Privatisation failures in Indonesia

Abstract

Despite repeated commitments by successive governments in Indonesia to divestment of state-owned enterprises, little has occurred. There has been considerable experimentation with a different kind of privatisation, however, involving reforms that opened up markets previously dominated by state firms to the private sector. The spectacular failure of some of these experiments has weakened the appeal of privatisation. It is argued here that these disappointments do not reflect any conceptual shortcoming of privatisation as a means of improving efficiency, but are attributable to moral hazard resulting from the failure to ensure that business risks were shifted into the private sector along with ownership.