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COMMENT
Anti-privatization group
needs wake-up call
By Gary LaMoshi
DENPASAR, Bali - A group of 35 Indonesian
economists launched a campaign against privatization of
state-owned companies on Tuesday in Jakarta. The group
calls itself Indonesia Bangkit (Indonesia Awakens), but
the group seems to have slept through the sad history of
state businesses and banks during the past six years.
"The public and legislators should plead for a
temporary moratorium on asset sale programs to avoid
further losses, both economic and non-economic,"
Indonesia Bangkit spokesman Rizal Ramli urged, according
to local media reports. The group joins a chorus
opposing privatization that ranges from populist
politicians to tycoons hoping to get their old companies
back on the cheap.
To be sure, there's a lot not
to like about Indonesia's privatization program,
starting with Minister of State-Owned Enterprises
Laksama Sukardi. At a special seminar of Indonesia's
2004 Investment and Economic Outlook in conjunction with
the Ninth Asia Securities Forum in Bali last month (see
Another year of 'happy investors'
forecast, February 5), he came across as a
stereotypical aloof, blustering, overfed government
minister.
In contrast to Finance Minister
Boediono, Sukardi had no prepared text for the meeting,
offering a rambling 30-minute defense of the slow pace
of state-asset sales. While Boedinono followed up his
speech with a press conference and interviews with
selected correspondents, Sukardi barely paused in the
lobby of the meeting room to take a couple of questions
from reporters before scurrying off.
Closing
the gap
In Bali, Sukardi defended the
privatization program as a way to improve the
performance of Indonesian companies and to boost tax
revenue. However, the Indonesian public at large has
mainly been told privatization is necessary to close the
budget gap. The program, which habitually misses it
targets because of political interference, is projected
to raise Rp5 trillion (US$595 million) this year, nearly
a fifth of the overall budget gap. Closing the gap in
innovation, investment and technology is far more
important for Indonesia, and it's unlikely to happen
with companies in key sectors such as telecommunications
and tourism plodding along under state ownership.
Ramli and Indonesia Bangkit didn't criticize
Sukardi, but they echoed many of the standard criticisms
of his privatization program. The economists contended
that the prices being paid for companies are too low,
and they complained about the risks of selling the
nation's assets to foreigners. These criticisms are
simply ridiculous, as is Indonesia Bangkit's argument
that private companies won't be better run than state
ones.
On price, the Indonesian stock market is
near an all-time high, and the rupiah is at its high for
this millennium, meaning assets sales will bring in more
dollars, euros or yen. The timing could hardly be better
from an economic point of view.
Scandals
galore
Ramli, a former economics minister with a
clean reputation, argued in particular against the sale
of Bank Negara Indonesia (BNI) at this time because it
is tainted with a Rp1.7 trillion scandal. However, the
scandal is an argument for selling state banks more
quickly. It's been state-owned banks such as BNI and
Bank Mandiri that have fallen victim to recent frauds -
amid rumors of money-laundering for political parties -
while privatized lenders appear to have sufficient
controls and incentives to avoid similar swindles. The
longer banks stay in state hands, the more likely they
will become more deeply mired in scandals.
Indonesia Bangkit also complained that foreign
control of banks would hamper the government's ability
to set monetary policy. Foreign or domestic owners alike
have to abide by whatever regulations the government
sets. Foreign owners are less likely to influence
regulators and policymakers than domestic ones since
they don't have as much political clout.
The
notion that foreign investors might undermine banking
regulations is especially laughable in view of how
Indonesian bank owners behaved during the 1997-98
economic meltdown. Bankers received government liquidity
support loans totaling Rp144.5 trillion - US$17
billion at current rates - to avert a system
collapse. These local owners funneled the funds into
their own businesses or used then to speculate against
the rapidly declining rupiah. The banks' eventual
bankruptcy is what put them in state hands, while most
bank owners have gotten away with repaying pennies on
the dollar for their loans, if that. It's hard to
imagine that foreign bank owners could behave any less
responsibly than these patriots.
As an
alternative to selling the national china (even if most
of it is, in financial terms, melamine), Indonesia
Bangkit proposed offering minority stakes in state
companies and keeping the controlling interest in state
hands. As economists, they ought to know better.
Investors will pay more for control than they will for a
minority stake. So, on one hand, Indonesia Bangkit
complains that the government isn't getting paid enough
for its assets; then it proposes an alternative that
guarantees lower prices.
Minority
report
As political observers, Indonesia Bangkit
really ought to know better. The experiences of Mexico's
Cemex with its minority stake in Semen Gresik,
Indonesia's largest cement company, are enough to scare
off any potential investor (see Indonesia gives up privatizing another
asset, September 16, 2003). Cemex bought 25.5
percent of the company in October 1998, the uncertain
times following the fall of Suharto when few dared
invest in the country, and wound up wearing a cement
sarong.
The government also sold Cemex an option
to acquire a majority stake in Semen Gresik, then
reneged on the deal in the face of pressure from the
local officials in West Sumatra, loath to see their cash
cow Semen Padang wind up in commercial (let alone
foreign) hands. State-Owned Industries Minister Sukardi
contributed to this mess with a letter endorsing the bid
to keep Semen Padang in local hands. The letter had no
legal standing but it quite effectively reminded foreign
investors where they stood in the local political
pecking order. There are few votes to be won supporting
foreign businesses against local interests.
Being a minority investor with the state as your
controlling partner in Indonesia is the worst of all
possible worlds. It's a prescription for ending
privatization. The good economists of Indonesia Bangkit
are probably more well-meaning than most opponents of
privatization, but they are every bit as wrong as the
others.
(Copyright 2004 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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