make profits, some were for public services and some were
still part of a government agency. This consideration
resulted in the issuance of a government regulation which
divided the government companies into three types:
( 1 ) Perjan, an agency which is part of the government institution, for example, the railways and pawn shops (2) Perum, a government company whose emphasis is more on providing public services rather than making profits
(3) Persero, an agency specifically established to make profits. At this time, there was no discussion regarding corporate governance (B04, October 2003) .
The nationalisation process, which created a huge number of ISOEs, had been used by the government to support Kebfjakan Ekonomi Terpimpin
(the Guided Economy Policy) established by President Sukarno. This policy dealt with the 'Indonesianisation' of the economy. The ISOEs were the best devices to implement the policy. As Robinson ( 1 986: 80 cited in Mardjana,
1 993: 1 7 1 ) notes,
The intention of Guided Economy was to construct a national industrial economy around state-owned capital. The seizure of the Dutch-owned trading houses and the establishment of State monopoly on the import of essential commodities was a clear indication that the private sector, indigenous or Chinese, was to be excluded from the most lucrative of trading monopoly.
The complexity of supervision and monitoring processes relating to the various kinds of ISOEs led the government to issue Act No. 1 9 / 1 960 which standardised all ISOEs into one type of business form called
Perusahaan Negara/PN (State Company)57. The capital of PNs could not be divided into shares. These PNs were then supervised by related Ministers and controlled by the Main Minister (Kementrian BUMN, 2003) . With standardisation, the number of public enterprises was reduced to 223 by
1 965 (WiIjasuputra and Rieffel 1972 cited in Mardjana, 1 993) .
Sukarno's political association with communist countries, such as the Soviet Union and China, and his decision to withdraw from the United Nations in January 1 9 65 resulted in Indonesia being isolated from the
57 There were other enterprises that were not included as state companies, including PT Hotel Indonesia International and PT Sarinah, which were limited liability enterprises. Government Banks and PERTAMINA (a state oil company) were also excluded from the Act 19/ 1 960 because they were regulated under specific laws.
world's capitalist system. Poor relations with Western countries. combined with political instability inside the country. reached its peak when the military. under the leadership of General Suharto seized government power in 1 967. At that time, Indonesia suffered a severe economic crisis with huge debts and hyper inflation.
New Order Regime - The Suharto Era
In contrast to Orde Lama (the Old Order) regime. Orde Barn (the New Order) government implemented more liberal economic poliCies and changed the orientation of the economy. from a high level of direct government intervention and an 'inward-Iookingness', to having more reliance on the market. Hence, the New Order was regarded as a 'developmental' regime. since it placed a high priority on achieving rapid economic development and in improving the level of national prosperity and welfare (Surbakti. 1 999, p. 6 1 ) . Starting in 1 969 . the New Order government implemented Rencana Pembangunan Lima Tahun/Repelita (the Five-year Development Plans) in order to achieve sustainable development growth. For this reason. Suharto. as the President at that time. was renowned as Bapak Pembangunan Indonesia (the Father of Indonesian Development) .
The New Order government carried out several initiatives in order to recover from the economic crisis (Setiawan, 2002) . Firstly, it sought out financial assistance from a number of Western countries, which then formed a consortium known as IGGI (Inter-Governmental Groups on IndoneSia) and which is now called CGI (the Consultative Groups on Indonesia) . Secondly. it opened new relationships with financial agenCies. such as the World Bank and the IMF. Thirdly, it established more sympathetic poliCies towards private investment in general and foreign investment in particular. These sympathetic poliCies towards foreign investment were firstly shown by the stipulation of Law No. 1 / 1 967 on Foreign Investment. Secondly. the government returned some nationalised enterprises to their previous owners. Together with these actions, the government provided assurances that there would be no more nationalisation of foreign enterprises. Thirdly, the government established
Badan Pertimbangan Penanaman Modal Asing/BPPMA (the Foreign Capital Investment Advisory Board) . Fourthly, the government allowed 1 00 percent foreign ownership and there were no restrictions anymore on foreign equity and employment of expatriates.
Although the New Order government applied more liberal economic poliCies, the ISOEs were still part of the government economic policy to control the economy. However, the government tended to pOSition itself as the 'regulator' rather then the 'leader' of the economy. To promote greater independence of the ISOEs, the government issued Instruksi Presiden
(Presidential Instruction) No. 1 7 / 1 967 and Law No. 9 / 1 969, which changed the single legal status of ISOEs, from PN previously regulated under Act No. 1 9 / 1960 into three categories:
( 1 ) Perjan (Perusahaan Jawatan) (2) Perum (Perusahaan Umum) {3} Persero (Perusahaan Persero)
A Perjan is a governmental agency defmed as a social service agency attached to a ministerial department whose objective is to deliver public services to society without seeking profit. A Perjan is regulated under lBW (Indonesische Bedrijvenwet, Stbl, 1 927: 4 1 9). Its operation is managed , supervised and mOnitored by a relevant technical department. The management and staff are civil servants. Its source of funds comes from the government budget and its capital is not divided into shares. Its costs of operation and its annual profits or losses are part of the national , budget. At present, the legal status of Perjan has been changed to other legal forms such as Perum or department agenCies.
A Perum is defined as a public company. It is expected to generate revenue (to be as profitable as a comparable private company) by producing high quality goods and services in a competitive manner but at the same time it has a social responsibility to provide public goods and services to the public at low prices. Its source of funds comes from a separate government budget.
A Persero is defined as a limited liability company whose shares are wholly or partly (5 1 percent and over) owned by the government, on behalf
of the public. The main objective of a Persero is to earn profits. A Persero is managed by Dewan Direksi (the Management Board) that is autonomous from the government agency. In day-to-day operations, the Management Board is responsible to Dewan Komisaris (the Board of Commissioners) . Table 6.2 shows the legal status and characteristics of ISOEs.
Table 6.2. Legal Status and Characteristics of ISOEs
Types
Characteristics PERJAN
PERUM (Public PERSERO
(Government (Limited Liability
Agency) Company} SOEs)
Mixed public
Purpose of activities Public Services services and profit Profit making making
Relevant Law IBW Act 19/ 1 960 Commercial Law Relationship of the Part of Autonomous Autonomous
company to the government organisation organisation
government agency
The Board of By the
Directors appOinted By the president By the president shareholders
general meeting
Capital status Part of annual Government Capital share
budget partiCipation
Employment status Public servant Based on special regulation Similar to private employees
Scope of business Public utility (vital Public utility Similar to private
and strategic) enterprises
Source: Djamhari ( 1 996: 1 77)
Besides these three legal types of ISOEs there are other government agencies which operate like an enterprise because they have to produce financial statements but they are regulated under a different law. Examples are Badan Urusan Logistik/BULOG (The National Logistics Agency) and Pertamina. BULOG was established under Keputusan
Presiden (Presidential Decree) No, 39/ 1978 while Pertamina was regulated under Act No. 8 / 1 9 7 1 .