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.