Trials and travails of Indonesia's
richest man By Bill Guerin
JAKARTA - Publicity-shy paper and
plantation magnate Sukanto Tanoto is in
Indonesia's national headlines after topping two
high-profile lists.
Forbes Asia last month
listed the 56-year-old tycoon as the richest
individual in Indonesia, with assets worth about
US$2.8 billion (Rp25.2 trillion). In June, the
self-made ethnic-Chinese tycoon also topped a list
of state-owned Bank Mandiri's six biggest debtors.
Although Vice President Jusuf Kalla and
senior cabinet minister
Aburizal Bakrie, both
ethnic-Malay Indonesians, known locally as
pribumi, also featured prominently on
Forbes' wealth list, media attention has focused
on Tanoto. The businessman has recently been
linked to a revived financial-fraud investigation,
although no formal charges have yet been filed
against the tycoon.
After a joint decision
by the national police chief and the attorney
general, a corruption investigation has after five
years in abeyance been restarted involving
Unibank, a financial institution once owned by
Tanoto. Corruption allegations first surfaced
against Tanoto in September 2000 when a
central-bank investigation into Unibank discovered
discrepancies with the bank's outstanding debt,
which was in the form of an export draft worth
$230 million, or about Rp2.3 trillion.
The
revived charges come as President Susilo Bambang
Yudhoyono heats up his "war on corruption", which
includes vigorous investigations into bad loans
parked at state banks. Some international
observers have insinuated that the anti-graft
campaign is disproportionately targeting
ethnic-Chinese businessmen over indigenous
Indonesians.
Singapore's founding father
and Minister Mentor Lee Kuan Yew last month
accused Indonesia of just that, discriminating
against its ethnic-Chinese minority. "Our
neighbors [Indonesia and Malaysia] both have
problems with their Chinese. They are successful.
They are hard-working and, therefore, they are
systematically marginalized," the elder statesman
said.
Many of Indonesia's ethnic-Chinese
business leaders fled to majority-Chinese
Singapore after killings, rapes and looting of
their businesses in Indonesia followed strongman
Suharto's May 1998 downfall. The local media
estimate that they parked billions of dollars in
Singaporean banks, and some have declined to
reinvest their funds in Indonesia. Others, accused
of corruption and pilferage, fled to Singapore to
escape prosecution, according to the Attorney
General's Office.
Fairly or not, Tanoto,
son of a migrant shopkeeper and an Indonesian
citizen, has often been viewed as part of that
diaspora to Singapore. His Asia Pacific Resources
International Holdings Ltd (APRIL) is managed from
Singapore and is one of the world's leading
pulp-and-paper companies, with production
operations in both Indonesia and China.
APRIL is the flagship of Tanoto's Raja
Garuda Mas, or RGM International Forestry Group,
which is likewise based in Singapore. The global
company has assets in excess of $5 billion and has
established a corporate presence in Singapore,
Indonesia, mainland China, Hong Kong, the
Philippines, Finland and Brazil. One of its
subsidiaries, PT Asianagro Agung Jaya (AAJ), is
one of the biggest producers of crude palm oil in
Indonesia.
With rubber and cocoa estates
and more than 200,000 hectares of oil-palm
plantations, AAJ is now aggressively investing in
alternative energy, including plans for a $38
million bio-diesel factory in Riau designed to
produce 100%-pure bio-diesel, which can be used as
automobile fuel without being mixed with
petroleum-based diesel fuel. The planned
investment is notably in line with a new
government policy to promote the production of
more biofuels.
Wealthy
minority Although it accounts for only 3%
or 4% of Indonesia's 238 million population, the
mostly urban-based ethnic-Chinese community
dominates retail business and controls many of the
country's major industrial conglomerates. Upon
achieving independence, Indonesia's ruling
pribumi military leaders, including
Suharto, preferred to outsource development of the
country's natural resources to ethnic-Chinese
businessmen.
Through that patronage
system, Tanoto developed and has maintained strong
political connections with the country's ruling
pribumi elite, including inside the current
administration. And several of his business
interests overlapped with Indonesia's largest
conglomerate, the Salim Group, once closely and
corruptly linked to the ruling Suharto family.
When Tanoto established RGM in 1974 as a
humble plywood manufacturer, Suharto notably
presided over the company's opening ceremony. Yet
to date there is no evidence that Tanoto, who has
consistently denied receiving any special
privileges from the former strongman, secured any
government-tendered concessions or contracts
through corrupt means.
To the contrary,
foreign investors at the time often viewed his
business empire as more market-oriented than most
other, patronage-driven Indonesian conglomerates.
In a heady era when the World Bank famously
praised Indonesia as a "miracle" economy, Tanoto
listed APRIL on the New York Stock Exchange in
1994 to generate equity capital and facilitate
bank loans.
Still, Tanoto's enterprises
were often a source of controversy. One of the
most notorious cases involved his original pulp
and rayon mill, PT Indorayon Inti Rayon, which was
highly criticized by the local community and
environmentalists for its lax pollution controls.
The plant was forced to close in 1998 after
violent protests by local residents angered about
alleged pollution of nearby Lake Toba - Southeast
Asia's largest lake and Sumatra's biggest tourist
attraction. The company was later investigated for
illegal logging operations - though those charges
were never substantiated.
Deep in
debt As with many big conglomerates during
Indonesia's era of rapid economic growth, Tanoto
established a bank to finance and expand his
multibillion-dollar businesses. In late 1987 he
acquired United City Bank and thereafter changed
the financial institution to Unibank.
A
decade later, what had been a small private bank
was a major publicly listed company with total
assets of Rp1.9 trillion and chaired by respected
economist Irzan Tanjung. However, the 1997-98
Asian financial crisis hit Tanoto's businesses
hard and sent his bank's balance sheet deep into
the red. In May 1998, Bank Indonesia, the
country's central bank, revealed that Unibank had
violated a legal limit that restricts banks from
lending more than 20% of their total assets to
their own affiliated companies.
It was
later revealed that some 51% of Unibank's total
assets were tied up in loans to companies linked
directly or indirectly to Tanoto. By October 2000,
Unibank had a capital-adequacy ratio of
negative-221.43%, and its capital was Rp2.41
trillion in the red. On August 21, 2001, two
months before its assets were legally frozen by
government regulators, 73% of Unibank shares, or
2.47 billion shares valued at Rp61.8 billion, were
sold in a shadowy transaction on the Jakarta Stock
Exchange.
Tanoto's securities house, PT
Unisecurindo Abadi, was the most active trader
that day, and Unibank notified regulators about
the change in ownership only days before its
state-ordered closure. That raised eyebrows with
some stock-market analysts, who believed the move
was engineered to protect Tanoto from his
obligations as the controlling shareholder.
Yet under Indonesia's capital market law,
the obligation to report to the regulatory Capital
Market Supervisory Agency (Bapepam) applies only
to those who own more than 5% shares of an issuer.
The bank had Rp4.4 trillion in assets when it was
shuttered, and the government later imposed a
travel ban on Tanoto, his wife, and Unibank's
directors and commissioners.
Now, Tanoto
is apparently being linked to a corruption scandal
over alleged improper lending activities at the
government's biggest financial institution, Bank
Mandiri. The country's largest lender began
operations in August 1999, formed from the merger
of four state banks devastated by the 1997
financial crisis. Mandiri is 68% owned by the
government, and its role in the purchase of
distressed assets from companies controlled by
businessmen linked to former president Suharto has
come under new scrutiny.
Mandiri Bank's
former president director, vice president and
corporate banking director were all tried over an
$18.5 million lending scandal but were exonerated
from all charges in South Jakarta District Court
in February this year. Together with state-owned
Bank BNI, the country's second-largest, Bank
Mandiri accounts for the bulk of the Rp27 trillion
of outstanding non-performing loans in Indonesia's
banking industry, which represent about half of
the total assets in the banking system. Bank
Mandiri's NPLs stand currently at a whopping
26.6%.
Bank Mandiri's chief executive
officer, Agus Martowadojo, has said, "If only five
or six of these major debts were settled,
Mandiri's NPL level would return to normal."
President Yudhoyono launched a probe into Mandiri
Bank in early 2005, which has brought Tantono's
accounts with the state financial institution
under the regulatory microscope.
APRIL had
borrowed a total of $1 billion from a consortium
of Mandiri, BNI, and Panin, Niaga, and Danamon
banks to finance the development of its integrated
paper-manufacturing plant known as Riau Complex.
Though the company benefited from the
hugely depreciated local currency - because its
input costs were mainly procured in local currency
and revenues received in US dollars - RGM managers
say APRIL incurred an additional $500 million in
accumulated debt because some lenders insisted
their credits be converted from rupiah to dollars
at depreciated market spot rates.
By 2000,
when APRIL's eventual debt workout was concluded
through a state-run debt-restructuring facility,
the company's debts had swelled to about $1.5
billion. Debt-related cash flow problems were
later compounded by the collapse in confidence and
devaluation of paper and plantation assets across
the region after the corporate bond default in
2001 of its rival Asia Pulp and Paper (APP).
APP's aggressive expansion into China had
led to overcapacity and a mountain of unwanted
pulp, and APRIL requested that lenders amend its
cash-flow projections to reflect the collapse in
global pulp prices, which fell about 50% in a few
months between 2000 and 2001. Bankers countered by
accusing APRIL of using low pulp prices as an
excuse to wriggle out of their debts.
They
also charged that APRIL, despite its alleged
capital crunch, was expanding its pulp production
lines and aiming to add another paper mill. APRIL
still owes its biggest creditor, Mandiri Bank,
Rp5.3 trillion, but repayments to the state-owned
bank and other financial institutions are
reportedly being made in line with their original
agreement, according to company executives.
The political winds are blowing against
big corporate debtors, however. State Minister for
State Enterprises Sugiharto complains that Mandiri
has given too much tolerance to debtors. Now
delisted from the Jakarta Stock Exchange, APRIL
does not publicly publish its profit figures, but
Mandiri has been pressing for almost two years for
an increase in repayments from $61.2 million to
$120 million per year, reasoning that the global
price of paper and pulp has jumped from about $400
per ton in 2002 to some $700 today. Martowardojo
justifies such demands through a revised
government regulation that grants authority to
state-owned banks to take firmer measures against
bad debtors.
"Basically, they'll not
escape the long arm of the law," he said recently.
The China connection The Forbes
revelations that Tanoto is worth more than $2.8
billion and still one of the country's largest
corporate debtors has clearly irked certain
powerful elements of the political establishment.
Yet there are few, if any, indications
that Yudhoyono, who is vigorously trying to lure
new foreign investment into the country, wishes to
alienate unnecessarily Indonesia's ethnic-Chinese
business community, which, despite shipping
billions of dollars' worth of assets to Singapore,
still dominates the local economy. And that same
community is playing an increasingly important
role in strengthening and expanding trade and
investment ties with China.
For instance,
Tanoto's RGM plans to invest up to $6 billion in
China by 2010, funding a series of major
power-project investments that include a gas-fired
combined-cycle gas-turbine power plant in the
Chinese coastal city of Xiamen. Announced in
August 2005, the investment was widely viewed as a
confidence-building measure toward improving
Indonesia-China diplomatic and economic ties under
Yudhoyono's administration.
Those ties
came under strain after the government's perceived
in Beijing as a tepid response to the 1998 riots
targeting Indonesia's ethnic-Chinese community.
Yudhoyono has moved aggressively to rebuild that
lost trust and has, over the past two years,
secured pledges of billions of dollars' worth of
new Chinese investment into Indonesia.
Significantly, Beijing is also playing a
behind-the-scenes brokering role between
ethnic-Chinese Indonesian businessmen and
Yudhoyono's government.
In a closed-door
meeting last year in Beijing between Vice
President Kalla and several top Chinese-Indonesian
businessmen, they agreed gradually to repatriate
$1 billion parked overseas in the wake of the
1997-98 financial crisis, according to local media
reports. Among the Chinese-Indonesian tycoons in
attendance at the meeting were Sofjan Wanandi,
Tomy Winata, Pradjogo Pangestu, Anthony Salim and
Tanoto.
According to Chinese-Indonesian
businessmen present at the meeting, they demanded
that the government immediately raise fuel prices
to reduce the massive cost of the fuel subsidy and
create a more stable and sustainable economic
climate. In return, they pledged to invest more in
Indonesia if there was a clear indication that the
government would not impose new subsidies, the
cost of which they would disproportionately have
to shoulder. One month later, Yudhoyono, in his
most far-reaching economic decision since his
election a year earlier, slashed fuel-price
subsidies.
That clearly indicates that the
likes of Tanoto still have a large measure of
political clout inside the Yudhoyono
administration. Restoring confidence in the
political and business environment would arguably
go a long way toward encouraging new investment
flows from Indonesia's ethnic-Chinese community.
As such it seems just as likely that the
president's anti-graft campaign will act to
absolve rather than prosecute many embattled
tycoons, including perhaps Tanoto.
RGM
president Ibrahim Hasan told Asia Times Online on
Tuesday that a new repayment deal had already been
negotiated with Bank Mandiri, which will be
announced in the near future. As for the
corruption allegations, they remained tight-lipped
on the grounds that they had "no official
information" on the claims. It seems that Tanoto
could stay on top of both the Forbes and state
debtors lists for a long time to come.
Bill Guerin, a Jakarta
correspondent for Asia Times Online since 2000,
has been in Indonesia for 20 years, mostly in
journalism and editorial positions. He has been
published by the BBC on East Timor and specializes
in business/economic and political analysis
related to Indonesia. He can be reached at
softsell@prima.net.id.
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