The implementation of The TAP MPR no 23/1966, in regard to the Perusahaan Negara issue, was revealed through the issuances of Instruksi Presiden (INPRES) no. 17/1967 tentang Pengarahan dan Penyederhanaan Perusahaan Negara Dalam Tiga Bentuk Badan Usaha Milik Negara (INPRES for Simplification of Perusahaan Negara structure no. 17/1967/INPRES Perusahaan Negara 1967), and the Undang-Undang Bentuk-bentuk Usaha Negara no. 19/1969 (State-Owned Structure Act no.
19/1969/UU Badan Usaha Negara 1969), regarding the new structure of Perusahaan Negara. Through these laws, the government introduced a new management system and structure for
Perusahaan Negara. Although Perusahaan Negara remained controlled by related sectoral ministries, the new structure of Perusahaan Negara required the Perusahaan Negara to be focused on economic efficiency, reducing financial burden and improving the performance. Through these rules, the Perusahaan Negara were classified into three categories, based on their socio-economic functions and roles (Abeng, 2001; MSOEs, 2008; Nugroho & Wrihatnolo, 2008), as shown in Table 6.1. These classifications are:
– Perjan (Perusahaan Jawatan/Bureau Enterprises) are defined as enterprises operating in public service areas that provide vital and strategic utilities, without any profit-making duty. These enterprises were attached to ministries and managed, based on the mechanism of management of state budgets, since they were financed from the government’s budget without separate state assets being invested. The government was positioned as the owner of enterprises through the ministry. The management was directly appointed and controlled hierarchically by government and civil servants. Perjan were transferred from IBW status.
– Perum (Perusahaan Umum/Public Company) are defined as incorporated entities operating in public utility spheres, and are fully owned by the government. These enterprises were also charged with making a profit and were managed based on the corporation system. Even though
Perum obtained some subsidies, the state assets invested in them were constituted as separate state assets. The management was appointed and controlled by the government and their official status was specifically organised. Perum were transferred from state enterprises status. – Persero (Perseroan Terbatas/Limited Incorporation) are defined as corporations where shares
were wholly or partly owned by the government, and these organisations were required to operate selected business activities on a commercial basis. The management was appointed by shareholder meetings. The employees’ status and their scope of activities were treated as private sector contracts. Persero were transferred from ICW, which referred to commercial law (Wetboek van Koophandel voor Indonesie) Staablad 1847.23 (INPRES Perusahan Negara 1967; UU Badan Usaha Negara 1969; Abeng, 2001; Anoraga, 1995; MSOEs, 2008; Nugroho & Wrihatnolo, 2008; Research, 1998).
Table 6.1: Indonesian SOE Types
Description Perjan Perum Persero
Rules
19/1969 replaced by 6/2000 13/1998
12/1969 replaced by 12/1998 replaced by 45/2001
Ownership structure Part of ministry as bureau enterprises Wholly owned by government Government ownership through share ownership
State finances Not separated Separated Separated
Duties/objectives
vital and strategic sector focus on community service8
non-profit oriented
provide the public utilities9
profit oriented
Acquiring the selected business activities in commercial based
Profit-oriented
Official status Civil servant Specific Private
Board10 appointment Ministry Ministry Shareholder meetings
In addition to these rules, the government introduced the Undang-Undang no. 19/1969 tentang Pengganti UU no. 1/1969 Bentuk-Bentuk Usaha Negara (UU to replace UU no. 1/1969 on State- Owned New Structure no. 19/1969) and Peraturan Pemerintah tentang Persero no. 12/1969 (PP for
Persero structure no 12/1969/PP Persero 1969) which referred to the Consultative Assembly Rule no. 23/1969.11 The PP Persero structure no.12/1969 emphasised the status of the Persero structure as a commercial entity. Through Peraturan Pemerintah tentang Pedoman Hubungan Tata Kerja Antara Menteri Bidang Teknis dan Menteri Keuangan Yang Mewakili Negara Selaku Pemegang Saham Perusahaan Perseroan (Persero) no 11/1973 (PP for Supervisory and Guidance between Regulator industries and Ministry Finance as state shareholders for Persero structure no 11/1973/PP Persero 1973), the government emphasises the Persero’s commercial entity and roles which was a consequence of their capital being separated from the state budget; and they were supervised by the Ministry of Finance, who acted as the shareholder (INPRES Perusahan Negara 1967; UU Badan Usaha Negara 1969; PP Persero 1969; Mardjana 1992). Persero became the government’s profit- oriented business entity. The changes to Perusahaan Negara’s structure placed Persero as the Indonesian economic backbone, with equal treatment to private and foreign investors (Anoraga, 1995). Through this new structure, the government’s expectation for Persero to help achieve its industrialisation plans.
8
Vital and strategic industries include natural resources and heavy industries; for example, mining, shipping yards and automotive (DIAH, M. 2003. Restrukturisasi BUMN di Indonesia (Indonesian SOEs Restructuring),
Jakarta, Literata Jendela Dunia Ilmu). 9
Public utilities, such as post offices, telecommunications, electricity, gas and transportation (train and airlines) ibid.
10
The terminology used in Indonesia for Board: Dewan Direksi or Direksi (Board of Directors), the chief or management board for all types of SOEs, and Komisaris or Dewan Komisaris (Commissioner or Commissioner Board) as the supervisory board for Persero, and Dewan Pengawas (Oversight Board) for Perum and Perjan. 11Undang-Undang no. 19/1969 tentang Perusahaan Negara Pengganti UU no. 1/1969 Bentuk- Bentuk Usaha
Negara (UU New Structure 1969) was replaced by UU Badan Usaha Negara no. 1/1969 (UU Badan Usaha Negara 1969).
Through the PP Persero no 12/1969, Persero was encouraged to implement corporatisation. The PP
Persero no 12/1969 was the initial steps of corporatisation process particularly for Persero by emphasised the profit oriented objective in order to reduce the state financial burden. The government management and supervisory function within Persero has been replaced by board management (directors) and board of supervisor (commissioners). In practice, Persero still met several issues, such as performance, regulation and management. Monopolies and privileges were still a barrier for companies operating effectively and fairly (Nugroho & Wrihatnolo, 2008; Siahaan, 1996). This was because Persero still had an obligation to become government economic backbone to meet the industrialisation plans. In the meantime, military and bureaucratic involvement remained strong, with a number of Perusahaan Negara’s management, including Persero structure, being dominated by military officers (Crouch, 1975). These involvements and privileges led to less concern for the government and Persero to focus on profit objectives.
6.3.2Under Badan Usaha Milik Negara (BUMN/SOEs) structure (1983–2003)
Increasing oil prices in the early 1980s actuated the implementation of centralised economic policy by the government. Increasing oil prices motivated the government to enforce protectionist policies, particularly for foreign investors, restricting a number of industries to being SOEs, applying monopolies and investment restrictions (Fane, 1999; Pangestu, 1990). The reason for this was the government’s ability to support SOEs’ business activities from oil revenue. A number of industries were monopolised as for Perusahaan Negara only. This situation created an opportunity for the SOEs and the government to increase their activities. As SOE control was under their technical ministries, this caused the development of social welfare maximising expectations, and resulted in the involvement of bureaucrats and the military in the SOEs’ business activities. However, the government’s ability to harness financial resources from oil revenue resulted in fiscal problems when the oil price went down (Fane, 1999). These situations led to some financial problems for the
Perusahaan Negara, as well as fiscal problems for the state when the oil price went down. Fiscal problems became a crucial pressure for the government in resolving the national economic situation. A massive infrastructure investment by the government and the SOEs contributed to the Indonesian financial problems. The government’s evaluation of Perusahaan Negara during this period revealed that the majority of Perusahaan Negara showed poor performance (Pangestu & Habir, 1989). Consequently, the government sought to improve the performance of the SOEs and to resolve its fiscal problems through privatisation.
The requirement to improve the Perusahaan Negara’s performance encouraged the government to introduce the new structure of BUMN/SOEs. This new structure was also driven by the intensive market orientation policy, when the government opened a number of industries to private
participation; these had previously been monopolised by Perusahaan Negara, unless the industries were affected by the need to provide community livelihoods (Panglaykim & Thomas, 1967). Through
Peraturan Pemerintah no. 3/1983 tentang Tatacara Pembinaan Perusahaan Jawatan (Perjan), Perusahan Umum (Perum) dan Perusahaan Perseroan (Persero) (PP Pembinaan Perusahaan Negara
no. 3/1983: Supervisory and Governing Procedure and Guidance Perusahaan Negara for Perusahaan Jawatan [Perjan] Perusahaan Umum [Perum] and Perusahaan Perseroan [Persero]), the government underlined the new structure for these SOEs and the importance of economic objectives. The new structure of the SOEs was intended to give clear objectives and roles for Persero, as both government and business entities (PP Pembinaan Perusahan Negara no 3/1983; MSOEs 2008). At the same time, the government separated its functions from the role of maximisation of social welfare under Perum and Perjan status.
The centralisation of economic policy is also factor that leads Indonesian to financial crisis in late 1990s. Indonesia was the one of the countries most affected by the 1997 Asian financial crisis. The requirement to resolve the national financial problems led to acceptance of financial assistance from the IMF through the Letter of Intent (LoI) (Wise, 2002), which pointed out the importance of government in conducting privatisation as part of the assistance requirements. While the SOEs were incorporated entities, their structure did not allow them to conform to market conditions. The LoI engagement encouraged the government to restructure SOEs in order to meet the requirement to fast-track privatisation.