Indonesia Inc.

The quick decision by the government to appoint a new supervisory chief for the 155 state companies should be welcomed as a move which will, at the least, immediately put an end to the atmosphere of uncertainty which has prevailed ever since the disbandment of the ministry of state enterprises during the recent Cabinet reshuffle. But we remain skeptical as to whether the move will be sufficient to kick start a process of real reform in state companies.

In fact, after President Abdurrahman Wahid abruptly fired the well-respected Minister of State Enterprises Laksamana Sukardi in April in an extremely ill-advised decision, we have been pessimistic as to whether the government will ever be really serious about reforming state companies.

The new chief economics minister, Rizal Ramli, announced early last week, or only two days after his installation, that he is now taking direct charge of state enterprise supervision, making him the fourth person to hold this position within a period of only 30 months.

Rizal himself seemed to be fully aware of the public's tendency to be suspicious of anyone charged with the responsibility of overseeing state companies, which for more than three decades were used by former president Soeharto, his family members and cronies as their cash cows. Rizal said that the government would soon set up a new governing body, coming under his office, to supervise state enterprises.

But no details were immediately available as to the responsibilities and job description of the new body. Rizal only said that it would consist of the Cabinet ministers who regulate the sectors in which the majority of state firms operate.

Those who have followed the progress of state sector reform programs in the past are obviously dubious about the government's seriousness in improving the competitiveness of state enterprises. There are too many conflicts of interest and too many politically well-connected rent seekers competing with each other to milk the huge assets of the state sector.

Since the efficiency of state companies is so crucial to the health of the economy given the fact that they operate in the areas of public utilities, services, basic infrastructure and upstream industries, international creditors, notably the World Bank, have from the outset made state enterprise reform one of the top priorities of their aid programs. But little more than lip service has been paid to this ideal due to an absolute lack of political will on the part of the government and too many short-term interests on the part of our political leaders.

The International Monetary Fund-led bailout program for Indonesia includes independent audits of state companies as a first step towards comprehensive reform. Two of the first audits to be conducted, namely those on Pertamina and the State Electricity Company (PLN), only confirmed the general suspicion of how those companies had been recklessly milked by those in power.

Tanri Abeng, the first minister appointed by then president Soeharto in March, 1998 to oversee state companies, planned to establish a holding company to manage the 155 state companies. This was to be modeled on the successful Temasek Holdings Co. in Singapore and Khazanah Holdings in Malaysia. But the plan fell apart due to strong opposition from both the IMF and the World Bank as the model that Tanri had designed, instead of minimizing excessive government intervention in daily management, would have served only to further diversify Soeharto Inc.

Laksamana Sukardi, who took over from Tanri Abeng in late October, 1999, acted immediately to tackle the root problem. He focused on building up a system that protected management from political intervention, recruited directors based upon a fully transparent fit-and-proper procedure, required them to produce business plans and made them fully accountable for their performance. He also emphasized the preparation of as many state companies as possible for public flotation, not so much as to raise revenues for the government, but rather to expose them to the stringent disclosure and accountability requirements of publicly listed companies.

However, Laksamana ruffled too many feathers, prompting President Abdurrahman to fire him in a controversial decision that spooked the market, damaged investor confidence and emboldened the House of Representatives to exercise its interpellation right to summon Abdurrahman so as to explain his decision. The reform program came to a virtual halt under Laksamana's successor, Rozy Munir, who got his job only on account of his close personal relationship with the President.

We fear that Rizal in turn will also prove incapable of making any significant difference as long as the government, notably the President, is not really committed to providing state company managements with full operational (managerial) and financial autonomy within a framework of accountability. State enterprises will remain inefficient and highly vulnerable to corruption and rent-seeking practices by those in power, thus adding to the inefficiency of the economy as a whole.