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Jakarta Post

Speeding up SOE reform

More IPOs of state-owned enterprises could improve transparency and accountability, but the minister's plan for more firms to go public may run up against vested interests.

Editorial board (The Jakarta Post)
Jakarta
Thu, May 27, 2021

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Speeding up SOE reform Trading hub: A woman walks past a large screen displaying Indonesia Stock Exchange (IDX) data in Jakarta on March 9, 2020. (AFP/Adek Berry)

O

f all the public sector components — budget (fiscal), monetary policy, administration, civil service and state-owned enterprises (SOE)—the last one is arguably the most difficult to reform. The main challenge is opposition from vested interest groups within the bureaucracy and the House of Representatives who have tried to maintain SOEs as cash cows.

The government has so far consolidated 142 SOEs operating in similar business lines into 107 firms and is in the process of restructuring another 60 SOEs. On paper, consolidating SOEs operating in similar business lines into holding companies will improve efficiency, increase synergy in production, marketing, procurement and financing as well as strengthen internal control.

However, experience so far has shown that the holding companies are still prone to corruption as they are insufficiently transparent, with many SOEs reporting little to the public and most lacking independent auditing.

Transparency should be the foundation of good governance. Although truly “publicly owned”, many SOEs report little to the public, because their requirements to do so are very limited.

The most effective check against corruption is transparency. Stakeholders, whether investors, civil society or the public, cannot hold SOEs and governments to account where there is a lack of transparency and poor standards, so that wrongdoing could be hidden.

In this context, we are encouraged by a recent statement by SOE Minister Erick Thohir, who said he would push 14 SOEs to conduct initial public offerings (IPOs) on the stock market this year or next year. Going public will promote the highest standards of corporate transparency.

So far, only 20 of the estimated 220 SOEs are traded on Indonesia Stock Exchange (IDX).

Going public through the stock market actually means privatizing SOEs, but the word “privatization” is politically sensitive, especially for SOEs that operate in vital economic sectors. But no one disagrees with the notion that privatization is fundamentally a political transformation, as it exacts a major change in the government's role in the economy and in society as a whole.

The experiences of many other countries that mustered the political courage to bite that bullet prove that privatization of SOEs through IPOs is politically acceptable and greatly effective in improving corporate governance and macroeconomic efficiency through a more competitive market.

Their entry to the capital market will force SOEs to be more accountable and open to the public, because once they issue shares on the stock exchange or float bonds, they are automatically subject to much stricter disclosure requirements as regards their corporate governance and business operations.

IDX also has a great interest in more SOEs going public, as the IPOs of the 14 SOEs and SOE subsidiaries, which operate in health, finances, energy, fertilizer and telecommunications, would significantly increase market liquidity and the supply and variety of shares traded on the burse.

But the planned IPOs could still meet political resistance, hence President Joko “Jokowi” Widodo should fully support Erick’s political fight to expedite the current clearance system that involves ministries, trade unions and the House to approve the IPOs.

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