Are State Owned Enterprises successful vehicles for attaining their governments stated objectives

Abstract

The purpose of this study is to examine whether Indonesian Badan Usaha Milik Negara (BUMN) or State-Owned Enterprises (SOE) are successful vehicles for attaining government socio-economic and financial objectives. The motives for undertaking this study arise from the importance of SOEs in national economic and socio-political roles in developing countries like Indonesia, even after their privatisation. This thesis identifies the implications of policy changes for the Indonesian government’s objectives for SOEs. First, an historical examination of changes in the institutional and economic environment in Indonesia (Chapters 6-8) identifies substantial impacts on the evolution of the structure of SOEs and the government’s objectives for SOEs. The first stage of this analysis reveals that the “see-sawing” of economic policy between centralisation and market orientation led to changes in the structure and objectives of the SOEs. Initially, the state enterprises established during the Indonesianisation period (1945-1958) had multiple socio-political objectives with little concern for economic of financial objectives. The reforms during the nationalisation period (1958-1966) included the restructuring of previously nationalised companies as Perusahaan Negara, and the introduction of profit objectives for some Perusahaan Negara. In the corporatisation period (1966 – present), the Perusahaan Negara were reformed and divided into three types of entities: Persero, Perum and Perjan. The Persero are incorporated entities that have both commercial and social welfare objectives. The Perum are incorporated entities that are not commercial but have profit objectives and social welfare objectives. The Perjan are not incorporated (remaining as state agencies) and have only social welfare objectives. Perusahaan Negara poor performance and fiscal problem in the early 1980s encouraged the reform of Perusahaan Negara structure as Badan Usaha Milik Negara (BUMN/SOE). The introduction of partial-privatisation policy in 1991 encouraged profit and efficiency objectives for SOEs that could potentially be privatised. The implementation of fast track privatisation in 2002 caused significant changes in the SOEs structure and objectives. The government encouraged all SOEs to implement corporatisation principles in which emphasise financial objectives such as profit and efficiency. The government eliminated the Perjan structure, which it considered to have become a barrier to the implementation of full corporatisation and fast track privatisation. In practice, social welfare and non-economic remained a major Badan Usaha Milik Negara (BUMN/SOE) objectives. From the late 1990s, external pressure from international financial institutions was a significant factor in the government’s efforts to privatise the SOEs. In the second part of the historical analysis in this thesis, privatisation is shown to be a major influence on policies and SOEs’ objectives. Privatisation represents a fundamental change in the government-stated objectives and policies for…