Mergers and corporate governance, reforms of the state-owned enterprises in Indonesia

The Government of Indonesia has maintained its ownership of the State-Owned Enterprises (SOEs) to achieve various, and sometimes contradictory, economic and political objectives. Although there have been efforts to improve the efficiency and productivity of the SOEs, the performance of the enterprises has remained unsatisfactory for some decades. The study explored how mergers have been used as one of the strategies to improve the efficiency and productivity of the state enterprises in 1988 and 1998. The case study approach allowed the researcher to examine the relationships between various factors that influenced the plantation company, PT Perkebunan Nusantara VIII's performance. Management reforms, the implementation of the mergers, international commodity pricing, and the ambivalent policies of the government were among the factors analysed. Merger is a well-known strategy to expand businesses and create shareholder value. However, there is much controversy about its efficacy. The research found that the mergers had mixed outcomes. Mergers had positive impact upon the plantation company's performance, until government employment policies were introduced, with the consequence that profitability was depressed. The government's intervention to determine the plantation companies' economies of scale was not based on an economic analysis, rather on the government's desire to create larger state plantation enterprises of comparable size to the private plantations and conglomerates. The government recognised the need to accelerate the reform and strengthen all state enterprises. Consequently, since 2002, the state enterprises' managements have been required to comply with good corporate governance practices, as these have been determined by the government. The study found that the merger of the SOEs did not change government ownership as sole shareholder, nor did mergers decrease the government's intervention into the running of its enterprises. If anything the government tended to intervene in the management of state enterprises more frequently to fulfil its sometimes contradictory economic, social and political objectives. The Indonesian government was reluctant to cede the greater autonomy to the management necessary for effective reform. The author believes that there is a need for further research in Indonesia on government policies in regard to the ownership and government's treatment of the SOEs. Further research is needed to address such questions as: Does the government have a role to play in maintaining strategic economic assets in Indonesian ownership