Disposing of bleeding ulcers: Privatization in Indonesia<\/p>\n
Todd Callahan
\nSenior Technical Advisor
\nPT Jasa Cita<\/p>\n
Across the street from the Bank Indonesia building,
\n\"Privatization equals poverty\" used to be scrawled on a busy bus
\nstop wall for all passersby to see. The point of the message was
\nclear: State ownership in Indonesia should be maintained
\nostensibly because it contributes to the public good. That, at
\nleast, is what the guardians of the status quo would have the
\npublic believe.<\/p>\n
The reality is that Indonesia's state-led development model
\nhas failed to produce anything except a collection of wasteful
\ncompanies that impose huge economic costs on its population. One
\nWorld Bank report put it plainly enough: The inefficiency of
\nstate-owned enterprises, combined with the attendant state
\nenterprise sector deficits, are hampering economic growth and
\nmaking it more difficult for ordinary people to lift themselves
\nout of poverty.<\/p>\n
An important question is why any forward looking government
\nwould tolerate such a millstone around its neck. The answer is
\nthat, despite the huge burden on government finances caused by
\ninefficient state owned firms, they survive because vested
\ninterests back them and because government policymakers lack
\neither the will or muscle to dislodge them. In Indonesia this has
\ncertainly been the case since the country announced its
\nprivatization plans several years ago.<\/p>\n
Although a few transactions have materialized, real progress
\nhas been painfully slow because of the failure of the Office of
\nthe State Minister of State Owned Enterprises to tackle special
\ninterests and make a compelling case that spells out the features
\nand benefits of privatization. Frustrated, one observer compared
\nthe ability of the current government to push ahead with a
\nsignificant privatization to parachuting onto a sailboat in the
\nmidst of a typhoon.<\/p>\n
Ultimately, successful privatization will not take place until
\nthe administration stands up to special interests. Until now
\nopponents have been given a virtually free reign to shape the
\ndebate on privatization. This has led to the creation of false
\nperceptions and must stop if the government expects to have any
\nchance of advancing its privatization agenda. To neutralize the
\nspecial interests, State Minister of State Owned Enterprises,
\nLaksamana Sukardi, must lobby the cabinet and legislature more
\nvigorously.<\/p>\n
He also needs to seek and obtain more political support for
\nprivatization from President Megawati Soekarnoputri. To silence
\nsenior managers and local political elites who continue to treat
\nstate owned enterprises as their cash cows, Minister Sukardi
\nshould expose their dismal performance and shine a spotlight on
\nthe rampant corruption within them. In short, it is time to begin
\ndealing with special interest groups more assertively.<\/p>\n
On this score, India provides an interesting example of how
\nvigorous leadership can make all the difference. Although India
\nstill owns 240 firms at the national level and another 1,000 at
\nthe state government level, it has made significant strides in
\nits privatization drive thanks to the efforts of its new
\nDisinvestment Minister, Arun Shourie.<\/p>\n
In fact, over the last two years Dr. Shourie has successfully
\nsold 22 companies for US$2.2 billion. To accomplish this he
\nforcefully presented his position at 10 parliamentary debates,
\ndealt with 19 court challenges, and disarmed countless attempts
\nto provoke labor. Responding to criticism that privatization
\namounts to selling off the national heritage, a claim not
\nunfamiliar in Indonesia, Dr. Shourie retorted that he was merely
\n\"disposing of bleeding ulcers\".<\/p>\n
Apart from this, the government authorities need to present a
\nstronger case for privatization. Too often the imperative of
\nprivatization is only explained in terms of raising cash for the
\nnational budget or satisfying International Monetary Fund (IMF)
\nobligations. Regrettably, this is not the way to seek wider
\npublic support for the government's program.<\/p>\n
Instead, Minister Sukardi and other top officials need to
\nfocus more on the beneficial changes that come with
\nprivatization. For example, studies show that privatization, when
\nimplemented properly, raises the efficiency of firms and promotes
\neconomic growth. As a result of this, increased tax revenues from
\nmore productive companies flow into government coffers.<\/p>\n
Where privatization is executed through the public sale of
\nshares, two infrequently discussed but nonetheless important
\nbenefits include broader public ownership and stronger, more
\ndeveloped capital markets. In other cases where state owned
\ncompanies are being offered for sale to strategic investors,
\nespecially foreign ones, the public must be reminded that new
\nownership brings benefits such as fresh capital, better systems
\nand technology, professional management, and access to new
\nmarkets.<\/p>\n
Dr. Shourie certainly got it right when he underscored the
\nimportance of communication at a recent IMF gathering. He
\nsuggested that the IMF include a clause in all of its loan
\nagreements with borrowing countries which obliges them to
\ncommunicate the rationale of reform provisions to their people.<\/p>\n
Indonesia should take heed of this advice and begin an
\naggressive communication strategy on privatization to deal with
\nspecial interests and alleviate popular misperceptions. This is
\nthe first and most essential step the country must take to rid
\nitself of its own bleeding ulcers.<\/p>\n
PT Jasa Cita is a research and business information
\nconsultancy associated with CastleAsia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/disposing-of-bleeding-ulcers-privatization-in-indonesia-1447899208",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}