Indonesia’s plans to root out graft at huge state companies, lure investment from China and take control of its largest gas field–all key to new President Joko Widodo’s economic plans–hinge largely on a minister trying to infuse government with a private-sector approach.
“We are basically majority shareholders,“ Rini Soemarno, minister for state-owned enterprises, said in an interview. That means asking, “How are majority shareholders supposed to function, how do we look into the companies?“ One answer, she said, will be by requiring more of the 138 companies under her charge, representing about one-fifth of the economy in the world’s fourth-most populous nation, with opening up their books to investors by taking on debt.
“If you issue bonds you have to be very open, and very transparent, and that’s what I’m pushing more,“ she said.
Ms. Soemarno, candid in speaking at length in her office overlooking Jakarta’s National Monument, is one of the more powerful ministers in Mr. Widodo’s cabinet of more than 30, in part because she oversees companies with assets of more than $300 billion that are at the heart of the president’s drive to build infrastructure. The government is hoping that making good on that drive will lift growth rates and wipe out wide gaps in development across this nation of 17,000 islands.
Success isn’t likely to come easily. Growth and development efforts have stubbornly eluded past governments, and many analysts and experts are skeptical that Ms. Soemarno will be able to follow through on such a mammoth overhaul of state companies.
State-owned enterprises have always played an outsize role in Southeast Asia’s largest economy, employing more than 850,000 people. The companies under Ms. Soemarno’s portfolio include some of the country’s biggest, such as oil and gas producer Pertamina and the nation’s largest bank, Bank Mandiri. Twenty are listed locally.
They are now being called on to play an even bigger role, with construction companies, port operators and others spearheading a drive for infrastructure development that Mr.Widodo sees as vital to his program to bring vast parts of Indonesia into the 21st century.
This year, his administration budgeted about $3 billion in capital injections for state companies, in particular construction companies and electric company PLN to build new power plants, dams and other infrastructure. “By international standards it’s low, but for us it’s quite significant,“ Ms. Soemarno said.
Ms. Soemarno said she understood investors’ questions about the injections, given that corruption is rife in Indonesia and SOEs have been on the losing end of graft cases in the past. Indonesia ranked 107th worst on Transparency International’s graft rankings of 175 countries last year.
But “corruption has to be seen in a total context: What happened? Is it done by the corporation, or is it done by individuals?“ she said. “We really have to look deeply in terms of what’s going on…and how we strengthen the control system.“
Infrastructure companies like toll road operator Jasa Marga, port company Pelindo and airport opera tors would be the most natural candidates to engage in large-scale bond issues because of stable cash flows and long-term assets, a person with knowledge of discussions at the ministry said.
Ms. Soemarno’s ministry is also considering innovative issuance structures, like asset securitizations, and issuing bonds in currencies such as yen, euros and renminbi rather than taking on increasingly expensive dollar debts.
People with knowledge of cabinet relations say Ms. Soemarno is one of the few ministers who has impressed Mr. Widodo six months into his five-year term. Ms. Soemarno led Astra International, Indonesia’s largest automotive distribution firm, for several years after the Asian financial crisis of the late 1990s, and served as trade minister under former President Megawati Sukarnoputri more than a decade ago. She was once close friends with Ms. Sukarnoputri, the powerful chairwoman of Mr. Widodo’s party, but relations soured recently as Ms.Soemarno developed closer ties with the current president.
Ms. Soemarno said one of the biggest issues blocking infrastructure development under the previous presidency of Susilo Bambang Yudhoyono–land acquisition–will soon be a thing of the past. A new land-acquisition bill is being put to the test at a long-delayed, $4 billion power plant in Central Java funded by Japanese investors. Mr. Widodo had vowed the project would be ready for construction in February, but land acquisition problems persisted. Ms. Soemarno said she is now targeting a May start.
On another pending issue, Pertamina’s likely takeover of Total SA and Inpex Corp.’s expiring contract at Mahakam, Indonesia’s largest producing gas field, Ms. Soemarno said she would like to see Pertamina take a stake but stressed that a deal between the three companies “has to be finalized this year“ to ensure that the outlay of billions of dollars in investment to keep production steady.