ASEAN can help public buy
privatization By Gary LaMoshi
DENPASAR, Bali - When ASEAN leaders meet in Bali
for their annual summit starting October 7, expect the
continuing tug-of-war with Myanmar's ruling junta over
opposition leader Aung San Suu Kyi to grab the
headlines. Also count on the Association of Southeast
Asian Nations to give a farewell kiss to Malaysian Prime
Minister Mahathir Mohamad, who made enemies mainly
outside the region. The now ritual denunciation of
terrorism may have a new twist thanks to the US invasion
of Iraq, the collapse of the latest Israeli-Palestinian
peace initiative, and the pique of Indonesia, the
Philippines, and other member states that want a crack
at alleged Jemaah Islamiya mastermind Hambali, being
held in United States custody at an undisclosed
location.
ASEAN may have a useful role to play
(though only if it does more than talk) in these areas.
However, with nothing more than talk, the organization
can play a useful role for members and stake out a
global leadership position on privatization of
government-owned enterprises.
Privatization has
all the sex appeal of a summit group photo in swimsuits,
but the issue is becoming more important and
controversial in member states. Active involvement from
ASEAN can help governments overcome resistance to
privatization by stripping away the local political
dimensions to cast the issue in favorable terms.
Iron Lady and family silver There are
a lot of things not to like about privatization. For one
thing, former British prime minister Margaret Thatcher
is the godmother of the phenomenon of selling state
enterprises to private investors for cash. To many
citizens, it seems that privatization is abandoning a
function that is in government hands for good reason and
should not be subject to the pressures of producing
profits. (And there are some, such as police services,
that should remain state functions.) In cases where
state enterprises make money, it seems politicians are
selling the family silver for selfish, shortsighted
reasons.
ASEAN governments tend to justify
privatizations as means to narrow budget gaps.
Indonesia, for example, aims to raise Rp6.1 trillion
(US$720 million) this year and more than a $1 billion
next year when it leaves its International Monetary Fund
program and loses concessionary loan terms that come
with it. This year's goal, scaled back from Rp8
trillion, remains nearly 60 percent unfulfilled.
Indonesia's attempted sale of its largest cement
company, Semen Gresik, to Mexico's Cemex has been a case
study in all that can, and too often does, go wrong with
privatization these days (see Indonesia gives up privatizing another
asset, September 16). Failure to close the deal,
five years in the making, cost the Indonesian government
$525 million.
Competing interests The
Semen Gresik deal failed because entrenched management,
local politicians, and the labor force combined to
derail it. Those groups fear, often rightly, that they
will lose from privatization. The case needs to be made
for those who have something to gain.
Opponents
of privatization like to focus on investors as the
beneficiaries. These villains, preferably foreigners or
multinational corporations, want the business only for
the profits they can disgorge, without consideration of
the costs to local citizens.
What opponents
neglect is that continued state ownership routinely
carries considerable costs to local citizens. Taxpayers
foot the bill for money-losing state enterprises, their
bloated management, inefficient labor, and generosity to
political patrons. State ownership often entails
monopoly; at the very least it creates an unfriendly
atmosphere for competition featuring conflicts of
interest between regulators and state enterprises that
ultimately have the same boss.
The greatest
costs to consumers and national economies come from the
usual poor levels of service, innovation, efficiency and
value that state companies provide. That's because state
companies are generally larded with people owing their
positions to whom they know in the government, rather
than what they know about the business. Their political
masters expect various indulgences in return. These may
be as benign as jumping to the head of the line when
boarding a state airline flight, or less innocent
kickbacks on jet fuel, perhaps from the state oil
company as well as the airline.
Immunity and
impunity Without restraints from investors,
competitors or effective government regulation, state
companies can act with far greater impunity than private
enterprises (see WHO's caught with the smoking gun?
November 16, 2002). Those companies pose a real danger
to consumers because they can function as a hidden and
pernicious branch of the government, immune from
controls, an avenue for politicians to meddle deeply
with your life, liberty and pursuit of happiness.
That's the real argument for privatization, but
it's not one that governments are generally willing to
make, since they turn out to be the villains in the
story. That's where ASEAN can help.
ASEAN can
make the argument for privatization on behalf of
governments, acting as a non-partisan, honest broker. It
may choose to establish an expert panel or academics,
business people and bankers, to consider each
privatization on a case-by-case basis, and recommend
just enough changes in structures or even reject a few
deals to give itself credibility. Grounds for rejection
could include the involvement of an unreformed state
enterprise, though that might cause some family tension
within ASEAN (see Singapore's capitalist myth,
November 7, 2002).
A simpler alternative would
be to assemble a representative blue-ribbon panel to
produce a white paper on privatization. That paper could
include guidelines on valuation, strategic investors,
performance and other requirements that need to be met
to ensure that privatization serves the public interest.
No matter what the form, member governments
should let ASEAN demonstrate the real benefits of
privatization and give them political cover to overcome
opposition. Otherwise, they can expect to keep missing
their privatization targets, leaving them and their
citizens stuck with increasingly tarnished state silver.
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Oct 1, 2003
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