The government is accelerating the consolidation of Indonesia’s State-Owned Enterprises (SOEs). From approximately 119 companies in 2014, the number has now fallen to around 65, with a target of reducing it further to about 30 over the next few years. More than 1,000 subsidiaries and affiliated entities are also expected to be streamlined into approximately 250–300 entities.
From an organizational standpoint, the policy is understandable. A leaner corporate structure can reduce overlapping functions, shorten bureaucratic chains, and lower administrative costs. However, simplifying the structure does not necessarily mean solving the underlying problems.
The more fundamental question is this: is the government merely reducing the number of companies, or is it also addressing the root causes that have long constrained the performance of many SOEs?
According to the institutional economics theory developed by Douglass North and the principles of the OECD Corporate Governance framework, organizational efficiency is determined not by the number or size of institutions, but by the quality of institutions, incentive systems, accountability, and effective oversight.
This is where the real challenge lies.
For years, the difficulties facing SOEs have extended far beyond the number of companies. Issues related to corporate governance, oversight, operational efficiency, and the balance between commercial objectives and public service obligations have remained recurring challenges.
Data from Transparency International Indonesia also show that approximately 29.4 percent of SOE commissioner seats are held by individuals with political backgrounds. When combined with bureaucrats, the proportion reaches roughly 60 percent. This does not, by itself, imply poor governance, but it does highlight that strengthening merit-based appointments and corporate governance remains an unfinished agenda.
Meanwhile, several SOEs continue to face heavy debt burdens, uneven profitability, and operational efficiency challenges. These realities suggest that streamlining the corporate structure alone is unlikely to improve performance unless the way these organizations are governed also changes.
Mergers may reduce administrative costs, eliminate overlapping functions, and simplify corporate structures. They do not, however, automatically improve organizational culture, strengthen accountability, or enhance the quality of corporate leadership.
For that reason, the success of SOE restructuring should not be measured simply by how many companies are merged or dissolved. The more meaningful benchmark is whether SOEs become healthier, more productive, more transparent, and more accountable.
Reducing the number of SOEs may represent an important structural reform. But genuine reform will only be achieved if it addresses the fundamental issues that have long limited the competitiveness of state-owned enterprises.
If only the names and organizational charts change while the underlying problems remain untouched, then what has been reduced is merely the number of companies—not the problems themselves.
EDITORIAL
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