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.