This section analyses the implication of privatisation policy for the government-stated objectives based on two approaches, the path dependence and privatisation. This section also investigates proposition two regarding whether changes in the SOEs market economy environment through the introduction of privatisation policy and liberalisation of market economy generates changes in the government and SOEs’ objectives. The change of SOEs market economy environment is expected to encourage the government to review its policies and objectives for SOEs. Therefore, the government and SOEs objectives are changed
The analysis on this chapter is referred to historical path analysis of the Indonesian privatisation which is employed to guidance the analysis of privatisation based on historical and path perspective. Privatisation is considered as a deviant or causal event that also sharpens the current SOEs structure and objectives. Meanwhile, privatisation theory is selected to guide the analysis as to what extent the privatisation impacts on the government-stated objectives and SOEs structure.
Privatisation during the Indonesian SOEs evolution can be analysed as an important alternative event of the sequence. A part from the diffusion of Indonesian SOE evolution, privatisation occurs as an unusual event or contingent event during the timeline. In practice, this event plays an important role. Privatisation during the Indonesian evolution is viewed as road junction event from Ebbinghaus (2005) where it becomes a spontaneous choice that repeatedly used in subsequence events (Ebbinghaus, 2005). From his study in path dependence, Ebbinghaus emphasises four crucial factors that determine the path dependence; the equal starting condition, self-reinforcing process, irreversibility and inefficient path (Ebbinghaus, 2005). Although these are not only factor on determining the path dependence applied for this privatisation case, some crucial factors appear as part of the privatisation path in Indonesia. From the description in Sections 7.1 and 7.2, it is shown that privatisation has been adopted as common event by the Indonesian government to resolve the fiscal or financial problems. The economic or financial problems both in 1966 and 1991-1998 are driving factors for the government to conduct privatisation. Those two periods of privatisation in Indonesia were motivated by two similar situations. It has been used several times despite not being the preferred option at the beginning; it has been seen flourish as preferred pattern of particular phenomenon. Privatisation becomes an irreversible event or pattern for the Indonesian government to resolve the fiscal or financial problems.
The study of privatisation has shown many different results in regard to control, and ownership. A theory of privatisation, was developed based on the privatisation case in Russia, shows that privatisation can be a facility to reduce the politician and government involvement and control
pressure on SOEs where these factors are considered a main reason for inefficiency (Aharoni, 1984; Boycko et al., 1996; Shleifer and Vishny, 1994; Yarrow, 1999). Another study of changes in ownership of public enterprises like SOEs indicates that, to an increasing extent, privatisation switches of firms’ goal from social welfare maximising to profit maximising (Bös, 1987). This shows that the ownership structure as an impact of privatisation is commonly the main factor for analysing the successful of privatisation. Boycko et al (1996) note two important items in regards to a company’s control: managers and politicians who influence the success of restructuring of the company (Boycko et al., 1996). Referring to this study, the distance between shareholders in the politician affects the extent of restructuring. In other words, the closer shareholders to the politician, the more difficult the company’s restructuring.
Referring to privatisation analysis above; some items from earlier privatisation studies are applied to help the analysis of the privatisation in Indonesian. The case of Indonesian privatisation shows that privatisation originally aims to reduce the government involvement in SOEs business activities by extending the public or community participation within the SOEs ownership (UU BUMN 2003; PP Privatisation 2005). Meanwhile, privatisation in Indonesia is pursued to improve the confidence of international investors in the market, and to assist the recovery of the national economy (Tjager, 2000). These statements can be understood that the new shareholders should distance themselves from politicians in order to bring a new culture to SOEs. In practice, full transfer of ownership or privatisation during the period between 1991 and 2010 occurred mostly when the government held a minority ownership or the former owners were foreign investors.20 Privatisation in Indonesian is aimed to enhance the opportunity for community participation (UU BUMN 2003; PP Privatisation 2005), this causes the influence of new private owners also limited. Although it is common that privatisation may not distinguish between government control and access to production (Bienen & Waterbury, 1989), Indonesian privatisation has shown that privatisation does not make any difference to the government’s control and access to production. From the previous analysis in
20 Transfer of ownership in 1966 occurred by returning nationalised companies to their previous owners, the majority of which were foreign investors as mentioned in Section 7.1. The transfer of ownership of PT Indocement Tunggal Prakarya (PT INTP), PT Socfindo, and PT Wisma Nusantara Indonesia were occurred as part of the IMF’s LoI. The LOI required Indonesian government to sell its minority ownership including PT Socfindo, PT INTP and PT Wisma Nusantara Indonesia. During this period, the Indonesian government sold its minority ownership of PT Socfindo, PT INTP and PT Wisma Nusantara Indonesia.
PT INTP was sold to majority owners; Heidelberg Cement Co. PT Wisma Nusantara Indonesia was sold to the majority owner JAL Hotel Co. The Indonesian government only sold its 20 per cent of PT Socfindo’s ownership to Plantation Nord-Sumetra Belgia SA (PNS) who was PT Socfindo’s majority owners.
Meanwhile, transfer ownership of PT Atmindo, PT JIHD, PT Kertas Padalarang, PT Kertas Blabak and PT Intirub were postponed due to legal issues (MSOES, 2008; Laporan Kinerja BUMN Tahun 2003-2007 (SOEs Performance Report 2003-2007).
Chapter 6 Section 6.4, the centralisation of control and influence of state welfare orientations are deemed as a barrier for the implementation of full privatisation.
The motivation of privatisation can be vary. The study of privatisation by Aharoni in 1984 shows several different motivations for government to privatise its SOEs; from ideology to pragmatic consideration (Aharoni, 1984). Using this study, the motivation of Indonesian SOEs is likely to be economic and political shift reason. Economic reason for privatisation can be identified as the expectation for SOEs to be more efficient, while political reason is shown through the requirement to support state budget or the government economic commitment (Aharoni, 1984). These reasons are found within the Indonesian privatisation as seen through nationalisation and the IMF’s LoI agreement. The privatisation in Indonesian is often used to provide a support for the state budget and reduce corruption (Abeng, 2001). Privatisation of PT Semen Gresik, PT Indosat and fast-track privatisation are examples of economic stabilisation’s influence on government privatisation decisions. Meanwhile, political shift reason is found through the shift of political power in Indonesian in 1966, which later becomes a starting point for (re)-privatisation in Indonesia. The partial privatisation under New Order regime has shifted the centralisation economic which was set by previous regime to the market orientation.
Focusing on proposition two, the change of SOEs market economy environment through privatisation should alter the government and SOEs objectives. Privatisation policy in Indonesia does not seem to make any different regarding the government policy. Limited changes in regard to government control over the production and decision making process is also found through limited changes in context of government objectives for SOEs. Social welfare expectation is still the government main concern, even though the government encourages SOEs to meet profit and efficiency objectives as shown through the implementation of UU BUMN no 19/2003 and PP Privatisation no 33/2005. The importance of social welfare expectation is shown as the laws set boundaries whether the SOEs allow or restriction to be privatised. At the same time, the laws provide a “space” for SOEs to attain the social welfare expectation. This can be seen that the privatisation in Indonesia is only a pattern or constant event taken by the Indonesian government in order to resolve the financial or national economic problems. A part of path institutional changes, the original government social welfare objectives still exist and affect government decisions regarding the privatisation policy. Consequently, conflict of interests and constraints between state welfare orientations and market pressure influence the government decisions. Partial privatisation is the most popular choice for the Indonesian government to resolve conflict and financial problems. The selection of partial privatisation is motivated by the possibility for the Indonesian government to accommodate the state welfare orientation expectation and pressure from market.
In sum, the analysis above shows that privatisation in Indonesia are likely to become an alternative event that has been repeated use as a subsequence during the timeline of evolution. The economic and political power shift motivates the government to conduct privatisation in order to assure the continuity of Indonesian SOEs journey. From these finding above, privatisation is seen as a pattern whenever the government has to resolve the financial or national economic problems. Although privatisation has been set for economic motivation, the non-economic reasons remained stronger. The changes of SOEs market economy environment through privatisation and liberalisation generates two consequences; the existence of social welfare expectations that in line with profit or efficiency objectives; and the different treatment or classification of SOEs in relations to provision of public utilities and privatisation policy.