NGO warns of unrestrained privatization of public services
The Jakarta Post, Jakarta
Selling state companies that provide public services may help Indonesia's economic reforms, but not necessarily the public who must let private companies treat them as consumers and the service as commodities, according to a report by a non-government organization.
Business Watch Indonesia (BWI) issued on Thursday its study on Indonesia's privatization program in the sectors of water, energy and health. But BWI pointed to more fundamental problems behind the privatization drive as a result of how the World Trade Organization (WTO) shaped global trade.
Testing the argument that privatization benefits consumers with lower prices and better services, BWI's report found that this had not been the case in Indonesia so far. The trend of privatization could likely be the opposite, it warned.
"Privatization sharpens and creates what is called 'an access divided society,' a society that is divided based on its ability to access public services that should have been accessible for everyone with the same opportunity," the report said.
Indonesia's privatization program began even before the 1997 economic crisis left the government with no choice but to deregulate and invite private capital into public sectors.
What began at a cautious pace, had to be pushed faster under the economic reforms program with the supervision of the International Monetary Fund (IMF).
BWI said that pressure made it difficult for the privatization program to balance the public's interests with that of private firms entering the state sectors.
An important downside effect of the privatization program was the full cost recovery principle, which requires the market to cover the cost of producing the service.
In Indonesia, the economic crisis sapped the government's ability to meet the growing demand for public services due to its unrestrained population growth.
Local government-owned water company, PDAM, has been selling water at prices below the production costs and must survive on subsidies.
Since private companies have entered the sector, demands have risen for the fees to be increased in order to improve services and infrastructure.
In the energy sector, subsidies provide the public with modest electric prices, but independent power producers have said they could not invest in more power capacity unless there is a price increase.
Indonesia's privatization of the health sector developed through decentralization, said BWI.
It said that the central government delegating its powers to local government required hospitals to become self sufficient.
"Through the concept of decentralization, it's just a matter of time before the entrance of the private sector. Because hospitals cannot become autonomous without a sound financial structure," its report said.
BWI attributed the pitfalls behind the privatization drive to WTO's failure to distinguish commercial and non-commercial services. This had the consequence that public services, even the most basic ones, were labeled as commodities subject to market forces.
And instead of competing with one another to drive prices down, BWI said, private companies here tended to work in collusion to control the price they charge to consumers.
The report referred to cases in other countries where privatization had not yet brought about lower prices or better services.
BWI said Indonesia's reliance on foreign debt was a problem in assuring that the privatization program developed in conjunction with the public's interest.