Public Enterprises in ASEAN: An Introductory Survey 9789814376389

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The Institute of Southeast Asian Studies

The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia. The Institute's research interest is focused on the many-faceted problems of development and modernization, and political and social change in Southeast Asia. The Institute is governed by a twenty-four-member Board of Trustees on which are represented the University of Singapore and Nanyang University, appointees from the government, as well as representatives from a broad range of professional and civic organizations and groups. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The responsibility for facts and opinions expressed in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Instirute or its supporters.

"Copyright subsists in this publication under the United Kingdom Copyright Act, 1911, and the Singapore Copyright Act (Cap. 187). No person shall reproduce a copy of this publication, or extracts therefrom, without the written permission of the Institute of Southeast Asian Studies, Singapore."

PUBLIC ENTERPRISES IN ASEAN An Intro ductory Survey

by

Kcr Sin Tzc

Field Report No. 14 Institute of Southeast Asian Studies

1978

CONn:NTS

Page

LIST OF TABLES INTRODUCTION 1:

BACKGROUND AND RATIONALE

1

11:

STRUCTURE 01: PUBLIC ENTERPRISES

6

III: CO- ORDINATION AND CONTROL

20

IV: PERFORMANCE, PROBLEMS AND PROSPECTS

26

BIBLIOGRAPHY

36

LIST OF TABLES

Pa~

TABL E 11.1 Public Enterprises in Thailand, 1976 .......................................... . .

7

11.2

Public Enterprises in Malaysia, 197 6 ...... ........................................

10

1 1.~

Public Enterprises in Singapore, J 9 76 ............................................

12

11.-4

Public Enterprises in Indonesia, J976 ...........................................

15

11.5

Public e nterprises in Philippines, 1976 .........................................

17

11.6

Public Enterprises and Employees in ASEAN ................................

18

IV.1

Pro fiu and Losses o f Selected Public Enterprises in Thailand, 1976 ..............................................•....

27

Private and Social Rates of Return for Selected Malaysian Public Projects .......................................

29

Profit Rate of Major State and Scmistate Companic!l, Singapore , 1970· 74 (or 75) ...................................

31

IVA

Op('rating Surplus o f Statutory Boards, Singapore ........................

32

JV.5

Prol11 Ra te of Govl·mmcnt Co rpo rations a nd AKcnt 1cs, Ph ilippines, 1973 ...............................................

34

IV.2 IV . ~

INTRODUCTION

Public enterprise plays an important role in the process of economic development for most developing countries. In ASEAN, while the extents of the involvement of government enterprises in econo mic activities differ, its importance has been incr easingly recognized. Scanty studies o f public enterprises in individual AS EAN countries h ave been made in recent years. However, there have not been any compllrat ivc studiea of public enterprises in ASEAN. This paper represents a modest effort at a comparative survey of public enterprises in ASEAN. Due to financial and time constraints, most data and information are taken from published sources. It is hoped that more up-to-date data and informat ion can be collected and analysed through original research on this subject in the future.

1: BACKGROUND AND RATIONALE

Public enterpriles have played a major role in the economic development of the five ASEAN states, namely, Thailand, Malaysia, Singapore, Indonesia and the Philippines. The reasons for their establishment, however, vary. In the present chapter, the backgro\!Nis of setting up public enterprises in these countries will be examined for a better understanding of their structure and a fair assessment of their performance in subsequent chapters. First, the case of Thailand is studied.

Thailand Constitutional monarchy was eatablished in Thailand in 1932. The govemmenes policy towarda public enterprises had been ambiguous until 1953 when the &tablishment of Governmental Organization Act was pasaed. Bdore the passage of the Act, the government was reluctant to ~t up state enterpritel, especially industrial and commercial state cnterpri~s. The only pennisaible kind of public enterprise• was public utilities. 1 Although the government would initiate large scale enterprises which could not be undertaken by buaincumen, it Jhould not compete with the private sector for industrial and commercial interetu. ThU puaive policy towardt public enterpri~s was discarded in 1953 as the government recognized the needs for setting up mo re public enterprises in the form of a state organization. The Act pu~d in 1953 also allo wed the government to establish public enterprises by Royal Decrees without obtaining Parliament's approval. In subsequent development plans, however, it has been repeatedly stressed that while public enterprises are necessary, their promotion should no t come into conflict with the policy of encouraging private investment. The change in the policy from a passive t o a more active role fo r public enterprises came after the Second World War. The postwar Thai economy was depressing IUld big businesses were in the hands of Chinese -- with or without Thai nationality ·· who were considered as aliens. This gave rise to strong nationalistic sentirnenu with the urge to eatabliah public enterprises. Also, the depressing economy afkr the War called for a more active role on the government's part to initiate investment and production. It was probably the combination of the two factors which was responsible for the growth of public enterprises in Thailand. 1

ln a aovemmcnt atatcment iuued in 1954, it ia aaid that 'cenain vcnturca that arc in the nature of pl&blic ut.Bitiea eba1l be controlled by the Government .... Non-public-utility venture• are pcrmi~Mb&c for private undert&kina except thoae involvin& national aecurity.' See N. TnaoJll, ed., Tlte Role of Public Enterprise in Notional Development in Soutlteost Asia, p. 261.

2

Malaysia In Malaysia, the growth in public enterprises can be roughly divided into two phases. Before the launching of the New Economic Policy (NEP) enunciated in the Second Malaysia Plan, most public enterprises were concerned with land and agricultural development in the rural area. After the adoption of the new policy, more public enterprises involving industrial and commercial activities have been set up. The change in the policy emphasis is very obvious and can be seen from the increase in the number of industrial and commercial state enterprises after the implementation of the Second Malaysia Plan. It can be said that public enterprises established in the first phase were for the purpose of narrowing urban and rural income disparity through productivity improvement in primary activities. They were also aimed at eliminating regional disparity in economic development between the east and west coasts of Malaya. As the residents in the rural and less developed areas are predominantly Malay, the income and regional disparities indicate the existence of disparity between the Malays and other races in Malaysia, especially the Chinese. The disparities had not been satisfactorily reduced and dissatisfactions among Malays accumulated, eventually erupting in 1969 into the worst racial violence in Malaysian history. It was this conflict which made the government realize that social integration and more equitable distribution of income and opportuniti< for the Malay were necessary to achieve national unity. To reduce ethnic income imbalance, the Malays must be given a greater role to play in the nation's industrial and commercial activities. However, the lack of managerial skills and experience constitutes the major obstacle in this endeavour. Public enterprises furnish a solution to this problem by providing discriminatory employment opportunities in favour of the Malays. As a result, many state enterprises in financial, industrial and commercial operations were established. Moreover, shares in these have been held in trust for Malays for sale at a later stage when they are able to buy. This will increase the participation of Malays in industrial and commercial activities. Thus, in addition to using them as a general instrument for economic development, public enterprises arc aimed for a greater proportion in the ownership and management of the nation's wealth and business by the Malays. The motive is thus ethnical and political.

Singapore The development of public enterprises in Singapore can be roughly divided

3

into two periods.2 In the period 1959-66, the Economic Development Board (EDB) and the Housing and Development Board (HDB) were established. Since 1967, more public enterprises have been set up partly as a result of decentralization of the EDB and partly as a result of the conditions prevailing after the separation of Singapore from Malaysia. The ideological belief of the ruling party in Singapore has been in democratic socialism. With a background of British education, the leaders of the government are familiar with British-style socialism and public enterprises. Thus, public enterprises established in Singapore were aimed at achieving socialist objectives. The extent of using state ownership to achieve socialist aims in Singapore can be best illustrated in the words of Dr. Goh Keng Swee, the architect of the Singapore economy and presently the Deputy Prime Minister and Defence Minister: 3 It is one of the fundamental tenets of socialism that the state should own a good part of the national wealth, particularly what is called the means of production. In this regard, that is state ownership of the means of production, it is my submission that the socialist state of Singapore is not lagging behind the achievements of socialist governments in other parts of the world [and is] probably ahead of most of them. Apart from the ideological factor mentioned above, the political as well as economic uncertainties created immediately after the separation of Singapore from Malaysia ca.llcd for a greater government role in economic activities. The unexpected separation came as a shock to the people as well as the government leaders. The uncertainty which followed after Singapore's independence made businessmen reluctant to invest. The government, after careful consideration, decided to switch its industrialization policy from import substitution to export promotion. To pave the way for the new industrialization policy and to inject more confidence into the private sector, the government had to play an active role in promoting industrial production. Some important public enterprises were thus established to serve as agents for the government in the industrialization process and in the promotion of people's welfare in Singapore.

2

See Ow Chin Hock, 'Singapore,' in The Role of Public Enterprise in National Development in Southeast A sia, op.cit., pp. 168-169

3

Gob Keng Swee, The Economics of Modernization and Other Essays (Singapore: Asia Pacific Press, 1972), p. 210.

4

Indonesia Public enterprises occupy a very important position in the Indonesian economy. According to a recent study by the United States Agency for International Development (USAID), the employees of state enterprises comprise about 70% of total government employees at the national level and their performance 'will largel4 determine the success of Indonesia's efforts to achieve rapid econ omic growth.' The philosophy of economic development has been based on the principle of collective co-operation. In Article 33 of tl_le 1945 Constitution, it is stated that important production sectors which affec t the life of most people and the exploration of land, water and natural resources should be controlled by the state. 5 Before independence , a number of public enterprises were established by the Dutch. They were taken over by the Indonesian Government after independence. In 1958, some major private enterprises of Dutch inte rests were nationalized as a result o f conflict with the Netherlands in the West Irian Liberation Movement. In addition, the indonesian Government ha!i also cstablishccl ma ny public enterprises in various sec tors or thl· economy. Thruu.,,.twut tht' years, the: dominance o f public enterprises in the economy has been in creasing. Th e reasons arc probably the following. First, Ute economic idcol o~o,ry is based o n th e principle of 'guided democracy' so the role of govemmcnt has been strongly emphasized. Second, the benefits derived from the exploration o f natural resources should he shared by all people. Lastly, the resources of the private sector, especially capital, are not adequate for undertaking major developmental enterprises.

The Philippines The experience of public enterprises in the Philippines presents a case of conflic t between government policy statements and their actual growth in number and si:tc. The Philippines, which was once ruled b y the Americans, has inherited the orthodox philosophy of the fn:c en terprise system. Th e first Presiden t o f the Republic, Manuel Roxas , cxprtusin(:ss. For instance, PERNAS Trading Sendirian Bcrhad is a monopoly in tlu· lucratiw busim·ss of importing Chinese merchandis es. FIMA, on the ntht•r hand, attempts to industrializ e the rural areas by settin~ up sonw food·processing industries. In so doing, it al so crcatl"S an outlet for raw materials and primary produce. The laat twu, FIUA and UDA, arc pnfurming more govcmmen t functions than in their own commercia l and industrial lields. The rok of FIDA is to formulate and co-ordinate the governmen t's industrial polides. UDA, on the o ther hand, is in charge of developing and implc:menting urb;Ul n ·newal policy for the governmen t. Of all public enterprises , the State Economic Developme nt Corporatio ns (SEDC) are the most important groups in terms of their scope of activities. Each state has its own SEDC which serves as the agent of the state in commerce and industry. Furthermo re, its involvemen t also extends to the opening up of land for staple crops cultivation , the exploitatio n of natural resources such as mining, the developme nt of industrial estates and constructio n business. In addition to SEDCs, there are several Regional Developme nt Authorities (RDA) which are charged with

6

II: STRUCTURE OF PUBLIC ENTERPRISES

Due to differences in social needs and natural endowments, the structure of public enterprises in the various ASEAN countries differs. In the present chapter, the types o f public enterprises in each country will be reviewed and a comparative analysis follows.

Thailand Thailand is primarily a producer of agricultural products and raw materials. Naturally, th e emphasis of public cnterpris(·s is placed on the development of the primary sector. According to the scope of activities, public enterprises in Thailand can be classified as such: Agriculture Communication and Transportatio n Public Utili ties Industrial Production Commerce, Banking and Service Others They are created either by specific Acts o f Parliament, Royal Decrees, civil and commercial code or by cabinet resolution. Their operations are in the hands o f various mini stries. Table 11.1 classifics all public enterprises in to the five groupings. lt can be seen that, apart from those in communication, transportation and public utilities, most public enterprises arc closely related to a~ri cultural and primary production. Even those in industrial production arc mo)>tly involved in the processing o f primary products such as preserved food, plywood, marble, jute, sugar, sack and tobacco, etc.

Malaysia Malaysia is also mainly a producer o f agricul tural and primary products, and public enterprises are geared to rural and regional development. Recently, more public enterprises in industrial production and banking have been established. Major public enterprises in the agricultural sector includes the Federal Land Development

Table II. l:

Public Enterprises in Thailand, 1976 Communication , Transportation

Public Utilities

Industrial Production

Commerce, Banking, Service

Bank for Agriculture/ Co-operatives Daily Farm Promotion

State Railway

Preserved Food Organization

Tourist Organization

Glass Organization

Mark eting Organization

Fish Market ing Organization

Telephone Organization

Electricity Generating Authority Metropolitan Electricity Authority Provincial Electricity Authority Metropolitan Waterworks

Batteries Organization

Warehouse Organization

Leather Tanning Organization

Agriculture

Port Authority

Telecommunic ation Authority Express Transport Rubber Plantation Organization Organization Fo rest Industry Organization Thai Airways International Th ai Airways Company Poultry Industry Limited Organization Thai Salt Company Limited Aeronautical Radio

Cold Storage Organization

Thai Maritime Navigation Agricultural Marketing Organization Thai Television Company .\lining Industry Centre Offshore Mining Organization Mass Transport Organization Tran sportation Co mpany Rubber Replantation Limited Welfare Fund Thai Navigation Company Airways Aircraft Maintenance Company Limited Bangkok Garage Company Limited Radio Rediffusion Company Fuel Organization

Source:

Provincial Waterworks

Textile Organization

Natural Gas Organization

Thai Plywood Company Alum Factory

United Thai Hotel & T ourist Company Limited Thai Product Trading Company Limited Government Savings Bank Bank of Thailand

Liquor Organization

Bank of Housing Welfare

Playing Card Factory

Krung Thai Bank

~farble

Company North East j ute Mill Ololburi Sugar Industry

Engineering Company Limited Pattani Pro vincial Trading Narratives Pro\incial Trading

Olemical Fertilizer Company Tannery Organization

Prachinburi Provincial Trading Lamphun Provincial Trading

Pharmaceutical Organization

Tak Provincial Trading

Thailand Tobacco Monopoly Sack Factory Gunny Bag Factory Government Paper Factory Bang Pa In Paper Mill Supanburi Sugar Factory Oil Refinery No. I, No. II Bangkok Dock Company Limited Industrial Estate Auth ority

Bangkok Rice Reserve Project Rice Account Unit

Others

Music & Fine Arts Organization Zoological Park Organization Sports Promotion Organization State Lottery Bureau National Housing Authority State Pawnshop Bureau Police Press Government Savings Bank's Press

of Political Science, Issara Suwanabol 'Theories of Public Enterprise: Lessons from Thailand,' August 1977, unpublished paper , Department Australian National University. Appendix.

-...)

8

Authority (FELDA) and National Padi and Rice Authority (NAPRA). The former, is charged with the responsibility of opening up lands for the cultivation of staple crops, mainly rubber and oil palm. It carries out the field establishment work such as jungle felling, burning, terracing, etc., and grants loans to settlers to grow staple crops. The objective is to accelerate the development of the rural area in order to narrow the economic gap between urban and rural areas. NAPRA was set up in 1971 to co-ordinate various aspects of production, milling and marketing of padi and rice and to implement national policies on padi and rice production. As stated earlier, public enterprises in the industrial and commercial sectors have been assigned the role of improvin~ the relative share of the Malays and indigenous people in the distribution of wealth and employment. The Council of Trust for Indigenous People, which is referred to as Majlis Amanah Ra'ayat (MARA), provides loans to the indigenous community to engage in industrial and commercial activities, invests directly in industrial production and provides technical and business education and training to the Malays through its related institution, the MARA Institute of Technology. Besides MARA, major public enterprises include National Corporation Limited (PERNAS), Food Industries of Malaysia Sendirian Berhad (FIMA), Federal Industrial Development Authority {FIDA), and the Urban Development Authority (UDA). PERNAS was set up in 1969 with the objective of encouraging the indigenous community, mainly the Malays, to get involved in commercial and industrial activities. There arc a number or wholly and jointly owned subsidiaries operating in the fields of insurance, construction, engineering, properties, securities and trade. In some cases, these subsidiaries enjoy exclusive dealing rights in their respective areas of business. For instw, October 1976. L.M. Magtolis. ' Public Enterprises in Philippines -- Structure and Problems.' Philippm~ journal of Public Administra tion, October 1969. R.S. Milne. 'The Role of Governmen t Corporatio ns in the Philippines .' Pacific Affairs, Vol. 34, Nu. 3, 1961. R.S. Milne. 'Coordinati on and Con trol of Governmen t Corporation s in the Philippines. ' PhiJippirte j o urnal of Public Administra tion, October 1961. Ow Chin Hock. 'Singapore. ' ln Nguyen Truong, ed., The R ole of Public Enterprise in Nationlll Developme nt in Southeast AsU:z: Problems and Prospects. Singapore: Regional Institute of Higher Education and Developme nt , 1976.

37

J . Panglaykim. 'Some Aspects of State Enterprises in Indonesia.' Ekonomi dan Keuangan Indonesia [Economics and finance in Indonesia] , 6 (13), 1963. J. Panglaykim and I. Palmer. State Trading Corporations in Developing Countries. Rotterdam: Rotterdam University Press, 1969. M.C. Puthucheary. 'Coordination of Public Enterprises: Country Study for Malaysia.' In A.S.H.K. Sadique, op.cit. Raja Mohd. Affandi bin Raja Halim. 'Coordination o f Public Enterprises: Country Study for Malaysia. • ln A.S.H.K. Sadique, op.cit. A. Rieffcl and A.S. Wiijasuputra. 'Military Enterprises.' Bulletin of Indonesian Economic Studies, Vol. 8, 1972. A.S.H.K. Sadique. Public Enterprise in Asia: Studies on Coordination and Control. Kuala Lumpur: Asia Centre for Development Administration, 1976. M. Sadli. 'Structural and Operational Aspects of Public Enterprises in Indonesia.' Ehonomi dan Keuangan Indonesia, May-June 1960. Sardjono. 'Coordination of Public Enterprises: Country Study for Indonesia.' In A.S.H.K. Sadique, op.cit. A.G. Samonte. 'Sale and Disposal of Philippine Government Corporations.' Philippine joumal of Public Administration, July 1962 . A.G. Samontc. 'Re-organization of Government Corporations: Boards and Managers in Focus.' Philippine journal of Public Administration, April 1969. A.G. Samontc. 'Problems and Pitfalls in the Coordination of Public Enterprises.' In A.S.H.K. Sadique, op.cit. l ssara Suwanabol. 'Theories of Public Enterprise: Lessons from Thailand.' Unpublished paper, Department of Political Science, Australian National University, August 1977. C. Tan. 'State Enterprise System and Economic Development in Singapore.' Ph.D. d\l'sc.'rt .\lion, Unh·ersity of Wisconsin, ~lad ison , ) 974.

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R. Thillainathan. 'Public Enterprises in Malaysia·· Problems and Prospects.' UMBC Economic Review, Vol. XII, No. 2, 1976. R. Thillainathan. 'Malaysia.' In Nguyen Truong, ed., op.cit. Nguyen Truong. The Role of Public Enterprise in National Development in Southeast Asaa: Problems and Prospects. Singapore: Regional Institute of Higher Education and Development, 1976. Veeravat Karchanadul and Suphachai Sirisuwanakura. 'Thailand.' In Nguyen Truong, ed., op.cit. A.S. Wirjasuputra