Asiaweek: Children of a Lesser God

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             Children of a Lesser God
          Indonesia sheds no tears as the Suharto empire crumbles

                    By Salil Tripathi in Jakarta

                         June 4, 1998
    T he 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 administration. 

    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 adds.

    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 government.

    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 help
    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."