JAKARTA – The Indonesian government has drawn up a plan to bring together nine state-owned companies, including the national airline Garuda Indonesia, low-cost airline Citilink and companies that operate major tourist sites, under one holding company

The hope is that this will allow companies to eliminate unnecessary costs and work together on initiatives such as discounted travel packages. The move could also facilitate the allocation of public funds to Garuda, which has fallen into the red in the first six months of this year.

The idea of ​​holding has the support of President Joko Widodo. In addition to airlines, he will oversee companies operating in the tourism sector, including Hotel Indonesia Natour, which has 14 properties in Bali and beyond; companies operating tourist and world heritage sites, such as Borobudur Temple; and Sarinah, a department store.

The aim of integration is to create synergies between public enterprises. With airlines, airports and tourism businesses operating under one roof, the parent company aims to remove vertical barriers and allow them to offer cheaper travel packages to travelers.

The size of the holding company should also make it easier to secure financing from the banks. It is also hoped that the consolidation of administrative services will create efficiency gains.

Tourism and airline businesses are vital to the Indonesian economy. Widodo has wanted to integrate them for some time. At a ministerial meeting on the coronavirus in early August, he said: “Head winds in the travel industry present a good opportunity to start integrating and transforming the tourism and aviation sectors.

Many observers believe that the real purpose of creating the holding company is to shake up Garuda’s management. The Indonesian national carrier fell into the red from January to June, suffering a net loss of $ 723.26 million.

The government plans to provide financial assistance of 8.5 trillion rupees ($ 578.7 million) to the holding company, but many observers oppose a direct injection of the tax money because the government will only hold 60% of the shares. If it were entirely state-owned, there would be a clear public objective in the search for efficiency and would make state aid easier to justify.

In addition, Garuda owes $ 76 million to airport management companies that will join the new holding company. Consolidating them into a holding company should make it much easier for Garuda to restructure its debt. Irfan Setiaputra, chairman of the airline, said the holding company would be efficient, the Jakarta Post reported.

Sarinah, an Indonesian state-run department store, is expected to become part of a holding company that will include the country’s flag bearer, Garuda Indonesia. © Reuters

Indonesia has many tourist attractions, including Bali, one of the world’s leading seaside resorts. Industry accounted for around 5% of the country’s gross domestic product in 2019. Inflation-adjusted GDP declined 5.32% in the April-June quarter compared to the same period last year so as the pandemic has taken its toll, the first time since 1999 that Indonesia’s economy has contracted. Widodo hopes that tourism will serve as a catalyst for an economic recovery.

But the industry is in dire straits. The government closed the country to most foreign visitors in April and only 3.41 million foreign tourists came between January and August, down 68% from the same period last year.

Indonesia continues to see 3,000 to 4,000 new coronavirus infections per day. The Bali state government has scrapped plans to allow the return of foreign tourists from 9/11 after the central government has given no indication that it will ease restrictions on entry for foreign nationals.

Whatever the corporate structure of Indonesian state-owned enterprises, they are unlikely to rebound until the pandemic is better contained.