Indonesia Seeks Reform for Flagging State Companies

Bailouts and billions, new management as Covid-19 strikes

The Indonesian government is dramatically restructuring dozens of state-owned enterprises, reducing their numbers and replacing graft-ridden commissioners and directors with people from diverse backgrounds from bureaucrats and former anti-graft agency officials to generals from the police and army and injecting billions in the effort to save them.

As Indonesia has run into increasingly heavy weather from the Covid-19 crisis, with more than 38,000 cases and more than 2100 deaths, President Joko Widodo authorized SOE Minister Erick Thohir to restructure the enterprises although there will be no asset selloff. Thohir’s mission is to restore and improve the internal condition of the SOEs, which have often been reported to be wasteful and corrupt. At least eight SOE directors have been arrested by the Corruption Eradication Commission over the past five years, with a total 73 cases recorded involving SOE officials to 2019.

Some economists and members of the House of Representatives, however, have criticized the effectiveness of the bailouts for international flag carrier Garuda Indonesia and Krakatau Steel in particular, both of which were already entangled in financial problems long before the Covid-19 pandemic.  Garuda Indonesia (empty seats, above) has been struggling to restructure US$500 million worth of global sharia-compliant bonds (sukuk) due in June and to maintain its cash flow as the outbreak hit air travel demand. Krakatau Steel has been struggling with debt long before the outbreak hit the economy.

In an indication of the government’s new commitment to cleaning up the sector, Thohir appointed former Corruption Eradication Commission (KPK) deputy chairman Chandra Hamzah as president commissioner at state-owned lender Bank Tabungan Negara (BTN) and former KPK deputy chairman Amien Sunaryadi as President Commissioner of electricity firm PLN.

Thohir also placed at least five members of government-supporting parties in the ranks of SOEs officials, three from the Indonesian Democratic Party of Struggle (PDIP), Jokowi's main backer party.  

Jokowi, as the president is universally known, set out in 2014 to make the SOEs what he called the “central actors” in his US$415 billion development strategy in a bid to disentangle sluggish infrastructure development, stagnant industrialization and swelling inequality, according to Kim Kyung-hoon, a doctoral candidate at the Department of Development Studies, King’s College London. They employ millions of Indonesian workers.

However, state actors too often turned them into cash registers for corruption, stealing millions and funneling the money out of the country and into bank accounts in Singapore, Switzerland and other countries. At the end of the third quarter of 2019, according to the State-owned Enterprise Ministry, the SOEs faced debt of Rp1.6 quadrillion (US$98 billion) even before the onset of the coronavirus, which has driven revenues down even further.

As with many other countries coronavirus outbreaks have devastated government revenues and worsened the condition of several SOEs both financially and operationally, such as Garuda, whose passenger traffic collapsed by 95 percent, toll-road operator PT Jasa Marga and construction company PT Hutama Karya, whose average daily traffic rate dropped more than 50 percent, and plantation firm PTPN, which is facing a steep decrease in sales, especially from the export market.

Of 142 SOEs and around 800 subsidiaries, only 15 produced 76 percent of the program’s profits, totaling Rp210 trillion [US$1.5 billion] last year, Thohir said in December. Bank Indonesia (BI) recorded total SOE debt at US$55.4 billion in March.

"The COVID-19 pandemic situation, in particular, is a good time to restructure SOEs in terms of both financial and industrial positions," Thohir told local media. Until now, the government has closed or merged 142 down 107, and will continue to reduce them to 70-80 companies in the future. The main goal, he said, is efficiency.

In early April, Thohir ordered 51 subsidiaries of three SOEs closed – PT Telekomunikasi Indonesia, PT Pertamina and PT Garuda Indonesia. "We hope this rationalization and consolidation can improve operational effectiveness and business governance to be more optimal," Thohir said. He also intends to simplify the original cluster of state-owned companies from 27 to 12 with each deputy minister only overseeing around six clusters.

Six clusters covering oil and energy, minerals and coal, plantations and forestry, fertilizers and food, pharmaceuticals and health industries, as well as defense, manufacturing and other industries, will be under the supervision of Deputy Minister of SOEs I, Budi Gunadi Sadikin.

Another six covering financial services, insurance services and pension funds, telecommunications and media, infrastructure development, tourism services, logistics and other facilities, and transportation infrastructure, will be administered by Deputy Minister of SOEs II, Kartika Wirjoatmodjo.


After beginning his second term last October, Jokowi ordered Thohir, a highly respected businessman who is the founder of the Mahaka entertainment and media group and former owner of several US and European sports teams,  to overhaul the agency by placing professionals ranging from bureaucrats, former ministers, economists and bankers, to officials within the police and army.

What caught the public's attention most was the appointment of former Jakarta Governor Basuki Tjahaya "Ahok" Purnama as commissioner at oil and gas company Pertamina in November 2019. Ahok was known as an anti-corruption official despite having been jailed in a case of blasphemy regarded as trumped up to drive him from the Jakarta governorship.

In February, Thohir appointed police general Insp. Gen. Carlo Brix Tewu as Deputy for Law and Legislation, tasked to map the internal and external legal problems between SOEs. Tewu was also recently appointed a commissioner at state-owned coal miner PT Bukit Asam on June 10. An intelligence official, Comr. Gen. Bambang Sunarwibowo, was named commissioner at Indonesia’s diversified miner PT Aneka Tambang.

Two other generals, Insp. Gen. Arman Depari and Admiral Achmad Djamaluddin respectively took over as commissioner and chief commissioner at port operator Pelindo I. Depari previously is the deputy for eradication in the National Narcotics Agency (BNN), while Djamaluddin is former secretary of the National Defense Council.

Fund Injection for SOEs

The government has issued regulations under the national economic recovery program that will allow the state to issue debt to finance business rescue packages, including for SOEs, as the pandemic is expected to hit the economy hard. The trend of increasing cases occurred when the government launched an easing of Large-Scale Social Restrictions (PSBB), the government's policy response, by encouraging people to worship, work and learn from home.

The government will inject funds to 11 SOEs via state capital participation, compensation, subsidies and bailouts. Of the 11, five will get assistance through a bailout mechanism for working capital totaling Rp19.65 trillion. The five are Garuda, which receives Rp 8.5 trillion, developer Perumnas (Rp650 billion) and rail operator KAI (Rp3.5 trillion). Bailout funds totaling Rp4 trillion have also been steered to plantation firm PT. Perkebunan Nusantara (PTPN) with steelmaker Krakatau Steel receiving as much as Rp 3 trillion. The government has designated the bailout as debt so it must be repaid.

Six other SOEs including oil and gas company Pertamina and PLN will receive accelerated compensation payments of Rp37.83 trillion and Rp41.71 trillion, respectively. Funds also will be channeled in the form of state capital participation to Hutama Karya (Rp7.5 trillion), Bahana Business Development Indonesia (Rp6 trillion), Permodalan Nasional Madani (Rp1.5 trillion), and Indonesia Tourism Development Corporation (Rp500 billion).

Member of House of Representatives Eddy Soeparno said economic conditions provide justification for troubled SOEs to get government bailouts although economist Bhima Yudhistira Adhinegara of the Institute for Development of Economics and Finance (INDEF), said the government needs to differentiate between losses due to pandemics and losses due to mismanagement.

However, Minister of Finance Sri Mulyani said the companies picked for bailouts had truly been affected by Covid-19 and their role is crucial to the interests of the community.

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