Stronger case for faster privatization<\/p>\n
Vincent Lingga, Senior Editor, The Jakarta Post, Jakarta<\/p>\n
No one disagrees with the notion that privatization is
\nfundamentally a political transformation and an uphill task,
\nespecially for such a fragile democracy as Indonesia. It will
\nexact a major change in the government's role in the economy and
\nin society as a whole.<\/p>\n
But the experience of developing countries, which took the
\npolitical courage to bite the bullet, prove that privatization of
\nstate companies is greatly effective in improving macroeconomic
\nefficiency through the creation of a more competitive market.<\/p>\n
Its microeconomic benefits are equally far-reaching, including
\nmore efficient and consequently more profitable enterprises, a
\nsignificant increase in investment, broader technological base
\nand managerial depth and better products at lower costs to the
\nconsumers.<\/p>\n
Extrapolate these potential benefits against the current
\nIndonesian condition, where most of the 185 state companies with
\ntotal assets of Rp 850 trillion (US$89.5 billion) are inefficient
\nand barely profitable with a government that is severely strapped
\nfor liquidity and one can easily see why privatization has been
\nmade a core element of the country's economic reform program.<\/p>\n
Proceeds from privatization will immediately help plug the big
\nhole in the budget and consequently speed up fiscal
\nconsolidation. Profitable companies generate more tax revenues
\nand dividends. More importantly, since many state companies
\noperate in upstream industries, their higher efficiency will also
\ncontribute to the competitiveness of thousands of downstream
\nindustries.<\/p>\n
However, only around five state companies have been privatized
\nover the past four years, due partly to political uncertainty,
\nbut mainly because of strong opposition from the House of
\nRepresentatives and vested-interest groups, notably employees,
\nmanagers and senior officials, as well as other political groups
\nof a nationalist or populist bent.<\/p>\n
Admittedly, privatization, like other reform measures,
\ninitially cause destabilizing impacts as redundant employees and
\ncomplacent managers in inefficient companies are afraid of losing
\njobs and many senior officials with political power over these
\nenterprises are worried about losing their cash cows.<\/p>\n
But empirical evidence from research shows that no country,
\nmost notably crisis-ridden ones such as Indonesia, which has been
\nmired in a deep multi-dimensional crisis since late 1997, can
\nmake significant gains without first undergoing short-term pains.<\/p>\n
Inordinately nationalist groups, who see the handing over of
\ncontrol of inefficient companies to foreign investors as the
\nsurrender of national sovereignty to foreigners, seem afraid of
\nthe political manipulation and economic sabotage associated with
\nseveral multinationals in the past.<\/p>\n
But these groups may not realize how desperate the country's
\neconomic condition has been, where tens of millions of people are
\nunemployed and millions of children cannot afford even primary
\neducation and basic health services -- not to mention hundreds of
\nthousands of locally-dislocated families living in makeshift
\nsettlements under inhumane conditions.<\/p>\n
True, while the possibility of foreign domination of the
\neconomy and the risks of foreign companies abusing their market
\npower should be guarded against, one should remember that
\nthousands of foreign companies have established their businesses
\nin the country since 1967, but no legal evidence of major cases
\nof economic sabotage or abuse of market power has so far been
\nfound.<\/p>\n
On the contrary, almost all the major business groups
\nassociated with corruption and collusion with the government in
\nthe past and alleged to be partly responsible for the economic
\ncrisis, are not foreign-controlled but national enterprises.<\/p>\n
The 2001 state budget is now less than three months from its
\nend, yet not a single cent of the Rp 6.5 trillion (US$665
\nmillion) has so far been collected.<\/p>\n
How will the cash-strapped government cover this shortfall,
\nwhen the budget is also being threatened with another large hole,
\nas only half of the Rp 27 trillion revenue target from asset
\nsales by the Indonesian Bank Restructuring Agency have so far
\nbeen realized?<\/p>\n
Should it take an even more devastating fiscal crisis before
\nthe government and the House finally adopt the political courage
\nto push through the privatization of state companies that are
\nbetter left to private investors to develop?<\/p>\n
Certainly, every transaction should be carried out with high
\nstandards of transparency and accountability as deals within the
\nprivatization program are highly vulnerable to corruption.<\/p>\n
However, since privatization has been central to the
\ngovernment reform program since 1998, it is hard to believe that
\nthe government has not yet formulated a broad legal and political
\nframework for the program and set clear-cut guidelines on which
\ncompanies are best privatized through the stock market and which
\nthrough strategic sales (private placement).<\/p>\n
What is perhaps still needed is the fine tuning of the
\nstandard operational procedures, the step-by-step process for
\npublic share offerings and strategic sales to secure transparency
\nand accountability and to close any loophole that may still be
\nexploited by highly venal officials.<\/p>\n
Obviously, selling state companies now will not fetch the
\nhighest prices, given the high risks associated with uncertainty
\nover law enforcement and the initial stages of decentralization
\nof political and fiscal autonomy to Indonesia's provinces and
\ndistricts.<\/p>\n
It is completely irrational to expect what is possible only in
\nthe best of times from transactions done in the worst of times,
\nespecially in view of the bleak outlook of the global economy due
\nto the impact of the Sept.11 terrorist attacks on the United
\nStates, the world's economic powerhouse.<\/p>\n
Moreover, given the 20 to 30 percent excess capacity hanging
\nover the manufacturing industry, as a consequence of the economic
\nslump, direct investment would not likely flow through greenfield
\nprojects but through asset acquisition, as the 2001 World
\nInvestment Report of the United Nations Conference on Trade and
\nDevelopment shows.<\/p>\n
But further delays or foot-dragging in the privatization
\nprogram would not only weaken the nascent economic recovery but
\ncould also discourage foreign creditors, notably sovereign
\n(government) creditors.<\/p>\n
After all, why should they use their taxpayers' money to help
\na government that still wastes its own taxpayers' money
\nsupporting inefficient businesses?<\/p>\n
Or the question could be rephrased: Does a government, which
\ncontinues to waste its money supporting inefficient and
\ncorruption-infested companies, still deserve more development aid
\nin the form of soft loans with an annual interest rate of less
\nthan 2 percent and maturity of over 30 years?<\/p>",
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"sponsor": "Okusi Associates",
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