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The Jakarta Post, 13 March 2003 : Opinion & Editorial

No other choice but to sell our souls

Yanuar Nugroho,
Director, Business Watch Indonesia, Surakarta,

From 161 state-owned enterprises (SOEs) in Indonesia, only 145 are registered and the other 16 are
unregistered as SOEs, yet they hold the status of state body corporations (perusahaan jawatan or
perjan). Only 11 of the 145 registered SOEs handed over dividends worth Rp 21 trillion to the state.
The other 134 SOEs, contributed nothing financially to the state.

Hence the office of the State minister for State Enterprises is in the process of liquidating 17
unprofitable state-run hospitals, to be either sold out or changed into a "corporate" hospitals, Suara
Merdeka reported last year.

The Jakarta Post on Feb. 18 also reported that the state forestry firms, Inhutani I-V, would be
liquidated. Some firms would be surrendered to local villagers and others would be auctioned off to
private investors to turn the areas into plantations. All were not profitable enough and they had failed
to rehabilitate forests abandoned by forest concessionaires.

The plan was strongly opposed but the privatization scheme may be smoothly on its way -- yet the
firms to be privatized control 99 concessions in natural forests covering some 6.5 hectares, and 27
industrial estate plantations covering about 2.4 hectares.

According to Minister of Forestry Mohamad Prakosa, the ministry had thoroughly studied and
concluded that the performance of the Inhutani firms, in terms of finance and forest rehabilitation, had
been disappointing. The ministry, moreover, does not see any other option other than closing down
the firms and selling them to private companies.

The word "privatization" seems to have become the dominant, efficacious formula to overcome any
problem in public goods and services delivery, which is still being managed by the state.

Ferdinand Nainggolan, Deputy Minister of SOEs, was quoted as saying that three stages have been
established to empower the SOEs: Consolidation in 2002, revitalization in 2003-2004 and growth in
2005-2006. The first two stages end in the only option -- to privatize all sectors in which those SOEs
are now working in -- backed up by the preparation of a bill on SOEs and privatization in order to
establish its legal-formal foundation.

The bill now waits ratification. Nobody seems to be aware of its grave risk to let privatization
metamorphose into a sort of Trojan horse in our human life.

At the heart of the debate is the contradiction of public-authorized (i.e. state-owned and controlled)
against privately managed businesses which determine, or at least influence, the life of many people.
The choice always seems to be pro-private or pro-state.

Proponents of privatization often cite "lean, efficient and effective" in contrast to "bureaucratic,
corrupt, inefficient and ineffective", attributed to state-managed businesses.

Those who are pro-state argue for "state or national interests" in contrast to "private or group
interests". Yet they are not the fundamental basis that any policies and practices of privatization
should be based on.

The fundamental question is: Could the public interests be guarded more by privatizing activities
which have been under state control so far, or the opposite, could they be assured more if those
dealings remained unchanged within state authority?
Yet, while the elementary argument seems to be clear, the forces towards privatization look immense
-- first, external factors forced by multilateral agreements and co-operation and second, surprisingly,
the government as a public agency itself.

Further, privatization targets sectors which are fundamental needs -- transportation, health care,
water, energy/power, education -- most of which are now managed by SOEs. Worse, Law No.
25/2000 on national development programs 2000 to 2004, states clearly the "privatizable" sectors --
telecommunications, transportation, plantations, hotels and tourism, infrastructure, oil and gas and --
most dangerous -- other sectors which have become investors' interests.

Soon, the question might be addressed to the government or legislative bodies, which formalized
such rules to invite the private sector to take over. This is the intrical part of the game, the time when
financial liberalization and the open market are extended and reinforced -- and at its heart is the issue
of privatization.

By doing so Third World economies are being deflated; the governments are withdrawn not only from
public enterprise but also from compassionate support of the basic health and welfare of the most
vulnerable. Former World Bank's economist Joseph Stiglitz wrote in 1999 that there are real risks
associated with delegating excessive power to international agencies. Such institutions can become
an interest group, concerned with maintaining its position and advancing its power.

Stiglitz is correct. Indonesia, for one, received loans as much as US$400 million for the power sector
restructuring program and $300 million for the health and nutrition sector development program, in
addition to another $300 million for its water resource sector adjustment loan.

The impressive numbers are deadly in consequences. Behind the beautiful term of "adjustment" or
"restructuring" or "development" lies the imperatives to go for inviting the private sector -- particularly
transnational and multinational companies, and wiping the government away.

While in the water sector the loan implicates a clear effort of privatization of state-owned water
corporations (PDAM) and private authority towards water resources, the health and energy/power
sector also suffer from the same perils.

Hiding behind "decentralization of health sector management" in the loan conditions is a systematic
way to withdraw the government's involvement and to implement "full-cost recovery" policy in the
health care sector.

Apart from paying for the service, patients will also be billed for the overhead and all other operational
costs. The bill on the health sector also waits ratification this year.

As for power restructuring, the same logic of "full-cost recovery" emerges in the term of "unbundling"
the state power firm, PLN. It has caused a significant increase in electricity prices since PLN now
retains responsibility only for transmission and distribution.

Its main function, to generate energy, has been replaced by independent power producers. Soon,
even the function as transmitter and distributor will also be taken over by the private sector. More
examples could be worse, particularly regarding the direct implication to the poor. Those who have
money are those who get the goods and services.

And while such development may not have put suffering third world countries like Indonesia back on
a steady economic keel, it has certainly helped undermine democracy in those nations. Privatization,
a means of delivering goods and services to the public, has become an end in itself. And since it is
being done brutally in almost of all aspects of our life, we should stop it.

But this argument is not against privatization per-se, but against the line of thinking that market logic
is always superior to solve societal problems. The market is part of society, just like the economy is
part of the social sphere, and not the other way around. Thus, we should not surrender our life to
market domination. Otherwise, we would also be counted in history as the generation that sold its
own life.

The writer is also a lecturer at the Sahid University in Surakarta and a researcher at Unisosdem