Suharto & Sons
(And Daughters, In-Laws & Cronies)
By George J. Aditjondro
Suharto watchers are skeptical. One of the power plant projects had been publicly canceled last fall and then quietly resurrected a few months later. A Western economist with a regional brokerage told one wire service that Suharto may try to pacify international interests by agreeing to new terms -- but will then proceed at his own pace. He has already shocked the stock market -- causing the rupiah to drop to a record low of 16,500 per U.S. dollar (compared with 2,400 last year) by indicating that he will appoint technology minister B.J. Habibie as his running mate in March. This, after agreeing with the IMF, to scrap Habibie's $2 billion passenger jet project.
The problem is that the Indonesian government has been a financial instrument of the extended Suharto family for 32 years. The president and other members of his family now control 25 foundations with stakes in dozens of large companies, ranging from flour mills, cement factories, fertilizer factories, toll roads and timber concessions to oil palm plantations. The 76-year-old strongman is being asked to change not just his economic policies but his family's way of life.
Suharto developed his skill in transforming politico-bureaucratic power into business deals in the early 1950s when he served as an army commander in Central Java. At that time, Indonesia had just achieved independence, and its military was so under-funded that army divisions set up foundations and gave special deals to a handful of businessmen who supplied the commander with rice, uniforms and medicine for his soldiers.
In 1965, when leftist military officers attempted to seize power from President Sukarno, Suharto and other conservative officers, allied with the United States, launched a ferocious counterattack, slaughtering somewhere between 500,000 and 2 million suspected communists. Over the next year, Suharto outmaneuvered his military colleagues and assumed absolute power.
It was then that Suharto's financial empire building began in earnest.
Suharto's main business operator was an old friend from Central Java, Liem Sioe Liong. Today, Liem is an 83-year-old billionaire who runs the original Suharto-linked financial empire, the Salim Group. He speaks Indonesian with a heavy Chinese accent 61 years after migrating from his native land at the age of 22.
Liem's first major money-making operation with Suharto was the Bogasari flour mills, which milled wheat provided by the United States under the U.S. Food for Peace program. Indonesia's National Logistics Board (Bulog), the government procurement office, diverted a potential competitor from Singapore to the small East Indonesian market. The huge western Indonesia market, with 80 percent of the flour business, was allocated to the Bogasari firm.
This exemplifies how Bulog and other government agencies and departments have been used during Suharto's 32-year presidency. Any bureaucrats or officeholders who resisted soon found themselves looking for new jobs.
Suharto's other longtime business friend from his early army days in Central Java is Mohammad Hasan, known commonly as Bob Hasan. Hasan is the antithesis of Liem Sioe Liong. He speaks fluent Indonesian with a Jakarta accent, plays golf twice a week with Suharto and has set up several news media organizations to defend his patron. His Nusamba Group -- which control millions of hectares of timber concessions -- is another major money maker for the Suharto foundations.
Hasan exemplifies the political face of Suharto's empire. By hiding the family foundations and individual shares of the family members in Sino-Indonesian business entities, Suharto has effectively concealed his own alliances with Chinese businessmen. The Chinese, a very small, affluent minority in Indonesia, are unpopular there. Recently, Suharto's spokesmen have been accusing "the conglomerates" -- shorthand for Chinese interests -- of speculating with foreign currencies, a tactic similar to the one used by Malaysian Prime Minister Mohamad Mahathir, who has blamed philanthropist-speculator George Soros and "the Jews" for Malaysia's economic problems.
After accumulating initial capital from the Salim and Nusamba business groups, Suharto's six children, began to form their own conglomerates in the '70s and '80s. Father was always ready to give a supportive push here and there, beginning with his oldest son, Sigit Harjojundanto.
Sigit's air freight company, Bayu Air PT, got its start by airlifting cattle from Suharto's family ranch in West Java to the outer island provinces. I was then covering Suharto for a magazine that has since been banned by the Indonesian government for reporting on a shady government contract and I learned that Indonesian air force planes were used for Sigit's venture -- but only after after the Bayu Air logo had been glued over the military logo.
Suharto's oldest daughter, Siti Hardijanti Rukmana, known as Tutut, has won contracts on favorable terms to build hundreds of kilometers of for-profit toll highways in Malaysia, the Philippines, China and Burma. Only after 25 years do the host countries take over the toll taking.
Together, Tutut and Sigit also now control 32 percent of the Bank Central Asia, the largest private bank in the country.
Titiek, Suharto's second-oldest daughter, is married to an army officer named Prabowo Subianto who commands the Indonesian Army's special forces. His family has business ventures in dozens of countries, including Uzbekistan, Portugal, Sudan and Guinea Bissau. With the Suhartos, the Subianto family also owns stakes in seven private Indonesian banks, making them the second-biggest Indonesian banking family -- after the Suhartos.
Then there's Bambang, whose joint ventures with construction firms in Manila and Sydney have built water supply projects and power plants in the Philippines, Indonesia and China. His Singapore-based Osprey Maritime Ltd. is also rapidly becoming one of Asia's largest oil tanker fleets. He will not suffer as a result of the IMF-imposed reforms, because the agreement does not affect Suharto-linked companies operating outside of Indonesia.
Tommy, Suharto's youngest son, is the flashiest of the clan. His dream is to turn Indonesia into an economic world power by developing a domestic automobile industry. He is producing a car called the Timor. Most economists and auto industry observers regard Tommy's national car project as a vanity-driven scheme that makes little economic sense. A planned $1 billion in subsidies to Tommy's firm was canceled at the behest of the IMF.
Tommy is hardly out of business, though. He uses a terminal at the new international airport near Jakarta to run his own private airline, Sempati Air. The Indonesian business press has repeatedly reported that Tommy owes the government back rent on his hangars and offices and hasn't even paid his catering bills.
The youngest sibling, Mamiek, has recently emerged in the business world after a company of hers obtained a deal to give a face lift to the northern shore of Jakarta Bay. The bidding was not competitive and Mamiek's company did not do an environmental impact study, as required by Indonesian law.
Since Suharto's children rushed into business, most major state companies have been forced to form joint ventures with the Suharto-linked private companies. The state-owned road management company, PT Jasa Marga, is a shareholder in Tutut's private toll-road company. The company has no reason to complain when the parliament, controlled by Suharto, approves annual hikes in tolls. It makes money, too.
In short, by blurring the difference between public and family enterprises, the Suharto oligarchy passes along to Indonesian taxpayers the inflated costs of crony capitalism.
One wrinkle in the IMF's pressures on Indonesia to reform is the friendly relationship of some U.S. corporations with the Suharto children. As Business Week reported last summer, "it is well-nigh impossible" for U.S. firms "to get a deal done without a Suharto clan member as ally, agent, or partner."
For example, the Nusamba Group has a 4.7 percent share in the Indonesian subsidiary of the Louisiana-based Freeport McMoRan mining company, according to the Wall Street Journal Interactive Edition, Asia. Over the last two decades, Freeport has established a huge copper, silver and gold mining operation in the province of Irian Jaya. The native Amungme and Kamoro peoples who live in and around the site have complained bitterly about evictions, pollution and disruption of their traditional way of life, drawing support from the Catholic Church, human rights groups and environmental activists. Troops under the command of Suharto's son-in-law now protect the mine.
Tutut and several other Indonesians have a 25 percent stake in PT Lucent, the local subsidiary of Lucent Techonologies. Another one of Tutut's companies, which specializes in supplying aircraft, military and navigation equipment, serves as the Indonesian agent for General Dynamics, General Electric and other U.S. firms. Tutut's company certainly would have profited if Indonesia had bought nine F-16 fighter jets that General Dynamics originally planned to sell to Pakistan. But when Indonesia's critics on Capitol Hill attacked the deal last spring as a protest against human-rights abuses in East Timor, Suharto got so angry that he unilaterally canceled it -- a rare instance in the Suharto family in which principles prevailed over profits.
Bambang has a mutually profitable relationship with the Hughes Space and Communications Inc. Since 1994, Hughes has sold two communication satellites to a company linked by Bambang -- a transaction made possible in part by a $136 million loan guarantee from the U.S. Export-Import Bank. Hughes's international division has a 10-percent stake in the enterprise. As George A. Tadler, vice president for Indonesian business development of the company told Business Week, "It isn't bad to have a President's son as partner."
Hughes has also sold a satellite to one of Bambang's joint ventures, a consortium with a Filipino telecommunications company. This consortium obtained a $25 million loan guarantee from the Ex-Im Bank last August to launch its first communication satellite. If Bambang and his partners are unable to pay back their loans, U.S. taxpayers will have to pick up the bill.
The question now is whether the family is serious about eliminating its own privileges in the Indonesian economy. Tutut says yes. She told the Indonesian Observer that even before her father signed the bailout agreement with the IMF, he had warned his children some of their projects would have to be shelved.
"Father asked us whether we were prepared for some of our business projects to be delayed," she was quoted as saying. "We said we were ready and had no objection to the agreement. I have no objections as long as it is for the sake of our people and the nation."
George J. Aditjondro teaches sociology of corruption at Newcastle University in Australia. He has followed the rise of the Suharto-linked businesses since the 1970s.
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