tion, they had to operate in the context of a much more decentralised and diffused system of power. Businesses eventually got back on track, as I will demonstrate through the discussion
of two case studies, Lippo and Salim, which – as two of the largest conglomerates – can be regarded as generally representative to illustrate the economic recovery of the big groups.
This chapter will show how the state gradually lost the means of control over capital and de- liberate upon the conglomerates’ future status, revealing how they achieved a favourable posi-
tion, which they employed to engage in the reorganisation of power in post-Soeharto Indone- sia.
5.1 Reformasi in Indonesia: Economic and political contexts
Enormous changes occurred in Indonesia following the fall of the New Order. As demon- strated earlier, the foundations of previous Chinese big business success were disrupted,
thereby inflicting a severe crisis upon the conglomerates that pushed them to the brink of fi- nancial and political collapse. However, the post-Soeharto government decided to focus on
economic revival instead of economic restructuring. Most urgently needed for this was capi- tal, whether domestic or foreign. Thus, the conglomerates – by hook or by crook – were able
to protect themselves from the harmful effects of reform initiatives, which included the areas of bank restructuring and debt repayment. Ultimately, economic and political developments in
the post-crisis phase were to be closely interrelated and shared one fundamental, somewhat paradoxical feature – the consolidation of the conglomerates.
Economic necessities: The indispensability of the conglomerates
Economic growth rates fell more drastically in Indonesia than in any other country affected by the Asian economic crisis of 19971998. Only after the third quarter of 1998 did the econ-
omy begin to slowly recover, while Malaysia’s or Korea’s growth, for instance, was already above pre-crisis level by the end of 1999 Bird 2001: 46. According to the IMF 2001, the
crisis in Indonesia was the worst of its kind in the twentieth century worldwide. To overcome it, investments were needed, which shrank to less than 60 per cent of their 1997 volume in
1999 Basri 2004: 42. Foreign direct investment was especially sought to contribute to eco- nomic recovery James Nasution 2001: 198 in order to thoroughly reform and modernise
the Indonesian economy and thus validate the technocratic assumption that ‘pressures for re- form generally emerge from some crisis’ e.g. Ali Wardhana, cited in Borsuk 1999: 165.
However, due to the problematic business environment, there was hardly any foreign com- pany willing to invest in Indonesia Simanjuntak 2000: 60-1, which was, according to a re-
port of the World Bank 2004b, rated as one of the most difficult places to do business
35
. Therefore, it became imperative to lure back the ones who were well used to the way the In-
donesian economy worked: the Chinese capitalists. For many economists and politicians, a dilemma was whether the country should plan its
reconstruction with or without the conglomerates. On the one hand, the massive exodus of Chinese capital was regarded as the cause rather than the effect of the crisis. A new beginning
with small and medium enterprises instead of Chinese big business and KKN was the future most reformers envisioned e.g. E. Salim 2001, Republika 17 February 1998. On the other
hand, they were aware that the return of Chinese capitalists to Indonesia was the only practi- cal and quick solution to get out of the situation of lack of investments to stimulate economic
growth. In July 1998, Abdurrahman Wahid stated that ‘we should not dream that we will be able to improve our economic system without them’ cited in Suryadinata 1999, after he
tasked tycoon William Soeryadjaya to persuade the ethnic Chinese to return to Indonesia Kompas 23 June 1998. Megawati, as then-Vice President in 2000, was also convinced that
the ‘repatriation of domestic funds placed abroad would indeed be a great breakthrough to
35
For Indonesia, the report listed legal uncertainty, security issues, poor implementation of regional autonomy, red-tape, and corruption as major turn-offs to investors.
save the country from crisis’ cited in Bhui 2004. Chinese capital was the urgently needed fuel the stuttering Indonesian machine lacked and required to jump-start the economy.
According to Sofjan Wanandi cited in Ching 1999, the tycoons could bring back US5 to 10 billion of private capital that left Indonesia in 19971998. Other sources even estimated a
much higher sum, ranging from US80 billion Jakarta Post 26 Oktober 1999 to even US165 billion Merdeka 6 June 1998. Although the actual numbers are impossible to de-
termine, it is clear that a substantial amount of money was abroad with the Chinese conglom- erates and needed to be attracted back to Indonesia to be used for economic reconstruction.
Policy-makers e.g. Abdurrahman Wahid, former President, interview 17 September 2004 expected the Chinese tycoons to adjust themselves to the new environment of reformasi and
to submissively contribute with their capital to economic recovery and political reform. However, this was obviously too optimistic, as it naïvely underestimated the leverage capi-
tal had. It was then-President Habibie who had to experience the severe repercussions of anti- Chinese rhetoric. The following day after he told the Chinese capitalists that Indonesia was
not dependent on them Washington Post 19 July 1998, the value of the Indonesian currency plunged by 5 per cent. This severe reaction proved the total opposite of Habibie’s supposition
and caused an immediate change of pronouncements and policies. The president quickly real- ised that there were serious limitations to any populist, anti-Chinese endeavours. Chinese
conglomerates were materially too essential for Indonesia’s recovery as well as for his own political survival and financial well-being. With personal friends such as the corporate moguls
Ciputra and Eka Tjipta Widjaya, he soon adjusted his attitude towards Chinese big business and courted them to secure their support, as Umar Juoro former advisor to President Habibie,
interview 6 September 2004 confirmed. Habibie even appointed James Riady as his ambas- sador-at-large to bring in Chinese investors Merdeka 4 July 1998. The same efforts to entice
the conglomerates were undertaken by subsequent presidents, thus demonstrating the con- straints to ruling against Chinese capital.
The indispensability of the conglomerates was the major structural condition of the refor- masi
era. This provided them with immunity against expropriation, because, as CSIS econo- mist Pande Radja Silalahi cited in Newsweek 3 February 2003 annotated: ‘If you release and
discharge, the money comes and the economy rolls.’ It therefore became ‘a question if we want cash or justice’ Dasa Sutantio, IBRA Vice President, cited in Solomon 2000, and In-
donesia decided that it could not afford the latter. I will show how this enabled capital to in- strumentalise the reform process for its own consolidation, thus determining the extent and di-
rection of reformasi. From a position of weakness, the conglomerates eventually managed to secure their own survival and dictate the terms of their recovery.
Structural continuities: The limits of political reform
Structural continuity was a precondition for Chinese big business to come back to Indonesia. At the same time, it was a requirement the tycoons could demand because of their capital,
which was urgently needed. Hence, the capitalists and other entrenched interests did not have to worry too much. Indonesia’s major donors such as the IMF and the World Bank merely
urged the Habibie government to strengthen institutions and focus on good governance in or- der to consolidate initial stabilisation gains, to sustain economic recovery, and to ‘embrace the
two sweeping forces of globalization and democratization’ World Bank 1999: i-ii. Thus, by focusing on rather superficial reforms, political change in Indonesia could only have a transi-
tory effect on the conglomerates. This strategy of meddling with the symptoms gave them sufficient leverage not to become marginalised by reformasi.
Many aspects of the old system endured, although there were significant fatalities such as the Soeharto family’s Cendana empire see Chapter 4.2. Furthermore, the two other pillars of
politico-bureaucratic power, i.e. the military and Golkar, were considerably weakened as well. Therefore, Soeharto’s successor, Habibie, who personified the New Order like no one
else in the political scene at the time, had to start from a very defensive position. The only way he could survive was to cultivate the credentials of a reformer who wanted to put an end
to the authoritarianism of the Soeharto era and democratise Indonesia. However, many inci- dents revealed that the new president used reformasi merely as camouflage, most embarrass-
ingly exposed through the scandal regarding a taped conversation between him and attorney general Andi Ghalib, in which they plotted on how to spare Soeharto from investigations into
his crimes and fortune O’Rourke 2002: 219-21. Eventually, Habibie failed to stay in power, but managed to anchor the old apparatus in the
new regime. His successor, Abdurrahman Wahid, who once had the credentials of a genuine reformer before he assumed the presidency in October 1999, was finally perceived as just an-
other power broker who tried to direct lucrative and influential posts to his own cronies see Mietzner 2001. Wahid himself interview 17 September 2004 blamed the difficulties of his
reign on reactionary and power-hungry forces in other parties and in the army that coerced him to put their proxies in his cabinets and finally ousted him in July 2001. Megawati’s presi-
dency also did not cause any substantial changes to the ‘persistence of predatory politics’, as Robison Hadiz 2004: 244 argued.
From a notably weaker position than before, the old powers – without Soeharto – were given the time and space to gradually reorganise themselves under the modified conditions of
a new regime. In less than one decade, Golkar once again became the most successful party in Indonesia’s electoral democracy. The actual president, Susilo Bambang Yudhoyono, elected
in 2004, came from the ranks of the military that regained much of its importance, and the bu- reaucratic status quo forces made themselves comfortable in all parties, slowly but surely
marginalising the liberal intellectuals Robison Hadiz 2004: 240. FEUI economist Faisal Basri interview 11 September 2004, for instance, resigned from his post as General Secre-
tary of the PAN and left the party after he realised that it was assimilating too many elements of the New Order, leaving him no space in advocating more progressive ideas.
Even before Soeharto’s resignation the limits of any potential transition were apparent. Significantly, it was the then-high ranking general Susilo Bambang Yudhoyono, who cau-
tiously advocated reform, as quoted in Jakarta Post in April 1998, but only in a ‘constitu- tional, conceptual, and gradual manner’:
The mechanism of reform is already prearranged in our political system. There is mechanism at the DPRMPR level, there is also a set of established processes of implementing development
programs, and there are proposals about political life, programs to increase political communica- tion and programs to increase the quality of the general elections. All those things constitute the
mechanism of reform, and they are constitutional. Then-Lt. Gen. Susilo Bambang Yudhoyono, cited in Buchori 2001: 74-5
The style of the regime, but obviously not the structural substance of the system was to be re- arranged, explaining why the term for change was ‘reformasi’ and not ‘revolusi’. This al-
lowed a commitment to this process of even high ranking New Order officials who hence – in tandem with the conglomerates – succeeded in using the dynamics of reform to secure their
own positions in a post-authoritarian regime.
5.2 The conglomerates and the new regime
