State company management

We hope the government's pronouncement on the planned measures to strengthen the management of state companies will become reality this time. It is eight years since the issuance of Presidential Instruction No.5/1988, but not much has been done with regard to the reform of state enterprises. The latest figures show that almost 50 percent of the 178 state firms are still classified as less sound or unsound according to the parameters set by the finance ministry.

Last Wednesday Minister of Finance Mar'ie Muhammad talked again about the reform of state companies at a hearing of House Commission VII for finance and trade. He said that a regulation was being prepared to vest greater authority and autonomy in the managers and supervisors (commissioners) of state enterprises. Various studies have cited a lack of managerial autonomy and cumbersome decision-making processes as two of the main obstacles to improving the management of state firms.

Mar'ie's statement would be music to the ears of state company managers were it not for the fact that such a pronouncement has often been made in the past without any significant result. In June the director general for state companies made similar remarks, namely that the government was preparing a regulation which would give more authority to the boards of directors and commissioners.

But the managers of most companies still complain about being shackled by bureaucratic red tape. The directors of several state companies based in the provinces still have to spend many working days each month in Jakarta answering to ministers or directors general. This hurdle was admitted by Mar'ie himself when he said at the hearing that high officials should refrain from calling state company directors to so many unnecessary meetings and consultations.

State company managers are required by the finance minister to work according to the corporate plans already approved by the annual shareholders meeting. But in reality they are often hijacked by requests or directives from ministers or other powerful political lobbyists to do things which are in no way related to the corporate plans.

Mar'ie said at the hearing that if state companies are asked to compete on a par with private enterprises their managers should be given as much autonomy as their counterparts in the private sector.

All the ideals stated by the finance minister are precisely what are needed by state company managements to be able to perform effectively and efficiently. The problem though is that even though the finance minister acts as the government shareholder in all state companies, he is not the sole authority who deals with state enterprises. They also have to answer to the technical ministries which supervise their fields of operation. In many instances the directors general feel entitled to meddle with the state enterprises supervised by their minister.

The finance minister therefore should push harder to have the regulation on the granting of greater authority and autonomy to state company managements issued and enforced within the near future. As more and more sectors previously monopolized by state companies are opened up to private sector investors, state enterprises will simply not be able to compete with the private players if their hands remain tied by excessive bureaucratic interference. This would not only cause the government huge losses but would also have a detrimental effect on many other industries because many state enterprises operate in the upstream and mid-stream sectors, manufacturing basic and intermediate materials used by other companies.