2003 privatization target is unrealistic, say experts

Dadan Wijaksana and A'an Suryana, The Jakarta Post, Jakarta

The government would not be able to meet the 2003 privatization proceeds target of Rp 8 trillion (around US$880 million) unless it moves swiftly to address the various domestic problems, experts said.

University of Indonesia economist M. Chatib Basri said the target set in the 2003 state budget draft was too ambitious given the lingering problems to which the government had so far failed to address.

"The target set for privatization is worrying and questionable, especially when the process itself was so highly- politicized," Chatib told The Jakarta Post.

He was commenting on the draft budget, delivered before the House of Representatives by President Megawati Soekarnoputri last week, which presumed that government revenue for privatization would reach Rp 8 trillion, to be used partly to help cover next year's deficit -- projected at Rp 26.3 trillion or around 1.3 percent of gross domestic product.

However, such a target may be unreasonable given past experiences that have shown that this administration's privatization program has been moving at a snail's pace due to various problems ranging from unfavorable investment climate to the lack of coordination among government institutions.

During the past couple of years, the government consistently failed to meet its privatization targets.

In fact, due to the same reasons, the government was forced to revise its target for this year to Rp 4 trillion from the initial Rp 6.5 trillion.

The adverse investment climate here is mainly caused by a prevailing lack of trust in the legal system, security problems, and labor conflicts.

Another factor causing private investors, especially foreign, to shy away from purchasing shares in state-owned enterprises (SOEs) is resistance from employees and politicians especially in outlying regions, who argue that privatization programs would cause massive layoffs and foreign control (considered by many as an infringement on the nation's sovereignty) of strategic SOEs.

A high profile example of this was the sale last year of a majority stake, to a Mexican company, in state-owned cement maker PT Semen Gresik, which was strongly opposed by local politicians and the local people of West Sumatra.

Problems also were reported among central government officials as well.

In many cases, the program has often been opposed by other government officials. One such example was the objection by the Ministry of Health to privatize pharmaceutical companies PT Indofarma and PT Kimia Farma, saying that both companies produced cheap medicines -- which are needed by common people. There was concern that under private (domestic or foreign) ownership, these companies would no longer produce medicine for the poor people.

All these concerns have led to disappointment as the government, as of August, had only managed to sell off some Rp 2.2 trillion worth of SOEs.

Against this backdrop, Chatib cast doubts over whether the 2003 target could be fulfilled.

Sharing Chatib's view was Chairman of the Alliance for New Indonesia (PIB) Sjahrir, who said the privatization target was unrealistic.

"There are still many problems plaguing state enterprises, but the government has now set an overly optimistic target," Sjahrir told reporters in a press conference on Monday.

Sjahrir said the government should first improve the performance of SOEs before it launched high profile privatization sales.

Improving the performance of those SOEs by raising the level of efficiency would also play a part in helping to lure investors.

However, judging from the list of SOEs to be sold in 2003, of the four, only Bank Rakyat Indonesia (BRI), which has the largest banking network in the country, would likely attract a wide variety of investors.

In the 2003 state budget draft, in addition to BRI, the government also hopes to profit from the sale of three other SOEs: airport operator PT Angkasa Pura I (Bali-based Ngurah Rai airport), contractor company PT Adhi Karya and property developer PT Pembangunan Perumahan.