Govt to standardize risk management procedures

Friday, July 20, 2007
The Jakarta Post, Jakarta

The State Ministry for State Enterprises is finalizing detailed guidelines for standardizing risk management practices in the country's 138 state enterprises.

"We are preparing detailed guidelines for the state enterprises and will announces the result as soon as possible," Loso Judijanto, a special advisor to the state minister, told reporters Thursday.

While a 2002 decree of the state minister for state enterprises on good corporate governance sets out general guidelines on risk management, "we now need more detailed guidelines," Loso explained.

Loso said that some state enterprises had already adopted risk management approaches, but these ranged from the relatively sophisticated to very primitive.

"Companies in the banking and telecommunications sector have mostly adopted risk management approaches because the nature of these sectors requires them to do so, especially the banking sector, where every financial institution is required to comply with the Basel Accord if they want to enter the international market," said Loso.

The Basel Accord is a set of agreements sponsored by the Basel Committee on Bank Supervision, which sets out recommendations on capital risk, market risk and operational risk.

Speaking during a seminar on corporate risk management organized by the Perbanas Business School, Loso said that to date only about five percent of state enterprises outside the banking sector applied risk management in the running of their businesses.

Roy Sembel, a financial and risk management consultant, said that in order to survive in a rapidly changing business environment, state enterprises needed to adopt risk management practices in their day-to-day activities.

Over the last two years, many Indonesian companies had started to lay the foundations for enterprise risk management, but it would take three to five years before this became a culture among corporations, said Roy.

"It is not only about infrastructure or standard operating procedures. It's about people's mind-sets," said Roy, adding that many state enterprises were reluctant to apply risk management as middle managers usually saw it as generating "unnecessary" additional paperwork.

Roy added that state enterprises outside the banking sector needed to learn from that sector about the application of risk management.

"The banking sector already has some tools, such as risk assessment tools, risk management information technology and risk monitoring capability that could also be employed by other sectors. No need to reinvent the wheel," said Roy.(02)