Epitome of budget discipline erosion

Epitome of budget discipline erosion

The state-owned workers' social insurance firm PT Jamsostek
admitted Wednesday that it had spent Rp 3.1 billion (US$911,000)
of its budget to fund the deliberation of a manpower bill by the
House of Representatives. Thee Kian Wie, a senior researcher at
the Indonesian Institute of Sciences, discusses the issue.

Question: Minister of Manpower Abdul Latief had reportedly
instructed PT Jamsostek to allocate Rp 7.1 billion for the
funding of the manpower bill deliberation a few months ago and
the company admitted to spending only Rp 3.1 billion. Are state-
owned companies allowed to spend money for such an activity?

Thee: Such spending has been made inappropriately. If the
company spent the money on instructions from the minister, that
means the spending was made abruptly and was not planned before.
That is an example of an erosion of budget discipline. Violations
of budget discipline opens opportunities for the government or
government officials to put additional burdens on state firms,
which would surely hinder them from operating efficiently.

Do you think that other state-owned companies also receive
similar instructions from the ministers to whom they are
responsible?

Such practices are common among state-owned firms. They are
often instructed to finance government projects or programs which
are not mentioned in annual state budget plans. That increases
the burdens on state firms, which currently have to bear too many
responsibilities. They have had to allocate one percent to five
percent of their net profits to assist the development of small
businesses and cooperatives. How can they operate efficiently
then?

Jamsostek's president Abdillah Nusi said Wednesday that the
spending was sound because the bill, when enacted into law, would
guarantee better protection for workers. Workers' protection is
the mission of the company. Is such a reason acceptable?

I think it is only a pretext. There is a tendency among
government officials to think along the lines that the end
justifies the means or whatever they wish to do could be done and
certain unscrupulous government officials regard state companies
as "milchcows".

Jamsostek has also acknowledged that it had invested some
Rp 125 billion in five of the 16 liquidated insolvent banks. Was
that caused by poor management of shareholder investments?

That is quite questionable.

President Soeharto has instructed Jamsostek to allocate Rp 2
trillion of its investment funds for the development of small
businesses and another Rp 1 trillion for low-cost housing loans.
What do you think about such investments?

If Jamsostek and other state firms are not given autonomous
managerial rights, they will not be able to generate profits and
operate efficiently. There is actually an overlap in the
development of small businesses. Besides the one percent to five
percent portion of state companies' profits, other funds have
also been allocated for the development of small businesses. (Big
companies are required to "sell" a portion of their shares to
cooperatives and small businesses with payments derived from the
dividends that they will receive. Banks are required to allocate
no less than 20 percent of their loans for small businesses and
the Jimbaran group of large businesses are also demanded to
assist the development of small businesses).

What measures should be adopted to prevent the government and
state-owned companies from violating budget plans?

Laws should be established to oblige the government to make
expenditures in line with budget plans and to give managerial
autonomy to state firms so that their spending cannot be easily
influenced by ministries.

They must be in the form of laws, not government regulations.
Government regulations will not be adequate because they can be
easily revoked or replaced by other regulations at any time.

The rules must be clear and their implementation must be
transparent. The spending of state firms must be well planned and
should not be based merely on decrees of officials.

We must be disciplined. We are now undergoing an economic
crisis because we are not disciplined, not because our financial
sector has been affected by speculation from currency traders
like George Soros. The crisis is a punishment by market forces
and we must learn from it.

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