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Privatization blues in
Indonesia
By Tony Sitathan
JAKARTA - The Indonesian government has
officially announced that its privatization exercise for
several state-owned enterprises (SOEs) will be delayed
until the end of the Iraq crisis. However, several
analysts and economists argue that the privatization
exercise conducted by the government so far could be
delayed even further. So far it has met some resistance
and foot-dragging by legislators and certain segments of
the business community.
"With the world's
attention turning to the events unfolding in Iraq [and]
the epidemic caused by the SARS [severe acute
respiratory syndrome ] virus sweeping across Asia, the
delay in privatizing state-owned enterprises is indeed
timely if not beneficial to them in the mid- to long
term," maintained Febby Andraini, an investment analyst
with a state-owned bank in Indonesia. She also indicated
that market sentiments are weak, so delaying
privatization of SOEs does have its economic merits.
However, she also added that there was a growing
awareness among business leaders who are wanting a
greater voice in deciding which company falls under the
privatization hammer and what is the economic benefit of
privatizing state-run companies that are considered
national assets. "Some have begun to question the
rationale for privatization while others want greater
transparency in the privatization process," she said.
Indonesia is not the only country in Asia that
is grappling with the privatization issue. Malaysia and
Singapore are also courting privatization for some of
their nationally owned companies and are reducing their
government's stake in these companies. "Singapore has
started to realize that there are more pros than cons in
privatizing state run companies and under Temasek
Holdings, the government's investment arm, they have
taken an active role in their divestments and at the
same time to make them go regional and international.
Singapore Telecoms and the Port of Singapore Authorities
are two good examples," said S Ganesan, a regional
investment analyst with an international offshore firm
based in Singapore.
But can Indonesia follow the
example of its neighbors? Indonesia, with 13,500 islands
and a population of 230 million, is a different country
altogether with its own unique set of reasons for
privatization. Already the delay in its privatization
exercise is raising eyebrows with the international
investment community.
The Ministry of State
Enterprises has intentions to raise Rp8 trillion (US$880
million) in order to make up its shortfall in the 2003
state budget. Whether it achieves its target is another
question, maintained Ivan Lee, a senior economic
consultant with Axiom Consulting based in Hong Kong. "We
are seeing a budget-deficit situation already slowing
down public expenditure and hitting at
consumer-confidence indexes. There have been sudden
increases in water rates and public transportation
charges that would inevitably influence other consumer
prices down the line. Also there is some negative spin
to foreign investors taking a larger than preferred
share of state-run companies. We are already seeing some
political fallout to the Singapore Technologies
Telemedia acquisition of PT Indosat," he remarked.
Although the deputy head of the office of the
minister of state enterprises, Mahmuddin Yasin, had
earlier reported that the war in Iraq had temporarily
stalled the privatization plans of the government, he
did not comment about the negative impact of foreign
investors and their investments on SOEs.
Several
legislators, including former president Abdurrahman
Wahid, and prominent businessmen are vehemently opposed
to foreigners taking a majority stake in such industries
as telecommunications, broadcasting, finance and
defense-related industries. They have made recent
efforts to annul the 40 percent divestment of PT
Indosat's shares to Singapore owned ST Telemedia. They
have intentions to discredit the selloff and plan to
launch a public lawsuit challenging the divestment
directive by the Ministry of State Enterprises.
With several other state-owned entities such as
Bank Mandiri and pharmaceutical firm PT Indofarma slated
for privatization some time this year, and later Garuda
Airlines and even certain downstream companies owned by
Pertamina, there are some concerns that nationalistic
mood swings similar to those surrounding the sale of PT
Indosat might be detrimental to the overall mission of
the Ministry of State Enterprises and the SOEs it
represents.
According to an official from the
Ministry of State Enterprises, what was being planned
and done was in accordance to what was approved in the
General Assembly and even under the former
administration of president Suharto. "The
responsibilities of the ministry has since been mooted,
discussed and approved in parliament almost two years
ago and can even be traced back to the time of the
former minister of state enterprises Tanri Abeng who
served briefly during the time of president Suharto. So
why the sudden overreaction from those that say we are
selling away our national assets to raise money? We have
to open our highly regulated industries and embrace
globalization, and compete with our counterparts in Asia
failing which we would be left behind," he said.
"We are not just divesting their shares but are
gaining foreign talent, expertise as well as technology
in making us competitive in the long run. It also tells
foreign investors that we welcome them in Indonesia. We
need to look outwards instead of looking inwards," he
added.
Whether right or wrong, there are certain
high-ranking officials in the Ministry of National
Development Planning, which is assisting the Ministry of
Finance in fine-tuning its economic-development
policies, who have their reservations. In the past Kwik
Kian Gee, the state minister for national development
planning, has argued that Indonesia should opt out of
the International Monetary Fund (IMF) and not consider
renewing the agreement for IMF assistance when it
expires this year. He felt strongly that economically
Indonesia should be able to chart its own destiny
without any interference from the IMF, which has
stipulated that for Indonesia to qualify for IMF loan
packages, one of its prerequisites was to privatize
state-run companies.
There have also been
questions about the transparency of these sales of SOEs
to foreign investors as well as the repatriation of
funds back to the government's coffers.
Tommy
Usman, a former banker from Bank Dagang Nasional
Indonesia (BDNI), which like several others has been
absorbed by the central bank, Bank National Indonesia
(BNI), felt that these reservations by certain elements
of the government are indeed legitimate concerns. "There
have been allegations that several powerful individuals
profiteered during the sale of Bank Central Asia (BCA)
to Farallon Capital that was a front for Farindo
Investment with links to Farindo Holdings based in
Mauritius. Similarly, the sale of PT Indosat after the
due-diligence process and the closed tender was thought
to be more the work of powerful lobby groups that wanted
the Singapore party to win. It's hard to say how much
canvassing money was involved 'outside' the sale of the
telecom company and whether all proceeds of the sale
actually accounted for by the government," he revealed.
Should the government be more transparent in its
bidding process as well as be more selective in choosing
the right partners for SOEs? The call for greater
transparency in the government inner circle that makes
these divestment decisions would certainly be welcome
news for even the investor, especially for the foreign
investor who is unsure of the sense of corporate
accountability among those SOEs that have a reputation
for inefficiency despite a recent string of audits
conducted on several of them.
Five of the SOEs
reported that they saved as much as Rp7.4 trillion
(US$810 million) in operational expenses. They are the
toll road operator PT Jasa Marga; port operator PT
Pelabuhan Indonesia II (Pelindo); national carrier PT
Garuda Indonesia; telecommunications firm PT Telkom and
oil plantation firm PT Perkebunan Nusantara IV (PTPN
IV). The audit report was conducted by heavyweights in
the accounting field with the likes of
PricewaterhouseCoopers (PwC) and Hadi Sutanto & Co,
Arthur Andersen and Prasetio Utomo & Co, and RSM
International and Amir Abadi Jusuf & Co. PT Telkom
topped the list of SOEs that managed to save Rp5.2
trillion in operational costs from November 2001 to
December 2002.
Perhaps this is a small step in
the right direction for SOEs wanting to privatize. As
the Indonesian government grapples with the issues of
divestment and privatization of SOEs while balancing the
call for nationalism and protectionism, doing up its
books and offering greater transparency certainly helps
in the privatization crusade.
(©2003 Asia Times
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