Thursday 19 Jul 2018 | 22:55 | SYDNEY
Thursday 19 Jul 2018 | 22:55 | SYDNEY

Selling privatisation in Indonesia


Sam Roggeveen


12 August 2008 17:31

Ross McLeod at East Asia Forum makes a solid case for why Indonesia should privatise its state-owned industries. This point caught my eye:

...there tends to be a much higher degree of political interference in the operations of state enterprises, always with deleterious effects. Selling prices are held well below levels consistent with making a profit, resulting in an inability to undertake new investment on the basis of either profit retention or new borrowing.

As Ross says, the political interference will often keep consumer prices at artificially low levels; privatisation upsets such arrangements, and that can affect some consumers badly.

But I suspect that in Indonesia, as in this country, those who advocate privatisation have made a rod for their backs by insisting it will lead to lower consumer prices. No doubt it often does, but surely what privatisation really aims to achieve is not lower prices per se, but market prices. Those might happen to be higher than what the State-owned enterprise charges, but it is a more economically rational price.

Problem is, that's a pretty hard argument to sell to the public, whether here or in Indonesia.