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08 Feb 1998 : The Nation: FAMILY BU



 08 Feb 1998 
 The Nation

 FAMILY BUSINESS/ GEORGE ADITJONDRO

SONS AND DAUGHTERS, AND CRONIES 
At the core of Indonesia's problems is that the government has been a financial
instrument of the extended Suharto family for 32 years. 



SINCE seizing power in the mid-1960s, Indonesian President Suharto has translated
his absolute political power into a massive family fortune. The Suharto family is worth an estimated US$16 billion according to Forbes magazine, and $35 billion according to
one estimate attributed to the CIA. 

Suharto's desire to protect this empire while the economy melts down has dismayed
international investors and confounded officials from the International Monetary Fund
(IMF), who see economic reform and the end of so-called ''crony capitalism'' as
essential to Indonesia's recovery. 

The Suharto family wealth figured prominently in the conditions set by the IMF in its $43 billion bailout of the Indonesian economy. That agreement, which has so far failed to end investors' skepticism, included cutting off subsidies to a car company owned by
one of his sons, dissolution of the clove monopoly owned by that son and cancellation of two power plant projects in which another son has a stake. 

Suharto watchers are skeptical. One of the power plant projects was publicly cancelled
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 US 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, fertiliser 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. 



Early beginnings 

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 two million
suspected communists. Over the next year, Suharto outmaneouvered 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 US Food for Peace
programme. 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 per cent 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 organisations 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. 


Home grown conglomerates 

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, PT Bayu Air, 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 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 per cent 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. 



Automobile dream 

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  firm did not do an environmental  impact study, as required by 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 wrinkly in the IMF's pressures on Indonesia to reform is the friendly relationship of some US corporations with the Suharto children. As Business Week reported last summer, "it is wellnigh impossible" for US 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 per cent share in the Indonesian subsidiary of the Louisiana-based Freeport McMoRan mining company. Troops under the command of Suharto's son-in-law low now  protect the mine against disgruntled locals.                                                


Principles and profits

Another one of Tutut's companies serves as the Indonesian agent for General Dynamics, General Electric and other US firms. Tutut's company certainly would have profited if Indonesia had bought  nine F-16 fighter jets from General  Dynamics. But  when Indonesia's critics on Capitol Hill attacked the deal 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.

The question now is whether the family is serious about eliminating its own privileges. Tutut says yes. She told the Indonesian Observer that even before her  father signed  the IMF agreement, 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 ."-- Washington Post 

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GEORGE 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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