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INDONESIA

A STUDY IN NEPOTISM

 

Continued from page 1

 

Suharto also had a job for his son-in-law, Prabowo Subianto.  He made him a Lieutenant General in the army: “Armed forces chief General Wiranto announced at that time week that a military board was investigating three high-ranking officers, including Suharto’s son-in-law, as possible suspects relative to their involvement in political kidnappings.”  Wiranto went on to say, “Suharto, who was highest commander at that time, may have given subtle signals to Prabowo.  In the upper circle of the armed forces, instructions may not necessarily come in written form.” 

Interestingly enough, before Suharto's resignation, his authoritarian regime was strongly supported by the military.  This was the oil that calmed troubled waters muddied by political party candidates.  That is, until recently after the economy had tanked: 

“Tens of thousands of demonstrators confronted riot police in Jakarta during the campaign.  More often, however, popular rage was vented on ethnic and religious minorities.  Mobs sacked Christian churches and Buddhist temples and burned and looted stores belonging to ethnic Chinese merchants.  The President responded to recent unrest with a mixture of compassion and brute force.  He moved quickly to crush demonstrations, particularly on the main island of Java, home to more than half of Indonesia’s 200 million citizens.”[1]  

But that was yesterday.  The collapse of Southeast Asia has truly shown once and for all that the “emperor has no clothes”.  Indonesian stock markets and currencies have collapsed.  Kia Motors has been taken over by the Korean Government, and projects sponsored by non-governmental interests are in a state of suspended animation.  As if hit by the biblical plagues, the worst drought in almost half a century has further tormented the country.  The forests over Indonesia, Borneo and Sumatra have been set ablaze by palm oil plantation owners and pulp-and-paper companies interested in a quick way to expand their arable land holdings.  Most unfortunately, these fires can’t be extinguished.  

The fires have reached underground bogs and coal seams, setting them on fire and spelling long-term trouble to the entire region.  The fires have darkened the sun in Malaysia, the Philippines, Singapore, Thailand, Brunei and Papua New Guinea.  But worse, while the fires rage out of control, a $26 billion dollar tourism industry is in disarray as vacationers moved to safer, brighter regions.  Thousands of people have already been overcome by respiratory aliments throughout the area.  

The lack of sunlight has already influenced agricultural production by slowing the growth of fruits and vegetables.  Particularly hard hit were corn, rice and coca crops, while birds, bees and insects have entirely vanished from certain regions, thereby affecting future pollinization.  People have died, relief supplies are at times undeliverable because of the lack of visibility and food and water are extremely short in certain areas.  The countries that have been effected are also bracing from the predicted devastating effects of El Nino.  The pollution that we are addressing, though, is a short-term anomaly heaped upon an already polluted region with too many cars and virtually no pollution control regulations.  It almost seems that the wrath of God has come down to warn these countries to stop their excesses before it is too late.  

Along with decimating 800,000 hectares of forest lands, the haze from the fires have caused a lack of visibility that has been blamed as the cause of the crash of the Garuda Airlines plane in Sumatra, bringing with it one of the highest death tolls in aviation history to that region.  Only after the fires had been burning out of control for months did it emerge that Suharto’s son Sigit and daughter Tutut are both up to their eyeballs in forestry-oriented companies that were partially responsible for the fires. 

The shops in Java, not having any locally grown fruits and vegetables, were forced to find produce elsewhere.  They imported what they could, but when the currency collapsed, people becoming frightened that their money would become worthless and cleaned the shelves of produce.  As the economic crises worsened, prices started to rise, causing riots.  In East Java, natives have plundered and re-plundered the local shops, carrying away everything that wasn’t tacked down.  They armed themselves with knives and sickles.  As the violence reached a fever pitch, the Muslim shop owners played on their ethnicity and began placing signs on their establishments advertising the fact that they were not the hated Chinese, and so some were spared.  

In Central Java, approximately 800 Islamic students attacked ethnic Chinese businesses.  These were boarding school attendees whose Moslem Instructors have no love for the Chinese and can whip up a frenzy among their naive students  without even breaking a sweat.  Worse was yet to come.  The New York Times reported, “Officials and labor leaders say they expect 2 million people or more to lose their jobs in the coming year, in addition to the 4.4 million already unemployed and the millions more who live hand to mouth with part-time work.  The number of unemployed could rise even higher.  More than two million people leave school and enter the work force each year, and with most economists predicting a deep recession, only a few may be able to find a job.”[2] 

Officials in Jakarta have become so concerned about the unemployed rioting that in the capital's streets indigent workers are being offered almost free passage back to wherever they came from within Indonesia.  Excruciating increases in food prices and the prospect of more on the way have not left the masses feeling very sanguine about the situation.  Muslim leader Amien Rais put the situation in total prospective when he said, “We cannot underestimate the frustration of our own people; they look friendly, they look innocent, they look patient, but all of a sudden they can transform themselves into tigers and do very destructive things.” 

“An example of what people will do when they are out of work, hungry, bored and generally pissed off at their government is what happened in Moga, Indonesia.  This area is the jumping-off spot for ferries to Bali, but that seems to be of no particular significance.  Muslim Clerics have been found cut into small parts and dangled from local trees.  People who have witnessed the atrocities noted that the killers wore black outfits and masks and looked like Ninja.”  

“The number of murders has reached almost two hundred with no sign of abatement.  When police were asked who they suspected, they named communists, the revile political party and the military, along with several local perverts that had been regularly accused of sadistic sex crimes.  The East Java military commander, Major General Djoko Subroto, indicated that, “God willing, we will solve this case by early November.”  This did little to usage the populace and seemed reminiscent of the lines in the movie Casablanca where the police chief announces to his aids after a murder, “round up the usually suspects”. 

El Nino produced a drought at the same time the forestry land grabs resulted in the fires that burned out of control.  The smoke and lack of moisture combined to reduce the harvest of farm goods substantially, and there is little money to import the most critical product, food.  Riots have become an insurrection, and Indonesia’s army was hard pressed to control the one thing that cannot be assuaged, a starving population.  However, there is not much question the world will come to Indonesia’s aid, but we do not think the country will survive in its present state when the country’s population of over 200 million people begins to realize what the crony capitalism of Suharto regime has taken from them.   

Yet the United State, violently opposed to funding Indonesia problem without the country’s implicit cooperation with the International Monetary Fund, has pitched in to helping Suharto’s military hone their fighting skills.  “Under a little-known $10 million Pentagon program called Joint Combined Exchange and Training, United States special forces teach the Indonesians skills that include psychological warfare and urban combat techniques.”[3]  Looks to us like they are getting ready for an insurrection. 

Ex-Dictator Sukarno's daughter, Megawati, even wrote a letter to President Clinton questioning, “Who, in the view of the U.S. government, is the target or enemy for this specialized training?”  She further indicated that there is no foreign government ready to invade the islands and no revolutionary group threatening to overthrow the government.  “The U.S. military is providing training in lethal methods of social control at a time when the Indonesian people are trying to build a more democratic system, it is the explicit policy of the Indonesia security forces to meet peaceful and unarmed demonstrators with force, and thus, military training from the U.S. directly undermines the democratic movement in Indonesia.”  

Megawati had good reason to be concerned, as it was the Army that engineered her fall from power as the chairwomen of the opposition party several years ago.  At the same time, the Army has been accused of making opposing politicians disappear from the face of the earth.  The Army’s crowning achievement was the massacre of nearly 300 innocent civilians on East Timor, which so angered the U.S. Congress that funds were cut of from the International Military Education and Training Fund in 1992.  Megawati saw the passing of the Suharto mantel to his crony Habibie as an opportunity to regain control of the country.  

Today, Indonesia is run by the International Monetary Fund, and as their price for assistance they simultaneously closed 16 banks.  It was an accepted fact that these banks had been overwhelmed with bad loans for a substantial period of time, but until the IMF came onto the scene, it was “inconvenient” for the country to close them.  Finance Minister Marie Muhammad stated a news conference, “These banks are insolvent to the point of endangering business continuity, disturbing the overall banking system and harming the interests of society.”  

The Finance Minister’s harsh words were particularly vitriolic, since they related directly to Number 2 Presidential Son Bambang, who along with various other family members seemed to hold interests in many of the closed institutions.  “I see this as an attempt to sully our family name in order to indirectly topple my father, so that father won’t be chosen as president again.  This is a ‘political movement’ against the family,” says Bambang, who didn’t know whether the ban on owners of the shuttered banks leaving the country applied to him as well; but the rule didn’t appear to be etched in stone, as two bankers had already left.  Then again, this is Indonesia. 

Reuters on October 23, 1998, reported that Bambang was earlier in the month named as a subject in an investigation into abuses at his Bank Andromeda, which was shut down the previous November.  Poor Bambang, if Daddy was still President, this never would have happened.   

Bambang-owned Bank Andromeda lent Bambang, personally, substantially more than was legal, and thereby the bank violated Indonesian central bank regulations.  When questioned about such improprieties, Bambang was not lost for an answer, saying, “90% of Indonesian banks were guilty of exceeding central bank limits on lending to a single customer.”  Because of this sensitive reply, sources close to Bambang laughingly indicated that the shy second son of President Suharto was thinking of becoming the spokesman for the Indonesian Government because he had become so fast on his feet.  Bambang’s bank may have been closed down, but he got even.  Within weeks he reopened the bank under a friend’s license. 

Bambang was not the only family member caught up in the bank closures.  Siti Hediati Prabowo, the President’s daughter, and Probosutedjo, who is Suharto’s half-brother, were also dejected shareholders of some of the banks that were forcible closed.  Obviously, there was substantial gloominess regarding Finance Minister Marie Muhammad's actions among the ruling family.  It is also readily apparent that this decision was arrived at almost unilaterally without substantive high-ranking input.  

While Daddy was still running the show, Siti Hardianti Rukmana found out that even in the worst of tragedies there can be a silver lining.  For example, during the financial crisis there was an airplane crash, which took 234 lives at run-down Medan Airport.  In spite of the closing down of many projects because of arrangements agreed upon with the blessing of the International Monetary Fund, Siti’s group got the go-ahead to build a new airport that will be much safer than the previous one.  Suharto’s other daughter, Siti Hediati Prabowo, told Daddy that even if the country was tightening its belt and going through an imposed austerity, it could ill afford not to have enough energy.  Daddy Suharto agreed that this was true and certainly he didn’t want to favor one Siti over the other Siti, so he awarded her a contract to erect the largest electrical generating facility yet built in Indonesia.  Business as usual, says the sign on the door.   But alas, with the demise of the Suharto regime, so went the contract. 

Indonesia’s ”success” has been the most dismal of charades.  A corrupt government built around the tenet that nepotism begins at home, run by a president who favored a non-Indonesian culture (the Chinese) and raised them substantially above the rank and file because they could increase the cash flow coming into the family’s coffers.  A nation of great riches frittered away by corruption and grandiose projects that achieved little and cost dearly.  This was a country where the nation’s industry had been vested in the hands of ruler’s children, and businesses were treated more as playthings, than as economic instruments of production. 

There wasn’t any real secret about what was going on.  Anyone that wanted to look profoundly into what had happened could have seen that under the royal trappings were turmoil, greed and potential chaos.  It was in the enlightened self-interest of people at the IMF and the World Bank to hold out this charlatan Suharto as the Second Coming to the emerging countries of the world.  This was a superficial case that these institutions created to illustrate that free trade worked, when in reality, the paradigm they were using was fatally flawed.  

They knew, or certainly should have known, that this was not a democracy, for there were no free elections.  It was a port of egress and ingress for the "Royal Family," who took a piece of whatever came in and whatever left.  Indeed, this was not a study in free enterprise, for the reason that the bidding was always won by a connected person, and it was not a land of opportunity, as anyone wanting a better life had already moved to the United States, Malaysia or Thailand.  

Simply put, it was convenient for developed nations to be able to show that at least one country was able to rise above its position and could become a world economic power.  The IMF and the World Bank felt that it gave other peoples hope that they could achieve the same result.  Furthermore, it palliated the troops.  It was superb public relations.  With Indonesia down the proverbial drain, which country will be nominated next for the “glorious example of the year” award?  Sudan or even Afghanistan would see to be highly qualified, based on the criteria that have been used. 

To illustrate the point that Indonesia’s senior management was really in this cozy coven for the long haul, in spite of International Monetary Fund agreements to the contrary, on November 7, 1997, Malaysia, Thailand and Indonesia announced that they would commence the building of a $3 billion bridge linking the three countries.  Japan was picked to design and construct the monolithic structure, which will be over 125 miles long.  The bridge will consist of a road, a rail link, an oil pipeline and a gas pipeline, but the original plans to reconstruct an exact copy of the Great Wall of China to run parallel to bridge as a scenic event for drivers weary of looking at water for such extended periods of time has been shelved to palliate the IMF because of the perilous economic conditions in these countries.  Come on now! 

Eventually, as the economy worsened and the Suharto family’s intransigence threatened to overcome whatever benefits that the IMF’s funding could be hoped to deliver; a message was sent by world leaders and the IMF to Suharto and his extended family, “get with the program or go down the drain.”  Suharto, who was at the time running for reelection momentarily got the message.  Obviously, his thought process told him to play along, give in a little and then undo the whole thing after the election.  So in going through the motions, Suharto announced, that his son Tommy’s National Car Project would lose its special tax and tariff exemptions and his clove distribution monopoly (which threw thousands of farmers out of work while increasing the cost for Indonesian cigarettes) would be taken away.  Yusu Habibie, a Suharto crony, who eventually would replace Suharto as a do-nothing president, lost his government funding for his bizarre concept aircraft plane, and Liem Sioe Liong, the richest man in Indonesia and another Suharto confidant, lost his sugar monopoly.  Finally, trading cartels in cement, paper and plywood controlled by Bob Hasan and his friends would  be terminated.  

The plug would also be pulled on Siti’s power plant and restrictions on foreign investment would be ended in many retail arenas.  When all has been said and done, it is estimated that the extended Suharto family had accumulated over $30 billion in assets by 1989,[4] and these moves, rather than hurting them, actual insured their economic productivity well into the next century.  The Jakarta Post summed up Suharto’s most likely scenario as follows: “The risk of a recurrence of corruption, collusion and market distortions is indeed quite substantial with the children and close relatives of so many top officials, provincial leaders, high military officers and retired generals still quite active in business.”[5]   

When Indonesian Government officials were asked whether their additional obligation to build a separate 60-mile long bridge between Malaysia and Indonesia was still going forward in spite of warnings by IMF officials, the officials responded by stating that it was and that they had their “fingers crossed” when they made the IMF Agreement, so whatever they had told the IMF didn’t count.  However, you can believe that they will not build that bridge in this lifetime, crossed fingers or not. 

The quote of the century award goes to Michel Camdessus, Managing Director of the International Monetary Fund, who must have had a severe hangover when he said that after all of this had occurred, “Indonesia has had the courage to take the bull by the horns and to take very decisive measures. I have full confidence that the government will get the Indonesian economy on the rails for durable growth.”  This statement was on a par with the one that Ponzi made to the Boston Police Department as they were arresting him: “What are you talking about, this was a totally legitimate operation?”  

The IMF was not the only agency to hold Indonesia out to be a special country that could be an example to others.  The World Bank suggested that Indonesia was a “model for Third World development and held the country out as an example of sound macroeconomics and poverty elimination.  At least the World Bank’s James Wolfensohn had the common sense to cut his losses and conceded that, indeed, if anything, Indonesia is a great example of how not to get things done.  While we can’t give Mr. Wolfensohn full credit for his retreat, because he told a little fib in the first place, the World Bank certainly gets kudos for retreating when they finally got caught, something which the IMF has not seen fit to do even yet.   

We are not sure that statements of this kind wash well when they deal with nepotistic, corrupt bureaucracies that favor the few at the interest of the great majority of the population.  We understand that without some degree of optimism, psychologically-driven macro-economic problems are hard to correct, and therefore, too much talking up of corruption in these countries only prolongs the enviable and causes the problem come back to bite you at an inopportune time.  Thus, Indonesia, was an accident waiting to happen when Thailand collapsed.  Globally, though, everyone had been so palliated by the statements issued by the IMF so that no one would have believed that Indonesia would have so quickly followed Thailand's pitiful example.  Thus, the IMF was faced with a multi-front economic war that almost sank everyone.  They promoted Indonesia because they needed an example of success, but when push came to shove, they just couldn't live with its clay feet.  

Indonesia’s loans denominated in other currencies cannot be repaid, and instead of a simple restructuring, there is a plain old vanilla default.  Effective resurrection of any kind requires a large dose of blind faith to be effective, which is regularly injected by the IMF into the global press.  The IMF issued these Godlike utterances, blindly hoping for the best, but knowing that, not only are the statements patently false now, but that they were known to be false when they are uttered.  In some places, that can get you a long jail sentence, or even worse. 

The danger of this approach is the fact that it sacrifices unsuspecting business people who have every reason to believe that an organization such as the IMF has resources and information available far exceeding their own knowledge.  After being boiled alive, the IMF and its nave leader, Michael Camdesus, don’t even acknowledge their mistake.  More kindly put, if indeed the man was totally insensitive to what was occurring in the world and just mislead, it would certainly indicate that someone had injected him with some sort of euphoria simulator.   

The New York Times reported on January 7, 1998, that in late December the IMF sent “President Suharto a strongly worded letter urging his officials to carry out economic changes.  Members of the Suharto family and close friends of the President, who held financial stakes in the country’s most lucrative businesses, have sought to dilute or evade such reforms.  Twice in one week, the Indonesian military, projecting unemployment of two million workers in the immediate future, said it stood ready to suppress protests that “disturb national stability.”  On December 24, 1997, the Indonesian Rupiah attained “disintegration heaven” by falling 12% against the U.S. Dollar in one day.  This level had not been seen by the Rupiah since the current monetary system had come into existence in 1971.  

Furthermore, in the Indonesian budget for fiscal 1988-9, beginning on April 1, 1988, and released on January 6, 1988, showed a projected increase of 32.1% in both revenues and expenditures for the coming year, in spite of assurances by the government to the IMF that there would be a move toward austerity.  In addition, in spite of the fact that Suharto had “cashed the IMF’s check,” Indonesia was only in compliance with a few conditions mandated by the agreement.  This immediately caused a further sell off of the Rupiah, creating record lows in the currency market Rupiah and the stock market, while at the same time senior IMF officials reported to the Washington Post that the Indonesian government was not delivering on its promises of reform.[6]  “IMF experts hastily packed their bags for Indonesia and began talking seriously to people that weren't listening to a word they were saying.[7]  

On or about January 12, 1998, Michel Camdessus and his senior aids left for the country and “took the bull by the horns” in an attempt to reason with the intransigent Indonesians.  President Suharto’s son who had opposed so ferociously the closing of 16 Indonesian banks because one of those was his, acquiesced and then reopened the bank with a new name, but on the same old    site.  We doubt that Mr. Camdessus will stand by his statement of how good they are doing in turning the situation in Indonesia around: “Now that is taking the bull by the horns!” 

Independent sources indicated they had now been able to uncover an attempt by the country to play down the level of their foreign debt, and new information placed that number at $200 billion, about twice as high as the one being circulated in Jakarta.  In spite of IMF statements to the contrary, Indonesia hurdled into the lead in the world’s worst performing currency race, having in 1997 alone lost over 61% against the U.S. Dollar.  And yet, the bloodbath may not be over yet, as the Rupiah rolls down the Indonesian hills at an ever-accelerating pace.  Meanwhile, for every 200 points it drops, another billion dollars is added to its foreign debt.[8]  When the number $200 billion was drawn to the attention of Finance Minister, Marie Muhammad, he thought better of addressing it one way or the other, which in Indonesia, speaks volumes. 

However, the backstabbing continued unabated,  and Suharto, did not kept the faith with the IMF.  His daughter’s unneeded energy program was rescued from the ashes, and his number one son’s banking empire had been shuttered and then reopened.  Indonesia is still not serious about the extent of the their crisis, and in comparison to Korea -- which at that time was literally in the economic sewer and whose economy is twice as large as Indonesia’s -- has almost the same relative immediate problem in total dollars.  In spite of the fact that the country is rich in natural resources, it will not get the same bailout treatment afforded Korea, because they are just not taking the problem genuinely enough, but more importantly, Indonesia will not create the massive economic dislocations globally that Korea could.  

Indonesia’s highly regarded former cabinet minister, Sumitro Djojohadikusumo, stunned the nation when he stated in the Jakarta Post that the Indonesian Government should be replaced: “There has long been a wide gap and dichotomy between macroeconomic policies, which are full of distortions and inconsistencies and marred by corruption and excessive protectionism.”  The full force of this statement is abetted by the fact that Sumitro is considered one of the top economists in the Pacific Rim, and more importantly, his son, a major general in the Indonesian Army, is married to one of Suharto’s daughters.  

As the riots increased in intensity, the students began taking to the street to burn Suharto in effigy, and Indonesia inched ever closer to civil war, Suharto needed a trump card to play to take the peoples minds off of their minor irritations of starvation and poverty.  Suharto ordered his staff to find him something that he could use to distract the people.  Ingeniously, his creative staff came up with the old, “there is someone out to get us ploy.”  In common, every day terms, this means that there is a plot to “do in” the entire country, and it is those jealous conspirators that want the Indonesians to become a broken people who are to blame, not the honorable government that has labored long and hard to provide what is best for its people.  Suharto stated for the record that, “In this kind of situation, there are signs that certain groups are using the chance to achieve their political goals, which they have failed to reach through democratic and constitutional means. ”  Sounds a little like a page from Hillary Clinton’s primer, “How to Defend A Presidential  When the  Evidence is on the Dress.” 

The rioters were particularly interested in the largest private bank in Indonesia, Bank Central Asia, as an object on which to vent their rage.  Naturally, the raging crowd centered on objects with a Suharto imprimatur and found the bank a convenient target.  With two Suharto offspring sharing ownership of the institution, it became a logical candidate.  ATM machines were of particular interest to the rioters, who either wrecked or pillaged 1,250 of these devices.   

Not content with doing in the mechanical money-dispensing machines, the raging mob determined to fix the bank permanently and did enough damage that 122 of the banks offices will take a long time to reopening.  If it wasn’t for the fact that Suharto controlled the “game” and was able to have the Indonesian Central Bank pump money into the bank, the riot and the allied run on the institution by frustrated citizens would have done it in immediately.  The bank was eventually allowed to fail, because the drain on the Central Bank’s reserves  became overwhelming. 

With an election coming up, President Daddy Suharto could name names, so he announced that the Democratic Order Movement (which in Indonesian is an acronym for ”God”) was planning to disrupt things around the time that people would be voting.  Thus, for the foreseeable future, police would have to ban  “mass gatherings.” 

“In accordance with the law, it is forbidden for community groups to have street protests, as a regulation issued by the Interior Minister says demonstrations are forbidden.…The security forces will take firm action in accordance with the law against those who undertake street protests.…”  When prompted for more details about this sinister sounding organization and whether or not this wasn’t just a convenient way of declaring  “martial law” by calling it something else, a senior government official indicated that they (the Government) had uncovered documents that would  convince the population of the enormous danger that this group posed.  When the official was asked to show reporters the documents he was referring to, he started mumbling incoherent citations, but most amazingly of all, his nose started to grow longer right in front of his stunned audience.



[1] New York Times, February 19, 1998.

[2] USA Today, 5/29/1997, James Cox, Pg. 13 A.

[3] The New York Times International, Wednesday, March 25, 1998.

[4] New York Times, January 16, 1989, “One estimate of the Suharto family’s wealth was reportedly made in 1989 by officers of the Central Intelligence Agency assigned to the United States Embassy in Jakarta.  According to a former embassy worker who says he was briefed by the officers, the Suharto’s assets (the family) were estimated to total $30 billion, which would have ranked them among the world’s dozen richest families.”

[5] New York Times, January 18, 1997.

[6] Infobeat, 1/7/98, Internet.

[7] New York Times 1/7/98.

[8] Bloomberg News, December 25, 1997.

 

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