Suharto Inc

The global business empire of Indonesia’s first family and friends represent an intricate web of connections and concessions. A look at how being in with President Soeharto can pay off.

April 6, 1998

Former Prime Minister Paul Keating, in a speech delivered at the University of NSW a few weeks ago, rightfully criticized the inaccurate view that had taken hold in some quarters in Europe and America that the Soeharto regime in Indonesiashould be mentioned in the same breath as the late dictators Ferdinand Marcos of the Philippines and Mobutu Sese Seko of Zaire.

The family of President Soeharto has not kepts its billions of dollars in Swiss bank accounts. Or at least, not that anyone knows. Nor have the Soehartos bought luxurious properties abroad — except perhaps Tommy Soeharto’s multi-million-dollar hunting resort and lodge in New Zealand’s Southern Alps.

Utilizing the expertise of many Western and Asian bankers and business consultants, the Soehartos have instead built global business empires from the wealth generated from their business ventures at home, ventures often assisted by government contracts and concessions.

One of their most important business investments is in the First Pacific Group, set up in Hong Kong 12 years ago. The Soeharto family are represented in this giant conglomerate through Predsident Soeharto’s cousin, Sudwikatmono, who grew up with Soeharto in the village of Wuryantoro in Central Java.

While Sudwikatmono is only a minor shareholder in the group’s main company, its huge profits topping US$ 152 million, before the crash at least, meant it was still worth a lot of money.

First Pacific’s main shareholder is Liem Sioe Liong, the Soeharto family’s oldest business partner, whose friendship with the President goest back to Soeharto’s early army days in the 1950s. Liem heads the Salim Group, the largest private conglomerate in Indonesia and Soeharto’s cousin, Sudwikatmono, is also heavily involved. One of Salim’s most important arms is Bank Central Asia, the largest private bank in the country, which is one-third owned by Soeharto’s eldest daughter, Tutut or Siti Hardiyanti Rukmana, and her younger brother Sigit Harjojudanto. The Liem family has just under one quarter.

Back to First Pacific. Thanks to its Filipino managing director, Manuel Pangilinan, the group aggressively invested into the Philippines, buying among others a local icon, Tanduy Distillery. As well, First Pacific also opened a string of companies in the Philippines, while a First Pacific-led consortium of 20 regional business giants is transforming Fort Bonifacio, an old Spanish monument in the heart of Manila, into a US$ 2.4 billion ($ 3.6 billion) shopping, office, and residential block.

First Pacific employs more than 45,000 people in 40 countries, including Australia. Here FPD, First Pacific Davis, the real estate and property consultancy firm, has signs sprouting on top of high rise buildings.

After accumulating their wealth from shares in Salim and other businesses, Tutut, Bambang, and Tommy, three of Soeharto’s six children, began to set up their foreign business beach heads.

Benefitting from her father’s profile on the world stage, especially in other developing countries, Tutut has taken a big stake in companies building and operating toll roads in Malaysia, the Philippines, Burma, and China. These roads will often not be transferred to the host countries for up to 25 years.

Meanwhile, Bambang has linked up with companies in Manila and Sydney to build water supply projects and power plants in the Philippines, Indonesia and China. More adventurously, he has also joined up with the Sydney-based Canadian mining magnate Robert Friedland in gold mining in Vietnam, Burma and Khazakstan.

Bambang and his younger brother Tommy are also expanding their Singapore-based oil and gas tanker fleets, serving the South Korean, Taiwanese and Arabic markets.

Oil is not a new business field for the Soehartos. Since the mid 1980s, the President’s cousin, Sudwikatmono, along with Bambang, Tommy, and one of their cronies, the Bakrie brothers, have sold crude oil and natural gas from their Hong Kong based companies. They were the only Indonesians excempted from Indonesian law, which designated the state’s oil mining company, Pertamina, as the monopoly exporter of oil and gas.

Another important business ally to the Soeharto sons, Tommy, Sigit, and Bambang, is Bob Hasan, the man just appointed Indonesia’s minister for trade and industry. Hasan is a long-time friend of the President. His chief business, the Nusamba group, is 80 per cent owned by three foundations chaired by the President. The other shares are owned by Hasan and Sigit. Hasan’s fortune revolves around his monopoly on the country’s plywood business and he holds some five million hectares of forest concessions from the Indonesian Government.

When the IMF moved into Indonesia during the crisis, one of its demands was an end to the plywood monopoly. While Soeharto initially agreed, since Bob Hasan has been appointed to the Cabinet he has publicly defended Indonesia’s monopoly of trade and so far his own plywood interests remain intract.

President Soeharto’s in-laws have also flourished under the regime, especially the in-laws of Titiek, Soeharto’s middle daughter, the Djojohadikusumos. Financed by their banking empire, which grew apace in the last five years under the eyes of Titiek’s brother-in-law, the former Central Bank governor Dr. Soedradjad Djiwandono, the joint Djojohadikusumo-Soeharto companies have also expanded globally. Their tentacles reach from a million-hectare timber concession in Cambodia to cotton plantations and a textile mill in Uzbekistan. The Cambodian concession was revoked by Pnom Penh last January in retaliation against the cancellation of Cambodia’s entry into ASEAN.

A business partner of Titiek, the Indonesian textile magnate Marimutu Sinivasan, is planning to build five textile and polyester factories in Europe through a joint venture with the German chemical giant Hoechst.

While the Soeharto kids trot the globe, uncle Sudwikatmono and Soeharto’s oldest business operator, Liem Sioe Liong, expanded their own “gold mine”: PT Bogasari Flour Mills and the instant noodle factories under the umbrella of PT Indofood.

The flour mills in Jakarta and Surabaya were initially set up in the early 1970s to mill all American wheat imported under the “food for peace” arrangement with the United States. Since 1977, its majority shareholder is Christine Arifin, whose husband, Bustanil Arifin, a retired general, was the head of the national food trade regulator, BULOG. Besides, Mrs. Arifin is a relative of the late Mrs. Tien Soeharto, and the Arifins sit on the boards of several Soeharto-led foundations.

For a quarter of a century, Bogasari monopolized much of Indonesia’s wheat import, flour milling, and the instant noodle marketa. Two other flour milling companies in Indonesia are owned by a Soeharto foundation and his daughter Tutut.

Under this monopoly, Indonesia’s wheat imports grew from less than a half a million tons in 1974 to more than four million tons in 1996. Australia is the leading supplier of this wheat.

Having control over the bulk of the flour milled, the Liem’s Salim group took over 22 instant noodle factories all over Indonesia, merging them under the umbrella of PT Indofood.

This wheat cartel generates lucrative profits to Bogasari and Indofood shareholders, who include foundations linked to the first family. It operates without the transparancy demanded from public and state-owned companies. As well, Bogasari charges a high price for milling the wheat compared with the costs in other countries.

President Soeharto agreed with the IMF last January to abolish this monopoly. However, as Vice President B.J. Habibie admitted last month, this is one point in the IMF agreement which the Indonesian Government feels it will be difficult to fulfill. The other is abolishing son Tommy’s clove monopoly.

With high flour prices, Indofood has pushed nearly all of its competitors out of the market. Consequently, it currently controls 90 per cent of Indonesia’s domestic instant noodle market.

Indonesia’s high wheat import bill has also helped increase the country is import bill for cereals to ore than US$ 1 billion. This dependence on imported foodstuff has reached disturbing levels over the past three years as wheat noodles edge out rice as a source of carbohydrate for more and more Indonesians, draining the country’s foreign exchange.

Indofood has further aggravated this problem by investing in overseas companies, rather than increasing instant noodle export from Indonesia. During the last five years, Indofood bought stakes in existing flour mills and prepackaged food companies in Malaysia and the Philippines, and set up a joint venture in Arab Saudi to produce instant noodles for the Arab consumers.

John Howard’s recent $ 380 million special trade credit insurance to help Australian wheat exporters to Indonesia compete with US and Canadian competitors, will certainly be very warmly welcomed by the Bulog-Bogasari-Indofood wheat cartel and certainly be very welcomed by the Liem conglomerate.

But many critical voices are now being raisxed against Indonesia’s wheat cartel. They include the IMF and the World Bank, but there are also voices inside Indonesia. Dr Saleh Affif, the former head of the National Planning Board, lost his job due to his public opposition to this powerful cartel. He is only one of many Indonesian economists, who have criticized it in past decades.

The combined domestic and overseas assets of the Soehartos and their close friends make them some of the richest families in Indonesia. This certainly differentiates them from the Marcoses and the Mobutus, who were only building up their Swiss bank accounts and luxurious villas overseas.

Protected by host countries’ as well as international laws, the Soeharto children and grandchildren may continue to collect their rents from overseas toll roads, tanker fleets and real estate companies and global investments long after their father has ceased ruling Indonesia.

George Junus Aditjondro
Dept. of Sociology and Anthropology, University of Newcastle, Australia

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