Cleaning up Indonesia’s State-Owned Enterprises

Cronyism, conflicts of interest, political appointments slow down process

Business executive Erick Thohir, appointed in December by Indonesian President Joko Widodo to clean up the bloated and corruption-riddled State-Owned Enterprise Ministry, appears to be turning into the go-to guy for President Joko Widodo. 

He served as Jokowi’s 2018 campaign chairman as well as president of the Indonesia National Olympic Committee as well as a long list of other sports committees. On July 20 he was named to oversee the national Covid-19 economic and national recovery team at a time when the country has amassed Southeast Asia’s biggest pandemic problem, with 105,000 people affected and more than 5,000 dead.  

In taking over the State-Owned Enterprise ministry, Thohir faces strong headwinds in his efforts to shrink the number of companies, collaborating with the Corruption Eradication Commission to order arrests and seeking to reduce the opportunity for conflicts of interest resulting from the intermix of politics with government.

Top SOE positions have traditionally been reserved for political heavyweights who didn’t have quite enough clout to get ministerial positions or ambassadorships, said  Ujang Komaruddin, executive director of the Indonesian Political Review.

“This has been studied by many observers,” Ujang said. “This is what actually damages our SOEs.”

The SOEs, a major element in Jokowi’s efforts to modernize the Indonesian economy, contribute some 40 percent of gross domestic product and employ nearly a million full and part-time employees.  They include airlines, toll companies, banks, insurance companies, and other crucial elements of the economy.

Under the direction of Thohir, 50, who founded the Mahaka entertainment and media group and is former owner of several US and European sports teams, the ministry has closed or merged 142 companies down to 107 and hopes to reduce them to 70 to 80. Thohir said his ministry also intends to simplify the original cluster of state-owned companies from 27 to 12, with each deputy minister only overseeing around six clusters.

Of the original 142, with about 800 subsidiaries, only 15 produced 76 percent of the program’s profits, a relatively lackluster Rp210 trillion [US$1.5 billion] last year, Thohir said in December. Bank Indonesia (BI) has recorded total SOE debt at US$55.4 billion in March.

Thohir began by placing professionals ranging from bureaucrats to former ministers, economists and bankers as well as police and army officials in charge.  But lately, volunteers and supporters of Jokowi have begun to dominate appointments including, for instance, labor activist Andi Gani Nena Wea to head PT Pembangunan Perumahan, one of the country’s biggest construction companies. Former rock musician and Jokowi ally Triawan Munaf heads the financially strapped state flag carrier Garuda Indonesia and Islamic activist Yenny Wahid was named an independent Garuda commissioner.

In addition, at least eight officials of government-aligned political parties including Rizal Mallarangeng of Golkar and Wawan Iriawan of Nasdem have been named commissioners of Telkom Indonesia, the state-owned telecommunications company, and PDIP politicians Basuki Tjahaya Purnama as commissioner of the Pertamina energy company, and Darmawan Prasodjo as Deputy Director of PT PLN, the phone company.

Thohir acknowledged the pressure to choose volunteers and members of political parties, saying in a recent interview with local media, that names had been submitted from among Jokowi's volunteers, community organizations and political parties. "This is not something wrong as long as the composition and capacity match," he was quoted as saying.

Adian Napitupulu, an official with the Indonesian Democratic Party of Struggle (PDIP) – Jokowi’s party – acknowledged that he has submitted the names of candidates as SOE officials, but by Jokowi's request.  "We did not ask for (positions), but we were offered” during his first term, Adian said. “The president asked me (put forward names), then I gave the names."

Adian is a former activist who participated in the 1998 effort to overthrow the government of the late strongman Suharto.  Many of these activists are now government officials, members of the house of representatives members, or continuing as activists. The practice of assigning politicians and other vested interests to top SOE positions isn’t new, he said.

Various political parties have named 6,000 to 7,200 commissioners and directors to both holding companies and subsidiaries. Of those, he said, around 1,000 came from political parties, volunteers, ministries and institutions including the army and police. The rest, he said, come from unclear backgrounds with qualifications that often don't match the position they hold.

Only people close to authorities or ministry officials have access to these positions, Adian said.. "If it is not entrusted or brought (to the position), how can people sit there? "If entrusted by the party, volunteers, their origin is clear. The important thing is that they have the capacity, ability, credibility, and so on"  

In addition, he said, often the backgrounds of those appointed as SOE officials are unclear, especially as to competence.

Thohir said his office used a head-hunter firm to select experts and qualified candidates to occupy high-ranking positions. Names deemed to have adequate capability were proposed to the president, with 90 percent approved.

"The president has a wider system for selecting background candidates because he asked for assistance from the State Intelligence Agency, the Center for Reporting and Analysis of Financial Transactions, or the National Counterterrorism Agency," Thohir said.

Warning For SOE Officials

On July 8, Thohir met with leaders of the Corruption Eradication Commission including deputy chairman Nawawi Pomolango to talk about potential corruption. Two weeks later, the KPK announced it had detained five former officials in the state-owned construction company PT Waskita Karya for allegedly collaborating to corrupt development project funds, one of 53 corruption cases that are now of concern.

"So the determination of the suspect is not something that surprised us (the SOEs ministry)," said a Special Staff of Minister of SOEs, Arya Sinulingga. "We fully support the KPK to resolve this case." The five are accused of manufacturing fictitious projects between 2009 and 2015 to generate appropriations that caused Rp202 billion (US$13.89 million) in state losses.

Arya warned other directors to be careful and to make the case a lesson "for colleagues, especially directors and management, to be careful and continue to implement good corporate governance.”

Thohir said dozens of these cases occurred because many directors hold multiple positions, both in private business and as public officials. Data from the Indonesian Ombudsman in 2019 show that 397 SOE commissioners such filled dual positions along with another 167 serving in SOE subsidiaries.

Commissioners who hold concurrent positions are often absent from meetings and are difficult to ask for opinions to determine SOE policies even though they receive salaries. They come from various sectors including the State Civil Apparatus, both ministries and lower-level positions, active members of the army/ police, academics, members of political parties, etc.

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