Reforming state companies

Reforming state companies

Tanri Abeng, State Minister of the Empowerment of State
Enterprises, should be one of the busiest members of the cabinet
because he is in charge of managing almost 160 companies, with
combined assets of more than Rp 460 trillion (US$57.6 billion).
The problem is most of the companies have been poorly managed for
a prolonged period of time and shown very low rates of return on
investments and equity.

The magnitude and urgency of his task are such that the
revised reform package agreed with the International Monetary
Fund (IMF) early this month set 12 major programs of action which
Tanri is committed to seeing through within the next 12 months.

This task is obviously the bread and butter for Tanri. A new
recruit to the cabinet, he is a seasoned professional manager who
has demonstrated his abilities in both national and multinational
companies. Despite being well qualified, the task given to him
must be a daunting one given the fortress of vested interests
built up by bureaucrats from the technical ministries which
formerly controlled the state companies.

Many who still remember the government's concerted efforts to
reform state companies in the late 1980s might be skeptical of
Tanri's chances of succeeding in his latest role. After all,
Presidential Decree No.5/1988 on the reform of state companies
and numerous subsequent ministerial rulings issued to implement
the decree seem to have accomplished nothing. These rulings
remained virtually unenforced for the past 10 years, defeated by
the strong vested interests of the technical ministries which
used the companies as their cash cows.

But this time around there are several factors and
circumstances which, we think, will greatly help Tanri with his
assigned task. The economic crisis has opened the government's
eyes to the crucial role which state companies play. They are an
important source of revenue with which to finance necessary
subsides, the huge cost of bank restructuring and to offset
sharply deteriorating tax receipts. Furthermore, because many
state enterprises operate in upstream industries and public
services and utilities, their efficiency, or lack of it, greatly
influences the performance of downstream production ventures.

Another supporting factor is that Tanri is the first minister
over the past 30 years to be specially charged with reforming
state companies. Of no less importance is the fact that state
enterprise reform is an essential component of the IMF reform
package and will therefore be under intense public scrutiny until
the end of the year 2000.

Reforming state enterprises is a complex process which
requires that the profitability of companies be strengthened
through efficiency gains brought about by privatization or
merger and operational and managerial restructuring programs.

President Soeharto has decreed that a Management Agency for
State Enterprises should be established. The agency will provide
Tanri with the administrative machinery which he requires to
execute his task. Based on another Presidential ruling, 159 of
the 164 state companies are now directly under the management of
Tanri's office. The rulings abolished the many tiers of
administration and supervision which made state companies a
hostage to the interests of the various technical ministries in
one fell swoop.

The strong mandate these rulings vest in Tanri and the
technical advice available from IMF and the World Bank experts
have stacked the cards in favor of a successful outcome from the
new minister's point of view. Put another way, Tanri has now been
given what all professional managers desire, namely full
managerial autonomy.

Tanri's first recruits to his office include professional
managers from the private sector. The appointments are a clear
signal that he intends to immediately do away with bureaucratic
inertia and subordination. His action programs to establish a
clear framework for the management of state companies, a
privatization agenda, and the introduction of clear profit and
performance targets show that Tanri intends to develop a clear-
cut and transparent system with which to manage state
enterprises.