Full Steam with Privatisation

Indonesia

Economic News

22 Jul 2010
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Last week, amidst unprecedented levels of public revenue, the Indonesian government announced plans to go ahead with its extensive privatisation programme.



According to a World Bank study issued last week, the "government received in 2006 $15bn (RP136trn) in additional financial resources - the largest amount since the 1973 oil boom windfall".



The World Bank report suggests the government is now in a good position to upgrade the country's infrastructure and reduce poverty, two key policy objectives of President Susilo Bambang Yudhoyono.



Andrew Steer, the World Bank country director, said at the release of the report that the challenge was to "move to the next generation of reforms in public services and infrastructure so that Indonesia can achieve the kind of growth rates seen in many neighbouring countries today".



In 2007, state revenue is expected to keep rising following the announcement this week of major programs of privatisation and restructuring of many Indonesian state- owned enterprises.



Jusuf Kalla, the vice president, told the local press the government intended to reduce the number of state-owned firms to 69 from the current 139. The move will be led by a mix of privatisations and mergers between existing state companies, in a bid to make them more efficient and competitive.



Kalla said he was confident the restructuring would lead to a growth in profits for state companies, which amounted to RP74.44trn ($8.1bn) in 2006. He announced the target was a 22.5% growth in profits for 2007.



Sugiharto, the state minister for state enterprises, gave a more detailed schedule of the privatisation process saying the goal was to reduce the number of state companies from the current 139 to 102 in 2007, 87 in 2008, 69 in 2009, down to 50 by 2015.



On Tuesday, the government announced it would sell its stakes in nine companies and minority stakes in six other companies by the end of the year. The highest profile companies to undergo privatisation this year are airline carriers Garuda Indonesia and Merpati Nusantara, in which the government will sell 49% and 40% stakes respectively.



In addition, the government will sell stakes in Jasa Marga, Bank Negara Indonesia, Wijaya Karya, ISI, Iglas, Cambrics Primisma and Permodalan Nasional Madani.



As a result, the government expects to cash in RP3.3trn in privatisation proceeds. But Sugiharto told the local press that "the government might revise the figure upwards to RP4.3trn".



The news came amidst disappointing results for 2006 growth figures, which were released last week by the Central Statistics Agency (BPS). Despite a strong 6.1% growth in the last quarter, growth for the whole year was less than expected at 5.5%. Indonesia's GDP for 2006 stood at RP3,338.2trn ($370bn).



The results fell short of the government target of 5.8% for 2006 and slightly behind the 5.6% growth rate achieved in 2005. Rusman Heriawan, the BPS director, attributed the lower figure to the fact that "private consumption and direct investment have been badly affected by 2005's price hikes". This led the Indonesian economy to slow down in the last quarter of 2005 and stagnate at 5% in the first two quarters of 2006. The government is aiming at 6.3% GDP growth in 2007.

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