefore, it appears that article 33(3)—not article 33(2)—is relevant to them. In the Migas Law case, however, the Court appeared to distract itself with a discussion about whether oil and natural gas was an important branch of production. This was, quite clearly, irrelevant: in article 33 it is explicit and unambiguous that all natural resources—whether or not they are important or affect the public’s necessities of life—must be controlled by the state. The following statement appears to indicate the Court’s misunderstanding of this distinction.

[I]f the Indonesian government and the DPR consider oil and natural gas—natural assets contained in the Indonesian earth within the meaning of article 33(3) of the Constitution—no longer to be important to the state and/or to its control of the pub-lic’s necessities of life, then it can hand over the regulation, administration, manage-ment and supervision [of these resources] to the market. However, if the governmanage-ment and the DPR consider [oil and natural gas] still to be important for the state and/or for its control of the public’s necessities of life, then the state, that is, the govern-ment, must control [these resources] by regulating, administering, managing and

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supervising them so that they are truly used for the greatest well-being of the people (MLC 2003: 209–10).

This confusion goes to the heart of the article 33 controversies and leaves policy makers and legislators with little guidance for future attempts at regulation. The confusion may be compounded by the fact that all parties in the case appeared to make the same mistake, or shared the same interpretation, despite its contradict-ing the express words of the Constitution. Accordcontradict-ing to the Court, the applicant, the government, the DPR and experts all agreed that the oil and natural gas sector is a branch of production that is important to the state and that affects the public’s necessities of life (MLC 2003: 221). This issue will probably remain unresolved unless the MK chooses to address it in a future case, leaving open the possibility that what seems to be error may become doctrine through the effl uxion of time.

THE MK AND GOVERNMENT POLICY

In some of the cases it has decided thus far the Court has gone to great lengths to emphasise that it lacks jurisdiction to assess government policy. The leading case on this issue is the KPK [Corruption Eradication Commission] Law case (KPKLC 2003). In it, the MK majority made the following statement:

When performing material review, the MK must differentiate between [different types of] legislation … If the Constitution’s provisions and spirit [require] a statute to contain detail to achieve a particular aim, but the statute takes a different or contrary direction, then the statute will go against the Constitution’s provision and spirit. The MK then has jurisdiction to declare that statute to confl ict with the Constitution and to declare that the statute has no binding legal force [emphasis in original] (KPKLC 2003: 94–5).

The Court went on to explain, however, that if the Constitution establishes an end to be achieved by legislation, but not the means to achieve it, then the Court should not evaluate the means the legislature chooses to achieve that end, nor the effectiveness of those means:

… if the Constitution has underlined that the statute must contain the means to achieve a purpose, that is, it chooses an instrumental policy, law makers (the DPR and the president) can choose between a number of alternatives. Whichever alterna-tive the law makers choose will be valid, provided that it remains within the corridor stipulated by the Constitution. The MK does not have jurisdiction to review the in-strumental policy chosen by law makers.

… In a democratic country in which the people are represented through elections, it is presumed that the people’s will is represented by the people’s representative institutions. Upon this premise, one can syllogistically … conclude that the people’s aspirations are represented by elected people’s representative institutions.

Instrumental policy also relates to the effectiveness of a statute; that is, the extent to which the means chosen by law makers has successfully achieved the purposes mandated by the Constitution. The MK’s jurisdiction does not extend to evaluating a statute’s effectiveness. This does not mean that a statute’s effectiveness cannot be reviewed [at all]. It can be reviewed at any time by law makers through legislative review[emphasis in original] (KPKLC 2003: 95).

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The Court did not discuss the boundaries of its judicial review jurisdiction in the article 33 cases. Nevertheless, it is arguable that article 33(2) establishes an obligation on the government to enact laws that further the people’s welfare, and hence a constitutional right that citizens and legal entities can seek to enforce. It can be argued, then, that, contrary to the MK’s apparent concern to refrain from entering the domain of public policy, its own decisions have identifi ed a constitu-tional obligation upon it to ensure that legislative policy in cases involving state control over natural resources furthers the people’s welfare.

Indeed, some of the Court’s arguments in the Electricity Law case set out above were, in essence, a critique of privatisation; that is, the Court argued that priva-tisation could not guarantee the well-being of the people, as required by article 33(2). Determining whether government control is exercised to further the peo-ple’s welfare appears to verge on, or might in fact constitute, intrusion by the MK into the constitutional ‘corridor’ within which the DPR can legitimately exercise discretion when legislating.

It is foreseeable that other ‘policy’ choices might be subject to judicial review in future cases. The Court might, for example, have cause to consider what con-stitutes an ‘important branch of production’—a concept not defi ned at all in the Constitution. In future legislation, the DPR might classify a branch of production to be ‘not important’ purely in an attempt to privatise it without breaching article 33. The MK may, therefore, need to establish objective criteria with which to iden-tify important branches of production, to prevent the apparently intended effect of article 33(2) from being thwarted.

The extent to which the Court will continue to, or will increasingly, enter the pol-icy debate is unclear, and should, ideally, be clarifi ed by the Court as it hears more article 33 cases. Many questions remain, such as how the Court will assess whether public well-being is in fact being achieved. For instance, how will the Court view legislation that imposes a short-term fi nancial burden but confers anticipated long-term economic benefi ts? Would the electricity price rises of 2005, if established by statute,21 be reviewable by the Court on the basis that they could reduce ‘the people’s welfare’? If so, would the Court have upheld an application to review the statute because of the economic hardship the price rises caused for the poor, even if they freed up budgetary resources for the provision of other services? Or would the Court have rejected the application on the basis that fuel subsidies were crip-pling the Indonesian economy and hence reducing general welfare levels?

In the authors’ view, the MK might now be well served by an effort to deline-ate more precisely the issues that it thinks it is competent to assess and those that should be left to the legislature. Like many other superior courts around the world that conduct judicial review, the MK faces the practical, political and per-ennial question of the precise extent to which unelected judges, nine in this case, should be able to overrule the opinions of the majority of a democratically elected legislature, here comprising 550 members. Of course, the MK’s constitutional mandate is to do exactly that—review (in certain circumstances) the constitution-ality of statutes produced by the legislature. However, this is clearly not a purely legal exercise; the need to apply political perspectives inevitably arises from the

21 The electricity price rises were in fact introduced via Presidential Regulation 55/2005 (Hukumonline 2005d), and hence were not subject to review by the MK.

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exercise of that mandate. This is particularly true if the Court remains unclear about the precise intent of the Constitution, and hence the rationale for its deci-sions on key questions of national economic policy.

In this context, it is worth noting that the MK’s decisions in the Electricity Law and SDA Law cases could have broader policy implications for Indonesia than the Court has anticipated. These decisions may, for example, have obstructed Indo-nesian compliance with the legal and economic reform programs it has agreed to with international lenders and donors, although again this was not specifi cally raised at the hearings or in the decisions. In the aftermath of the 1997 economic crisis, the IMF, the World Bank and the Asian Development Bank (ADB) made loans contingent upon Indonesia’s attempts at deregulation and liberalisation, including in the electricity, oil and gas, and water ‘industries’ (Suhud 2005: 6; Sekitar kita, no date; Walhi2003).22 In its letter of intent of 16 March 1999, for exam-ple, the Indonesian government described as follows the policies that it intended to implement ‘in the context of its request for fi nancial support from the IMF’.23

With the support of the World Bank and ADB, the government will (i) establish the legal and regulatory framework to create a competitive electricity market; (ii) restruc-ture the organisation of PLN; (iii) adjust electricity tariffs; and (iv) rationalise pow-er purchases from private sector powpow-er projects. The govpow-ernment has commenced renegotiations with independent power producers; will initiate the organisational restructuring of PLN by June 1999; and will enact a new Electricity Law by Decem-ber 1999.

Regardless of the motivations for the electricity and water resources legisla-tion, the effect of the MK’s decision in the Electricity Law case has been to create potentially signifi cant impediments to government’s capacity to implement these policies. The implications of this decision for donors were unclear at the time of writing, but they have probably been placated by the government’s aggressive and, in our view, subversive regulatory response to the MK’s decisions on priva-tisation, which we now describe.

Statutory resurrection by government regulation, and a pre-emptive strike?

In January 2005, around two months after the MK handed down its decision in the Electricity Law case, the government issued a regulation, the full title of which was ‘Government Regulation No. 3 of 2005, Amending Government Regulation No. 10 of 1989 on the Provision and Exploitation of Electricity’. Part (a) of the Regula-tion’s Considerations reveals its intent:

… in the framework of increasing the availability of electricity for the public inter-est, the roles of cooperatives, state-owned enterprises, regional state-owned enter-prises, the private sector, community groups and individuals must be increased [our emphasis].

22 The World Bank is said to have made the Water Resource Sector Adjustment Loan (WASTAL) contingent upon the DPR’s enactment of the SDA Law (Hukumonline 2003c;

Sekitarkita, no date; Wahli 2003, 2004b, 2004c).

23 Government of Indonesia, letter of intent to the IMF, 16 March 1999, available at <http://www.imf.org/external/np/loi/1999/031699.htm>.

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Government Regulation 3/2005 was not framed as a formal and direct replace-ment of the Electricity Law struck down by the MK,24 but it certainly appears to mitigate, even nullify, much of the effect of the MK decision. It has been described as being ‘not much different’ from the Electricity Law the MK invalidated,25 and Hotma Timpul, a Jakarta lawyer, has said that it is just a re-enactment of the Elec-tricity Law ‘in new clothes’ (Hukumonline 2005e). Indeed, even a senior govern-ment offi cial, J. Purnowo, the Director of Electricity Management Administration, has admitted that the Regulation was passed to provide certainty for private sec-tor invessec-tors in the aftermath of the MK’s decision (Hukumonline 2005f). More specifi cally, he expressed a hope that the Regulation would enable PLN to invite the private sector to compete for tenders (Hukumonline 2005f).

The main constitutional objections to the Regulation appear to centre on its articles 6 and 11. Article 6 states that, provided that it does not damage the inter-ests of the state, a permit can be provided to a cooperative or ‘another enterprise’ to provide electricity in the public interest or in its own interest. Articles 6(2) and 6(3) provide that such ‘other enterprises’ can include the private sector and indi-viduals. Article 11 states that permit holders can buy and sell electricity. These provisions appear directly to contravene the MK’s decision in the Electricity Law case, because they allow the state to evade its obligations under article 33 by relin-quishing to the private sector its ‘control’ over the provision of electricity. It seems, therefore, that the government has successfully circumvented the MK decision.

The irony is that the MK can do nothing to remedy the apparent unconstitu-tionality of the electricity regulation, because it cannot review lower-level laws such as government regulations, but can only review statutes. Regulations, as lower-level laws, are (in principle, at least) usually issued to implement statutes. Only the Supreme Court has jurisdiction to review the consistency of lower-level laws with statutes or with the Constitution. However, this is a jurisdiction the MA has traditionally been extremely reluctant to exercise, with the result that such regulations are almost never struck down judicially.26 It is therefore likely that the Regulation will remain in force and applicable, a result that threatens to make a farce of the whole judicial review process.

The Drinking Water Regulation

Similarly, after the MK had begun hearing the SDA Law case, but before its deci-sion was handed down, Government Regulation 16/2005 on the Development of a Drinking Water Availability System was issued (Walhi 2005b, 2005c). This Regu-lation appears to achieve part of what the SDA Law aims to do—allow for private sector involvement in the provision of drinking water.

24 The MK’s invalidation of the Electricity Law is, however, mentioned in passing in the Elucidation to the Regulation.

25 Personal communication with Fultoni, Secretary of the National Legal Reform Consor-tium (Konsorsium Reformasi Hukum Nasional, KRHN), 8 May 2005; see also Hukumonline

(2005e).

26 At the time of writing, an application had been lodged with the MA to review Govern-ment Regulation 3/2005, but it had not been decided (Hukumonline 2005e; see also Bedner 2003).

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Article 37(1) of the Regulation states that the government is responsible for ensuring that people have drinking water to fulfi l their basic needs. National or regional state-owned enterprises are to be formed to provide drinking water (art. 37(2)). However, if state-owned enterprises are unable to increase the quantity and quality of drinking water, then the government can ‘involve’ others—includ-ing the private sector—in the provision of the service (art. 37(3)).

Article 64(1) permits private entities to develop drinking water services in regions not yet reached by state-owned enterprises. Article 64(3) states that pri-vate sector involvement is to be conducted in accordance with the principles of healthy competition through a tender process. The tender process can encom-pass some or all of the stages of provision of drinking water (art. 64(4)). Some argue that the article, if implemented, would absolve the state of its constitutional obligations (Walhi 2005c). Certainly the provisions appear to allow state-owned enterprises simply to withdraw from any activities they might be conducting in the area of drinking water, or to fail to expand their operations, in order to allow the private sector to become involved.

The MK did not invalidate provisions of the SDA Law in its decision, how-ever, and it is arguable that the activities permitted under the Regulation were permitted under the SDA Law in any event. Yet given this Regulation’s timing we speculate that, building on the apparent success of the same strategy in the electricity case, the government issued it to pre-empt a possibly unfavourable decision by the MK. In other words, the government may have been concerned that if the MK invalidated the SDA Law the opportunity to privatise aspects of the water resources sector would be lost, with serious implications both for policy and for relations with major multilaterals and donors. This may have motivated the government to create ‘regulatory insurance’ to render an MK decision nugatory.

CONCLUSION: TEETHING PROBLEMS?

The independence of the Court and the sincerity with which it approaches its constitutional tasks have been impressive so far (Harijanti and Lindsey 2006). But if the Court is too ambitious and its decisions are too far-reaching and unpalat-able to government, it runs the risk of being ignored by government or of hav-ing its decisions rendered meanhav-ingless—and even of havhav-ing its powers curtailed through future legislation or constitutional amendment.

Further, the more directly the MK enters debates over economic policy, the more likely it is to face stiff resistance—and even, as in the electricity case, subver-sion—from government. Resistance or non-compliance is all the more likely if, as we have shown, aspects of some of the Court’s decisions and their implications are unclear or inconsistent, making compliance diffi cult. The same is true if the Court runs head-on into major planks of economic policy such as privatisation, particularly when it does not seem to understand fully the complex economic issues involved—or, at any rate, to be able to articulate unambiguously a consist-ent and economically sophisticated rationale for its understanding.

It is not only the Court, however, that is having teething problems. The legis-lature and executive also appear to have trouble coming to terms with the limita-tions placed on them by being made answerable for legislation—for the fi rst time

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in modern Indonesian history—to a bench comprising nine former academics and judges, whose decisions are fi nal and binding. The long ‘judicial winter’ of the New Order, during which judicial review of statutes was expressly prohibited by law,27 has left the democratic governments that follow with no experience in dealing with a judicial mechanism common in one form or another in most other democracies today. The government’s responses to the Electricity Law and SDA Law cases appear to indicate that, in some matters, it will simply not follow the MK’s decisions. This means that the MK will face political battles that it may lose. While that may, perhaps, not bode well for Indonesia’s fl edgling judicial review system, it is not unusual for effective courts of constitutional review to fi nd them-selves at odds with the legislature or executive.

The article 33 cases are remarkable because they have forced debate on the very basis of national economic policy into the courts and thus into the public arena. That debate has now become entwined with continuing controversy about the relationship between the three main branches of government. The issues raised are therefore now not likely to be quickly or easily resolved by any of the institu-tions involved, but that is, again, not necessarily a bad thing. The debate is part of the reality of post-Soeharto reform, a process that will take decades, not years, and that is evolving through political and institutional competition, as the nature of the new Indonesian state is constantly contested, refi ned, tested and revised. And that is, surely, hardly surprising for a young but vibrant democracy emerg-ing from three decades of stifl ing authoritarian rule.

REFERENCES

Al’Afghani, Mohamad Mova (2006) ‘Constitutional Court’s review and the future of water law in Indonesia’, Law, Environment and Development Journal 2 (1): 1–18, available at <http://www.lead-journal.org/content/06001.pdf>.

Asshiddiqie, Jimly (2004) ‘Setahun Mahkamah Konstitusi: refl eksi gagasan dan penyeleng-garaan, serta setangkup harapan [One year of the Constitutional Court: refl ections on the idea and its implementation, and a handful of hope]’, in Menjaga Denyut Konstitusi: Refl eksi Satu Tahun Mahkamah Konstitusi [Guarding the Pulse of the Constitution: Refl ec-tions on One Year of the Constitutional Court], eds Refl y Harun, Zainal A.M. Husein and Bisariyadi, Konstitusi Press, Jakarta: 3–26.

Bedner, A.W. (2003) Administrative Courts in Indonesia: A Socio-legal Study, Kluwer Law International, London and The Hague.

Butt, Simon (2007) Judicial Review in Indonesia: Between Civil Law and Accountability? A Study of Constitutional Court Decisions 2003–2005, PhD thesis, Faculty of Law, Uni-versity of Melbourne.

ELC (Electricity Law Case) (2003) MK Decision No. 001-021-022/PUU-I/2003, Constitu-tional Court, Jakarta.

Estananto (2004) ‘Pengesahan UU Air diwarnai walk out [Approval of Water Law coloured by walk out]’, accessed 18 April 2008 at <http://estananto.blogspot.com/2004/02/uu-sumber-daya-air.html>.

27 Under the New Order, prohibitions on judicial review were contained in MPRS (Provi-sional People’s Consultative Assembly) Decree No. III/MPR/1978 concerning the Position and Working Relationship between the Highest State Institution and Superior State Institu-tions, art. 11; Law 14/1970 on Judicial Power, art. 26(1); Law 2/1985 on the Supreme Court, art. 31(3). On the history of the Supreme Court during the New Order, see Pompe (2005).

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