Floating state firms
Floating state firms
Minister of Finance Mar'ie Muhammad was quite right in his
observation on Tuesday that listing on domestic or international
stock exchanges is the best mode of privatizing state companies.
Public offerings of shares ensure fair prices for state assets
through open market forces, place tough disclosure requirements
on the companies, protect them from excessive, direct government
intervention and make their managements highly accountable and
transparent.
Public share offering is one of the seven measures allowed by
Presidential Instruction No.5/1988 regarding the reform of state
companies to improve their efficiency.
Divestment through private placement, as done with some state
companies a few years ago, is highly vulnerable to political
lobbying as the mechanism is not transparent. Other modes -- a
change in legal status, management contract or joint ventures
with private companies, merger and organizational restructure --
are not so effective either. These measures are incapable of
removing the biggest obstacles currently faced by state companies
-- contradictory missions, excessive government intervention and
lack of transparency and public accountability.
As long as state companies remain shackled by excessive
government control their managements will never be able to work
on the basis of viable, long-term corporate plans because they
are vulnerable to sudden interventions either by the finance
ministry, which acts as the nominee shareholder for the
government, or by the ministries under which they operate.
Recent disclosures of the way the minister of transportation
allocated and used funds from PT Garuda Indonesia airline and
several other companies under his supervision, and how the
minister of tourism, post and telecommunications took funds from
PT Telkom showed how ministries, faced with limited budgetary
appropriations and restricted by tight budgetary procedures, have
used state companies as cash cows. These practices have been made
possible by the extreme lack of managerial autonomy on the part
of the boards of directors. No wonder the reform of the 178 state
companies which was instructed by the President in 1988, has been
so slow. There are many vested interests which strive to maintain
direct control of state assets.
However, state companies which are listed either on domestic
or international stock markets, though still majority owned by
the state, are subject to stock exchange regulations on
disclosures, public accountability and decision-making mechanism
through open shareholders meetings. These rules and requirements
will make it rather impossible for the government, despite its
majority shareholding, to force its interests onto the companies.
Of more importance is that the managements will have clear-cut
operational directives and targets against which their
performance will be assessed in a transparent manner.
The problem, though, is that state companies should first
become financially sound to qualify for listings on stock
exchanges. Official reports from the finance ministry showed that
only 92 or 51.7 percent of the state companies audited were
deemed financially sound in 1995, while the other 86 or 48.3
percent were classified as unsound or "less sound". So far only
four state companies -- PT Semen Gresik, PT Telekom, PT Indosat
and PT Timah -- have privatized through stock exchanges.
Therefore, if the government is really serious with its plan
to improve the efficiency and performance of state companies it
should accelerate their reform through concerted efforts on two
fronts: speeding up the preparations of sound companies for
public listings and at the same time consolidating or
restructuring the unsound ones or, if economic imperatives
dictate, even liquidating those which have no commercial
viability nor serve the basic needs of the people.