Monday, February 26, 2007 Vincent Lingga, The Jakarta Post, Jakarta
Judging by the government's privatization record over the past three years, the plan revealed by State Minister for State Enterprises Sugiharto last week to slash the number of state companies from almost 140 to 69 within three years is something of a pipe dream.
Sugiharto has never been able to meet the privatization target set in the annual state budget, let alone coming plans that have yet to be consulted with various ministries, the House and other stakeholders, including trade unions at state companies.
It was almost two years ago that Sugiharto launched a blueprint on the reform of state enterprises through mergers, divestments or outright liquidations, but nothing seems to have come of it.
Until last week, that is, when he suddenly came out with an ambitious target for government divestments -- plans to reduce the number of state companies by 37 this year, by 15 in 2008 and by 18 in 2009, while only one state company (PT Perusahaan Gas Negara) had been privatized over the past two years.
Even this gas company's initial public offering last year was fraught with allegations of insider trading and inadequate disclosure regarding income projection.
No one disagrees with the rationale behind the reform program. There are simply too many state companies. The government really does not have any reason to involve itself in so many different businesses that could be run efficiently by private firms.
The blunt fact is that most state companies have been grossly inefficient, with lax internal controls, poor accounting standards and practices and are highly vulnerable to arbitrary government interference. No wonder, as latest financial reports have shown, most state companies are less profitable than their private-sector competitors, and more than one-fifth of them are losing money.
However, not a single one of the successive governments over the past ten years has demonstrated any sense of urgency to reform state companies -- through privatization, mergers or liquidation -- not even during the height of the economic crisis from 1998 to 2002, when the government was having a severe liquidity crisis.
Every time a new government comes to power, it claims the reform of state companies is one of its top priorities, fully aware of the great benefits of privatization. But the promise is soon forgotten, and it is back to business as usual for officials and politicians -- retaining state enterprises as their cash cows.
The target set by Sugiharto is even more unfeasible because as, the minister himself said, the privatization, merger or liquidation plan will have to go through a complex process of consultations with the various technical ministries and the House of Representatives, as well as other stakeholders, such as employees.
True, privatization is fundamentally a political transformation and an uphill task for that matter, as it exacts a major change in the government's role in the economy and in society as a whole.However, there is no reason why every government divestment plan should be approved by all stakeholders, as long as its process is transparent and accountable according to the step-by-step procedures already agreed on by the inter-ministerial Privatization Committee and the House of Representatives.
Requiring the approval or support of so many different ministries and trade unions will only make the program vulnerable to sabotage by vested-interest groups bent on maintain state enterprises for their own financial benefit.
What is urgently needed is a broad legal and political framework for the reform program and clear-cut guidelines on which companies would be best privatized through the stock market, which through strategic sales (private placement) and which ones should be merged or liquidated.
This framework should be supplemented with standard operational procedures to secure transparency and accountability and to close any loopholes that may still be exploited by corrupt officials.
Admittedly, privatization, like other reform measures, may initially cause destabilizing impacts as redundant employees and complacent managers in inefficient companies are afraid of losing jobs, and many senior officials with political power over state enterprises are worried about losing their money trees.
This is where the executive leadership is needed to enlighten all the stakeholders of the benefits of the reform of state companies to the national economy. This is also the reason why we are pessimistic about Sugiharto's ambitious program, as the present government rarely demonstrates its leadership when it is needed to generate optimism and market confidence
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