Wed, 24 Aug 1994

Another business bust

Only about five months after 51-year-old Robby Tjahjadi succeeded in convincing Golkar members of the House of Representatives that he and his Kanindo business group did not have even a single cent in bad debts, his business empire is about to collapse under an estimated Rp 500 billion (US$230 million) in debts to two state banks alone.

He certainly looked innocent when he appeared at the hearing with the Golkar faction of the House in late February to refute rumors about his bad debts. He even got emotional and shed tears over what he rejected as totally baseless rumors. He said he was deeply hurt because despite his great success in building up his new business empire, many people still remembered him as a former car smuggler.

Robby likes to see himself as a lucky man. And he was lucky indeed. After a district court in Jakarta found Robby guilty of smuggling in luxury cars and sentenced him to 7.5 years in jail in March, 1973, the high court reduced the jail term to only 30 months. Later on, after years of running a variety of small businesses, he entered the textile industry in 1986. Luck again accompanied him. Within just six years he succeeded in building one of Indonesia's largest textile groups.

Robby's luck seemed to make him the darling of state bankers. When most other businessmen cried out under the credit crunch imposed by the central bank to cool down the overheating economy, he got Rp 324 billion in investment and working-capital loans from the Development Bank of Indonesia (Bapindo) and Rp 300 billion from Bank Bumi Daya, both state banks. Several foreign creditors also showed great trust in Robby's business acumen.

Robby's short-lived success story resembles the profile of Eddy Tansil who was recently sentenced to 17 years in prison for corruption related to an estimated $620 million in loans also from Bapindo. Robby's Kanindo group, like Eddy's Golden Key group, was reportedly associated with politically well connected businessmen, at least during its start up, and employed a retired army general as a commissioner.

The story of Robby's business bubble is now raising several puzzling questions and giving strong credence to stories previously rejected as baseless rumors. The first question is how such a businessman could get such large sums of loans from state banks for financing projects in the mature and highly competitive textile industry. How could state bankers close their eyes and seem so stupid as to condone Robby's over-extension into the highly speculative property acquisition and development sector, which was far outside of his core business -- spinning.

Robby's bust also gives a great deal of credence to the list of doubtful and bad debtors which was circulated in the middle of last year. This case even makes us believe that Eddy and Robby are simply the tip of the iceberg of the state banks' go-go lending to big businessmen who are associated with persons with strong political connections. They were simply the unlucky ones that got themselves exposed. We believe there are still many other major bad debtors who remain "shielded" from the public.

We think that is a major and delicate challenge for Bank Indonesia (central bank) and the finance minister, especially because state banks seem to be heavily exposed to big business groups. The way the big debtors are handled will very much influence the public's trust in the repeated official pronouncements of the government's commitment to developing small businesses and cooperatives and to bridging the wide inequality in income distribution and asset ownership.