Good corporate governance vital for privatization: WB

Good corporate governance vital for privatization: WB

JAKARTA (JP): The negative perception foreign investors have
of Indonesia's corporate governance has hampered the
privatization of state companies, a World Bank official said on
Tuesday.

World Bank economist Bernard Drum said foreign investors
questioned the ability of state firms to adopt good corporate
governance as quickly as private firms.

"Those companies that get good corporate governance are going
to get the most investment," Drum said during a break in a
conference on good corporate governance hosted by the Indonesian
Chamber of Commerce.

He said it was a common perception around the world that state
enterprises were slower to adopt market changes, received more
pressure from political intervention and had more difficulty
improving accountability.

"The government has to release control (of state firms),
they'll have to let go," Drum said.

According to him, speeding up the privatization process would
itself create a better perception of Indonesia's state firms. Yet
much of Indonesia's private sector has fallen into the
government's hands as a result of the economic crisis, he said.

Aside from state enterprises, the government owns some Rp 600
trillion (US$68 billion) in nationalized assets under the
Indonesian Bank Restructuring Agency.

"When investors see the structure of the Indonesian economy,
and they see a large state control, it makes them nervous," he
said. "It'll make a big difference to foreign perception if the
government rapidly privatized."

Drum said Indonesia had made some progress in adopting good
corporate governance, evidenced by the fact there was increasing
public awareness of the need to implement these practices.

The recent establishment of the National Committee on
Corporate Governance, he said, showed the nation was earnest in
its efforts to adopt good corporate practices.

The establishment of the committee was part of the country's
economic reforms, as stipulated in the letter of intent the
government signed with the International Monetary Fund.

The committee formulated last May a code for good corporate
governance, which it expects will become the backbone for the
development of sectoral policies at the institutional level.

"Businesspeople need to understand that practicing good
corporate governance is for their own interests and not something
they do for the good of humanity," Drum said.

However, he said, foreign investors' perception of Indonesia's
corporate practices remained unchanged despite this new
awareness. "It's too early, perception is still bad as the survey
result shows."

Drum was referring to a 1999 survey by McKinsey & Co., which
ranked Indonesia as among the countries lacking good corporate
practices according to Asian and U.S. investors.

He said foreign investors were waiting for clear signals that
there was more than just an increased public awareness of the
need for good corporate governance. "Some very highly conspicuous
prosecutions for corruption would be very useful."

Prosecuting high-level corruption cases, he said, would show
the government was upholding the rule of law, which was mandatory
in ensuring good corporate governance. "There are threats (of
prosecution), but nothing has happened yet. The government needs
to send a message that it is serious."

The secretary to the state minister of investment and state
enterprises development, I Nyoman Tjager, admitted state firms
were slow to adopt good corporate governance.

"In making decisions, they (state firms) depend on the
shareholders -- the bureaucrats -- which is why they are slower
than private firms," he said during the conference.

However, Nyoman added, the government was adopting policies
aimed at improving the corporate practices of state firms. He
said these policies included the requirement of fit and proper
tests for directors.

Nyoman said his ministry also was planning to establish
performance incentive packages such as those found in the private
sector for the boards of directors and commissioners of state
firms.

Separately, Sofyan Wanandi of the National Business
Development Council said foreign investors were looking for
"safe, reliable, low-cost and profitable areas of investment,
with world-class services to investors who comply with the
principles and rules of good corporate governance".

However, he said, investors did not expect a sudden change,
but were looking for gradual improvements that demonstrated
Indonesia's seriousness and capability to change.(bkm)