| C |
 Home
|
Public Sector In Indonesia
Despite more than a decade of deregulation and public sector reform,
the Indonesian economy can still be characterised as a mixed economy, in
which state-owned enterprises, public utilities, local government enterprises,
and government-directed monopolies operate alongside private businesses.
Based on Article 33 of the 1945 constitution, which stipulates that " sectors
of production which are important for the country and affect the life of
the people shall be controlled by the state", the use of public enterprises
has been a constituent element of Indonesian economic development policy
since independence in 1945. The nationalisation of foreign companies in
the 1950s and 1960s (mostly Dutch, British, and US-American companies)
increased the scope of direct economic activity of the government, while
the oil price boom of the 1970s enabled the government to set up new state-owned
enterprises in order to pursue the goals of national development. Throughout
these years, the government intervened heavily in the production and distribution
of goods by means of regulation, restriction and control of private business
activities.
The general objectives of the state enterprises, as formulated in the
Government Regulation PP No. 3 (1983), are to act as an agent of development,
to contribute to the state revenues, to provide basic goods and services
to the general public, to undertake so-called "pioneer activities" which
promote or complement private sector development, and to generate income
and profits (Pangestu 1996:75).
Some figures indicate the economic importance of the public sector during
the 1970s and 1980s:
The economic policy based on state intervention underwent a substantial
shift in the early 1980s. Deregulation of the economy, encouragement of
private sector investment (both from domestic and foreign sources) in nearly
all sectors of the economy, privatisation of state-owned enterprises and
a reform of the management structure of the public sector were central
elements of the new economic policy which was initiated by a sharp drop
in oil-generated government revenue and the need to strengthen the export
sector of the Indonesian economy.
2. Structure of the Public Sector
The public enterprise sector in Indonesia consists of two types of public
enterprises:
1. enterprises owned by the central government (Badan Usaha Milik Negara
- BUMN) with the government as the sole or the majority shareholder
2. commercial enterprises owned by the provincial and local governments
(Badan Usaha Milik Daerah - BUMD) like the 27 regional development banks
owned by the provincial governments, and the water utilities (Perusahaan
Daerah Air Minum - PDAM).
Most of the BUMN have the legal form of limited liabilities companies
(Persero), with only a few still maintaining the legal form of public corporations
(Perum). At the regional and local level, many BUMD still follow the public
corporation form, although here, too, the tendency exist to change their
legal form to limited liability companies.
BUMN exist in all sectors of the economy. The majority are in the industrial
sector, in agriculture (state estate companies), in finance, public works,
and transportation. Prominent BUMN are the national electricity company
(PT Perusahaan Listrik Nasional - PLN),
the national airline GARUDA, some
of the biggest banks like Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia
(BRI), the national oil company Pertamina, the telecommunication companies
PT Telkom (domestic telecommunication)
and PT Indosat
(international telecommunication), cement factories like PT Semen Gresik,
the two airport companies PT Angkasa Pura I and II, the national shipping
line PT PELNI, the railway company PERUMKA, the toll road company PT
Jasa Marga, the aircraft manufacturing company PT
IPTN in Bandung, and the shipbuilding company PT
PAL Indonesia.
In its 1996/97 state address, the government gave the number of BUMN
as 178 (without subsidiaries of BUMN), out of which 157 had Persero-status,
while 18 were Perum-type companies. Three BUMN have special status. The
total assets of all BUMN in 1995 was given as 312.802 billion Rupiah (an
increase of 7.1 percent to the previous year), the turnover as 94.468
billion Rupiah (+ 12.9 percent) and the profit (before tax) as 9.323 billion
Rupiah (+ 28.1 percent) (GOI 1996: VI/40). In 1995, BUMN provided 15 percent
of the GDP and employed 1.14 million people (=1.4 percent of the labour
force).
3. Supervision and Control Mechanisms
The Ministry of Finance has the overall supervision over the BUMN and
acts as shareholder on behalf of the government. Within the ministry, the
Director-General for State-owned Enterprises has the responsibility to
formulate and implement the government's policy regarding the public sector.
Until late 1997, the technical ministries had coordinating and supervisory
functions for the operational activities of the BUMN, and most ministries
have a special unit dealing with financial and personnel issues of the
BUMN under their jurisdiction. Because the fictions in the supervisory
system stemming from this double supervision, the government decreed in
late 1997 to concentrate supervisory functions in the MoF. In the manufacturing
sector, ten "strategic" and technology-oriented BUMN are put under the
management of the Agency for Strategic Industries, BPIS
(Badan Pengelola Industri Strategis), a special institution under the State
Minister for Research and Technology, whose advisory board includes among
others also the ministers for Industry and Trade, Defence, Transport, Telecommunication,
Finance, and the Chief of the Army.
With the Second Public Sector Reform in 1988, the government introduced
new procedures in the management of the public enterprises. BUMN were obliged
to submit five-year corporate plans, and annual work plans and budgets
as a medium of negotiation between the government and the enterprise regarding
the enterprise objectives, policies and strategies, and in order to reduce
the ministries' interference in the activities of the BUMN (Mardjana 1993).
While the restructuring of the BUMN as limited liability companies in
principle increases the autonomy of the management, tendencies of political
interference and of using public enterprises for political ends remain:
4. BUMN Performance and Performance Measurement
With the Government Regulation No. 5 (1988), the government introduced
a new system to assess the performance of public enterprises. The purpose
of the regulation was to create a set of rational criteria which could
be applied by the Government in determining the position of the respective
BUMN in the beginning Public Sector Reform programme, ie. to decide whether
a BUMN should be restructured, privatised, merged, or liquidated.
PP No. 5 (1988) envisaged three performance criteria:
As can be seen from Table 1, the performance of BUMN, based on these
criteria, has been improving during the last decade, with the number of
BUMN rated as very sound reaching 92 in 1995.
Table 1 Performance evaluation of BUMN
(1986 - 1995)
97 86 Table 2 gives an overview on BUMN financial performance from 1989 to
1994 based on a number of ratios between the pre-tax profits and other
parameters. According to these figures, against most performance indicators
the financial performance of BUMN deteriorated between 1989 and 1994,
although the results in 1994 were slightly better than in 1992.
Table 2 Financial Performance of BUMN 1989 - 1994
Another method to evaluate the performance of BUMN is to assess their
impact on the public finance, like tax payment and the payment of dividends.
Income tax from BUMN increased by 25.8 percent between 1978/79 and 1989/90,
while dividends and other transfers (like profits from the state banks
and the so-called development contribution from Perum) increased by 29.6
percent over the same period (Pangestu 1996:86). Between 1989/90 and 1993/94,
income tax increased from Rp. 1.093 billion to Rp. 2.000 billion, while
dividends and other transfer grew from Rp. 958 billion to Rp. 1.516 billion
(GOI 1994: 181). While these figures look impressive, it has also been
observed that increased tax revenue from BUMN can be attributed to the
improvement of the tax collection system, rather than the improved performance
of the BUMN (Pangestu 1996). In the following years, both tax revenue and
non-tax-revenue from BUMN decreased again (see Table 3). Altogether, contributions
from the BUMN to the domestic revenue of the central government budget
remain less than 10 percent.
Table 3 shows the tax and non-tax revenue (like dividends and other
transfers) from BUMN between 1993 and 1996. The tax revenue, which the
government received from the BUMN in 1995/96 increased by 4.8 percent compared
with the previous year, and total dividends and other transfer from the
BUMN to the government by 6.1 percent. BUMN accounted for 9.8 percent of
all income tax in 1995/96 (compared with 13.6 percent in 1993/94). Non-tax
revenue from the BUMN amounted to 18.9 percent of all non-tax revenue of
the government compared with 38.9 percent in 1993/94.
Table 3 Tax and non-tax revenue from BUMN 1993-96
(in billion Rupiah)
A 1995 study of the World Bank also shows a net financial flow from
the government to the state-owned enterprises between 1984 and 1991 (only
in 1990 the revenue from the BUMN was larger than government spending on
BUMN), which in the case of Indonesia was higher than for the other Asian
countries and low-income countries included in the study (see Fig. 1).
In the budget year 1993/94 the government increased its capitalisation
in BUMN by 126,1 billion Rupiah, in 1994/95 by 204,8 billion Rupiah, and
in 1995/96 by 79,2 billion Rupiah. Nearly two-third of these funds were
used for financial institutions (banks and non-banking institutions) (GOI
1996: IV/43).
 Back to top One of the first sector to be affected by the new orientation towards private sector development was the financial sector. Traditionally heavily dominated by the state banks, the deregulation of the sector in the 1980s allowed the establishment of private banks and changed dramatically the role and importance of private and public banks. While in 1987 there were 112 banks with a network of 1,622 offices (out of which 1,063 or 65.5 percent were from public banks), in 1995 the number of private banks had increased to 240 banks with a network of 5,191 offices, compared with 34 public banks (with 1,718 offices). In terms of bank assets and funds, the growth of the private banking sector was equally impressive: in 1987 the seven state banks controlled 65 percent of the total assets of commercial banks. By the end of 1995 this share has dropped to less than 40 percent, while 57.6 percent of the assets were with private banks (the remaining 2.7 percent were with the regional development banks). Regarding deposits and credit, the state banks' share of deposit money and outstanding credit has dropped from 62 and 68.9 percent in 1987 to 36.1 and 39.8 percent, respectively (NDIO 1997:32-33) (see Table 4 and 5). BUMN were allowed to deposit their funds in any bank, thus increasing the competition between the state banks and private banks. Table 4 Distribution of deposits 1993-96
(in billion Rupiah) (in percent)
Table 5 Distribution of credits 1993-96
(in billion Rupiah) (in percent)
The financial situation of most state banks is less healthy. In October 1993, 21.2 percent of all state banks' credits has been rated as "classified credits", ie. as sub-standard and doubtful credits (compared with 8.6 percent of private banks' credits). State banks are also characterised by a lack of capitalisation compared to their risk-weighted assets (RWA) (World Bank 1995a), one of the reasons while Moody's Investor Services rated the state banks with a low "D plus" or "E". The state banking sector has also been effected by the continuing public sector reform programme pursued by the Government since 1988: BNI, one of the largest commercial banks in Indonesia, has been partially privatised in 1997. In order to overcome the financial difficulties facing the state banks, the Government in late 1997 announced the plan to merge some of the state banks. According to these plans, Bank Dagang Negara, Bank Bumi Daya, Bank Exim and Bank Pembangunan Indonesia (Bapindo) would be merged. The government would continue to divest its shares in the state banks, and would look for a foreign bank to become a major shareholder. 6. Public Sector Reform since the 1980s Public sector reform has been on the agenda of the government since 1988. The introduction of performance measurement indicators, efforts to restructure companies, the introduction of corporate five-year plans and of annual working plans and budgets since 1988 have been central elements of what has been termed the Second Public Sector Reform (Mardjana 1993). In late 1989, the government announced an ambitious reform programme:
Merging of BUMN, partial privatisation, and the entering into joint ventures or public-private partnerships are the core elements of the public sector reform. While in the late 1980s the focus of the reform programme was more on restructuring and management reform, the early 1990s saw the beginning of a cautious privatisation programme. Contrary to other developing countries, however, Indonesia did not engage in a massive divestiture of public enterprises. According to World Bank figures, four BUMN were fully liquidated, and seven BUMN were sold fully or in part between 1989 and 1995, however during the same period 12 new BUMN were formed (World Bank 1995a:51) In the early 1990s, the number of BUMN was reduced by merging BUMN or by placing BUMN as subsidiaries under other BUMN which were to act as holding companies. In 1995 for instance, PT Semen Padang and PT Semen Tonasa became subsidiaries of PT Semen Gresik, and in September 1997 most of the state fertilizer companies (like PT Pupuk Kujang, PT Petrokimia Gresik, PT Pupuk Kaltim, PT Pupuk Iskandar Muda) were placed as subsidiaries under the largest state fertilizer company, PT Pusri. In the agriculture and forestry sector, the number of BUMN were reduced by merging them into the existing 14 state estate companies (PT Perkebunan I - XIV) and 4 forestry companies (PT Inhutani I - IV). Most of the BUMN have now the legal status of limited liabilities companies (Persero) with only 18 still maintaining the public corporation status of Perum. There are no more departmental agencies (Perjan). In 1996, with Presidential Decree No. 55 (1996), the government established a Presidential Team on Privatisation, consisting of the Coordinating Minister for Economic and Financial Affairs, the Coordinating Minister for Production and Distribution, the Minister of Finance, the State Secretary, the Governor of Bank Indonesia, and Prof. Dr. Widjojo Nitisasto. The tasks of the team are to formulate the privatisation policy of the government, to assess planned and implemented privatisation activities, and assist the Ministry of Finance and the technical ministry in the preparation of BUMN for privatisation. In order to strengthen the administrative capacity for privatisation exercises, the Ministry of Finance set up a Directorate for Privatisation in the Directorate-General for State-Owned Enterprises in August 1997. Five public enterprises were partly privatised by means of Initial Public Offerings (IPO) of shares at domestic and international stock exchanges (PT Semen Gresik/1991, PT Indosat/ 1994, PT Telkom and PT Tambang Timah/1995, PT BNI/1997), while a small partial privatisation by direct placement of shares with a foreign and a domestic firm took place in 1995. PT Indosat and PT Tambang Timah were simultaneously listed at foreign stock exchanges. The listed state enterprises account for 27 percent of the capitalisation of all companies traded on the Jakarta Stock Exchange (Jakarta Post 16 August 1997). Especially the IPO for PT Telkom was one of the biggest IPO in Asia, and the biggest ever at the Jakarta Stock Exchange. The Director-General for Public Enterprises, Bacelius Ruru, gave four main reasons for the government's decision to partly privatise BUMN: the repayment of high-cost borrowing, the financing of high-growth sectors, increased efficiency and productivity of the privatised companies, and an increase of public participation in the ownership of public enterprises (Ruru 1996). Other partial privatisations are under preparation: the IPO for PT Krakatau Steel and PT Aneka Tambang was initially planned for March 1998 but might be postponed because of the current financial crisis. The toll road management company PT Jasa Marga and the national electricity utility PT PLN are further candidates for partial privatisation by IPO. In the case of GARUDA, the government is considering partial privatisation by direct placement of the shares with a foreign airline. Table 6 Partial Privatisation of State-owned
enterprises, 1991-1997
The government proceeds from the partial privatisation were used for the early repayment of high interest bearing foreign loans of the government. In total, the government repaid US$ 1,521 billion to the World Bank and ADB in 1995 and 1996, using proceeds from the IPOs of Indosat, Telkom and Tambang Timah. Another major area of public sector reform has been the development of public-private partnerships in the infrastructure sector once Government Regulation No. 20 (1994) allowed private investment in the infrastructure sector. One of the reasons for the involvement of the private sector in the provision and operation of infrastructure is the sheer size of investment funds needed to achieve the development objectives of the current five-year development plan (Repelita VI). It is assumed that between 1995/96 and 1998/99 around 33 percent of the proposed infrastructure investment (= 18 billion US$) would be funded by the private sector, especially in power generation, telecoms, toll roads, and water. Public-private partnerships have been established in various forms according to the characteristics and needs of the respective sectors: 1. In telecommunication, PT Telkom has been split into seven regional units. For five of these regions, PT Telkom has negotiated construction and management contracts (Kerjasama Operasional - KSO) with private consortia, consisting of domestic and foreign investors. These consortia will install new telephone lines and manage the telecommunication sector in selected areas for a period of 15 years. The consortia are PT Pramindo Ikat Nusantara (Sumatra) (involving France Telecom), PT Aria West International (West Java), PT Mitra Global Telekomunikasi Indonesia (Central Java), PT Daya Mitra Malinda (Kalimantan) (involving Cable and Wireless/UK), and PT Bakaka Singtel (Easter Indonesia). In addition to these KSO arrangements, a private firm (PT Satelindo) has been granted a licence for international communication services in competition to PT Indosat, and there are several private companies (involving foreign investors like the Deutsche Telekom) providing cellular telephone services. 2. In the electricity sector, the focus of private sector involvement is still in power generation, while distribution will remain the responsibility of public firms for the time being. However, plans are being discussed to unbundle generation, transmission and distribution activities in order to introduce more competitive elements into the sector. As a first step, the state electricity company PLN established two subsidiaries to handle transmission and distribution of electricity in the Java-Bali grid. Flotation of shares of these two subsidiaries is under consideration. PLN furthermore has negotiated a number of power-purchase agreements (PPA) with private investors who will construct and operate power generation plants throughout Indonesia and sell the electricity to PLN. Power-purchase agreements and the construction of new power plants by private investors have been negotiated in the 29 cases (see Table 7). However, private sector involvement in the electricity sector has been strongly affected by the financial and currency crisis: because the purchase price for electricity has been calculated on a US Dollar- basis, PLN has initiated re-negotiations of the PPA since it would face a serious financial crisis if it were to fulfil its financial commitments under the PPA with the present exchange rates 3. In the cases of toll-roads, Build-Operate-Transfer (BOT) agreements have been negotiated by the toll road company PT Jasa Marga, under which private investors will build and operate toll roads which after a specified period of time will become property of the state. Such agreements have been negotiated for instance for parts of the Jakarta Outer Ringroad (with PT Citra Lamtoro Gung Group), for tollroads in East Java ( with PT Citra Marga Nusaphala Persada), and others. 4. Public-private cooperation in the provision of public infrastructure is also a key element of the two mass transport schemes for Jakarta (building of an underground railway and of a three-tier road/rail-connection between North and South Jakarta), and the construction of the new Manggarai terminal complex in Central Jakarta which combines transport, business and residential facilities. 5. In the water sector, in October 1995 the Jakarta public
water works PAM
Jaya signed an agreement with the Salim Group and PT Kekar Plasindo
to establish and manage water installations in Jakarta. The private consortium
has now also been joined by a foreign investor, Thames Water International/UK.
Table 7 Power-purchase agreements with private power
projects
Back to top 7. Assessment of the Public Sector Reform Programme until 1997 Despite the reform measures implemented by the government, and although steps have been taken to remove BUMN from interference by the bureaucracy and the policy-makers (for instance Government Regulation No. 55/1990 excludes BUMN which are publicly-listed from certain obligations imposed by the government on BUMN), the activities of the BUMN remain strongly influenced by political considerations of the government. The recent use of social insurance funds from PT Jamsostek to pay for the parliamentarian deliberations of the new labour bill is an example, as is the continuing obligation of the BUMN to use parts of their revenue for assisting cooperatives and small-scale industries. While the invitation of private investment in sectors which were formerly the monopoly of public enterprises must be seen as a step in the right direction, the lack of competition and transparency in commercial transactions continue to characterise these partnerships: for instance the concession for the Tanjung Jati C power plant has been granted without a proper tender process and against the advise of the state electricity company PLN. In all large infrastructure projects politically-well connected conglomerates (with members of the presidential family at the forefront) provide the domestic share of the investment. In a few cases domestic investment by private companies in infrastructure projects is financed by loans from state banks, with only little equity capital provided by the investors. In other words the intended benefits of involving the private sector in infrastructure investment (like reduction of costs through competition and the use of market mechanisms, better quality of services, reduction of the financial involvement of the state to free public resources for other purposes) are not assured. The partial divestiture of shares by means of IPO has also been criticised because of a lack of transparency, preferential treatment of politically-well connected buyers and the setting of unrealistically low prices which gave the buyers a fast windfall profit once trading started at the stock exchange (Mc Leod 1997). It has also been observed that the spreading of shares through IPOs increases public participation in BUMN ownership, however it does not necessarily result in a better management of the BUMN or reduce the potential for government interference because the government still remains the majority shareholder. Apart from the case of PT Aneka Gas Industri, the government has not yet used the concept of direct placement of shares with a "core investor" with strong market knowledge and sectoral background. This approach is under consideration for GARUDA, because of the need to have a strong partner in the airline industry which can assist GARUDA in increasing efficiency, improving the quality of services, and ensuring the competitiveness of the company. The system of performance measurement should be improved, with more comprehensive performance indicators being used to assess the BUMN results and to reward the BUMN management. 8. Public Sector Reform and the Economic Crisis of 1997/98 The present financial crisis in Southeast Asia will have a major impact
on the Indonesian public sector. While all BUMN will have to bear the increasing
costs of imported raw materials and services, and the increasing prices
for fuel and electricity, some of the natural resources- exporting BUMN
(like Pertamina and PT Tambang Timah) will have much larger Rupiah-denominated
revenues because of the exchange rate development.
The envisaged policy initiatives reflect the strong pressure from the
International Monetary Fund and the World Bank to strengthen the performance
of public enterprises and to review the need for their continuing existence
as public enterprises. While the emphasis on restructuring and performance
improvement is clearly justified, the focus on an accelerated programme
of privatisation has to be analysed more carefully. Under the present economic
conditions, the Indonesian capital market will hardly have the capacity
to absorb larger floating of public enterprise shares. Divestiture by direct
placement to private investors does not look more likely, given the lack
of confidence of domestic and foreign investors in the Indonesian market.
Steps to improve efficiency and profitability by reducing cost, to strengthen
management autonomy, and to increase the competitiveness of the public
enterprises therefore remain the best strategy in public sector reform.
Bibliography: I Ketut Mardjana (1993), Public Enterprises in Indonesia: Restructuring or Privatisation; in: The Indonesian Quarterly Vol. XXI (1993) No. 1, pp.49-72. Mari Pangestu
Government of Indonesia (GOI)
Rainer Rohdewohld (1997), Government Reforms in Developing Countries: The Case of Indonesia; in: The Indian Journal of Public Administration Vol XLIII (1997) 2, pp. 181-208. Bacelius Ruru
Ross McLeod (1997), Survey of Recent Developments; in: Bulletin of Indonesian Economic Studies Vol 33 (1997) 1, pp. 3-44. National Development Information Office (NDIO), Brief on Indonesian Economy (downloaded from the NDIO website www.ndio.co.id on 10/09/1997). World Bank
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Page created by APMS. Comments about this site to webfeedback(at)apms.com.au. No unsolicited emails are permitted to email addresses on this page. (last modified: 10 January 2002) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||