Saturday, February 13, 2010

Suharto's Legacy Of Big Money

The blow-out started nearly four years ago as a gas drilling rig bored down into the lush landscape of rice paddies and villages near Sidoarjo in Java. Grey toxic mud, scalding hot, spewed from the ground.

It's kept coming ever since, covering more than 800 hectares of farmland and 12 villages, displacing 42,000 people and requiring a major highway to be diverted. Already the damage is put at nearly $5.5 billion. The land is subsiding, in the beginning of what could be a volcano-like caldera. The mud could flow for decades more.

The drilling company involved, Lapindo Brantas, is owned by the Bakrie Brothers group, which is in turn controlled by one of Indonesia's richest and most powerful men, Aburizal Bakrie, a businessman and politician combined who at the time was the minister for social welfare.

Bakrie has kept well away from Sidoarjo, and his company has tried to blame an earthquake 300 kilometres away in Yogyakarta, two days earlier, for the start of the eruption. As lawsuits and political campaigns closed in for compensation, his business group has also tried to sell off Lapindo Brantas to tax-haven companies but has been blocked by Jakarta authorities.

Like the toxic mud welling from beneath Java, Indonesia's fledgling democracy is struggling with a legacy of the 1966-98 Suharto dictatorship whose danger is often overlooked. While many analysts focus on the resistance of the military to reform, the power of the big capitalists fostered by Suharto is also important, especially if the two elements combine.

Several of the big Suharto-era business groups have lowered their profile and diversified out of Indonesia since 1998. But generally, reform has been gentle with them in terms of bailouts and loans from state banks. At least two, Bakrie and James Riady, remain deeply and prominently involved in public life.

After last year's elections, Bakrie moved up to take over leadership of the former Suharto regime political party Golkar from former vice president Jusuf Kalla. He has kept the party in alliance with President Susilo Bambang Yudhoyono's small Democratic Party, providing much needed legislative support. But that support is coming at a high political price. Bakrie is now widely seen as masterminding the attack on Yudhoyono's two most important cabinet members for cleaning up Indonesia's corrupt government, financial and judicial systems. These are the Finance Minister, Sri Mulyani Indrawati, and the current Vice President, Boediono.

Never mind that Bakrie got government bailouts after the Asian financial crisis that eventually brought Suharto down, or that several of his companies are under investigation as tax defaulters. He and his allies in the parliament are trying to bring down either Sri Mulyani or Boediono or both over a contentious bank bailout in 2008.
This was the rescue of Bank Century, a medium-sized private sector outfit that got into trouble as the global financial crisis hit. Sri Mulyani was the chief financial minister at the time, and Boediono the governor of the central bank which eventually put 7 trillion rupiah ($800 million) into a bailout.

The two officials insist the rescue was to prevent contagion that could have swept the entire banking system. But it has emerged that Bank Century's main shareholder was siphoning bank funds away to Hong Kong, and as fast as the central bank injected funds, several big depositors with political clout were withdrawing their money.

Bakrie is using this case to shake Sri Mulyani and her tax officials off the back of his companies, it appears. But getting her sacked would cause a disastrous crisis of confidence in financial circles, so Boediono may be the first target. Replacing him with someone with a less rigorous grasp of economics, like the current co-ordinating minister for economic affairs Hatta Rajasa, would deprive her of crucial support.

This week's murder conviction of the former head of Jakarta's anti- corruption agency, Antasari Azhar, after a farcical conspiracy case was put before a court, on top of the early release of Suharto's son Tommy Mandala Putra from his jail sentence for the murder of a judge and his return to Golkar politics, shows the weakness of institutions in the face of big money.

Even the strongest democracies in Asia have struggled at times with the power of big capital. In India, the Birlas and the Ambanis have at times been seen as calling the shots in New Delhi. In Japan, Prime Minister Yukio Hatoyama is having to explain how he didn't notice his mother, heiress to the Bridgestone tyre fortune, slipping some $10 million of unreported pocket money into his campaign funds.

In the newer democracies, big money can create systemic risk. Look at Thailand: the rise, fall and attempted return of telecom tycoon Thaksin Shinawatra has turned a country that seemed a stable, democratic constitutional monarchy and regional security pillar into a problem case.

This week Bakrie upped the ante by getting a parliamentary inquiry to probe links between grateful Bank Century depositors and donations to Yudhoyono's re-election campaign last year. "We are not afraid of being threatened at gunpoint, let alone by tax-evasion allegations," he's quoted as telling Golkar colleagues. "...I am not used to making threats, but don't try to threaten me."

Australia's government has identified itself closely with Sri Mulyani and Boediono (an alumnus of Western Australia and Monash universities) and their reform agenda, as have our foreign policy and financial circles. This is a moment for utmost activity to firm up Yudhoyono's resolve and for Bakrie's friends to remind him about something called national interest. Hamish McDonald for the Sydney Morning Herald

1 comment:

  1. A documentary was launched in Sydney 13 February on the mud volcano in Indonesia. You can see the movie trailer on you tube - Mud Max Documentary. International and Australian scientists discussed the subject and concluded that there is no way the cause can be known. Experts from ANU, UNSW said it could be a natural event.