IBRA and conglomerate dominance

IBRA and conglomerate dominance

This is the second of two articles on conglomerates by Jeremy
Mulholland, a PhD candidate at the University of Melbourne
researching Indonesian big business, and Ken Thomas, a long-time
observer of the political-economy of Indonesia and an Honorary
Visiting Fellow at La Trobe University.

MELBOURNE, Australia (JP): Currently, the Indonesian Bank
Restructuring Agency (IBRA) is the most powerful state center and
the richest organization in the country, holding assets to the
value of about Rp 660 billion. As such, it is a prime target for
corruption as it determines how to dispose of the assets of the
former conglomerates.

The Indonesian saying goes, "Where there is sugar, there will
be ants." Resembling a huge mound of the finest quality sugar,
the rents in IBRA have already attracted and become infested with
hundreds of seasoned rent-seekers. And with that Rp 660 trillion
at its disposal this activity is only to be expected!

But the process is beset by considerable confusion, as if
someone is disturbing the nest with a stick. A cross-section of
the elite is attracted to the sugar as each tries to capture its
share.

The culture of cronyism is still very strong. Abdurrahman, or
Gus Dur, like his predecessors, cannot seem to differentiate
between the public and private domains. Gus Dur has fitted well
into the nation's executive role. Notwithstanding his background
in the santri community (those considered religiously devout) Gus
Dur is a neo-aristocrat (priyayi).

Autocratic rule as well as business based on rent-seeking and
circulation, including patronage ties, is second nature to him
and therefore continues to flourish. Consequently, Gus Dur has
numerous New Order business elites close to him. The word in
Jakarta is that IBRA is being used to support and maintain Gus
Dur's presidency.

What makes this even worse is not only that IBRA is directly
linked to the President, but also that it operates in the
confines of a paternalistic and feudal-like bureaucracy,
inherited from the Dutch colonial period when priyayi culture
dominated.

Further, there is an intense power struggle in IBRA. There are
five groups that can be delineated here. The first and most
powerful group is headed by Gus Dur, his younger brother Gus Im
and Gus Dur's cronies and Cabinet ministers.

Second, the business elite, up to their old tricks of bribing
everyone and using patronage connections to get out of trouble as
well as to obtain things. Third, party members, the new kids on
the block, are trying to carve a slice out of the action in IBRA.

Fourth, the presence of reformists like former finance
minister Mar'ie Mohammad and chief economics minister Rizal Ramli
are expected to help IBRA's proper functioning. But they have an
uphill battle in front of them.

Fifth, IBRA officials have not only enthusiastically promoted
fire sales (obral) in the legislature, but have actually carried
some of them out. A major reason for this is that the more assets
IBRA officials sell, the greater the unofficial monetary reward
given in the form of a "management fee".

Can the agency make reasoned decisions for the sale of the
assets, choosing from among the six options discussed in the
previous article? The fact that there have already been five
heads of the organization does not auger well for the future,
even though it is in charge of one of the most momentous
decisions that has faced any government since independence: the
structure of the economy depends on the choice made.

One demand of the reformasi movement refers to a reform of the
political, legal, economic and educational systems. As far as
IBRA is concerned, legislation on bankruptcies and improved
business practices would be a step forward.

Unfortunately, however, even after the introduction of such
reforms as the 1995 limited liability law and supporting
regulation of 1998 and the 1998 insolvency and 1999 antimonopoly
laws, with law enforcement continuing to be a serious problem,
the situation is looking far from promising. If that is the case,
all that is missing is a firm hand at the center.

As IBRA winds down its operations in 2004, will the then
conglomerate-dominated economy be owned domestically or by
foreign companies? Throughout the region, economic growth has
been spearheaded by large business groups, often in cooperation
with multinationals, giving rise to the "Asian miracle". Even the
International Monetary Fund and World Bank, in spite of their
preference for a free market ideology, supported the trend.

Currently the IMF seems particularly anxious that the debts of
the Indonesian conglomerates be settled, even if this means that
multinationals move in. To date, there has been no obvious
concerted attempt by any of the three governments which have held
office since the crisis either to sell off the conglomerates to
foreigners or to take an economic nationalist position and insist
that they be retained.

More than that, no private group has come out strongly in
defense of the conglomerates, focusing their attention instead on
the corrupt practices of the companies under the slogan of
corruption, collusion and nepotism.

Meanwhile, the old structure has, for three years now,
persisted in spite of the fact that the companies are technically
bankrupt, as it were. A senior adviser to the Indonesian
Democratic Party of Struggle (PDI Perjuangan) recently voiced his
apprehension about selling assets and companies under IBRA's
supervision too quickly.

These concerns stemmed from the ex-post problem of moral
hazard after funds flow into IBRA's coffers. People have said
there is always the possibility that Gus Dur will misuse the
funds to perpetuate his presidency.

The decision made by Coordination Minister for the Economy
Rizal Ramli last December to turn down the Salim business group's
request to retain Indocement could be seen as a rejection of the
second alternative outlined in the previous article. He accepted
the offer of the German company Heidelberger instead. But what
are we to make of the fact that Heidelberg was a partner in the
company with Salim before the official rejection of Salim's
involvement?

Ramli also approved a Malaysian company's bid for an oil palm
plantation against local national sentiment. But seen against the
background of Rp 660 trillion worth of assets and hundreds of
companies, can we talk yet of a real decision in favor of a sale
to multinationals?

Can we really expect a firm commitment to any one of the
alternatives at this point in time? Is the government strong
enough to take such a stand -- or do have to wait until
Abdurrahman is replaced?

The authors can be reached at jeremypm@hotmail.com and
k.thomas@latrobe.edu.au.