Andreas Harsono, Jakarta – The heyday of Indonesian conglomerates is apparently over. The meltdown of the rupiah, which painfully inflated their foreign debt, widespread anti-Chinese riots and a new bankruptcy law have forced the big corporations into a life-and-death fight for survival.
Take, for example, automaker PT Astra International – ranked 16th in 1997 and 39th in 1998 on Asian Business' list of Asia's Most Admired Companies – which stopped its production line in June. No more cars are coming out of Astra factories.
P.T. Astra'ss auto division, which assembles Toyota, Daihatsu, Isuzu, BMW, Peugeot and Nissan automobiles, sold only 15,134 vehicles during this year's first quarter, down 64 percent from 41,602 in the same period of 1997.
Newly-appointed CEO Rini M. Soewandi not only halted production but also introduced cost-cutting measures, including mass dismissals, and is seeking new export opportunities to offset the declines in Astra's domestic market. "We will boost exports of engines, car components and the new Toyota Kijang model to neighboring countries like Malaysia and the Philippines," Soewandi says.
She has good reason to take such measures. Astra's total assets have shrank 81 percent, from around seven trillion rupiah in May 1997 to only 1.3 trillion rupiah in May of this year (around US$156 million). Meanwhile, its total consolidated foreign debt is US$2 billion as of March 1998, 30 percent of which is unhedged.
Astra is a troubling example of how the survival of Indonesia's conglomerates are threatened by the on-going economic crisis. "The days of the conglomerates are going to end – not for political reasons, but economic and business reasons," says Patrick Alexander, the managing director of the Jakarta-based Batavia Investment Management Ltd.
Conglomerates such as the Gajah Tunggal group, owned by an Indonesian Chinese tycoon, Sjamsul Nursalim – whose many subsidiaries include PT Bank Dagang Nasional Indonesia (BDNI), once the third largest private bank in Indonesia, are technically bankrupt-- and are very likely to be closed down. Other large firms may have competitive management and products, such as the Ciputra group, a leading property player, but are being squeezed because their foreign debt burden is too high or their access to their banks has been interrupted. They are very likely to downsize, sell their subsidiaries or declare bankruptcy.
But politics has indeed influenced Indonesia's largest conglomerate, the Salim group, as well as other so-called "presidential companies" that are closely associated with former president Suharto and his children. Salim founder Sudono Salim, a.k.a. Liem Sioe Liong, has been a close friend and main financial backer of Suharto since the 1950's. When Suharto rose to power in 1965, Liem cooperated with Suharto and built his own business empire, securing a monopoly on wheat distribution and ganing easy access to various state-owned banks.
His businesses range from cement manufacturer Indocement to the world's biggest noodle producer, Indofood. Liem also controls Bank Central Asia, Indonesia's biggest private bank, whose shareholders include Suharto's eldest daughter Tutut and eldest son Sigit.
A few days after strongman Suharto announced his resignation on May 21, executives of state-owned companies, independent economists and opposition leaders began pressuring the Habibie government to review various business contracts, tax break, monopolies and other choice deals given to the companies. Farmers even reclaimed lands, including golf courses, once taken over by the Suhartos.
"The government should directly take over various assets which were created through the practice of collusion, corruption and nepotism during the Suharto era," says economist Arif Arryman, the managing director of the Econit consultancy group, warning that such seizures should not be made through court proceedings, which he said would be impractical and time consuming, but via parliamentary fiat.
"Just look at the [former Philippine president Ferdinand] Marcos case. It took a decade just to trace his fortune. How much money did they get?" asks Arryman, predicting that the Indonesian government could get at least $5 billion by seizing groups controlled by Suharto's six children.
Many analysts also see the crisis as a chance to balance the distribution of wealth between Indonesians of Chinese descent ("non-pribumi") and those of Malay descent ("pribumi"). Arryman estimates that 80 percent of Indonesia's economy is controlled by the biggest 20 conglomerates.
"Many of them are non-pribumi but there are also pribumis who are Suharto's cronies," says Arryman. The French-educated economist even launched a proposal in July to "redistribute" the financially-troubled conglomerates from Chinese owners to new government-appointed pribumi entreprenuers – a move similar to Malaysian Mahathir Muhammad's affirmative action in the 1980s and Adolf Hitler's seizure of Jewish firms in Germany of the 1930's. Pribumi, which literally translates as "indigenous," is a term popularly used here to refer to Malayan Indonesians. Non-pribumi means the Indonesians of Chinese descent, who were widely victimized during a massive riots that broke out in Jakarta on May 14-16.
Hundreds, if not thousands, of Chinese-owned properties were looted and burned down. Women's groups reported that more than 100 Chinese women were brutally gang raped in an apparent bid to fan anti-Chinese sentiment, and later reports suggest that as many as 40 suicides resulted. Another result is widespread fear among the Chinese, including Chinese tycoons like Liem, about trying to reconstruct their businesses.
Many middle-class Chinese fled from Indonesia to find safety in countries like Canada, Australia, the United Stated and Singapore, prompting allegations that they had taken their money away from Indonesia and abandoned their retail businesses.
"In my personal opinion, if those tycoons want to come back to Indonesia, please come back as genuine nationalists. They should bring back their money. If they don't want to, I think, it is better for them not to return to Indonesia," says Achmad Tirtosudiro, the acting president of the influential Association of Indonesian Muslim Intellectuals.
Tirtosudiro, who is a close associate of Suharto's successor, President B.J. Habibie, is not alone. He voices the anti-Chinese sentiment frequently aired in Indonesian media. It was probably a coincidence that Liem himself was in Los Angeles for an eye operation when the May riots were taking place. He has not returned to Indonesia since then.
Aburizal Bakrie, the president of the Indonesian Chamber of Commerce and Industry who is also the head of the widely-diversified Bakrie Brothers, proposed that the government to set up an "alternative distribution network" of pribumis to replace the Chinese-controlled retail network.
"Ethnic Chinese entrepreneurs are still reluctant to start their businesses again because they are still traumatized," says Sofyan Wanandi, an outspoken Chinese-Indonesian who heads the Gemala group, adding that political uncertainty has prompted most businessmen to adopt a wait-and-see stance.
But other analysts note that a new bankcrupcy bill is also another threat to the existence of the conglomerates. Just as in some other southeast Asian countries, inadequate bankruptcy procedures in Indonesia are a major stumbling block, because they reduce pressure on companies to bring in new investors.
"Some of the corporates that owe us money from around the region, particularly Indonesia, really don't want to talk to us at all," says Simon Copley of the Peregrine Fixed Income Ltd. – the unit which took center stage in the fall of the Peregrine group, the largest non-Asian investment bank in the region.
The new bankruptcy legislation, which becomes effective Aug. 20, aims to to force troubled borrowers to negotiate with their bankers. According to the new code, two banks may issue a petition sufficient to bring the borrower to a business-oriented court of trade.
"But it doesn't mean everybody will go bankrupt. Companies like Astra, despite their debt, have a good network, spare parts and human resources. Bankers prefer to wait rather than to issue a petition. They will be fine," says Alexander.