People Innovation Excellence

PHILOSOPHICAL FOUNDATION IN SOE’S RIGHTSIZING POLICY

By SHIDARTA (July 2017)

Where is the position of state-owned enterprise (SOE) in the philosophy of Indonesia’s economic development? This question is interesting because some articles on the economy in the 1945 Constitution of the Republic of Indonesia do not provide clarity regarding this matter. Of course, there are some keywords mentioned in the 1945 Constitution, which show the philosophy of managing the economy in this country, such as “collective effort” (usaha bersama) and “family principle” (asas kekeluargaan). Are our business entities managed with such philosophies?

To answer this question, we must look at what happens in SOEs. To date there are 115 SOEs managed by the Ministry of SOEs, which consist almost entirely of limited liability companies and a handful of public companies. By making all SOEs move in one direction, in this case it means that all of them become limited liability companies, clearly demonstrating this country’s intention to make all these SOEs become profit oriented companies.

“Collective efforts” and “family principle” are philosophies that are not appropriate for overseeing profit oriented companies. Such philosophies are best suited for the type of business entity called a cooperative. Mohammad Hatta, known as the Father of Cooperatives, emphasized this. However, in reality there is a lack of confidence in the state to use a business entity in the form of a cooperative as a business vehicle for SOEs. That is, SOEs are not compatible with the form of cooperatives.

Not surprisingly, cooperatives have always been suggested as business entities for micro and small businesses. Or, at best, it will reach middle-class businesses. There can’t be a big business using a business vehicle in the form of a cooperative. Is that right? Who created this impression?

The government might argue with that! However, the portfolio of government cabinet shows clearly this tendency of thought. At present, cooperatives are managed by the ministry, whose portfolio is called cooperatives and micro, small, and medium enterprises (SMEs). In other words, the impression is stronger that the habitat of the cooperative is indeed similar to SMEs. Vehicles for large businesses are suggested to be “limited liability companies”. The argument is very likely because the phenomenon in the international arena is the same. Multinational companies do have capital divided into shares. The form of a company whose capital consists of shares is a limited liability company. Only limited liability companies are permitted to operate in the capital market. The cooperative is certainly not possible to enter the stock exchange because the capital is not divided into shares.

So, what is the most appropriate business entity for SMEs in Indonesia? The cooperative may be one of them although there is no obligation to use only this business entity. Regulations in Indonesia allow SMEs to stand with limited liability companies. For this reason, there is indeed a problem because the limited liability company law still requires a minimum authorized capital of IDR 50 million, whereas in many countries the minimum capital base is no longer needed to be determined. The health of the company does not depend on the amount of capital. Start-up companies sometimes need a business entity such as a limited liability company more as an initial legality to roll out its business. If this is the case, then a limited liability company with a single shareholder should also not be a problem!

If SOEs are fully directed to make a profit, then are there SOEs designed for not taking profit? We need to carefully answer this question. Outside the business entities managed by the Ministry of SOEs there are business entities called working units (satuan kerja), public service agencies (badan layanan umum), and legal entities (badan hukum). Those terminologies are indeed, very confusing!

Just like state-owned enterprises, the aforementioned forms of business entities also accentuate economic benchmarks. Current state higher education institutions in Indonesia, for example, have various forms of business entities. The same case also applies to hospitals. Government policy for structuring the organization of these companies, usually called rightsizing policy, is a big job in Indonesia. When you visit a state-owned university, you should realize that the rector who leads the organization may be the leader of a working unit under a ministry. It is different with another university having organization as a public service agency whereas it is considered more economically independent. Finally, in some prestigious universities, there are those taking the most desirable legal entity called “badan hukum” (literally means “legal entity” as well). But, these three kinds of organization cannot be categorized SOEs. 

Then, what size of a company can be referred to as a SOE? In accordance with the definition in the legislation, “SOE” is a business entity that is wholly or partially owned by the state through direct participation derived from separated state assets. This definition is evident at a glance. However, the word “wholly or partially” in the phrase, directly raises debate. The law states that state-owned shares must be 51%, whereas in order to become a majority there is no requirement to wait until such a large amount, that is, as long as more than 50%. Is it possible for the state to have 50.05 percent of shares, but not to control the company’s management? If so, companies like this are considered SOE or not?

There are many questions about SOE that can be raised. This short article just wants to remind that all the possible answers have the potential to be confusing as long as the philosophy of the rightsizing policy has not been well-regulated. (***)



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