Whipping up xenophobia
It is tragic to observe how politicians and local administrations in West Sumatra, East Java and South Sulawesi have whipped up xenophobia in a bid to block the privatization of state-controlled Semen Gresik.
Instead of demanding full transparency in the transaction process and good corporate governance on the part of the company, they have simply insisted that Semen Gresik and its three cement units cannot be sold to foreign investors, in this case Mexico's Cemex, and should remain government-controlled.
In another form of harassment of foreign investors, East Kalimantan Governor Suwarna has sued PT Kaltim Prima Coal (KPC) for US$766 million in damages, allegedly caused by KPC's procrastination in blocking the sale of 51 percent of its shares to Indonesian interests, as required by government regulations.
But it is no less frustrating to see that the central government has more or less sat idly by, allowing the anti- foreign-investor brigade to destroy investor interest in the country.
The central government did not intervene in the persecution of KPC by the East Kalimantan administration. The governor's stance on KPC is completely out of line.
True, the subsidiary of British-based Rio Tinto is required by its contract with the central government to devolve 51 percent of its shares to Indonesian interests within 10 years of commercial production. But the transaction should be conducted with or under the supervision of the central government, which awarded the contract, and should be based on a market valuation, otherwise it would simply be a nationalization of foreign assets.
Nor did the central government act firmly to defend its position after the local politicians and administrations and the management of the three cement units virtually revolted against the government in rejecting the latest plan on Semen Gresik's privatization.
Meanwhile, Semen Gresik's minority shareholders -- the investing public, which holds 23.5 percent, and Cemex, which owns 25.5 percent -- were simply ignored in the standoff between the central government and local administrations.
The government must have been fully aware that the motivation behind those opposing the privatization of Semen Gresik obviously had nothing to do with the interests of the local people. If it had, the local politicians would have demanded a stronger commitment by Semen Gresik to local community development and to other programs of public interest, such as better environmental protection.
One cannot be fooled by the subterfuge. It is quite clear that the management of the three cement units played a leading role behind all the fuss against the privatization. Their demand that Semen Gresik remain a state-controlled company was, in no way, prompted by a dignified sense of national pride. Their real aim was to retain the cement firm as their cash cow, fearing that if Semen Gresik were controlled by private investors, let alone foreign ones, they would be deprived of their "lucrative" deals with the company.
That almost all state companies in the country are poorly managed, grossly inefficient and widely infested by corruption is already common knowledge. This has further been confirmed by the independent performance audits on state firms, conducted as part of economic reforms in cooperation with the International Monetary Fund.
The government has therefore included privatization in its priority reform measures to help lead the economy out of its deep crisis. Even though raising revenue to plug part of the hole in the state budget is certainly one of the objectives, the main purpose of the divestment is to ensure the companies are better managed by private investors, thereby contributing more to the state through higher tax payments and dividends.
Since many state companies operate in upstream industries or provide public services, their higher efficiency will also contribute greatly to the economy in general. The privatization is thus based on the principle of benefits rather than on ownership.
It is needless to say that the government should work harder to convince local people and officials of the benefits of the privatization of state companies operating in their areas, respond positively to sensible proposals and conduct its divestment in a transparent and accountable manner.
But the central government should immediately crack down on any attempt by vested interests to stoke opposition to foreign investors in order to protect their interests. Xenophobia is simply not on. It has nothing whatever to do with the public interest.
The campaign by local vested interest groups to whip up opposition to foreign investors in order to protect their personal fiefdoms could have a devastating impact on privatization and even on the entire economy, which badly needs foreign capital to regain a sustainable recovery.