Whither the conglomerates?<\/p>\n
By Jeremy Mulholland and Ken Thomas<\/p>\n
This is the first of two articles on conglomerates by Jeremy
\nMulholland, a PhD candidate at the University of Melbourne
\nresearching Indonesian big business , and Ken Thomas, a long-time
\nobserver of the political-economy of Indonesia and an Honorary
\nVisiting Fellow at La Trobe University.<\/p>\n
MELBOURNE, Australia (JP): The conglomerates, the \"jewels in
\nthe crown\" of Indonesia's industrialization, are in limbo. In the
\nmonths following the outbreak of the economic crisis in late
\n1997, most banks affiliated with conglomerates collapsed with
\ncombined assets totaling some Rp 660 trillion.<\/p>\n
Note how the dollar value of the assets changes dramatically
\nwith the continuing downward slide in the value of the rupiah; in
\nearly July 1997 when the exchange rate was Rp 2,540 to the US
\ndollar, the assets would have been valued at US$260 billion,
\ncompared to $66 billion at the current exchange rate of Rp
\n10,000!<\/p>\n
The central bank, Bank Indonesia (BI), was assigned to provide
\nliquidity relief to ailing banks. On Jan. 27 1998, to reassure
\ncreditors including the International Monetary Fund, the
\nIndonesian Debt Restructuring Agency (IBRA) was set up, under the
\nauspices of the finance ministry, to take over the responsibility
\nof not only recovering BI liquidity credits, but also to help
\nconglomerates get back on their feet.<\/p>\n
The instrumental role IBRA has in economic and financial
\nrehabilitation should therefore not be underestimated. How IBRA
\nnavigates through the confusion of circumstance and interest will
\nundoubtedly have a lasting impact on the direction, as well as
\nthe promise, of Indonesia's future.<\/p>\n
Kwik Kian Gie, President Abdurrahman Wahid's first
\ncoordinating minister for the economy, expressed a preference for
\nthe sale of the assets to domestic buyers, but made it clear that
\nhe would accept foreign investors if necessary so long as it was
\nnot at \"fire sale\" prices.<\/p>\n
The return to the government in dollars will depend, among
\nother things, on the exchange rate and how many of the assets are
\nreleased at any one time. Given the state of the economy over the
\npast three years, it is not surprising that few domestic buyers
\nhave shown interest; but given the expectation of bargain prices
\nfor the assets it is surprising that foreign investors have not
\nbeen overactive in the market.<\/p>\n
On the government's side, are we witnessing a shadow play
\nwhere the actors are merely saying their lines but are determined
\nto do nothing? Saying nothing implies an attempt to protect the
\nstatus quo, playing a waiting game, giving the previous owners
\ntime to recover from the crisis prior to regaining their rightful
\nplace in the economy.<\/p>\n
The alternatives facing IBRA include:<\/p>\n
1. A sale to all comers with the likelihood that most of the
\nassets would be sold to multinationals, possibly at \"fire sale\"
\nprices.<\/p>\n
Asingisasi, a term recently coined by economist Didik Rachbini
\nto refer to the possible sale of the companies to foreigners,
\nhas, for some, become a fundamental life line for national debt
\nrestructuring as well as the rejuvenation of the banking system
\nand real sectors.<\/p>\n
Asingisasi infers that foreign parties (business consortiums
\nor multinational enterprises) are ready to move in to buy up
\nIndonesia's undervalued productive assets at cheap prices.<\/p>\n
There has also been a concern that high-paid foreign
\nconsultants employed by IBRA control banks are conspiring with
\nforeign investors in order to facilitate asingisasi. Some
\nestimate that foreign presence in the economy could increase to
\n25 percent.<\/p>\n
The idea of selling off assets quickly is supported by the IMF
\nand reformist elements in the government. The increased financial
\ncontribution from IBRA revenues could in turn be channeled into
\nthe national budget, thereby reducing the budget deficit.<\/p>\n
But there is a concern, not so much of nationalistic character
\nbut more of commercial common sense, that foreign investors
\nshould not be allowed to come into Indonesia and make a killing
\non the procurement of companies and assets, while also increasing
\ntheir share in the Indonesian economy.<\/p>\n
2. A deal which would enable most of the assets to be returned
\nto their original owners.<\/p>\n
3. Sale to a new group of business actors.<\/p>\n
4. Retention of the assets by the state<\/p>\n
5. A state endorsed rise of \"indigenous\" (pribumi) businesspeople
\nunder the banner of economic nationalism, first vis-a-vis the
\nmultinationals and second vis-a-vis the Chinese-Indonesian
\nbusiness circles who dominate the conglomerates.<\/p>\n
6. As put forward by the government of former president B.J.
\nHabibie, the idea of using IBRA as a means of asset
\nredistribution for the betterment of the \"people's economy\".<\/p>\n
It can be assumed that the constellation of political forces
\nis such that the choice will be between the first and second
\noptions, or a combination of the two. Though lip service will be
\npaid to the sixth option, a common feature of all governments
\nsince independence.<\/p>\n
The authors can be reached at jeremypm@hotmail.com and
\nk.thomas@latrobe.edu.au.<\/p>",
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