Monday, November 28, 2011

Indonesia's Bakrie Sees His Chance

If the stars align, that is

Aburizal Bakrie, one of Indonesia’s most controversial businessmen and politicians, faces serious obstacles in his bid to become president in 2014. But in Indonesia’s notoriously corrupt political system, his assets could be enough to push him through.

Nearly three years away from the election, Bakrie faces a rogues’ gallery of potential opponents, each of whom is flawed in some way. Indonesian politics are amorphous at best and change is a constant. As well, Bakrie’s record as a businessman hardly inspires confidence in his ability to steer the world’s 15th biggest economy.

The Bakrie family made its fortune under Suharto, building a vast empire including telecommunications, agriculture, construction, and mining concerns. By 2007, Bakrie and his family topped Forbes’s list of the richest Indonesians with an estimated worth over US$5 billion. He has been celebrated as one of the few pribumi, or indigenous businessmen in an economy dominated by ethnic Chinese.

But while fortunes have risen for Indonesia’s wealthiest families, Forbes has dubbed Bakrie dubbed this year’s “biggest loser,” sliding to 30th place on the list. His family fortune has been reduced to some $1.2 billion, dropping by more than 50 percent in the past year alone. The biggest hit came in early November, when the Bakrie group was forced to sell off 23.8 of mining venture Bumi PLC to avoid defaulting on a $1.35 billion debt to Credit Suisse. An initial deal with Swiss commodities trader Glencore collapsed, leaving Borneo Lumbung Energi, owned by long-time Bakrie acquaintance Samin Tan, to step in and purchase the shares.

This isn’t the first time the Bakries have been pulled back from the brink of disaster. During the 1998 financial crises, the group was saved only by a government bailout after defaulting on its debts. At the onset of the 2008 credit crunch, the company nearly collapsed again. The company’s share prices plummeted, prompting a three-day closure of Indonesia’s stock market amid allegations of share manipulations. A government bailout was blocked by then-Minister of Finance Sri Mulyani Indrawati, leaving the Bakries floundering until a Chinese sovereign wealth fund extended a $1.9 billion loan.

Throughout, he and his partners have been plagued by allegations of tax evasion, less-than-arms-length business deals and poor financial management. Most recently, Nat Rothschild, whose London-based investment vehicle Vallar formed a partnership with Bakrie flagship PT Bumi earlier this year, chided the company for being “over-leveraged” and lacking transparency, calling for “a radical ‘cleaning up’ of PT Bumi Resources’ balance sheet and corporate culture” in a Nov. 9 letter leaked to the media.

Compounding Bakrie’s financial woes is a serious image problem. While analysts suggest that allegations of financial improprieties may not resonate outside of the country’s elite, a five-years-running environmental disaster outside of the East Javanese city of Sidoarjo has had a much wider impact. In 2006, a mud volcano erupted in the immediate aftermath of technical failures in a natural gas well operated by Bakrie subsidiary Lapindo Brantas, flooding 640 hectares of densely populated land. While numerous independent investigations—and popular sentiment—pinned blame on Lapindo, local courts cleared the company of responsibility, ruling that an earthquake some 185 miles away was the culprit.

In what company spokespeople describe as an act of “corporate social responsibility” (and under significant pressure from President Susilo Bambang Yudhoyono) the company agreed to pay US$400 million in compensation to the 40,000 villagers who lost their homes, fields, and businesses in the unending flood of hot mud. In effect, these payments functioned like an out-of-court settlement—albeit one the disaster victims never signed on to. Early court rulings stated that since compensation had been paid to the victims, no concrete damages had been done. To date, however, some 28 percent of the promised sum remains unpaid, further heightening public disdain for Bakrie. In October, when Golkar formally announced Bakrie’s candidacy, hundreds of demonstrators took to the streets, blocking roads in East Java.

In addition, Bakrie, whose family hails from the island of Sumatra, faces a serious obstacle as a non-Javanese. No politician from outside this ethnic group, which makes up some 45 percent of Indonesia’s population, has ever been elected president. It would be difficult for even a popular non-Javanese politician to overcome the country’s deeply rooted ethnic politics. With East Java up in arms about the Sidoarjo mud volcano, Bakrie is likely to fare badly with the country’s largest political constituency.

However, political analysts speculate that one factor may outweigh all these others: money. In a country with poor infrastructure and more than 10,000 islands, running even a clean campaign is an expensive operation. Add in the vote- and influence-buying that have become routine features of Indonesian political life, and you need a fortune. Even with his diminished assets, Bakrie still has deep enough pockets to fund a campaign, and he is likely to be the wealthiest candidate in the running. "If you want to be president in this country, you need a lot of money. And he's got a lot of money," says political scientist Salim Said.

If disbursed properly, Bakrie’s assets might even be enough to keep his own party on his side. Lacking either a charismatic founder or a clear institutional ideology, Golkar, which served as an electoral machine during Suharto’s New Order regime, has proven particularly prone to infighting and backstabbing and jockeying for any potential source of income.

“Golkar functionaries, from the top level up to the bottom are always hungry for the money,” says Herdy Sahrasad, a researcher at Paramadina University.

It is widely speculated that in the 2004 presidential elections party factions undercut Golkar candidate Wiranto’s already-shaky presidential campaign, believing that backing the Democratic Party ticket led by Susilo Bambang Yudhoyono, with ex-Golkar member Jusuf Kalla as vice president, was likelier to yield dividends. Just ahead of the 2009 elections, Bakrie himself was among a group of Golkar leaders who called for an extraordinary party conference to unseat party chairman and presidential candidate Kalla (back, by then, in the Golkar fold).

"It’s always possible that another betrayal will occur, this time to Aburizal," says Salim. If Bakrie and his backers have enough cash to support campaigns of party members, he can be assured of their loyalty. “Golkar is a party which is very pragmatic,” Salim says. “The only way you can control the party is money.”

On the campaign trail, Bakrie will also be assisted by the less-than-stellar reputations of other prime contenders. After a lackluster presidency, Megawati Sukarnoputri, currently the most likely candidate from the Indonesian Democratic Party of Struggle (PDI-P), failed to even make it to a runoff in the 2004 elections, and lost again in 2009. And former special-forces chief Prabowo Subianto, the Gerindra Party’s leading man, is tarred by allegations of grave human rights abuses by troops under command in East Timor between 1995 and 1998, and during the 1998 Jakarta riots. Disgraced by corruption scandals surrounding the South-East Asia games, the ruling Democratic Party may have trouble even finding a credible candidate to field.

Thus the wedding last week of Yudhoyono’s son, Edhie Baskoro, to the daughter of Coordinating Minister for the Economy, Hatta Rajasa, is regarded as possibly producing Hatta as a presidential candidate that could combine the Democrats with his own National Mandate Party, or PAN, a moderate Islamist party. Other candidates that have been mentioned as long shots include Sri Mulyani Indrawati, the former Finance Minister who has since gone to the World Bank as a vice president.

Furthermore, while Bakrie may be controversial, his high profile is a definite asset in a political arena conspicuously lacking in programmatic party platforms. Politicians in Indonesia routinely switch parties, coalitions form and dissolve, and the tradition of “rainbow” or “unity” cabinets, which balance lucrative appointments among rival parties, makes it unlikely that the party affiliation of any particular president will greatly affect government policies. Thus, when voters select candidates to support, they do so on the basis of personality rather than policies—or, more pragmatically, on the basis of who can pay most for their vote.

There are still nearly three years and a parliamentary election before the presidential campaigns come to a close. But without major changes in Indonesia’s political system and a more promising crop of candidates, Aburizal Bakrie, with his well-greased political machine, is currently a front-runner. Asia Sentinel

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