An alternative to privatization: Clean govt
Sri Wahyuni, The Jakarta Post, Yogyakarta
The government's revenue target of Rp 8 trillion from privatization sales for the 2003 fiscal year has astonished many including economist Revrisond Baswir of Gadjah Mada University.
Following are excerpts from last week's interview:
Question: How do you see the government's new target for privatization?
Answer: There are many factors including social and cultural ones that the office of the State Minister of State Enterprises has ignored. Privatization has so far been seen mainly as a business transaction -- resulting in resistance.
Privatization cannot be done, in the way it is now being conducted, especially in regard to the mandate of the Constitution. Many, including legislators, still believe that the Constitution requires the state's involvement in managing some public companies. If things like that are ignored, resistance will increase, not only from employees ... and that will increase the risk of tension.
Q: Should an agreement on such issues be achieved before going ahead with the whole privatization process?
A: Yes, it should. Take Article 33 (2) on essential products for public interest that must be in the control of the state. We cannot just ignore this because there are many among the community that still require the state's involvement.
At the lower level Law No 25/2000 also gives the government a mandate to make a law on state-owned enterprises. However, the law does not exist yet. It is therefore very strange that privatization is held in the absence of laws on privatization as well as on state-owned enterprises. This is a serious problem.
Q: Privatization is supposed to benefit the state, among others, to prevent public companies from being cash cows for particular vested interest groups. Your comment?
A: That's alright but let's see the evidence. In the U.S., for example, big companies such as (energy firm) Enron were involved in scandals ... The same thing happens here ...
The superiority of private enterprises is therefore a myth. The problem is not in whether it is a private or a state-owned one. There are many determining factors. Whether a state-owned company is corrupt depends more on the leadership.
If we have a corrupt regime, either a private or a state-owned firm will be corrupt and become a cash cow too. With a clean regime there's no chance of a state-owned firm becoming a cash cow.
Also, a legal basis is vital for privatization. Timing and methods are of no less importance. Selling anything in a crisis situation will result in a low price. At present, it is not a good time to sell anything because we are facing an economic crisis and a lack of trust from investors.
The method is questionable, especially whether the ministry in charge of privatization is credible ... (given) suspicions of public companies becoming cash cows for groups with vested interests.
Q: What would be your other suggestions?
A: First, we have to look at motivations (of privatization). If (the motive) is the deficit in the state budget, the 2001 state budget left some Rp 16 trillion while the privatization revenue target of last year was only Rp 6.5 trillion. From this we can see that the state budget deficit cannot be the reason for privatization because not all the previous budget was spent.
Let's see the motivation of making public companies healthier. If the timing is not proper while the method is not credible either, how can we expect healthier companies? Experience shows that privatization is full of scandals. The selling of Krakatau Steel and the alleged insider trading in the selling of Gresik Group and Indosat are examples. This also shows that the process of privatization itself has become a cash cow for groups with vested interests.
Therefore, given an absence of a legal basis (for privatization) as well as an absence of a credible methods ... the best way now is to temporarily stop the whole process (of privatization). Then let's make ourselves free from the intervention of the International Monetary Fund, talk about the legal basis, and by then we'll be ready to decide whether to continue privatization. That would reduce people's resistance.
Thus legislators should exclude the privatization revenue target of Rp 8 trillion from the 2003 state budget.
Q: Why halt privatization?
A: Among public companies, some are profitable while others are not. Some are related to products in control of public interests and some are not. If we want to sell companies on the basis of reasons that have nothing to do with the above Article 33 of the Constitution (which remains unamended), I don't think people will show resistance against the plan as it won't violate the Constitution.
Founding father Bung Hatta repeatedly mentioned this issue (related to Article 33) in his speeches. Therefore, selling these would be a violation of the Constitution.
Moreover, the method which they sold shares (not a majority) in PT Semen Gresik (Semen Padang's parent company) itself was full of alleged practices of corruption, collusion, and nepotism (including) the official complaint of alleged insider trading. This should be overcome first, because (the sale) resulted in a very cheap transaction.
An interview in (the London-based daily) Financial Times in 1997 with the owner of Cemex (of Mexico that bought Semen Gresik) quoted him as saying that it was the right time to shop in Asia. Before the crisis, Semen Gresik was equal to US$500 per ton capacity but it was only US$100 per ton capacity after the crisis, the owner said. But what surprised me most was that Cemex finally bought it at only US$47 per ton capacity. This is a clear indication that there must be something wrong with the sale.
What is of no less importance is that the Semen Padang case also has something to do with things like history, traditional community ownership (tanah ulayat), and cultural ties between the community and the company that we cannot just ignore. Therefore if we want to be consistent with the Constitution, along with the effort to reveal the insider trading including the cheap price, and given the concern to the people's emotional ties, I just don't think selling the company will overcome the Semen Padang case.
Q: Is having the state running public companies better than privatization?
A: I should be very careful in replying because it very much depends on what kind of country and private company we are talking about. Taking a public company from an authoritarian and corrupt government and putting it into private hands would probably be better. But a democratic and transparent government would be much better than a corrupt, centralized private company whose headquarters are so far away from the country that it would be very difficult for people here to control it.
Besides, a state-owned company can also be managed like a private company. For example, the ownership is spread and it is bound with regulations obliging it to make periodic transparent financial public report in newspapers.
I don't think it would be a problem. The advantage of making the state in control of public companies is that citizens would have the democratic rights to control the companies -- assuming that we have a democratic government. But that would not be the case if the companies become private property.
What we should avoid is having both bad government and bad private companies.