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Jakarta Post

From oil spill to massive blackout, is Jokowi’s statist strategy in trouble?

  • M. Taufiqurrahman

    The Jakarta Post

Jakarta   /   Thu, August 8, 2019   /   09:35 am
From oil spill to massive blackout, is Jokowi’s statist strategy in trouble? President Joko “Jokowi” Widodo (center) listens to State-Owned Enterprises Minister Rini Soemarno’s (right) explanation at the Tegal toll road gate in Central Java after the President officiated the 37.3 kilometer Pejakan-Pemalang toll road in the province. (Antara/ Oky Lukmansyah)

Many were certainly taken aback by the level of vitriol shown by President Joko “Jokowi” Widodo directed toward the leadership of state-owned electricity firm PLN during a meeting taking place only hours after the massive blackout that hit part of Java on Monday. And against the Javanese norm by which the President is usually judged, his huffing and puffing was quite extraordinary for being so direct and blunt. “Just don’t let it happen again. That’s my only demand,” Jokowi told PLN acting president director Sripeni Inten Cahyani.

Jokowi was visibly and justifiably upset with what went down last week. A freak accident involving the PLN power grid sent more than 21 million customers in parts of Java, including major cities like Jakarta and Bandung, back to the dark ages with some getting power restored after over 24 hours. Worse, four days later the company still could not establish what really caused the major power outage.

Yet, the loss of power affecting almost 30 percent of PLN customers is not the only bad news involving state-owned enterprises arriving at Jokowi’s desk. While PLN workers are toiling around the clock to bring power back to customers, employees of state energy giant Pertamina are racing against time to clean up beaches in Karawang and Bekasi, in West Java, which have been bearing the brunt of an oil spill from Pertamina’s Offshore North West Java (ONWJ) Block.

And even with help from American firm Boots & Coots, which handled the massive Deepwater Horizon oil spill in the Gulf of Mexico, the cleanup would last six months, an emergency operation that would surely impact Pertamina’s bottom line.

While Pertamina’s executives were strategizing to mitigate the impact of the oil spill, another state-run firm was in the spotlight for the wrong reason. After being ordered by the Finance Ministry to restate its 2018 financial statement, national flag carrier Garuda Indonesia revealed it was suffering from significant losses of US$175.02 million, in contrast to the net profit of $5.01 million earlier reported in the first balance sheet.

Bad news also came from the state-owned steelmaker PT Krakatau Steel. Up until the first quarter of 2019, the company’s losses increased more than 1,000 percent year-on-year to $64 million, with its revenue slumping 13 percent year-on-year to $418.9 million. It is expected that the steel company will transfer about 2,000 of its employees to its subsidiaries.

For a president who founded his development agenda on the back of the strength of state-owned enterprises, Jokowi has every reason to be worried if these companies have started to buckle under the pressure. And following his decision to pour millions of dollars into these state-owned enterprises, especially infrastructure firms, Jokowi must be concerned if these firms don’t perform well, especially with a big plan to create massive state-owned holdings that, once materialize, would control a large chunk of the country’s economy.

It would be disingenuous to conclude that after only four instances of troubles affecting state-owned companies, President Jokowi’s whole economic agenda is in trouble, especially knowing that some of these firms are still making profits and contribute to the economy. But the trouble affecting these firms could also serve as a warning that it is probably not a good idea to always rely on state-run enterprises to deliver the goods.

After all, Jokowi has no business being an ardent believer of state-led development. Being a former furniture businessman — from a city far from the political capital — Jokowi should have known very well that free enterprise should be championed by the state and that the government’s raison d’être is to facilitate the work of the private sector.

But for a pragmatist like him, state-owned enterprises could be the only vehicle to jumpstart the economy. It did not help that he was supported by the nationalist Indonesian Democratic Party of Struggle (PDI-P), which after seeing two terms of Susilo Bambang Yudhoyono’s pro-market presidency, was determined to steer the country’s economic agenda to the left. President Jokowi’s Nawa Cita, or nine-point development program, especially for his first term, was a big bold statement on the outsized role that the government (and by extension, state-owned enterprises) would play in the development agenda.

It was common for countries in Asia, Africa, Latin America and even Europe in the 1950s and 1960s to significantly expand the role of public enterprises to deliver economic growth through heavy investment in physical infrastructure. But this development model was discredited once it was adopted by authoritarian military and civilian leaders, who abused state control over the economy for private gain.

In late 1990s Indonesia, this development model became the target of the reform movement, especially for creating a massive web of corruption that transferred resources from public enterprises to private individuals.

Over 20 years after the fall of the New Order regime, state-owned enterprises here continued to be corrupt and inefficient. These companies continued to be the target of interference from politicians and government officials engaging in rent-seeking practices. There is little indication that anything has really changed.

Political economy guru Dani Rodrik once said that even under the best circumstances, government can’t pick winners when it comes to devising industrial policy. In the past 74 years, the government picked a “loser” like PLN to deliver electricity to the public. On Sunday, we had to pay the price for it.