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PRESIDENT SUHARTO
2nd President Republic of Indonesia

 March 1967 - May 1998

 

 

 

THE SUHARTO YEARS 

Overview

Presidency

Gestapu

Development

 

 

 

 

US Relations

Family

Fall of Suharto

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DEVELOPMENT PROJECTS IN THE SUHARTO YEARS

 

 

 

CORRUPTION
WHO ARE THE PARTNERS IN CORRUPTION???

 

 

 

 

 

 

 

THE WEALTH OF SUHARTO AND FAMILY

 

 

 

 

Suharto Inc: A Talent For Business

The Suharto family's acquired assets

 

 

 

 

THIS IS NOT A ONE-WAY STREET
WHO ARE THE PARTNERS IN CORRUPTION???

 

 

 

The Family Firm

A TIME investigation into the wealth of Indonesia's Suharto and his children uncovers a $15 billion fortune in cash, property, art, jewelry and jets
By JOHN COLMEY and DAVID LIEBHOLD Jakarta

 

 

ALL IN THE FAMILY
May 24, 1999

When the end came for Suharto, Indonesia's long-serving President appeared oddly passive. As students and angry mobs took to the streets and soldiers responded with gunfire and tear gas, the five-star general hovered in the background, making few attempts to set things right. When he finally quit a year ago this week, he stood meekly to the side as his successor, B.J. Habibie, took the oath of office. Suharto has hardly been heard from since.

But Indonesia's onetime autocrat has been far busier than most of his countrymen realize. Just after his fall from power there began feverish movements of his personal fortune. In July 1998, reports emerged that a staggering sum of money linked to Indonesia had been shifted from a bank in Switzerland to another in Austria, now considered a safer haven for hush-hush deposits. The transfer caught the attention of the United States Treasury, which tracks such movements, and set in motion diplomatic inquiries in Vienna. Now, as part of a four-month investigation that covered 11 countries, TIME has learned that $9 billion of Suharto money was transferred from Switzerland to a nominee bank account in Austria. Not bad for a man whose presidential salary was $1,764 a month when he left office. (Suharto, for his part, denies that he has any bank deposits abroad and insists that his wealth amounts to a mere 19 hectares of land in Indonesia, plus $2.4 million in savings.)

Those billions are just part of the Suharto wealth. Though the Asian financial crisis has trimmed the family empire considerably, the former President and his children retain a staggering fortune. It was built over three decades from a skein of companies, monopolies and control over vast sectors of economic activity in Indonesia--from oil exports to humble pilgrims making the yearly visit to Mecca. (They flew on planes leased from companies controlled by Suharto's children.) According to data from the National Land Agency and Properti Indonesia magazine, the Suharto family on its own or through corporate entities controls some 3.6 million hectares of real estate in Indonesia, an area larger than Belgium. That includes 100,000 sq m of prime office space in Jakarta and nearly 40% of the entire province of East Timor.

Within Indonesia, the six Suharto offspring have significant equity in at least 564 companies, and their overseas interests include hundreds of other firms, scattered from the U.S. to Uzbekistan, the Netherlands, Nigeria and Vanuatu. The Suhartos also possess plenty of the trappings of wealth. In addition to a $4 million hunting ranch in New Zealand and a half-share in a $4 million yacht moored outside Darwin, Australia, youngest son Hutomo Mandala Putra (nicknamed Tommy) owns a 75% stake in an 18-hole golf course with 22 luxury apartments in Ascot, England. Bambang Trihatmodjo, Suharto's second son, has an $8 million penthouse in Singapore and a $12 million mansion in an exclusive neighborhood of Los Angeles, two doors down from rock star Rod Stewart and just up the street from his brother Sigit Harjoyudanto's $9 million home. Eldest daughter Siti Hardiyanti Rukmana may have sold her Boeing 747-200 jumbo jet, but the family's fleet of planes included, at least until recently, a DC-10, a blue-and-red Boeing 737, a Canadian Challenger 601 and a BAC-111. The latter once belonged to the Royal Squadron of Britain's Queen Elizabeth II, according to Dudi Sudibyo, managing editor of Indonesia's Angkasa aerospace magazine.

Neither Suharto nor his six children responded to requests for interviews, though lawyers for the former President and son Bambang asserted that their clients did nothing illegal. Indeed, no one has proven that the Suhartos broke any laws. Their companies mostly consist of operating entities that turn profits, create jobs and import Western technology. Yet allegations that the former First Family benefited from favoritism, commonly heard in Indonesia since the early 1980s, began to grow louder when the former President resigned. His successor quickly announced an official investigation into such charges. Tommy, the youngest son whose corporate empire at one point included the Lamborghini sports car company, is already in legal jeopardy, facing charges of defrauding a state agency of $11 million in a real estate deal. The South Jakarta district court recently rejected a plea from Tommy's lawyers that he be tried in a civil court and is proceeding with a criminal trial.

In an interview at the State Palace, Habibie told TIME he will not cover up for his former mentor, but he has so far declined to freeze the family's holdings or to follow up on the investigation in any meaningful way. Private asset-tracing firms are excited at the prospect of a Suharto treasure hunt, if only Jakarta would hire them. "In terms of dollars, we think this could be bigger than anything we have ever seen before," says Stephen Vickers, Asia chief for Kroll Associates, which helped investigate the wealth of the Philippines' former President Ferdinand Marcos. "My bags are packed."

The search won't start in earnest unless the man in charge of the government's investigation, Attorney General Andi Muhammad Ghalib, gives the go-ahead. Ghalib, a three-star general in the Indonesian military, told TIME that he has found no evidence that his former supreme commander wrongly acquired state assets. But Ghalib has been moving slowly, and some of his own staff members are not convinced the investigation is serious. In the opinion of an official in the Attorney General's office, "Ghalib is on a mission to protect Suharto."

Nonetheless, the code of secrecy shielding the family is breaking down. After hundreds of interviews with former and current Suharto friends and government officials, business associates, lawyers, accountants, bankers and relatives, as well as examinations of dozens of documents (including bank records of outstanding loans), TIME correspondents found indications that at least $73 billion passed through the family's hands between 1966 and last year. Much of that was from the mining, timber, commodities and petroleum industries. Bad investments and Indonesia's financial crisis have reduced the sum substantially. But evidence indicates that Suharto and his six children still have a conservatively estimated $15 billion in cash, shares, corporate assets, real estate, jewelry and fine art--including works by Indonesian masters Affandi and Basoeki Abdullah in the collection of Siti Hediati Hariyadi, the middle daughter known as "Titiek."

Suharto laid the foundation for the family fortune by establishing the intricate nationwide system of patronage that kept him in power for 32 years. His children, in turn, parlayed their ties to the President into the role of middlemen for government purchases and sales of oil products, plastics, arms, airplane parts and petrochemicals. They held monopolies on the distribution and import of major commodities. They obtained low-interest loans by colluding with or even strong-arming bankers, who were often afraid to ask for repayment. Subarjo Joyosumarto, managing director of Bank Indonesia, the central bank, confirms that during the time of Suharto, "there was an environment that made it difficult for the state banks to refuse them."

While the Indonesian economy was growing fast, it was possible to make light of the Suhartos' rent-seeking ways. Now, with half the population below the poverty line as a result of the financial crash, there is little doubt that the family grew wealthy at the expense of the nation. A former business associate of the children estimates that they skipped tax payments of between $2.5 billion and $10 billion on commissions alone. "It is very likely that none of the Suharto companies has ever paid more than 10% of its real tax obligations," says Teten Masduki, an executive member of Indonesian Corruption Watch, an anti-graft non-governmental organization. "Can you imagine how much revenue has been forgone?"

Many Indonesians also blame Suharto for creating a climate of corruption that pervaded the entire economy. The World Bank estimates that as much as 30% of Indonesia's development budget over two decades disappeared through civil-service-wide corruption that filtered down from the top. "If you don't pay bribes, people think you're odd," says Edwin Soeryadjaya, a director of an Indonesian-U.S. telecommunications joint venture. "It's very sad. I cannot say that I'm proud to be an Indonesian. This is one of the most corrupt countries in the world."

 

GREAT EXPECTATIONS
How did Suharto Inc. attain its wealth, its power and its hold over the imaginations of millions of Indonesians? When Suharto became acting President of Indonesia in 1967, his unique blend of forcefulness and Javanese political subtlety was already manifest. The ousting of "President for Life" Sukarno, the nationalist founder of the country, took two years and, through an accompanying anti-communist purge, claimed as many as 500,000 lives. But Suharto, an obscure general from a hardscrabble village in central Java, led an outwardly modest life. He and his late wife Siti Hartinah ("Madam Tien") initially lived in a simple bungalow in the Menteng district of Jakarta and drove a 1964 Ford Galaxy. That was in marked contrast to Sukarno, the self-styled "God-King," with his grand presidential palace and his glamorous third wife Dewi, a former Japanese hostess at Tokyo's Copacabana nightclub.

Behind the facade, however, Suharto showed an early interest in making money. In the 1950s, he was allegedly involved in sugar smuggling and other extra-military activities in Central Java that may have cost him command of the Army's Diponegoro Division during a 1959 anti-corruption drive. In his autobiography, Suharto asserts that he bartered sugar for rice to ease a local food shortage and that he did not benefit personally. In any case, the military transferred Suharto to a less influential position at the army staff college in Bandung, West Java.

In 1966, Suharto Inc. began to take shape. Before being officially named President, Suharto issued Decree No. 8 to seize two Sukarno-controlled conglomerates with combined assets of $2 billion. They became PT Pilot Project Berdikari, a company that Suharto placed under the management of Achmad Tirtosudiro, a former general who now heads a powerful Muslim organization founded by President Habibie. The firm was to become one of the main levers of the Suharto empire.

The President's fortunes began to soar along with those of a few close associates, most prominently Liem Sioe Liong and The Kian Seng, better known as Mohammad "Bob" Hasan. In late 1969, Suharto gave a partial monopoly--it later became total--over the import, milling and distribution of wheat and flour to PT Bogasari Flour Mills, controlled by Liem's Salim Group. Over the years Liem--known as "Uncle Liem" to the Suharto brood--and Hasan became Suharto's most trusted non-family associates and eventually amassed vast commercial empires.

The bedrock of the Suharto fortune was the presidential yayasan, or foundation. Dozens were set up, ostensibly as charities, and they have in fact funded a large number of hospitals, schools and mosques. But the foundations were also giant slush funds for the investment projects of the Suhartos and their cronies, as well as for the ex-President's political machine, Golkar. According to George Aditjondro, a sociology lecturer at Australia's University of Newcastle, they ultimately numbered 97 and were controlled by Suharto, his wife (who died in 1996), her relatives in the countryside, his cousin and half-brother, the six children, their spouses and parents, trusted military men and associates such as Habibie, Hasan and Liem. "The foundations bought stocks, built companies, lent money to businessmen," says Adnan Buyung Nasution, a lawyer who last year tried unsuccessfully to set up an independent commission on the Suharto wealth.

The foundations accepted "donations," though they were often less than voluntary. Beginning in 1978, all state-owned banks were required to give 2.5% of their profits to both the Dharmais and Supersemar foundations, according to former Attorney General Soedjono Atmonegoro. Suharto's Decree No. 92, in 1996, required that each taxpayer and company making more than $40,000 a year donate 2% of income to the Dana Sejahtera Mandiri foundation, set up to support poverty-alleviation programs (the order was rescinded last July). To this day, civil servants and members of the military donate a portion of their monthly salaries to the Amal Bakti Muslim Pancasila foundation, which was used by Suharto to win Muslim support.

While "donations" provided most of the foundations' revenue, there were other sources as well. In 1978, Suharto foundations took control of 60% of Bank Duta, a leading private bank, according to a former Bank Duta official. That share was gradually increased to 87%. The foundations invested heavily in private companies established by Suharto family members and cronies. After that, a helpful ministry or state-owned firm would award a contract or a monopoly to those companies.

Since Suharto's downfall, the foundations have been a major target of Indonesian investigators. Soon after Suharto's resignation, then-Attorney General Soedjono examined the books of the four largest yayasan. What he found was unsettling. "These foundations were set up to deliver social services," he says, "but Suharto had distributed the money to his children and friends." Soedjono discovered that one of the largest foundations, Supersemar, had dispersed 84% of its funds on unauthorized pursuits, including loans to companies owned by Suharto's children and friends. Suharto, as chairman, had to sign any check over $50,000. Soedjono submitted a preliminary report on his findings to President Habibie last June. He was fired five hours later. (The President says Soedjono was dismissed because he stepped outside the line of command on another matter.)

 

OIL AND LAND
The Suharto reach extended well beyond the foundations' interests, and few deals were more lucrative than the family's oil businesses. In his first decade in power, Suharto allowed state oil conglomerate Pertamina to be run as a private fief by its founder Ibnu Sutowo, a former general once known as the second most powerful man in Indonesia. Sutowo's plan to build a huge tanker fleet for Pertamina brought it to the brink of financial collapse in 1975. He was fired the following year, though it wasn't clear whether the cause was mismanagement or his political ambitions. Now 84, Sutowo tells TIME it was neither. He says Suharto asked him in 1976 to set up a second trading company to ship Indonesian crude oil to Japan. "He said to me, 'I want you to take $0.10 for every barrel traded by the new company,'" Sutowo recalls. "When I said no, I think he was shocked."

After Sutowo was fired, Pertamina eventually imported and exported much of its oil through Perta Oil Marketing and Permindo Oil Trading, two small companies in which Tommy and older brother Bambang acquired significant stakes in the mid-1980s. According to a senior official in Habibie's government, the firms received a commission of $0.30 to $0.35 a barrel. In the 1997-98 fiscal year, the two companies handled an average of 500,000 barrels a day, for yearly commissions of more than $50 million. Says former Mines and Energy Minister Subroto: "Pertamina could have exported directly. There was no need for these companies."

In addition, a former business associate of Tommy and Bambang says there were extra, unofficial markups on oil exports and imports that earned the firms as much as $200 million a year in the 1980s, when prices were high, and about half that in the 1990s. Suharto family companies received Pertamina's contracts for insurance, security, food supplies and other services--a total of 170 contracts in all. Last year, shortly after Suharto's fall, Pertamina canceled many of them and announced instant savings of $99 million a year. Says the former associate of the Suharto scions: "They milked Pertamina like a cow."

One major Suharto money spinner was PT Nusantara Ampera Bakti, or Nusamba, which was launched with $1.5 billion in 1981 by three of the foundations, together with Bob Hasan and Suharto's eldest son Sigit (who held 10% each). The firm became a sprawling conglomerate with more than 30 subsidiaries in finance, energy, pulp and paper, metal and automobiles. Nusamba's jewel was a 4.7% share in Freeport Indonesia, an American-controlled company that runs the world's largest gold mine in the province of Irian Jaya. In 1992 the foundations apparently transferred their 80% share to Hasan, though it is not clear how much he paid for it. So far, government investigators have not asked to see Nusamba's books. Says Otto Cornelis Kaligis, head of Suharto's eight-member legal team: "When you talk about Nusamba you have to ask Bob Hasan. In the investigation of President Suharto, the Attorney General never asked any questions about Nusamba."

The family profited not only by winning concessions from the government but occasionally by disrupting the lives of individual Indonesians who stood in the way. When Suharto wanted to build a cattle ranch getaway in West Java in 1973, he displaced the inhabitants of five villages spread over 751 hectares. According to official records, he paid a total of $5,243 in compensation. Some villagers say they got nothing. Muhammad Hasanuddin, who was a boy at the time, remembers when his family's two-hectare rice farm was lost. "We saw the fat cows, herded by dozens of men pompously riding on horseback, trampling our ruined fields. The whole family could only cry." Hasanuddin's father ended up as a pedicab driver in Jakarta.

Similar stories abound. In 1996, a company owned by Tommy forced villagers off their land in Bali to build a 650-hectare resort. The firm had a permit for only 130 hectares, which it illegally expanded, according to Sonny Qodri, chairman of Bali's Legal Aid Institute. Residents who refused to sign an agreement to sell their land were intimidated, beaten and sometimes put in a pond up to their necks. Two were brought to court and jailed for six months. Nothing remains of the project now: recession hit just as the bulldozers were moving in.

Hasan Basri Durin, chairman of the National Land Agency and Minister of Land Affairs, says the Suharto family typically paid peanuts for the property it acquired--the average was 6% of market value--and reluctant sellers often changed their minds after visits from thugs or soldiers. "Sometimes they didn't pay one cent," says Hasan. "But it's legal because they [the Suhartos] have the documents." Only about half of Indonesia's farmers hold a registered title to their land, so proving ownership can be difficult--and proving intimidation even harder. As a result, few have come forward to complain.

 

CHILDREN OF FORTUNE
For years, Indonesia's corruption was the kind of petty favor-buying and commission-giving commonly found in the developing world. Two factors pushed the country into a league of its own. The first was Indonesia's position as an up-and-coming star performer in the Asian economic miracle, which brought a cascade of funds pouring into businesses and real estate. The World Bank estimates that between 1988 and 1996, Indonesia received more than $130 billion in foreign investment. "All this has been possible under the eyes of the West, which supported Suharto for 30 years," says Carel Mohn, spokesperson for Transparency International, a non-governmental organization based in Berlin.

The second factor was "the children," as the Suharto kids are known. All six are involved in business, a calling for which they were groomed from an early age. "I remember when we were younger, me and Bambang and his other friends would go over to Uncle Liem's house," says a childhood pal of Suharto's second son. "Uncle Liem would always give us a package of money wrapped in newspaper." The package, he recalls, would contain banknotes worth $1,000 or more. Says Wati Abdulgani, a businesswoman who dealt with a family company in the 1980s: "The kids saw what was being given to their uncles and they thought, 'What about us, when we grow up?'"

Sigit, the eldest son, was apparently pushed into business by his mother, Madam Tien, whose own behind-the-scenes dealings in the 1970s earned her the nickname "Madam Tien Percent." A friend of Mrs. Suharto recalls a conversation with her at the time the government was building Jakarta's Soekarno-Hatta International Airport. "She told me, 'I want Sigit to learn about business,'" says the friend. "I told her I thought he should first finish university. She said, 'No, no, Sigit can't think straight.'" Two sources who worked on the airport project say that by the time both terminals were finished in 1984, $78.2 million had been given to Sigit in markups that appeared as cost overruns. He graduated to bigger deals. The collection of ticket proceeds from a national lottery, set up in 1988 by the Department of Social Affairs, was handled by a Sigit-linked company until Muslim leaders' anti-gambling protests forced its closure in 1993. "The gambling scheme earned Sigit and his company millions of dollars every week," says Christianto Wibisono of the Indonesian Business Data Center, which has been gathering information on Suharto-related businesses and other firms since 1980.

Second son Bambang, who founded the Bimantara Group in 1981 with two members of his former rock band, was helped in business by Uncle Liem. From 1967 until last year, the National Logistics Agency (Bulog) imported and distributed basic commodities such as wheat, sugar, soybeans and rice through Suharto-linked companies, including six belonging to Liem. At Bambang's request, Liem gave him a slice of the business. Through sugar trading alone, the son is estimated to have earned as much as $70 million a year, essentially for stamping documents. The system worked so well that each of the children was given a cut as he or she moved into business, a practice that continued until last year. From 1997 to '98, Liem had a contract from Bulog to import about 2 million tons of rice valued at $657 million. As part of that contract, Suharto's youngest daughter Siti Hutami Endang Adiningsih ("Mamiek") imported 300,000 tons of rice worth $90.3 million. Over the past 18 years, under the pretense of stabilizing food prices, the Suhartos' deals with Bulog have earned them an estimated $3 billion to $5 billion, according to a former government official.

Eldest child Tutut rose to become the queen bee of the Suharto clan. The base of her empire is Citra Lamtoro Gung Group, and its first big business was building and operating toll roads. The group's toll-road arm won its first project in 1987 after the government turned down two competing bids. Financing came from two government banks, a state-owned cement company and a Suharto foundation. When the president of state-owned Bank Bumi Daya turned down Tutut's request for an interest-free loan, he was fired. By the mid-1990s, her roads were earning $210,000 a day, and in 1995 the concession on her Intra Urban Tollway System, the most lucrative in Indonesia, was extended through the year 2024. Explains Teddy Kharsadi, director of corporate affairs at toll-road company PT Citra Marga Nusaphala: "The extension was a reasonable consequence of our investment."

Tutut's empire also includes telecommunications, banking, plantations, flour milling, construction, forestry, sugar-refining and trading. Foreign companies learned to take on a Suharto as a partner if they wanted to do business in Indonesia, and Tutut was first on most lists. "A lot of big multinationals insisted on having the right connections, and these were certainly useful to them," says Graeme Robertson, an Australian-born Indonesian citizen whose Swabara Group is active in coal and gold mining. At the peak of Tutut's power, according to sources close to the family, investors seeking to meet her first had to pay as much as $50,000 as a "consulting fee" to her minders.

In the early 1990s, Indonesia began to heed the advice of market-oriented economists to privatize many of its state firms. The First Family was a major beneficiary. Suharto ended the state telecommunications monopoly in 1993--by giving licenses for an international direct-dial operation and for Indonesia's first digital mobile phone network to Bambang's PT Satelit Palapa Indonesia (Satelindo). At the same time, state-owned PT Telkom transferred its customer base to Satelindo when it launched its own satellite, the country's third, with the help of a $120 million loan from the U.S. Export-Import Bank. TIME has learned that Jakarta gave Satelindo the licenses and Telkom's customers without a tender or payment. Thanks to the government, Bambang found himself in control of the company, which the market valued at $2.3 billion in 1995 when a subsidiary of Germany's Deutsche Telekom paid $586 million for a 25% stake. Bambang also received a major share of a $90 million facilitation fee from Deutsche Telekom as part of the sale.

TOO MUCH OF A GOOD THING
The Suharto children's interests became so extensive they started colliding with each other. Bambang and Tutut vied to set up their own television stations. Tommy competed with brother Sigit in aviation and with Bambang in shipping and car production. In 1990 the government solicited bids for a contract to provide switching equipment for 350,000 telephone lines. Japan's NEC teamed up with a company controlled by Bambang. Competitor AT&T gave Tutut a 25% share in its local venture, now called PT Lucent Technologies Indonesia. The project was ultimately split 50-50 between Tutut's AT&T group and Bambang's NEC. In 1996, Tutut came up against Sigit for rights to develop the vast Busang gold mine in East Kalimantan. Tutut's partner, Canadian company Barrick Gold, was opposed by Sigit's partner, Bre-X Minerals. This time, both sides lost; Busang turned out to be the biggest hoax in mining history.

The competition grew so intense that the Suharto progeny began seeking monopolies in ever-narrower lines of business. Bambang got a contract to import the special paper used by the national mint. Tutut took over the processing of drivers' licenses. A company owned by Sigit's wife, Elsye, became the sole authorized producer of Indonesia's mandatory identification cards. In 1996 Suharto grandson Ari Sigit devised a scheme to sell $0.25 revenue stickers as proof of tax payment for every bottle of beer and alcohol consumed in Indonesia (that business collapsed when producers stopped shipping beer to tourist mecca Bali in protest). Nine months before Suharto's resignation, Ari was gearing up to launch a "national shoe project"--all Indonesian children would have to buy school shoes from his company. "At the end," says an American lawyer with 20 years' experience in Indonesia, "the only thing that was transparent was the corruption."

When the Suharto regime fell, the children used their influence to extricate themselves from ailing businesses and debts. In April 1994, Tommy launched the Goro supermarket chain with two of his companies and the Central Village Cooperative, a large, government-run farmers' organization. Together they borrowed more than $100 million in loans, according to Bank Bumi Daya records. No repayments were ever made on the loans. On May 4, 1998, Tommy sold his shares to the farmers and their cooperative for $112 million in cash, saddling them with the entire debt. "The children were very wild," says Ibnu Hartomo, younger brother of Madam Tien. "It seems that they have forgotten about ethics." Angry mobs burned down one Goro store in south Jakarta during riots in May 1998, a week before Suharto resigned.

Though much of the Suharto fortune has been lost through mismanagement and the country's economic collapse--Tommy's PT Sempati Air, for instance, went bust in 1998--the family still has many viable businesses. One of many small examples: Sigit's PT Panutan Selaras produces 25% of the "premix" high-octane gasoline used in Indonesian cars and owns 22 filling stations in Jakarta, Surabaya and Central Java. Tommy's PT Humpuss Trading, meanwhile, is also producing the high-end gasoline.

And then there's real estate. While prices have plunged in Indonesia, the family's property holdings are today worth $1 billion, and many--including rubber and sugar plantations, malls and hotels--continue to bring in revenue. In the mid-1980s, Bambang paid the government $700 per sq m for a plot of land in central Jakarta on which now sits the Grand Hyatt Hotel, the prime asset of his publicly listed PT Plaza Indonesia Realty. In Bali, the children ended up with some of the most lucrative gems of the tourist industry: Bali Cliff Hotel (Sigit), Sheraton Nusa Indah Resort (Bambang), Sheraton Laguna Nusa Dua (Bambang), Bali Intercontinental Resort (Bambang, until two months ago), Nikko Royal Hotel (Sigit, until six months ago), the Four Seasons Resort in Jimbaran (Tommy) and the Bali Golf and Country Club in Nusa Dua (Tommy). Tutut and Tommy bought the land under Jakarta's National Police Headquarters for a fifth of its market value. Minister of Forestry Muslimin Nasution says 4.5 million hectares of forest and plantation land is connected to the Suharto children. Observes Melbourne-based economist Michael Backman, who has written about the Suhartos in his book Asian Eclipse: Exploring the Dark Side of Business in Asia: "Anyone who says the family businesses are broke has got it wrong. They still have shares in timber, oil palm plantations and hotels, all of which are big dollar earners."

THE WHEELS OF JUSTICE
Suharto continues to insist that his assets are modest and located entirely in Indonesia. "He told me, 'I don't have one cent abroad,'" says Kaligis, his top lawyer. "If anyone is found to have set up an account in his name overseas, he has instructed me to launch a lawsuit against them." Since Suharto resigned, son Bambang and his family have been spending time in Los Angeles; Titiek has been in Boston, where her son goes to high school. The rest of the Suhartos live most of the year in Indonesia. Sigit spends hours on his favorite Versace couch (no one else is allowed to sit on it), playing video games and watching tapes of Javanese shadow puppet performances.

But the wheels of justice have barely started moving. Attorney General Ghalib says Suharto has handed over to the government seven foundations with $690 million in assets. Members of Ghalib's own staff, however, say Suharto continues to control those holdings and that the foundations are worth far more than that. Three of the foundations together have an 87% stake in Bank Duta, which had assets of $1 billion in 1990. Yet in investigating the foundations, Ghalib has not gone beyond their printed records, which he has turned over to a state auditing board for analysis. Says Ghalib's predecessor Soedjono: "This investigation isn't going anywhere."

The ongoing reform of Indonesia's banking sector also seems to be helping Suharto family members and associates cover up their debt obligations. Last October, the government announced a plan to merge four state banks--with a total of $11.5 billion in nonperforming loans--into one. The six Suharto children and several companies affiliated with them are listed by the government as owing $800 million in bad debts to the four banks. The amount may well be understated: between them, Bambang and Tommy have $635 million in bad loans from just one of the four, Bank Bumi Daya. An official with the bank says that its accounts were falsely reported to the government, including $172 million lent to Hashim Djojohadikusumo, Titiek's brother-in-law, to buy stock in another bank. Borrowing money to purchase bank shares is illegal in Indonesia. Asked to respond, Hashim's office said he was too busy for an interview. When TIME informed Habibie of the loan, the President immediately began looking into it.

A genuine investigation into the Suharto booty will probably have to await the next government. A parliamentary election scheduled for June 7, to be followed by a presidential vote in November, could change the political equation substantially. Two leading presidential candidates, Amien Rais and Abdurrahman Wahid, say they would order a trial for Suharto, probably followed by a pardon if he returns ill-gotten gains. Megawati Sukarnoputri, daughter of founding President Sukarno and herself a presidential candidate, hasn't made her stand clear. Some analysts think she will leave Suharto alone, out of gratitude for his not imprisoning her father.

The children, however, could be in for rougher treatment. "As long as their father is alive," says a Suharto family friend,
"he can probably protect them. After he's gone, they're going to have to run." Three of the six children have homes in the U.S., so prosecutors there could go after them under tough new laws aimed at corruption and money laundering.
Bambang, meanwhile, controls two U.S.-listed companies, which could be subject to investigation under the
Foreign Corrupt Practices Act.

Suharto himself has at least one strong legal shield: the presidential decrees that laid the foundation for Suharto Inc. Former Finance Minister Mar'ie Muhammad's anti-corruption watchdog, the Indonesian Transparency Society, has labeled as illegal 79 of the 528 such orders issued between 1993 and May 21, 1998. Yet Suharto was careful to have each decree approved by his rubber-stamp parliament, usually at the end of his five-year presidential terms. Moreover, notes Juan Felix Tampubolon, one of Suharto's lawyers, Indonesia has a statute of limitations on most offenses: "For every crime he committed, if any, before 1981, the right to prosecute has expired under the statutory period." For Suharto of Indonesia, that--along with $9 billion in an Austrian bank-- should offer considerable comfort in retirement.

With reporting by Zamira Loebis, Jason Tedjasukmana and Lisa Rose Weaver/Jakarta, Laird Harrison/Los Angeles, Isabella Ng/Hong Kong, Kate Noble/London and other bureaus

 

 

 

 

THIS IS NOT A ONE-WAY STREET
WHO ARE THE PARTNERS IN CORRUPTION???

 

 

 

 The Suharto Children
(click to open a pop-up window)

 

 

Siti Hardiyanti Rukmana "Tutut"

•Sigit Harjoyudanto

• Bambang Trihatmodjo

• Siti Hutami Endang Adiningsih "Mamiek"

• Hutomo Mandala Putra "Tommy"

• Siti Hediati Hariyadi "Titiek"

 

 

 

 


THE SUHARTO BILLIONS -- A special report.;
For Asian Nation's First Family, Financial Empire Is in Peril


By PHILIP SHENON
Published: January 16, 1998

Only hours after President Suharto of Indonesia signed an agreement yesterday morning that required his family to give up some of the crown jewels of their multibillion-dollar financial empire, his youngest son stepped from his royal blue Rolls-Royce and into the headquarters of Indonesia's national car project.

''There are many ways to carry on,'' insisted the son, 35-year-old Hutomo Mandala Putra, whose automobile company is among the family-run businesses that have lost lucrative Government concessions under the rescue package drafted by the International Monetary Fund. ''Don't be concerned.''

But despite Mr. Hutomo's smile and reassuring words, the President and his six children have reason for concern. In the 32 years of his rule, Mr. Suharto and his family have firmly entrenched themselves in the economy of Indonesia, a nation of 200 million people, and now find their financial empire under threat.

Interviews in Indonesia and international financial capitals, as well as public documents from the companies involved, offer the outlines of one of the world's great family fortunes, with assets that stretch across the 13,000 islands of the Indonesian archipelago and around the globe.

''This is not South Korea or Thailand or one of the other countries that have turned to the I.M.F.'' said a Western Ambassador in Jakarta, the Indonesian capital. ''This is not a Government run by common politicians or bureaucrats.'' It is much closer, he said, ''to a monarchy, with a king whose authority has never been questioned, and whose children believe their wealth is God-given.''

The agreement demanded by the Washington-based economists of the I.M.F. would eliminate many of the Government concessions and licenses that have enriched the Suharto family.
Mr. Hutomo's car company has lost generous tax breaks that allowed him to undersell his foreign competitors, and he has been stripped of his monopoly on the sale of cloves, the key ingredient in the sweet-smelling cigarettes preferred by Indonesian smokers.

A $1.6 billion power plant project sponsored by his eldest sister, Siti Hardiyanti Rukmana, has been canceled. A bank owned by the President's middle son, Bambang Trihatmodjo, has been closed.
The President's family and closest friends control the production of paper, cement and plywood -- cartels that must be dissolved by Feb. 1 under the terms of the rescue plan.

But as the I.M.F. learned as it tried to execute its first, less demanding reform plan for Indonesia last fall, signing a bailout accord with President Suharto is far easier than carrying it out.
And few economists, bankers and diplomats who have studied the business operations of the Suharto family believe that they will give up any part of the family fortune without a struggle. No one can be certain what the ailing, 76-year-old Indonesian leader will do if his family decides to fight.
''If Suharto lives up to his promises this time, the family will have to sacrifice much of its business empire,'' said a senior Clinton Administration official who has been involved in the bailout negotiations. ''But the question, as before, is whether he will live up to his promises.''

Mr. Hutomo, for one, is already condemning the I.M.F., warning yesterday that the Fund had a secret agenda in its bailout plan for the economy of the world's fourth most populous nation.
''I believe this is part of the new colonialism,'' he said, drawing a comparison between the demands of the Fund and those of Indonesia's former colonial masters, the Dutch and the Japanese.
The first family's business operations are symbolic of the type of crony capitalism that has stunted the development of key industries in Indonesia by killing off competition, driving out badly needed foreign investment and keeping prices of food and other commodities artificially high.

The threat to the Suhartos' business operations has had reverberations across Asia, most notably in the collapse of Peregrine Investments of Hong Kong, a large investment bank, because of the failure of a Indonesian taxi company associated with one of the President's daughters.
While the economic distortions created by the Suhartos' business empire were an integral part of the financial crisis, they were not the only factor. The turmoil was also triggered by the huge debts accumulated by Indonesian businesses unrelated to the family and by lax regulation of the nation's 240 banks, most of which are not owned by the Suhartos.

Mr. Suharto -- like many Indonesians, he has only one name and does not share a family name with his offspring -- and his children did not reply to interview requests or to detailed written questions for this article. In the past, the President's children have insisted that they did not benefit unfairly from their family ties and that there was competitive bidding for many of the Government contracts they received. These assertions are widely disputed by economists and bankers in Jakarta.
Mr. Hutomo held a rare news conference yesterday in glass-walled offices of his Timor car company to defend the family and its business interests.
''We give our best to the nation,'' he said. ''If we were only thinking of ourselves, in our family, we wouldn't still be involved in business. But because we see ourselves as children of the nation, who give added value to the nation, we continue to be involved in business.''

Indonesia's lax financial disclosure laws make it impossible to determine the full extent of the Suharto family's wealth, but corporate records and interviews with economists and bankers in Indonesia and other countries disclose that Mr. Suharto and his children control hundreds of companies.
The family owns television and radio networks, banks, chemical factories, pharmaceutical companies, shopping malls, hotels, paper and pulp mills, shipping lines and taxi companies.
Mr. Hutomo, who is better known to Indonesians by his Western nickname, Tommy, controls the country's leading private airline. Another son controls Indonesia's multibillon-dollar communications satellite industry, while a sister has built many of the nation's toll roads.
One estimate of the Suharto family's wealth was reportedly made in 1989 by officers of the Central Intelligence Agency assigned to the United States Embassy in Jakarta.

According to a former embassy worker who says he was briefed by the officers, the Suhartos' assets were estimated then to total $30 billion, which would have ranked them among the world's dozen richest families. (The C.I.A. declined to comment on whether it had ever prepared such an estimate.)
While the family's fortune has shrunk dramatically as measured in dollars -- the Indonesian currency has lost more than 70 percent of its value in the last year -- economists and bankers say it is widely assumed that the Suhartos have parked much of their money abroad, in foreign currencies.
''The Suhartos' greed is in hyperdrive,'' said the former embassy worker, Jeffrey A. Winters, now an associate professor of political science at Northwestern University in Evanston, Ill., and an Indonesia specialist.

Indonesia is poor by the standards of many of its Southeast Asian neighbors, with an average annual per capita income of about $1,000 before the currency devaluation. Today it would be closer to $400. Tin-roofed shantytowns border the glittering skyscrapers and towering mosques of Jakarta -- Indonesia is the world's most populous Muslim nation -- and malnutrition is common in remote areas of the country.
Yet while the Suhartos have long defended their business empire by insisting that their businesses are centered in Indonesia and provide jobs to impoverished Indonesians, the first family has continued to move assets abroad.

Some of those investments are criticized by Indonesians as jarringly inappropriate given the poverty at home, notably Mr. Hutomo's purchase of Lamborghini, the Italian racing car company, four years ago.
For years, foreign governments and many Indonesians seemed willing to overlook the excesses of the Suharto family and the rampant corruption in the Government in light of Indonesia's overall economic advance under President Suharto. But that implicit deal has collapsed in the midst of the economic turmoil of recent months.

The Holdings - A Family's Fingers In Many Pies

Evidence of the Suharto family's wealth is everywhere to be seen in even a brief tour of Jakarta, the steamy, smog-choked Southeast Asian metropolis that is home to almost 10 million people.
Visitors often arrive at the capital's international airport on one of the European-made Airbus jets leased to Sempati Air, the airline controlled by Mr. Hutomo, the youngest son. Sempati Air is listed in public documents among the assets of Humpuss, Mr. Hutomo's conglomerate.

Travelers can exchange foreign currency at the airport branch of Bank Central Asia, one of Southeast Asia's largest banks, which bank documents from last year show is one-third owned by Mr. Suharto's eldest son and daughter.
The toll roads from the airport into the city were built by a company controlled by the eldest daughter, Mrs. Rukmana, and several of the billboards along the route advertise the products of the Bimantara Group, the conglomerate controlled by Bambang Trihatmodjo, the middle son. Bimantara listed assets last year of more than $1 billion.

Wealthy visitors often stay at the capital's most sumptuous hotel, the Grand Hyatt Jakarta, which Bimantara lists among its prime assets, and shop at Mr. Trihatmodjo's adjoining marble-draped shopping mall, the Plaza Indonesia. The 170-store mall is lined with exclusive shops, including those of Chanel, Gucci, Cartier, Bulgari and Tiffany.
Many of the city's boutiques were bought out in April for the wedding of Mr. Hutomo, whose vow-taking before 3,500 guests in a Jakarta theme park was the social event of the year.

Southeast of Jakarta is Mr. Hutomo's 425-acre, two-mile international-standard automobile race track, which was built in the early 1990's at a reported cost of $50 million.
Mr. Hutomo has long been a fan of Grand Prix racing. In 1994, he led a group of friends in a $40 million purchase of Automobili Lamborghini, the Italian auto maker known for its sleek racing cars, which sell for hundreds of thousands of dollars. Recent Lamborghini corporate documents identify Mr. Hutomo as the major shareholder in the company.

For the rich, a weekend away from the chaos of Jakarta often means a trip to Bali, where the first family owns or controls many of the island's plushest resorts.
In a recent promotion brochure for his conglomerate, Mr. Hutomo disclosed that he and a Singapore company owned the Four Seasons Bali, sister to the luxury hotel on East 57th Street in Manhattan. (A spokeswoman for Four Seasons said she did not know of Mr. Hutomo's interest in the resort.) Rates at the Bali resort begin at $635 a night, and each of the 147 rooms has its own outdoor plunge pool.

The Roots - From Villager To Patriarch
It took little more than a generation for the Suhartos to advance from the crushing poverty of the rural Javanese village where Mr. Suharto was born to the sort of fabulous wealth more commonly associated with European royalty or Hong Kong tycoons.

A soldier by training, Mr. Suharto took power after a September 1965 uprising that he described as coup attempt by Indonesian Communists against his predecessor, President Sukarno. Historians today believe that the Communist involvement was overstated and that a split in the military was responsible for the coup. In the months that followed, hundreds of thousands of Indonesians identified as leftists were killed, many by the army.
Despite the bloodshed that accompanied his rise to power, Mr. Suharto was hailed by Western governments early in his rule for his strong anti-Communist bent and for his economic policies. He wielded absolute power over the Indonesian Government and economy.

The economy began to grow impressively in the 1970's after years of stagnation, thanks in part to the worldwide demand for Indonesian oil. Indonesia is the only Asian member of the Organization of Petroleum Exporting Countries, with estimated reserves today of 9.5 billion barrels of oil. From the 1970's until last year, the Indonesian economy grew by an annual rate of at least 6 percent.
And the poor shared in some of the wealth. Although the country's middle class remained small, the percentage of Indonesians living in abject poverty has shrunk dramatically under Mr. Suharto's rule.

His closest confidante through most of his presidency was his wife, Siti Hartinah Suharto, and many Indonesians believe that her death two years ago at age 76 explains many of the recent excesses of the family's business empire.
While she controlled businesses of her own, Mrs. Suharto was seen as the family's umpire and peacekeeper, and she was known to veto risky business ventures by her children that might tarnish her husband's reputation.
''She was the one who kept an eye on the children,'' said Benedict Anderson, a Cornell University political scientist who is an Indonesia specialist. ''These kids had grown up all their lives in this situation, where they could do anything in their father's name. And with their mother's death, the last buffer was gone.''

The Family - Soldier's Children Turn to Business
With the Indonesian economy booming in the 1980's, the first of Mr. Suharto's six children were old enough to settle on careers -- and all chose to seek their fortunes in business.
''It is only natural that they would turn to business, where their father's name guaranteed them instant success,'' said an Indonesian businessman who considers himself a friend of the first family.

The President's children followed a common pattern in entering business. Most formed companies that because of licenses and concessions granted them by their father's Government, turned them into multimillionaires virtually overnight.
Their youth and lack of business training rarely seemed to be a hindrance to their success. Foreign companies sought them out as business partners, and today the Suharto children are involved in joint ventures and other deals with some of the largest corporations in the United States, including Hughes Electronics, Lucent Technologies and United Parcel Service

Economists who have studied the family's business operations say there has rarely been even the pretense of competitive bidding when businesses owned by the President or his children have been awarded Government contracts. ''Even when there are tenders, they are usually a charade,'' a Western investment banker said.

In 1981, the President's middle son, Mr. Trihatmodjo, formed the company Bimantara Citra with several friends and former schoolmates. He was then 28, without much business experience and known among colleagues as painfully shy. Yet within a decade, Bimantara was one of Indonesia's largest companies, with subsidiaries in hotels, telecommunications, chemicals and food.

In 1983, the President's eldest daughter, Mrs. Rukmana, went into business with her two sisters, and she has since parlayed her business empire into a political career. She has been careful to polish her image by involvement in prominent Indonesian charities. In public, she is ever smiling, her hair always covered with a scarf in deference to Muslim practice.

Mr. Hutomo went into business in 1984 at age 22, establishing the Humpuss Group with his eldest brother, Sigit Harjojudanto. Mr. Harjojudanto is little known in Indonesian social circles. Mr. Hutomo, however, is considered the most flamboyant of the President's children and appears to enjoy the special favor of his father.
Until his marriage, Mr. Hutomo was seen constantly in the company of Indonesian film stars and beauty queens, and prominent Indonesians say he is not hesitant to use his father's name to get business deals approved.

Among the family-run businesses, Mr. Hutomo's have long been the most controversial, and he has been forced to turn to the Government for help because of the distortions that his business operations have created in the economy.
In 1990, Mr. Hutomo was granted a monopoly on the sale of cloves, which are mixed with tobacco in the cigarettes preferred by 9 out of 10 smokers in Indonesia; hundreds of thousands of Indonesian farmers depend on cloves for their livelihood.

But the monopoly was a disaster. Because prices were set artificially high, production increased as consumption dropped, leaving many farmers with tons of unsold cloves. At one point, Mr. Hutomo publicly called for farmers to burn half their crop, and the Suharto Government was eventually forced to bail out the industry with credits totaling almost $350 million. Most such subsidies will have to be phased out under the new I.M.F. accord, which requires that all domestic trade in agricultural products must be fully deregulated.

Throughout the 1980's, the Suharto children were showered with lucrative Government contracts. Company documents show that Humpuss and Bimantara were granted concessions for the overseas distribution of petrochemical products manufactured by the Government oil company, while Mrs. Rukmana was awarded the right to build toll roads through Jakarta.
The deals grew bigger during the 1990's. The Government announced that it was granting television licenses to both Mr. Trihatmodjo and Mrs. Rukmana, and that a group of investors led by Mr. Trihatmodjo would take control of the state-owned Palapa commercial satellite network.

Investment bankers say it is still unclear if the President's son paid anything for control of the satellites in 1993. A year later, corporate documents show, he sold 25 percent of the business to a German telecommunications company for $600 million.

The National Car - A Business Disaster Loses Tax Breaks
No one has come to better understand the economic might of Suharto family than the Jakarta-based executives of the world's largest automobile companies.

Toyota and other Japanese manufacturers have been building cars in Indonesia for years. And in the early 1990's, American and European car companies had begun to push into what they considered a promising Asian market, a country of 200 million people that for years had boasted one of the world's fastest-growing economies.
Chrysler, Ford and General Motors announced tens of millions of dollars in investment for factories to build mid-sized sedans and utility vehicles.
''We knew about the cronyism here, but there was a belief that the Indonesians understood that the importance of foreign investment and at least the appearance of fair play in the marketplace,'' said an executive of one of the American auto makers.

Then, in 1995, Mr. Suharto shocked the foreign auto companies when he announced that he had decided to build a ''national car'' and that the car would be built by a company owned by his youngest son, Mr. Hutomo, in association with Kia Motors of South Korea.
The car, the Timor -- reportedly named for the island where there has been a long-running insurrection against the Indonesian Army -- was exempted from paying duties on imported Korean parts. That concession has allowed Mr. Hutomo to undersell his competitors by thousands of dollars per car.

Other concessions to Mr. Hutomo were equally valuable. The Finance Ministry announced last year that Government offices and Government-owned companies would be required to add Timors to their fleets, guaranteeing Mr. Hutomo a market.
A consortium of Indonesian banks was ordered by the Government to offer almost $700 million in start-up loans to the company, exactly the kind of politically motivated lending that is at the core of much of Asia's financial crisis.

The Timor was a business disaster even before it lost its tax breaks yesterday. The Korean partner, Kia Motors, has gone bankrupt, an early victim of the Asian financial crisis. The company has sold 26,000 cars since October 1996, but 15,000 more are sitting unsold -- many of them in an open lot by the Jakarta airport. Now, just when Indonesians are being laid off and have seen the value of their currency drop by two-thirds, the I.M.F. inserted the following sentence into its announcement yesterday:
''All special tax, customs and credit privileges for the national car project will be revoked, effective immediately.''
''Business always has its ups and downs,'' Mr. Hutomo said yesterday, ''and I'm always ready to face the worst.''

Photo: President Suharto posed for photographs with members of his family during a stay in a health clinic at Bad Oeynhausen, 35 miles west of Hanover, Germany, that the Indonesian leader, who is having health problems, visited in July 1996. (Archive Photos)(pg. D5) Photos/Chart: ''Four of Suharto's Children and Their Holdings'' Siti Hardiyanti Rukmana, 48 Toll roads, electrical plants, television, banks, telephone equipment, hotels. Sigit Harjojudanto, 46 With his wife, Elsye Sigi. Shipping, banking, food-processing, construction, forestry, airlines, hotels. Bambang Trihatmodjo, 44 Satellites, shipping, automobiles, television, telephone equipment, hotels, banking, shopping malls. (Reuters)(pg. D5) Hutomo Mandala Putra, 35 Automobiles, shipping, airlines, banking, food-processing, cloves, forestry, hotels. (Agence France-Presse)(pg. D5) Map of Indonesia. (pg. D5)

 

 

 

 


Business-Politics in Indonesia During Suharto’s Presidency

An examination of the politics of corrupt trade protection

A few features of the nepotistic business-politics structure in Indonesia make it an ideal setting in which to empirically examine the politics of corrupt trade protection. First, policy-making in Indonesia is highly centralized and directed by the President through his Cabinet. Trade policy is formulated through the Ministry of Industry and Trade and the Ministry of Finance. The Ministers are directly appointed by the President, and need not even be elected officials. The central role played by the President in policy formulation creates a direct mechanism through which a connection to the President can affect the protection a firm receives. In other countries with more decentralized political authority, such as empirical exercise would constitute a greater challenge.

Second, it is widely recognized that Indonesia under Suharto had an extremely corrupt business environment. Transparency International (TI) has consistently ranked Indonesia as one of the most corrupt countries in the world, in the same group as Kenya, Nigeria, Bangladesh and Azerbaijan (TI 2004). TI estimates Suharto’s family fortune at around $30 billion, built over three decades from the President’s control over vast sectors of the Indonesian economy (TI 1998). Suharto’s children have often played the role of middlemen for government purchases and sales (Ehrlich 1998). For example, the Humpuss Group owned by Suharto’s youngest son Hutomo Mandala Putra was granted a clove trading monopoly by the Trade Ministry in 1992 despite fierce opposition from major clove cigarette manufacturers (kompas.com 2000). Henderson and Kuncoro (2004) conduct a firm survey in Indonesia and report that these firms spend on average over 10% of costs on bribes and over 10% of management time “smoothing business operations” to obtain licenses and permits.

Third, the fact that Suharto suffered some adverse health shocks during his Presidency, and that news about these events was reported in the media, allow us to create measures of political connections for firms based on the response of their stock price to these news events. Our measures are therefore derived from information available to market participants aggregated in the Jakarta Stock Exchange (JSX), rather than surveys or consulting firm reports. This approach is beneficial for two reasons. Survey data or “expert reports” are typically based on subjective judgments of certain individuals, and also do not provide a quantitative measure of the strength of political connections, which our approach yields. Second, the Suharto influence on Indonesian business groups has an inter-connected expansive pyramidal structure where each group connected to the family is in turn connected to yet more business groups through joint ownership or management. This makes it difficult to derive an objective classification rule to separate connected firms from un-connected ones. Almost all Indonesian firms could be categorized as “connected” due to the indispensable influence of the Suharto family. As a sensitivity check, we present some estimation results with the set of politically connected firms restricted to only those that are owned or managed by a Suharto family member, in order to avoid any potential econometric problems associated with the stock-return based procedure to identify connected firms.

Two recent papers that study the impact of political connections on capital controls and credit access rely on either expert assessments of which companies are connected (Johnson and Mitton 2003, for Malaysia), or use firms controlled by the wealthiest families (Charumilind, Kali and Wiwattanakantang 2006, for Thailand). In their study on bank lending in Pakistan, Khwaja and Mian (2004) move away from subjective judgment and define a firm as “political” if its director participates in an election. In a cross-country study, Faccio (2004) defines companies to be politically connected if a controlling shareholder or director of the company holds political office.

 

 

 

Suharto & Sons
(And Daughters, In-Laws & Cronies)
By George J. Aditjondro

Sunday, January 25, 1998; Page C01

Since seizing power in the mid-1960s, Indonesian President Suharto has translated his absolute political power into a massive family fortune. The Suharto family is worth an estimated $16 billion according to Forbes magazine, and $35 billion according to one estimate attributed to the CIA. Suharto's desire to protect this empire while the economy melts down has dismayed international investors and confounded officials from the International Monetary Fund (IMF), who see economic reform and the end of so-called "crony capitalism" as essential to Indonesia's recovery.

ALL IN THE FAMILY

TUTUT, President Suharto's oldest daughter, has taken a recent financial hit -- although she is still immensely wealthy. She serves on the board of a cab company that defaulted on a $260 million loan, helping to cause the fall of a Hong Kong investment house. She was responsible for the recent "National Love Indonesia" and "I Love Rupiah" campaigns, and maintains a high public profile by chairing important Indonesian charities.

TOMMY, Suharto's youngest son, is said to be the president's favorite. The disaster of his 1990 monopoly of the Indonesian clove industry cost the government close to $350 million in bailouts. He may have to sell his stake in the Lamborghini sports car business.

PRABOWO SUBIANTO, Suharto's son-in-law -- whose own family is in many business ventures -- is married to his second-oldest daughter, Titiek. Her recent plan for building a bridge between Sumatra and Malaysia has been abandoned due to the current economic fallout.

BAMBANG, Suharto's second-oldest son, had part-ownership in one of the 16 Indonesian banks that were shut down in an initial attempt to reform the country's economy. Hughes Electronics, Deutsche Telekom, Siemens, Hyatt, Hyundai are among his equity-holding foreign partners.

Sources: Indonesian Business Data Center, Business Week, Dow Jones, Far Eastern Economic Review
The Suharto family wealth figured prominently in the conditions set by the IMF in its $43 billion bailout of the Indonesian economy. That agreement, which has so far failed to end investors' skepticism, included cutting off subsidies to a car company owned by one of his sons, dissolution of the clove monopoly owned by that son and cancellation of two power plant projects in which another son has a stake.

 

 

 


Suharto's millions

By Joe Havely, of the BBC's Asia-Pacific unit.

As Mr Suharto steps down as president, it is unclear what will happen to the vast wealth he and his family have controversially amassed over his 32 years in power.
Accusations that the Suharto family lined their pockets on the back of Indonesia's one-time economic miracle were a key factor in the president's downfall.
In 1997, American-based Forbes magazine said Mr Suharto had an estimated personal wealth of $16bn.

Family Fortune
He leaves much of the country's battered economy still under the control of his six children and close friends who have accumulated vast wealth, mainly through government contracts:

Mr Suharto's eldest daughter, Siti Hardiyanti Rukmana, controls one of Indonesia's leading toll-road companies. Nicknamed "Tutut" for liking the sound of cars honking on toll roads built by one of her 55 companies, she was appointed minister for social welfare in the cabinet Mr Suharto formed after his March re-election.
Second son Bambang Trihatmodjo, is regarded as the clan's most capable entrepreneur, and heads the conglomerate Bimantara Citra, with interests in television, cars, property, construction, hotels and telecommunications.
Youngest son, known as "Tommy", is behind Indonesia's controversial national car project, the Timor, for which he was awarded tax and tariff breaks that attracted criticism from other car manufacturers. He was reported to have bought Italian sports car maker Lamborghini in 1997 and, until earlier this year, held the lucrative monopoly on cloves, used in the country's popular kretek cigarettes.

Overseas investments
While Mr Suharto urged Indonesians to make sacrifices to overcome the economic crisis in July, as the rupiah lost over 80% of its value, his family's business interests bore little of the hardship endured by ordinary Indonesians.

It is not known what form many of their assets take, but some analysts speak of money being held in overseas banks.
Stephen Rogers, a Jakarta-based business analyst, said that while the children did not have business assets overseas, they had invested in property and liquid assets abroad thought to be worth around £80m.
However, for the time being they are staying put in Indonesia despite their father's resignation, a source close to the family said.

Crony capitalism
During his rule, Mr Suharto crafted himself as Indonesia's "father of development", bringing economic growth that averaged over 6% for the two decades before the crisis began in July last year.

But the subsequent rapid depreciation of the Indonesian rupiah uncovered the weaknesses in the system of crony capitalism that underpinned Mr Suharto's economic miracle.
The Suharto family fortune, estimated at US $40bn, is as substantial as the International Monetary Fund's rescue package agreed to help Indonesia out of its worst economic crisis in decades.

While the IMF austerity programme hit ordinary Indonesians hard, the first family continued to spend lavishly on overseas shopping trips and showed little sign of any empathy with the worsening situation for most Indonesians.

Mr Suharto's own call for Indonesians to make sacrifices to overcome the economic crisis carried little weight while the financial interests of his family and friends remained protected.

Where will the money go?
As he steps down, one of the key questions being asked is what will happen to the former presidential fortune.
Opposition groups who have led the struggle to oust Mr Suharto demanded that he now be put on trial and that his wealth be confiscated and turned over to the state.

In his first address to the nation, Indonesia's new President, BJ Habibie, promised to implement reforms and bring "clean government, free from inefficiency and the practises of corruption, collusion and nepotism."
But as a close associate of the ex-president, who rose to power under his patronage, it remains to be seen whether Mr Habibie has the political will or stature to take on the former first family's business interests.

Suharto is old now, and as Indonesians become richer and more educated, his government's close relationship with the armed forces, intolerance of genuine democracy, and suppression of political opponents look more and more crude and anachronistic. But the greatest embarrassment - even for the country's elite, for whom authoritarianism is a worthwhile price to pay for stability - is the blatant corruption of Indonesian business. The symbols of this corruption are the First Children.

The Suhartos have an influential presence in most spheres of Indonesian life; a son-in-law is a rising general, a daughter is chairwoman of the ruling party. But it is in big business that they dominate. No one knows their collective worth, though intelligent guesses range from $8bn up to a CIA estimate of $30bn in 1989. It is concentrated in the hands of four siblings: brothers Bambang, Tommy and Sigit, and their sister, Tutut.
These four are among Indonesia's 13 richest indigenous businessmen, and the industries in which they participate range from airlines, telecommunications, hotels and toll roads to sugar and oranges. The advantages enjoyed by the Suharto children surpass those of the President's most privileged cronies.

he President's children are among his closest advisers. One of the secrets of Suharto's 30-year survival has been regularly shuffling his courtiers and banishing those who show signs of acquiring too much independent power. Suharto's children, with their unmediated access to the presidential ear, are in enormous demand as intermediaries for local and foreign firms bidding for contracts. One foreign analyst in Jakarta reckons that among US firms the going rate for a Suharto is 25 to 30 per cent of the value of a contract.

In 1990, the American firm AT&T was competing with Japan's NEC and Sumitomo for the right to sell $300m of telephone equipment. The Americans engaged as their "agent" the President's oldest daughter, Siti Hardijianti Rukmana,known as "Tutut". The Japanese hired Hutomo "Tommy" Mandala Putra, the youngest boy. The unfortunate officials presented with the dilemma of choosing between two of the President's offspring came up with an ingenious solution: they doubled the size of the contract, and awarded the prize jointly.

Nepotism on this scale is a drag on the economy and alienates the foreign investors Jakarta is trying to attract. The nadir came this year with the launch of the Timor, Indonesia's national car, a joint venture with the Korean car firm Kia. The Timor is a pet project of the President, and its award to Tommy was not a surprise. What did cause uproar was the decision to exempt it from import duties and the 35 per cent "luxury" tax. Tommy's Timor sells for about $10,000, almost half the cost of similar imported models.

Underlying the exasperation is a great deal of tension, and a sense that the achievements of Suharto's "New Order" are starting to unravel. The President was treated for a heart condition earlier this year and as he grows weaker, political opposition to his government is becoming more vocal. In July, Jakartans rioted after government-backed thugs raided the headquarters of the opposition Indonesian Democratic Party; dozens of non-violent political opponents were arbitrarily arrested.

Nobody stands out as a successor to Suharto, and the prospect of an uncertain or violent succession terrifies many Indonesians - among them, surely, the President's children. Their enormous greed, and their father's willingness to indulge it, smacks of desperation, a sense that time is running out.

 

 


Suharto Inc. Probably the biggest family business in all Asia

Richard Lloyd Parry on rampant nepotism in Indonesia
Friday 13 December 1996

This weekend, whether I like it or not, I will make several small but involuntary contributions to one of the most unsavoury causes in Asia. They will begin when I switch on satellite news on my television and sprinkle sugar on my morning orange. They will continue as I drive to the airport (perhaps in one of the brand new Timor national cars) on one of Jakarta's toll roads, and as I fly out of the city in a plane owned by the private carrier, Sempati.

When I check into my resort hotel (the Bali Sheraton, perhaps), I will be doing my little bit for the cause. These pleasures will have one thing in common. They will all enrich one family - the wealthiest and most powerful family in Indonesia, that of its president, Suharto.

Suharto is a towering figure, a general who came to power in 1965 during a virtual civil war to create a unified country out of the diverse islands, races and languages of Indonesia. Under his rule, growth is running at a steady 7 per cent and the 75-year-old President has established himself as the unofficial figurehead of the Association of South East Asian Nations (Asean).

 

 


 Investigations of wealth


In May 1999, Time Asia estimated Suharto's family fortune at US$15 billion in cash, shares, corporate assets, real estate, jewelry and fine art. Of this, US$9 billion is reported to have been deposited in an Austrian bank. The family is said to control about 36,000 km² of real estate in Indonesia, including 100,000 m² of prime office space in Jakarta and nearly 40% of the land in East Timor. Suharto was placed highest on Transparency International's list of corrupt leaders with an alleged misappropriation of between US $15–35 billion during his 32-year presidency.[10][82]

On 29 May 2000, Suharto was placed under house arrest when Indonesian authorities began to investigate the corruption during his regime. In July 2000, it was announced that he was to be accused of embezzling US$571 million of government donations to one of a number of foundations under his control and then using the money to finance family investments. But in September court-appointed doctors announced that he could not stand trial because of his declining health. State prosecutors tried again in 2002 but then doctors cited an unspecified brain disease. On 26 March 2008, a civil court judge acquitted Suharto of corruption but ordered his charitable foundation, Supersemar, to pay US$110 m (£55 m).[83]

 

 

 

 

Ford Country: Building an Elite for Indonesia
by David Ransom

 

Author's note: Much of the material appearing in this article was gathered in numerous personal interviews conducted between May 1968 and June 1970. The interviews were with a broad range of past and present members of the State Department and the Ford Foundation, faculty members at Harvard, Berkeley, Cornell, Syracuse, and the University of Kentucky, and Indonesians both supporting and opposing the Suharto government. Where possible, their names appear in the text. Other information in the article is derived from a wide reading of the available literature on the history and politics of Indonesia. Consequently, only those items are footnoted which directly quote or paraphrase a printed source.
____________


In the early sixties, Indonesia was a dirty word in the world of capitalist development. Expropriations, confiscations and rampant nationalism led economists and businessmen alike to fear that the fabled riches in the Indies -- oil, rubber and tin -- were all but lost to the fiery Sukarno and the twenty million followers of the Peking-oriented Indonesian Communist Party (PKI).

Then, in October 1965, Indonesia's generals stepped in, turned their counterattack against an unsuccessful colonels' coup into an anti-communist pogrom, and opened the country's vast natural resources to exploitation by American corporations. By 1967, Richard Nixon was describing Indonesia as "the greatest prize in the Southeast Asian area."1 If Vietnam has been the major postwar defeat for an expanding American empire, this turnabout in nearby Indonesia is its greatest single victory.
Needless to say, the Indonesian generals deserve a large share of credit for the American success. But standing at their side and overseeing the great give-away was an extraordinary team of Indonesian economists, all of them educated in the United States as part of a twenty year strategy by the world's most powerful private aid agency, the billion-dollar Ford Foundation.

But the strategy for Indonesia began long before the Ford Foundation turned its attention to the international scene.

Following Japan's defeat in World War II, revolutionary movements swept Asia, from India to Korea, from China to the Philippines. Many posed a threat to America's well-planned Pax Pacifica. But Indonesian nationalists, despite tough resistance to the postwar invasion by Holland in its attempt to resume rule over the Indies, never carried their fight into a full-blown people's war. Instead, leaders close to the West won their independence in Washington offices and New York living rooms. By 1949 the Americans had persuaded the Dutch to take action before the Indonesian revolution went too far, and then to learn to live with nationalism and like it. American diplomats helped draft an agreement that gave Indonesians their political independence, preserved the Dutch economic presence, and swung wide the Open Door to the new cultural and economic influence of the United States.
Among those who handled the diplomatic maneuvers in the U.S. were two young Indonesian aristocrats -- Soedjatmoko (many Indonesians have only one name) and Sumitro Djojohadikusumo, an economist with a Ph.D. from Holland. Both were members of the upper-class, nominally socialist PSI, one of the smaller and more Western-oriented of Indonesia's myriad political parties.

Distressed by the specter of Sukarno and the strong left wing of the Indonesian independence forces, the American Establishment found the bland nationalism offered by Soedjatmoko and Sumitro a most comfortable alternative. The Marshall Plan strategy for Europe depended on "the availability of the resources of Asia," Soedjatmoko told a New York audience, and he offered them an Indonesia open to "fruitful cooperation with the West."2 At the Ford Foundation-funded School of Advanced International Studies in Washington in early 1949, Sumitro explained that his kind of socialism included "free access" to Indonesian resources and "sufficient incentives" for foreign corporate investment.3

When independence came later that year, Sumitro returned to Djakarta to become minister of trade and industry (and later minister of finance and dean of the faculty of economics at the University of Djakarta). He defended an economic "stability" that favored Dutch investments and, carefully eschewing radicalism, went so far as to make an advisor of Hjalmar Schacht, economic architect of the Third Reich.

Sumitro found his support in the PSI and their numerically stronger "modernist" ally, the Masjumi Party, a vehicle of Indonesia's commercial and landowning santri Moslems. But he was clearly swimming against the tide. The Communist PKI, Sukarno's Nationalist PNI, the Army, the orthodox Moslem NU -- everybody, in fact, but the PSI and Masjumi -- were riding the wave of postwar nationalism. In the 1955 national elections -- Indonesia's first and last -- the PSI polled a minuscule fifth place. It did worse in the local balloting of 1957, in which the Communist PKI emerged the strongest party.

Nevertheless, when Sukarno began nationalizing Dutch holdings in 1957, Sumitro joined Masjumi leaders and dissident Army commanders in the Outer Islands Rebellion, supported briefly by the CIA. It was spectacularly unsuccessful. From this failure in Sumatra and the Celebes, Sumitro fled to exile and a career as government and business consultant in Singapore. The PSI and the Masjumi were banned.
America's Indonesian allies had colluded with an imperialist power to overthrow a popularly elected nationalist government, headed by a man regarded as the George Washington of his country -- and they had lost. So ruinously were they discredited that nothing short of a miracle could ever restore them to power.
That miracle took a decade to perform, and it came outside the maneuvers of diplomacy, the play of party politics, even the invasion of American troops. Those methods, in Indonesia and elsewhere, had failed. The miracle came instead through the hallowed halls of academe, guided by the noble hand of philanthropy.

Education had long been an arm of statecraft, and it was Dean Rusk who spelled out its function in the Pacific in 1952, just months before resigning as Assistant Secretary of State for Far Eastern Affairs to head up the Rockefeller Foundation. "Communist aggression" in Asia required not only that Americans be trained to combat it there, but "we must open our training facilities for increasing numbers of our friends from across the Pacific."4

The Ford Foundation, under the presidency of Paul Hoffman (and working closely with the Rockefeller Foundation), moved quickly to apply Rusk's words to Indonesia. As head of the Marshall Plan in Europe, Hoffman had helped to arrange Indonesian independence by cutting off aid funds to Dutch counterinsurgency and by threatening a total cutoff in aid to the Dutch. As the United States supplanted the Dutch, Hoffman and Ford would work through the best American universities -- MIT, Cornell, Berkeley, and finally Harvard -- to remold the old Indonesian hierarchs into modern administrators, trained to work under the new indirect rule of the Americans. In Ford's own jargon, they would create a "modernizing elite."

"You can't have a modernizing country without a modernizing elite," explains the deputy vice-president of Ford's international division, Frank Sutton. "That's one of the reasons we've given a lot of attention to university education." Sutton adds that there's no better place to find such an elite than among "those who stand somewhere in social structures where prestige, leadership, and vested interests matter, as they always do."

Ford launched its effort to make Indonesia a "modernizing country" in 1954 with field projects from MIT and Cornell. The scholars produced by these two projects -- one in economics, the other in political development -- have effectively dominated the field of Indonesian studies in the United States ever since. Compared to what they eventually produced in Indonesia, however, this was a fairly modest achievement. Working through the Center for International Studies (the CIA-sponsored brainchild of Max Millikan and Walt W. Rostow), Ford sent out a team from MIT to discover "the causes of economic stagnation in Indonesia." An interesting example of the effort was Guy Pauker's study of "political obstacles" to economic development, obstacles such as armed insurgency.

In the course of his field work, Pauker got to know the high-ranking officers of the Indonesian Army rather well. He found them "much more impressive" than the politicians. "I was the first who got interested in the role of the military in economic development," Pauker says. He also got to know most of the key civilians: "With the exception of a very small group," they were "almost totally oblivious" of what Pauker called modern development. Not surprisingly, the "very small group" was composed of PSI aristocrat-intellectuals, particularly Sumitro and his students.

Sumitro, in fact, had participated in the MIT team's briefings before they left Cambridge. Some of his students were also known by the MIT team, having attended a CIA-funded summer seminar run at Harvard each year by Henry Kissinger. One of the students was Mohammed Sadli, son of a well-to-do santri trader, with whom Pauker became good friends. In Djakarta, Pauker struck up friendships with the PSI clan and formed a political study group among whose members were the head of Indonesia's National Planning Bureau, Ali Budiardjo, and his wife Miriam, Soedjatmoko's sister.

Rumanian by birth, Pauker had helped found a group called "Friends of the United States" in Bucharest just after the Second World War. He then came to Harvard, where he got his degree. While many Indonesians have charged the professor with having CIA connections, Pauker denies that he was intimate with the CIA until 1958, after he joined the RAND Corporation. Since then, it is no secret that he briefs and is briefed by the CIA, the Pentagon, and the State Department. Highly placed Washington sources say he is "directly involved in decision-making."

In 1954 -- after the MIT team was in the field -- Ford grubstaked a Modern Indonesia Project at Cornell. With an initial $224,000 and periodic replenishments, program chairman George Kahin built the social science wing of the Indonesian studies establishment in the United States. Even Indonesian universities must use Cornell's elite-oriented studies to teach post-Independence politics and history.

Among the several Indonesians brought to Cornell on Ford and Rockefeller grants, perhaps the most influential is sociologist-politician Selosoemardjan. Right-hand man to the Sultan of Jogjakarta, Selosoemardjan is one of the strong-men of the present Indonesian regime.
Kahin's political science group worked closely with Sumitro's Faculty of Economics in Djakarta. "Most of the people at the university came from essentially bourgeois or bureaucratic families," recalls Kahin. "They knew precious little of their society." In a "victory" which speaks poignantly of the illusions of well-meaning liberals, Kahin succeeded in prodding them to "get their feet dirty" for three months in a village. Many would spend four years in the United States.

Together with Widjojo Nitisastro, Sumitro's leading protégé, Kahin set up an institute to publish the village studies. It has never amounted to much, except that its American advisors helped Ford maintain its contact in the most difficult of the Sukarno days.
Kahin still thinks Cornell's affair with Ford in Indonesia "was a fairly happy marriage" -- less for the funding than for the political cover it afforded. "AID funds are relatively easy to get," he explains. "But certainly in Indonesia, anybody working on political problems with [U.S.] government money during this period would have found their problem much more difficult."

One of the leading academic Vietnam doves, Kahin has irritated the State Department on occasion, and many of his students are far more radical than he. Yet for most Indonesians, Kahin's work was really not much different from Pauker's. One man went on to teach-ins, the other to RAND and the CIA. But the consequences of their nation-building efforts in Indonesia were much the same.

MIT and Cornell made contacts, collected data, built up expertise. It was left to Berkeley to actually train most of the key Indonesians who would seize government power and put their pro-American lessons into practice. Dean Sumitro's Faculty of Economics provided a perfect academic boot camp for these economic shock troops.
To oversee the project, Ford President Paul Hoffman tapped Michael Harris, a one-time CIO organizer who had headed Marshall Plan programs under Hoffman in France, Sweden, and Germany. Harris had been on a Marshall Plan survey in Indonesia in 1951, knew Sumitro, and before going out was extensively briefed by Sumitro's New York promoter, Robert Delson, a Park Avenue attorney who had been Indonesia's legal counsel in the United States since 1949. Harris reached Djakarta in 1955 and set out to build Dean Sumitro a broad new Ford-funded graduate program in economics.

This time the professional touch and academic respectability were to be provided by Berkeley. The Berkeley team's first task was to replace the Dutch professors, whose colonial influence and capitalist economics Sukarno was trying to phase out. The Berkeley team would also relieve Sumitro's Indonesian junior faculty so that Ford could send them back to Berkeley for advanced credentials. Sadli was already there, sharing a duplex with Pauker, who had come to head the new Center for South and Southeast Asian Studies. Sumitro's protégé Widjojo led the first crew out to Berkeley.

While the Indonesian junior faculty studied American economics in Berkeley classrooms, the Berkeley professors turned the Faculty in Djakarta into an American-style school of economics, statistics, and business administration.

Sukarno objected. At an annual lecture to the Faculty, team member Bruce Glassburner recalls, Sukarno complained that "all those men can say to me is 'Schumpeter and Keynes.' When I was young I read Marx." Sukarno might grumble and complain, but if he wanted any education at all he would have to take what he got. "When Sukarno threatened to put an end to Western economics," says John Howard, long-time director of Ford's International Training and Research Program, "Ford threatened to cut off all programs, and that changed Sukarno's direction."

The Berkeley staff also joined in the effort to keep Sukarno's socialism and Indonesian national policy at bay. "We got a lot of pressure through 1958-1959 for 'retooling' the curriculum," Glassburner recalls. "We did some dummying-up, you know -- we put 'socialism' into as many course titles as we could -- but really tried to preserve the academic integrity of the place."
The project, which cost Ford $2.5 million, had a clear, and some times stated, purpose. "Ford felt it was training the guys who would be leading the country when Sukarno got out," explains John Howard.
There was little chance, of course, that Sumitro's minuscule PSI would outdistance Sukarno at the polls. But "Sumitro felt the PSI group could have influence far out of proportion to their voting strength by putting men in key positions in government," recalls the first project chairman, a feisty Irish business professor named Len Doyle.

When Sumitro went into exile, his Faculty carried on. His students visited him surreptitiously on their way to and from the United States. Powerful Americans like Harry Goldberg, a lieutenant of labor boss Jay Lovestone (head of the CIO's international program), kept in close contact and saw that Sumitro's messages got through to his Indonesian friends. No dean was appointed to replace him; he was the "chairman in absentia."

All of the unacademic intrigue caused hardly a ripple of disquiet among the scrupulous professors. A notable exception was Doyle. "I feel that much of the trouble that I had probably stemmed from the fact that I was not as convinced of Sumitro's position as the Ford Foundation representative was, and, in retrospect, probably the CIA," recalls Doyle.
Harris tried to get Doyle to hire "two or three Americans who were close to Sumitro." One was an old friend of Sumitro's from the MIT team, William Hollinger. Doyle refused. "It was clear that Sumitro was going to continue to run the Faculty from Singapore," he says. But it was a game he wouldn't play. "I felt that the University should not be involved in what essentially was becoming a rebellion against the government," Doyle explains, "whatever sympathy you might have with the rebel cause and the rebel objectives."

Back home, Doyle's lonely defense of academic integrity against the political pressures exerted through Ford was not appreciated. Though he had been sent there for two years, Berkeley recalled him after one. "He tried to run things," University officials say politely. "We had no choice but to ship him home." In fact, Harris had him bounced. "In my judgment," Harris recalls, "there was a real problem between Doyle and the Faculty."
One of the younger men who stayed on after Doyle was Ralph Anspach, a Berkeley team member now teaching college in San Francisco. Anspach got so fed up with what he saw in Djakarta that he will no longer work in applied economics. "I had the feeling that in the last analysis I was supposed to be a part of this American policy of empire," he says, "bringing in American science, and attitudes, and culture ... winning over countries -- doing this with an awful lot of cocktails and high pay. I just got out of the whole thing."
Doyle and Anspach were the exceptions. Most of the academic professionals found the project -- as Ford meant it to be -- the beginning of a career."This was a tremendous break for me," explains Bruce Glassburner, project chairman from 1958 to 1961. "Those three years over there gave me an opportunity to become a certain kind of economist. I had a category -- I became a development economist -- and I got to know Indonesia. This made a tremendous difference in my career."

Berkeley phased its people out of Djakarta in 1961-62. The constant battle between the Ford representative and the Berkeley chairman as to who would run the project had some part in hastening its end. But more important, the professors were no longer necessary, and were probably an increasing political liability. Sumitro's first string had returned with their degrees and resumed control of the school.
The Berkeley team had done its job. "Kept the thing alive," Glassburner recalls proudly. "We plugged a hole ... and with the Ford Foundation's money we trained them forty or so economists." What did the University get out of it? "Well, some overhead money, you know." And the satisfaction of a job well done.

In 1959 Pauker set out the lessons of the PSI's electoral isolation and Sumitro's abortive Outer Islands Rebellion in a widely read paper entitled "Southeast Asia as a Trouble Area in the Next Decade." Parties like the PSI were "unfit for vigorous competition" with communism, he wrote. "Communism is bound to win in Southeast Asia ... unless effective countervailing power is found." The "best equipped" countervailing forces, he wrote, were "members of the national officer corps as individuals and the national armies as organizational structures.5

From his exile in Singapore, Sumitro concurred, arguing that his PSI and the Masjumi party, which the Army had attacked, were really the Army's "natural allies." Without them, the Army would find itself politically isolated, he said. But to consummate their alliance "the Sukarno regime must be toppled first." Until then, Sumitro warned, the generals should keep "a close and continuous watch" on the growing and powerful Communist peasant organizations. Meanwhile, Sumitro's Ford-scholar protégés in Djakarta began the necessary steps toward a rapprochement.

Fortunately for Ford and its academic image there was yet another school at hand: SESKOAD, the Army Staff and Command School. Situated seventy miles southeast of Djakarta in cosmopolitan Bandung, SESKOAD was the Army's nerve center. There, generals decided organizational and political matters; there, senior officers on regular rotation were "upgraded" with manuals and methods picked up during training in Fort Leavenworth, Kansas.
When the Berkeley team phased itself out in 1962, Sadli, Widjojo and others from the Faculty began regular trips to Bandung to teach at SESKOAD. They taught "economic aspects of defense," says Ford's Frank Miller, who replaced Harris in Djakarta. Pauker tells a different story. Since the mid-'50s, he had come to know the Army General staff rather well, he explains, first on the MIT team, then on trips for RAND. One good friend was Colonel Suwarto (not to be confused with General Suharto), the deputy commander of SESKOAD and a 1959 Fort Leavenworth graduate. In 1962, Pauker brought Suwarto to RAND.

Besides learning "all sorts of things about international affairs" while at RAND, Pauker says, Suwarto also saw how RAND "organizes the academic resources of the country as consultants." According to Pauker, Suwarto had "a new idea" when he returned to Bandung. "The four or five top economists became 'cleared' social scientists lecturing and studying the future political problems of Indonesia in SESKOAD."

In effect, this group became the Army's high-level civilian advisors. They were joined at SESKOAD by other PSI and Masjumi alumni of the university programs -- Miriam Budiardjo from Pauker's MIT study group, and Selosoemardjan from Kahin's program at Cornell, as well as senior faculty from the nearby Bundung Institute of Technology, where the University of Kentucky had been "institution-building" for AID since 1957.
The economists were quickly caught up in the anti-communist conspiracy directed at toppling the Sukarno regime and encouraged by Sumitro from his Singapore exile. Lieutenant General Achmad Yani, Army commander-in-chief, had drawn around him a "brain trust" of generals. It was an "open secret," says Pauker, that Yani and his brain trust were discussing "contingency plans" which were to "prevent chaos should Sukarno die suddenly." The contribution of Suwarto's mini-RAND, according to Colonel Willis G. Ethel, U.S. defense attaché in Djakarta and a close confidant of Commander-in-Chief Yani and others of the Army high command, was that the professors "would run a course in this contingency planning."

Of course, the Army planners were worried about "preventing chaos." They were worried about the PKI. "They weren't about to let the Communists take over the country," Ethel says. They also knew that there was immense popular support for Sukarno and the PKI and that a great deal of blood would flow when the showdown came.
Other institutions joined the Ford economists in preparing the military. High-ranking Indonesian officers had begun U.S. training programs in the mid-'50s. By 1965 some four thousand officers had learned big-scale army command at Fort Leavenworth and counterinsurgency at Fort Bragg. Beginning in 1962, hundreds of visiting officers at Harvard and Syracuse gained the skills for maintaining a huge economic, as well as military, establishment, with training in everything from business administration and personnel management to air photography and shipping.6 AID's "Public Safety Program" in the Philippines and Malaya trained and equipped the Mobile Brigades of the Indonesian military's fourth arm, the police.

While the Army developed expertise and perspective -- courtesy of the generous American aid program -- it also increased its political and economic influence. Under the martial law declared by Sukarno at the time of the Outer Islands Rebellion, the Army had become the predominant power in Indonesia. Regional commanders took over provincial governments -- depriving the Communist PKI of its plurality victories in the 1957 local elections. Fearful of a PKI sweep in the planned 1959 national elections, the generals prevailed on Sukarno to cancel elections for six years. Then they moved quickly into the upper reaches of Sukarno's new "guided democracy," increasing the number of ministries under their control right up to the time of the coup. Puzzled by the Army's reluctance to take complete power, journalists called it a "creeping coup d'état."7

The Army also moved into the economy, first taking "supervisory control," then key directorships of the Dutch properties that the PKI unionists had seized "for the people" during the confrontation over West Irian in late 1957. As a result, the generals controlled plantations, small industry, state-owned oil and tin, and the state-run export-import companies, which by 1965 monopolized government purchasing and had branched out into sugar milling, shipping, and distribution.

Those high-ranking officers not born into the Indonesian aristocracy quickly married in, and in the countryside they cemented alliances -- often through family ties -- with the santri Moslem landowners who were the backbone of the Masjumi Party. "The Army and the civil police," wrote Robert Shaplen of the New York Times, "virtually controlled the whole state apparatus." American University's Willard Hanna called it "a new form of government -- military-private enterprise."8 Consequently, "economic aspects of defense" became a wide-ranging subject at SESKOAD. But Ford's Indonesian economists made it broader yet by undertaking to prepare economic policy for the post-Sukarno period there, too.

During this period, the Communists were betwixt and between. Deprived of their victory at the polls and unwilling to break with Sukarno, they tried to make the best of his "guided democracy," participating with the Army in coalition cabinets. Pauker has described the PKI strategy as "attempting to keep the parliamentary road open," while seeking to come to power by "acclamation." That meant building up PKI prestige as "the only solid, purposeful, disciplined, well-organized, capable political force in the country," to which Indonesians would turn "when all other possible solutions have failed."9

At least in numbers, the PKI policy was a success. The major labor federation was Communist, as was the largest farmers' organization and the leading women's and youth groups. By 1963, three million Indonesians, most of them in heavily populated Java, were members of the PKI, and an estimated seventeen million were members of its associated organizations -- making it the world's largest Communist Party outside Russia and China. At Independence the party had numbered only eight thousand.
In December 1963, PKI Chairman D.N. Aidit gave official sanction to "unilateral action" which had been undertaken by the peasants to put into effect a land-reform and crop-sharing law already on the books. Though landlords' holdings were not large, less than half the Indonesian farmers owned the land they worked, and of these most had less than an acre. As the peasants' "unilateral action" gathered momentum, Sukarno, seeing his coalition endangered, tried to check its force by establishing "land-reform courts" which included peasant representatives. But in the countryside, police continued to clash with peasants and made mass arrests. In some areas, santri youth groups began murderous attacks on peasants. Since the Army held state power in most areas, the peasants' "unilateral action" was directed against its authority. Pauker calls it "class struggle in the countryside" and suggests that the PKI had put itself "on a collision course with the Army."10 But unlike Mao's Communists in pre-revolutionary China, the PKI had no Red Army. Having chosen the parliamentary road, the PKI was stuck with it. In early 1965, PKI leaders demanded that the Sukarno government (in which they were cabinet ministers) create a people's militia -- five million armed workers, ten million armed peasants. But Sukarno's power was hollow. The Army had become a state within a state. It was they -- and not Sukarno or the PKI -- who held the guns.11

The proof came in September 1965. On the night of the 30th, troops under the command of dissident lower-level Army officers, in alliance with officers of the small Indonesian Air Force, assassinated General Yani and five members of his SESKOAD "brain trust." Led by Lieutenant Colonel Untung, the rebels seized the Djakarta radio station and next morning broadcast a statement that their September 30th Movement was directed against the "Council of Generals," which they announced was CIA-sponsored and had itself planned a coup d'état for Armed Forces Day, four days later.

Untung's preventive coup quickly collapsed. Sukarno, hoping to restore the pre-coup balance of forces, gave it no support. The PKI prepared no street demonstrations, no strikes, no coordinated uprisings in the countryside. The dissidents themselves missed assassinating General Nasution and apparently left General Suharto off their list. Suharto rallied the elite paracommandos and units of West Java's Siliwangi division against Untung's colonels. Untung's troops, unsure of themselves, their mission, and their loyalties, made no stand. It was all over in a day.

The Army high command quickly blamed the Communists for the coup, a line the Western press has followed ever since. Yet the utter lack of activity in the streets and the countryside makes PKI involvement unlikely, and many Indonesia specialists believe, with Dutch scholar W.F. Wertheim, that "the Untung coup was what its leader ... claimed it to be -- an internal army affair reflecting serious tensions between officers of the Central Java Diponegoro Division, and the Supreme Command of the Army in Djakarta...."12

Leftists, on the other hand, later assumed that the CIA had had a heavy hand in the affair. Embassy officials had long wined and dined the student apparatchiks who rose to lead the demonstrations that brought Sukarno down. The CIA was close with the Army, especially with Intelligence Chief Achmed Sukendro, who retained his agents after 1958 with U.S. help and then studied at the University of Pittsburgh in the early sixties. But Sukendro and most other members of the Indonesian high command were equally close to the embassy's military attachés, who seem to have made Washington's chief contacts with the Army both before and after the attempted coup. All in all, considering the make-up and history of the generals and their "modernist" allies and advisors, it is clear that at this point neither the CIA nor the Pentagon needed to play any more than a subordinate role.

The Indonesian professors may have helped lay out the Army's "contingency" plans, but no one was going to ask them to take to the streets and make the "revolution." That they could leave to their students. Lacking a mass organization, the Army depended on the students to give authenticity and "popular" leadership in the events that followed. It was the students who demanded -- and finally got -- Sukarno's head; and it was the students -- as propagandists -- who carried the cry of jihad (religious war) to the villages.

In late October, Brigadier General Sjarif Thajeb -- the Harvard-trained minister of higher education (and now ambassador to the United States) -- brought student leaders together in his living room to create the Indonesian Student Action Command (KAMI).13 Many of the KAMI leaders were the older student apparatchiks who had been courted by the U.S. embassy. Some had traveled to the United States as American Field Service exchange students, or on year-long jaunts in a "Foreign Student Leadership Project" sponsored by the U.S National Student Association in its CIA-fed salad years.

Only months before the coup, U.S. Ambassador Marshall Green had arrived in Djakarta, bringing with him the reputation of having masterminded the student overthrow of Syngman Rhee in Korea and sparking rumors that his purpose in Djakarta was to do the same there. Old manuals on student organizing in both Korean and English were supplied by the embassy to KAMI's top leadership soon after the coup.
But KAMI's most militant leadership came from Bandung, where the University of Kentucky had mounted a ten-year "institution-building" program at the Bandung Institute of Technology, sending nearly five hundred of their students to the United States for training. Students in all of Indonesia's elite universities had been given paramilitary training by the Army in a program for a time advised by an ROTC colonel on leave from Berkeley. Their training was "in anticipation of a Communist attempt to seize the government," writes Harsja Bachtiar, an Indonesian sociologist and an alumnus of Cornell and Harvard.14

In Bandung, headquarters of the aristocratic Siliwangi division, student paramilitary training was beefed up in the months preceding the coup, and santri student leaders were boasting to their American friends that they were developing organizational contacts with extremist Moslem youth groups in the villages. It was these groups that spearheaded the massacres of PKI followers and peasants.
At the funeral of General Nasution's daughter, mistakenly slain in the Untung coup, Navy chief Eddy Martadinata told santri student leaders to "sweep." The message was "that they could go out and clean up the Communists without any hindrance from the military, wrote Christian Science Monitor Asian correspondent John Hughes. With relish they called out their followers, stuck their knives and pistols in their waistbands, swung their clubs over their shoulders, and embarked on the assignment for which they had long been hoping."15 Their first move was to burn PKI headquarters. Then, thousands of PKI and Sukarno supporters were arrested and imprisoned in Djakarta; cabinet members and parliamentarians were permanently "suspended"; and a purge of the ministries was begun.

The following month, on October 17, 1965, Colonel Sarwo Edhy took his elite paratroops (the "Red Berets") into the PKI's Central Java stronghold in the Bojolali-Klaten-Solo triangle. His assignment, according to Hughes, was "the extermination, by whatever means might be necessary, of the core of the Communist Party there." He found he had too few troops. "We decided to encourage the anti-communist civilians to help with the job," the Colonel told Hughes. "In Solo we gathered together the youth, the nationalist groups, the religious Moslem organizations. We gave them two or three days' training, then sent them out to kill Communists."16
The Bandung engineering students, who had learned from the Kentucky AID team how to build and operate radio transmitters, were tapped by Colonel Edhy's elite corps to set up a multitude of small broadcasting units throughout strongly PKI East and Central Java, some of which exhorted local fanatics to rise up against the Communists in jihad. The U.S. embassy provided necessary spare parts for these radios.

Time magazine describes what followed:
Communists, Red sympathizers and their families are being massacred by the thousands. Backlands army units are reported to have executed thousands of Communists after interrogation in remote jails.... Armed with wide-blade knives called parangs, Moslem bands crept at night into the homes of Communists, killing entire families and burying the bodies in shallow graves.... The murder campaign became so brazen in parts of rural East Java that Moslem bands placed the heads of victims on poles and paraded them through villages. The killings have been on such a scale that the disposal of the corpses has created a serious sanitation problem in East Java and Northern Sumatra, where the humid air bears the reek of decaying flesh. Travelers from these areas tell of small rivers and streams that have been literally clogged with bodies; river transportation has at places been seriously impeded.17

Graduate students from Bandung and Djakarta, dragooned by the Army, researched the number dead. Their report, never made public, but leaked to correspondent Frank Palmos, estimated one million victims. In the PKI "triangle stronghold" of Bojolali, Klaten, and Solo, Palmos said they reported, "nearly one-third of the population is dead or missing."18 Most observers think their estimate high, putting the death toll at three to five hundred thousand.

The KAMI students also played a part -- bringing life in Djakarta to a standstill with anti-communist, anti-Sukarno demonstrations whenever necessary. By January, Colonel Edhy was back in Djakarta addressing KAMI rallies, his elite corps providing KAMI with trucks, loudspeakers, and protection. KAMI demonstrators could tie up the city at will.
"The ideas that Communism was public enemy number one, that Communist China was no longer a close friend but a menace to the security of the state, and that there was corruption and inefficiency in the upper levels of the national government were introduced on the streets of Djakarta," writes Bachtiar.19

The old PSI and Masjumi leaders nurtured by Ford and its professors were home at last. They gave the students advice and money, while the PSI-oriented professors maintained "close advisory relationships" with the students, later forming their own Indonesian Scholars Action Command (KASI). One of the economists, Emil Salim, who had recently returned with a Ph.D. from Berkeley, was counted among the KAMI leadership. Salim's father had purged the Communist wing of the major prewar nationalist organization, and then served in the pre-Independence Masjumi cabinets.
In January the economists made headlines in Djakarta with a week-long economic and financial seminar at the Faculty. It was "principally ... a demonstration of solidarity among the members of KAMI, the anti-Communist intellectuals, and the leadership of the Army," Bachtiar says. The seminar heard papers from General Nasution, Adam Malik, and others who "presented themselves as a counter-elite challenging the competence and legitimacy of the elite led by President Sukarno."20

It was Djakarta's post-coup introduction to Ford's economic policies.
In March Suharto stripped Sukarno of formal power and had himself named acting president, tapping old political warhorse Adam Malik and the Sultan of Jogjakarta to join him in a ruling triumvirate. The generals whom the economists had known best at SESKOAD -- Yani and his brain trust -- had all been killed. But with the help of Kahin's protégé, Selosoemardjan, they first caught the Sultan's and then Suharto's ear, persuading them that the Americans would demand a strong attack on inflation and a swift return to a "market economy." On April 12, the Sultan issued a major policy statement outlining the economic program of the new regime -- in effect announcing Indonesia's return to the imperialist fold. It was written by Widjojo and Sadli.

In working out the subsequent details of the Sultan's program, the economists got aid from the expected source -- the United States. When Widjojo got stuck in drawing up a stabilization plan, AID brought in Harvard economist Dave Cole, fresh from writing South Korea's banking regulations, to provide him with a draft. Sadli, too, required some post-doctoral tutoring. According to an American official, Sadli "really didn't know how to write an investment law. He had to have a lot of help from the embassy." It was a team effort. "We were all working together at the time -- the 'economists,' the American economists, AID," recalls Calvin Cowles, the first AID man on the scene.

By early September the economists had their plans drafted and the generals convinced of their usefulness. After a series of crash seminars at SESKOAD, Suharto named the Faculty's five top men his Team of Experts for Economic and Financial Affairs, an idea for which Ford man Frank Miller claims credit.
In August the Stanford Research Institute -- a spinoff of the university-military-industrial complex -- brought 170 "senior executives" to Djakarta for a three-day parley and look-see. "The Indonesians have cut out the cancer that was destroying their economy," an SRI executive later reported approvingly. Then, urging that big business invest heavily in Suharto's future, he warned that "military solutions are infinitely more costly."21

In November, Malik, Sadli, Salim, Selosoemardjan, and the Sultan met in Geneva with a select list of American and European businessmen flown in by Time-Life. Surrounded by his economic advisors, the Sultan ticked off the selling points of the New Indonesia -- "political stability ... abundance of cheap labor ... vast potential market ... treasurehouse of resources." The universities, he added, have produced a "large number of trained individuals who will be happy to serve in new economic enterprises."

David Rockefeller, chairman of the Chase Manhattan Bank, thanked Time-Life for the chance to get acquainted with "Indonesia's top economic team." He was impressed, he said, by their "high quality of education."
"To some extent, we are witnessing the return of the pragmatic outlook which was characteristic of the PSI-Masjumi coalition of the early fifties when Sumitro ... dominated the scene,"22 observed a well-placed insider in 1966. Sumitro slipped quietly into Djakarta, opened a business consultancy, and prepared himself for high office. In June 1968 Suharto organized an impromptu reunion for the class of Ford -- a "development cabinet." As minister of trade and commerce he appointed Dean Sumitro (Ph.D., Rotterdam); as chairman of the National Planning Board he appointed Widjojo (Ph.D., Berkeley, 1961); as vice-chairman, Emil Salim (Ph.D., Berkeley, 1964); as secretary general of Marketing and Trade Research, Subroto (Harvard, 1964); as minister of finance, Ali Wardhana (Ph.D., Berkeley, 1962); as chairman of the Technical Team of Foreign Investment, Mohamed Sadli (M.S., MIT, 1956); as secretary general of Industry, Barli Halim (M.B.A., Berkeley, 1959). Soedjatmoko, who had been functioning as Malik's advisor, became ambassador in Washington.

"We consider that we were training ourselves for this," Sadli told a reporter from Fortune -- "a historic opportunity to fix the course of events."23
Since 1954, Harvard's Development Advisory Service (DAS), the Ford-funded elite corps of international modernizers, has brought Ford influence to the national planning agencies of Pakistan, Greece, Argentina, Liberia, Colombia, Malaysia, and Ghana. In 1963, when the Indonesian economists were apprehensive that Sukarno might try to remove them from their Faculty, Ford asked Harvard to step into the breach. Ford funds would breathe new life into an old research institute, in which Harvard's presence would provide a protective academic aura for Sumitro's scholars.

The DAS was skeptical at first, says director Gus Papanek. But the prospect of future rewards was great. Harvard would get acquainted with the economists, and in the event of Sukarno's fall, the DAS would have established "an excellent base" from which to plan Indonesia's future.
"We could not have drawn up a more ideal scenario than what happened," Papanek says. "All of those people simply moved into the government and took over the management of economic affairs, and then they asked us to continue working with them."

Officially the Harvard DAS-Indonesia project resumed on July 1, 1968, but Papanek had people in the field well before that joining with AID's Cal Cowles in bringing back the old Indonesia hands of the fifties and sixties. After helping draft the stabilization program for AID, Dave Cole returned to work with Widjojo on the Ford/Harvard payroll. Leon Mears, an agricultural economist who had learned Indonesian rice-marketing in the Berkeley project, came for AID and stayed on for Harvard. Sumitro's old friend from MIT, Bill Hollinger, transferred from the DAS-Liberia project and now shares Sumitro's office in the Ministry of Trade.

The Harvard people are "advisors," explains DAS Deputy Director Lester Gordon -- "foreign advisors who don't have to deal with all the paperwork and have time to come up with new ideas." They work "as employees of the government would," he says, "but in such a way that it doesn't get out that the foreigners are doing it." Indiscretions had got them bounced from Pakistan. In Indonesia; "we stay in the background."

Harvard stayed in the background while developing the five-year plan. In the winter of 1967-68, a good harvest and a critical infusion of U.S. Food for Peace rice had kept prices down, cooling the political situation for a time. Hollinger, the DAS's first full-time man on the scene, arrived in March and helped the economists lay out the plan's strategy. As the other DAS technocrats arrived, they went to work on its planks. "Did we cause it, did the Ford Foundation cause it, did the Indonesians cause it?" asks AID's Cal Cowles rhetorically. "I don't know."

The plan went into force without fanfare in January 1969, its key elements foreign investment and agricultural self-sufficiency. It is a late-twentieth-century American "development" plan that sounds suspiciously like the mid-nineteenth-century Dutch colonial strategy. Then, Indonesian labor -- often corvée -- substituted for Dutch capital in building the roads and digging the irrigation ditches necessary to create a plantation economy for Dutch capitalists, while a "modern" agricultural technology increased the output of Javanese paddies to keep pace with the expanding population. The plan brought an industrial renaissance to the Netherlands, but only an expanding misery to Indonesia.

As in the Dutch strategy, the Ford scholars' five-year plan introduces a "modern" agricultural technology -- the so-called "green revolution" of high-yield hybrid rice -- to keep pace with Indonesian rural population growth and to avoid "explosive" changes in Indonesian class relationships.
Probably it will do neither -- though AID is currently supporting a project at Berkeley's Center for South and Southeast Asian Studies to give it the old college try. Negotiated with Harsja Bachtiar, the Harvard-trained sociologist now heading the Faculty's Ford-funded research institute, the project is to train Indonesian sociologists to "modernize" relations between the peasantry and the Army's state power.

The agricultural plan is being implemented by the central government's agricultural extension service, whose top men were trained by an AID-funded University of Kentucky program at the Bogor Agricultural Institute. In effect, the agricultural agents have been given a monopoly in the sale of seed and the buying of rice, which puts them in a natural alliance with the local military commanders -- who often control the rice transport business -- and with the local santri landlords, whose higher returns are being used to quickly expand their holdings. The peasants find themselves on the short end of the stick. If they raise a ruckus they are "sabotaging a national program," must be PKI agents, and the soldiers are called in.

The Indonesian ruling class, observes Wertheim, is now "openly waging [its] own brand of class struggle."24 It is a struggle the Harvard technocrats must "modernize." Economically the issue is Indonesia's widespread unemployment; politically it is Suharto's need to legitimize his power through elections. "The government ... will have to do better than just avoiding chaos if Suharto is going to be popularly elected," DAS Director Papanek reported in October 1968. "A really widespread public works program, financed by increased imports of PL 480 commodities sold at lower prices, could provide quick economic and political benefits in the countryside."25

Harvard's Indonesian New Deal is a "rural development" program that will further strengthen the hand of the local Army commanders. Supplying funds meant for labor-intensive public works, the program is supposed to increase local autonomy by working through local authorities. The money will merely line military pockets or provide bribes by which they will secure their civilian retainees. DAS Director Papanek admits that the program is "civilian only in a very broad sense, because many of the local administrators are military people." And the military has two very large, and rather cheap, labor forces which are already at work in "rural development."

One is the three-hundred-thousand-man Army itself. The other is composed of the one hundred twenty thousand political prisoners still being held after the Army's 1965-66 anti-communist sweeps. Some observers estimate there are twice as many prisoners, most of whom the Army admits were not PKI members, though they fear they may have become Communists in the concentration camps.

Despite the abundance of Food for Peace rice for other purposes, there is none for the prisoners, whom the government's daily food expenditure is slightly more than a penny. At least two journalists have reported Sumatran prisoners quartered in the middle of the Goodyear rubber plantation where they had worked before the massacres as members of a PKI union. Now, the correspondents say, they are let out daily to work its trees for substandard wages, which are paid to their guards.26
In Java the Army uses the prisoners in public works. Australian professor Herbert Feith was shown around one Javanese town in 1968 where prisoners had built the prosecutor's house, the high school, the mosque, and (in process) the Catholic church. "It is not really hard to get work out of them if you push them," he was told.27
Just as they are afraid and unwilling to free the prisoners, so the generals are afraid to demobilize the troops. "You can't add to the unemployment," explained an Indonesia desk man at the State Department, "especially with people who know how to shoot a gun." Consequently the troops are being worked more and more into the infrastructure labor force -- to which the Pentagon is providing roadbuilding equipment and advisors.

But it is the foreign-investment plan that is the payoff of Ford's twenty-year strategy in Indonesia and the pot of gold that the Ford modernizers -- both American and Indonesian -- are paid to protect. The nineteenth-century Colonial Dutch strategy built an agricultural export economy. The Americans are interested primarily in resources, mainly mineral.
Freeport Sulphur will mine copper on West Irian. International Nickel has got the Celebes' nickel. Alcoa is negotiating for most of Indonesia's bauxite. Weyerhaeuser, International Paper, Boise Cascade, and Japanese, Korean, and Filipino lumber companies will cut down the huge tropical forests of Sumatra, West Irian, and Kalimantan (Borneo). A U.S.-European consortium of mining giants, headed by U.S. Steel, will mine West Irian's nickel. Two others, U.S.-British and U.S.-Australian, will mine tin. A fourth, U.S.-New Zealander, is contemplating Indonesian coaling. The Japanese will take home the archipelago's shrimp and tuna and dive for her pearls.

Another unmined resource is Indonesia's one hundred twenty million inhabitants -- half the people in Southeast Asia. "Indonesia today," boasts a California electronics manufacturer now operating his assembly lines in Djakarta, "has the world's largest untapped pool of capable assembly labor at a modest cost." The cost is ten cents an hour.

But the real prize is oil. During one week in 1969, twenty three companies, nineteen of them American, bid for the right to explore and bring to market the oil beneath the Java Sea and Indonesia's other coastal waters. In one 21,000-square-mile concession off Java's northeast coast, Natomas and Atlantic-Richfield are already bringing in oil. Other companies with contracts signed have watched their stocks soar in speculative orgies rivaling those following the Alaskan North Slope discoveries. As a result, Ford is sponsoring a new Berkeley project at the University of California law school in "developing human resources for the handling of negotiations with foreign investors in Indonesia."

Looking back, the thirty-year-old vision for the Pacific seems secure in Indonesia -- thanks to the flexibility and perseverance of Ford. A ten-nation "Inter-Governmental Group for Indonesia," including Japan, manages Indonesia's debts and coordinates Indonesia's aid. A corps of "qualified" native technocrats formally make economic decisions, kept in hand by the best American advisors the Ford Foundation's millions can buy. And, as we have seen, American corporations dominate the expanding exploitation of Indonesia's oil, ore, and timber.

But history has a way of knocking down even the best-built plans. Even in Indonesia, the "chaos" which Ford and its modernizers are forever preventing seems just below the surface. Late in 1969, troops from West Java's crack Siliwangi division rounded up five thousand surprised and sullen villagers in an odd military exercise that speaks more of Suharto's fears than of Indonesia's political "stability." Billed as a test in "area management," officers told reporters that it was an exercise in preventing a "potential fifth column" in the once heavily-PKI area from linking up with an imaginary invader. But the army got no cheers as it passed through the villages, an Australian reporter wrote. "To an innocent eye from another planet it would have seemed that the Siliwangi division was an army of occupation."28

 

There is no more talk about land reform or arming the people in Indonesia now. But the silence is eloquent. In the Javanese villages where the PKI was strong before the pogrom, landlords and officers fear going out after dark. Those who do so are sometimes found with their throats cut, and the generals mutter about "night PKI."

1. Richard M. Nixon, "Asia After Vietnam," Foreign Affairs, October 1967, p. 111.
2. Soedjatmoko, "Indonesia on the Threshold of Freedom," address to Cooper Union, New York, 13 March 1949, p. 9.
3. Sumitro Djojohadikusumo, untitled address to School of Advanced International Studies, Washington, D.C., 1949, p. 7.
4. Dean Rusk, "Foreign Policy Problems in the Pacific," Department of State Bulletin, 19 November 1951, p. 824 ff.
5. Guy J. Pauker, "The Rise and Fall of the Communist Party of Indonesia," Rand Corporation Memorandum RM-5753-PR, February 1969, p. 46.
6. Michael Max Ehrmann, The Indonesian Military in the Politics of Guided Democracy, 1957-1965, unpublished Masters thesis (Cornell University, Ithaca, New York, September 1967), p. 296, citing Col. George Benson (U.S. Army), U.S. military attaché in Indonesia 1956-1960.
7. Daniel S. Lev, The Transition to Guided Democracy: Indonesian Politics, 1957-1959 Ithaca NY: Modern Indonesia Project, Cornell University, 1966), p. 70.
8. Robert Shaplen, "Indonesia II: The Rise and Fall of Guided Democracy," New Yorker, 24 May 1969, p. 48; Willard Hanna, Bung Karno's Indonesia (New York: American Universities Field Staff, 25 September 1959), quoted in J.A.C. Mackie, "Indonesia's Government Estates and Their Masters," Pacific Affairs, Fall 1961, p. 352.
9. Guy J. Pauker, "The Rise and Fall of the Communist Party of Indonesia," pp. 6, 10.
10. Ibid., p. 43.

11. W.F. Wertheim, "Indonesia Before and After the Untung Coup," Pacific Affairs, Spring/Summer 1966, p. 117.
12. Ibid., p. 115.
13. Harsja W. Bachtiar, "Indonesia," in Donald K. Emmerson, ed., Students and Politics in Developing Nations (New York: Praeger, 1968), p. 192.
14. Ibid., p. 55.
15. John Hughes, Indonesian Upheaval (New York: McKay, 1967), p. 132.
16. Ibid., p. 151.
17. "Silent Settlement," Time, 17 December 1965, p. 29 ff.
18. Frank Palmos, untitled news report dated "early August 1966" (unpublished). Marginal note states that portions of the report were published in the Melbourne Herald at an unspecified date.
19. Harsja W. Bachtiar, op. cit., p. 193.
20. Ibid., p. 195.
21. H.E. Robison, "An International Report," speech delivered at Stanford Research Institute, 14 December 1967.
22. J. Panglaykim and K.D. Thomas, "The New Order and the Economy," Indonesia, April 1967, p. 73.
23. "Indonesia's Potholed Road Back," Fortune, 1 June 1968, p. 130.
24. W.F. Wertheim, "From Aliran Towards Class Struggle in the Countryside of Java," paper prepared for the International Conference on Asian History, Kuala Lumpur, August 1968, p. 18. Published under the same title in Pacific Research 10, no. 2.
25. Gustav F. Papanek, "Indonesia," Harvard Development Advisory Service memorandum (unpublished), 22 October 1968.
26. Jean Contenay, "Political Prisoners," Far Eastern Economic Review, 2 November 1967, p. 225; NBC documentary, 19 February 1967.
27. Herbert Feith, "Blot on the New Order," New Republic, 13 April 1968, p. 19.
28. "Indonesia -- Army of Occupation," The Bulletin, 22 November 1969.

 

 



Slate: How did Suharto steal $35 billion

By Brendan I. Koerner
Posted Friday, March 26, 2004, at 5:56 PM ET

Mohamed Suharto has received a dubious honor from Transparency International, which named the former Indonesian president the most corrupt world leader of the past 20 years. With his family's takings estimated at between $15 billion and $35 billion, Suharto topped such notorious kleptocrats as Ferdinand Marcos of the Philippines ($5 billion to $10 billion) and Nigeria's Sani Abacha ($2 billion to $5 billion). How did the longtime Indonesian strongman amass his wealth?

Through a system that his political opponents called KKN, the Indonesian acronym for "corruption, collusion, nepotism." Suharto handed control of state-run monopolies to family members and friends, who in turn kicked back millions in tribute payments. Those payments were usually cloaked as charitable donations to the dozens of foundations overseen by Suharto. Known as yayasans, these organizations were supposed to assist with the constructions of rural schools and hospitals but instead functioned as Suharto's personal piggy banks. Doling out millions to one of the foundations was simply part of the cost of doing business in Indonesia during much of Suharto's 32-year reign. Financial institutions were ordered to contribute a portion of their annual profits to a yayasan, for example, and wealthy Indonesians were expected to "tithe" a certain percentage of their salaries.

The charitable foundations were only the tip of the KKN iceberg. In order to exploit Indonesia's natural resources, companies had to enlist the aid of a Suharto crony—usually one of his children—in order to get through the bureaucratic red tape. In return, the cronies expected an equity stake in the enterprise, without putting forth any monetary capital. When Jakarta's water system was privatized in the mid-1990s, for example, one of the winning bidders had to give Suharto's son, Sigit, 20 percent of the venture's shares. Sigit's involvement with the company amounted to showing up for the contract-signing ceremony.

 

 

 

 

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