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INDONESIA

A STUDY IN NEPOTISM

 

Continued from page 2

As agreed under the terms of the IMF’s loan, Suharto got rid of the cartels as promised, but they reappeared in another guise.  Take the example of Indonesia’s plywood export industry, which at over $4 billion in volume is the worlds biggest.  Every facet of it was controlled by presidential confidant, Mohammad “Bob” Hasan, and plywood could not leave the country unless a bounty was paid to Bob.  Well, Suharto and Bob got together when the IMF broke  up the tidy little arrangement and came up with a new angle, why not create an association which everyone has to pay dues to at the rate of $5 for each meter of plywood exported.  In gross volume, they would even come a little ahead of where they were before, and with a name like the “statistical research board,” who would even suspect what was going on.  Bob owns a company, Apkindo, which is in the shipping business, so as an addendum to the associations dues, it was made a requirement that all plywood leaving Indonesia would have to be shipped on one of Bob’s ships.  Bully for Bob, and long live competition.  

Suharto’s renewed intransigence with the IMF caused the limited revival of the Rupiah to again collapse, abetted by the riots in the cities, including the torching of ten Christian churches by angry mobs, and fires on the islands of Borneo and Sumatra.  East Java Police gave a sign of things to come when they warned the rioters that they ran the risk of being shot on sight.  Inter-city  transportation literally came to a halt as bus drivers feared for their own safety when entering riot torn areas.  Additionally, with no spare bus parts available, they were doubly concerned that, once they had gotten into an area where there was turmoil, they couldn’t leave.  

Indonesia committed a medium sized fiasco when they began subsidizing wheat, flour, sugar and soybeans by giving a favorable conversion rates to importers contrary to their agreement with the IMF.  This was just another in a long series of violations by the Indonesian Government, and Finance Minster Marie Muhammad confidently predict that the IMF would disburse the next segment of $3 billion on schedule.  In an attempt of to “shake down” the IMF, he indicated that any delay would affect investor confidence in Indonesia and “have a negative impact on efforts to strengthen and to stabilize currencies in Southeast Asia.”  

Bad mistake for Minister Muhammad, as the IMF determined to delay their next payment for a least a month to see if things straighten out.  Then, a Congressional Committee in the United States approved a bill that would stop any American payments to Indonesia until Suharto straightened out his act.  And finally, Suharto indicted that after all of the monkeying around, complying with the IMF’s terms would be violation of country’s constitution, which he indicated was based on “family values.” 

We are certainly aware of Suharto’s feelings about family, but if everyone in Indonesia was as generous with the country’s assets as Suharto had been, we would certainly have no need for IMF assistance.  Suharto was setting the stage for a showdown with the IMF in which he believed he could win, even with intransigence, perhaps he does not think that the other countries of the world could afford to have Indonesia in a state of turmoil and revolution.  This certainly was high stakes poker, when you realize that the President of the country pushed the envelope to the degree where he could wind up paying for his bet with his life.  

In clashes with police shortly thereafter, five people died in riots over skyrocketing prices of basic commodities or their total unavailability.  In a speech to the governors of all of the 27 provinces, Yogie Memet, Interior Minister of the moment stated, “The dramatic rise in the price of the nine basic commodities (actually 20) needed by the community and the disappearance of these from the markets has become a very sensitive problem this can shake the people’s economy”.  He went on to say that; “The people who feel most disturbed and bothered are the governors, who I have just met.”  

Now, we have people’s shops being torched, no food for the children, a currency that won’t buy anything, fires raging out of control and giving off a haze that has sickened a good part of the population and churches being razed, yet this moron thinks that the governors, living in their palaces and getting three squares a day, are totally insulated from what is going on and are doing more worrying that the populace.  Welcome to Indonesia Disney World.  

In one of the truly bizarre occurrences in this Alice in Wonderland country, the Indonesian Armed Forces (“ABRI”) seems to be going ahead with a law suit against Indonesian newspapers and television because the media was inferring that many of the people conveniently vanishing during recent campus food and anti-government riots were vanishing courtesy of the military.  The disappearances seemed to have started about the time an older student leader by the name of Lustrilanang escaped to the Netherlands and announced that the military had “abducted, tortured and threatened him with death if he spoke out.”[1]  In this dictatorship, it is at least refreshing that the army files a lawsuit, rather than causing more people to disappear.  On the hand, if they had to cause the entire media industry to vanish, people might have begun to suspect something was amiss.  

After Suharto was re-ordained President and before he had remodeled his crony cabinet, in a moment of reflection he stated the obvious, “It is not an exaggeration to say our development for the 30 years past has been destroyed by the monetary crisis, the economic crisis and the crisis of confidence which came so quickly.”  Mr. Suharto did not indicate that that much of the collapse was caused by his family and his friends dipping into every honey jar in the nation and leaving nothing for the populous.  After having stolen everything that wasn’t tacked down (and even some stuff that was), we often wonder why he and his gang didn’t just fad away.   

Although Suharto addressed the fact that country had a 30-year relapse, he offered no real solutions other than a currency board, which will allow his cronies and family to steal away in the dead of night with most of the country’s assets.  To assure that his instructions along these lines would be followed to the letter, he named such august trustees of the public good to his cabinet as his daughter, Siti Hardiyanti Rukmana, to be Minister of Social Affairs and his dear friend, businessman Mohammed Bob Hasan, to be Minister of Trade and Industry.  Obviously these are terrific choices, with Bob’s cartels controlling everything going in and out of the country, he can keep closer tabs over his money and where goes, while the lovely Siti, who owns all of the country’s toll roads, certainly is a logical person to advise on social issues.  Finally, economically idiosyncratic Suharto buddy, B. J. Habibie gets tapped as the country’s Vice President.  If Indonesia doesn’t enough problems already, we can certainly see this group of financial terrorists adding unpleasant footnotes to the recent bizarre and tragic history of Indonesia. 

And the worm continues to turn, just as the IMF thought Suharto was going to be a good little boy and fall in line and the creditor international banks were talking about a rescheduling of loans owed by Indonesian corporation, the government threw still another curve ball.  You see, the international banks feel that they have a better chance getting something back from a rescheduled debt if there are laws on the books that indicate who gets what in a case of reorganization.  It turns out that the last time the Indonesian bankruptcy code was changed was in 1905, and because it is so inadequately written, it turns out to be a hodge-podge of inanities leading nowhere and saying nothing.  So, the Indonesian Government said to the International Banks, “If that is what it will take to make you happy, we will rewrite the law.”  For about 10 minutes, everyone was ecstatic, that is until someone looked at what had been left in and what was left out of the new law. 

“In theory, the decree should rule out numerous investment projects set up by President Suharto’s children and other well connected businesses that have been targeted by the IMF for gaining preferential treatment and draining state coffers.  But advisers said officials had deleted several key definitions, articles and supplements from the original draft that were needed for it to work.  The decree leaves out bidding rules, oversight, a dispute settlement procedure for tender applicants, as well as definitions of government support and public-private partnership.”[2] 

In other words, when push comes to shove, the family retains everything and the lenders are screwed again.     

Indonesia is more a police state than a democracy and does not put up with political decent.  The first line defense for the Indonesian government against the coming riots is the army, which although well equipped and well trained, is only 200,000 strong.  It is very likely that when the coming riots begin in earnest, substantial portions of the military will be quickly overrun and major parts of the country will be forced into anarchy.  Logistically, Indonesia is indefensible and independent enclaves will become the first order of business.  

Already we are starting to see the dire crop production reports, and rice, the country’s staple, is expected to be produced even less abundantly than last year’s poor harvest.  With the currency in the tank, the importation of fresh supplies is either not an option or so expensive in relative terms that we think the country will be more interested in gifts and charity contributions than taking the IMF hard currency loans and using them on the proletariat.  The prime problem that caused the shortfall is the worst drought in recent memory, and it is expected that Indonesia will have to import at least 3.5 million tons of rice just to keep most people at a bare bones subsistence level.  Two United Nations food agencies filed a combined report that indicated, “Approximately 7.5 million poor Indonesians in 15 provinces may experience acute food shortages during the upcoming dry season."[3]  

Suharto has stated that he would not run for re-election, and because of what people view as a defect in the chain of succession, he had given the nod to Research and Technology Head, B. J. Habibie.  Other than being a trusted crony of Suharto, Habibie has done little to ingratiate him to the country -- or anyone else for that matter.  

The Wall Street Journal stated on January 21, 1998, “Mr. Habibie’s detractors portray the diminutive engineer as a kind of Indonesian mad scientist who lacks a coherent economic philosophy as well as the military pedigree and political skills that have helped Mr. Suharto manage a country threatened by latent region, ethnic, social and religious divisions.  His enemies characterize Mr. Habibie as a spendthrift who has squandered billion of dollars on such dubious projects as building a domestic aircraft industry.  Some critics feared Mr. Habibie’s selection would send frightening signals to financial commitments to the IMF program, which slashed state financial backing for the airplane project.  The World Bank and Indonesian economic technocrats have long denigrated Mr. Habibie’s pet ventures as a waste.”  

Habibie is also the author of the now infamous “zigzag” theory of economics in which he indicated that high interest rates are the cause of inflation.  Not only does Mr. Habibie axiom defy the laws of gravity, but they also illustrate what could happen under his misguided leadership.  We could easily be made to believe that this visionary will see that whatever is left of Indonesia’s wealth will be squandered by the crazed ideas of the country’s newly proposed Vice President.  The ever-canny Suharto is obviously thinking, “that when they see this guy’s performance next to mine, I’m going to look awfully good to everyone and they are going to want me back.” Very sophisticated reasoning for the despotic leader of the Indonesians.    

Habibie, a most unpopular choice, did in fact became Vice President, which was only a stopgap ploy in Suharto’s grandiose plan.  As soon as his own man was ensconced in the catbird seat, Suharto would resign, a deal having been already cut between Habibie and Suharto that once he rose to President, Habibie would keep the wolves away from Suharto’s door.  This ploy would have been A-OK if it had not been so obvious.  Habibie became President and let no one down when he quickly became catatonic and was unable to make any clear-cut decisions.  On the other hand, he was loyal to his patron to the end.   

“If Mr. Habibie is appointed vice president, “you can turn out the lights, you won’t want to see what’s going on, and it’s not worth the electric bill.” said Eugene Galbraith, global research director for ABN Amro Hoare Govett. 

A viscous spiral raged out of control, company’s had to pay their offshore debts with dollars and yen, and only had rupiah.  Thus, they would sell the rupiah and buy what they needed to repay debt coming due, causing their currency to be mired in a permanent downward progression.  Indonesia, with almost every major company in the country bankrupt for all practical purposes, had now determined to “reschedule” their debt.  Reschedule is a fancy word for not paying it while you negotiate better terms with creditors.  For the most part, this action, although severe, is better than sitting around with your thumb in your mouth.  More important though, it will give the rupiah time to recover.  Overall, this was the first really positive step since the crisis began.  When the day was over, Standard and Poors reduced the country’s credit from BB to B, external debt was $140 billion (of which $66 billion was corporate), and the rupiah was 14,000 to the dollar and rising.  

A recent report issued by the Bank for International Settlements (“BIS”) and based on the latest available figures released by BIS shows that the Japanese banks hold a touch under 40% of Indonesia’s total foreign debt, German banks came in second with almost 10% followed by the French with 8%, the American’s with 7.8% and the Brits with 7.4%.  

 “The International Monetary Fund and the U. S. Treasury came again to Indonesia’s defense, supporting Jakarta’s stance that a three-month “pause” in debt payments for some Indonesian companies doesn’t constitute a moratorium.  Even Treasury Secretary, Robert Rubin joined the fray with his own interpretation of what occurred, stating, “a framework for a voluntary private-sector initiative to help address the debt burden of the corporate sector.”  Robert, good effort, but no cigar.  We still think that Webster is right, unless maybe you want to make a new word for it.  It would be fitting to redefine the word “moratorium” using that flexible language, “jumble talk,” because that is what seems to be going on.  

One of Indonesia’s companies liked Rubin’s new definition of moratorium a lot and determined that this was an inspired way in which to hang on to cash.  Throughout the economic crisis, PT Matahari Putra Prima has been held out as a shinning example of how Indonesian companies should function.  It has tons of cash in reserve, and until recently, it was felt that the company would have no trouble paying the banks when loans came due.  Furthermore, it had enough left over to make a sizeable investment in a substantial hotel company, but alas, it too has joined the endless list of companies that have determined not to pay of their debts.  We can just hear them at a recent board meeting: 

Chairman:  “We have this debt we owe the bank that is due on Wednesday, and I am about to put it in the mail. 

Board:        “Well, no one else is making any payments, so why should we.” 

Chairman:   “They are not making payments because of the moratorium on payments by companies that can’t afford it, and we are not in that position.” 

Board:       “We have our notes right here.  He said this was, “a framework for a voluntary private-sector initiative to help address the debt burden of the corporate sector.”  We think that it would be reprehensible for our company to not join our brethren in addressing the debt burden of the corporate sector.  We cannot say that Mr. Rubin’s idea makes a lot of sense, because it is difficult to understand how by not paying our lawful debt we are helping the country, but Rubin is a rich and powerful American, and we know rich and powerful Americans are very knowledgeable in these matters.  The board feels that it is our duty to default as well.  In that way we will continue to be held out as a magnificent example of how business should be conducted.” 

Matahari withheld its payment, and Standard and Poors dropped the bottom out of its debt rating, lowering to it CC, substantially below investment grade.  Many in the investment community also changed their ratings and suggested that the stock should be dumped immediately.  The Board, of course, took the position that they were just good and loyal citizens doing what they must to help their country right itself during these turbulent economic times.  Our hats are off to them for their willingness to standup to their critics.  Incidentally, it is entirely possible that the company is actually broke and has used this “moratorium” as a smokescreen.   

Our brilliant friends at the World Bank finally figured out what was going on in Indonesia and predicted that not only would 20 million Indonesian’s lose their jobs, but 50 million would return to the poverty that they had only recently emerged from.  While these projections are much too optimistic, at least the World Bank is finally waking up to the fact that there just may be a problem here.  The World Bank seems to understand that when people don’t have food to eat, sometimes they take it out on their neighbors and at other times, they steal.  We cannot fault that perception, but in the meantime, most of the ethnic Chinese have already left town and won’t be around to be beaten up any more.  Apparently, without their standard whipping boy, the people may become really annoyed.    

Habibie was followed by the Muslim religious leader Abdurrahman Wahid, sixty-year-old religious leader that had already suffered three strokes and was in fragile health to say the least. However, he was a highly regarded man, who unfortunately was infirmed, legally blind and especially incompetent; in other words he was a triple threat catastrophe, just what Indonesia needed to pull them up from their lethargy. However, the people in the know in the American State Department thought that his victory was the best thing that had happened in Indonesia since the place had been first been inhabited. As they saw it, this was an opportunity of showing the world that coexistence was possible between the Muslim’s and the West. In Wahid, they had a liberal cleric who was both democratic and knowledgeable, an opportunity for breakthroughs of major proportions they said.  

Before he became what the Indonesian’s call “an accidental president ([4])”, he was a highly regarded Muslim kyai (teacher). Mostly Wahid showed similarities to the incomparable Erap, the recently former president of the Philippines. While Erap was a highly successful class “B” movie star and a graft ridden government official, Wahid who is equally corrupt, believes that he is living a movie, High Noon, to be specific. He measures his success in terms of the movie but says that what he is doing is real life. Many people in Indonesia have grave doubts about that statement. Wahid got off to a flying start as president by promising everything and doing absolutely nothing. He is now governing an island nation that is one of the most populous countries on earth that is rapidly coming apart at the seams.  

Little things keep coming up to haunt Wahid, such as the instance where his former masseur was accused of stealing millions of dollars from an Indonesian Government sponsored food agency in Wahid’s name saying that it was “humanitarian purposes”. The scandal, called Buloggate, named after the charity, Bulog, brought a belabored confession from the masseur who assumed all blame for his transgressions. The people became so emotionally charged up on both sides of the political fence that the army had to called out in force to avoid a massacre in downtown Jakarta. It was for this and another similar transgression, in which he made misleading declarations regarding a donation from the Sultan of Brunei that has mysteriously disappeared, in which Wahid was thoroughly censored by both his friends and enemies ([5]) in the Indonesian Congress.  

Many say that this censure was only a first step in the winding road to impeachment. However, it is generally believed that Wahid, who has played things very close to the vest and has shown arrogance whenever he had had the opportunity, may finally have run out of time and friends. Wahid believes that all of the transgressions against him are the work “associates of former dictator Suharto -“They have been trying to destabilize his government since his election in October 1999. He asserts they are the masterminds behind the vicious blasts that exploded at numerous Christian churches the night before Christmas.” ([6]) Wahid was getting a tad nervous and discussed the option of declaring martial law with his generals and this request was rejected out of hand. The military that has thirty-eight votes in delegates in parliament’s upper house had voted unanimously for censure, so the writing was becoming clearer on the wall that he could not expect their support under almost any conditions. There is little question that they would prefer to have Megawati take over the job. Poor Wahid, he was even dunned by the local electric company saying that his palace was $425,000 behind in paying its electric bill and that they were considering their options.  

The stock market has plunged under his guidance and it is now about half as high as it was when he was installed into office. Wahid has failed to privatize government institutions that are not only a drain on the treasury and probably could turn a profit under reasonable guidance. Forgetting the fact that most of the logical candidates could well turn into tax paying companies instead of drains on the economy, the money that the treasury could get by making the sales would certain help jump start a pathetic economy. The promised reform of the Indonesian banking system has not come close to happening, which displeased the International Monetary Fund no end and they have now taken the dramatic step of withholding substantial promised payments until Wahid or his successor comes to grips with the situation. “Corruption and nepotism remain rampant. One Western diplomat despaired that economically, “the country is rotten to the core.” ([7]

Wahid has few advisors and has hunkered down expecting the worst. He talks the talk of trying to forge a consensus but when the chips are down, he only listens to a select few. “…his daughter, Yenni; his brother, Umar Wahid, who is also a medical doctor, and his nephew Syafullah Jusuf, who heads NU Banser, the youth wing of the Muslim organization which Wahid led…Newsweek has learned that, a week before Christmas, an intelligence report warned of possible violence on Java over the holidays. The report was handed to a close presidential aide - who forgot to read the report to Wahid.” ([8]) These handpicked advisors have about as much business telling anyone how to run a government as a frog. Not one has even a scintilla  of experience in anything out of their own fields.  

It is little wonder that Wahid is digging himself a deeper hole every time he opens his mouth. However, as far as the Muslim’s in his party are concerned, Wahid is still first class. Would you believe that 40 of his clerics had the same dream simultaneously one night and every one of them told it to their congregations the next day. It went something like this, Wahid had climbed a coconut tree and a terrible storm came up suddenly. The storm blew away everything in its path except Wahid and the try he was hanging to. Certainly, that was indeed a vision of consequence. Although the interpretation of the clerics was that Wahid would hang on to the presidency under all conditions, one of the people in audience that day asked a cleric whether or not it could be interpreted somewhat differently. Could it not mean, the cleric was asked, that if Wahid remains president, nothing would be left standing in the country but one coconut tree with the blind president clinging to it?  ([9]

He has gone through the motions of trying Suharto for his pilferage with no success, but has been able to send Suharto’s son Tommy into hiding after a court found him guilty of an assortment of economic heists.  The country continues to drift with a serious lack of leadership.  Problems do not get addressed, any changes are made with glacier-like quickness, and when all is said and done, the same old hacks that did the country in the first time still seem to be pulling the strings.  By the end of the 2000, virtually every economy in the Pacific Rim had recovered from the results of the economic maelstrom with two exception, the Philippines, with their own brand of cronyism and incompetent leadership, and Indonesia, who in spite of a big spike in the price of oil and their ability to produce massive quantities of the stuff, doesn’t seem to be helped by anything.  

East Timor was a Portuguese possession in years passed but in 1975, with implied United States permission it was overrun by Indonesia. It had been forcibly taken from the Portuguese by the Revolutionary Front of Independent East Timor and had declared its independence on November 28, 1976. The Vietnam War had just ended and Indonesia at that time was an American pawn. It was felt by the U.S. Administration that there was a reasonable chance that the Revolutionary Front group that had just conquered East Timor, if left to its own devices could well fall into the communist camp. Once conquered by Indonesia, things quieted down a tad   but although never a group of happy campers, the people of East Timor went along with the Suharto Government because things were reasonable good and the country was growing. However, the island is far from the Indonesian Capital, it is dry, agriculturally unproductive and little natural resources of value are to be found there.  

The Indonesians treated those from East Timor with substantial disrespect and Roman Catholic bishop of Dili, Carlos Filipe Ximenes Belo and Jose’ Ramos-Horta jointly received the 1996 Nobel Peace Prize for their efforts on the behalf of the people of East Timor. Belo’s story can give you a mind's eye view of what was going on in East Timor that made the people so resentful:

 

“Belo was ordained a bishop in 1983. As spiritual leader of a territory that is overwhelmingly Catholic, he became one of the primary spokesman of the Timorese people. He denounced the brutal tactics and oppressive policies of the Indonesian government despite at least two attempts on his life, in 1989 and 1991. Following a massacre of peaceful demonstrators in Dili in 1991, Belo successfully campaigned for reforms in the military and the dismissal of two generals. A strong believer in nonviolent resistance, Belo sought peaceful means to settle the troubles in his homeland. In an open letter written in July 1994, he outlined his concern for the people of East Timor and proposed that the Indonesian government reduce its military presence, expand the civil rights of citizens, allow East Timor to hold a democratic referendum on self-determination or barring that, grant Timor special territorial status.” [10]

 



[1] Reuters, 4/30/98

[2] Financial Times, Friday, April 3, 1998.

[3] Food and Agriculture Organization (FAO) and World Food Program (WFP).

[4] The front-runner when Habibie left office under a cloud of incompetence, was Megawati Sukarnoputri, former President Sukarno’s daughter. However, in a Muslim country, not too many woman are allowed that privilege. There was no one left but Wahid who was running the largest single block of voters in Indonesia as head of the Nahdlatul Ulama, an enormous Muslim social and education organization. Megawati got the nod as veep as a consolation prize,

[5] The vote was a narrow, 393 to 4 in favor of censure.

[6] ‘High Noon’ for Wahid, Melinda Liu with Joe Cochrane, Newsweek International 01-22-2001.

[7] Ibid

[8] Ibid

[9] Asia, Bad Omens Indonesian President Wahid faces impeachment in parliament and waning military support. Now the people may be turning against him. Can he survive? Time International, Tim Mcgirk, Amira Loebis and Jason Tedjasukmana, 2-12-2001

[10] Encyclopedia Britannica, Inc.

 

 

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