Opposing divestment
The mounting opposition from the House of Representatives and the lingering political controversy over the recent sale of the government's majority stake in PT Indosat telecommunications company could jeopardize the asset recovery programs of the Indonesian Bank Restructuring Agency and privatization of state companies (SOEs) and consequently threaten fiscal sustainability.
An increasing number of House members of Commission IX in charge of state finance, banks and state companies have warned they would simply refuse to hold consultations with the government about privatization and divestment at nationalized banks until a law on SOEs was enacted.
Yet more flabbergasting is that while even the status of the bill on SOEs has remained uncertain, several House members have demanded that government divestment programs be governed by a privatization law.
If this position became the official stance of House Commission IX it could immediately cause a revenue shortfall of Rp 20 trillion (US$2.2 billion) or increase the current state budget deficit by almost 58 percent to Rp 54.5 trillion. Such a political stance also would be quite absurd because privatization has been accelerated since 1998 on the basis of the decrees of the People's Consultative Assembly, the highest legislative body, the Law on National Development Program and the annual state budget that has to be approved by the House. No one denies the imperative need for better and stronger legal frameworks such as special laws to govern state companies and privatization. But abruptly stopping the whole program now at a time when the government is almost broke, overburdened with hundreds of billions dollars in domestic and foreign debts, is entirely irrational.
Such an attitude also seems inhumanly arrogant and ignorant of the plight of millions of people who have been suffering from dire poverty since the onset of the 1997 economic crisis and the millions of children who have been deprived of even simply basic education and health services.
Are the House members so intellectually ignorant of the blunt fact that without a faster pace of privatization and sales of assets held by IBRA there will never be a virtuous cycle to fuel a sustainable economic recovery?
Aren't the House members aware that the government, perceived to be one of the most corrupt in the world, now controls and manages all the largest national banks and thousands of other companies taken over from closed and nationalized banks?
One does not need to be a genius to realize that the longer these assets are under the government, the worse would be their quality and the slower would be the recovery of the banking industry as they will remain highly inefficient and vulnerable to corruption and collusion.
The findings of independent audits of dozens of SOEs over the past two years showed how grossly inefficient had been those state companies, how lax had been their internal control, how poor had been their accounting standards and practices and how arbitrary had been government or senior officials' interference into their day-to-day operations.
True, as some analysts have argued, as long as the government remains largely corrupt, privatization would not solve the problems of SOEs. However the empirical experiences in most other countries have shown that privatization brought in additional revenues to a cash-starved government to enable it to cut down debt burdens, thereby releasing more resources for the public's welfare.
More important too is that privatization is also greatly effective in reducing rent-seeking activities of government officials since private shareholders have more leverage to stand up against political pressures from officials with vested interests and in improving macroeconomic efficiency through the creation of a more competitive market. Its microeconomic benefits are equally manifold, including more efficient and consequently more profitable enterprises, larger tax revenues for the state, a significant increase in investment to create more jobs.
Fears that without strong regulatory and competition frameworks the privatization program would bring the national economy under foreign domination are overblown because the government always retains its sovereign rights to regulate all economic activities and all other areas affecting the economy.
The country could not afford the luxury of stopping the privatization program because we are now in the midst of a deep crisis whereby the economy continues to bleed and the number of people falling into unemployment and absolute poverty is increasing daily.
Instead of demanding a special law to govern privatization, a process that could take more than one year to prepare and deliberate, the House should require the government to formulate a credible strategy for SOE reform and privatization and to stipulate clear-cut directives, standard operational procedures and a step-by-step process for divestment to ensure highly accountable and transparent transactions.