MOF: Privatize SOEs through IPOs

The Jakarta Post, Jakarta

To fulfill its privatization target of Rp 3.5 trillion (US$368 million) focusing on state banks and mining companies, the government should sell them through initial public offerings (IPO), says a minister and analysts.

Minister of Finance Jusuf Anwar said on the sidelines of a joint hearing at the House of Representatives on Monday that the privatization of state enterprises would receive less opposition if it was done through an IPO rather than strategic sales to a limited number of investors.

"Through an IPO, shares of a state enterprise are sold to the public, not just to one strategic investor, such as Temasek or Farallon," he said.

Anwar added that by privatizing state enterprises, the government expected to cover its budget deficit, which is expected to reach Rp 20.3 trillion this year.

State Minister of State Enterprises Sugiharto said on Monday that the government would privatize some state banks and mining companies although he declined to give names due to capital market regulations.

Iman Sugema, an economist at the Bogor Institute of Agriculture, said the finance minister's proposal was sound as state firms' privatization through the IPO would maximize revenue for the government.

"Strategic sales usually result in lower prices compared to IPOs," he said in a discussion on the matter on Tuesday.

He added that sooner or later the government should sell most of its stakes in nearly all 166 state companies, except for those dealing with public services, handing over control of the day-to- day operations of the corporations to the private sector.

"The government has enough on its hands," said Sugema. "If they keep meddling in the affairs of state firms, it only increases opportunities for corruption."

However, he questioned why the suggestion came from the finance ministry. "The Office of the State Minister of State Enterprises should be the one taking the initiative."

Economist Umar Juoro of the Center for Information and Development Studies (Cides) also supported the idea of privatizing state firms, saying that the public would benefit from the increased transparency required of public companies.

For example, he said, the recruitment of directors and commissioners for state enterprises -- which currently is handled by a government team -- would be more professional and transparent if the companies were privatized.

"As it stands right now, there are a lot of gray areas in the recruitment process," said Juoro. (002)