The end of cronyism in Indonesia?

The following article in The Age has an interesting perspective about SBY’s “enhanced” second term in office and its implications for cronism, long the bane of Indonesians. Can this be true?

Indonesia’s crony clean-out

Eric Ellis

July 15, 2009

MIGHT it just be that after President Susilo Bambang Yudhoyono’s sweeping re-election, the era of Indonesia’s grasping cronies is coming to an end?

These free-wheeling cronies have been a lawless cancer on the Indonesian economy for too long; the reason why so much of Indonesia doesn’t work properly — why its roads are pot-holed, why badly built bridges, buildings and dams collapse, why its technological backbone is dysfunctional, why consumers are abused, why its justice system is corrupt, why the oxygen-sustaining Borneo rainforests are logged to within an inch of their lives.

Cronies are to Indonesia what politically connected oligarchs are to Russia, except they’ve been around longer. Their fathers were to some extent commercial pioneers in the newly independent Indonesia, and there was then a role for them, because the new nation needed to be built, and built fast.

Their contracts and businesses were largely based on proximity to the military and the ruling family, which, save for the last decade of “reformasi”, has been largely the same thing, be it the Soehartos or the Soekarnos before them. Foreign investors quickly figured it out — joint-venture partners were chosen because they were well connected with the palace, not because they were great operators.

Too much was never enough for the cronies, who became some of Asia’s richest men, displaying almost obscene wealth in a country as poor as Indonesia. They should have been banished after the 1997-98 “Asian Contagion” crisis when the Indonesian economy collapsed and Soeharto was ousted. Some did — the Salim/Liem food-to-banking empire for one is a shadow of its former self — but the system was sufficiently politically malleable that many survived, and even prospered.

In many cases, huge debts and wrong-way bets on the market were simply ignored as part of the $US50 billion IMF-led rescue package, part-funded by Australia.

But as Indonesia has evolved and genuine new entrepreneurs have emerged, the cronies and their heirs are fighting hard to maintain their advantage.

One reason a $US1 billion media joint venture between tycoon James Riady — notorious for his funding of the Clintons’ political career — and the legendary Malaysian billionaire Ananda Krishnan ended in tears last year was that the Malaysian side felt Riady no longer had sufficient political pull in Jakarta.

That wouldn’t have been the case in the Soeharto era, when Riady’s father, Mochtar, built the business. Nor would Riady’s right-hand man, Billy Sindoro, have gone to jail for corruption, as he did last year after being filmed giving $US53,000 to a senior government official deliberating a business dispute between Riady and Krishnan.

As Indonesians embrace genuine reform, there is more transparency; the media is feisty, and so are the anti-corruption warriors. Bad businesses are being called to account. Consumers have discovered a voice, and quite like airing it. Reform has meant less crony monopolies, so the long-abused market is voting with its feet.

Now, having won a huge presidential mandate last week in his own right, Yudhoyono has a real chance to rid Indonesia’s economy of these grafters.

In Yudhoyono’s first term, the anti-corruption agency went after dodgy government officials and bent parliamentarians. Now, in his second and final term, he can afford to target miscreants in the private sector, because he doesn’t need them after politics. He doesn’t need so much to be what analysts politely describe as “pragmatic”, which really means give lucrative cabinet slots to political allies. He can stock his new cabinet with capable technocratic cleanskins — and Indonesia has plenty — instead of horse-trading portfolios for erstwhile political allies.

Perhaps the most searing example is the businessman Aburizal Bakrie, whose political power is built around his enormous telecoms-to-mining wealth, which in turn lubricates the old Soeharto fiefdom, Golkar, and the powerful national chamber of commerce, Kadin.

The Bakrie family seemed to have been ruined in the Asian financial crisis but somehow wriggled free and emerged richer than ever, thanks largely to their wresting control of one of the world’s biggest coal miners, Bumi Resources.

Bakrie got into financial difficulties last year but again seems to have wriggled clear, despite frequent calls by investors for Indonesian regulators to take a closer look at company dealings. Yudhoyono needed Golkar’s support in Parliament and in the palace and gave Bakrie a cabinet slot, first as economics minister and then for people’s welfare, aka the minister for the poor. But the contempt for him was almost palpable.

In the still-to-be-filled second-term Yudhoyono cabinet, people like Bakrie might struggle to find a job, because the emboldened President needs them less than he did even just last week.

There are millions of long-suffering Indonesians who would welcome that.

Eric Ellis writes for Forbes magazine from South-East Asia.

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8 thoughts on “The end of cronyism in Indonesia?

Add yours

  1. I have long believed that the one major hurdle preventing Indonesia from achieving greatness is indeed corruption, at all levels.

    With this earnest fight against corruption that SBY champions, all things being as they are, I predict Indonesia will overtake Malaysia in a decade’s time, with her closest rival being Vietnam. If things remain the way the are, Malaysia will slip further down the economic ladder.

    Indonesia has all the ingredients to be the ASEAN economic powerhouse it deserves to be.


  2. Riady is a curse on Indonesia….he clutches his Bible and tells everyone how saintly he is but is has done more bad things for our country than Pak Harto was ever accused of…..”the man who exported S-E Asia style korupsi”…yes!


  3. It’s been great to actually read so much positive coverage of Indonesia in the international press recently. Between the successful election and the surprisingly resilient economy, we might finally get a reprieve from the disaster/terrorism characterization of Indonesia that has dominated most news agencies coverage for so long.

    BTW, sorry this is pedantic, but I’m pretty sure the term is spelled cronyism…


  4. La Trobe laurels ignore donor’s criminal record
    Date: 26/12/2009
    The Age

    LA TROBE University has awarded an honorary doctorate to a controversial Indonesian tycoon convicted for making illegal donations to support former US president Bill Clinton’s political campaigns.
    The university bestowed the honorary doctorate of letters on James Riady in September 2007 after he made donations to the university and its overseas partners totalling $800,000.

    La Trobe’s decision has been criticised by the National Tertiary Education Union.

    “Honorary degrees are for people who have made outstanding contributions. They should not be for sale to the biggest donor, particularly those with questionable backgrounds or convictions,” said the union’s La Trobe branch president, Virginia Mansel-Lees.

    Mr Riady has also pledged $3.5 million to a scientific facility at La Trobe. The university has yet to receive that money, but a spokesman said a $500,000 instalment was expected next month.

    Mr Riady has used La Trobe’s academic honour to rebuild his image over the past two years following his criminal conviction and record $US8.6 million fine for violating America’s campaign finance laws in the 1990s.

    A La Trobe spokesman said Mr Riady’s academic honours recognised his “considerable support for education and his philanthropic activities”. His financial contributions had nothing to do with the doctorate.

    As the head of Indonesia’s powerful Lippo Group of banking and property companies, Mr Riady has built several schools and a university in South-East Asia in recent years.

    A controversial figure and publisher of the Jakarta Globe newspaper, Mr Riady has been in the news in Indonesia recently after one of his senior media executives, Billy Sindoro, was filmed last year handing bribes to officials of Indonesia’s anti-monopoly agency, the KPPU. Sindoro was later found guilty of corruption.

    In the 1990s, Mr Riady was a key figure in one of the biggest scandals of Mr Clinton’s presidency, when it emerged his companies had given more than $US1 million to Democratic Party and Clinton campaign funds in breach of US laws that ban foreign political donations.

    Mr Riady pleaded guilty in 2001 to a felony charge and a further 86 misdemeanour charges associated with the donations made by his company Lippo Bank, according to the US Justice Department.

    Mr Riady and Lippo Bank paid a $US8.61 million fine after investigators found he was reimbursing Democrat donors with foreign funds.

    A close friend since Mr Clinton’s term as Arkansas governor in the 1980s, Mr Riady made 20 visits to the White House during the Clinton presidency.

    John Huang, a friend of Mr Riady’s and a former employee of Lippo Bank, was also convicted of violating the US campaign finance laws by raising money for the Democrats through shell companies reimbursed with funds from Lippo’s Jakarta headquarters.

    Mr Huang entered the White House more than 70 times during the Clinton presidency and in 1993 was appointed assistant deputy secretary of the US Commerce Department.

    Mr Clinton came under fierce attack for his dealings with Mr Riady and Mr Huang, particularly as concerns emerged about their alleged links to China.

    A 1998 unclassified final draft of a report by a US Senate committee found Mr Riady and his father, billionaire businessman Mochtar Riady, had “had a long-term relationship with a Chinese intelligence agency”.

    Mr Riady rejected the Senate committee’s finding. Mr Huang denied any improper activity in his dealings with the Clintons.

    Asked if La Trobe was aware of Mr Riady’s conviction for violating US campaign finance laws, the university’s spokesman said La Trobe was “aware of his background”.


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