Arbitrary Bailout Funds
Five state-owned companies are to receive Rp19.65 trillion in bailout funds to restore their performance during this pandemic. Not all of them deserve it.
he government must cancel its plan to pour bailout funds into state-owned enterprises (SOEs). There are many other options to help state companies. Instead of restoring the national economy that has been adversely affected by the Covid-19 pandemic, it is not impossible that this Rp19.65 trillion will end up costing the nation.
This plan was decided in a meeting of a number of cabinet ministers on Wednesday, June 3. The program is part of the national economic restoration drawn up by the government in the planned second amendment to the 2020 state budget. The five companies to receive assistance are Garuda Indonesia, Perkebunan Nusantara (PTPN), Kereta Api Indonesia, Krakatau Steel, and Perum Perumnas. These five SOEs have promised to return the bailout funds through a number of schemes.
Covid-19 has severely afflicted the global economy. In Indonesia, the impact is extraordinary. In the first quarter, almost every business sector suffered. Manufacturing, trade, construction, transportation and other service sectors recorded the lowest growth in the last two decades, and some saw negative growth. It is believed that this will continue in the second quarter.
The government is now trying to restore the economy as quickly as possible so that matters do not become worse. Collapsing businesses could cause other problems: job losses, a rise in the poverty rate and a collapse in people’s buying power. This means that moves to save the business world, including giving cash bailouts to SOEs, appear to make sense.
However, this program appears to have been drawn up in an arbitrary fashion. One example is the Rp4 trillion in bailout funds to PTPN. The government’s excuse that the program is needed to help the company with its cash flow, which has suffered as a result of the Covid-19 pandemic, clearly has no basis. Long before the pandemic, the plantation company had been in serious trouble. The bribery case involving former managing director Dolly Parlagutan Pulungan last year was only the tip of the iceberg of poor management at PTPN.
PTPN’s financial situation has not improved despite receiving trillions of rupiah in government equity injections in the last five years. The fact is that as of August 2019, the group owed the banks a total of Rp52.12 trillion. This company will not be able to repay this debt because only two of its 13 subsidiaries are making a profit. An audit by the Supreme Audit Agency and an initial study by the Corruption Eradication Commission found indications that the allocation of some of these corporate loans was unclear.
It is impossible for PTPN to repay these bailout funds. The same is true for Garuda, Kereta Api Indonesia, Krakatau Steel and Perumnas. These four companies are facing severe problems after the pandemic devastated the transportation services, manufacturing and property sectors. But the four also have huge debts as a result of poor management in the past and over ambitious government projects.
It is not right that the people—through the state budget—will have to pay for pay the price of the poor management of SOEs. Until today, and for several years into the future, the people are still bearing the costs of the recapitalization funds from the 1998 banking crisis. The government should use these funds to deal with the impact of the pandemic on public health instead. Improvements to the facilities at hospitals and research into a vaccine to prevent Covid-19 in the future will clearly need substantial amounts of money.