Privatization should be reactivated<\/p>\n
The panelists agreed that privatization of state-owned
\nenterprises (SOEs), like asset sales by the Indonesian Bank
\nRestructuring Agency, were capable of reinvigorating the economy.<\/p>\n
Divestment would bring in additional revenue to the cash-
\nstrapped government to enable it to reduce its debt burden, and
\nimprove investor confidence in the economy as investors would
\nimprove the efficiency of SOEs.<\/p>\n
Privatization was greatly effective in improving macroeconomic
\nefficiency through the creation of a more competitive market. And
\nits microeconomic benefits were equally far-reaching, including
\nmore efficient and consequently more profitable enterprises, a
\nsignificant increase in investment, a broader technological base
\nand managerial depth and better products at lower costs to
\nconsumers.<\/p>\n
However, privatization appeared a dirty word, political
\nammunition that was often fired by vested interest groups to
\nincite people to demonstrate and provoke employees to strike, as
\nthe Semen Gresik debacle over the last few months had shown.<\/p>\n
One panelist asserted that without a faster pace of
\nprivatization, the cash-starved government, already burdened with
\nmountains of debts, would have to depend on new borrowings to
\nfinance its expenditure.<\/p>\n
Worse still, he added, the economy would continue to suffer
\nfrom inefficiencies because the more than 180 SOEs that provided
\npublic services, produce industrial materials and operate in such
\nvital sectors as public utilities and banking, were notorious for
\ncorruption and collusive dealings.<\/p>\n
\"Moreover, we are now like a communist country where the
\ngovernment owns, controls or manages almost 80 percent of
\nproductive assets,\" he pointed out.<\/p>\n
He referred to the thousands of assets consisting of
\nenterprises, banks and equity stakes in companies which were
\ntaken over by the government after the restructuring of the
\nbanking industry in 1997-2000.<\/p>\n
\"These assets have to be unleashed to private investors as
\nsoon as possible, otherwise their quality will continue to
\ndecline,\" he added.<\/p>\n
The government itself acknowledged in its latest letter of
\nintent to the International Monetary Fund (IMF) on Dec. 13, that
\nprivatization of state-owned enterprises (SOEs) was a key part of
\nits reform efforts aimed at improving economic performance and
\nstrengthening the public sector's finances.<\/p>\n
It also admitted that SOEs had often been inefficient
\nproviders of goods and services, a drain on the public finances
\nand exploited as cash cows for the benefits of individuals and
\nspecial-interest groups.<\/p>\n
Just look at the findings of independent audits on SOEs, which
\nwere made at the request of the IMF as part of the reform
\nprogram.<\/p>\n
The second round of independent audits that involved five SOEs
\n-- PT Pelabuhan Indonesia port company, PT Jasa Marga toll road
\noperator, PT Perkebunan Nusantara IV plantation company, PT
\nGaruda Indonesia national flag carrier and PT Telekomunikasi
\nIndonesia (Telkom) -- showed how grossly inefficient SOEs were.<\/p>\n
The audits discovered Rp 8.5 trillion or $1.6 billion in
\nlosses due to inefficiency, Rp 7.3 trillion in potential losses
\nfrom shady or questionable deals and Rp 776 billion or $147
\nmillion in lost opportunities for gains or savings.<\/p>\n
Given their large size in the economy, the SOEs weak
\nperformance has acted as a major drag on the overall economic
\nperformance.<\/p>\n
The government therefore has reiterated its commitment to
\nspeed up privatization.<\/p>\n
The government has indeed failed miserably in its
\nprivatization program since 1998. It had set 12 SOEs for
\ndivestment each year since 1998 but has so far divested only
\naround five, because almost every deal was embroiled in political
\ncontroversy and allegations of corruption.<\/p>\n
Not a single cent of the Rp 6.5 trillion in revenues expected
\nfrom privatization was collected in 2000. This year, only Rp 3.5
\ntrillion of the Rp 6.5 trillion revenue target was achieved. Even
\nthese revenues were made only through a further divestment in
\nlisted PT Telkom, which was privatized in 1995.<\/p>\n
No one disagrees that privatization was fundamentally a
\npolitical transformation and a difficult task as it exacted a
\nmajor change in the government's role in the economy against the
\nstrong opposition from vested interest groups.<\/p>\n
Vested interest groups, including many politicians in the
\nHouse of Representatives, whipped up xenophobia in their attempts
\nto block privatization, arguing that the measure amounts to the
\nsurrender of national sovereignty to foreigners.<\/p>\n
Other opponents of the program have warned the government
\nagainst selling SOEs at cheap prices under the current adverse
\nconditions, arguing that asset prices will eventually rise when
\nthe economy strengthens.<\/p>\n
The problem though is that the economy will not likely gain a
\nsustainable recovery unless many major SOEs are released to
\nprivate investors who were certainly better managers than the
\ngovernment.<\/p>\n
As one panelist pointed out: \"You cannot have the cake and eat
\nit too.\"<\/p>\n
He said asset prices would increase only if the economy
\nregained investor confidence, but this confidence would never be
\nwon unless the government showed a good policy performance
\nregarding privatization.<\/p>\n
Obviously, selling state companies now would not fetch the
\nbest prices, given the high risks associated with uncertainty
\nabout law enforcement and the initial complications from
\ndecentralization of political and fiscal autonomy to provinces
\nand districts.<\/p>\n
It was completely irrational to predict what is possible from
\ntransactions done in the best of times compared to those
\nconducted in the worst of times we are in now, especially in view
\nof the bleak outlook of the global economy after the Sept. 11
\nterrorist attacks on the United States, the world's biggest
\neconomic powerhouse.<\/p>\n
As the case for faster privatization is so compelling, seen
\nfrom fiscal sustainability and macroeconomic efficiency, many had
\nfound it hard to understand why the government had not yet
\nformulated a broad legal and political framework for the program
\nand set clear-cut guidelines for privatization transactions.<\/p>\n
The World Bank suggested in its latest report on Indonesia's
\neconomy that the government reach a broad consensus with the
\nHouse on SOE restructuring and a privatization strategy on which
\nindividual transactions would be based.<\/p>\n
But given the bitter experiences in past privatization
\nefforts, the government also needed to formulate standard
\noperational procedures, the step-by-step process for divestment
\nin SOEs to secure transparency and accountability.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/privatization-should-be-reactivated-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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