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2 Old
wealth reborn in new
Indonesia By Megawati Wijaya
JAKARTA - More than a decade after the
downfall in 1998 of former Indonesian strongman
Suharto, and despite myriad economic reforms aimed
at narrowing a yawning wealth gap and creating a
more level business playing field, politically
connected conglomerates maintain an outsized
influence over Southeast Asia's largest economy.
A list of Indonesia's 150 richest
businesspeople published this year by Globe Asia
magazine showed that a handful of family
businesses linked to the former dictator are still
dominant, despite the country's growing
integration in the global economy and rising
foreign investor interest in its local markets and
natural resources. A sustained boom in
global commodity prices has given many
conglomerates a new lease on corporate life. Many
of them have
successfully diversified
or expanded into the mining and agriculture
sectors that have benefited from booming exports
to China, including in palm oil, coal, and metals.
Many of the country's top business families have
now seen their fortunes vacillate wildly from
rags-to-riches-to-rags-to-riches.
Topping
Globe Asia's recent wealth list was Suharto-era
tycoon Eka Tjipta Widjaja, whose Sinar Mas Group
empire now sprawls across industries as diverse as
pulp and paper, real estate, banking and finance,
agribusiness, telecommunications and mining. His
personal wealth was estimated at a whopping
US$12.5 billion.
The Salim Group,
Indonesia's largest conglomerate now under the
leadership of recently deceased founder Liem Sioe
Liong's son, Anthony Salim, cigarette tycoon
Robert Budi Hartono's Djarum Group, Susilo
Wonowidjojo's Gudang Garam Group and Aburizal
Bakrie of the Bakrie Group - all companies
established under Suharto's patronage - were
represented prominently on Globe Asia's wealth
list.
Wealth-X, a global intelligence and
wealth due diligence firm, estimated in its latest
Indonesia country report that 775 individuals in
Indonesia are worth more than US$30 million, a
statistic that underscores the country's still
yawning wealth gap. Out of those 775 high net
worth individuals, at least 41 had two or more
family members on the Globe Asia list.
The
top tier 25 were all worth more than $1 billion,
with at least five having two or more family
members on the list, including Djarum Group's
Hartono, Sinar Mas's Widjaja, and Murdaya
Widyawimarta, founder of the Central Cipta Murdaya
conglomerate. The list showed clearly that wealth
remains highly concentrated among a small number
of families involved in diversified business
conglomerates.
Many of them have made
extraordinary financial comebacks, recovering lost
wealth amid political and economic tumult. When
the 1997-98 Asian financial crisis hit, many
financial analysts predicted that Indonesia's
conglomerates would collapse under the weight of
their debts. As the rupiah plunged from 2,400 to
14,000 to the US dollar within a calendar year, by
July 1998 several conglomerates that depended on
bank loans for their working capital and business
expansions were technically bankrupt.
Marleen Dieleman, senior researcher at the
National University of Singapore (NUS) Business
School, said that while all Indonesian businesses
were severely hit by the financial crisis,
conglomerates, especially those owned by ethnic
Chinese, faced twin crises. With their outsized
wealth and political connections, they were seen
by many Indonesians as symbols of the excess and
corruption that epitomized Suharto's fallen
regime, she said.
When violence targeted
Chinese minorities in Jakarta, mobs set fire to
the Salim family's private residence. People
demonstrated on the capital's streets carrying
Liem's portrait and their Bank Central Asia (BCA),
the biggest privately owned bank in Indonesia with
two of Suharto's children on its supervisory
board, suffered a run on deposits. The group
ultimately lost most of their assets and Liem fled
the country for the safety of majority Chinese
neighboring Singapore.
Usman Admadjaya,
owner of Bank Danamon, saw his indebted financial
institution eventually sold to Singapore's DBS and
Germany's Deutsche Bank. He was later banned from
leaving the country and faced prosecution for
bribing officials to gain access to central bank
financing. Timber baron and close Suharto crony
Bob Hasan was forced to forfeit his monopoly
concessions and eventually was jailed for fraud
worth $75 million.
Other conglomerates
struggled for years to repay international and
domestic debts. Barito Pacific, the Pangestu
family-owned conglomerate engaged in
petrochemicals, wood manufacturing, property and
plantations, at the height of the crisis defaulted
on 8.4 trillion rupiah (then around US$600
million) worth of loans. The Bakrie Group at one
point owed 6 trillion rupiah to state-owned banks
but has re-emerged as one of the country's most
influential players in the country's lucrative
energy and mining sectors.
The country's
three largest conglomerates - Salim, Astra
International, and Sinar Mas - at one point were
estimated to owe $5.5 billion, $5.1 billion, and
$3.8 billion respectively to foreign creditors
alone. Economist and recently elected head of the
government's Investment Coordinating Board (BKPM)
Chatib Basri estimated that on average Indonesian
conglomerates lost 25%-30% of their assets
following the crisis. Yet many have survived to
profit from the country's new commodity export
driven boom.
Exclusive era Indonesian conglomerates flourished under
former strongman Suharto's brand of crony
capitalism and industrialization-led economic
growth. Ethnic Chinese businessmen leveraged on
close connections to Suharto to secure monopoly
privileges such as exclusive import licenses,
protected local markets, government-imposed price
controls, favorable tax rates, and easy credit
from state-linked banks to finance their ambitious
expansions.
Many emerged from iconic
rags-to-riches backgrounds. Liem, also known under
his Indonesian name Sudono Salim, for example,
arrived on boat in Medan, Indonesia in 1936 as an
impoverished 21-year-old from Fujian, China. He
started his business by trading clove that is
rolled into Indonesian kretek cigarettes before
expanding into textiles, banking, and food
businesses. By 1997, Liem's Salim Group had
amassed assets worth $20 billion (two and a half
times more than what his son controls now) with
over 600 companies and 200,000 employees.
Liem's conglomerate-owning contemporaries
included the late William Soeryadjaya, who owned
285 companies under Astra International covering
automotive, heavy equipment, agriculture,
infrastructure, information technology and
financial services. Widjaja's Sinar Mas Group,
meanwhile, owned 153 companies engaged in palm
oil, paper, and banking.
Mochtar Riady's
Lippo Group was another major player in banking,
property and infrastructure development who under
his son Stephen Riady has bounced back from the
crisis to expand into media. Not surprisingly,
Suharto's direct and extended families represented
perhaps the country's largest conglomerate, which
at its height in 1998 owned 1,251 registered
companies, 300 of which were owned by Suharto's
five children.
Two-hundred conglomerates
dominated the local economy, making up 58% of the
national gross domestic product at Suharto's
zenith, according to Revrisond Baswir, an economy
lecturer at the Gadjah Mada University and writer
of several books on the subject. Indonesia's
state-owned enterprise made up 24% of GDP, foreign
investment 10%, and local small-medium enterprises
a mere 8%, according to his research.
The
top five conglomerates, the Salim Group, Astra
International, Sinar Mas, Gudang Garam, and Lippo
Group, had annual sales totaling 112 trillion
rupiah (US$47 billion) prior to the 1997 financial
crisis. After Suharto's 1998 ouster due to street
protests, many Indonesian conglomerates saw their
businesses and personal fortunes collapse.
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