Asia Times: Lessons for Laksamana


	December 15, 2001	atimes.com

Southeast Asia

Lessons for Laksamana
By Bill Guerin

JAKARTA - Indonesia's Minister for State Enterprises Laksamana Sukardi has been given unsolicited advice by the Romanian government's chief economic adviser, Petrisor Gabriel Peiu. Unsolicited by Sukardi, that is, but brought along by foreign-owned business consultancy firm Castle Asia to beef up the quality of the panel at a privatization seminar held in Jakarta this week.

Indonesian analysts cite the public's resistance to change, fear of layoffs and corrupt management of state firms as being the main factors that have sent the government's privatization program careening off course. Peiu, however, presumably held in high esteem by the organizers, glibly advised the Indonesian government to take stern action against those who oppose privatization. "Reshuffle the management of state firms that do not agree to being privatized" was the way, he said, as managers of inefficient state firms resist privatization because they often benefit from corrupt practices within the company.

Fair enough, Peiu did admit his experience was only in Romania, but the World Bank's chief economist in Indonesia, Vikram Nehru, seized his chance for fame by saying that strong political leadership was the key to a successful privatization program. He also sensibly cited the need for public campaigns and measures to mitigate the social impact of mass layoffs as important in a sound privatization program.

Laksamana looked suitably impressed when interviewed by local media on the same day but privately, no doubt, wondered why anyone could ever imagine that he had not tried all this.

The proposed sale of the government's remaining 51 percent stake in state-owned cement producer PT Semen Gresik, the parent of Semen Padang, to Mexican cement giant Cemex SA de CV via a put option deal, collapsed amid attacks from the right, left and center. Cemex already owns 25 percent of Semen Gresik. The sale of the remaining government-held shares was originally going to net US$520 million, but even Laksamana's later amended proposal, which went a long way to meet the "aspirations" of the politicians in South Sulawesi and West Sumatra who demand nothing less than the total separation of the Tonasa and Padang units from Semen Gresik, is far from certain to fly.

This odd deal would still honor part of the Indonesian government's commitment to Mexico's Cemex company by allowing it to increase its shareholding in Semen Gresik to 76.5 percent. Semen Gresik's three cement units would be broken up, thus automatically voiding a sovereign three-year conditional sale and purchase agreement with Cemex, scheduled to expire on Friday, and which had raised a nasty issue about the government's ability to honor its contract.

Laksamana plans to fly to Padang to calm tempers and explain what his deal is all about, but even if he succeeds, the new proposal itself highlights how easily Jakarta threw the towel in when faced with aggressive pressure from provincial legislators. This weakens the whole privatization program, and will, of course, encourage regional politicians in other provinces to put the squeeze on Jakarta over their own provincial state-owned enterprises (SOEs). The West Sumatra administration appeared to have backed down from the takeover move this week after widespread criticism, but local leaders in South Sulawesi, the home of the other Semen Gresik affiliate, PT Semen Tonasa, have been pressing the administration there to jump on the wagon and demand Tonasa's spinoff from Semen Gresik.

Semen Gresik, under the original "put" option, was to have three cement units with a combined capacity of 17.25 million tonnes, but the fudged issue and the new deal offers the Mexicans only their major Gresik unit with an 8.2 million tonne capacity. The Tonasa unit (3.48 million tonne capacity) and the larger Padang unit, with a capacity of 5.57 million tonnes, will become government-controlled stand-alone companies.

The truth is that the well-intentioned Indonesian privatization program never properly got off the ground, and issues that may or may not have impacted on tiny Romania's way of doing things are of little relevance to Indonesia, which, despite the massive wealth sitting in its natural resources, now owes about $140 billion, some $72 billion of this in government debt.

Ultra-sensitive issues such as land and revenue sharing of this natural wealth between Jakarta and the regions, and an ostrich-like tendency for administrations to ignore problems until they are forced to address them, are peculiarly Indonesian. Laksamana does not need lectures from visiting speakers. He needs the understanding of the Indonesian public, one that appears largely uninterested in the scam being perpetrated by those opposing the privatization of Semen Gresik.

The Megawati administration had appeared frozen into a statue-like silence after the West Sumatra administration and legislative council declaration last month that they had "taken over" the Semen Padang unit of state-majority-owned Semen Gresik. One small step from the wild men of Padang but a gigantic leap backward for Indonesia.

The provincial breakaway legislators who made this subversive declaration while the Padang governor sat on the fence were said to have been funded and led by management of the Padang cement factory, fearing the imminent demise of their cash cow that had for so long ensured immunity to the national recession and allowed them to sustain their fiefdom through buying political favors. New investors, particularly "foreigners", would have upset their apple cart in a short space of time.

Almost all these Indonesian SOEs are grossly inefficient, badly managed and riddled with the endemic corruption that is, at least in terms of widespread penetration, also peculiarly Indonesian. Independent performance audits on state firms, insisted on by the IMF, exposed them for what they are.

Privatization was meant to be the main priority reform measure that would not only boost the government coffers (and this year plug the gaping state budget deficit), but also ensure the stone-age dinosaurs were dragged into the 21st century by private investors, better able to nourish the state economy rather than drain it, through bigger tax obligations.

Laksamana has frequently made the point that privatization here is based on a principle of benefits rather than one of ownership. A committed public-relations drive - the Indonesians call it "socializing" - would have helped to avoid the glaring communication gap between Jakarta and the public in the regions where their interests have been used by others as a battering ram to warn Jakarta off. But no, time after time, one sees Laksamana out alone, having to espouse the basic wisdom of privatization and the benefits inherent in turning nationalized monoliths into engines for growth.

However, help is at hand, it seems. Two days after this seminar came the news that the Asian Development Bank (ADB) will cough up $3.6 million worth of technical assistance to help Indonesia implement the elusive reform program for SOEs.

ADB country representative Jan P M Van Heeswijk had his moment of glory as well, when he said that the deteriorating performance of SOEs was due to "government intervention", as well as weaknesses in internal management, accountancy and financial-audit procedures. Technical language to describe a distinctly untechnical resistance by vested political interests from Sabang to Merauke to let go of the cash cows that have nourished and sustained all levels of management and "rent seekers" for decades. Van Heeswijk fondly thinks the ADB has the answer - performance incentive schemes for 30 SOEs, which must complete their restructuring or privatization process within the next three years, restructuring schemes for another 10 SOEs and privatization schemes for five more.

One can almost hear the glee from behind the dark doors of the nationalized dens of iniquity, as clever minds explain to those who are dim (or honest) just how easy it will be to divvy up that particular gift from abroad.

As the year draws to a close the privatization target of $622 million (Rp6.5 trillion) is in tatters, although with some measure of success. Under Laksamana's stewardship 11.9 percent of state-owned telecommunications company PT Telkom and 40 percent of plantation giant Socfindo have been sold off, adding Rp3.12 trillion and Rp400 billion respectively to government coffers.

There could be more than Jakarta's pride at stake. The IMF, bemused by the lack of any semblance of political harmony and the chronic lack of decision-making, delayed a miserly $400 million loan for more than 10 months during Abdurrahman Wahid's watch, and now, after a short-lived enchantment with the new Megawati administration, lending agencies such as the World Bank complain that Megawati Sukarnoputri, elevated to president on July 23, has done little better. The World Bank's Nehru pointedly urged Jakarta to overrule the takeover attempt and immediately press ahead with the sale, or risk creating "tremendous investor wariness and uncertainty" toward future selloff attempts.

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