Let the Market Solve Problems With State-Owned Enterprises

If and when Indonesia’s state-owned enterprises are finally privatized, it will usher in a new era for the often poorly run firms. For years now, the government has been planning to list many of these companies on the stock market to raise fresh funds. But privatization will bring much more than just additional money; it will inject new ideas and professional management practices into the companies.

There are more than 140 SOEs in the country, the vast majority of them loss-making and badly managed, although to be fair, a number of them are world-class companies.

For many years, arguments have gone back and forth on just what to do with these firm.

Now the State Enterprises Ministry says that as many as 10 of its companies will be ready to go public by next year, as the ministry expects Indonesia’s economy to continue improving and see a surge in capital inflows.

Minister Mustafa Abubakar noted that with the stock market roaring, this would be a good time to list the better managed and more profitable companies.

Although he did not provide any names, he said the targeted companies were in the insurance, agriculture, finance and construction sectors.

Mustafa said the companies would prepare their IPOs starting early next year, and he was expecting that they could be ready by the end of the first half.

Analysts have highlighted a number of SOEs that could easily be privatized successfully. One such company is construction firm Waskita Karya, which plans to sell 35 percent of its equity to raise Rp 600 billion ($66.6 million).

Other state companies that are looking to be privatized next year are another state construction builder, Hutama Karya; state insurance company Jasindo; state cement company Semen Baturaja; and state finance firm Permodalan Nasional Madani.

Privatizing these companies through a series of IPOs is a good first step but Mustafa cannot stop there.

He must continue to aggressively consolidate non-performing SOEs or even shut them down completely if they are beyond salvation.

We must learn from our neighbors Malaysia and Singapore, where SOEs are run and managed purely on bottom-line imperatives.

It is clear that many of the companies managing some of the country’s strategic assets need a fresh injection of people and ideas.

The fact that the radar shut down for 30 minutes on Sunday at the Soekarno-Hatta International Airport is another red flag for the ministry to act quickly.

If professionally managed, SOEs can play a pivotal role in economic development and creating jobs. But they must stand on their own and not be subsidized by the state if the country and the nation are to realize maximum benefits.

Mustafa must be bold in undertaking critical reforms and acting with clear business logic if he is to reform the ministry and establish profitable SOEs that are leaders in their industries.