Whither the conglomerates?
Whither the conglomerates?
By Jeremy Mulholland and Ken Thomas
This is the first 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): The conglomerates, the "jewels in
the crown" of Indonesia's industrialization, are in limbo. In the
months following the outbreak of the economic crisis in late
1997, most banks affiliated with conglomerates collapsed with
combined assets totaling some Rp 660 trillion.
Note how the dollar value of the assets changes dramatically
with the continuing downward slide in the value of the rupiah; in
early July 1997 when the exchange rate was Rp 2,540 to the US
dollar, the assets would have been valued at US$260 billion,
compared to $66 billion at the current exchange rate of Rp
10,000!
The central bank, Bank Indonesia (BI), was assigned to provide
liquidity relief to ailing banks. On Jan. 27 1998, to reassure
creditors including the International Monetary Fund, the
Indonesian Debt Restructuring Agency (IBRA) was set up, under the
auspices of the finance ministry, to take over the responsibility
of not only recovering BI liquidity credits, but also to help
conglomerates get back on their feet.
The instrumental role IBRA has in economic and financial
rehabilitation should therefore not be underestimated. How IBRA
navigates through the confusion of circumstance and interest will
undoubtedly have a lasting impact on the direction, as well as
the promise, of Indonesia's future.
Kwik Kian Gie, President Abdurrahman Wahid's first
coordinating minister for the economy, expressed a preference for
the sale of the assets to domestic buyers, but made it clear that
he would accept foreign investors if necessary so long as it was
not at "fire sale" prices.
The return to the government in dollars will depend, among
other things, on the exchange rate and how many of the assets are
released at any one time. Given the state of the economy over the
past three years, it is not surprising that few domestic buyers
have shown interest; but given the expectation of bargain prices
for the assets it is surprising that foreign investors have not
been overactive in the market.
On the government's side, are we witnessing a shadow play
where the actors are merely saying their lines but are determined
to do nothing? Saying nothing implies an attempt to protect the
status quo, playing a waiting game, giving the previous owners
time to recover from the crisis prior to regaining their rightful
place in the economy.
The alternatives facing IBRA include:
1. A sale to all comers with the likelihood that most of the
assets would be sold to multinationals, possibly at "fire sale"
prices.
Asingisasi, a term recently coined by economist Didik Rachbini
to refer to the possible sale of the companies to foreigners,
has, for some, become a fundamental life line for national debt
restructuring as well as the rejuvenation of the banking system
and real sectors.
Asingisasi infers that foreign parties (business consortiums
or multinational enterprises) are ready to move in to buy up
Indonesia's undervalued productive assets at cheap prices.
There has also been a concern that high-paid foreign
consultants employed by IBRA control banks are conspiring with
foreign investors in order to facilitate asingisasi. Some
estimate that foreign presence in the economy could increase to
25 percent.
The idea of selling off assets quickly is supported by the IMF
and reformist elements in the government. The increased financial
contribution from IBRA revenues could in turn be channeled into
the national budget, thereby reducing the budget deficit.
But there is a concern, not so much of nationalistic character
but more of commercial common sense, that foreign investors
should not be allowed to come into Indonesia and make a killing
on the procurement of companies and assets, while also increasing
their share in the Indonesian economy.
2. A deal which would enable most of the assets to be returned
to their original owners.
3. Sale to a new group of business actors.
4. Retention of the assets by the state
5. A state endorsed rise of "indigenous" (pribumi) businesspeople
under the banner of economic nationalism, first vis-a-vis the
multinationals and second vis-a-vis the Chinese-Indonesian
business circles who dominate the conglomerates.
6. As put forward by the government of former president B.J.
Habibie, the idea of using IBRA as a means of asset
redistribution for the betterment of the "people's economy".
It can be assumed that the constellation of political forces
is such that the choice will be between the first and second
options, or a combination of the two. Though lip service will be
paid to the sixth option, a common feature of all governments
since independence.
The authors can be reached at jeremypm@hotmail.com and
k.thomas@latrobe.edu.au.