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Jakarta Post

SOEs’ burden

  • Editorial Board

    The Jakarta Post

Jakarta   /   Tue, November 19, 2019   /   08:52 am
SOEs’ burden SOEs Minister Erick Thohir unveiled recently that former Jakarta governor Basuki “Ahok” Tjahaja Purnama, a close friend of President Jokowi, would lead an unnamed state energy company. Some reports link Basuki to state oil and gas firm Pertamina. (JP/Seto Wardhana)

Reports that President Joko “Jokowi” Widodo will align his vision and mission up to the level of state-owned enterprises (SOEs) should be taken with caution, as they fail to look at the bigger picture. Alignment and coordination are essential to good business management but the devil is in the detail so as to avoid micromanagement. It is legitimate to ask to what degree the head of state should intervene in managing state firms. For Jokowi, one way is by instructing the “final assessment team” to appoint top posts at strategic state firms, led by the President himself, as stipulated in Presidential Regulation No. 177/2014.

SOEs Minister Erick Thohir unveiled recently that former Jakarta governor Basuki “Ahok” Tjahaja Purnama, a close friend of President Jokowi, would lead an unnamed state energy company. Some reports link Basuki to state oil and gas firm Pertamina.

As the government reviews top posts at the strategic companies, Jokowi has asked Erick to prioritize the integrity of candidates, given the fact that several state firm executives have been entangled in graft cases. However, more important than having all the President’s men to lead strategic state firms is ensuring the debottlenecking of bureaucracy.

The deeply rooted issue of layered bureaucracy within state firms’ management was exacerbated by the appointment of two deputy SOEs ministers, but on Monday the SOEs Ministry announced the much-awaited streamlining of its bureaucracy with the dismissal of seven sectoral-based undersecretaries and the secretary-general. The high-ranking officials have been offered top executive posts in several SOEs.

Such streamlining is expected to address the old problem facing the ministry. There were simply too many bureaucratic layers within the ministry, especially after the establishment of several holding companies, while each state firm already has its own board of commissioners and directors to navigate ways for how SOEs do business.

Another chief problem facing SOEs is the government’s overreliance on them to run projects that could instead go to the local private sector or foreign investors.

The antiforeign company sentiment and state firms-first policy, as a manifestation of “nationalism”, have resulted in SOEs becoming highly indebted and therefore cash-strapped to grow other commercial lines of business.

It’s important that the government exert control and power over state firms. After all, they are agents of development that are supposed to be in charge of several public obligations that would otherwise be unattractive for the private sector to invest in.

SOEs need guidelines but not too much guidance with regard to what they can or cannot do in a multilayered bureaucracy that stunts their quest for growth. They should assess their own commercial strategies and decide their path to growth and contribution to the country’s development agenda. Thereby, there is a need for strong leaders who uphold good corporate governance.

The government should also open its doors wide to the participation of the local private sector and foreign investors in development projects and end an overreliance on state firms that only keeps SOEs from growing.