Reform of state firms

Reform of state firms

We had almost resigned ourselves to the grim fact that
Presidential Decree No. 5/1988 on the reform of the around 200
state enterprises would meet the same fate as many other
government rulings that have remained largely unenforced.
However, the statements by Finance Minister Mar'ie Muhammad and
Minister of Trade and Industry Tunky Ariwibowo last week showed
that we were perhaps inordinately pessimistic. Their remarks
indicate that reform has been taking place though, in our eyes,
at a very slow pace.

Mar'ie said one of the reform programs being implemented is
the reorganization of several state enterprises under the
management of a holding company. This will improve their
efficiency. Another program is the merging of some state
companies like the merger between PT Semen Tonasa and PT Semen
Padang cement companies and the publicly-listed PT Semen Gresik.
Similar reorganization is being prepared for the four fertilizer
companies. The best of the reform programs so far has been the
floating of companies on the domestic or international stock
exchanges. Four enterprises have made initial public offerings
and three more plan to do so this year.

More encouraging news was announced by Tunky who said that an
overall deregulation of state enterprises was being finalized. He
did not specify what would be the scope of the deregulation but
we hope the core components are: a stronger managerial autonomy
for state firms which are assessed as still viable and vital to
public interest; the privatization of those which are not of
vital interest to the people; the liquidation of the ones which
are neither important to public interest nor commercially viable;
and accelerating the floating of viable enterprises either on the
domestic or international stock exchanges.

It is strange that state companies remain highly vulnerable to
intervention by ministers despite the introduction, in early
1990, of a vital element of a built-in supervision mechanism.
Each state enterprise has been obliged to make a five-year
corporate plan and to operate under an annual program based on
the plan. Under the scheme, only the finance minister, as the
nominee shareholder for the government in all state enterprises,
is supposed to assess the audited annual reports and evaluate the
performance of each company. After all, each company has a board
of commissioners to supervise daily operations.

It is nonetheless strange that even though the finance
ministry has a directorate general specially in charge of
administering and overseeing the policies of state firms, many
ministries still run separate bureaus in charge of state
companies. The ministry of agriculture, for example, has a
special bureau in charge of administering state plantation firms.

The multilayered administration and supervision have not
contributed anything to improving the transparency of state
companies. The report of the President's inspector general which
was leaked to the mass media recently showed how the minister of
transportation could so easily raise funds from state companies.

We were therefore are under the impression that the reform of
state companies had been hindered partly by the vested interest
of so many officials currently involved either in administering
or overseeing state companies. Take the reform of state
plantation companies, for example. After 30 state plantation
firms were realigned into nine groups in May 1994 as a first step
towards a merger, no follow-up measure has been taken.

In addition to providing managerial autonomy, the government
needs to tighten the selection of state companies to be
maintained. For example, we don't see any urgency for the
government to maintain the state trading firms. After all, the
responsibility for maintaining the price stability of essential
commodities has been carried out by the State Logistics Agency.