Krakatau case must not affect privatization plans

JAKARTA (JP): Indonesia must continue with its program to privatize state enterprises and secure badly needed foreign exchange, despite worries over the lack of transparency in the sale of steel maker PT Krakatau Steel.

Former finance minister Mar'ie Muhammad said the Krakatau case should not affect the privatization program.

Proceeds from the privatization program would help to finance the 1998/1999 state budget, which has been badly affected by the plunge in the value of the rupiah against the U.S. dollar, he said.

"If we can secure US$2 billion from the privatization program then that would be a very meaningful contribution to the budget," he told journalists on Friday.

The government plans to sell 12 state-owned companies in the current fiscal year and hopes to raise Rp 15 trillion ($1.2 billion) by doing so.

Mar'ie explained that the sharp depreciation in the rupiah had considerably inflated planned expenditure. The budget has allocated trillions of rupiah to subsidize the import of essential food items.

"Proceeds from privatizations can be used to cover some of the budget deficit," he said, adding that the deficit would be further worsened by last week's plunge in the rupiah, which surpassed Rp 15,000 to the dollar last week.

He stressed that the privatization process must be transparent and arranged in a way that ensured no company could "steal a march" in the competition to acquire state assets.

State Minister for the Empowerment of State Enterprises Tanri Abeng was recently accused of quietly trying to sell PT Krakatau Steel to Netherlands-based Ispat International.

Infuriated

The House of Representatives was infuriated by press reports of the accusations which quoted Krakatau's management.

Although Tanri later explained that it was not a final deal but part of the early stages of a 12 steps process which includes competitive bidding, some observers suspect that Ispat was trying to steal an early start in the competition.

Ispat's local partner is a company related to the former first family.

Despite Tanri's explanation, some House members urged the government to cancel the privatization program.

Tanri said the government would not cancel the memorandum of understanding signed with Ispat chairman Lakshmi N. Mittal on May 7, unless Ispat, which is listed as a bluechip company on the New York Stock Exchange, failed to undertake a due diligence process within 60 days of signing the memorandum.

He also said that investment bank Salomon Smith Barney, which had been appointed to advise the government over the sale, would soon invite 12 foreign steel companies to submit competitive bids for PT Krakatau.

The government has appointed nine overseas investment banks including Salomon to assist in the privatization process.

Tanri indicated that strategic foreign investors would be given a say in the management of the state-owned companies.

This may explain why some bureaucrats have been trying hard to thwart the privatization program, because for a long time they have used the state companies as personal cash cows, one analyst said. (rei)