Monday, February 09, 1998

In Indonesia, Apocalypse Looms in 'Social Explosion'


Andreas Harsono
American Reporter Correspondent

JAKARTA -- Ali Sadikin suddenly stopped laughing. Turning serious, he said he felt insulted as he watched Michel Camdessus, the managing director of the International Monetary Fund (IMF), fold his arms and look on as Indonesian President Suharto signed the controversial agreement drafted by the IMF to bail out the Indonesian economy.

"Suharto is a bad guy, but Camdessus was treating my President like an old colonial master," said Sadikin.

But the veteran dissident then sat down, looked around his spacious living room and burst into gales of laughter. "No, no, that man was getting his lesson. That's Suharto's responsibility," he said when he finally recovered.

The 72-year-old retired army general is not alone in his offended patriotism. Many other Indonesians felt similar things when the Washington-based financial institution -- with the backing of U.S. President Bill Clinton, Japanese Prime Minister Ryutaro Hashimoto and other world leaders -- pressured Suharto to sign a letter of intent in exchange for a US$43 billion package

The Jan. 15 agreement was a "two-edged sword," Sadikin observed. On one side, Suharto was pressured to curtail monopolies and the "rent-seeking" businesses of his children and cronies, such as youngest son Hutomo Mandala Putra's $600-million so-called national car project, heir apparent Research and Technology Minister B.J. Habibie's $2 billion aircraft project, and associate Bob Hasan's lucrative plywood cartel.

Critics blame Suharto's "crony capitalism" for creating the now-desperate situation in this, the world's fourth most-populated country. The rupiah nose-dived from 2,400 to the American dollar in July to more than 15,000 several days after the Camdessus-Suharto deal.

The drastic decline in the rupiah's value (it closed at 9,100 to the U.S. dollar on Friday) has created other, far-reaching problems: Indonesia's annual per capita income is now down from $1,200 to $300; stockmarket capitalization was reduced from $118 billion to $17 billion; only 22 of Indonesia's 286 publicly listed companies are now considered solvent; and only four firms remain with market capitalization of $500 million or more, out of 49 before the crisis.

Various national figures, from opposition leader Megawati Sukarnoputri, the daughter of Indonesia's founding President Sukarno, to Suharto's in-law, Prof. Sumitro Djojohadikusumo, and retired Lt. Gen. Bambang Triantoro have called on Suharto to step down. Even as they place the blame on Suharto for the economy's ill, they were also surprised when they learned the details of the Suharto-Camdessus agreement, in which the father semed to have surrendered his defense of his children.

On the other side of the IMF sword, though, Suharto let millions of Indonesians bear the brunt of the current financial crisis. The IMF asked Suharto to cut the state monopoly on sugar, milk, cooking oil, garlic and other staple items, but not rice, which have now significantly increased in price.

The agreement also required Suharto to sharply reduce or eliminate long-established fuel and electricity subsidies and to impose a one-percent surplus requirement for Indonesia's 1998-1999 state budget. The president also reworked his draft budget, presented to the House of Representatives on Jan. 6, with new assumptions -- that inflation would reach 20 percent this year in a corresponding period of zero economic growth. That means, experts agree, more than 15 millions workers will lose their jobs and thousands of factory-owners must face bankruptcy. Other workers will see prices rise as paychecks fall.

Even worse, riots and social unrest are now much more likely to occur in many Indonesian towns and villages. Hostility toward Indonesians of Chinese descent -- an ethnic minority here that runs most of retail businesses and are traditionally the target of social violence -- is already spreading.

Angry rioters in the Jember area in the eastern tip of Java reportedly forced Chinese-owned shopkeepers to open their drug stores and to sell staple items at pre-crisis prices. Some merchants were threatened with machetes, and one supermarket was burned down as looters cleaned out the stores. In other cities and towns, hostile protesters threw firecrackers at Chinese motorists.

A Javanese Sultan

President Suharto, Asia's longest serving leader, rules Indonesia like an old-fashioned sultan. He made the armed forces his palace guard and the central bank his treasurer, and organized a by-the-numbers general election every five years to demonstrate to outsiders that Indonesia is a democratic country.

His six children have also planted their influence everywhere, from politics to business, from the military to charity.

The 77-year-old president -- who has been in power since 1965 and is still seeking his seventh term -- constructed his power base by practicing the carrot-and-stick strategy. He never hesitated to jail dissidents, human rights workers, unionists and journalists, not to mention East Timorese freedom fighters.

But Suharto granted loyal aides lucrative business opportunities, forest concessions, mining licenses and other treats, including appointments to the cabinet and armed forces, ambassadorial posts and corporate boards.

Like a traditional Javanese king, he encouraged foreign investors who want to do business here to seek joint ventures with his children. Contracts seem to be more easily granted to foreigners who want to cooperate with them.

But the Suharto children are almost always "silent partners" -- known as "sleeping partners" here -- who contribute no money to the ventures; usually, they have neither the expertise nor the capital. They do have their father's name, though, and that is reportedly enough to cow uncompromising bureaucrats, corporate boartds and critical bankers.

Investors are also encouraged to cooperate with Suharto cronies like Bob Hasan, who controls several investment firms, or Indonesia's richest businessman, Liem Sioe Liong, whose Bank Central Asia, the biggest private bank here, is jointly owned with Suharto's eldest daughter, Siti Hardiyanti Rukmana, and the president's eldest son, Sigit Hardjojudanto.

Perhaps the most controversial multinational company operating in Indonesia is New Orleans-based Freeport McMoran Copper & Gold Inc., which pays Indonesia's largest annual tax bill. Freeport, which has mined copper and gold in Indonesia since the 1960s, has been criticized for years by international and Indonesian groups for allegedly mistreating indigenous peoples and the environment. Freeport's chairman, James Moffett, is an old and close friend of Suharto's.

In 1996 PT Nusantara Ampera Bhakti, an investment firm that is 80 percent owned by Suharto-controlled foundations, purchased a five percent interest in Freeport's Indonesian unit, PT Freeport Indonesia. Some months later Freeport was granted government approval to nearly triple the capacity at its massive Grasberg mine on the island of Irian Jaya.

In addition to foreign banks which are eager to tap into Indonesia's economic boom, economists said the "rent-seeking" working atmosphere has encouraged Indonesian businessmen to race to enter the circle of presidential cronies.

One example of the perils of such eagerness is illustrated in the story of businessman Yopie Wijaya, the Chinese operator of PT Steady Safe, a taxi company in Jakarta. Although its total net assets were estimated at not more than $4 million, Wijaya managed to get a $265 million loan from once-prestigious Peregrine Holdings Ltd. in Hong Kong, then the largest non-Japanese investment bank in Southeast Asia.

Wijaya's secret: He simply approached Rukmana and installed her as the chairwoman of the small taxi firm. He also drafted a grand proposal to buy rolling stock for a rail transport system linking Jakarta with satellite towns.

He also talked about a long-term government concessions to run his carriages on a railway already funded by Japanese banks. Some bankers doubted the wisdom and viability of the proposal, but Peregrine executives believed him -- especially with Rukmana as his main backer. Peregrine gave him the money, but he used it instead to buy 19 percent of Rukmana's toll road corporation.

The drama began to unfold when the rupiah started its steep slide against the dollar. Steady Safe could not repay the dollar-denominated loan and Peregrine went bankrupt, devastating the Hong Kong stock market. Foreign bankers and economists said the incident demonstrated just how an obscure company could get millions of dollars for questionable projects merely because of its alliance with a Suharto family member or friend. Steady Safe, to be sure, was not the only example.

Indonesian officials said in December that the nation's offshore debt stood at $118 billion, consisting of $52.4 billion in government debt and $65.6 billion in private-sector debt. Around 60 percent of the private loans are due before June 1998.

The Suhartos are so corrupt that a senior editor even remarked that it would be better for the nation if they just took the money and spent it on luxuries rather than on creating monopoly businesses that profoundly distort the nation's markets.

"The practice has grown to such a colossal proportion that it has made Indonesia financially bloated and institutionally damaged," the editor said.

Transparency International, a Berlin firm that measures the epth of corruption in national economies, called Indonesia one of the most corrupt nations in the world. The Suhartos have staked claims to virtually every part of Indonesia's economy; the media and automotive, agriculture and manufacturing, mining, telecommunications, banking and real estate sectors are all largely under their direct or indirect control. Estimates of Suharto's wealth have ranged between $16 billion to $40 billion.

The Hong Kong-based Far Eastern Economic Review magazine commented recently that when it comes to cronyism, few can match the Suhartos. "The six children seem to have a finger in every corporate pie, thanks to the myriad contracts, equity stakes and exclusive licenses handed them over the years," the magazine said.

Prof. Djojohadikusumo describesthe problem here as an "institutional disease," saying that Indonesia needs far-reaching political reforms to restore public confidence on the government.

"If we were just talking about the economy," he said, "then an aspirin is enough. An institutional disease needs antibiotics."

Neo- Or Internal Colonialism?

Hutomo Mandala Putra, widely known as "Tommy" Suharto, defends his family against the pressure for reform, saying that the IMF package is a "politically motivated" effort to cleanse the economy of "first family-dominated industries."

"It had previously been agreed that the national car project would await the decision of the World Trade Organization, but maybe, the government is in desperate need of funds from the IMF and the World Bank, and maybe because it was politically motivated," he told a press conference after one of his banks was shuttered.

He declined to answer directly when asked if he thought the Suharto-Camdessus agreement represented a kind of neocolonialism, but said, "I think it's a part of it." When asked whether the colonialist was the IMF, he responded, "You can guess."

But Tommy, who didn't hesitate to drive his sparkling royal blue Rolls-Royce to the press conference, obviously was aiming at a tender nerve of most Indonesians, who learn from their school benches that their founding fathers had fought desperately against the Dutch colonial rulers.

Other economists and nationalist figures air similar sentiments. Some fundamentalist Muslim preachers even openly talked of the "orang kafir" trying to control Indonesia; Camdessus, according to their logic, is no more than an infidel.

Meanwhile, the Muslim-based Media Dakwah magazine editorialized that the free market is only an illusion. In fact, the magazine said, the supposedly "free" market is controlled by a number of Western countries, whose use instruments including the IMF to continue their "dominance and existence" in developing countries like Indonesia.

The magazine also alleged that the free market had only benefited Indonesia's big businesses, because 80 percent of its economy is controlled by Chinese-descent tycoons. The Chinese here comprise only 3.5 percent of Indonesia's 200 million population, of which 90 percent are Muslims.

Military officers are also fanning the anti-Chinese emotions, bombarding the media with various carefully-tailored allegations against the Chinese with appeals to nationalism and economic disparities. The military even questioned and charged a prominent Chinese businessman for allegedly financing a radical student movement in an apparent bid to trap wealthy Chinese in the role of scapegoats. The message is clear: blamed the crisis on Chinese and Westerners.

Critics say Tommy, the Muslim clerics and the officers have actually been trying to divert public unease about the Suhartos to their traditional scapegoats through a classic manipulation of racism and ultra nationalism.

Indonesian technocrats, who have helped Suharto shape Indonesia's economy since the 1970s, quietly confronted the arguments, saying that they actually could solve the crisis if only the first family did not resist the solutions.

In particular, they cite one example. In December, two months after the IMF first agreed to give the nation its financial assistance, President Suharto approved the hugely controversial Tanjung Jati C power station in which his eldest daughter Rukmana has an interest.

The contract was signed with Hong Kong developer Gordon Wu. The deal was at best puzzling. By pushing it through, Suharto alienated both the IMF and the World Bank. The $1.77 billion project went ahead even as the Indonesian power grid was already near 60 to 70 percent overcapacity.

Suharto only revoked the decision after a telephone conversation with President Clinton, during which, analysts speculated, the issue was apparently raised. Suharto has also agreed to scrap 14 other controversial projects which involve another daughter.

"The choice is either Bob Hasan or the IMF," said a young Indonesian market analyst, referring to the timber tycoon who is also a longtime friend and golfing partner of Suharto. He added that even though the IMF might bring American capitalists into Indonesia, they are still much better than the Indonesians.

Tommy probably hasn't heard the talk emanating from some corners of Jakarta, among student activists, intellectuals and human rights workers, about "internal colonialism" rather than his neo-colonialism being at work here. Indonesia the talk goes, is being colonized by the Suhartos.

Dissident journalist Goenawan Mohamad offers a useful analogy. "After the end of the World War II," Goenawan wrote, "the Japanese were put under an American-imposed constitution.

"Most Japanese," he continues, "took it as a chance to build a more democratic society, which was to them preferable to the nationalistic flag-waving Nippon. The rest is their own determination to make the experiment a success."

Even Megawati -- whose father, Sukarno, is still revered as the leader of the Indonesian revolution and the nation's first president -- who frequently echoes the anti-colonial sentiment of the 1960s and is ideologically closer to economic nationalism than global capitalism, agreed with the IMF reforms; she has thanked the institution for agreeing to bail out Indonesia.

No Way Out

Most analysts believed that the Indonesian monetary crisis has started to become a political disaster. Investors are losing confidence in the Suharto government. Terence Mahoney, managing director at TCW Asia, said the weak rupiah reflected the increased social and political risk premium associated with an unstable regime.

"Major concessions have been made by Suharto, but we still have an election [in March]. We don't know who his successor will be, and unlike Thailand and Korea where you really seem to have public support [for reform] there still seems to be a lot of friction in Indonesia," said Mahoney.

Ironically, Indonesia has no peaceful and democratic mechanism to change a sitting president. More than 500,000 left-leaning workers -- most of them also Chinese -- were killed when Suharto was replacing Sukarno following an aborted coup attempt blamed on the communists.

Indonesia's 1,000-strong People's Consultative Assembly (MPR), which alone has the right to elect the president and vice president in March, is 57.5-percent-comprised of "people representatives" who are directly appointed by Suharto.

The MPR has five factions: Suharto's ruling party, Golkar; the tightly-controlled Muslim-based United Development Party; Megawati's rival Indonesian Democratic Party (which is headed by a rival elected with government backing); the Armed Forces; and provincial representatives.

Nomination of the president can legally be made only by one of the government-recognized factions, which have never nominated anyone but Suharto since the former general staged his first election in 1971. The president has reiterated that he would "not run away from responsibility" and would like to be elected to his seventh term.

Even Megawati, who has declared her intention to challenge Suharto for the presidency, admitted that it is technically impossible to organize her pledge into real politics. She can only call on the MPR not to renominate Suharto.

"It is unwise and starkly speculative and totally irresponsible if certain parties further their interest in reelecting Suharto to another five-year term," Megawati said, especially now that Suharto -- who cancelled an important trip recently for a 10-day rest while recovering from "fatigue" -- is not in good health.

"We know that it is very difficult. Why did the government oust Megawati? Because she is basically a major concern to the President," said economist Kwik Kian Gie, referring to her removal at a military-backed rump convention in 1996 that eventually triggered some of the worst rioting in Jakarta in two decades.

"If he is really healthy, he will stay. As long as Suharto wants to be president, she has no chance," said the Dutch-trained Kwik. But Megawati is now strengthening her alliance with two other opposition figures: Amien Rais and Abdurrahman Wahid, the leaders of the two biggest Muslim organizations in Indonesia.

"Suharto should not be re-elected or else [there should be] a deadlock," said Sadikin, adding without emphasis that Indonesia is simply waiting for a big, a very big, social explosion that might surprise even the world.

"I'm actually very sad," the onetime general, now a hardened dissident, said. "It's even too late for Suharto to step down. We have no other option but the explosion." And he did not laugh anymore.