'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.