An alternative to privatization: Clean govt

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.