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.