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Indonesian family forged tight Arkansas links a decade ago.
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Lippo's Ties to Power Customary Business in AsiaBy Keith B. Richburg
Washington Post Foreign Service
Sunday, October 20, 1996; Page A01
HONG KONG — In a city better known for its wealth than aesthetics, the glass-walled hexagonal twin towers of the Lippo Center (pictured) occupy a commanding spot among the knot of skyscrapers in Hong Kong's business district, rising dramatically near the harbor's edge among more familiar citadels of power, such as Citibank, Bank of America and the Bank of China.
Lippo Center is the home of Lippo Ltd., the profitable Hong Kong flagship company of an Indonesian conglomerate and the springboard for Lippo's expansion into south China. The office towers' list of occupants reads like a who's who of international corporate finance—banks, securities firms, insurance houses, the local branch of the prominent American law firm Skadden, Arps, Slate, Meagher and Flom, and Entergy Corp., the parent company of Arkansas Power and Light.
So it was not considered unusual here that one of Lippo's regular visitors several years ago was the little-known but fast-rising governor of Arkansas, Bill Clinton, stopping by while leading state trade delegations around Asia. Those trips were not big news because most of the people who worked at the Lippo Center knew that Clinton was a longtime friend of Lippo's flamboyant young vice chairman, James Riady.
"The Clintons have been in this bank a couple of times, before he was president," said John Muncy, executive vice president of The Hongkong Chinese Bank, a Lippo-held commercial bank headquartered at the center. "They came to Asia on trade missions and they'd come through.
"Everybody knows they were friends," Muncy added. "It's amazing to see it take this surprising turn."
The "surprising turn" is the recent disclosure that associates of the Riadys and the Lippo Group donated more than a half million dollars to Clinton's reelection campaign and to the Democratic National Committee (DNC), followed by the news Friday that the Democrats had removed a former top Lippo official in the United States, John Huang, from a key fund-raising position after he raised millions of dollars for the DNC, some in questionable contributions. Huang's fund-raising had focused on Asian-Americans and Asians with permanent resident status in the United States.
Republican challenger Robert J. Dole has accused the Democrats of using illegal foreign funds to finance Clinton's reelection, while other prominent Republicans have questioned whether those huge donations may have influenced administration policy at a time when Indonesia was seeking to maintain favorable trade relations and to fend off allegations of human rights abuses.
While the Riady family donations are not considered illegal—James Riady was residing in the United States in 1992 when he and his wife contributed $50,000 to Democratic Party committees—the administration's critics have asked what the Lippo conglomerate stood to gain from its connection to the Clinton White House.
But seen from this side of the Pacific, where the Jakarta-based Lippo Group is one of the region's largest, best-known and most respected conglomerates, the growing campaign finance controversy in the United States has sparked amazement. Many Asians and some old Asia hands say the controversy arises from some common American misperceptions about Asia, and from the huge gulf in attitudes between Western and Asian ways of conducting business, pursuing friendships and courting contacts among key people in high places.
Rather than being seen as an attempt to buy influence or alter policy, Asian and Western bankers, economists and others here said they view the Riady support for Clinton as simply common sense and a standard operating procedure among the region's ethnic Chinese businessmen for whom guangxi—the Chinese word that roughly translates as "connections"—is the central element of business success.
"For these guys, that's tin money," said William Overholt of Bankers Trust in Hong Kong. "It's sort of like buying membership in a club. They'd just like to be members of the club of people who say, 'Hey, I can talk to these very important people.' To join a good golf club in Asia costs a million dollars—to pay half that and be able to say, 'I had lunch with the president of the United States,'—it's in the range."
On one level, the controversy over Indonesian banking money filtering into U.S. political party coffers reflects East Asia's growing economic clout in the world and an increasing readiness of countries to build influence commensurate with their financial strength.
The most recent example was Taiwan, which spent an estimated $4.5 million on an extensive, grass-roots—and ultimately successful—lobbying campaign to break its international isolation and to get its president, Lee Teng-hui, a U.S. visa so that he could speak at Cornell University in June 1995. The Clinton administration approved the visa in the face of increasing bipartisan pressure from Congress, and the trip sent U.S.-China relations into a tailspin.
Unlike Taiwan's lobbying money, the political donations of the Riady family and Lippo associates are seen in this part of the world as a way to gain influence and win "face," or respect, at home, rather than as part of any overt attempt to influence U.S. policy decisions.
"The Riady family is Chinese," said an American businessman who arranges financing for projects in Indonesia. "The way business is done in the ethnic Chinese community throughout Asia is on the basis of connections. Billion-dollar deals are done on a handshake."
In countries such as Indonesia, with its history of discrimination against the Chinese minority, those connections—often to key military leaders or more directly to President Suharto and his family—can afford a kind of informal protection.
"Forming a good alliance with the political elite is simply a good precaution, and that holds true [in] the [United] States as well as Asia," said Michael Backman, an Australian who works as research director for the Castle Group of business advisers in Jakarta. By cultivating ties to Clinton, Riady "is not behaving abnormally for a businessman, especially one from Asia."
A key profit center now is Hong Kong, where Lippo Ltd. the flagship company, reported $3.6 billion in assets last year, according to the 1995 annual financial report.
In an interview a year ago with Asiaweek magazine, Mochtar Riady described his firm's ventures into China, and his business theory seems cogent when viewed against the current Clinton controversy. "China at the moment is terrible, but in another 10 years it will be incredible," he said. "Now we're starting to lobby, to get to know people, and then we'll start moving.
"In 1974, I went to Hong Kong, but it wasn't until 1984 that we started there. I went to America in 1970, and it was 1980 before I started work there. People who comment on how quickly we move aren't aware that we spend such a long time in preparation," Riady is quoted as saying.
The Riady family's first attempt to enter the U.S. market came in 1977, the first year of the Carter administration, when the group looked into buying shares in the National Bank of Georgia, then owned by Jimmy Carter's scandal-plagued budget director Bert Lance, according to an Indonesian academic in Australia who has researched the group. The Georgia bank deal fell through. But at the same time, Mochtar Riady dispatched his eldest son and heir apparent, James, to the United States to begin building connections to spearhead the powerful group's eventual entry into the U.S. banking market.
James ended up in Arkansas, where he came into contact with Clinton.
"If you were an Indonesian doing business in Arkansas in 1977, you were a bit of an oddity and you got to know everybody in town," said Muncy, of the Hongkong Chinese Bank.
After a heart bypass operation in 1990, Mochtar Riady reportedly stepped back from much of the Lippo Group's daily affairs, leaving matters to his sons—James, the vice president for Jakarta, and Stephen, two years younger, who is vice president for Hong Kong. James studied commerce at Melbourne University in Australia, and Stephen studied banking at the University of Southern California.
One is that the Riadys, and particularly James, have shown a flair for publicity and self-promotion. "This family is a little bit 'show-bizzy,'‚" said Jusuf Wanandi, an ethnic Chinese Indonesian at the Center for Strategic and International Studies, a respected Jakarta think tank. "They like to be in the limelight. The Southeast Asian Chinese like to be very low-key. But James, educated in the West, likes to show off."
Another difference is that the Riadys were never as well-connected as other ethnic Chinese firms to Indonesia's powerful Suharto family, although Mochtar Riady did have an earlier business relationship with tycoon Liem Sioe Liong, of the Liem Group, who is known to be close to the president. From the mid-1970s until he left to form Lippo shortly after, Mochtar Riady held a 17.5 percent share in the profitable Bank Central Asia, Indonesia's largest private bank, which was at the core of the Liem Group's financial empire early on.
Despite that early link, "they are not very close to the first family," Wanandi said.
Some believe that James Riady's assiduous courting of the Clintons—and his boasting openly of a close friendship after Clinton was elected president—may, in part, have been to compensate for the family's lack of strong political ties at home in Indonesia. James Riady had at least three Oval Office meetings with Clinton, the White House said.
Most of those interviewed for this article, however, expressed doubt that James Riady would have been instrumental—or indeed interested—in persuading the Clinton administration to tone down its criticism of Indonesian human rights abuses or of military repression in East Timor.
Moreover, as an ethnic Chinese and a Christian in an overwhelmingly Muslim country, Riady is in a distinct minority, and would be more likely to support a strong U.S. stance on human rights. One former Lippo employee, however, did say that James Riady believed that human rights "needs to be put in its proper perspective," and that dialogue was more valuable than confrontation.
Clinton harshly criticized Indonesia's human rights record during the 1992 presidential campaign, but has since taken a less confrontational approach.
The link to the Clintons also may have helped the Riadys overcome jitters last year among Lippo Group investors and financial analysts who said that the conglomerate known for massive projects and bold expansion into China may be overextended and in serious financial trouble.
With investors questioning big-ticket projects such as "Lippo City" and "Lippo Village" outside Jakarta, and a massive industrial park and residential zone in China halfway between Hong Kong and Shanghai, the group last year had to fend off an embarrassing run on its Lippo Bank.
A month ago, the Riadys announced a massive corporate restructuring, with the family selling some of its stock holdings in the various subsidiary companies. The maneuver provided quick cash and left the Riadys more liquid, but apparently angered some fund managers who feared the family was about to walk away as the conglomerate hit rough financial seas.
Some analysts said that the restructuring, which was rammed through in a special shareholders meeting, badly damaged Lippo's once-sterling reputation as a comparatively open company in Indonesia, a country known for corrupt business practices.
But others said the Riadys handled the crisis well, and that the family's reputation for integrity remains intact.
"They have a good reputation and they're straight players," said Backman, of the Castle Group of advisers.
© Copyright 1996 The Washington Post