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Jakarta should ease SOE debt, say analysts

Tan KW
Publish date: Wed, 07 Jun 2023, 07:57 AM
Tan KW
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JAKARTA: Analysts say that the government should lower its expectations for state-owned enterprises (SOEs) becoming profitable if it insists on burdening them with tasks that lack commercial viability.

Furthermore, the government may need to disburse more funds to tide over SOEs mired in financial difficulties.

Aside from their noncommercial function to provide public benefits and engage in businesses deemed unfeasible for the private sector, SOEs in Indonesia also have a commercial function to achieve profitability, according to a regulation on SOEs.

This dual function is stretching many SOEs, and not all should count on government help. Support is expected to be selective, and it may come too late for some.

Two SOEs operating in the construction sector, PT Wijaya Karya and PT Waskita Karya, have announced postponed repayments on some of their obligations, prompting rating downgrades for those obligations by local credit rating agency Pefindo.

The news has raised concern about cash flows at other SOEs, especially those building infrastructure. According to Abra Talattov, head of the Centre for Food, Energy and Sustainable Development at the Institute for Development of Economics and Finance (Indef), the problem is rooted in the government’s aggressive infrastructure push and in policies assigning SOEs to noncommercial projects.

“Due to limited state funding, SOEs have to execute projects with alternative funding, which is quite limited. Thus, they are compelled to take out short-term loans with high interest, creating a mismatch with infrastructure projects that can only produce revenue on a long-term basis,” Abra told The Jakarta Post.

The high debt-to-equity ratios of infrastructure SOEs showed that the companies are burdened by government projects, Abra added.

In a gathering of SOE president directors in East Nusa Tenggara in 2021, President Joko “Jokowi” Widodo said he was aware of the dilemma faced by many SOEs, but blamed SOE executives for failing to calculate projects properly.

Abra countered that view and said that the responsibility fell back on the government as the party responsible for overseeing SOEs through the SOEs Ministry and for choosing their commissioners.

On top of that, SOEs discussed strategic decisions to be made with the government, including when state capital was needed.

“Those projects are also discussed in the House of Representatives. So, they are also involved in monitoring whether it is feasible to continue a project or not,” Abra said.

According to Abra, if projects earn SOEs no profits, the government should face the consequences and not have high expectations for the SOEs to make a profit.

Toto Pranoto, a SOEs analyst at the University of Indonesia, said around 85% of SOEs’ profits came from just a quarter of the companies, meaning most of them could be regarded as underperforming.

“That is caused by too many government projects given to them that are not managed well or by subpar corporate governance in the companies,” Toto told The Post.

In the future, Indef’s Abra said, the government could help infrastructure SOEs manage their cash flows by optimising the role of the Indonesia Investment Authority (INA), Indonesia’s sovereign wealth fund, to attract potential investors.

Toto, however, contended that the INA may face challenges in supporting SOEs as global investors are usually only attracted to projects that offer good returns and tick environmental, social and governance boxes.


 - ANN

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