Is going int'l capital flight?

Is going int'l capital flight?

By Dewi Anggraeni

MELBOURNE (JP): How come, ask some interested businesspeople
in Australia, when an Australian company goes international, it
is praised for its achievements, while an Indonesian company
going international may be accused of capital flight? Are there
issues that are uniquely Indonesian, not immediately clear to
outsiders?

It is only right that businesses in Australia consider the
situation before making decisions to invest in Indonesia. In a
seminar run by the Australia-Indonesia Legal Development
Foundation on Aug. 14 at the University of Melbourne, the links
between nuances in political ambience and business trends were
raised, which explained to a degree why globalization Indonesian-
style was seen as capital flight by some.

In the past many business entrepreneurs have come to Indonesia
with a desire to invest, equipped only with the knowledge that
the present government had been able to maintain political
stability and steady economic growth at 7 percent annually.
Naturally a great number of these entrepreneurs have also
returned empty-handed and disillusioned. Now people are more
cautious and aware, and they want to know more about the subtle
cultural aspects that can make the difference between clinching
business deals and going home disappointed.

Cultural awareness, however, is only one point in the entire
business spectrum. Social and political knowledge about the
country is just as important if a business is to succeed in the
long-term. Observing how the legal infrastructure works, or
whether it is always enforceable, is also useful.

Many business observers learn that Indonesia has progressed a
long way since the early 1970s, when it began divesting its
state-owned enterprises and opening doors to foreign investors.
Rob Hogarth, chairman of the Asian Business Group and partner at
KPMG, an international management consulting firm, names the
period that followed as the 'emergence', where the country
underwent major restructuring and achieved rapid economic growth.
The 1990s is the era of globalization. Several major companies
have expanded offshore, including Lippo, Comexindo, Sinar Mas,
Gemala and Garuda Mas, without stirring protest. Then why did
Salim Group field such a negative reaction when it announced its
plan to expand offshore? Being accused of capital flight is not
to be taken lightly in a country where nationalism is still
ranked very highly.

The proposal which has been approved by shareholders involves
selling 50.1 percent of Indocement's shares in highly profitable
Indofood. 39.56 percent of these shares will be sold to existing
shareholders, drawing on their dividends. From this spinoff,
Salim Group, who controls 59.35 percent of Indocement, will get
23.6 percent, the Indonesian government, who owns 25.73 percent
will get 10.2 percent, and the public shareholders, who own 14.62
percent will get 5.8 percent. The rest will be sold directly to
Putera Sampoerna, who at present does not own shares in
Indocement.

After the sale is complete, Salim Group will control 44.47
percent and Putera Sampoerna 5.63 percent in Indofood. The 50.1
percent of shares will then be sold to Singapore's QAF Ltd., in
which Salim Group controls 70.3 percent, and another small
company, PT Marga Lestari, owned jointly by QAF (95 percent) and
Salim (5 percent).

The overwhelming picture projected is a major capital
restructure of Salim Group. Its money-making machine, Indofood,
will be controlled by QAF in Singapore, instead of Indocement in
Indonesia, which is, by the way, 25.73 percent owned by the
Indonesian government. Effectively after the restructure, the
government's control in Indofood through Indocement will shrink.
In this era of globalization, is this really unusual? In a purely
business perspective, it may be justifiable. However, in
Indonesia the Salim Group, or Sudono Salim in persona, it
appears, is in a league of its or his own.

Firstly, Sudono Salim is one of the wealthiest people in the
country. Geoff Hiscock in his recent book, Asia's Wealth Club,
ranked him third in the nation, after Rachman Halim and the
Wonowidjojo family, and the Soeharto family, and eighteenth
internationally -- the first being the Sultan of Brunei.

Salim's close links to the current President date back to the
1950s, when Soeharto was still an officer. And it is perceived
that he owes the success of his business venture to Soeharto's
patronage and continued support. When Indocement ran into trouble
in the mid-1980s, for instance, the government injected US$180
million in fresh funds and underwrote Indocement loans in several
banks. Salim Group now holds a vertical monopoly in the wheat
industry, spanning from import and milling, to its final end
products.

There is a strong perception, therefore, that the Salim Group
has had an unfair advantage over other businesses that try to
compete with it, that it owes its massive wealth to the
Indonesian government and the Indonesian people. Shifting the
control of its money-making machine -- Indofood -- to an offshore
company, while still benefiting from Indonesia's market, would be
regarded almost as bad as treason. Being a nonindigenous business
entrepreneur, Salim's loyalty and nationalism has also been
questioned.

Is the perception that nonindigenous business entrepreneurs
have no loyalty to Indonesia real or merely a myth? Indonesian
professor at the University of Melbourne, Arief Budiman, put this
perception into context:

"While the Chinese control the bulk of the Indonesian economy,
they have no political power base. Each time there is political
change, they become easy targets. So they try to amass as much
wealth as they can, in as short a time as possible, so if the
situation becomes too hot, they can take their money and go
somewhere else."

Unfortunately this practice generates growing resentment among
the population. Is there an effective way to break this cycle?

This takes us back to the question: When an Indonesian company
goes international, is it necessarily initiating capital flight?
Not necessarily, if it is done with sufficient sensitivity and it
takes heed of social obligations.

The writer is a freelance journalist based in Melbourne.