Introduction

The rise of the global market economy has been marked by an increasing recognition of the role of the private sector in making the economy more efficient and competitive. One of the available approaches for promoting private sector development is the privatization of state-owned enterprises (SOEs). More than eighty countries have launched ambitious efforts to privatize their SOEs. Since 1980 more than 2,000 SOEs have been privatized in developing countries and 6,800 world-wide. Although the privatization process began with small and medium-sized companies, in the past few years privatization has included large SOEs as well. In fact, the number of countries involved in privatization and the pace of privatization have dramatically increased.

Privatization, when correctly conceived and implemented, fosters efficiency, encourages investment (and thus new growth and employment), and frees public resources for investment in infrastructure and social programmes. In developed countries such as Japan and France, where the role of state enterprises has been previously dominant, privatization and deregulation are considered key instruments to economic restructuring and growth promotion. Even in former socialist economies like China and Russia, policy makers have seriously considered possibilities for privatization in their efforts to develop the private sector. Similarly, ASEAN countries have also realized the necessity of privatization in the greater deregulation process. In fact, privatization and, in broader term, deregulation can be considered as a key factor behind the robust growth of the world's fastest growing region.

In Indonesia for many years the issue of SOE reform, especially privatization, has been politically sensitive and purposefully avoided in public discussions. In particular, the word ‘privatization’ has been thought to be contrary to the spirit of nationalism and socialism that is strongly embedded in the Indonesian values. It is therefore understandable that although much research has covered the deregulation of the Indonesian economy, there have not been many studies discussing the privatization issues in Indonesia. The progress of the Indonesian SOE reform is relatively slow, especially if compared to reform in other sectors. This chapter attempts to give an overview on the role of SOEs in Indonesia and the results of the efforts to reform SOEs that have been undertaken since the late 1980s.