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.