Privatization needs tough hand, experts say
Privatization needs tough hand, experts say
Berni K. Moestafa, The Jakarta Post, Jakarta
Amid frequent run-ins with the regions and politicians, the
government must show greater determination in privatizing state
companies and break the resistance that blocks the process, say
foreign economists.
Chief economic advisor to the Rumanian government, Petrisor
Gabriel Peiu said that in privatization the government must be
able to take stern actions against those who oppose it.
Some governments simple reshuffled the management of state
firms that do not agree to being privatized, he said.
According to him, managers of inefficient state firms were the
most likely to resist privatization, as they often benefit from
corrupt practices within the company.
"The resistant management uses trade unions to revolt against
privatization," Gabriel told The Jakarta Post on the sidelines of
a privatization seminar held by business consultancy firm
CastleAsia on Monday.
Such managers might seek to discourage investors by presenting
them false company data, or try to delay privatization by
proposing restructuring plans that take up to 10 years to
implement.
"They also pay journalists to write against specific
investors," he added.
All of that does not seem that different from the situation in
Indonesia. The government has so far been progressing slowly with
its privatization program mainly due to local opposition.
Much of the resistance has come from natural resource-based
state companies operating in the regions.
Their divestment touches on sensitive issues like land and
revenue sharing of natural wealth between Jakarta and the
regions.
One example is the planned sale of cement maker PT Semen
Gresik to a Mexican company, which was already a done deal were
it not for fierce protests from regions objecting to foreign
control.
With the state budget running at a deficit, the government
needs the proceeds from its privatization program to help cover
the deficit.
Problems over the sale of state companies also sent a signal
to foreign investors of a bad investment climate in Indonesia.
With local investment down, the inflow of foreign capital is
seen as vital to revitalize the domestic economy.
World Bank chief economist in Indonesia, Vikram Nehru said the
government had earmarked part of its privatization proceeds to
pay foreign debt thereby reducing the burden on its budget.
But to make headway in its privatization program, the
government must have strong political leadership, he added.
This, he said, was necessary as in privatization the
government faces groups who stand to lose due to the process.
Such groups could be the corrupt management of state firms or
labor unions fearing mass lay-offs, he explained.
Nehru cited public campaigns and measures to mitigate the
social impact of mass lay-offs as important in a sound
privatization program.