Thesis Submitted for the Degree of Ph.D in the University of Hull By
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AN ACCOUNTING APPRAISAL OF THE PRIVATISATION DECISION A CASE STUDY OF INDONESIA'S TELECOMMUNICATIONS INDUSTRY Thesis Submitted for the Degree of Ph.D In The University of Hull By INDFtA BASTIAN December, 1998 PREFACE This study has been like a long journey. It has taken a lot of patience and sacrifice. In the end, the satisfaction of completing the work is the best reward for any cost of working hard. First, I would like to thank Dr Hasan Naim (University of Birmingham ) and Dr David Alexander (University of Hull) for their comments and support. Also, I wish to express appreciation for the encouragement, I received from Sonja Gallhofer and Jim Haslam (University of Essex) Special thanks are due to Prof. Richard Briston, who always supported and had faith in my work. He is the one of whom I can say that, without him, I might not have completed my research journey. There are a number of people who contributed to this thesis through discussion and helping in the empirical work. In particular I would like to thank Carol and Dot Sherman (University of Hull), staff and lectures in the accounting department (University of Hull and University of Essex), Director and Staff of PT Telkom, PT 1NTI and PT ENDOSAT. I am also indebted to Cooper and Lybrand of London, the International Accounting Standard Committee (IASC), the International Federation of Accountants (IFAC), the International Telecommunication Union (ETU) and the Department of Trade and Industry (DTI- United Kingdom) for providing opportunities to join their research and training teams. On this occasion, I would like to offer my sincere thanks to Mama - Papa Burhan & Joeswil Rasjid, Bobby - Ranti, Andy - Letty, Endah - Tohani, Diah and Bustaman for their continuing support for my life and my success. Writing this thesis, with all its associated demands, and often long hours of work, would not have been possible without the full support and tolerance of my beloved wife, Milla. I extend my sincerest thanks to Milla by saying 'this work is really for your love'. TABLE OF CONTENTS Pages CHAPTER ONE: INTRODUCTION 01 1.0. Introduction 01 1.1. Recognition of Specific Needs 02 1.2 Need of Evidence 05 1.3 Articulation of Title 07 1.4 Expected Contribution 09 1.5. Thesis Structure 12 CHAPTER TWO: THEORETICAL FRAMEWORK 17 2.0. Introduction 17 2.1. Political Economy of Public Sector in Less Developed Countries 24 2.2. The Recent Debate 28 2.3. Philosophy of Privatisation from a Political Economy Perspective 39 2.4. Privatisation Concept from a Political Economy Perspective 47 2.5. Concluding Comments 58 Endnotes 59 CHAPTER THREE: RESEARCH METHODOLOGY 60 3.0. Introduction 60 3.1. The Role of Methodology 62 3.1.1. Research Problem 62 3.1.2. Methodological Implications 67 3.1.3. Document Collection 68 3.1.4. In-depth Interviewing 69 3.2. Location Selection 73 3.3. Research Interviewees 74 3.4. Research Schedule 78 3.5. Research Analysis 80 3.6. Summary 82 Endnotes 83 PART ONE : LITERATURE REVIEW CHAPTER FOUR: THE ACCOUNTING ROLE: AN OVERVIEW 84 4.0. Introduction 84 4.1. The Rationale for Studying the Accounting Role in Society and Its Factor 87 4.2 The Accounting Role in Society 95 4.2.1. Financial Economics Perspective 96 4.2.2. The Nature of Accounting Perspective 108 4.2.3. A Social Perspective 115 4.3. Factors that Influence the Development of the Accounting Role in Society 120 4.3.1. The 1930s 120 4.3.2. The 1970s 125 4.3.2.1. The Management of Financial Sources 126 4.3.2.2. The Creation of Particular Patterns of Organisational Visibility 128 4.3.2.3. Articulation of forms of Management Structure and Organisational Segmentation 132 4.3.2.4. Reinforcement or Indeed Creation of Particular Patterns of Power and Influence 136 4.3.3. The 1990s 146 4.3.3.1. Global Debt to Pay 147 4.3.3.2. Cost of the International Debt Crisis 148 4.3.3.3. Boom and Bust of Mergers 150 4.4. Discussion 152 4.5. Summary 160 Endnotes 164 CHAPTER FIVE : A CRITICAL REVIEW OF THE HISTORY OF INDONESIAN TELECOMUNICATION INDUSTRY 166 5.0. Introduction 166 5.1. Rationale of Critical Review of Telecommunication History 168 5.2. Possible Ways of Discussing Telecommunication History 171 5.3. Pre-Republic 174 5.3.1. Ancient Kingdom 175 5.3.2. Colonisation of Dutch Indies 181 5.3.3. Japanese Occupation 194 5.4. Old Order 201 5.4.1. War of Independence 201 5.4.2. Liberal Democracy Era 208 5.4.3. Guided Democracy Era 217 5.5. New Order 225 6.5.1. Before 1981 225 6.5.2. After 1981 230 6.6. Discussion 239 6.7. Summary 247 Endnotes 249 CHAPTER SIX: CONTEMPORARY STAGE OF INDONESIAN ACCOUNTING 251 6.0. Introduction 251 6.1. Rationale for Indonesian Accounting Context 252 6.2. From Old to New Imperialism 256 6.3. Adoption of International Accounting Standards as a Middle Way 265 6.4. The Recent Development of Accounting Thought 275 6.5. Discussion 279 6.6. Summary 283 PART TWO : EMPIRICAL ANALYSIS CHAPTER SEVEN : REGULATING PRIVATISATION IN INDONESIA: ACCOUNTING POINT OF VIEW 285 7.0. Introduction 285 7.1. Why Regulate 287 7.2. Problem and Missions 294 7.3. What to Regulate 311 7.4. How to Regulate and Innovation 316 7.5. Discussion 323 7.6. Summary 330 Endnotes 334 CHAPTER EIGHT: FINANCIAL REPORTING ANALYSIS FOR PRIVATISATION POLICY 335 8.0. Introduction 335 8.1. Accounting Framework and Methodology 336 P.T lNDOSAT 340 P.T TELKOM 341 8.2. Post-Privatisation Performance 345 P.T INDOSAT 345 P.T TELKOM 354 8.3. Distribution 366 P.T INDOSAT 366 P.T TELKOM 370 8.4. Discussion 373 8.5. Summary 382 Endnotes 384 CHAPTER NINE: CONCLUSION 385 BIBLIOGRAPHY 391 LIST OF TABLES Pages Table 5.1 Factors Affecting the Role of Accounting in the Indonesian Telecommunication Industry 174 Table 5.2 Table Tariff For Batavia, Weltevreden, Semarang and Soerabaja 186 Table 5.3 Summary of Balance (+) or Deficit (-) in 1,000 guilders PTT Company 1925 — 1932 190 Table 5.4 Table Statistics for Annual Turnover 1950 — 1959 (Rp) 214 Table 5.5 Revenue and Expenditure 1960 — 1932 223 Table 5.6 Financing Project 1966 — 1968 227 Table 5.7 Indicative Public Investment Programme for Telecommunication 232 Table 5.8 Sources of Funding — PROTEL BEI 233 Table 5.9 Sources of Funding — PROTEL IV 234 Table 6.1 Comparison of Dutch and US Orientations 264 Table 6.2 Classification of Articles on IAI Congress 1994 & 1996 277 Table 7.1 Initial Response to Privatisation 289 Table 7.1.1 Initial Group Response to Privatisation (%) 290 Table 7.2 Factors Behind Regulation 291 Table 7.2.1 Factors Behind Regulation ( Group ) 293 Table 7.3 Indonesia's Problems 294 Table 7.3.1 Indonesia's Problems ( Group Response ) 298 Table 7.4 Problem Solving 299 Table 7.4.1 Problem Solving ( Group Response ) 301 Table 7.5 Opportunities and Challenges 301 Table 7.5.1 Opportunities and Challenges (Group Response) 304 Table 7.6 Mission of Regulator 305 Table 7.6.1 Mission Regulator (Group Response ) 310 Table 7.7 What to Regulate ( Group Response ) 312 Table 7.8 Analysis of Law No.3/1989 Telecommunication 312 Table 7.9 Analysis of Government Regulation No.8/1993 313 Table 7.10 Contradiction in Indonesia's Telecommunications Between Research Data & Privatisation Regulation 326 Table 7.11 Contradiction in the Role of Accounting in Telecommunication Privatisation Policy 328 Table 8.1 Sales, Purchases and the Value Added Fund 346 Table 8.2 Labour Costs and Share of the Value- Added Fund 348 Table 8.3 Capital Maintenance and the Value Added Fund 349 Table 8.4 Volume of Service Delivered 352 Table 8.5 Unit Costs Per Minute Telephone 353 Table 8.6 Sales, Purchases and the Value Added Fund 355 Table 8.7 Volume of Service Delivered 356 Table 8.8 Labour Costs and Share of the Value Added Fund 358 Table 8.9 Capital Maintenance and the Value Added Fund 360 Table 8.10 Unit Costs Per Minute Telephone 364 Table 8.11 Cash Flow Statement ( Thousand Rupiahs ) 368 Table 8.12 Cash Flow Statement ( Thousand Rupiahs ) 371 Table 8.13 1996— Ratio of Privatisation 377 Table 8.14 1997— Ratio of Privatisation 378 LIST OF FIGURES Pages Figure 1.1 Structure of Chapter One 2 Figure 1.2 The Expected of Original Contribution 10 Figure 1.3 Thesis Structure 13 Figure 2.1 Structure of Chapter Two 18 Figure 2.2 Classification of Goods and Services 42 Figure 2.3 Need Network 44 Figure 2.4 Need Reflection 46 Figure 2.5 The Sequencing Of Reforms 49 Figure 2.6 Privatisation Framework 53 Figure 2.7 Evaluation of Privatisation Framework 54 Figure 3.1 Structure of Chapter Three 61 Figure 3.2 Behind of Privatisation 63 Figure 3.3 Expert of Interviewees 76 Figure 3.4 Topics Raised With Each Interviewee Group 77 Figure 3.5 Schedule Planning 78 Figure 4.1 Structure of Chapter Four 84 Figure 4.2 The Focus of the Literature Review 86 Figure 4.3 Chen's Concept of Accountability 98 Figure 4.4 Chen's Concept of Managerial Stewardship 102 Figure 4.5 Accounting Role in a Social Perspective 115 Figure 4.6 The Meaning of the Role of Accounting 152 Figure 4.7 The Role of Accounting and its Factors: A Review 155 Figure 5.1 Structure of Chapter Five 167 Figure 5.2 Rationale of the Critical Review 169 Figure 5.3 Indonesian Telecommunication Business Map 238 Figure 5.3.1 The Development of the Accounting Role in the Telecommunication Industry in Indonesia 240 Figure 6.1 Structure of Chapter Six 252 Figure 6.2 The Objective of the Indonesian Capital Market 268 Figure 6.3 Globalisation Process 269 Figure 7.1 Structure of Chapter Seven 286 Figure 8.1 Structure of Chapter Eight 336 CHAPTER ONE INTRODUCTION 1.0 Introduction The recent development of accounting in Indonesia has been quite substantial.