The nationalisation period began in 1958 when the conflict between the New Indonesia Republic and the Dutch Federation led to economic and political catastrophes. Under Sukarno’s leadership and through Ekonomi Terpimpin (Guided Economy), the centralisation of socio-political and economic policy was stronger. Through Ekonomi Terpimpin, the government affirmed the importance of Indonesia to return to, and implement, the 1945 Constitution of Indonesia (Siahaan, 1996).6 This also meant the end of market orientation policy which led to centralisation of economic policy under the government hands.
6 During the parliamentary period, the government implemented the 1950 Provisional Constitution of Indonesia.
Instability in the socio-political and economic situation caused the failure of government to improve the economic situation. The rejection of the Irian Barat (West Irian/West Papua) resolution and Dutch enforcement to protect their businesses in Indonesia sharpened Indonesian resentment (Anderson, 1983; Kanumoyoso, 2001). This situation provoked a massive labour strike and economic blockade in 1965. The strike generated crucial action from the Indonesian government to take over numerous Dutch companies, as mentioned in Undang-Undang no. 18/1958 tentang Nasionalisasi Perusahaan-Perusahaan Belanda (Nationalisation Act no. 18/1958/ UU Nasionalisasi 1958). The centralisation of control policy under the Indonesian government strengthened when a labour strike led to a massive takeover of Dutch companies (UU Nasionalisasi 1958; The American 1960). Military involvement was needed to protect and take over supervision of many nationalised companies, particularly in the outer islands (Crouch, 1975). Following nationalisation, the government managed and supervised 822 companies under the state enterprise structure.
In the political context, the strike caused a change of political orientation in Indonesian leaders, particularly when Indonesia encountered economic blockade by several western European countries and the United States of America (USA). This economic blockade caused massive damage to Indonesia’s international trading (Dick, 2002). At the same time, the Soviet Union and Eastern European countries offered investment aid towards the recovery of Indonesia’s economic situation (Siahaan, 1996). However, communist riots in 1965 devastated the Indonesian economic and political situation, leading to a transfer of political power in 1966 from the Old Order regime to the New Order regime.
6.2.1 Change to the SOEs Structure and Objectives
In 1958, nationalisation was a driving factor for the Indonesian government to re-apply centralisation of economic policy. As indicated previously in Section 6.2, economic and political instability following the massive labour strike encouraged the Indonesian government to protect the Dutch companies’ assets by taking over control of companies (The American, 1960). The majority of nationalised companies were classified under Dutch classifications: IBW (Indonesische Bedrijvenwet) and ICW (Indische Comtabiliteitswet wet). At the same time, the Indonesian government took over the control of several different structures of companies. This later caused some difficulty for the government in managing them. As a result of nationalisation, the government managed and supervised 822 state enterprises, which were classified as:
- IBW
State enterprises where capital came from the state budget as loans; the companies’ objectives were profit-oriented.
- ICW
State enterprises where capital came from state budget as equity; the company constitution objectives were social welfare.
- Nationalised Dutch companies.
- Private companies under BINand BNI, due to their financial problems.
- Former bureau or agencies under a government department (Anoraga 1995; Diah 2003).
To manage these companies, the government established Badan Nasionalisasi Perusahaan- Perusahaan Belanda (BANAS/Nationalisation Body for Dutch Companies). BANAS was established to ensure that all nationalised assets were controlled by the state (UU Nasionalisasi 1958). Following the establishment of BANAS, the government took further action for these companies; such as, mergers, acquisitions, transferring companies to a new status, and transferring control to regional government (Kanumoyoso, 2001; Nugroho & Wrihatnolo, 2008). At the same time, the government created some new state enterprises to take over the Dutch nationalised companies’ activities (Abeng, 2001; Diah, 2003; Kanumoyoso, 2001; Ruru, 2006).7 These takeovers were mostly aimed at providing public utilities by using their facilities to distribute staples to Indonesians (Kanumoyoso, 2001). Social welfare maximising was strongly represented as a role for these new state enterprises. The takeovers and centralisation of control of these 822 companies led to financial problems. This was because most companies, particularly with IBW and ICW status, were not-profit oriented; their main roles were for the provision of social and public services for communities (Research, 1998). At the same time, others were companies supervised by other state enterprises due to their financial problems. The control authority later resolved this by separating the control authority between central and regional governments. The central government still held most companies or state enterprises with public utility provision functions, while the regional government supervised the rest of the companies, which did not have these duties.
These massive takeovers caused supervisory issues, which also affected the SOEs’ structures and objectives. Diversity in organisational structure and the size of the new state enterprises motivated the government to introduce a new structure under the Perusahaan Negara (state company) structure. Perusahaan Negara structure was implemented in 1960, through Peraturan Pemerintah no. 19/1960 tentang Perusahaan Negara (Perusahaan Negara Rule no. 19/1960/ Perusahaan Negara Rule 1960). The law regulated the Perusahaan Negara under their respective sector’s ministries
7 Most of the Dutch nationalised companies were trading companies. The takeover occurred as the government established new companies under Badan Urusan Dagang (the government body to manage the trading nationalised companies). The takeovers were: PT Budi Bahkti to continue NV Boorsumij, PT Aneka Bakti to continue NV Internatio, PT Juda Bhakti to continue NV Jacobson van de berg, PT Tulus Bhakti to takeover NV Lindeteves, and PT Marga Bahkti to takeover NV Geowehry.
(MSOEs, 2008). Through this new structure, the government began to categorise the companies’ objectives into provision of services, handling of public interest, and obtaining revenue (Perusahaan Negara Rule 1960; MSOEs 2008). The establishment of the Perusahaan Negara structure was followed by the establishment of Badan Pimpinan Umum (BPU/General Management Board), who acted as the state representative by conducting a management function for individual state enterprises, or coordinating several Perusahaan Negara (Perusahaan Negara Rule 1960). In practice, the establishment of Perusahaan Negara did not fully resolve the supervisory issue. Badan Pimpinan Umum roles overlapped with the director’s duty, and also required the involvement of military and bureaucrats with little talent for managing the companies (Abeng, 2001; 2002). Meanwhile, the introduction of the Perusahaan Negara structure was not equally applied to all state enterprises. Several state enterprises, such as Pertamina and the state banks retained the same status under separate legal arrangements (MSOEs, 2008). This situation left a number of Perusahaan Negara still aligned with bureaucratisation, which led to poor performance, inefficiency and becoming a state financial burden. This situation contrasted with the state’s expectations when Perusahaan Negara
was instituted, which was to become the state’s production and economic power.
6.2.2 The Key Points from Nationalisation period
The key points from nationalisation period are the returning of control over the nationalised resources under the government hands through nationalisation. The centralisation of control over resources occurred through the role state companies in order to prevent the control abusing following the nationalisation. Centralisation of control under the government led to the introduction of new structure of Perusahaan Negara. The new structure resulted in the roles of state companies from socio-political to become state production and economic power.