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.