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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