How to manage or mismanage state companies

Some say politicians would be able to practice what they preach if they controlled state firms, while others raise warnings of worse inefficiencies. The Jakarta Post talked to political economist Revrisond Baswir of the Gadjah Mada University in Yogyakarta, the director of the Institute of Development and Economic Analysis and newly appointed deputy for economic rights at the State Ministry of Human Rights Affairs. An excerpt of the interview follows:

Question: Politicians have reportedly agreed that the Muslim- based "axis force" can take over finance-based state firms while the Indonesian Democratic Party of Struggle (PDI Perjuangan) and the National Awakening Party (PKB) can control others. How do you see this development?

This problem should have been anticipated when the Cabinet was being set up; the scramble for state run firms had already started in the competition for Cabinet seats. The National Mandate Party (PAN) insisted on controlling the finance ministry while (current minister) Bambang Sudibyo had actually admitted he might not be the right man for the office.

This indicates pressure from the axis force to hold a certain post with a certain target, including the control of a finance- based state firm.

Another very strategic post in the Cabinet in regards to controlling state firms is controlled by the PDI Perjuangan through the installment of Laksamana Sukardi (state minister of investment and state enterprises development). PKB is also represented here through the ministry's secretary (Rozy Munir).

The scramble for ministry posts has turned out to be a race for access to state firms. This was reflected through the issuance of a government regulation stipulating the control of state firms under Laksamana's ministry.

Of course PAN and the axis force protested this regulation and five days later a new regulation came out, revising the previous one, containing a kind of "sharing" of the control over state firms by the finance ministry and the State Ministry of Investment and State Enterprises Development.

Do you agree that the rivalry is part of political party efforts to collect funds ahead of the next general elections?

That is still debatable. What is certain is that if a state firm is controlled by a certain party or political force, it will have access to facilities from the state firm. If a party controls a state bank, for instance, its easier access to credit will benefit campaign activities -- this was reported to been have done by the People's Sovereignty Party (PDR).

A state firm can also be directed to buy (goods and services) from supporters of a political party; in its marketing, a state firm could also be distorted by nepotism tied to a political force.

If, for instance, the state oil company Pertamina was controlled by a certain party, gas stations could all be controlled by that party. So this is more of an effort to control economic assets which can then be used to buy political support, which indeed is not a straightforward case of corruption.

Such things can happen because the internal processes of a state firm do not have to pass the House of Representatives.

In the case of selling (the firm) or privatization, nepotism is possible if a political grouping controls a state firm.

Again, if a state enterprise is controlled by a political party, privatization or selling can not take place in conditions of pure market competition.

For instance, if a state firm is controlled by the axis force, there would be a tendency to sell shares to business parties which support that force. Then we might not get the best price because the market process would be hampered.

Is such rivalry inevitable in a multiparty system?

This is more of a problem during the transition from a corrupt system of government. Under the New Order, state firms were cash cows for corruptors close to those in power and the ruling Golkar party.

When the regime collapsed, of course new powers, which were not limited to one party, saw a chance to occupy those posts. So I think this is a transition to ... good governance.

There should be clear distinction between political posts at the Cabinet level with those in state firms, which should be occupied by professionals with no political ties.

With no clear rules, even if we had a two-party system, the ruling party would have the opportunity to control all state firms and put all their people in the companies.

This happened during the New Order, whereby state enterprises were filled with Golkar people or those loyal to Golkar. A change of power would be followed by a change of all the people in the state firms and their performances would clearly be disrupted.

It seems that each minister automatically becomes a commissioner in a state firm.

Yes, that's the New Order style. The government does not have to be represented by a minister in a state firm. It is not clear what the government's consideration was in appointing A or B as a commissioner in this or that state firm. Was the post to be shared by ministers, first echelon officials or military officers?

In the New Order the post of state company commissioners was likely part of the economic pie allocated to civilian and military cronies. This tradition of appointing commissioners from officials should be stopped.

The post of commissioner has become an additional post (to officials) and a source of more incentives to those in the government and bureaucracy, from ministers to director generals.

We must question whether it is acceptable to give incentives to officials by appointing them state firm commissioners.

In the New Order a retired officer was at least likely to become a commissioner at a state company. What do retired generals know about business, or state banks?

The same thing could happen if political parties were to control state firms, with a party secretary general becoming a commissioner. He wouldn't really know what a commissioner is supposed to do; commissioners here have often been swindled by directors. Many commissioners only care about their annual bonus.

How should we start building a good recruitment system for important posts in state companies?

This is the task of President Abdurrahman Wahid. He must lay the foundations of professional management in state firms. Political parties can control Cabinet posts but this political process must be separated from state firms. The government must also create a transparent recruitment process for state companies and formulate a set of clear criteria for the concerned posts.

I disagree with the statement by minister Laksmana who said it was not a problem whether state firm executives come from political parties or not, and that what was important was that they were professional. What's more important is whether the process (of appointing executives) is transparent.

The recruitment of managerial posts in state firms must be subject to fair and open competition on the basis of merit, regardless of whether the person comes from inside or outside the state company.

The post of commissioner can be controlled by the government as a consequence of it being the majority shareholder. But there still must be a set of clear criteria or rules regarding the post of commissioner. The problem is whether officials can also become state firm commissioners. The government needs to convey at least the need for the above criteria to the House of Representatives; (the issue) is not about the individual to be appointed.

Has rivalry among political parties made it more difficult to wipe out corruption in state firms?

That's our problem. The nepotistic political process has happened since the set up of this accommodative Cabinet. Almost all political factions, the so-called guarantors (of proposed ministers) were involved in its establishment.

Each faction arbitrarily chose its person as minister, as long as he or she could be controlled. The initial motivation was already nepotistic. One can say this is normal; a minister holds a political position. The problem is not that simple, because with the entrance of most political factions in government, the control function of the House becomes greatly ineffective.

Now it's not only political parties eying state firms. Pak Amien (Rais, Speaker of the People's Consultative Assembly and the men identified as leader of the axis force) has put his people into ministries, and this was not merely because the people are from PAN (which he chairs) but also because they are from the same university. Two ministers which he proposed, finance minister Bambang and national education minister Yahya Muhaimin are fellow alumni from Gadjah Mada University.

I think others are doing similar things; ministers are influencing the promotion of first echelon officers who are from their own organization, schools and universities, regions, etc. So it has become quite complicated ... wiping out corruption will likely be very slow, not only in state firms.

Can the President settle all this, given that he seems relatively independent from political parties and the axis force?

That's true, but we can only depend on the good will of Gus Dur (Abdurrahman) and the government to stop this rivalry over state companies. Nepotism is acceptable in the Cabinet but not in state firms and the bureaucracy.

The problem is that the President himself lives in some inner circle. To appoint state firm directors he needs input from people around him. Who can guarantee that the appointment is objective, whether it is based on professionalism or nepotism?

If the President wishes to free state firms from politics he could form an independent body to mediate the firms and the government. The agency would watch over the succession of managers and commissioners on the basis of professionalism.

What should be the policy over state firms?

This relates to the government's need to cover its budget. Basically (this can be done) through privatization, or selling or liquidizing the firm. If a firm is privatized or if part of its shares are sold, the government can still expect profits if the firm's performance is good.

I would advise that the government promote privatization instead of selling state firms. Privatization should aim at making the firms healthy.

What is the most basic constraint in the contributions from state firms?

Corruption. Again, it doesn't matter whether the firm is to be privatized, if it's to go public or to be sold to foreign parties. The most important thing is how to stop corruption in state firms, or at least reduce loopholes so corruption is kept to the minimum.

If the government can cleanse state firms of the pirates of state money, professionalism will follow suit. An end to corruption could save up to at least 30 percent of funds in state firms, which would greatly help increase revenue ...

Now this political party rivalry is a new form of corruption affecting state firms. How can you wipe out deeply ingrained corruption when you find the corruptors are friends or school mates, or from the same kampong as the new rulers of the firm...?

I can only warn the President that if the (rivalry over state firms) continues unabated, even more state assets may go down the drain compared to the former era. While in the past (corruption) occurred due to a monolithic power, now power is spread but it is still corrupt ...

How large are state assets?

About Rp 300 trillion. In the New Order, returns on assets declined from one year to the other. From around 4 percent to 2.1 percent in the last year.

Just imagine ... the interest of dozens of percent to be expected if we had invested the money in the bank ... now we only get an interest of two percent (of the above amount).

And not all of it enters state coffers because we have to pay this and that, leaving little profits to the state.

Then there's the bankrupt firms asking the government for subsidies of trillions of rupiah, like Pertamina. In the end the funds from the state budget channeled to state firms could be larger than the revenue from the firms.

The issue here is whether we expect contributions from state firms by improving their performances, or do we just wait for the results from the sale of state assets. That's a matter of choice. It's easy to sell, but then we would no longer have anything. They key is to clean up corruption in state firms, which will encourage improved performance.

Now, about you being recently recruited to the State Ministry of Human Rights Affairs

That's still being processed (although) the decree from the minister has already been issued ...

What is the job of the deputy for economic rights?

It basically concerns economic rights such as the right to fair and decent wages, the right to a decent livelihood for citizens, the right to strike, the right to special leave for women, equal treatment and so on. I will work with other experts on law, gender, economy, politics and the military.

What will your priority be?

Economic rights are not well known so I will first introduce them to the public. For that purpose I'd like to work with nongovernment organizations (NGOs) who have so far worked on human rights; I also come from the International NGO Forum on Indonesian Development (Infid).

Haven't NGOs so far been largely noncooperative with the government?

They can be at a distance from the government, but it's not taboo to have governments working hand in hand with NGOs. This can be seen as a proactive step by the government in approaching NGOs, discussing their findings and opening up to their inputs. The government need not wait for their pressure to absorb their findings.

Is there any relation to the fact that both you and Hasballah are from PAN?

I have been PAN's foremost critic recently so I don't know (of any relation). Many in PAN don't know I've become a staff member at the ministry. I don't know pak Hasballah personally yet either. There was speculation that Hasballah wanted PAN people in his office, while expert staff cannot be from political parties. So he asked for a list of civil servants of a certain grade and made a selection from it (Revrisond teaches at the state-run Gajah Mada University).

My friends said it would be best to take up the offer; Hasballah was also from an NGO so they suggested it might be better to accept the post rather than have some person from nowhere take it ... (Asip A. Hasani)