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Profit at any cost?: Govt sends mixed signals on SOEs’ fates
President Jokowi said recently that he wanted to stop bailing out SOEs, but a few months earlier, the government had proposed Rp 72 trillion for such bailouts.
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President Joko “Jokowi” Widodo’s recently expressed desire to end financial support for state-owned enterprises (SOEs) has raised concerns in the sector, as many such companies rely on government bailouts to escape dire financial straits. (BPMI Setpres/Laily)
P
resident Joko “Jokowi” Widodo’s recently expressed desire to end financial support for state-owned enterprises (SOEs) has raised concerns in the sector, as many such companies rely on government bailouts to escape dire financial straits.
Jokowi said on Oct. 16 that he wanted to stop providing state capital injections and other “protections” to ailing SOEs, noting that he would prefer instead to close them as government underwriting had kept SOEs uncompetitive and unprofessional.
The president’s statement came a few months after the SOEs Ministry proposed the allocation of Rp 72 trillion (US$5.127 billion) for capital injections next year to assist debt-laden SOEs and streamline government projects.
Read also: Forget protection: Jokowi tells SOEs to get out of their comfort zone
Economists told The Jakarta Post that ending such capital injections would be tough as the government often needed SOEs to execute loss-making government programs, such as providing subsidized goods, developing public infrastructure and implementing COVID-19 relief programs.
Furthermore, government regulation (PP) No. 45/2005 guarantees government compensation for SOEs that carry out unprofitable government programs.
“If SOEs were left alone to find funding, they would definitely fall into a ravine of problems. A very high debt-to-equity ratio would occur,” said Toto Pranoto, an expert on SOEs from the University of Indonesia (UI), on Thursday.
