BUSINESS: Suharto's children
Far Eastern Economic Review
June 4, 1998

Children of a Lesser God:
 Indonesia sheds no tears as the Suharto empire crumbles
  * By Salil Tripathi in Jakarta
    1983 Words

The highway stretched to the horizon. It was empty save for some
shattered glass, burned tyres that had disintegrated into a heap of ash,
and scattered bricks. The traffic lights at the toll plaza flashed
amber; the tollgates were raised skyward in abject surrender.
   Snaking from Jakarta to its western suburbs, this was no ordinary
toll road; it is owned by Siti Hardijanti Rukmana, daughter of former
President Suharto, through her company Citra Marga Nusaphala Persada. As
Jakarta burned on May 15, a cheerful toll-collector enthusiastically
waved through, free of charge, the few cars that zipped along the
highway. Further along, newly jobless village ruffians had set up their
own barricade and were collecting an arbitrary toll, mocking the
Suharto-family monopoly. For the moment, at least a part of the
multibillion-dollar Suharto money machine had screeched to a halt.
 Once order had been restored following Suharto's resignation,
however, the toll collectors were back in business, the makeshift
barriers dismantled. But for how long will Suharto family members be
able to cling to the assets they built up during his rule?
   "Removing Suharto is a simple matter -- relieving the children of
their businesses will not be very easy," warns Michael Backman, an
Australian economist who has written extensively about Indonesia.
   An immediate expropriation of the family's wealth is unlikely, no
matter how popular that idea may be among Indonesia's poor, who see the
First Family wallowing in the fruits of corruption and nepotism. Among
the reasons are the opacity of their business links and the implicit
political protection Suharto's successor, President B.J. Habibie,
guarantees. Not only is Habibie beholden to Suharto but also 20 of the
36 ministers in his "reform" cabinet served in Suharto's last
   Yet there is little doubt that Suharto Inc. will eventually unravel,
given the family's inevitable loss of political clout and the iron laws
of economics. Foreign investors and Indonesian tycoons alike will no
longer feel it necessary to team up with the Suharto children to get
ahead in business, and may try to pull out of current relationships. Nor
can the family expect to win more juicy government contracts: Officials
are already starting to abrogate existing ones. And, like so many other
Indonesian companies, the Suharto children's businesses may simply not
be able to survive their crushing debt burdens.
   But don't expect the country to sport a modern, transparent economy
any time soon: Its ruling class is teeming with politicians, bureaucrats
and generals who are keen to build their own empires. "The problems of
collusion, nepotism and corruption are not yet over," observes Syahrir,
a Jakarta-based economist.
   Indeed, Habibie's own family empire, estimated to be worth about $60
million, extends into chemicals, construction, transport, communications
and real estate, notes Backman. (Those businesses include several joint
ventures with Suharto children.) And other key politicians, including
Ginandjar Kartasasmita, newly reappointed as coordinating minister for
the economy, finance and industry, and Hartarto Sastrosoenarto,
coordinating minister for development and national reform, have seen
their families' fortunes grow while they have been in office, Backman
   But their inroads into business pale next to those of the First
Family. Although Suharto himself doesn't have any known, direct business
interests, his six children, half-brother Probosutedjo and cousin
Sudwikatmono wrapped their tentacles around a sprawling array of
businesses during his 32-year rule. Their empire includes toll roads,
satellite communications, broadcasting, car-making, power projects,
domestic airlines, taxi services, water-supply utilities and trading
ventures. The family has also formed joint ventures with prominent
Indonesian-Chinese groups such as Salim and Barito Pacific and with the
armed forces.
   These ties form a tangled web. Suharto's eldest son, Sigit
Harjojudanto, runs the Hanurata Group with his brother-in-law, Lt.-Gen.
Prabowo Subianto, the ambitious officer whom armed-forces chief Gen.
Wiranto demoted after Suharto's resignation. Second son Bambang
Trihatmodjo controls the Bimantara Group, the biggest of all the known
family businesses. Youngest son Hutomo Mandala Putra, or Tommy, runs
Humpuss. Suharto's daughters are also in on the act. The eldest, Siti
Hardijanti Rukmana, or Tutut, controls the Citra Lamtoro Gung Group,
which includes the Jakarta toll road. Second daughter Siti Hedijanti
Herijadi runs a finance company and chairs the Capital Markets Society
of Indonesia, while youngest daughter Siti Hutami Endang Adyningsih
co-owns Tutut's Citra group.
   Few of the hundreds of family-owned companies are publicly traded,
though, forcing analysts to guess at the Suharto clan's total worth. In
1996, SocGen-Crosby Securities estimated the family's business assets in
Indonesia at about 11 trillion rupiah, or $5 billion at the then
exchange rate. An estimate from the American Central Intelligence Agency
puts the family's total wealth at about $30 billion.
   Bankers believe most of the family's money has been transferred
overseas -- to buy ranches, property in Singapore and negotiable
instruments with private banks. Although Probosutedjo says all of the
children are in Indonesia, well-informed sources say Tommy was in
Singapore the week his father stepped down and that Sigit has been in
London for some time.
   Many of the Suharto businesses are classic rent-seeking activities:
The children simply acted as middle-men, collecting money without
contributing much. They injected little management expertise and capital
-- but proffered free access to the corridors of power, making it easy
to win government contracts and licences. Now, they face a backlash.
   Most of Tommy's businesses -- the clove monopoly, the almost-defunct
domestic airline, Sempati, and the Timor car plant -- fall into this
category. The International Monetary Fund's bailout programme for
Indonesia specifically demands that several of these monopolies should
be opened to competition. Similarly, Bambang and Tutut supply state oil
monopoly Pertamina's refined products to international markets, and own
pipelines that distribute oil and gas within the country. In the last
days of the Suharto presidency, parliamentarians demanded that these
lucrative contracts be scrapped. Habibie may be complying: The mines and
energy ministry has just called for a review of Pertamina's oil
procurement and exports, which could put paid to Bambang and Tutut's
sweet deals. And days after his father stepped down, Sigit's contract to
supply water to the capital was cancelled by Jakarta's municipal
   A former research head of a Jakarta brokerage says Tutut's toll-road
business is particularly susceptible to takeover: The state owns the
land, the investment is complete, the road is built and the traffic is
guaranteed. What's more, the business is profitable. Moreover, Tutut's
ability to secure new roads is now weakened, and the existing contracts
diminish in value as they edge closer to their expiration dates. Her
investment is relatively small, which might make it easy for someone to
make her an attractive buyout offer.
   Indeed, without the shade of the banyan tree that guarded them, the
children are now uniquely exposed. Future business opportunities for the
children will likely dry up. By law, most multinationals in Indonesia
were required to have a local partner. And in Indonesia's impenetrable
business environment, the Suharto name spelled access, prompting dozens
of foreign companies to sign up with the family. A few examples: Lucent
Technologies, Siemens, Freeport McMoRan, Edison Mission Energy and NEC.
   In the post-Suharto era, though, being identified as one of the
children's partners will likely be a liability. Bruce Gale, regional
director of the Political and Economic Risk Consultancy in Singapore,
says multinationals will be exploring ways to cut their ties, perhaps
offering to buy out the children.
   The family might leap at such proposals: The children's companies are
swimming in debt. Wilson Nababan, president of CISI Raya Utama, a
Jakarta-based credit-analysis firm, estimates that they could owe as
much as 40 trillion rupiah -- $4 billion at current exchange rates.
Local banks which have previously been strong-armed into providing seed
capital to kickstart the children's businesses (and, later, working
capital) aren't likely to write off the debts -- especially now that
Suharto and the leverage he could bring to bear are gone.
   Tommy's plan to assemble Indonesia's national car, the Timor, with
he from Korean car maker Kia, epitomized the rampant cronyism that
Suharto Inc. represented. The project has crashed, and the site of the
planned car-assembly plant is no more than an empty parking lot. When
Tommy sought loans of 750 million rupiah last year to build the plant,
four state-run banks were expected to take the lead in its financing --
and did, offering 385 million rupiah. According to SocGen-Crosby, 12
private banks picked up smaller instalments. With his father no longer
at the helm, even Indonesia's timid state bankers may summon up the
necessary courage to call in Tommy's loans.
   Overwhelming debt threatens to topple even the children's value-added
companies, such as Bambang's Bimantara group, which has earned grudging
admiration from consultants and brokers. The company hired skilled
managers and engineers but still it faces daunting problems. In January,
Hyundai Motors postponed indefinitely an expansion of its joint-venture
car plant, citing poor market conditions. Bimantara was to make an
advanced-model Cakra car, based on Hyundai technology. Meanwhile,
Bambang's petrochemical plant, Chandra Asri, which makes ethylene and
polypropylene, will find it difficult to survive because of a global
glut of such products, business analyst Nababan says. World Trade
Organization strictures against protective tariffs will merely
complicate its task.
   Even Bimantara's most promising venture, the television network,
Rajawali Citra Televisi Indonesia, could be at risk. Manggi Habir,
research director of Bahana Securities in Jakarta, gives the good news:
"They are leaders in advertising revenue, they have good programming
skills, and they enjoy good ratings from audiences." But the bad news is
that advertising spending in Indonesia fell 90% from a year earlier in
the first quarter, according to a Singapore-based advertising agency.
Another reputable company in Bambang's stable is Satelindo, the
mobile-phone operator in Jakarta. It gets top marks from executives who
use its service, which is based on advanced technology from Deutsche
Telekom, one of its foreign investors. But like other Indonesian
businesses, it has huge foreign debts.
   The family's banks are in trouble, too. The Suharto family owns 30%
of the Salim group-controlled Bank Central Asia, Indonesia's largest
private, unlisted bank. More than 120 branches of the bank were targeted
for looting in Jakarta's recent unrest, and rioters smashed more than
1,200 automatic teller machines. Later, rumours that the bank was unable
to pay depositors triggered a run of withdrawals. Industry analysts
estimate its unhedged foreign debt to be about $1.5 billion -- enough to
wipe out its balance sheet, Nababan says. BCA owns stakes in other
Suharto family-owned banks that are saddled with bad debts.
   Few Indonesians will shed tears over the Suharto children's losses.
Ordinary people now bear the burden of the worst excesses of the Suharto
era, which saw their average per-capita income drop to $300 after
boosting it as high as $1,200. "It is back to Bangladesh for many of
them, and that hurts," says Kevin Evans, research director at ANZ
Grindlay's Securities in Jakarta.
   Now many Indonesians are crying out for revenge. Gobind Dayaldas, an
exporter who saw his $500,000 consignment of textiles looted in
Chinatown during the riots, says adamantly: "The family must apologize
to the people and return to the people what they took from them." He's
not alone. Tuti Indrawati, a 20-year-old biology student who camped out
at parliament in the days leading to Suharto's downfall, says: "There
should be a public trial of Tommy, Tutut and Bambang. They've got rich
and we got poor and now we Indonesians have to face the crisis and pay
for their loot."
   Still, the country has more pressing needs than bringing the Suharto
children to justice. "This is not the time for a witch-hunt," stresses
an Indonesian-Chinese banker, dismissing calls for a public trial and
jail terms for the children. "This is the time to convince the rest of
the world that we are a mature nation and that we can responsibly
negotiate our way out of this crisis."
   (See related letter: "Letters: Indonesia's Feudal Family" -- FEER
July 9, 1998)