Who wins from privatization?<\/p>\n
By Abdurrahman Binsyeh<\/p>\n
BOGOR, West Java (JP): One of the short-cuts to raise revenue
\nduring economic turmoil is through privatization of state-owned
\nenterprises.<\/p>\n
All this has been highlighted with recommendations, if not
\npressures, from the International Monetary Fund (IMF), the World
\nBank and pro-market economists.<\/p>\n
Representing a cross section of various interests (state,
\nmarket, economic technocracy, economic nationalism, international
\ninstitutions, and the public), the privatization of state-owned
\nenterprises (SOEs) has inevitably caused some groups to win and
\nsome to lose.<\/p>\n
Who are the winners? For those promoting and favoring market-
\noriented economic development, the current crisis, despite its
\ndevastating effects, has been a \"blessing in disguise\".<\/p>\n
It was the economic crisis that gave the technocrats,
\ninternational organizations and the economic reformists, the
\nopportunity to push the privatization of SOEs much more strongly.<\/p>\n
The ongoing ambitious privatization of SOEs can be seen as an
\nintellectual and ideological victory over those favoring state-
\nled development.<\/p>\n
The technocrats in support of economic reformists outside the
\nstate circle have promoted the need for privatizing the large
\nnumber of SOEs with poor performances, and have tried hard to
\nconvince the government about the benefits of privatization.<\/p>\n
The World Bank and the IMF have certainly supported the
\nprivatization of SOEs as an integral part of their loan
\nconditions. These twin Bretton Woods institutions always give
\nneoclassical advice to the government that it is not good at
\nrunning commercial businesses.<\/p>\n
Also benefiting from privatization are those in the domestic
\nprivate sector as well as foreign investors or buyers. Coupled
\nwith enhanced competition with the enactment of the anti-monopoly
\nlaw; the phased elimination of SOEs' privileges such as
\npreferential access to bank credit, captive markets, soft-budgets
\nor subsidies; mergers and closures of non-viable enterprises --
\nprivatization could reduce the crowding out effects for some
\ndomestic private sector businesses and become an incentive for
\nbusinesses to expand, at least, as voiced by those favoring
\nmarket mechanisms.<\/p>\n
In addition, foreign investors, especially those buying the
\nassets of privatized SOEs, would get access to expanded markets
\nor new markets.<\/p>\n
Even with the government's \"vindicated\" commitment to
\nestablishing transparent procedures for divestment and
\nprivatization that allow for open bidding or other market
\nmechanisms, including full participation by foreign investors,
\nthe foreign buyers can buy a majority stake in privatized SOEs.<\/p>\n
Thus, they may have control over management, or at least
\nexercise control with the agreed conditions that they are allowed
\nto make major management decisions such as sacking employees and
\nincompetent directors and managers, deciding supply and purchase
\ncontracts and selecting appropriate private contractors.<\/p>\n
Other (potential) winners are the team of economic ministers
\nentrusted with privatizing SOEs and those close to them, in that
\nprivatization can provide new patronage opportunities. The
\neconomic team may favor buyers politically and\/or personally
\nconnected to them and those having enough \"guts\" to provide them
\nwith an incentive.<\/p>\n
And who are the losers? Economic nationalists promoting state-
\nled development and an interventionist economic path. For
\ndifferent reasons -- material gains and political power -- losers
\nare also politicians and senior bureaucrats at the Ministry of
\nFinance and related ministries in charge of SOEs.<\/p>\n
It was the norm for most of Soeharto's era that SOEs were
\nappropriated by political and bureaucratic interests. Politicians
\nand senior bureaucrats used SOEs as \"cash cows\" for their own
\nwelfare, giving their children good jobs, and making good
\ncontracts with political-business allies and cronies.
\nConsequently, they were not happy about relinquishing managerial
\ncontrol of SOEs to the private sector.<\/p>\n
The functionaries of the restructured and privatized SOEs
\nthemselves -- employees, managers, directors, including many
\nmilitary officers holding upper-echelon positions -- are the
\nother losers.<\/p>\n
It has become an open secret that SOEs during the New Order
\nperiod received a large share of Soeharto's active and retired
\nlieutenants, thereby forming a strong political machine and solid
\npolitical support for his presidency for over 30 years.<\/p>\n
Many of the officers may still be enjoying their positions in
\nSOEs but no one can guarantee that they will not be replaced by
\nthe new majority shareholders.<\/p>\n
No less surprising, privatization has also meant losses for
\nSoeharto's family members and cronies. Only a few months after
\nSoeharto's downfall, for the sake of the marketability of the
\nSOEs being privatized, a large number of supply and purchase
\ncontracts between state companies and private contractors in
\nvarious sectors were discontinued, or not renewed. Many of the
\ndiscontinued and reviewed project contracts were under the
\nownership of Soeharto's children and cronies.<\/p>\n
So to achieve success for SOE privatization, a respected
\ngovernment should be able to gain the political support of other
\nkey stakeholders and be able to accommodate or wisely withstand
\nresistance from the (potential) losers of privatization.<\/p>\n
Since SOEs constitute a cross-section of national socio-
\npolitical and economic interests, privatization should
\nintensively involve members of the House of Representatives.<\/p>\n
Because privatization has implications for management,
\nstaffing, corporate policy-making, and ownership, it is important
\nfor the government to include, among others, the existing
\nstakeholders such as management and staff, customers and
\nsuppliers, local communities and activists, and market
\ncompetitors in the process.<\/p>\n
The process must be communicated and discussed with those who
\nhave a direct interest in the privatized SOEs. The government
\nshould fairly compensate those who lose in a material sense from
\nthe SOE reform, and in the case of eliminated or abolished social
\nobligations of the privatized SOEs, there must be appropriate
\nreplacements with new policy instruments.<\/p>\n
As the implications of privatization, especially through
\nprivate placement (strategic partnership), would be much greater
\nthan other forms of SOE reform, more intensive public
\ncommunication through the media is urgent.<\/p>\n
There must also be good public education about the gains from
\nprivatization because many in Indonesia, including residents in
\nthe vicinity of state firms, do not understand the government's
\nreasons or justifications for privatizing SOEs. They tend to
\nbelieve that SOEs are good for the people's welfare.<\/p>\n
The writer, who studied development studies at Canberra's
\nAustralian National University, is co-founder of the Yayasan
\nAlamanda (Call of the Earth Foundation) which studies the
\nenvironment and social economic development. It is based in
\nBogor, West Java.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/who-wins-from-privatization-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}