ECONOMICS: Indonesia's overseas Chinese
Far Eastern Economic Review
Feb 19, 1998

 Ready, Set . . .
 As tension flares, Indonesia's invaluable Chinese middle class lays
 emergency-escape plans
    By Bruce Gilley in Perth with John McBeth in Jakarta,
 Ben Dolven in Singapore
    * And Salil Tripathi in Hong Kong
    2246 Words

David Jaelani sits on a park bench in the tranquil suburb of Winthrop
in Australia's western capital, Perth, trying to explain a Sunday
afternoon game of cricket to his two daughters. Three years ago, when he
set up a business consultancy on his home island of Lombok in eastern
Indonesia, Jaelani thought his future there was assured.
   Then, beginning in September, an economic crisis hit Indonesia.
Indonesians blamed Jaelani (not his real name), along with the country's
other 6 million ethnic Chinese, for their woes. Jaelani's dozen
employees launched a strike in December, accusing him of paying low
salaries. When a mob looted and vandalized the local Chinese-owned
noodle factory the same month, Jaelani took that as his cue to flee.
Luckily, he had already qualified to take up residency in Australia as a
business migrant, a privilege which the 43-year-old had planned to enjoy
in later life. Today, his firm in Lombok is closed and Jaelani has moved
his family, and most of his modest wealth, to Perth.
 "It was too dangerous to stay there," he says, smiling. "If we were
attacked, the police and army would delay helping us so the locals could
vent their anger."
   The country's most visible minority has been on the defensive since
colonial times, when the Dutch favoured the Chinese over the indigenous
Indonesians. But the recent wave of Chinese-bashing has brought about a
sea change in the behaviour of this relatively small but powerful
community. While Indonesia's wealthiest Chinese tycoons have long had
escape pods abroad for their families and businesses -- in the form of
second homes, foreign passports and overseas bank accounts -- the latest
tensions are forcing even the middle classes to consider flight. Large
numbers of Jakarta's salaried managers and professionals and
entrepreneurs in provincial cities are, for the first time, pondering
pulling up stakes.
   "It's the small businessmen who are trying to leave now," notes
Richard Yeap, an immigration consultant who advises many of the
Perth-bound Indonesian Chinese. "Some are so young! It's really come as
a shock to me!"
   It is a dramatic move. Unlike the tycoons who can afford to shuttle
back and forth between Indonesia and Asian cities, flight for the middle
class is final. They must sell everything to afford life abroad; and
they don't have managers to fill in while they sit out tensions
   "The people who want to get out now are the borderline cases," says
Rukma Paramita, an Indonesian Chinese who is now an immigration
consultant in Sydney. One of her clients who was applying to migrate to
Australia as an investor is seeking asylum instead, fearing that his
investor application would be rejected.
   For Indonesia, the implications of losing the heart of its Chinese
community are far-reaching. They account for only 3% -- although those
with some Chinese ancestry may represent as much as 10% -- of the
200-million population. But the Chinese control half of the national
economy, and an even larger percentage of the private sector, according
to the Centre for Information and Development Studies, a Jakarta
think-tank. Already, the Chinese middle class's fears have triggered the
outflow of at least $1 billion of capital and probably much more.
Shuttering their companies could have a devastating effect on the
recession-bound economy, too, triggering a vicious cycle: Pullouts could
heighten economic distress and thus step up anti-Chinese violence,
according to a senior economist for the Jakarta office of a United
Nations organization.
   But the long-term implications are most worrying: The departure of
the Chinese threatens a hollowing out of corporate Indonesia. "We need
Chinese businesses to attract foreign investment," says Wilson Nababan,
president of credit-analysis firm CISI Raya Utama in Jakarta. "We should
be encouraging them to stay, not chasing them away." More importantly,
Indonesia would lose a well-educated group valued for its
entrepreneurial savvy and managerial abilities. "If they start leaving,
we will have a vacuum of skills," says Manggi Habir, managing director
of Bahana Securities in Jakarta. "Who is going to take their place?"
   The question could be put to Indonesian President Suharto. He has
offered succour to the wealthiest Chinese tycoons. But his policies that
restrict the use of the Chinese language and impose outright bans on
celebrating Chinese festivals and on admitting Chinese to some
universities and the civil service have left the rest feeling alienated
and insecure. "The Indonesian Chinese have never been made to feel
welcome. A whole ethnic group has been disenfranchised," says Michael
Backman, the former executive officer of the East Asia Analytical Unit
of Australia's Department of Foreign Affairs and Trade. "If they leave,
it will be Indonesia's loss."
   More and more people are making preparations to leave, but it is not
clear what would turn the rising tide into a flood. Social tensions are
likely to swell as the economic crisis boosts job losses and inflation.
Even by the government's optimistic calculations, the "misery index,"
which adds together the rates of inflation and unemployment, will more
than double this year to around 40%. But politics will likely determine
whether they stay or go. If Suharto is re-elected in March with a
vice-president genuinely committed to ethnic harmony, the majority of
Chinese will almost certainly stay. If not, just one spark could trigger
an exodus.
   "Many of my friends have already left on short-term visas, while
others are just staying at home. They are all awaiting the outcome of
the March elections," says Kwik Kian Gie, a Jakarta-based economist.
"They all have contingency plans."
   The number who have actually moved abroad as a result of the recent
panic is tiny, and many of those who may want to leave may not be able
to afford it. But like a bird flapping its wings before taking flight,
signs of a potential exodus are not hard to spot. Business migration
applications to the Australian embassy in Jakarta, mostly by Chinese,
rocketed to more than 130 in December, compared to a monthly average of
40 in the first 11 months of the year, according to Australian
officials. And even though the rupiah's depreciation has made travel
abroad more expensive, travel agents in Jakarta report bookings on
flights out of the country in February and March are up 10% over last
year. Many Chinese carry open air tickets in their pockets.
   In provincial cities like Ujung Pandang, Chinese families consider
buying homes in Perth, or in safer parts of Indonesia itself. At Jakarta
airport, Chinese families push trollies creaking under stacks of
suitcases towards planes destined for Singapore and Sydney. "We're going
to Singapore for several months because there are too many problems
here," says a man leading his wife and daughter through the terminal.
They were bound for an apartment in the nearby city-state, where an
estimated 40% of foreign-owned private property is in Indonesian hands.
   New account-seekers, both indigenous and Chinese, have inundated
foreign banks throughout Indonesia, and many banks have moved
aggressively to service this sudden middle-class clientele with
nonresident accounts in Singapore and Australia. In December, queues to
open new accounts at the Citibank branch in Jakarta were snaking out the
door. (Indonesia's central bank is trying to obtain a list of the new
account-holders, say banking sources in Jakarta, but so far the bank has
politely rebuffed the requests.) Many have taken their money out in
suitcases, instead. One man was arrested at Jakarta's Sukarno-Hatta
airport on January 20 with 2.9 billion rupiah ($305,000) in hand. Days
earlier, three men bound for Singapore were stopped at the airport with
more than $2 million in gold in their carry-on bags.
   While capital-flight figures are hard to compute, bankers in
Australia, which normally accounts for about 20% of overseas Indonesian
deposits, say about $1 billion flowed in from the country in new
accounts in the last five weeks of 1997, the height of the currency
panic. Bankers in Singapore -- which gets the most offshore money from
Indonesians -- report 25% monthly growth since November in Indonesians'
nonresident U.S. dollar deposits, known as Asian Currency Units. Bankers
in both places say ethnic Chinese account for most of the new money.
   "Those trying to get out now are taking the whole lot. They're not
leaving a penny behind," says Wilson Wu, Citibank's international
personal banking manager for Western and South Australia in Perth. "Some
of the people might go back, but the money will stay abroad."
   Why have the middle-class Chinese made preparations to leave? Rising
prices caused mainly by the currency depreciation have led to riots
across the country in which retail and wholesale shops, mostly
Chinese-owned, have been attacked. Early this month, mobs in the eastern
city of Ende razed a whole block of ethnic Chinese-owned shops. In
addition, Chinese tycoons own most of the 230 companies sitting on the
$62 billion in private corporate debt that has crippled the Indonesian
economy, fuelling tensions further.
   In the past, such bubbling resentment has been contained. But this
time, the Indonesian army and police appear willing to watch from the
sidelines. Sitting out the storm is thus untenable for many Chinese
   "I don't think it's safe there any more. We have to start thinking
more about personal safety than just business," says Herman Widjaja, an
Indonesian Chinese living in Perth who is making preparations to bring
his parents to the city. For Widjaja's father, a 60-year-old
third-generation Chinese who has spent most of his life building up a
prosperous school-bag wholesale business, it would mean virtual
retirement. But that now seems a better fate than threats to his life.
   The Chinese who are trying to emigrate now are seeking a greater
sense of personal security," says Susanto, a Chinese tycoon in Jakarta.
His textile and garment concern, the Karwell Group, employs more than
20,000 workers at factories across Indonesia making garments for famous
American labels such as Levi's and Eddie Bauer. "It is a reflection of
our domestic problems that we have not been able to provide that sense
of security for them here." (Susanto, like many of the rich ones, is a
permanent resident of Australia but also an Indonesian citizen.)
   Two incidents have pointed up the army's ambivalent, even
encouraging, attitude towards anti-Chinese sentiment. In early January,
army officials accused Chinese businessmen of being unpatriotic for
failing to return their overseas money after Jakarta launched a "love
the rupiah" campaign; 13 executives received threatening phone calls
from military officers. At around the same time, Suharto publicly
appealed to 57 Indonesian tycoons, mostly Chinese, to repatriate some of
what he estimated to be their $80 billion in overseas assets. (Writing
in the Indonesian Observer newspaper in December, former Indonesian
Foreign Minister H. Roeslan Abdulgani estimated that $43 billion of the
$560 billion in nonresident deposits in Singapore are of Indonesian
origin. Others reckon the proportion is much higher.)
   The ongoing harassment of Sofjan Wanandi, head of the Gemala group of
companies and an informal spokesman for Chinese business interests in
Indonesia, is even more worrying. Police have questioned Wanandi over an
apartment bombing in Jakarta in late January in what he insists is an
attempt to frame him. Many suspect the harassment is related to a
behind-the-scenes struggle over the vice-presidency. When Wanandi went
to Australia in late January for a long-planned business meeting and to
watch a tennis tournament, the military accused him of fleeing the
country, and now issues almost daily threats against him. "If they can
do it to Sofjan, they can do it to the whole Indonesian Chinese
community," says his brother Jusuf.
   Those are just the thoughts haunting Arthur Halim, a young doctor in
Jakarta who has just finished his mandatory two-year service in a rural
area after completing medical school. Halim (not his real name) is among
those preparing to leave for Australia as a skilled migrant along with
his American-educated fiancee, the daughter of a prominent local Chinese
tycoon. "When I was the only doctor in a remote village, I was safe,"
Halim says. "Now I'm just one of thousands in the city and the situation
is tense. I want to make sure I have a future."
   Leaving Indonesia is especially hard for the likes of Halim. For one,
the cost of fleeing is huge relative to his modest savings. And those
like Halim whose families sailed from China generations ago are now
integrated into the local community, cannot speak Chinese and consider
Indonesia their only homeland. Standing in sharp contrast to these
so-called peranakan are the less integrated recent Chinese immigrants,
or totok. They happen to include many of the wealthiest tycoons who are
already fixed up abroad.
   The tycoons may be able to afford to return, but that is less likely
for the middle-class Chinese who leave. Human-resource consultants in
Jakarta are divided over the potential impact of a loss of a large
number of Chinese professionals and managers. Recently, Indonesian
universities have been churning out growing numbers of indigenous MBAs
to he meet demand from multinationals and domestic firms for better
trained staff. But one thing they agree on: The 80% of listed firms that
are Chinese-controlled and often seek Chinese managers would be the
worst hit.
   In the provinces, closing Chinese-owned businesses would have harsh
consequences in the retail and wholesale trades and could trigger even
worse inflation, says a Jakarta-based economist.
   From every perspective, a large-scale Chinese exodus from Indonesia
would be a disaster. "At the end of the day," notes garment magnate
Susanto, "the greatest damage will be to Indonesia itself."