State company management

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.