The Nederlandsche Handel-Maatschappij (NHM, Netherlands Trading Company) built its new branch in Batavia to last. Completed in 1933 and designed in a style related to art deco called “new objectivity,” its white triple-fronted façade faced across a square to the terminus of a railway system that connected the main cities of Java. Just to the north, lines of ships from all over the Indies filled the old harbor, while a modern steamer port lay just along the coast. Incorporated under royal charter in 1824 to fill a gap left by the collapse of the Netherlands East India Company, the NHM had grown into a trading and banking giant.
Its grand new office in the main city of the Indies was a sign of the company’s confidence that its role would continue throughout the twentieth century. Less than a decade after the office was built, however, the Dutch were swept aside by the Japanese, and the city was renamed Jakarta. Although the NHM and other Dutch firms regained control of their trading houses and plantations after the end of the Second World War and continued to operate them into the first decade of the Indonesian republic, they were all nationalized by 1960 in Sukarno’s initial response to the Netherlands’ refusal to transfer sovereignty in western New Guinea. The NHM’s assets, including the building, passed into the hands of a succession of state-owned banks, the latest being Bank Mandiri, formed out of the wreckage of the 1997–98 financial crisis.
The building’s interior is much as it was when the Dutch left in 1942. It has a shadowy central banking chamber cooled by fans, which is furnished with solid wooden counters and steel grills to protect the cashiers. Heavy safes are visible in back rooms. With a sentiment not always associated with banking, its new owners have kept it as a museum, equipped with cumbersome electromechanical calculators and a phantom staff of mannequins dressed in early-twentieth-century clothes, including a European “manager” in a white cotton drill suit, who sits behind a vast desk.
Bank Mandiri’s museum, often overlooked by tourists on their way to buildings from the earlier centuries of imperialism in Jakarta’s old Kota district, is a quirky and unintended reminder of the lessons in commerce given to the Indonesians by their former rulers. The core elements of the modern economy started with a push from the state. This intangible legacy of the NHM remains, even if the company itself does not. A second layer of activity formed out of numerous medium and small enterprises that were linked by networks of mostly Chinese family businesses, plus some of Arab or Indian origin. A third layer was an even more “informal” stratum of petty trading among the various indigenous peoples of the Indies.
This heritage has been hard for the Indonesian state to throw off, perhaps because many of its leaders and officials are not conscious of it. Most of the enterprises inherited from the Dutch administration—what became the national airline, Garuda, the shipping company, Pelni, the railways, and so on—or nationalized in the late 1950s remain under state control, if partially privatized in some cases. The idea of the state as a pioneer of industrialization and technological advancement is dearly held. It overlays an older heritage of tax, opium, and other “farms” allocated by rulers to favored merchants. Where it does not run the activity directly, the state regulates competition to avoid “waste” and other adverse effects.
Indonesia’s first leader was less aware of private-sector entrepreneurialism as a driver of economic growth and innovation. But Sukarno’s better educated colleagues would have known that Joseph Schumpeter’s ideas about the “wild spirits” of capitalism apply in the archipelago as much as anywhere else. The political dilemma, as noted by the development economist Gustav Papanek and others, was that Schumpeter didn’t address what happens when the wild spirits of innovation emerge first and most visibly among an ethnic minority.
Across Southeast Asia, these local innovators have tended to be the Chinese settlers and their descendants, or southern Indians in the case of Burma. In some countries (Thailand and the Philippines) these communities have been sufficiently assimilated to lessen envy. In others (Indonesia, Malaysia, Vietnam, and Burma) the rise or return of indigenous political dominance brought responses ranging from discrimination in economic policies to outright expulsion.
Chinese migrants had been in the Indies for centuries, some as semiprivileged “compradors” and intermediaries for the Dutch, many others as laborers or small traders. These older families became partially assimilated into the Indonesian societies around them, speaking the local language more fluently than their ancestral Chinese dialects, their knowledge of Chinese written characters slipping away over the generations. Sometimes men took local wives, and most still held to Buddhism or Taoism if they did not convert, as many did, to Christianity. These were the peranakan Chinese, a name suggesting intermarriage.
As their new generations took advantage of education in government and church schools, the peranakan moved into bureaucratic, commercial, and academic roles. Then in the 1920s and 1930s came a new wave of Chinese settlers, many from the coastal province of Fujian, which doubled Indonesia’s ethnic Chinese population to about 1.2 million. Escaping civil war and poverty, they were a brash lot, desperate to make their fortunes. The name for these Chinese immigrants was totok, meaning “full-blooded and newly arrived.” They moved out into provincial cities and towns, setting up shops, trading houses, and restaurants. Some of these entrepreneurs helped the Indonesian republicans evade the Dutch embargoes during the independence struggle, smuggling commodities out to earn hard currency and bringing arms back in. Some of the peranakan, too, became revolutionaries. Generally, however, Indonesians regarded the Chinese, along with the part-European or “Indo” minority, as political fence-sitters.
In April 1950, only four months after the formal transfer of sovereignty from the Dutch, Sukarno applied what was known as the benteng (fortress) policy, to give preference in import licenses and the allocation of foreign exchange to companies that were at least 70 percent owned by pribumi (literally, “sons of the soil,” or indigenous) Indonesians. The policy did help the formation or growth of several pribumi enterprises, notably that of Sudarpo Sastrosatomo (who ran the Samudra shipping line and distributed Remington and Univac business machines), and also those of Achmad Bakrie (trading and rubber processing) and Hajji Kalla (trading). It was also widely subverted through the use of so-called Ali Baba companies or by simply selling import licenses to Chinese traders, the pribumi thus acting as a broker or seller of privilege rather than an entrepreneur. Another policy promoted the formation of cooperative societies, particularly in agriculture. It was part of the dream of a harmonious village society. Tens of thousands of cooperatives formed and were later promoted by the army as an alternative to communism. Many still operate, though they amount to only a tiny percentage of the gross national product.
By the late 1950s, the benteng policy was dropped as Sukarno’s attention turned to nationalization of Dutch assets, and his leftist senior ministers threatened Caltex and other foreign oil producers. The question of whether the Chinese belonged in Indonesia simmered. Their citizenship was left in doubt. Then, in 1959, Sukarno issued a decree banning foreign-owned shops and businesses in rural areas. Some provinces ordered ethnic Chinese to move into the cities. In 1960 about 130,000 took up an offer of repatriation by the communist Chinese government in Beijing.
The links formed between army commanders and Chinese merchants in the independence war had not ended in 1949, however. Regional military commanders allied with local traders to raise cash to pay their troops and to finance operations, giving protection to smuggled exports of sugar and other commodities out to Singapore, Malaya, and the Philippines, and imports of goods in short supply. Suharto was among them, as a colonel and then commanding general in the Diponegoro (Central Java) division, which was based in the port city of Semarang, for most of the 1950s. Diponegoro’s chief financial and supply officer, Sujono Humardani, combined the foraging talents of a Milo Minderbinder with deep insight into Javanese spiritualism, meaning that he got on very well with his superior.
As we saw in chapter 3, Liem Sioe Liong (Sudono Salim) was one of the region’s totok merchants, initially in Kudus, a manufacturing center for the kretek (clove-scented) cigarettes that are the poor man’s luxury in Indonesia. When war and Dutch embargoes disrupted the supply of cloves for the kretek factories, Liem found ways to bring them in from the other islands. In the late 1950s, with a new disruption to the domestic clove supply caused by the Permesta rebellion in Sulawesi and the Moluccas, Liem tapped a new external source with imports from Madagascar and Zanzibar, via Singapore and Hong Kong, with protection from the Diponegoro officers. Another rising business talent in Semarang was Mohamad “Bob” Hasan (born The Kian Seng), who was initially known to the officers as a foster child of the division’s first commander, Gatot Subroto, and later became close to his successor Suharto. In the 1960s Liem moved his operations to Jakarta, setting up two new banks in the old Kota commercial district, Bank Central Asia and Bank Windu Kencana. Bob Hasan also followed the political sunlight to the capital on Suharto’s rise to power.
As president, Suharto took a two-level approach to the position of the ethnic Chinese. Although the Chinese embassy was sacked after the September 30, 1965, “affair,” the Indonesian communists had already decided to keep ethnic Chinese figures out of leadership positions. The anti-PKI massacres did not spread to the Chinese community in Java and Bali, though a pogrom did occur in West Kalimantan for distinct reasons; indeed, several peranakan Chinese, such as the legal scholar Liem Bian Kie (later Jusuf Wanandi), became leaders in the student movements against Sukarno and the leftists.
Under pressure from his more chauvinist regional commanders, Suharto applied a new policy that was intended to assimilate the Chinese rather than expel them. The public display of Chinese script and religious practices was banned, and the adoption of Indonesian-style names was encouraged. Some simply merged their names into one, like the historian Onghokham or the banker Jusuf Panglaykim. Others took the kind of grandiose Sanskrit names favored by the Javanese aristocracy.
Liem took advantage of the second level of Suharto’s policy. In 1968 he and Suharto’s younger half-brother Probosutedjo received the exclusive rights to import cloves directly from the Indian Ocean islands, with part of the profits going to “charitable” foundations set up by the president. The following year, Salim (as we will now call him) gained one of two import licenses for wheat and flour milling. (A Singaporean rival was confined to the less-populated eastern islands.) His Bogasari Flour Mills received its imported wheat via the state food-price stabilization agency known as Bulog, getting a hefty subsidy on the way. Then it sold the flour back to Bulog with another high profit margin. Suharto also gave Salim licenses for cement making, and his firm Indocement steadily overtook the state-owned Semen Gresik, becoming the largest producer by the mid-1980s.
A constellation of other totok businessmen started as Salim’s lieutenants and partners, and many later formed separate but friendly business empires. Mochtar Riady worked with Salim in banking before consolidating his Bank Lippo group; Ciputra in property; Eka Cipta Wijaya in palm-oil plantations and processing, later separating as the Sinar Mas group; Djuhar Sutanto in cement; the Malaysian tycoon Robert Kuok in flour milling. Salim was also careful to cut in Probosutedjo and Suharto’s cousin Sudwikatmono as minority shareholders, or as beneficiaries of profit shares. Later, this “first family” homage extended to the Suharto children, two of whom owned 32 percent of the shares in Bank Central Asia, which became the largest private-sector bank.
Suharto’s favors carried other obligations. Salim dutifully helped bail out a loss-making sheet mill that the government had attached to the state-owned Krakatau Steel at Cilegon in West Java, another money sink under the Pertamina umbrella. He also helped open new land for rice and sugar at Suharto’s behest. Further introductions by Suharto’s financial adviser and spiritual guru, Sujono Humardhani, linked up Willem Soeryadjaya with Toyota and Thajeb Gobel with Matsushita as local manufacturing and distribution partners.
The rise of this clutch of mostly totok tycoons—many of whom, like Salim, spoke only rough Indonesian—to domination of the modern private sector did not go unnoticed by the Indonesian public. The term cukong, roughly meaning “boss,” came to refer to ethnic Chinese businessmen who had thrived under military patronage. The link became highly contentious for Suharto. He ordered investigations of corrupt linkages, but little or no action followed. By 1973–74, criticism from newspapers and students, and internal regime rivalries, led to the so-called Malari riots in Jakarta, which targeted businesses seen as being symbolic of the favoring of ethnic Chinese and foreign capital, such as Astra’s showrooms for Toyota cars. As well as political repression, Suharto’s response was a new suite of policies aimed at favoring pribumi-owned businesses. The issue was revisited in the 1980s, and in 1990 he gave his cukong a public dressing down, calling them to his cattle farm in the hills outside Jakarta and ordering them to transfer 25 percent of their listed-company shares to Indonesian cooperatives; this demand was later watered down to a token 1 percent.
Complaints continued from pribumi businessmen that they had missed out on the head start given to Suharto’s favored cukong, which they blamed for their absence from the top corporate rankings. Yet many had a natural advantage as indigenous champions and were not without their own preferential policies. They suffered from a perception that pribumi tended to onsell licenses rather than steadily develop businesses themselves and to regard loans, particularly those from state banks, as gifts not needing to be repaid. Nonetheless, several pribumi businesses grew strongly in the latter years of the New Order, notably the Bakrie group and the Kalla group. Both of these cultivated political support through active membership in the New Order’s favored political machine, Golkar. Chinese and pribumi enterprises alike became active listers in the Jakarta Stock Exchange, revived in 1977 after being two decades dormant, which lessened the overwhelming reliance on banking finance.
From the mid-1980s, the Chinese were eclipsed somewhat as targets of resentment by the burgeoning business groups of the Suharto children. Still, the ethnic Chinese tycoons kept their heads down as much as possible. Where they were noticed intervening in politics, it was outside Indonesia. Mochtar Riady got into controversy in 1977 by offering to buy US president Jimmy Carter’s budget secretary, Bert Lance, out of some embarrassing bank shares. His son James Riady pursued connections in the United States, befriending then Arkansas governor Bill Clinton and getting embroiled in campaign-donation and money-laundering scandals in the mid-1990s—to the point that he was persona non grata in the United States until Hillary Clinton became secretary of state fifteen years later.
But if licenses and monopolies were part of the explanation for the success of some Chinese immigrants, many displayed deep business acumen. Salim’s Bank Central Asia became regarded as a comparatively well-managed institution. His flour-milling franchise led to the development of the best-known international brand to come out of Indonesia, the instant noodles known as Indomie.
In common with the region’s other emerging economies, Indonesia avidly took up the loans offered to its entrepreneurs by international investment banks during the 1990s. When Thailand ran out of money to prop up its banks in mid-1997 and unpegged its currency from the US dollar, the contagion spread. Indonesia’s rupiah began a slide from 2,500 to the dollar to 14,800 in January 1998. With some $80 billion in borrowings denominated in foreign currencies, it soon became apparent that the Indonesian corporate sector was beyond rescuing by the central bank, which had only $20 billion in foreign reserves.
Suharto agreed to a $43 billion bailout from the IMF in October 1997, which was offered on the condition that he ended monopolies given to cronies and family—Bob Hasan’s plywood, Salim’s flour, Tommy Suharto’s cloves—and also ceased giving subsidies to Tommy’s national car scheme and B. J. Habibie’s aircraft venture. The IMF also demanded that sixteen insolvent banks be closed. It was not until two months later that Suharto signed on the dotted line, having dragged his heels on these “conditionalities.” Meanwhile, thousands of small and medium businesses collapsed, bank customers rushed to withdraw their savings, and the economy went into a 16.5 percent contraction within a year.
The well connected managed to save themselves, at least from total ruin. Salim sold 40 percent of his Indofood Sukses Makmur (the maker of Indomie) to his majority-owned Hong Kong investment house, First Pacific. Even before the crisis, Salim had diversified some 40 percent of his total turnover outside Indonesia, pulled by the rising economy of his homeland and pushed by the end-of-regime feeling in Jakarta.
Alongside his deal with the IMF, Suharto had quietly ordered Bank Indonesia to ramp up its “liquidity support” program to help out private banks. Eventually Rp 145 trillion was pumped in. But only Rp 50 trillion was disbursed to account holders. The rest is presumed to have been used by bank owners and related companies to buy foreign exchange and evacuate their capital, mostly to Singapore. One of Suharto’s favored business allies, Marimutu Sinivasan, of the textile group Texmaco, alone managed to secure $900 million. The bank liquidity loans were part of an overall domestic bailout of the banking sector that came to total Rp 644 trillion (roughly $77 billion, at an average exchange rate from 1997 to 2003). The funds were to be repaid by equity in the rescued banks and companies, held by a specially re-created Indonesian Bank Restructuring Agency (IBRA), which was to recover funds by selling shares when stability returned.
By 2004 the crisis was over, and Indonesia’s gross domestic product had regained its lost size. The corporate landscape had changed. The old Hong Kong trading firm Jardine Matheson had gained control of Astra, the leading industrial company. The IBRA had taken over thirteen private-sector banks. Others were left to sink or swim, with some protection for deposit holders. In 2001–2 the IBRA began selling off equity in one of the larger private banks, Bank Danamon, with the Singapore state investment fund Temasek gaining what became a 67 percent stake. In other cases, the previous owners were allowed to continue managing their banks. Suspicions were voiced that this enabled them to take actions that lowered the attractiveness of shares when they were floated or put to auction, which permitted the original owners or their allies to recapture control at bargain prices—possibly with funds derived from the central bank’s bank liquidity program and spirited out of Indonesia. In the end, the IBRA recovered just $2 billion of the $77 billion it had shelled out.
With Indonesia’s biggest private-sector group, Salim’s family had lost control of Bank Central Asia in the crisis. This was not, its executives still insist (though others would disagree), because of poor-quality assets, but because of a run on savings in which 50 percent of its deposits were withdrawn in two weeks. The bank and the Salims were too closely identified with Suharto: rioters were to wreck many of the bank’s offices, as well as the Salims’ home in Kota. The Salims handed control to the central bank, and their equity and that of the Suharto children went down from 100 percent to 5.4 percent.
The IBRA relisted the bank in 2000 and sold 20 percent of shares to the public. Then in 2002 it auctioned a 52 percent stake. Two bidders emerged: the British-Asian bank Standard Chartered, and a consortium of a Mauritius investment firm named Farindo and the ethnic-Chinese Hartono brothers, owners of the Kudus-based kretek cigarette manufacturer Djarum. The local team won with a $525-million bid, giving rise to recurring speculation that the Hartono brothers had benefited with some kind of blessing from the Salims, who of course had got their start in trading cloves at Kudus. Yet the founding family has only a symbolic 1.4 percent shareholding—held by Anthony Salim, son of Sudono Salim, who died in Singapore in 2012—and no seat on the board.
Like many other New Order tycoons, the Salims took heavy blows during the crisis, selling off numerous companies and assets to pay back loans and retain control of their best businesses. Yet surveys of Indonesia’s corporate activity show that these tycoons still sit in the top strata in both size and market share of key sectors, though in a vastly more diverse group of business peers. A corporate “rich list” published annually since 2007 by the magazine Globe Asia (owned by the Riady family’s Lippo group) reveals miracles of commercial escapology.
The most dramatic has been that of Eka Tjipta Widjaya (formerly Oei Ek Tjhong), a former partner of Salim who spun off his palm-oil and paper group, Sinar Mas, during the New Order. During the crisis, his Asia Pulp & Paper was discovered to have issued corporate bonds totaling $13.9 billion. In 2001 it announced it could no longer service these borrowings. Mysteriously, it was unable to collect $1 billion in cash owed by trading firms registered in the British Virgin Islands or $220 million from a bank deposit in the Cook Islands or indeed $220 million lost in foreign exchange dealings. Bondholders were further deterred when a Jakarta court declared that one $500 million issue had been illegal and therefore need not be repaid.
It was found that while Asia Pulp & Paper owned various timber and pulp mills, the forestry concessions that supplied their raw material were held personally by the company owners. Appeals by the governments of the United States, Japan, Canada, and major European countries for the Indonesian government to intervene got nowhere. While looking after his investors and lenders in China, Widjaya steadily wore his other creditors down. After four years, most bondholders agreed to a deal that returned 18 percent of their money. In 2013 Widjaya was ranked number two on the Indonesian rich list, with his assets in palm oil, pulp and paper, property, finance, and mining estimated to be worth $13.1 billion.
The Hartono brothers, Robert and Michael, were at the top of the list with $15.5 billion in assets, thanks to the combination of their Djarum cash cow with Bank Central Asia, by then one of the five large banks that together account for about half the financial sector, and further ventures such as the vast Grand Indonesia shopping mall in Jakarta and palm-oil plantations in Kalimantan. Anthony Salim’s group, by now operating under the name First Pacific, was at number three, with $10.1 billion in food and investment assets.
Other names from the New Order cukong era and still in the top fifty in 2013 included the Riady family’s Lippo group (property, investment, education, and media), Sjamsul Nursalim’s Gajah Tunggal (tires, retail, and property), The Nin King’s Manunggal group (property, textiles, and other manufacturing), Ciputra (property), Edwin Soeryadjaya (not from his father’s Astra group but with his own coal-based conglomerate), Prajogo Barito’s Pacific group (petrochemicals), and the late Suharto-era figures close to the Indonesian military, Tomy Winata and his patron Sugianto Kusuma (A Guan), whose Artha Graha group includes hotels, entertainment spots, and a bank.
Five of the Suharto family remain on the Globe Asia rich list: son Tommy (Hutomo Mandala Putra), with his Humpuss investment and shipping interests put at $550 million; in-law Sukamdani, with hotels and other businesses worth $367 million; son Bambang Triatmodjo, with Asriland property worth $220 million; daughter Tutut (Siti Hardijanti Rukmana), with her toll roads and other investments worth $150 million; and Agus Sudwikatmono, son of Suharto’s cousin, with his Indika coal and oil venture that has an estimated value of $665 million. In March 2014 Tutut won a legal case that regained her control of the Media Nusantara Citra television network, in theory ousting the tycoon-politician Hary Tanoesoedibyo, running mate of the former general Wiranto in the presidential race, though the ruling was not immediately enforced. Other scions of powerful figures in the New Order include Pontjo Sutowo, son of the late Pertamina chief Ibnu Sutowo, whose Nugra Sentana group is active in hotels and property, and former president Habibie’s sons Ilham and Thareq, whose Ilthabi Rekatama group is invested in plantations and technology.
It was a wary return to wealth and power for the ethnic Chinese. In the last throes of the New Order, they had been the scapegoats for the plummeting currency. Military and police commanders had stood back as preman led rioters on an orgy of pillage and rape through Jakarta’s main district of Chinese businesses and homes. It even looked like a deliberately instigated riot to blacken the prodemocracy uprising: calls for an investigation into the matter are still stonewalled (and, as Prabowo Subianto earlier remarked to author Ken Conboy, the Indonesian military didn’t leave written orders).
Estimates of the funds held in Singapore by ethnic Chinese and other Indonesians go as high as $200 billion, more than double Indonesia’s foreign exchange reserves at the height of the first resources boom. Perhaps $30 billion of that came from capital flight around the collapse of the New Order. For the middle-class Chinese-Indonesians who decided to get out, to Australia and elsewhere, the move was often permanent. Much of the capital held by the big tycoons has flowed back, being used to reinvest in old businesses or to acquire new ones. They kept their feet in the game in Indonesia, but their children and primary homes remain in Singapore and Taiwan.
In 2006 President Yudhoyono tackled the long-unsettled issue of the place of the Chinese in Indonesian society. A new citizenship law revised the definition of indigenous Indonesians to include all citizens who had never assumed foreign citizenship. This eliminated—in theory, at least—the need for ethnic Chinese to show a “citizenship certificate” whenever they needed government services. These certificates were often withheld arbitrarily by officials. Several discriminatory laws and regulations have remained on the books, including a 1967 decree that bars ethnic Chinese from the armed forces, and identity cards still carry a number that identifies race. But combined with the freedoms already granted by President Wahid—to practice Chinese religions, study Chinese at schools, celebrate the lunar new year, and publish in Chinese—the new law promised to lift decades of discrimination.
The profile of the ethnic Chinese was blurred also by the survival of some of the leading pribumi entrepreneurs from the Suharto era. In Hashim Djojohadikusumo’s case, it was a return from the corporate dead. The son of the economist, rebel figure, and minister Sumitro Djojohadikusumo, Hashim had built up the Tirtamas group (turnover of $7 billion a year), centered on a large cement maker, Semen Cibinong. When the 1997 crisis hit, building stopped, no one bought cement, and his company was left with $1.2 billion in mostly foreign debt. In addition, Hashim had a problem recovering money from remote tax havens: $250 million had disappeared from Semen Cibinong into small banks in Vanuatu and the Cook Islands. The Tirtamas group collapsed, but fortuitously Hashim had just bought into an oilfield in Kazakhstan for about $200 million, a stake in what was called Nations Energy, which he was able to sell for $1.2 billion in 2006. He returned to the corporate scene and built up his new Arsari group, with assets put at $1.05 billion.
Aburizal Bakrie had a narrow escape from bankruptcy in 1997. His group had been built up largely on the engineering and construction contracts awarded by government agencies under the various pribumi preference schemes. The crash left him with share prices at rock bottom and $1.7 billion in debt. It was not entirely his fault. Bakrie had attempted to corner the Indonesian market for the seamless pipes and casing used in the oil industry, through a partnership with Krakatau Steel and the Asian Development Bank called Seamless Pipe Indonesia Jaya, while the state oil firm announced that all piping would have to be locally sourced. But as his venture’s brand-new and debt-financed plant neared completion—with a capacity greater than the then Indonesian demand and perhaps some inflation of the costs—Suharto’s daughter Tutut set up a rival plant on Batam Island with secondhand machinery from the United States.
After a year of default, Bakrie managed to square off with 300 creditors in a debt-forgiveness deal. As we have seen, he pursued a dual career in the reformasi era, deftly gathering up plum coal resources in Kalimantan as demand from China and India boomed and becoming minister for social welfare in Yudhoyono’s first term. In October 2008 Bakrie & Brothers was back in the same precarious position, thanks to the global financial crisis and the drop in coal and other commodity prices and a high level of debt. Investors rushed out of his three listed vehicles, causing the Jakarta Stock Exchange to shut down for a month. The finance minister, Sri Mulyani Indrawati, was giving Bakrie’s companies no extra time to pay their large tax backlog.
In East Java, hot volcanic mud had erupted in May 2006 alongside a gas exploration well bored by Bakrie’s majority-owned company Lapindo Brantas at Sidoarjo, just south of Surabaya. The mud cut the main toll road and railway south from Surabaya, and at one point ruptured the main natural gas pipeline into the city, causing an explosion and a flood of hot mud that killed fourteen people and caused blackouts and industrial shutdowns. The mud “volcano” flowed and flowed, eventually displacing 20,000 villagers and by 2013 nearly filling a ten-meter-high containment dam. American contractors brought in to stem the blowout complained of resistance by Lapindo to solutions that might have diverted and capped the flow, on the grounds of expense. After a while, the well was so enlarged that capping it became impossible.
Within two years, the Bakries achieved a triple act of escapology. Lapindo was sold off to a shell company in a tax haven. More expensive loans were secured to keep creditors at bay. In September 2009 Beijing’s sovereign wealth fund, the China Investment Corp, announced a $1.9 billion loan for Bumi Resources, the Bakrie coal-mining flagship. The same year, police declared they could find no criminal liability on Lapindo’s part. The company argued that the large earthquake south of Yogyakarta before the mud eruption had fractured the geology under Sidoarjo and caused the disaster; its own well drilling alongside was incidental. Though the weight of geological expertise concluded it was drilling without the protection of casing pipe that was to blame, a parliamentary commission chaired by a member of Bakrie’s own Golkar party declared the mudflow a natural disaster, getting the company largely off the hook. In the parliament, Golkar was out of government after Yudhoyono’s reelection; it joined the claque attacking Sri Mulyani, the finance minister, over the bailout of a badly run private bank in 2008 to avoid a domino effect during the 2008 global financial crisis. In 2010 Yudhoyono eased her out to a senior position at the World Bank in Washington.
Bakrie has never been short of new investors ready to be dazzled by his local knowledge and connections and by the promise of Indonesia’s natural resources. In 2010 he teamed up with Nathaniel Rothschild, a scion of the old European banking house. Rothschild floated an investment company in London, raised $1 billion, and then engineered a reverse takeover with two Bakrie-linked companies in a share and equity swap that resulted in the London-listed investment company, renamed Bumi PLC, owning 29 percent of Bumi Resources and 85 percent of another large thermal coal producer, Berau. The deal created a company valued at $3 billion, while the Bakrie group’s $3.8-billion debt load was temporarily relieved. While Rothschild became cochairman due to his 15 percent equity, he allowed Bakrie to nominate the chief executive and chief financial officer.
Just over a year later, Rothschild was raising the alarm about large sums that were disappearing from the books of Bumi Resources and Berau. One of the Bakrie-linked vehicles used in creating Bumi PLC, an investment fund called Recapital, had just previously borrowed $231 million from Bumi Resources and was not repaying it. In late 2013 Recapital’s chief was buying a share of the Italian football club Inter Milan. Around the same time, Berau placed $75 million in a trust known as the Chateau Asean Fund 1. Two years later it was declared unrecoverable. Another $115 million went missing from a share-market float of a Bumi Resources subsidiary called Bumi Resources Minerals, while a $363-million stake in two Yemeni oilfields, possibly nonexistent, was written down to zero. Further questions hovered over the sale of two coal infrastructure companies in 2012, despite them having been announced as sold to other buyers two years earlier, and over a sale of 30 percent of Bumi Resources to a subsidiary of India’s Tata Power for $1. Every month, $2 million was being taken out of Berau as a fee, which was put at the personal disposal of the Bakries.
The Bakries began their exit, taking with them as much of their money as possible. In early 2012 Samir Tan, of Borneo Lumbung Energy and Metal, bought half of the Bakrie stake in Bumi PLC, 23 percent, for $1 billion and gained control over the other half. This put him in control of the company. The leakage continued. The board later admitted that during Tan’s tenure as chairman in 2012, a further $152 million was spent “with no clear business purpose” from subsidiary Berau. In early 2013 Rothschild was openly alleging “malfeasance” on a grand scale, accusing the Bakries and allied parties of having “looted” Bumi Resources and Berau. Trading in shares of Bumi PLC was suspended.
In July 2013 the London company announced a two-stage deal to sell its 29 percent of Bumi Resources back to the Bakries and to acquire the remaining Bakrie shares in Bumi PLC. Rothschild bitterly denounced the proposed deal and launched a court action to unseat Tan. It was unclear whether, with this separation, the Bakrie group was avoiding another debt crunch. Refinancing at a massive 11 percent margin on the London interbank interest rate meant a payment of $150 million due in August 2013. Then another subsidiary owed $350 million in September. In 2014 all pretax cash earnings would be consumed by interest payments, unless coal prices sharply increased. In addition, the Jakarta holding company PT Bumi faced $750 million in loan paybacks to the China Development Bank and also had a $375 million convertible bond issue maturing. Some analysts, including the ratings agency Standard & Poor’s, concluded that the Bakries’ finances were unsustainable without major asset sales. Aburizal Bakrie was, meanwhile, still gearing up as leader of Golkar in the money-chewing parliamentary and presidential election campaigns of 2014.
If Bakrie cut a sorry figure as a standard-bearer of Indonesian (and pribumi) corporate governance, and if the Bumi PLC saga was a lesson in naivety and failure of due diligence at the London end, many other new figures—both pribumi and Chinese—in the top business ranks have more inspiring stories. William Katari’s Wings Group challenged Proctor & Gamble and Unilever in the soaps and toothpaste market; Chairul Tanjung rose in the media and retailing sectors; Djoko Susanto built a chain of 7,000 Alfamart convenience stores; Rusdi Kirana built his Lion Air into the largest rival to state carrier Garuda in a decade; Purnomo Prawiro expanded his Blue Bird taxis to a nationwide fleet of 22,000 vehicles and set new standards of service and safety.
Media groups flexed new muscle in the liberal era. The Kompas print group, led by Jakob Oetama, and the Surabaya-based Jawa Pos group of Dahlan Iskan now dominate the newspaper scene, as does the Tempo group in magazines. In the absence of cable television, the six free-to-air television groups remain the big moneymakers, particularly as the issuing of new broadcast licenses is frozen. In addition, the networks are helpful to the political careers of owners such as Chairul Tanjung, Surya Dharma Paloh, Dahlan Iskan, and Aburizal Bakrie; the latter three emerged as presidential hopefuls in 2014 (though unsuccessfully).
Despite many continuities in the corporate lineup from the New Order, the return of stability in the demokrasi era has not quite meant business as usual. Closeness to the president is no longer a guarantee of getting the best contracts from government. The media and the anticorruption commission are ferocious watchdogs for any corrupt deals. Although police and prosecutors can still be employed to harass complaining customers and inconvenient business partners, defamation is no longer a criminal offense, meaning that critics can no longer be threatened with jail.
Of course, good relations with political players are still a help, but decision makers are dispersed across the decentralized political system. For some pribumi entrepreneurs, government relations have been tackled in person—by getting elected or being appointed to cabinet, or by forming their own political parties if they are unsatisfied with their reception. Indeed, Aburizal Bakrie and Jusuf Kalla have become leading figures in Golkar’s parliamentary ranks. The Acehnese former street trader Surya Dharma Paloh did not take his lack of promotion in Golkar lying down, forming his own Partai Nasional Demokrat (PND, National Democrat Party) in 2011. During Yudhoyono’s second term, Dahlan Iskan of Jawa Pos (the Java Post newspaper) accepted an appointment as minister for state-owned enterprises.
Founding families still mostly own and run the big business houses, including the former cukong conglomerates, but they have surrounded themselves with professional managers and now operate under somewhat stricter reporting and auditing requirements. With second-generation owners taking over, many of whom have been raised in Indonesia and educated at Western universities, the era of the robber barons is fading in Jakarta, if not in the coalfields and plantations of Kalimantan and other outer islands.