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.