Mitigating State-owned Enterprise debts

57
Kusfiardi
Economics and Politics Analysis, Co-Founder of FINE Institute

IO – State-owned Enterprise debt per September 2018 stood at more than Rp 5,271 trillion. According to data from unaudited books, the debt level has increased Rp 3,008 trillion from the 2016 figure of Rp 2,263 trillion. The biggest contribution to this debt is Financial State-owned Enterprises at Rp 3,311 trillion, while non-Financial Enterprises show a debt total of Rp 1,960 trillion.

The increase of State-owned Enterprise debts would naturally affect their financial performance, especially in terms of liquidity. With an increasing debt load, an Enterprise must vastly improve its financial capacity in order to cover short-term debts. Apart from mere finance, the Enterprises are required to help bolster the national economy and the people’s prosperity.

Risks
A greater amount of State-owned Enterprise debts, if not followed by improved financial performance, will entail various risks. These include defaulting to bankruptcy risks. When State-owned Enterprises cannot satisfy the obligations of maturing debts, they risk losing their assets. Even if they are able to keep their assets, the economic value of the Enterprise would be reduced. Either of these cases would affect the Enterprise’s business performance.

Transparency
Increased State-owned Enterprise debts are not accompanied by sufficient transparency. The Ministry of State-owned Enterprises is not transparent either in the reporting of the existing amount of debt it has, or when projecting the state of State-owned Enterprise debts in the future. Furthermore, the Ministry of State-owned Enterprise has not been transparent about its policies and roles either.

So far, the Ministry’s role has only seemed to be administrative only. There seem to be no clear direction of State-owned Enterprise management policy, including financial management. With the existing situation, we need to seriously review the leadership performance of the Minister of State-owned Enterprise. Has he performed his role and function as envisioned by the Constitution, which places State-owned Enterprises as State agencies that work for the utmost welfare and prosperity of the people?

In the midst of ballooning State-owned Enterprise debt and lack of transparency, there are some urgent things to do:

First, the management of each Enterprise must evaluate the Enterprise’s performance, including seeing how much leverage the debts have exerted on business and financial performance. The results of this evaluation must be followed up with necessary action to improve the Enterprise’s future performance.

Second, the People’s Representative Council (Dewan Perwakilan Rakyat – “DPR”) must seriously execute its monitoring duties. For this purpose, DPR may ask the Audit Board of Indonesia (Badan Pemeriksa Keuangan – “BPK”) to perform audits for a specific purpose, in this case to evaluate State-owned Enterprise debts. Such evaluations include the utilization of the debts, and how much the debts have leveraged the Enterprise’s financial and business performance. Furthermore, the evaluation should include a contribution of the debt to the Enterprise’s ability to improve the national economy and the people’s welfare.

DPR may also utilize its legislative power to immediately discuss revisions to the State-owned Enterprise Law. This revision should emphasize: the role of State-owned Enterprise as an extension of the State’s power over the soil, waters, and the natural wealth contained within them; the power over production facilities important for the State, as they control the livelihood of the many; and the role of State-owned Enterprise in running public service for the people. Again, the State-owned Enterprise must contribute to the welfare and prosperity of the nation and its citizens through its functions and roles.

These are urgent and important steps that we must take to save State-owned Enterprises from bankruptcy and takeover by creditors. It is necessary that we save State-owned Enterprises, which have central and important role in our daily lives.