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Indonesia losing its thirst for privatization
Real estate news By Bill Guerin
Sep 22, 2007
The botched privatization of an Indonesian water utility represents the latest cautionary tale debunking market fundamentalist dogma that private management and pricing are in the interests of the public good. The failed effort threatens to derail the country's broad privatization program, as nationalistic politicians start to second-guess what they view as a Western-donor-driven economic-reform agenda. The World Bank and International Monetary Fund (IMF) leaned heavily on Indonesia to privatize state enterprises and encourage more foreign investment as the best way to deal with its 1997-98 financial collapse. Key among the areas prescribed for market reform was the inefficient water sector.
Yet ever since Jakarta's water supply was formally privatized in 1997, prices have risen astronomically while access has dwindled for poor residents. Nearly half of Jakarta's residents now lack a piped water connection, more than the entire urban population of Brazil's Rio de Janeiro, a World Bank sanitation specialist recently noted. Two major foreign-owned tap-water operators, which for the past decade have enjoyed monopoly power over the Indonesian capital's water supply, recently divested their interests after arguably contributing to, rather than alleviating, the city's water crisis.
This year, RWE Thames Water sold its 95% shareholding in its local joint-venture company PT Thames PAM Jaya (TPJ) to Singapore-based Aquatico Pte for a cool US$15 million. This followed a similar sale last year by France's Suez Environment of nearly half of its 95% shareholding in PT Pam Lyonnaise Jaya (Palyja), for an undisclosed sum to PT Astratel Nusantara (Astratel), a subsidiary of Indonesia's giant automotive company Astra International, and Citigroup Financial Products. Jakarta's water-privatization scheme dates back to the tenure of president Suharto, who took the advice of the World Bank and the IMF that foreign investment and private management of public utilities was crucial for the success of his government's market-reform program.
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