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Suspension of the Defence Cooperation Agreement and the probe on Temasek – challenges in Indonesia-Singapore ties

Updated On: Oct 12, 2007

It is the story of an island state (“the little red dot”) with Southeast Asia’s largest country.

The two is closely intertwined, and relations have been stable during Soeharto’s reign of Indonesia.  However, in the last decade, with the political transition in Indonesia, their bilateral ties have faced various challenges from time to time.  

The signing of the defence cooperation agreement (DCA) and the extradition treaty in April this year was then seen as a sign of improved diplomatic relations between the two neighbours. But not long after the signing of the two treaties, a chorus of opposition against the DCA has arisen on the Indonesian side. The latest salvo came from the Indonesian Defence Minister. In an interview with Tempo, Defence Minister Juwono launched an attack on Singapore, alleging that it was differences between Singapore Prime Minister Lee Hsien Loong and Minister Mentor Lee Kuan Yew that led to the stalling of the bilateral defence and extradition pacts.  He further alleged that because Minister Mentor Lee did “not want the extradition clause to be 15 years retroactive” and hence Singaporehas tried to stall the extradition treaty by submitting “additional conditions to Area Bravo” (a military training site). 

The Singapore Foreign Ministry has come out to refute the allegations by the Indonesian Defence Minister. Noting that this was “not the first time that Minister Juwono has made these baseless and misleading allegations”, the statement from Singapore added that “Minister Juwono should be fully aware of the contents of the DCA which he signed and the four Implementing Agreements (IAs)”  and that Singapore has not made any new requests of Indonesia.  Rather it was Indonesia“which refused … to sign the IAs which had been agreed to on April 23, 2007, and asked for substantive changes to the documents”. 

As the “tussle” and the war of words continue, the inevitable happened.  The Indonesian Foreign Ministry announced early this week that Singaporeand Indonesiahave agreed to put aside the Defence Cooperation Agreement (DCA) indefinitely.  Responding to media queries on the decision the Foreign Affairs Ministry said Singaporeis aware of the "complex dynamics of Indonesia's domestic debate over the Extradition Treaty (ET) and Defence Cooperation Agreement (DCA)".  Singaporealso understands that Jakartamay need more time before tabling the two agreements to Parliament for ratification. The Ministry stressed that Singaporeremains fully committed to the agreement between Prime Minister Lee Hsien Loong and Indonesian President Yudhoyono in October 2005 to conclude the ET and DCA as a package.

It is not only in this area that Singaporeis encountering challenges in its bilateral relations with Indonesia.  Opponents to economic deals with Singaporein Indonesiahave instigated a probe on Singapore's Temasek Holdings, alleging the latter of “monopolistic practices in the telecommunication business”.  After an initial 60-day period of investigation into the case,it ended without any conclusion whether Temasek breached Indonesia's anti-monopoly law by dominating the market and engaging in price-fixing.

Mr Nawir Messi, spokesman for the special investigating team of the Indonesia’s Anti-Monopoly Commission (KPPU) said in September then: "We couldn't arrive at a verdict as we couldn't gather enough evidence. We still need to call key witnesses to help us in the investigation". In fact, the KPPU started investigating Temasek in April 2007 based on a complaint filed in October 2006 by a labour union for state-owned companies.  The labour union later withdrew its complaint citing it did not have enough evidence to support the allegations but the KPPU went ahead with its probe.

Despite this inconclusive beginning by Indonesian prosecutors, Indonesian media reported that Indonesia's anti-monopoly body KPPU in an about-turn, announced on 9 October, that Singapore's Temasek has violated the country's anti-monopoly laws through its stakes in two Indonesian telecommunications firms.

Mohammad Iqbal, Head of Indonesian Commission for the Supervision of Business Competition, said: "There's evidence to prove that the process of cross-ownership took place after the divestment of Indosat to Temasek Group. This created unhealthy competition." "The council has given the findings of the extended investigation to the party concerned so that it can inspect the documents, give its views and enter its defence," said Mohammad Iqbal.

The Commission gave the Singaporeinvestment company a fortnight to submit its defence. Temasek has denied the allegations, saying its subsidiaries have complied with Indonesian regulations. "Temasek Holdings will vigorously defend its legal rights at all opportunities and in all available legal forums. As legal counsel for Temasek Holdings, I will be seeking clarification from KPPU on this matter," Temasek said in a statement to Reuters, quoting its lawyer Todung Mulya Lubis.

"The claims against Temasek Holdings are baseless and without merit," the email said. "In view of the confidentiality of the proceedings, we are surprised to hear that the findings of the case have appeared in the media ahead of the November ruling and before Temasek Holdings has responded to these findings," the statement said.

The Indonesian council has reversed its verdicts in the past. If not, there are many legal options available for Temasek to pursue. Temasek can still appeal to the Indonesian courts. There are stakes involved for Indonesiaas well. International investors are watching the case closely, and a guilty verdict, would shake investors' confidence and raise doubts about Jakarta's commitment to protecting foreign investments.  (11 October 2007)

Sources:

Indonesiaand Singaporeagree to freeze defence pact (Antara, 11 October 2007)

Temasek to defend against Indonesiaanti-monopoly ruling (Reuters, 10 October 2007)

S'pore, Indonesiaagree to put aside Defence Cooperation Agreement indefinitely (Channelnewsasia, 9 October 2007)

Indonesian commission says Temasek violated anti-monopoly laws (Channelnewsasia, 9 Oct 2007)

“No grounds” to Indon view (Today, 9 October 2007)

Why the Pact Hung – the Indon view (Today, 5 October 2007)

Dealing with tantrums of a big brother (Jakarta Post, 5 October 2007)

INDONESIA: Anti-monopoly law probe into Temasek yields no verdict (Straits Times, 16 August 2007)