Another business bust

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.