BUSINESS: Can Suharto's children survive the crisis?
Far Eastern Economic Review
Jan 8, 1998
A Moment Of Truth:
Indonesia's Suhartos get a jarring view of the future
* By Salil Tripathi in Jakarta
When it comes to cronyism, few can match Indonesia's first family. The
six children of President Suharto seem to have a finger in every
corporate pie, thanks to the myriad contracts, equity stakes and
exclusive licences handed them over the years.
But as the Suharto era enters its twilight, many -- not least
children themselves -- are wondering what will happen to their gravy
trains once father finally departs. They recently got a hint: Rumours
that the 76-year-old president was ill or dead sent the Jakarta stock
exchange's main index plunging 20% in mid-December. Significantly, two
companies owned by Suharto children fared even worse: Toll-road operator
Citra Marga Nusaphala Persada plunged 39%; infrastructure company
Bimantara Citra 54%. The main index later recovered most of its lost
ground, but the two Suharto-family shares stayed put.
This does not bode well for the gravy train. Suharto, unchallenged
for 30 years but increasingly feeble, has no clear successor. Most
Jakarta brokerages are uncomfortable with Suharto-related companies,
believing they will suffer more than others when the president leaves
the scene. Few first-family businesses are listed; most thrive largely
on government contracts that a future president could easily revoke.
What's more, without their father the children would lose much of the
power by which they force themselves into various companies. Where they
have only meagre investments in ventures already past the approvals
stage, they could be easy prey.
"The toll roads are already built, the maintenance costs are
such projects would be extremely attractive to foreign investors," says
a research director with a foreign securities house in Jakarta.
"Replacing the Suharto children won't be difficult."
For the moment, however, it's business as usual at Suharto Inc.
First-family companies have resisted the strictures of a financial
crisis that has forced Indonesia into the arms of the International
Monetary Fund and brought many firms close to default on foreign debt.
The IMF wants Indonesia to scale back big infrastructure projects.
Slashing capital imports would he narrow the trade deficit and take
pressure off the rupiah, which has plunged more than 50% against the
U.S. dollar since the crisis began in mid-August.
But austerity doesn't always suit Suharto business interests.
December 26, for instance, state-run electricity company Perusahaan
Listrik Negara, or PLN, signed a 20-year deal to buy power from
Consolidated Electric Power Asia, a subsidiary of Hong Kong's Hopewell
group. The agreement covers the $1.8 billion Tanjung Jati C power
station backed by Suharto's eldest daughter Siti Hardijanti Rukmana (or
"Tutut"). Middle daughter Siti Hedijanti Herijadi ("Titiek"), meanwhile,
got her own power project, Tanjung Jati A, removed from a list of
projects earmarked for postponement.
The two units are going ahead despite World Bank reservations
they will leave Indonesia with more power than it needs or can afford.
(Indonesia pays for the electricity in dollars.) Hopewell Chairman
Gordon Wu says he has secured financing, but more debt is the last thing
Indonesia needs right now.
Other Suharto children are equally willing to defy inconvenient
policy. A month ago, the Finance Ministry enraged second son Bambang
Trihatmodjo by closing Bank Andromeda, in which he had a 25% stake. The
ministry said Bank Andromeda, like 15 other banks, was undercapitalized
and overburdened by bad loans. Bambang first threatened to sue the
ministry, then settled for reincarnating the lender as Bank Alfa.
"Everything at the bank is the same except for stationery," says a
Jakarta-based broker. As a former member of parliament laments: "This is
so embarrassing, and there is no one surrounding the president who can
tell that to Suharto."
Yet the Suharto children's free ride may be slowing, partly
of the financial crisis, partly because long-simmering resentments are
starting to surface. Jakarta-based businessmen say that while having the
Suhartos aboard can guarantee smooth sailing through Indonesia's
bureaucracy, their role is often minimal. Says a consultant: "All they
invest is their namecard."
A namecard may no longer be enough. The financial crisis is
making it easier for bureaucrats, business partners, credit-rating
agencies and analysts to rebuff Suharto-family interests. Under the
terms of its $33 billion IMF bailout, Indonesia must open public-works
projects to competitive bidding, depriving the Suhartos of their inside
track. In another sign of the times, a local credit-rating agency has
downgraded Sempati Air, a private carrier run by youngest son Hutomo
Mandala Putra ("Tommy").
Local opinion-makers are also speaking out. Economist and opposition
figure Kwik Kian Gee has publicly criticized the existence of BPPC, a
clove-trading monopoly started by son Tommy. Even some state-run
companies are fed up, and saying so. National oil company Pertamina
disclosed in November that Tommy's Sempati Air owes it $3.5 million.
(Sempati officials declined to be interviewed.)
Some bureaucrats too have become bolder. Djiteng Marsudi,
president-director of PLN, the power utility, complained to parliament
in December of constant intervention by "outsiders"-an apparent
euphemism for the first family -- who are forcing more power projects on
the country than it can handle.
Quietly, Jakarta's technocrats have put some Suharto-affiliated
toll-road projects in Java on hold, and they have scrapped an ambitious
plan by daughter Titiek to build a bridge between Sumatra and Malaysia.
State banks are also in revolt. Most have signed on for Tommy's $690
million national-car loan, but are dragging their feet about coughing up
cash. Likewise with Tutut's unfinished triple-deck road and monorail
project in Jakarta. The banks' reluctance is partly because there's
little money to lend.
The Suharto children may be getting the message. Analysts say
them realize that they need to consolidate and professionalize their
businesses. Bambang's Bimantara group has progressed furthest, say
analysts, who rate the group's Satelindo mobile-phone operator highly.
Still, when Suharto finally goes will the knives come out for
pampered children? At least one economist says Suharto's fear of a
Korea-type reprisal is what keeps him from relinquishing power. Others
say revenge is not part of the Indonesian character (although the bloody
purge of suspected communists that brought Suharto to power gives pause
for thought). The children themselves seem to be counting on the views
of people like political scientist Dewi Fortuna Anwar, who says: "We
need reforms, not revenge."
Even when their father is gone, the Suharto children won't be
entirely without leverage. They have formed an intricate web of business
alliances with virtually every major player in Indonesia -- chiefly the
Salim, Barito, Napan and Mulia groups. Bambang and Tommy have business
ties with the armed forces, for which one of daughter Tutut's ventures
procures equipment. And the president's half-brother Probosutedjo, a
critic of "Chinese dominance" in Indonesia's economy, has nonetheless
formed alliances with Chinese businesses.
For all that, their best protection may be the very culture
corporate Indonesia. Says a Western research director: "This is such a
corrupt country that no pot can call the other kettle black."