'Berkeley Mafia' helped design RI economic policies

'Berkeley Mafia' helped design RI economic policies

By Hartoyo Pratiknyo and Lela E. Madjiah

They are referred to as the "Berkeley Mafia", a nickname
that may mislead those who don't know them into believing the
worst. On the contrary, they have not only helped design the
country's economic policies, but have also remained a solid group
of economists faithful to each other and to this nation to this
day.

This is a story about Widjojo Nitisastro, Ali Wardhana, Emil
Salim, Mohammad Sadli and Subroto, who were appointed President
Soeharto's economic advisers in 1966. This is the story behind
their appointment as Soeharto's highly trusted economic aides and
later cabinet ministers as well as their economic propositions as
told to Raymond Toruan and Sabam Siagian.

JAKARTA (JP): It all started in 1955, when Sumitro
Djojohadikusumo, minister of trade and of finance in the New
Order government, founded the School of Economics of the
University of Indonesia.

With the help of the Ford Foundation and the United States
Agency for International Development, Sumitro, who in the 1930s
studied in Rotterdam, the Netherlands, sent the brightest
students of university's school to Berkeley, USA, so as to
replace the foreign lecturers, who included a number of Dutch.

"During the early part of the 1960s the Dutch professors at
the School of Economics were leaving and to prepare for
Indonesians to take over their jobs some of us were sent abroad
to study," said Widjojo Nitisastro, one of this country's most
respected senior economists and a key member of the team of
economists who put the tattered Indonesian economy back on its
feet,.

"Some of us went to the University of California in Berkeley,
others in San Francisco, and there were those who went to Cornell
and MIT, each specializing in his own chosen field of interest.

Among the Berkeley students were Ali Wardhana, Widjojo, Sadli,
Emil and Subroto. Even when in Berkeley, the five often met on
Saturday evenings to discuss Indonesia and how to make things
better in the country.

"Widjojo more or less led the discussions," said Emil, 66, who
obtained his doctorate from Berkeley in 1964.

The late Mohammad Hatta, the country's first vice president,
was among the Saturday night guests. The discussions also often
attracted Indonesian officers being trained at Fort Banning in
western Georgia, recalled Emil, who served at the National
Development Planning Board chaired by Widjojo.

Gracious and unassuming, Widjojo, chooses to play down the
role he played in the shaping of his country's new economic
strategy.

"When we returned we were given teaching jobs. As for Seskoad,
Sadli was the first to be offered a teaching job, perhaps because
he had been a schoolmate of its deputy director. It was he who
later picked us to join him since he knew us," Widjojo recalled.

"It just so happened that we were at that time teaching at
Seskoad and since they knew us it seems only natural that they
should have asked us to advise the new government in outlining a
new strategy," he said.

Half roaring with laughter Widjojo refuted the idea that there
might have been some sort of complicity between certain
university professors and the military in the matter.

"There were also lecturers from other universities, such as
Mochtar Kusumaatmadja from Padjadjaran University (international
relations). The course, called the C Course for would-be
generals, provided them with the basic principles in social
sciences," said Sadli, who studied at Berkeley for one year in
1957 and obtained his doctorate in economics from the University
of Indonesia.

Dismissing speculations at the time that they had deliberately
sown the idea of the new economic strategy among Seskoad
students, Widjojo said he and his colleagues were no more than
teachers although discussions on economic topics naturally
evolved.

"Everything was very open at Seskoad. It's an excellent
institution."

Emil, who was born in Lahat, South Sumatra, added that it was
Suwarto who encouraged discussions between the university
lecturers and their Seskoad students, and thus a rapport
developed between them.

"Outside we could not speak up, but there, Suwarto said 'In
this room you are free to speak, to express yourselves'," Emil
recalled.

Suwarto also always encouraged talks on the situation in
Indonesia, on how to develop the country, and the village
communities. Through relations with Seskoad, the university's
groups of lecturers, the Widjojo Group in particular, played an
important role in the second Army seminar in August of 1966,
Sadli explained.

It was at the seminar that they first met Soeharto.

"Then we were asked to be his economic advisers. It was
Alamsjah Ratu Perwiranegara and Soedjono Hoemardani, the
President's personal assistants, who approached us," said
Widjojo, who was interviewed at his office on Jl. Lapangan
Banteng, Central Jakarta on Friday.

Widjojo added that he never picked his team.

"The five of us were asked as a team. It was Soeharto who made
the decision, probably after consulting his aides," according to
Widjojo, a native of Malang, East Java who turned 68 last Sept.
27.

"We were not executives and were not the President's personal
assistants as widely addressed. At the time, when people spoke
about the President's personal assistants, they were referring to
those from the military," said Sadli, who obtained his masters in
sciences from the Massachusetts Institute of Technology.

Widjojo was appointed head of the National Development
Planning Board.

"And every time there was an opening, Soeharto eased us one by
one into his cabinet," said Sadli, who was appointed to be in
charge of foreign and local investments. "At that time I was not
a minister but was in the cabinet."

Sadli became a full cabinet member only in 1971, when he
became minister of manpower (1971 to 1973) and then minister of
mining (1973 to 1978).

Under Widjojo's development board's scheme the country's
economy was directed towards a planned economy which relied
largely on market mechanism.

"A planned economy not based on free market failed under Bung
Karno's leadership," Sadli said when explaining the choice of
policy. "However, in the first phase it was still a mix between
free market and centrally-planned economy as 40 percent of the
market remained under government control."

The choice was both visionary and pragmatic, Sadli argued.

"Inflation was still high and if prices remained high, the
people would suffer. Price control was considered an anti-
inflation policy, a policy to safeguard public interest," Sadli
pointed out.

Geneva

Attracting foreign investors was not an easy task. After all,
as Sadli put it, who knew Widjojo or Emil?

"Time magazine sponsored a conference in Geneva to promote
Indonesia to the West. All we did was to pay the travel
expenses," Sadli said.

The Geneva conference was made possible through the strong
lobbying of the late Sultan Hamengkubuwono IX and Adam Malik.

"Both already had international recognition while Emil and I
were just village guys ignorant of the international set up,"
Sadli mused.

Many industrial big shots attended the conference to find out
about the New Order policy.

"We each had a suite at the Intercon Hotel which at that time
cost US$110 per day. It was such a huge sum for us Emil asked
'Why don't they just give us the money...?'"

The conference impressed foreign investors, oil companies in
particular, who became among Indonesia's first investors. In
fact, Freeport was the first investor.

"I remember because I was the one who signed the agreement,"
said Sadli.

Sadli admitted that the terms of agreement signed with
Freeport were very "loose" because "at the time we were only
thinking of how to attract investors and with Freeport coming, we
were able to say, 'Look, we have a foreign investor' It was an
advertisement effect."

However, the oil companies came through Ibnu Sutowo simply
because "they felt comfortable and assured with him," explained
Sadli.

Ibnu Sutowo, with his production sharing scheme, treated
foreign oil companies as state-owned oil company Pertamina's
contractors instead of foreign investors. As such, the government
did not treat them as direct investors. It was also Sutowo's idea
that everything the foreign companies brought here, including the
equipment, automatically became Pertamina's property.

"It worked at the time. I never questioned it. For the state,
Pak Ibnu's 65-35 scheme was legal because financially the 35
percent share owned by the foreign companies was treated as the
tax. The state was never disadvantaged," Sadli pointed out.

"That Pak Ibnu used the money 'recklessly' was another thing,
it had nothing to do with oil exploration," Sadli stressed.

Investment

Although in charge of investment, Sadli himself was not
involved in the drafting of the bill on investments.

"It was Widjojo and Emil who went to the House of
Representatives. I was not interested. I never went to the
House," he said.

The regulations on investment, which were prepared in 1966,
were issued in 1967.

"The bill was drafted by the Widjojo Group and when passed it
was an imperceptible one, which was understandable because we
were not yet very sophisticated," said Sadli.

The idea behind the regulations on investment was to invite
foreign capital. It was a very strategic idea because the country
could not rely on its domestic sources. To encourage foreign
investors the government had to offer incentives such as tax
holidays.

"There were three elements required for development, namely
foreign aid, which later took the form of the Inter-Governmental
Group on Indonesia, foreign direct investment and the return of
local money invested abroad," said Sadli.

Through direct foreign investment, the new government hoped to
lure companies to invest in oil, mining and wood which could
strengthen the country's balance of payment and foreign exchange
reserves right away.

"Manufacture came only later," said Sadli.

The government's next step was to encourage Indonesians who
invested their money abroad to move it here.

"Most of them were Indonesians of Chinese descent. The sum was
huge because in any country, however poor it is, there are always
people who accumulate wealth abroad," Sadli explained.

To encourage local investors, the government offered not only
incentives but extra bonuses, such as non-restriction in the area
of investment.

"There were restrictions for foreign investors. For example,
they could not just go into every area. Such restrictions were
not applied to local investors because we believed we should give
even better treatment to our own people," said Sadli.

Another requisite imposed on foreign investors was the
requirement that they bring everything with them and they were
not allowed to borrow money from local banks, said Sadli.

"Even then we were aware that it was the Indonesian Chinese
who were going to benefit from the scheme because they were the
ones with the most money, although there were a number of
indigenous businesspeople like Hasjim Ning. We were not really
concerned with who was going to benefit. What we had in mind was
how to generate capital from domestic resources. That was one of
the basic thoughts of the New Order," Sadli acknowledged.