Laksamana's delicate task

While President Megawati Soekarnoputri's decision to put the Indonesian Bank Restructuring Agency (IBRA) under State Minister for State Enterprises Laksamana Sukardi is welcomed by most analysts as a strategic move to speed up asset sales and corporate reform, the new policy also is causing misgivings among political parties.

The decision will reduce the burden of Finance Minister Boediono to enable him to focus on fiscal management but at the same time allow Laksamana to coordinate asset sales and corporate reform within IBRA with privatization of state firms.

But suspicions about the move are also understandable, given the deep-rooted nature of corruption in the country, extremely inadequate fiduciary standards in the public sector and upcoming general election in 2004.

That is because the decision practically put more than Rp 1,300 trillion (US$158 billion) worth of state assets, or almost as large as the nation's gross domestic product, under the supervision of Laksamana, a leader of Megawati's Indonesian Democratic Party of Struggle and one of her closest aides.

Even though Laksamana, a former private banker, boasts an impeccable record of high integrity and strong pro-reform stance, his being a confidante to the President could stand in the way of his crusade to accomplish his mission.

Needless to say, therefore, that Laksamana, but especially Megawati, should address the concerns over this potential conflict of interest early on, otherwise any move Laksamana would take to push through the reform measures would constantly come under suspect, notably among the major factions at the House of Representatives. A hostile public opinion environment would certainly make it hardly possible for him to accomplish his duty.

The most effective way of pacifying such concerns requires Megawati right from the outset to consistently uphold high standards of integrity and to act firmly against all forms of malfeasance. Perception of Megawati's integrity would go along way in strengthening public trust in Laksamana.

On the other hand, Laksamana needs to go all out to prove his clean slate by consistently maintaining high standards of accountability and transparency for all decisions he will make regarding asset sales, debt restructuring and state company reform. Both the ministry of state companies and IBRA are not short of technically competent staff. What they badly and urgently need is leadership with integrity and conscience.

Laksamana's job is already an uphill one even without being distracted by suspicisions from the public or other political party leaders as he is tasked with raising Rp 43.5 trillion or 15.2 percent of total state revenues this year alone.

He is under tremendous pressures to accelerate the recovery of the billions of dollars worth of assets under IBRA, either through sales or debt restructuring, not only to help plug the state budget hole but also to prevent the asset quality from deteroriation.

Expedited sales of the distressed assets is quite crucial to strengthen the budding economic recovery because without new investors these productive assets will remain underutilized and will eventually turn into total losses.

Accelerated restructuring of corporate bad debts is equally vital to help strengthen the banking industry because only after restucturing can these assets be returned to banks to regain access to new credit lines. Returning restructed debts to banks in exchange of recapitalization bonds not only will speed up the banking recovery by expanding their lending operations but also will help reduce state budget burdens for bond interest payments and future bond redemption.

On top of that, Laksamana has to conduct a lot of campaigning to convince the public, especially political leaders in provinces and districts, that reform of state companies, which can include such restructuring measures as sales to strategic investors, listing on the stock exchange or merger, is the best way to maximize benefits from the state assets. It is not ownership of assets but optimum earnings and other economic benefits from the assets that should be made the ultimate goal.

Laksamana needs to change the mindset among many political leaders who often oppose privatization as violation of nationalism even though many state enterprises have remained in operations only with subsidies from taxpayers.