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Cover Story Old Dogs Learning New Tricks
Ten years have passed since reformasi (reforms) began. Much has changed. The president and local leaders are now elected directly by the people. Autonomy laws have enabled provinces to manage their own affairs. Local political stages are filled with newcomers. Their backgrounds are diverse: business owners, local politicians and even entertainers.
Business goes on as usual, but liberalization and deregulation has made competition increasingly open. At center stage, we still encounter old players. Like surfers, they are skilled at keeping their balance—perhaps even by using old tricks, which they should have left behind. They are the ones who are presently reaping the rewards of the reform era. Without fail, the old players still hold the keys. As it turns out, the one or two new players have their roots in the past as well.
Where is Liem Sioe Liong these days? The last time people talked about Liem, once the richest Indonesian, was after one unfortunate afternoon in May 1998. His home in Gunung Sahari, Jakarta, was burnt down by a mob. A large photo of him was dragged out to the street, where people threw rocks at it and jumped up and down over it. Since then, Liem, who owns Indonesia’s largest flour mill Bogasari and Indofood, the country’s biggest instant noodle company, has severed ties with Indonesia. This close friend of former president Suharto and icon of the era of tycoons during the New Order period, decided to live in Singapore.
Once in a while, he visits the office of the Salim Group in Singapore. He may be 93 years old, but he still manages to retain his enthusiasm. “He still likes to come around and chat, sometimes to hear the latest rumors about the Salim Group,” said Fransiscus Welirang, his son-in-law. Liem turned over the business reins to Anthony Salim, his youngest son, in 1998.
Ten years have passed since then, but the makeup of economic power in Indonesia has not changed much. Salim has regained his former glory thanks to the work of his son Anthony, his successor. After laying low during the economic crisis because of unpaid debts, this company, which was once the largest in Indonesia, acquired the oil palm company London Sumatera Plantations worth Rp8.4 trillion. Salim is currently building a sugar factory in Ogan Komering Ulu, South Sumatra, at a cost of Rp2 trillion. With this major investment, said Fransiscus, “We are running in second gear”.
Expansion has been “daily fare” for Indonesian tycoons of late. Acquisitions are no longer big news. This means that their strategy to grow and develop is being carried out. This is a period exactly the opposite of what happened when the economic crisis hit Indonesia in July 1997, when business people adopted a defensive strategy. They eliminated any unprofitable side businesses. The downfall of a number of major business groups during the crisis is buried in the past.
That was the Indonesian “miracle.” Indonesia felt the impact of the monetary crisis much deeper than Thailand or South Korea. The crisis had been raging for a year, and the exchange rate of the rupiah against the dollar had fallen by 80 percent. Inflation was up 86 percent. The economy had declined 13 percent—the worst level since the New Order period.
It was a time when the State Budget and the business community virtually collapsed, due to massive debts. Others were taken over by the government when their ownership in a number of banks fell as well. Defaults on loans to government banks amounted to nearly Rp300 trillion. The Bank of Indonesia Liquidity Assistance (BLBI) Fund dispensed up to Rp140 trillion to rescue banks, which had been undermined by their owners.
Defaulted loans were piled onto the Indonesian Bank Restructuring Agency (IBRA). All sorts of worthless assets were handed over by bank owners in exchange for liquidity assistance. As of February 2004, when IBRA was closed, these assets could only be sold at 29 percent of the government’s estimated purchase price. The remaining losses had to be covered by the state budget. Who knows how long it will be before those Rp600 trillion economic rescue funds no longer weigh down the state budget.
There was a major drain on the state budget, but the finances of many business people recovered quickly. At the time of IBRA’s closure, business people who had fallen were now rising from the grave. They only needed four years to return to their previous glory. To be sure, political conditions had an impact on their recovery.
The downfall of Suharto on May 21, 1998 created some shockwaves, but politics quickly found an equilibrium. The democratization of politics was followed by significant improvements in the economy. Growth continues, although not as good as it had been before the crisis. The exchange rate and inflation was only in the single digits. Per capita income was higher than it had been in 1998.
The best achievement in the economic field was the elimination of a number of concessions and monopolies, whether this was done by the private sector or state-owned companies. Many sectors were deregulated and decentralized. New laws and institutions were formed to guarantee more open and healthy competition. Regional autonomy also created opportunities for business owners to expand their wings.
Amid these major changes, the old business entities were like surfers riding out the next wave. They were the ones who benefited most from the post-reform period.
It is interesting to watch business tycoons such as Salim (Liem Sioe Liong), Sinar Mas (Eka Tjipta Widjaja), Djarum (Hartono family), Radja Garuda Mas (Sukanto Tanoto), and Bakrie (Bakrie family) pass by in their signature.
Very few new faces were willing to go up against the old-timers. Only a few new names stood out–and even these were not wholly new, but had roots in the past. Take for instance the Katuari family (Wings), Arifin Panigoro (Medco Energi), Hary Tanoesoedibjo (Bhakti Investama), Chairul Tanjung (Para-Mega Group), or Trihatma Haliman (Agung Podomoro).
The constellation of Indonesian business owners has not changed much. What has changed is how they rank in the number of their assets and wealth. In the past, the Salim Group was always the champion, followed by Eka Tjipta Widjaja. However, in the new era, Putera Sampoerna and the Hartono family, as well as Sukanto, have taken turns being in the lead. However, there was an audible shock last year when Forbes Magazine named Aburizal Bakrie the richest person in Indonesia. During the New Order period, Aburizal was not yet among those at the top.
The business structure of the conglomerates has also changed. In the past they operated over a wide range of businesses, while controlling their operations from top to bottom. The Salim Group, for instance, was working in almost every sector: food, the automotive industry, cement, property, petrochemicals, banking, and television.
This pattern continues to be used by other tycoons. Sinar Mas, for instance, still operates in many areas: property, paper, palm oil and cooking oil, finance, and telecommunication. Bakrie operates in the fields of pipe, coal, oil and gas, property, telecommunication and media.
However, some have applied a new pattern: concentrating on certain sectors. The Salim Group is an example of this. Although still in control of its shares in banks, the automotive industry and cement production, they are concentrating their business in the food and agriculture industries. This is where they are carrying out their business expansion. The Sampoerna and Astra International business groups are entering the market with this new pattern.
The challengers are also focusing on a number of concentrated efforts. Trihatma, for instance, is focusing on the property business. Medco has consistently gone with energy interests. Harry Tanoe is concentrating on the media and telecommunication business. It seems that they are learning from the past. “It takes an incredible amount of resources to keep using the old strategy,” said Fransiscus Welirang.
Even with this new pattern, the scale of their enterprises could not be called small. Bimantara, which has changed its name to Global Mediacom, has expanded into in many sectors and has 120 subsidiaries. It has over Rp4 trillion in assets. After deciding to focus, the value of their assets increased by four fold.
There has been some innovation–perhaps emulating the business style of capitalist countries. Young entrepreneurs like Sandiaga Uno or Patrick Waluyo diligently hunt down companies in trouble. They utilize large amounts of funds from abroad. After making improvements, they sell the company for a profit.
Two senior businessmen, Putera Sampoerna and Peter Sondakh (Rajawali) have followed another route. They sold their core businesses and invested the proceeds in more promising fields. Sampoerna sold HM Sampoerna, and Peter parted with Excelcomindo. In this way, the two had large amounts of funds available for buying up other enterprises. Sampoerna purchased the second largest timber company in the world, Samko Timber, and Peter bought stock in Indonesia’s largest cement company, Semen Gresik.
Not everyone had it so good. Many fell by the wayside. Texmaco owner Marimutu Sinivasan, the owner of the Texmaco Group who turned himself in to authorities last week, was overtaken by a debt of Rp29 trillion. The Djajanti Group, which was once a giant in the timber industry, was unable to stay in business because it had unpaid debts of Rp1 trillion to Bank Mandiri, and additional unpaid taxes of almost Rp400 billion. Still many others did not fare well.
Changes in the business world in Indonesia also attracted some foreign companies. Temasek (Singapore) and Khazanah (Malaysia) bought up a number of assets from IBRA, including those in the banking, telecommunication and plantation sectors. Oil companies such as Shell and Petronas have also come on the scene, taking advantage of the deregulation on downstream retail businesses.
We intentionally chose this topic to avoid a sense of repetitiousness: reformasi is almost always written from the political perspective. Hence, the topic of business tycoons was selected for Tempo’s special edition on 10-Years of Reforms, as a kind of review of the nation’s economy. The portrait we present here might not be sufficiently comprehensive, but we hope to provide, at the very least, the big picture on changes that have taken place in the economic field since the financial crisis and the reform program began. Some tycoons were contacted, but most of them stuck to their old style and kept to themselves. Anthony, Sukanto and the Katuari family refused to be interviewed. Fortunately, Arifin Panigoro, Anindya Bakrie and Harry Tanoe were willing to share their stories. We did not know where to find many of the old players, so we were unable to track them down. We also covered Singapore and Malaysia, sending reporter Kurie Suditomo to Singapore and reporter Adek Media Roza to Malaysia. We wanted them to take the pulse of large companies which have expanded their wings to Indonesia. Kurie was given an additional assignment: checking up on business tycoons from the New Order period who are currently residing in Singapore. Even though this country is smaller than Jakarta, it turns out that it was not easy to find them, some of them presumably going incognito. After all of the material was gathered, our writers and editors went all-out, working in total football style. We were unable to cover all of the business personages. This was not intentional, but more because such an effort would have required volumes of pages.
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