Sat, 29 Oct 1994

Privatization needs firm working relationship

JAKARTA (JP): An effective and clear-cut working relationship within management systems in an absolute must in the process of privatizing state-owned companies.

This is particularly true in terms of authorization and allocation of authority for decision making, a noted corporate lawyer commented yesterday.

"There must be a formal regulation for top-down working relationships in the state-owned companies," Prof. Dimyati Hartono said yesterday.

There must be an explicit basic regulation, governing the authority, as well as the responsibility of every management level, he told The Jakarta Post.

Citing an example of the Rp 1.3 trillion (US$620 million) loan scandal at the state-owned Bank Pembangunan Indonesia (Bapindo), Dimyati said that the debacle would not have happened if the bank's directors had made a legitimate decision to extend the loan to businessman Eddy Tansil.

"The bureaucracy was involved far too much in the bank's business policies," he said.

Dimyati, who was formerly an expert staff member to the Minister of Tourism, Post and Telecommunications, said there are two types of state-owned companies in practice; the public company (Perum) and the limited company (PT).

He said either type has its directors under the government's supervision and control.

In a public company, the directors must obey the decisions made during the company's shareholders meetings, while in a limited company, they must obey the company's statutes, which constitute a collection of rules set out by its board of commissioners, Dimyati said.

He said he could understand the difficulties the Bapindo directors encountered in approving or rejecting Tansil's loans.

"Lawfully, they could not reject a minister's call for banking policy changes," he said, adding that in such a case the minister was virtually the bank's "owner and shareholder", as well as the one who appointed them as directors.

Furthermore, there was a letter of reference from a top government official, which more or less influenced the directors' decisions, he said.

Dimyati, also a member of the board of commissioners at the state-owned telecommunications company (PT Telkom), said two factors, productivity and consistency, should be taken into consideration in the privatization of state-owned companies.

A state-owned company, which plans to go public, should see to it that the privatization results in the high level productivity of the company with a lower price for the company's products, he said.

The effect should not be the opposite, in which a state-owned company sells its products at higher prices than before it went public.

Also, he said, the state-owned company must be consistent in dealing with foreign investors.

"Based on my experience, managements often have broken agreements they reached with partners," he said. (imn)