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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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Bulletin of Indonesian Economic Studies, Vol. 44, No. 2, 2008: 239–61
Economic Legislation Series
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ECONOMIC REFORM
WHEN THE CONSTITUTION MATTERS:
INDONESIA’S CONSTITUTIONAL COURT AND ARTICLE 33
Simon Butt
University of Sydney
Tim Lindsey
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 significant 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 management’ 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 formation. 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 authoritarian 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 system 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 first 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.
ISSN 0007-4918 print/ISSN 1472-7234 online/08/020239-23
DOI: 10.1080/00074910802169004
© 2008 Indonesia Project ANU
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legislatures would be completely abolished over time, thus ending the long-standing practice of reserving seats for the military.
The amendments likewise hugely curtailed the president’s constitutional powers, preventing any future president from holding office for more than two fiveyear 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 redefined 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 first Constitutional Court (Mahkamah
Konstitusi, or MK) be established by 17 August 2003, as the adjudicative cornerstone 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 presidential 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 first and final—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 office. 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 five-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 office 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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Economic reform: Indonesia’s Constitutional Court and article 33
241
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 violations of the Constitution by the president or vice president—in other words, the
power to have the final 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, determining 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 chapter 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 firmly 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 first 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 formation 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 constitutional interpretation, contributed significantly 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 efficient forum for testing the new democratic 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 translation of peninjauan kembali, the final 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 final 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, conflict—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 implications 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 influential at the time the Constitution 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 introduced 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, including mistrust of entrepreneurs; allegations of widespread collusion between government 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 persistent—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 invariably 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 ‘people’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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Economic reform: Indonesia’s Constitutional Court and article 33
243
Indonesia, and that was a central feature of the post-1998 reform agenda sponsored 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 first 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 defining ‘the family
principle of the economy’ or ‘the people’s economy’.
THE ARTICLE 33 CASES7
In its first three years of operation, the MK heard four cases in which applicants
objected to government attempts at privatisation of important ‘branches of production’ 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 final 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, efficient 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 and in hard copy.
In this paper we refer to the soft-copy versions, as found on the website.
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Simon Butt and Tim Lindsey
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 constitutionality 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 applicants 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 importance 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 document was drafted). They also arise because these terms have never been subject
to definitive 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 natural resources? How is an ‘important sector’ to be defined? 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 Indonesian courts are usually nowhere near so amenable. In fact, the case files reveal
a multitude of arguments and issues, too numerous for us to cover here. For reasons of space we therefore focus our discussion on the Electricity Law case—the
first case ever heard by the MK—and, to a lesser extent, the SDA case. We also
refer briefly to aspects of the Migas Law case.
The Electricity and SDA Laws
Both the Electricity and the SDA Laws spawned significant controversy in the
media and debate in the DPR, particularly because they sought to privatise elements 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 Law case was 89,335 words and the
Migas Law case was 55,683 words.
Economic reform: Indonesia’s Constitutional Court and article 33
245
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 management of some types of water resources, such as drinking water and water for
irrigation (see, for example, articles 7, 8 and 80 of the SDA Law) (Walhi 2003, 2004a,
2005a; Tumiwa 2003). This is reflected in the Law’s Introductory Considerations:
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… in line with the spirit of democracy, decentralisation and openness in the community, 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 responsibility for fulfilling 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 profits will become the main purpose of those entities, not the fulfilment
of basic rights.
The view that profits and rights are inherently at odds is often expressed in political discourse in Indonesia (although rarely reflected 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 moment of rejoicing has arrived in the struggle of the Indonesian freedom movement 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 Indonesia which shall protect all the people of Indonesia 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 social 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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Simon Butt and Tim Lindsey
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;
Hukumonline 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, however, provided much greater scope for private involvement in the sector. Using
the rhetorical (and sometimes vague) style that is common in Indonesian legislative drafting, the Introductory Considerations of the Electricity Law state that:
[e]lectricity must be provided efficiently through competition and transparency in a
climate of healthy industry, through regulations that treat all business entities equally
and provide a just and even benefit to consumers [part b].
In the framework of fulfilling 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 designated ‘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 constitutional rights had been damaged by the Electricity Law.13 We will limit our discussion, however, to the arguments relating to article 33.
The first 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 provision of electricity—that is, dividing its provision into generation, transmission,
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 first 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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Economic reform: Indonesia’s Constitutional Court and article 33
247
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 competition would cause an electricity crisis in Indonesia, as was already occurring outside 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 emphasised that the Law was ‘desirable’ because the government was having difficulty
meeting demand for electricity by itself.14 Private sector capital was therefore necessary to meet this demand. Second, the government contended that competition
would help to make the provision of electricity more transparent and efficient; it
would also help to ensure a ‘sufficient 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 ‘government’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 supervise the sector under the Law (ELC 2003: 337, 340); it could, therefore, ensure
that those operating in the sector were providing equitable electricity distribution. 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 articles 16, 17(3) and 68 of the Law, which sought to introduce competition and
‘unbundling’ in the electricity sector, conflicted with article 33(2) of the Constitution 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 binding (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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Simon Butt and Tim Lindsey
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 finding that merely
regulating the electricity sector was insufficient 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 first 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 privatisation. 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 fulfilling 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 efficiency. 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 efficiency).
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 distributed and affordable electricity was ‘far from realistic’ (ELC 2003: 331). It asserted
that a perfect market mechanism does not exist, quoting—inaccurately and confusingly—part of a passage from Joseph Stiglitz (2002: xii): ‘... [the] presumption
that markets, by themselves, lead to efficient outcomes … failed to allow for desirable government interventions in the market, measures which can ... make everyone 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 financial 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 efficient
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 fulfilled by allowing competition, because the private
sector would give priority to its own profits and would concentrate on established 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 example, the Court even observed that state control over important areas of production ‘could be said to be the entire paradigm and legal ideal of the Constitution’
(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 facilitating’ (ELC 2003: 332).
The Court took the view, however, that article 33 required more than ownership 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 define), 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 insufficient 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 accordance 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 authority 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 insufficient to achieve the ‘greatest prosperity of the people’, rendering the mandates to ‘advance public well-being’ 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 Constitution, 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 revoking permits (vergunning), licences (licentie) and concessions (consessie). The DPR, using legislative power, and the Government, through Government regulation, exercise 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). Significantly, 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, provided 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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251
own sufficient 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 sufficient 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 reflected 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 community 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
first 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 sufficiently ‘important’ because the importance of electricity was emphasised
in the Law itself (ELC 2003: 345). This is significant, because it could potentially
give latitude to a government legislatively—and thus, in all likelihood, definitively—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 Constitution, thus creating significant 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 Indonesian regulations and is often read as if it were part of the regulation itself. The Elucidation to the 1945 Constitution has always been controversial, however, because, when the
Constitution officially 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, perhaps 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 interests 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 reconfirmed.
Accordingly, the Court’s failure to differentiate these two provisions raises several 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 significance 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 benefit, but that a weaker level of state control (such as regulating and
strictly monitoring the compliance of private sector operators) was justifiable 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
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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Economic Legislation Series
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ECONOMIC REFORM
WHEN THE CONSTITUTION MATTERS:
INDONESIA’S CONSTITUTIONAL COURT AND ARTICLE 33
Simon Butt
University of Sydney
Tim Lindsey
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 significant 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 management’ 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 formation. 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 authoritarian 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 system 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 first 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.
ISSN 0007-4918 print/ISSN 1472-7234 online/08/020239-23
DOI: 10.1080/00074910802169004
© 2008 Indonesia Project ANU
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legislatures would be completely abolished over time, thus ending the long-standing practice of reserving seats for the military.
The amendments likewise hugely curtailed the president’s constitutional powers, preventing any future president from holding office for more than two fiveyear 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 redefined 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 first Constitutional Court (Mahkamah
Konstitusi, or MK) be established by 17 August 2003, as the adjudicative cornerstone 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 presidential 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 first and final—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 office. 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 five-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 office 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 violations of the Constitution by the president or vice president—in other words, the
power to have the final 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, determining 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 chapter 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 firmly 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 first 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 formation 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 constitutional interpretation, contributed significantly 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 efficient forum for testing the new democratic 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 translation of peninjauan kembali, the final 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 final 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, conflict—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 implications 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 influential at the time the Constitution 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 introduced 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, including mistrust of entrepreneurs; allegations of widespread collusion between government 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 persistent—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 invariably 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 ‘people’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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243
Indonesia, and that was a central feature of the post-1998 reform agenda sponsored 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 first 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 defining ‘the family
principle of the economy’ or ‘the people’s economy’.
THE ARTICLE 33 CASES7
In its first three years of operation, the MK heard four cases in which applicants
objected to government attempts at privatisation of important ‘branches of production’ 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 final 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, efficient 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 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 constitutionality 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 applicants 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 importance 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 document was drafted). They also arise because these terms have never been subject
to definitive 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 natural resources? How is an ‘important sector’ to be defined? 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 Indonesian courts are usually nowhere near so amenable. In fact, the case files reveal
a multitude of arguments and issues, too numerous for us to cover here. For reasons of space we therefore focus our discussion on the Electricity Law case—the
first case ever heard by the MK—and, to a lesser extent, the SDA case. We also
refer briefly to aspects of the Migas Law case.
The Electricity and SDA Laws
Both the Electricity and the SDA Laws spawned significant controversy in the
media and debate in the DPR, particularly because they sought to privatise elements 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 Law case was 89,335 words and the
Migas Law case 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 management of some types of water resources, such as drinking water and water for
irrigation (see, for example, articles 7, 8 and 80 of the SDA Law) (Walhi 2003, 2004a,
2005a; Tumiwa 2003). This is reflected in the Law’s Introductory Considerations:
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… in line with the spirit of democracy, decentralisation and openness in the community, 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 responsibility for fulfilling 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 profits will become the main purpose of those entities, not the fulfilment
of basic rights.
The view that profits and rights are inherently at odds is often expressed in political discourse in Indonesia (although rarely reflected 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 moment of rejoicing has arrived in the struggle of the Indonesian freedom movement 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 Indonesia which shall protect all the people of Indonesia 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 social 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;
Hukumonline 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, however, provided much greater scope for private involvement in the sector. Using
the rhetorical (and sometimes vague) style that is common in Indonesian legislative drafting, the Introductory Considerations of the Electricity Law state that:
[e]lectricity must be provided efficiently through competition and transparency in a
climate of healthy industry, through regulations that treat all business entities equally
and provide a just and even benefit to consumers [part b].
In the framework of fulfilling 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 designated ‘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 constitutional rights had been damaged by the Electricity Law.13 We will limit our discussion, however, to the arguments relating to article 33.
The first 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 provision of electricity—that is, dividing its provision into generation, transmission,
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 first 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 competition would cause an electricity crisis in Indonesia, as was already occurring outside 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 emphasised that the Law was ‘desirable’ because the government was having difficulty
meeting demand for electricity by itself.14 Private sector capital was therefore necessary to meet this demand. Second, the government contended that competition
would help to make the provision of electricity more transparent and efficient; it
would also help to ensure a ‘sufficient 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 ‘government’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 supervise the sector under the Law (ELC 2003: 337, 340); it could, therefore, ensure
that those operating in the sector were providing equitable electricity distribution. 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 articles 16, 17(3) and 68 of the Law, which sought to introduce competition and
‘unbundling’ in the electricity sector, conflicted with article 33(2) of the Constitution 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 binding (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 finding that merely
regulating the electricity sector was insufficient 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 first 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 privatisation. 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 fulfilling 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 efficiency. 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 efficiency).
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 distributed and affordable electricity was ‘far from realistic’ (ELC 2003: 331). It asserted
that a perfect market mechanism does not exist, quoting—inaccurately and confusingly—part of a passage from Joseph Stiglitz (2002: xii): ‘... [the] presumption
that markets, by themselves, lead to efficient outcomes … failed to allow for desirable government interventions in the market, measures which can ... make everyone 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 financial 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 efficient
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 fulfilled by allowing competition, because the private
sector would give priority to its own profits and would concentrate on established 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 example, the Court even observed that state control over important areas of production ‘could be said to be the entire paradigm and legal ideal of the Constitution’
(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 facilitating’ (ELC 2003: 332).
The Court took the view, however, that article 33 required more than ownership 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 define), 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 insufficient 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 accordance 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 authority 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 insufficient to achieve the ‘greatest prosperity of the people’, rendering the mandates to ‘advance public well-being’ 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 Constitution, 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 revoking permits (vergunning), licences (licentie) and concessions (consessie). The DPR, using legislative power, and the Government, through Government regulation, exercise 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). Significantly, 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, provided 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 sufficient 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 sufficient 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 reflected 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 community 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
first 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 sufficiently ‘important’ because the importance of electricity was emphasised
in the Law itself (ELC 2003: 345). This is significant, because it could potentially
give latitude to a government legislatively—and thus, in all likelihood, definitively—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 Constitution, thus creating significant 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 Indonesian regulations and is often read as if it were part of the regulation itself. The Elucidation to the 1945 Constitution has always been controversial, however, because, when the
Constitution officially 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, perhaps 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 interests 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 reconfirmed.
Accordingly, the Court’s failure to differentiate these two provisions raises several 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 significance 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 benefit, but that a weaker level of state control (such as regulating and
strictly monitoring the compliance of private sector operators) was justifiable 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