Helping small firms
Helping small firms
The government is going full steam ahead to accelerate the
development of small enterprises. In addition to the numerous
small business development programs already underway, a special
regulation is now being drafted which will oblige big companies
bidding for government procurement contracts to partner with
small firms. The number of small businesses or cooperatives in
partnership with big companies will be stipulated as one of the
requirements to be fulfilled for winning government procurement
deals.
But we wonder how the upcoming regulation, which is to be
signed by the President, will be more effective than
Presidential Decrees No.16/1994 and No. 24/1995 regarding the
same matter. State Minister of Cooperatives and Small Enterprises
Subiakto Tjakrawerdaya acknowledged many government procurement
contracts, which by regulation should have been awarded to small
firms, were often given to big enterprises. He said many tenders
for government contracts had been deliberately engineered so that
they would go to particular companies. Despite these blatant
violations, officials are rarely taken to court on charges of
abusing government contracts.
Governments often use preferential treatment under the state
budget spending as a tool to help develop small firms. Even the
Small Business Administration in the United States, known for its
full-blown liberal economy, provides preferential treatment to
small enterprises bidding for government procurement contracts.
The program in that capitalist country has been successful in
developing small firms to become medium-sized ones and incubating
micro-enterprises to become competitive small businesses.
Indonesian government procurements of goods and services
could contribute to accelerating the development of small
businesses. For the current 1997/1998 fiscal year, government
procurements of goods and services have been allocated Rp 8.8
trillion (US$3.5 billion) of the operating budget, up 35 percent
from Rp 6.5 trillion last year.
The concept of the programs in the U.S. and Indonesia is by
and large similar in that small firms are given price preferences
and more lenient payment terms, compared to those imposed on big
bidders. But the big difference lies in the implementation or,
more importantly, in the quality of the executors, meaning good
and effective governance. And this, as Subiakto himself
acknowledged, has been the very factor missing from the
enforcement of previous regulations favoring small businesses.
In fact, the annual findings of the Development Finance
Comptroller and Supreme Audit Agency have shown that malfeasance
in government procurement contracts has been one of the most
frequently committed violations of the state budget procedures.
So pervasive has corruption been within government procurements
that a former director general of state companies once said that
the first thing one should do to improve the public sector's
efficiency was thoroughly audit procurement contracts and examine
the suppliers to government offices and state enterprises.
Judging by the failure of the previous rulings, the new
regulation would be effective only if the government is more
vigorous and consistent in ensuring a transparent mechanism for
awarding contracts and in dealing firmly with officials who abuse
the tendering procedures. If the enforcement continues to be void
of malfeasance, the new regulation would benefit mostly fly-by-
night small firms which are sponsored by politically influential
people or officials in charge of government procurements.
The government should also see to it that the business tie-
ups between big companies and their small-business partners
should be based on long-term operations and not on ad hoc
arrangements simply to win particular contracts. Of no less
importance, despite the noble objective of developing small
enterprises, is to ensure that contracts are always awarded on
the basis of economic criteria. If not, government procurements
would be rendered grossly inefficient and ineffective in
nurturing competitive small businesses.