Wednesday, February 29, 2012

Time to Pull the Plug On Indonesia’s Ailing SOEs

Indonesia’s state-owned enterprises have long been considered vital to the country’s economy. They provide millions of jobs, including many in strategic fields, and they can help develop local industries.

However, many of the nation’s SOEs are poorly managed and continue to lose money. Some of them have suffered financial losses for years, and have been sustained only by large injections of public funds. As a result, the Indonesian public has rightly questioned the viability of these companies and their continued existence.

The government has recognized a need to restructure the SOEs that still have the potential to turn around — and to shut down those that are clearly no longer salvageable.

Hatta Rajasa , the coordinating minister for the economy, said last year that 10 of 141 state enterprises were suffering losses and would probably need to be closed .

Earlier this year, the government said 17 SOEs would be restructured in 2012 to help improve their performance. That number has now been cut to just seven, with debt-ridden Merpati Nusantara Airlines and aircraft maker Dirgantara Indonesia topping the list.

Also on the list are shipbuilder PAL Indonesia, financial services group Bahana Pembinaan Usaha Indonesia, textile firm Industri Sandang and construction firms Waskita Karya and Nindya Karya.

The government expects some established state-owned firms to take over several of these financially troubled enterprises. However, it is questionable whether that strategy makes commercial sense, because it would mean forcing profitable companies to subsidize struggling companies.

The critical point is not the number of SOEs to be restructured, but whether the end result will ultimately benefit the economy.

The government must ask itself some hard questions and be prepared to make tough decisions on these perennial loss-making companies. While SOEs have a strategic role to play in the economy, they must also run on commercially viable principles, just as companies in the private sector do.

Only then can SOEs compete on a level playing field with their private sector counterparts. SOEs must add economic value, rather than destroy economic value, if they are to play a constructive role in nation-building. Jakarta Globe

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