Government as Shareholder or Guardian? A Critical Look at SOE Policy in Indonesia

The objectives behind the disbursement of State Capital Injections (Penyertaan Modal Negara/PMN) in Indonesia have historically varied and have been administered on a case-by-case basis. This paper provides both a descriptive overview and an empirical analysis of the determinants influencing PMN allocations to state-owned enterprises (SOEs). Specifically, it assesses the impact of capital injections on financially distressed, often termed †zombie†—SOEs, compared to a counterfactual scenario. Employing a panel data fixed-effects regression model, we identify key financial characteristics associated with PMN disbursement. Our findings reveal that SOEs with higher returns on equity and lower debt-to-asset ratios are less likely to receive PMN, indicating a preference for supporting financially weaker firms. Conversely, SOEs with higher debt-to-capital and cash-to-short-term debt ratios—indicators of elevated financial risk—are more likely to obtain fiscal support. Moreover, prior receipt of PMN and the existence of explicit government mandates significantly increase the likelihood of additional capital injections. Survival analysis further suggests that each 1% increase in PMN reduces the probability of an SOE becoming illiquid in the following fiscal year by approximately 4.4%. In addition, receiving PMN in the previous year decreases the likelihood of a firm becoming a zombie enterprise by 37.5%. These findings underscore the need for greater transparency and consistency in the PMN allocation process. We argue that the government should establish clear eligibility criteria and performance benchmarks for SOEs to access capital injections. Imposing harder budget constraints and institutionalizing performance accountability could reduce the fiscal burden and enhance SOE efficiency.