JAKARTA - Recent comments by Indonesian
Minister for State-Owned Enterprises Sugiharto
that Jakarta planned to "buy back" a stake in
publicly listed Indosat, the country's
second-largest telecommunications operator, raised
eyebrows in Singapore. Singapore Technologies
Telemedia (STT), part of the government-
owned investment company
Temasek Holdings Pte Ltd, paid just over US$500
million in 2002 for a 42% stake in Indosat.
In fact, if taken in the context of the
fate of Indonesia's privatization program, the
message was there and clear enough. Forget about
privatization. State-owned enterprises (SOEs)
will, at least for the time being, remain as state
cash cows, ever ready to help finance the budget.
But only the privileged few that turn a profit.
That is, instead of selling off more of these
crown jewels, there will be attempts at "reverse
divestment" by buying into onetime state
businesses that have been brought into profit by
foreign investors.
Successive Indonesian
administrations since 1998 have taken a common
view that privatization was necessary, not only as
part of revenue-generating efforts to bridge the
state budget deficit but also to attract new
portfolio investment, along with additional
capital investment, management skills and
corporate-governance practices to improve the poor
performance of state companies. Only a few
Indonesian SOEs are noted for sound business
practices and making significant contributions to
state coffers and to the economy in general.
Recruitment is rarely based on ability but often
on political lobbying. At the line-manager level,
poor pay rates and lack of performance-related
incentives are the norm. Private investors can
turn these assets into profitable enterprises that
create more jobs and pay more taxes to the state.
Sugiharto, who survived a cabinet
reshuffle last month, has indeed already announced
plans to privatize up to 20 of Indonesia's 158
SOEs this year to raise funds for the 2006 state
budget. The budget deficit is estimated at Rp22.3
trillion (US$2.38 billion), about 0.7% of gross
domestic product (GDP). "We will start the
privatization program in the second half of this
year. We will sell a stake in 15 state owned
companies," he told reporters.
If there is
no reversal of policy, partial holdings in tin
producer PT Timah, PT Bank Negara Indonesia - the
country's third-largest bank by assets - and
nickel and gold producer Aneka Tambang as well as
miner PT Tambang Batubara are expected to be
offered to private investors. This would take
place in the second quarter because companies
would by then have released their audited
financial results for 2005, Sugiharto said.
Yet the budget allows for only Rp1
trillion from privatization, which suggests it is
hardly likely a worthwhile stake in any major
state-owned enterprise will come under the hammer
this year. It also sustains the impression that
for policymakers in the current administration, or
at least two of those who call the shots,
privatization is a means to an end - to cover the
budget deficit.
This became clear last
June, when Vice President Yusuf Kalla stated that
selling government stakes in state enterprises was
the "lowest priority" for the government. He could
hardly have made it any clearer. Just for good
measure, he added that the government would not
"submit to privatization demands" from donor
institutions in return for their loans.
Successful privatization programs help
immeasurably in regaining investor confidence, but
last year's halfhearted attempt was eventually
abandoned in October after higher-than-expected
dividends from state companies raised adequate
funds to cover the budget deficit. In 2005, SOEs
contributed a total of Rp12.7 trillion in
dividends to the state budget, 43% more than
targeted. Three of them - state telecommunications
giant PT Telkom, national gas distributor PT
Perusahaan Gas Negara (PGN), and state oil-and-gas
giant PT Pertamina, contributed the biggest
dividends.
Among the other 158 SOEs are
state electricity company PLN, aircraft maker PT
Dirgantara Indonesia (DI), shipbuilder PT PAL,
state munitions factory PT Pindad, two state
airlines, a steelmaker, shipping companies,
airport operators, port operators, mining
companies, construction and civil-engineering
enterprises, fertilizer manufacturers, rubber
plantations, palm-oil plantations, pulp-and-paper
manufacturers and forestry companies. In this
category also are the government's total holdings
in Indonesia's 131 banks.
Together these
SOEs control a total of Rp1.158 trillion in
assets, yet a recent study by an SOE watchdog
showed that only 15 have booked annual profits
over the past few years. By October Sugiharto had
backed off on a plan to offer 7.1% of the
government stake in PGN to the market, which had
been expected to bring in some Rp1.1 trillion. By
the end of the month it was all over, and the 2005
privatization program was dead in the water.
In June Sugiharto had appeared temporarily
to reverse his earlier "go for the dividends"
stance, and said the government would meet its
Rp3.5 trillion privatization target by selling
stakes in state-owned banks and mining companies
before the end of 2005. He made it clear, however,
that the real strategy continued to be to maximize
dividend payments from SOEs, rather than pushing
for their privatization. Kalla publicly supported
Sugiharto's positioning.
Of course, the
problem with the assumption that any shortfall in
revenues from privatization can be boosted by
additional dividend payouts from state companies
is that it leaves those few good performers as
depleted cash cows with precious little capacity
to expand their retained earnings for investment.
There are other problems. Pertamina and
PLN reportedly still owe the government almost
Rp2.6 trillion in non-tax state revenue, but the
government still owes Rp23 trillion in subsidies
to PLN. The power utility had requested an
allocation of Rp28 trillion in the budget,
following the massive fuel-price increases in
October, but the House of Representatives (DPR)
only approved Rp15 trillion. Raising electricity
tariffs is hardly an option given that the poor
are still reeling from the blow inflicted by
inflation after the increases in fuel prices.
A case in point The 2002 sale of
the stake in Indosat has proved to be a classic
example of how the private sector can rejuvenate
divested SOEs by injecting fresh funds,
introducing new management ideas and bringing in
new technology. Indosat, with the help of STT, has
forged ahead toward becoming a major regional
telecom player. It has refinanced its debt and
recorded revenues of Rp8.9 trillion in the first
nine months of last year, with a net profit of
Rp5.7 trillion for the same period. STT holds
41.77% and the board of directors and
commissioners of Indosat hold 0.03%.
Does
Jakarta intend to buy back STT's shares? This is
doubtful because, as sector analysts point out, at
current prices the 41.77% stake could cost as much
as $1.2 billion even if by some miracle it were to
be offered to the government. It was left to
Information and Communication Minister Sofyan
Djalil to point out the obvious to local
reporters: "How can we buy back the Indosat shares
if STT doesn't want to sell them back to us?"
Yet the government still owns 14.58% of
Indosat, so were it to buy as little as 30.23%
from the 43.62% held by the public and available
on the Jakarta bourse, it would hold a majority
shareholding in a major player in one of the
country's major growth sectors,
telecommunications.
State silver with
little glister Several state-owned
industries remain, in theory, protected from ever
being privatized. This is clearly not a safe
assumption for state-owned Garuda Indonesia, which
is in default on a $55 million principal debt
payment due at the end of 2005 because, it claims,
creditors have made no response to its
debt-restructuring proposal. The debts are mostly
as a result of corruption within the airline
during past administrations, with many government
officials and political parties taking cash from
the national flag carrier.
Garuda has
asked for a $105 million bridging loan from the
government, partly to repay these debts, but the
writing may just be on the wall. Sugiharto was
quoted as saying the government was considering
selling up to 49% of Garuda to strategic investors
or via an initial public share offer (IPO).
"An airline today is not everything for a
country. If it makes a profit, it will be good for
the country, but if it always suffers losses,
investors should be welcome to come in," Kalla
said. This is a refreshingly candid stance, but it
would be more encouraging if there were any
indication that Kalla and Sugiharto were actually
sold on the idea that this principle should be
applied across the board. Far from it.
Getting rid of underperformers through
privatization has for long been controversial in
Indonesia, with nationalists seeing it as akin to
selling off the country's best silver to
foreigners. A blueprint for the development of
SOEs includes a plan to try another angle by
reducing the number to between 100 and 120 by
merging a number of them and setting up holding
companies to supervise some of the smaller
companies. Sugiharto concedes there is widespread
opposition to restructuring and revitalizing state
enterprises. "This is because their managers are
trying to maintain their interests and positions,"
he said. This understates the reality.
Opposition to privatization in fact stems
from a much wider variety of groups, including
former majority owners, local affiliated business
groups, labor unions, and local and national
political elites. The substantial fiscal payoffs
for the government and demonstrable growth in
those enterprises that are privatized cut little
ice with those whose vested interests are
threatened.
Political
battlefront? Drajad Wibowo, a senior
legislator who sits on the DPR Commission XI for
Budgetary Affairs has warned that the reported
plan to sell Garuda shares would need to be
discussed with Commission XI and Commission VI for
State-Owned Enterprises. "The country's strategic
sectors such as telecommunications, banking and
mining are already controlled by foreign
companies, so Garuda must not be sold to
foreigners," Wibowo said.
The sale of
state-owned enterprises is often blocked by
political party interests, but with the strongest
political mandate of any post-1998 administration,
the government of President Susilo Bambang
Yudhoyono is, in theory, better placed to take up
the gauntlet of privatization, so beloved by the
lending agencies.
"Most state enterprises
remain unhealthy since they have been subordinated
to technical departments controlled by
politicians. The companies will continue
functioning as money machines for the bureaucracy
and ruling parties," warned Naldi Nazar Haroen,
who heads up BUMN Watch.
Kalla's
family-controlled Hadji Kalla group is one of the
top conglomerates in Indonesia. Kalla, onetime
minister for trade and industry in the Abdurrahman
Wahid administration, also heads Golkar, the most
powerful political party in the country.
Historically, the SOEs have been used to fund
parties such as Golkar, which holds 129 seats in
the 550-member DPR (Yudhoyono's Democratic Party
holds only 57). Though not known for sinking to
blatant nationalist rhetoric, Kalla displays a
staunch nationalist approach where the country's
assets are concerned.
Paskah Suzetta, who
took over as state minister for planning and
development and chairman of the National Planning
Board (Bappenas) in last month's cabinet
reshuffle, is a very experienced Golkar legislator
and former deputy treasurer of the party.
Sugiharto, however, is a stalwart of the
Islamic-based United Development Party. Most
Muslim groups are known to oppose foreign control
of state companies.
Oddly enough, the
apolitical Coordinating Economic Minister
Boediono, known to be a proponent of boosting
growth by speeding up the privatization program,
has so far made no public pronouncements on
privatization. However, in speeches at home and
abroad he has argued strongly for keeping
Indonesian politics out of the economy. Why is he
silent on this most fundamental issue? Most
likely, Boediono has enough on his plate trying to
live up to his well-earned reputation as "Mr
Macroeconomic Stability", earned while minister of
finance in the administration of Megawati
Sukarnoputri, but it could also mean that he has
been asked to remain outside the loop with respect
to state assets and focus just on macroeconomic
issues.
Although it is unlikely there will
ever again be the lemming-like rush to dispose of
state assets seen for a couple of years at the
turn of the century, Indonesia still badly needs
to reduce the high cost and wastage of public
ownership as well as the corruption that deters
foreign investment and deprives Indonesia of badly
needed funds for development and infrastructure.
Selling state assets into the private
sector helps reduce government debt, which adds to
fiscal sustainability. The president's major
campaign promises included a reduction in foreign
debt. Indonesia currently owes some $130 billion,
or 48% of last year's GDP. Of this total, more
than $75 billion is foreign debt. The cost of
servicing the debt eats up growth-generating
capital. Budgeted investment capital, for example,
badly needed to stimulate the economy, is only
9.7% of the total budget, or Rp62.95 trillion.
It could be argued, then, that by offering
to sell more, or all, of its remaining share in
Indosat rather than encourage media speculation,
the government would send the right "signal" at
the right time and better serve the interests of
the country. The continual drain on state coffers
by SOEs and any further misappropriation of public
funds will only make economic recovery slower and
thus adversely affect the lives of tens of
millions of Indonesians. Showing the cost of a
stalled economy, per capita income for 2005 rose
by just a single dollar, to $766 from $765 the
year before.
Bill Guerin, a
Jakarta correspondent for Asia Times Online since
2000, has worked in Indonesia for 20 years as a
journalist. He has been published by the BBC on
East Timor and specializes in business/economic
and political analysis in Indonesia.
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