Whither privatization?

We cannot find any conducive economic and political factors that could have prompted the government to more than double its revenue target from privatization to Rp 8 trillion (US$920 million) for the 2003 fiscal year from Rp 3.9 trillion this year.

The government seems highly optimistic nevertheless, stating in its 2003 budget document that three more state companies -- Bank Rakyat Indonesia, PT Adhi Karya and PT Pembangunan Perumahan property developers -- would be privatized, in addition to the two dozen which the government has been trying to be sell without success since 2000.

Yet there has not been a single privatization deal that could have built such great confidence to prompt the government to set such an ambitious target. Nor has there been any progress in the economic, social and political situation to support the accomplishment of such an uphill task.

Still more discouraging is that there has not been any improvement in the leadership of the government, especially at the office of the state minister for state enterprises, nor at the House of Representatives that would accelerate the privatization program.

The government has since 2000 put out an impressive annual list of around 12 state companies to be sold but virtually none of them have been privatized in the real sense. The program has been bogged down by inadequate preparations, resistance from management or trade unions and opposition from the House, which seems inordinately afraid that the national economy will be dominated by foreign interests.

The government even succumbed last October to the opposition of the management of PT Semen Padang and the West Sumatra administration to the sale of Semen Padang's holding company, state-owned PT Semen Gresik, to Cemex of Mexico.

The failure of what could have been a great confidence- building deal cost the government $520 million in potential revenue. Yet the biggest damage was the loss of a great opportunity to have Semen Gresik, the country's second largest cement group, extensively reformed by and linked in synergy with the world's third largest cement company.

Even more mind-boggling was that the government simply sat back and relaxed when the West Sumatra administration and legislative council unilaterally decided to put Semen Padang under their control last October.

State Minister for State Enterprises Laksamana Sukardi virtually did nothing to intervene after publicly traded Semen Gresik failed to have the recalcitrant management of Semen Padang replaced through an extraordinary shareholders meeting.

No wonder, therefore, almost all banks have now shunned the rebellious Semen Padang as a high-risk enterprise, driving it to the brink of defaulting on its debts to domestic and foreign creditors and also putting Semen Gresik's credit rating at a great risk of being degraded.

The government slashed the target of its privatization revenues to Rp 3.9 trillion this year from Rp 6.5 trillion last year. But again not a single cent has so far been raised from privatization. It did collect Rp 2.1 trillion as of this month but that was derived from additional sales of Indosat and Telkom shares.

But these sales cannot be defined as privatization in the real sense because both companies have been traded on the domestic and foreign stock exchanges. Moreover, the sales covered only a tiny portion of their shares, not majority sales that would allow new investors to take control of management.

Privatization should amount to more than raising revenues. Most important is to unshackle state companies from the grip of corruption and inefficiency and put them into the hands of highly credible investors capable of reforming the companies into profitable and competitive businesses.

The inordinate concern about the possibility of our economy being dominated by foreigners or of shifting state monopolies into private businesses is simply a subterfuge by vested interest groups to maintain the public companies as their convenient cash cows.

Even though state companies are divested to private investors, domestic or foreign, they have still to abide by Indonesian laws and regulations regarding tax, labor, the environment and laws on antimonopoly and unfair business practices as well as numerous other business regulations.

Needless to say, it is now imperative that the government demonstrate strong leadership for the privatization program and go all out at convincing all the stakeholders of the great benefits of the program.

Most of the around 145 state companies operate in businesses that can be more efficiently run by private investors. And the government may not always realize that it now indirectly owns thousands of other companies, including all the largest national banks, through the Indonesian Bank Restructuring Agency, which took over those assets from insolvent or nationalized banks.

Owning companies that are inefficient and corrupt do not contribute anything to the public welfare but benefit only the vested interests. But profitable, efficient private enterprises which practice good corporate governance bring about multiplier effects on the economy and the people through tax payments, employment, exports and the development of suppliers, distributors and other related businesses.