Whipping up xenophobia

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.