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.