CHINESE BIG BUSINESS IN INDONESIA

THE STATE OF CAPITAL

CHRISTIAN CHUA

NATIONAL UNIVERSITY OF SINGAPORE

2006
CHINESE BIG BUSINESS IN INDONESIA
THE STATE OF CAPITAL

CHRISTIAN CHUA
(M.A., University of Gttingen/Germany)

A THESIS SUBMITTED

FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

DEPARTMENT OF SOCIOLOGY

NATIONAL UNIVERSITY OF SINGAPORE

2006
 i

ACKNOWLEDGEMENTS

Throughout the years working on this study, the list of those who ought to be mentioned here

grew tremendously. Given the limited space, I apologise that these acknowledgements thus

have to remain somewhat incomplete. I trust that those whose names should, but do not, ap-

pear here know that I am aware of and grateful for the roles they played for me and for this

thesis.

However, a few persons cannot remain unstated. Most of all, I owe my deepest thanks to

my supervisor Vedi Hadiz. Without him, I would not have begun work on this topic and in-

deed, may have even given up along the way. His patience and knowledgeable guidance, as

well as his sharp mind and motivation helped me through many crises and phases of despair. I

am thankful, as well, for the advice and help of Mary Heidhues, Anthony Reid, Noorman Ab-

dullah, and Kelvin Low, who provided invaluable feedback on early drafts.

During my fieldwork in Indonesia, I was able to work as a Research Fellow at the Centre

for Strategic and International Studies (CSIS) in Jakarta thanks to the kind support of its direc-

tor, Hadi Soesastro. Not only did my colleagues and friends at CSIS help make my time so en-

joyable, I am not sure if I could have survived the nine months in Jakarta without them. I am

also grateful to all of my respondents those listed in the Appendices and those who preferred

to remain anonymous for taking the time to talk and explain to me the often very opaque

world of business and politics in Indonesia, as well as to Evy Heliana, Agung Wicaksono, and

my mother Susantiana Ciptawijaya, who helped me in one way or the other.

I am also heavily indebted to my department, the charming ladies of the general office, the

former Head, Hing Ai Yun, for her motherly care to her students, and to NUS with all the fa-

cilities it provided, the freedom I was given (despite some redundant regulations), and, of

course, the non-material and material support I received as a research scholar. For the latter, I

thank the Faculty of Arts and Social Sciences for the fieldwork grant and conference funding,

as well as the Ev. Studienwerk (Germany) for its generous scholarship before I joined NUS
 ii

and its encouragement, together with that of my former supervisor Ingrid Wessel, to switch

from Humboldt University Berlin to Singapore.

No academic work can be done if one does not have a life outside university. To all those

who were part of it, to my parents in Germany, and to my friends, who struggled with me

through endless library days, stimulating discussions, and joyful nights over a Becks Bier in

Gttingen, Tiger Beer in Singapore, or Bir Bintang in Jakarta: You are the best! I am very

happy to know you.

Finally, not only my gratitude but also all my love goes out to my wife Friederike for bear-

ing and sharing four years of separation, stress, desperation, and anxiety. This dissertation is

the outcome of her patience and support. As words cannot express my appreciation, it is there-

fore dedicated to her.

 iii

TABLE OF CONTENTS

Acknowledgements ...................................................................................................................................................... i
Table of contents ........................................................................................................................................................ iii
List of tables and figures ............................................................................................................................................. v
Summary .................................................................................................................................................................... vi

1 Introduction: Capital and the state ...................................................................................... 1

1.1 FOCUS AND DEFINITIONS.................................................................................................................. 3
The Chineseness of capital ......................................................................................................... 3
Chinese big business................................................................................................................ 6
States and regimes...................................................................................................................... 8
1.2 CENTRAL ARGUMENT: THE EMERGENCE OF PLUTOCRACY ............................................................. 11
1.3 METHODOLOGY ............................................................................................................................. 12
1.4 OUTLINE ........................................................................................................................................ 15

2 Theoretical framework: Power configurations of state and capital ................................ 17

2.1 APPROACHES TO CHINESE INDONESIAN CAPITALISTS .................................................................... 18
Culturalist perspectives ............................................................................................................ 18
Structuralist perspectives ......................................................................................................... 23
An analysis of Chinese capitals ethnic and material conditions ............................................. 26
2.2 IDENTIFYING THE RULING CLASS: CAPITAL AND THE STATE ........................................................ 29
Theories of the capitalist state.................................................................................................. 30
The New Order state................................................................................................................. 32
Forms of capitalism.................................................................................................................. 36
2.3 FROM BUREAUCRATIC TO PLUTOCRATIC CAPITALISM .................................................................... 39

3 Limited capitalists: Chinese big business and the state before 1998 ............................... 41
3.1 DETERMINANTS: CHINESE CAPITAL IN HISTORICAL PERSPECTIVE .................................................. 42
Pre-colonial times (From the dawn of history to 1600)......................................................... 43
Colonial rule (16001949) ....................................................................................................... 44
The post-colonial state (194965)............................................................................................ 49
3.2 THE NEW ORDER ACCOMMODATION ............................................................................................. 53
Conditions: The creation of a pariah business class................................................................ 54
Marginalisation: Extinguishing Chineseness .................................................................................. 55
Discrimination: Making the Chinese visible ................................................................................... 58
Stigmatisation: The Chinese as expropriators ................................................................................. 60
Implications for the Chinese capitalists........................................................................................... 63
The formation of the alliance (196674).................................................................................. 64
Raising Chinese cukongs ................................................................................................................ 64
The foundations of symbiosis ......................................................................................................... 68
The consolidation of bureaucratic power (197482) ............................................................... 70
The system of dominance: Authoritarianism, centralism, and protectionism.................................. 72
Indigenous capital ........................................................................................................................... 75
The expansion of oligarchic capitalism (198297) .................................................................. 78
The politicobusiness oligarchy...................................................................................................... 79
Contradictions ................................................................................................................................. 82
3.3 THE LIMITED POWER OF CAPITAL ................................................................................................... 85
 iv

4 Capital in crisis: The conglomerates and the end of the New Order .............................. 88
4.1 THE CRISIS IN CONTEXT ................................................................................................................. 90
Interpretations .......................................................................................................................... 90
Capital on the eve of the crisis ................................................................................................. 93
Monetary crisis......................................................................................................................... 95
Regime crisis ............................................................................................................................ 97
4.2 ECONOMIC IMPACT: THE DISMANTLING OF THE BUSINESS EMPIRES ............................................. 100
Financial collapse .................................................................................................................. 100
Debt settlement ....................................................................................................................... 103
4.3 POLITICAL IMPACT: THE DISSOLUTION OF PREDATORY ARRANGEMENTS ..................................... 104
The end of authoritarianism ................................................................................................... 105
The end of centralism ............................................................................................................. 110
The end of protectionism ........................................................................................................ 112
4.4 THE END OF THE CONGLOMERATES? ............................................................................................ 116

5 Capitals reaction: The survival of the conglomerates ................................................... 119

5.1 REFORMASI IN INDONESIA: ECONOMIC AND POLITICAL CONTEXTS ............................................... 120
Economic necessities: The indispensability of the conglomerates ......................................... 120
Structural continuities: The limits of political reform ............................................................ 123
5.2 THE CONGLOMERATES AND THE NEW REGIME ............................................................................. 125
Democratisation ..................................................................................................................... 126
Decentralisation ..................................................................................................................... 130
Deregulation........................................................................................................................... 131
5.3 ECONOMIC RECOVERY: RECOUPING THE LOSSES ......................................................................... 135
The Lippo Group .................................................................................................................... 138
The Salim Group .................................................................................................................... 144
5.4 CAPITALIST CONSOLIDATION, CONSOLIDATED CAPITAL............................................................... 155

6 Capital unlimited: Towards a new accommodation ....................................................... 158

6.1 CAPITAL IN POST-SOEHARTO INDONESIA: UN-LIMITING CHINESE BIG BUSINESS ......................... 160
Democracy: Social de-marginalisation.................................................................................. 160
Decentralism: Political strengthening.................................................................................... 165
Free markets: Economic resurgence...................................................................................... 166
6.2 MODES OF TRANSITION: PATTERNS OF POLITICAL BUSINESS ........................................................ 168
The restoration of KKN .......................................................................................................... 169
Money politics .............................................................................................................................. 170
Patronage ...................................................................................................................................... 171
Infiltration ..................................................................................................................................... 175
The politicisation of business ................................................................................................. 177
Political activism........................................................................................................................... 177
Premanism .................................................................................................................................... 179
6.3 FORMATS OF REPRESENTATION: THE RISE OF AN AUTONOMOUS CAPITALIST CLASS .................... 182
Autonomy................................................................................................................................ 183
Dominance ............................................................................................................................. 185
Immediacy .............................................................................................................................. 187
6.4 PLUTOCRACY IN THE MAKING ...................................................................................................... 189

7 Conclusion: The state of capital........................................................................................ 190

Bibliography............................................................................................................................................................ 198
Newspapers, magazines........................................................................................................................................... 213
Appendices.............................................................................................................................................................. 218
List of people interviewed ....................................................................................................................................... 219
Abbreviations and glossary ..................................................................................................................................... 221
 v

LIST OF TABLES AND FIGURES

Figure 1: Typology of capitalist systems ............................................................................. 37

Figure 2: Development of capitalism in Indonesia .............................................................. 39

Figure 3: Patronage networks in the New Order.................................................................. 69

Figure 4: Anti-Chinese/anti-capitalist cartoons ................................................................... 83

Table 1: The 30 largest conglomerates in Indonesia before the crisis (1996) ................... 218
 vi

SUMMARY

The disintegration of Indonesias New Order regime in 1998 put an end to the crude forms of

centralised authoritarianism and economic protectionism that were essential for the emergence

and rise of large Chinese conglomerates, which have dominated the countrys private sector.

What were the consequences of the democratic transition for Chinese big business? How do

business groups adapt to changes in the political environment? Despite massive problems and

contrary to expectations, most of the major capitalist groups have in fact succeeded in getting

through the economic and political crisis that brought down Soeharto, and are now presiding

over refashioned but still thriving corporations. This study identifies the strategies the tycoons

employed to survive in an unfamiliar, initially threatening post-authoritarian regime, thereby

revealing the dynamics of power and the particular structural position of big business in the

post-Soeharto Indonesian political economy.

I argue that it is important to take the ethnicity of private capital in Indonesia into consid-

eration, which since colonial times has been Chinese. Discriminatory policies marginal-

ised this ethnic minority both socially and politically, confining it to distinctively economic

functions. A small group of Sino-Indonesian capitalists was thus ideally suited to be co-opted

as business clients of the New Order powerholders from 1966 onwards. Without direct access

to political power, these limited capitalists could not pose a threat to the state managers and

were therefore nurtured to grow into huge business groups. The combination of economic

strength and political weakness allowed them to become an integral part of the New Order rul-

ing oligarchy, in which the politico-bureaucrats prevailed.

The financial crisis of 1997/1998, eventually, rendered this accommodation no longer fea-

sible. It caused significant damage to the business groups, brought them close to collapsing,

and unravelled the regime that had provided protection. The democratisation, decentralisation,

and deregulation push of the post-Soeharto reformasi governments appeared on the surface to

be detrimental to the continuing existence and business success of most New Order era con-

glomerates. However, this study shows that the Chinese tycoons have in fact benefited tremen-
 vii

dously from the changed political conditions. The new regime could not ignore their capital

due to its indispensability to an Indonesian economy re-emerging from deep crisis. Continui-

ties in Indonesias predatory form of capitalism as well as the discontinuation of overtly anti-

Chinese policies allowed the major business groups to survive, recoup their losses, and even

placed them in a position to help determine future economic and political directions. Tradi-

tional modes of conducting political business, along with the significant rise of money politics,

enhanced the Chinese capitalists bargaining power and provided the setting for the emancipa-

tion of the businessmen from their former bureaucratic patrons.

I suggest that reformasi did not, as widely expected, terminate the rule of the old politico

business oligarchy, but prompted a change of power relations between the two contending

fractions in favour of capital. In-depth observations and a thorough analysis of the Indonesian

political economy after the demise of Soeharto will substantiate that the former bureaucracy-

controlled alliance has now given way to one that has more plutocratic characteristics where

a relatively autonomous business class rose to an increasingly dominant position within the

prevailing constellation of power. This study thus highlights an important case of big business

response to new political conditions and contributes to our understanding of the exercise of

capitals power in and over the state.

 1

Money politics will be less and less in our open,

more democratic economy. [] We are heading
towards an improved capitalism.
(Former President Abdurrahman Wahid)1

It is part of my responsibility to help the country to

democratize. [] We are built to become the main
engine of democracy in Indonesia.
(Artha Graha Group boss Tomy Winata)2

1
INTRODUCTION:
CAPITAL AND THE STATE

Plutocracy, literally, means the rule of wealth. This study analyses the transformations in In-

donesia from a bureaucratic regime to one which is plutocratic. It will demonstrate how the

hierarchy inside the statebusiness oligarchy shifted in favour of capital.

One may argue that all societies are ruled by the wealthy (e.g. Miliband 1969: 23). How-

ever, this assertion is too general, as state power may also be held by groups that establish

their power and authority on sources other than capital. Indonesia during the rule of the so-

called New Order (196698) was one such case. This regime was by and large dominated by

bureaucrats, while the predominantly Chinese capitalists were politically restricted. The more

distinct characteristics of plutocracy in post-authoritarian Indonesia thus need to be defined in

contrast to the previous regime that was in power until the financial crisis in 1997/1998, in

which politico-bureaucrats were a dominant part of the ruling alliance that prevailed.

To suggest the emergence of a plutocratic regime is not in line with commonly purported

assessments of the post-crisis development of Indonesia. Mackies evaluation represents the

widespread expectation of the end of Chinese big business, common especially during the

immediate post-Soeharto years:

1
Interview 17 September 2004.
2
Interview 27 September 2004.
 2

Soeharto [] and his major cukong (Chinese financial backers; cronies) have crashed into the

dustbin of history. (Most of the top 20 or 30 are either bankrupt, or nearly so, in any case, and

no doubt many hundreds or even thousands more.)

(Mackie 1999: 189)

One of the major spokespersons of Chinese Indonesian businessmen3, Sofjan Wanandi (inter-

view 1 July 2003), concurred with this appraisal and commented on my research project:

Chinese big business? Dont waste your time. They are all bankrupt!

Indeed, the events during the upheavals in 1998 painted a fairly desperate picture for these

capitalists. Demonstrators held the conglomerates responsible for the economic crisis, politi-

cians used them as scapegoats, and rioters destroyed corporate and private property of the big

tycoons. With the fall of long-time dictator Soeharto in May 1998, the regime that estab-

lished, promoted, and protected them came to an end. The new political environment was per-

ceived as being full of unpredictable threats to the interests of big businesses. The sudden dis-

sipation of the authoritarian, centralised, and protectionist features of the New Order made

Chinese capitalists not only vulnerable to bankruptcy or, at least, to an enforced partial set-

tlement of their gargantuan debts, but also to a general reorganisation of the Indonesian econ-

omy without them. The immense amount of capital that left Indonesia during the crisis es-

timated to range up to US$165 billion (Merdeka 6 June 1998) as well as the exodus of most

major tycoons who sought shelter in Singapore, Australia, or elsewhere, testified to their pes-

simistic perception of the situation in 1998. The end of the New Order was thus widely re-

garded as possibly heralding the end of Chinese big business.

However, a few years after the crisis, the boss of Indonesias largest conglomerate, An-

thony Salim (interview 13 April 2005), claimed that his companies were in fact not only not

affected but thriving because of the new conditions. Reports on other conglomerates and es-

3
As a matter of fact, there is no single woman in the upper echelons of Indonesian big business (and
rarely outside). Hence I use businessmen interchangeably with capitalists.
 3

timations by most of my respondents presented the same judgement on the state of Chinese

big business. Reformasi, as the post-Soeharto period is called (maybe too euphemistically),

obviously failed to disrupt many of the structural foundations of the New Order regime and

disempower the oligarchy that presided over it.

The main question is thus how the capitalists proceeded to recover, regain economic

strength, and reinvent themselves in a post-authoritarian political environment. How has big

business adapted to the monumental political changes in Indonesia? How does the re-

emergence of capital affect the state, particularly its managers? Understanding the political

economy of Chinese big business in Indonesia and its development after 1998 will help us to

better comprehend the current nature of relations between capital and the state.

1.1 Focus and definitions

A study on Chinese big business and the state requires careful definitions of its objects and

scope of research. Three analytical dimensions have to be clarified, before I elaborate on my

central argument: first, the Chinese ethnicity of the capitalists in Indonesia, second, the type

of big business that is of concern here, and third, how I conceive concepts such as state, re-

gime, and government. I will differentiate this study from other approaches to the Chinese

minority and explain its specific focus on the largest of these conglomerates.

The Chineseness of capital

When speaking of Chinese, I refer to Indonesians who define themselves as orang Tiong-

hoa/Chinese Indonesians and are seen by others as Chinese.4 Ethnic Chinese have been liv-

4
As it is only a constructed identity, Chinese should ideally always have quotation marks. However,
for readability reasons, this will not be done here.
 4

ing in Indonesia for generations, if not centuries. It is often impossible to find differences be-

tween them and the Indonesians regarded as indigenous, the so-called pribumi. Most of the

Sino-Indonesians have Indonesian names, use the Indonesian language, are Indonesian citi-

zens, and have never been outside Indonesia. However, until 1998 they constituted the non-

pribumi, the counterpart of the pribumi-majority. This non-asli (not original) attribute not

only legally marked the Chinese as outsiders of the nation, but constituted the dominant social

reality in Indonesia. In many ways, be it in the institutional enactment of discriminatory laws

and unfair practices or publicly in riots, the exclusion of the Chinese took place (Chua 2002).

As I will point out in Chapter 3, the Chinese problem manifest in state-sanctioned dis-

crimination seriously affected the social position of Indonesias major capitalists in the New

Order. Similarly decisive for capital was the relative but general de-marginalisation of Sino-

Indonesians from 1998 onwards. It is for that reason that I apply the commonly used label

Chinese to refer to big business and to entrepreneurs whose ancestors migrated from China,

even though I explicitly seek to analytically de-link the Chinese tycoons from the Chinese

minority, with whom they do not share more than the same ethnic ascription. To treat them as

one group would mean to neglect their material heterogeneity and eventually reproduce the

effective construction of ethnicity by the New Order.

The pervasiveness of the latter was highlighted by the widespread equation of ordinary

Chinese Indonesians with the big businessmen. The common assertion that the Chinese con-

stitute only 3.5 percent of the population but control 70 percent of Indonesias economy (Far

Eastern Economic Review 28 May 1998: 21) was constantly repeated by politicians (e.g.

Habibie, cited in Suryadinata 1999: 11) and appeared in popular literature and imagination as

well as in academic works (e.g. Huntington 1996: 170). Backmans description of the eco-

nomic domination of ethnic Chinese is worth being quoted at length, as it gives a good exam-

ple of how the whole Chinese minority is represented by the wealth of a few tycoons.

Apart from Japan and South Korea, business in Asia largely consists of ethnic Chinese busi-

nesses. In South-East Asia, they absolutely dominate business and yet, form only a small minor-
 5

ity of the population. Approximately 6% of the combined population of the five main South-

East Asian economies (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) is ethni-

cally Chinese, but this 6% controls perhaps as much as 70% of the regions private corporate

wealth. This tiny minority also accounts for all but one of the 18 South-East Asia billionaires

identified by Forbes magazine in 2000. The dominance of the Chinese is perhaps at its greatest

in Indonesia. In fact, of Indonesias top 300 conglomerates just prior to the 1997-98 economic

crisis, 217 (72%) were either wholly or mostly owned by Indonesian-Chinese not a bad result

for an ethnic group that comprises just 3.5% of the countrys population.

(Backman 2001: 193-4)

The powerful position of the Chinese billionaires is without question; what is problematic was

that the remaining 6 million5 Sino-Indonesians were considered to be as powerful, wealthy,

and exploitative. As I pointed out elsewhere (Chua 2004b), this prejudice provided the poli-

tico-bureaucratic powerholders of the New Order with the possibility to depict the constantly

intensifying economic conflict in Indonesia as an ethnic one between the indigenous and the

Chinese, using the latter as a buffer to deflect criticism of the regime. To instrumentalise Chi-

nese ethnicity, Chineseness therefore had to be constantly constructed and negatively stig-

matised.

Every study as well as every newspaper report or magazine article on Chinese capital

in Indonesia bears the risk of fostering anti-Chinese stereotypes. Although I only use the eth-

nic marker in a descriptive way that does not refer to any innate ethnic characteristics, nor

implicate a primordial belonging of the capitalists to a certain ethnic group, I would have pre-

ferred to omit the adjective Chinese totally. However, the Chineseness of big business in

5
This figure is based on the 1930 census that saw the ratio of ethnic Chinese at 2 to 3 per cent. Accord-
ing to Suryadinatas and Anantas interpretation of the 2000 population census, this ratio decreased to
only 1.5 per cent (i.e. 3 million) (Suryadinata et al. 2003: 73-101). Their estimation, however, is most
likely too low as it only includes the ones who defined themselves as Chinese and who admitted this
after decades of having to keep quiet about ethnicity in a census. The accurate number will be higher,
probably somewhere in the order of 5 to 6 million (Mackie 2005: 101). Nonetheless, the conventional
definition of ethnic Chinese needs to be reconsidered, as ethnic boundaries (see Barth 1969) are con-
stantly shifting.
 6

Indonesia is a social fact and of utmost relevance for this research inasmuch it explains the

politically weak position of the capitalists during the New Order and the changes due to the

reforms after the crisis. The inclusion of the ethnic dimension (see Chapter 2) thus makes it

inevitable to speak of and focus on Chinese big business.

Chinese big business

Braudel (2002: 23-5) distinguished between the subsistence, market, and capitalist sectors of

the economy. Only in the latter has capital appropriated the means of production; their owners

are the capitalists, who command huge amounts of capital and participate in complex opera-

tions to accumulate profits and substantiate their wealth. This is the group of people whose

power this thesis seeks to assess, thereby regarding the main vehicles of capital in Indonesia,

the conglomerates, not as a power in themselves, but as a particular way in which capitalists

organize their wealth (Greenfield, cited in Wood 2003: 12-13). I refer to them as Chinese

big business.

Although big business might be considered too vague a term, it has the advantage in that

it addresses the largest corporations of any particular space and time. Significant Chinese

businesses have been existent since colonial times. However, only from 1966 onwards did

they assume the form of large business groups, or conglomerates. In fact, 23 of the 30 big-

gest groups in 1996 were established during the New Order (Sato 2004: 25; see also Appendi-

ces, Table 1).6 According to Satos (1994: 112) definition, a business group can be regarded

as a conglomerate if more than five companies are owned by the same or related persons. The

founder, or his successor, and his family are the centre of the highly diversified group, with

many not necessarily related ventures clustered around one or several core business fields.

6
Most conglomerates, however, were founded upon single companies that already existed before.
 7

Another term for the owners of conglomerates is tycoon businessmen of extraordinary

wealth and power (Mackie 1991: 83).

For this study, the 20 to 30 largest conglomerates in the last years of the New Order in

terms of their annual turnover rates are at the centre of attention (see Appendices, Table 1).

This range is somewhat arbitrary, but there are valid reasons for narrowing down the scope:

First, the annual sales of the top 30 groups were significantly higher than those of lower rank-

ing business groups. Second, there was a consensus between interviewed experts and busi-

nessmen on the frontiers of big business. Their notion of conglomerates belonging to that

category broadly coincided with Satos (1994: 121) list of top groups vis--vis the secon-

dary top groups on ranks 20 to 47 of her table. However, it is not relevant and not possible,

for that matter (see Chapter 1.3) to have exact criteria to clearly demarcate the largest con-

glomerates. Big are the groups that are considered to be the biggest in comparison to other

businesses of the country.

In 1996, there were, besides Chinese conglomerates, three other types of private domestic

business groups that were listed in the top 30: two conglomerates (Bimantara and Humpuss)

mainly owned by the Soeharto family (the so-called Cendana Group7), one by an ethnic In-

dian (Texmaco), and one by a pribumi businessman (Bakrie). These groups emerged under

different conditions than Chinese businesses. They were not subject to the same constraints

and policies that determined the role of the Chinese. Especially the capitalists from the presi-

dents family, who effectively depicted themselves as pribumi entrepreneurs, founded their

rise upon immediate proximity to the bureaucratic state apparatus and Soehartos central posi-

tion within it. They were first and foremost bureaucrats or families of bureaucrats, who trans-

formed themselves into capitalists. This study will not deal with them particularly.

7
Soehartos familys enterprises were named after the street where the presidents house was located
(i.e. Jalan Cendana in Menteng, Jakarta).
 8

Even though Soeharto family business interests were to be particularly ubiquitous by the

1990s in most major business deals, indigenous capital was indeed rather negligible in terms

of quantity and significance. In contrast, Chinese owned corporations including business gi-

ants such as the Salim Group, Astra International, and Sinar Mas constituted by far the larg-

est ones and the absolute majority of the top enterprises. In 1996, 26 conglomerates of the top

30 could be categorised as Chinese big business. Together, their sales added up to about 30

per cent of the Indonesian GDP (Rachbini 1999: 32). Hence, it is not just the immense impor-

tance of Chinese private capital for Indonesias economy, but also the specific perspective of

this study on the political economy of ethnic business (Jomo & Folk 2003) that justifies an

exclusive focus on the largest Chinese corporations.

States and regimes

The modern capitalist state, I suggest, is structurally determined by the specific requirements

of the capitalist mode of production that, in turn, imposes particular functions upon the state.

Its main objective is the provision of favourable conditions for the private accumulation of

capital, through which it ensures its own financial subsistence and indispensability. Therefore,

the state might impose impediments for individual capitalists or against the short-term inter-

ests of capital in general; it might also make concessions to non-capitalist classes and imple-

ment or strengthen workers rights; however, these essential mediations between propertied

and unpropertied classes merely safeguard the long-term interests of capital in general that

many particular capitalists do not even pursue (Altvater 1972). Essential for this system is the

states authority and legitimacy through coercion and ideological hegemony, which Gramsci

(1971: 244) defines as the entire complex of practical and theoretical activities with which

the ruling class not only justifies and maintains its dominance but manages to win the active
 9

consent of those over whom it rules. Because the ruling ideas of any age are the ideas of the

ruling class8 (Marx & Engels 1969: 47), citizens of all classes subscribe, or are forced to sub-

scribe, to the capitalist logic of permanent capital accumulation, regarding and experiencing

through income, jobs, and stability that everything that is good for the economy is also good

for the individual.

The state and its managers, the bureaucrats, are thus crucial for capital. The specific char-

acteristics of states are manifestations of the relative positions of the bureaucracy and capital.

The bureaucrats represent the state apparatus and form its government, the legislative and

executive branch of the state apparatus and those officials, parties and individuals who oc-

cupy its offices (Robison & Hadiz 2004: 17). But ultimately, power in the modern capitalist

state resides with the capitalists. Their major advantage is that they possess the means of capi-

tal accumulation. They are thus the keepers of structural power. Similar to a board of com-

missioners, the supervisory board of Indonesian companies, they usually do not interfere in

day-to-day affairs, but they ensure that the long-term vision and interests of the corporation

are abided and, in the event they see significant deviations from corporate values and inter-

ests, they can veto the course chosen by the board of directors. In certain ventures, the com-

missioners might be more powerful than the main executives, intervening directly or taking

over the directors board or at least their decisions. In others, the supervisory board is muted,

or co-opted in ways it loses its critical distance and potential to interfere. This is similar to

capitalist states, where the exact form of political influence of capital is highly variable and

contingent on the political regime. During the New Order, for instance, capital had to accept

its limited and subordinate position. However, I argue that the capitalist class in post-Soeharto

Indonesia achieved a more powerful position in relation to the officials of the state than it had

during the New Order.

8
Original (written 1845/46): Die Gedanken der herrschenden Klasse sind in jeder Epoche die herr-
schenden Gedanken.
 10

In most cases, despite all inter-fractional power struggles, capital and bureaucrats form an

alliance of varying hierarchy, dependency, and proximity. This can develop into a relative co-

hesive statebusiness oligarchy, as it was the case in New Order Indonesia. A complete re-

moval of this oligarchy from power would require a new system, which, however, can only be

realised if the general hierarchies of power are turned upside down, as it only happens

through revolutions. As long as the material conditions of capitalist systems remain widely

unaffected, power structures as outlined above will continue to prevail.

Regime changes will effectuate not more than a rearrangement of the internal hierarchy in-

side the oligarchy. Hence, a new regime comprises nothing but a modified institutional

framework to organise the power of the state. It constitutes only a change in the personnel of

the state and its style, or, as Marx & Engels (1961: 8) termed it, the legal and political super-

structure that arises on the economic structure of society, the real foundation9. The New

Order was therefore one regime, and reformasi Indonesia produced another one. As I will

demonstrate, the reforms failed to change the underlying class structures of capitalism that

enabled the rule of the oligarchy. Instead, they made it stronger and thus increased capitals

resilience in yet another regime.

9
Marx & Engels (1961: 9) further emphasised that in studying such transformations it is always nec-
essary to distinguish between the material transformation of the economic conditions of production,
which can be determined with the precision of natural science, and the legal, political, religious, artistic
or philosophic in short, ideological forms in which men become conscious of this conflict and fight it
out.
Original (published 1859): Die Gesamtheit dieser Produktionsverhltnisse bildet die konomische
Struktur der Gesellschaft, die reale Basis, worauf sich ein juristischer und politischer berbau erhebt
und welcher bestimmte gesellschaftliche Bewutseinsformen entsprechen. [] In der Betrachtung sol-
cher Umwlzungen mu man stets unterscheiden zwischen der materiellen, naturwissenschaftlich treu
zu konstatierenden Umwlzung in den konomischen Produktionsbedingungen und den juristischen,
politischen, religisen, knstlerischen oder philosophischen, kurz, ideologischen Formen, worin sich
die Menschen dieses Konflikts bewut werden und ihn ausfechten.
 11

1.2 Central argument: The emergence of plutocracy

What are the consequences of the regime change in 1998 for Chinese big business? Why

and how were the conglomerates able to survive in a dramatically changed environment? I

argue that the new democratised reformasi regime facilitated the emergence of plutocracy in

Indonesia. It did not, as widely expected, terminate the rule of the power bloc consisting of

politico-bureaucrats and Chinese capitalists, but it prompted a change of power relations be-

tween the two fractions in favour of capital. The oligarchy in which politico-bureaucrats and

their families tended to dominate has now given way to one that is composed in a more pluto-

cratic fashion where big business will tend to run the show more unabashedly.

In the New Order, the politico-bureaucrats held instrumental power over the state, success-

fully maintaining their dominance through a sophisticated regime of authoritarianism, central-

ism, and collusion. One integral component of their largely unchallenged rule was the subju-

gation of the capitalists, who were effectively limited by being labelled Chinese a stigma

that linked them with a socially marginalised ethnic minority and prevented their access to di-

rect power. The Chinese tycoons were thus appropriate partners to be raised and co-opted as

compliant partners in a bureaucracy dominated oligarchy. This was, after all, a price they

were willing to pay to maintain a stake in a predatory, extremely profitable symbiosis with the

state, whose managers allowed and supported them to establish enormous conglomerates that

dominated the countrys private sector. The crisis, however, forced an end to this accommo-

dation.

I further argue that the Chinese tycoons benefited most from the democratisation, decen-

tralisation, and deregulation efforts of the reformasi period. While the disintegration of the

New Order seriously disrupted the oligarchys bases of authority and with it the power con-

figurations thought to be essential for Chinese business success the new regime could not do

without the Chinese capitalists due to their economic indispensability to an Indonesian econ-

omy re-emerging from deep crisis. The resulting continuities allowed the major business

groups to survive, recoup their losses, and even help determine the course of post-Soeharto
 12

Indonesia, enabling them to steadily distance themselves from bureaucratic patrons, extend

their autonomy, and perhaps to rise to a more overtly dominant position within the ruling alli-

ance.

By showing how the conglomerates dealt with the unravelling of the New Order and its

centralised network of patronage, this thesis will demonstrate that the Chinese tycoons man-

aged to reorganise in post-Soeharto Indonesia, and that their interests and actions have paved

the way for a more plutocratic regime. The study will thus highlight an important case in

which big business adjusts to new political conditions, as has happened before in other post-

authoritarian environments.

1.3 Methodology

This study provides a sociological analysis of the relations between the state and capital in

post-Soeharto Indonesia, focussing on the intangible, unquantifiable question of power. More

specifically, this study scrutinises the political economy of those who hold power in Indone-

sia. This is per se a tricky task, as research on the rich and powerful in general has to deal

with the problem of inaccessibility. In most cases, these people form an exclusive club that

makes participant observation or other in-depth scrutiny rather difficult, if the researcher her-

/himself does not belong to this class.

In the specific context of Indonesia, there are additional problems in studying capital be-

cause of the Chinese predominance in the capitalist sector. As in the case of most societies

where entrepreneurial activities are undertaken as a family business, there is a tendency for

ethnic Chinese in business to function like a closed society, making it difficult to have access

to them for research purposes, as Diao & Tan (2001: 141) observed. Another, probably more

important reason for this reluctance may be found in the particular political conditions for

Chinese capital during the New Order, where it was generally forbidden to talk about race, re-

ligion, ethnic groups, and class (the so-called SARA-taboo; see van Dijk 1994). To address
 13

Chineseness was even more sensitive, as anti-Sinicism and anti-government feelings increas-

ingly overlapped during the evolution of the New Order, turning criticism against the con-

glomerates into a powerful political tool against the state elite. Therefore only a little, filtered

information on Chinese businesses reached the public, while at the same time most of the

Chinese tycoons kept a very low profile. Public relations efforts were unknown, and indeed

not needed. The authoritarian, protectionist regime made it possible to do without them. An-

other reason for the shortage of facts and figures is the rather late development of private cor-

porations in Indonesia, which only became significant through the economic policies at the

outset of the New Order in the late 1960s. Hence, the establishment of a stock exchange, usu-

ally the major source of information of this kind, came in late as well. Useful data on this ba-

sis is only available for the last decade of the New Order. As Sato (1994: 102) pointed out,

this led to a scarcity of research interest in private capital in Indonesia.

The new political situation has not brought significant changes in this regard. Most Chi-

nese businessmen still shy away from publicity, if not because of state policies or political

sensitivity, then because of a general aversion to reveal strategies to others. The struggle for

survival and the settlement of their debts with the Indonesian Banking Restructuring Agency

(IBRA) constituted a further reason not to disclose the actual property situation and the modi-

fied structure of a business group. The end of authoritarianism has put the conglomerates at

the centre of attention of journalists and politicians alike, which increased the secretiveness of

the actors.10 On the other hand, the relative openness of post-Soeharto Indonesia provided

new sources of information that balanced the lack of data for the New Order. These could be

10
No ranking has been published since 1997. My own attempts to compile data for an updated list
failed, due to a situation still very much in flux, the lack of suitable sources, and endeavours of busi-
ness groups to hide their actual size and constitution. With this I share the same experience as econo-
mists (e.g. M. Chatib Basri, Universitas Indonesia, interview 12 May 2004), journalists (e.g. Eddy Su-
prapto, Kontan/Aliansi Jurnalis Independen, interview 8 September 2004), or even specifically ap-
pointed government watchdogs (e.g. Raden Pardede, Vice President Director of State-owned Asset
Management Company PPA, interview 20 October 2004), who sought to, but were not yet able to pro-
vide a detailed overview of the situation of big business during the post-Soeharto time.
 14

used to supplement the insights of the few seminal works on capital before 1998, most impor-

tantly Robisons (1986) and Shins (1989) studies on the rise of capital and capitalists-in-

formation respectively. Established business magazines such as SWA, Eksekutif, Warta Eko-

nomi, or Kontan, and the political magazines Tempo or Gatra, as well as the international

press (e.g. Far Eastern Economic Review) re-opened several closed cases of the past and fo-

cussed together with the many Indonesian newspapers (such as Jakarta Post, Bisnis Indone-

sia, or Kompas) their gaze on Chinese big business of the present. In addition to this, infor-

mation found in compilations of Data Consult (1998) or in business reports, company files,

annual reports, and statistics provided further material to consider, although such data was

subject to the same constraints and biases as mentioned before and, more often than not,

lacked explanatory power as well as sufficient reliability.

These sources had to be verified through direct observation as well as through that of oth-

ers, which were best disclosed in talks with (ordinary) Indonesians, in commentaries,

speeches, articles, and statements of activists, critics, journalists, politicians, and experts. I

conducted interviews with seven politicians (among them former President Abdurrahman

Wahid and former Minister of Finance Bambang Subiyanto), seven journalists, and 21

economists or other academics (see Appendices). In order to concretise the abstract concept

of capital, I further sought to meet the persons who represent capital, i.e. the capitalists. Due

to greater accessibility, I first focussed on the ones who work for Chinese big business at the

highest managerial level. I interviewed 12 business persons, of whom nine were high ranking

executives or board members of the conglomerates or one of their companies, among them

the President Directors of Indomobil and Lippo Investments, the Managing Director of Sam-

poerna, President Commisioners of Bank Central Asia and Bank Artha Graha, and Commis-

sioners of Lippo Group, Lippo Bank, Bank Internasional Indonesia, and Bank Artha Graha.
 15

In addition, I intended to meet the bosses of the top groups in Indonesia, even though ac-

cess was a serious problem.11 The interviews that I eventually conducted with some of the

most important capitalists in Indonesia today Anthony Salim (Salim Group), Tomy Winata

(Artha Graha Group), Eddie Lembong (Pharos Group, also Chair of the Chinese Indonesian

Association INTI), and Sofjan Wanandi (Gemala Group, also Chair of the Indonesian Em-

ployers Association APINDO) delivered a wealth of information that I would not have

found elsewhere and helped to verify or repudiate hypotheses and substantiate my interpreta-

tions.

Altogether, I conducted 62 semi-structured interviews with 51 persons. However, the

challenge was to put this kind of information together with the other bits and pieces, to evalu-

ate and analyse them and combine my own assessments with the reflections and judgements

of these and other observers.

1.4 Outline

Chapter 1 has briefly outlined the major questions, the focus, the central argument, and the

methodology of this study. The following chapters will provide theoretical, historical, and

empirical analyses to explain the course of capital before, in, and after the crisis.

11
It was immensely difficult to finally get in contact with the manager-owners of the conglomerates.
As a general rule, it was essential to know somebody who referred you to someone else who was a
friend of a friend of the respective businessmen. Thereafter, I had to send in letters, emails, or faxes,
find out the number of the personal secretary, call her, submit another fax, call the office again, wait for
a return call, call again, send in a third fax that in case I was lucky got through to the boss, who
then decided if he had some time to spare with a young and unimportant researcher. (It helped that the
businessmen regarded me as one of them in terms of Chinese Indonesian ethnicity, that I am German,
that I studied in Singapore, or that I was attached to the Centre for Strategic and International Studies
or a combination thereof. This, presumably, made me more trustworthy in their eyes.) Usually, I first
had to talk to a proxy. One of them obviously recommended to his boss not to talk to me, even though
the interview was already scheduled. For another conversation, I flew back to Jakarta twice, only to be
told while already waiting for the respondent in his office that he was too tired to be interviewed by
me, or, the following time, that he was in Singapore (where I just came from) and thus could not meet
me. A further interviewee wanted me to submit the transcription of the talk and censored it signifi-
cantly.
 16

Chapter 2 discusses theoretical perspectives on capital and the state, including culturalist

and structuralist models. It presents an approach appropriate to scrutinising the special power

relations between Chinese capitalists and the bureaucratic elite.

Chapter 3 contains the historical background with an emphasis on the New Order accom-

modation. It depicts the Chinese businessmen as limited capitalists, who became part of the

bureaucratic oligarchy but lacked appropriate political power.

Chapter 4 seeks to understand the conglomerates during the crisis. Without the authoritar-

ian, centralised, and protectionist New Order regime they had to face serious constraints that

endangered their existence in reformasi Indonesia.

Chapter 5 scrutinises the reactions of capital to the reforms. The crisis turned out to be not

too detrimental; on the contrary, most conglomerates not only managed to survive and con-

solidate, but also moulded the new post-Soeharto regime significantly.

Chapter 6 analyses the changing role of Chinese big business in a more democratic, decen-

tralised, and deregulated political and economic environment. It points out that capital found

new formats of representation and successfully dominated the post-crisis modes of political

business.

Chapter 7 summarises the findings and relates the empirical observations of Chapters 4 to

6 to the historical background as well as to the theoretical framework. It further outlines fu-

ture prospects for Chinese big business in Indonesia.

 17

2
THEORETICAL FRAMEWORK:
POWER CONFIGURATIONS OF STATE AND CAPITAL

The state, according to Brown (1994: xii-xix), determines the boundaries, content, and char-

acter of ethnicity by translating sometimes minor linguistic graduations or physical variations

into cultural boundary markers which are believed to be intrinsically significant and clearly

demarcated. In the case of Indonesia, the constructed pribumi nation and the assumed soli-

darity of a kinship community became the psychological and political ideology against the

Chinese as internal enemy (Brown 1994: xviii-xix). Ethnic policies as tools of state power

limited the capitalists in Indonesia significantly. Hence, it is imperative to ask who imple-

mented these policies and who benefited from them, or, in a more general sense, who holds

control over the state. Traditional class-based accounts have difficulties in attributing power

to any non-capitalist class and should therefore be modified to appropriately evaluate the New

Order with its weak Chinese business element. To expand definitions of the ruling class will

thus help in assessing the role of Chinese capitalists vis--vis state bureaucracy.

To lay out an appropriate theoretical framework, it is first necessary to discuss the existing

literature on Chinese Indonesian capitalists. I shall argue that both culturalist and structuralist

perspectives provide useful foci that only in combination deliver a fuller picture. While my

study employs a political economy approach, it does not disregard the question of ethnicity.

The main objective of this chapter is to provide the analytical tools to assess the power

configurations during the New Order and understand the changes brought about by reformasi.

For this, the ruling class has to be identified. Generally, as a review of state theories will

show, capitalists are considered to be the ruling class in capitalist societies. In New Order In-

donesia, however, this proposition was questionable, as political authority lay exclusively

with the state politico-bureaucrats, while capital, predominantly Chinese, was confined to act

inside strictly demarcated boundaries.

 18

I suggest that the rulers of New Order Indonesia can be regarded as a complex power bloc

consisting of powerful politico-bureaucrats and politically restricted Chinese capitalists that

together formed an oligarchy under the hegemony of the bureaucracy. This oligarchy, how-

ever, was prone to change, especially after the state managers were considerably weakened

through new dynamics induced by the economic crisis of 1997/1998. Capital, no doubt, was

also badly wounded, but salient elements have been able to rebound with the help of new

strategies. By means of a typology of capitalist systems I will spell out the characteristics of

statebusiness relations during the New Order and outline potential models towards which the

post-Soeharto Indonesian state is developing.

2.1 Approaches to Chinese Indonesian capitalists

Very often Chinese businesses were identified as the main engine of growth during the aston-

ishing boom of the Southeast Asian economies until 1997. However, what facilitated their

business success? Was it due to their ethnicity and its manifestations in values and behaviour

patterns, or were the deep-seated structures of capitalism and the role of capitalists (that hap-

pened to be Chinese) within them more important? The answers given came from a broad

range of disciplines, most notably from scholars working in the frameworks of cultural stud-

ies, business administration, economics, and political economy. They can be differentiated

into culturalist perspectives on Chinese businessmen as part of the Chinese minority and

structuralist perspectives on Chinese capital as part of the capitalist class.

Culturalist perspectives

Most experts on the Chinese minority in Indonesia tend to disregard class considerations and

focus mainly on the culture and behaviour of the Sino-Indonesians. The first comprehensive

monograph on this topic was Purcells (1951) study on The Chinese in Southeast Asia. With

this early work he carved out the framework for succeeding scholars such as Tan (1963),
 19

Heidhues (1974), Mackie (1976), Coppel (1983), and Suryadinata (1986), who gave insight-

ful, albeit now outdated, analyses on the socio-cultural background of the ethnic Chinese in

Indonesia, tackling a wide spectrum of aspects that ranged from a broad comparative perspec-

tive including other Southeast Asian Chinese communities to more specific research on rela-

tionships with the pribumi population, minority politics, and anti-Chinese discrimination.12

More recent studies involved further empirical research on, for instance, identities of

young Chinese (Thung 1998), on anti-Chinese violence (Purdey 2002), on ethnic Chinese in

the outer islands (Heidhues 2003) and on the ethnic biases of the legal system (Lindsey

2005). However, most of these works share a similar disposition: They tended to take the eth-

nicity of Chinese Indonesians at least implicitly for granted and treated it as a given fact, co-

herent and largely unproblematic. The primordiality of Chineseness, though questionable,

was considered to be a useful, independent variable to explain the behaviour and treatment of

the people defined as Chinese. Ethnicity, from this perspective, was thus regarded as the

natural and most eminent boundary marker.13

There is little to say against the latter proposition as ethnic segregation constitutes part of

social reality in Indonesia. However, culturalist reasoning fails to realise that Chinese ethnic-

ity is constructed to be so relevant. Hence it often led to disputable frameworks that overem-

phasised the vertical division of society by, for instance, combining owners of small shops

with big businessmen into one minority labelled Chinese. To give one example: Suryadinata

accurately stated that the Chinese in Indonesia are not a homogenous cultural group, con-

tinuing that

12
The writings mentioned here are only the most important publications of scholars who actively
shaped the academic debate on the Chinese minority.
13
To date, only few studies on Chinese ethnicity deviate from the prevailing paradigm. Most notable
here is the inspiring work of Heryanto (1998; 1999), who convincingly challenged the behaviouralist
orthodoxy by pointing out how ethnic identities were constructed.
 20

there are two groups: the peranakan Chinese [] and the totok Chinese, who are less Indone-

sianized. [] Despite the peranakanization and Indonesianization process, at this stage, it is still

useful to talk about the totok and peranakan communities, especially when we refer to the elite

level.

(Suryadinata 1997: 9-10)

He emphasised a distinction which has become relatively irrelevant for most Indonesians of

Chinese origin. Many cannot even classify themselves as either totok (culturally Chinese) or

peranakan (culturally Indonesian), as these communities have no impact on their daily lives.

The emphasis on the elite level discloses that being Chinese was regarded as being more

significant than horizontal class partitions. This perspective bears the risk of only reiterating

government policies that need to be questioned, thereby reproducing the construction of the

category Chinese in Indonesia in an essentialist fashion. It is thus an inherent weakness of

culturalist approaches to not take more objective stratification criteria, like material condi-

tions, into account. For that reason, most of these studies neglect the economic dimension,

merely discussing Chinese big business if at all in a few paragraphs, and always as part of

the broader Chinese minority problem.14 Characteristically, Suryadinata (1997: 25-74) in-

cluded a chapter on Chinese economic elites in Indonesia in a book titled The culture of the

Chinese minority in Indonesia.

Only few of the scholars who specialised on the Indonesian Chinese minority attempted to

exclusively focus on the capitalists. Mackie (1988; 2003), for instance, compared the role of

Chinese businessmen in Indonesia with that in other countries. Trying to find analogies with

Webers protestant ethic (2004), economic success was attributed to cultural traits, Asian

values, and the Confucian spirit of capitalism, which also reflected Webers (1991: 208) as-

sumption that the Chinese would be, it is expected, as much capable, supposedly even more

14
In my master thesis on minority policies and the Indonesian state (Chua 2002) I proceeded in similar
ways.
 21

capable than the Japanese, to adopt the capitalism brought to technically and economically

complete development in the culturally modern world. 15 Chineseness or Confucianism

though not necessarily coterminous, nor homogeneous were regarded as the same modernis-

ing force that Protestantism once had been for European capitalism and were interpreted to

have similar views on this-worldliness, education, obedience, materialistic values, etc. The

emphasis was thus placed on non-economic factors that were seen to play a crucial role for

business in a world that was not only determined by capitalism, but by many other factors as

well. Power depended on a variety of sources, which included primordial characteristics. Sig-

nificantly, Mackie (1989: 99) claimed that no other people, for reasons which are deeply

rooted in the values and cultural systems, seem to have the same battery of incentives and

capacities for commercial success as have the Chinese. He cited their strong motivation to

succeed, or even the widespread Chinese propensity towards gambling as assets that facili-

tated the rise of Chinese capitalists.

In contrast to these more anthropological accounts, there has been a range of studies that

did not primarily focus on values and ethnicity as causes, but on that which was seen by the

culturalists as the very effect of them: the business behaviour of the Chinese. However, these

approaches dealing in the framework of business administration agreed on the same basic as-

sertion that saw the reasons for entrepreneurial success in uniquely Chinese characteristics

(e.g. Redding 1990). Of key concern was the position of Chinese firms in the market. The in-

dividual group leaders and the impact of their decisions were the major focal point. By exam-

ining the corporations and their strategies, research attempted to extrapolate the entrepreneu-

rial aspects of Chinese capitalism (Yeung 2004) relevant for efficient management. The po-

litical setting, however, was only regarded as important if it impinged on market performance.

One such example is R. Browns (2000) study on Chinese big business and the wealth of

15
Original: Der Chinese wrde, aller Voraussicht nach, ebenso fhig, vermutlich noch fhiger sein als
der Japaner, sich den technisch und konomisch im neuzeitlichen Kulturgebiet zur Vollentwicklung ge-
langten Kapitalismus anzueignen.
 22

Asian nations, in which she emphasised institutions that were, however, related to an a priori

culture. Hence, she identified the heavy reliance on the family and the Chinese attitude to

finance (R. Brown 2000: 5) as the reason for the crisis, thus remaining in the ethnic perspec-

tive. Yoshihara (1988) as well attributed the success of the rent-seeking Chinese ersatz capi-

talists to culture. Elsewhere he claimed:

One can easily hypothesize that one basic reason [for the poor economic performance of some

countries in the ASEAN region (e.g. Indonesia)] is that their culture lacks a strong work ethic. If

this is true, the dominance of the ethnic Chinese in the capitalist sector of the economy (or the

private sector as a whole) can be a result of it, instead of its cause.

(Yoshihara 1995: 66)

The literature on Chinese business networks is usually founded upon the same culturalist

premises. Most accounts confine themselves to pointing out how relationships of xin yong

(trust), based on ethnocentric Confucian ethics, have helped the Chinese to span Southeast

Asia with their closely-knotted international business networks (e.g. see Tan 2000). A few

studies relate their observations to the underlying structural conditions that bear such net-

works (as, for instance, Menkhoff & Gerke 2002), but typically they take guanxi (connec-

tions) as just another characteristic trait of ethnic Chinese (e.g. Wu 2000; Backman 2001),

thereby implying the homo economicus character of the whole Chinese minority and failing to

analyse how the state appropriated their political ethnicity for its interests.

Culture is often shifting and constantly moulded. To regard it as primordial and essential

is thus highly problematic. Due to such propositions and an analytical horizon that encumbers

the necessary conceptualisation of the Chinese capitalists as a class, culturalist approaches do

not provide a suitable framework to be used for a study on Chinese capital. However, there is

much to learn from these scholars and their works. A description of the values, traditions, and

behaviour patterns of the Chinese is valuable as grounding and essential in order to move on

from the present state of knowledge to further questions that yet remained irrelevant for the
 23

culturalist perspective. Inevitably, this thesis will draw heavily upon findings by the authors

mentioned above.

Structuralist perspectives

In the 1970s, Anderson promoted an alternative to the culturalist approaches employed by

anthropologists, sociologists and displaced Sinologists (Anderson 1982: 79), as he polemi-

cally remarked. He rejected behaviouralist explanations that regarded the Chinese primarily

as a racial minority rather than as a commercial bourgeoisie:

In all kinds of ways, the Chinese commercial bourgeoisie were made a given of Indonesian so-

ciety, and then used as a criterion of its satisfactory, or more usually unsatisfactory, progress.

Treated as a racial group, they were a measure of its constitutionalism and humanity; as a busi-

ness interest group, they were a measure of its differentiation and modernity. Nowhere were

they treated [] as classes, whose conflicts and alliances with other classes determine the desti-

nies of civilizations.

(Anderson 1982: 79)

This was indeed a valid objection to the culturalist school. Nevertheless, by stressing the class

characteristics of the whole Chinese minority, Anderson made some unavoidable generalisa-

tions, implicitly depicting every Sino-Indonesian as capitalist, thereby ignoring the huge het-

erogeneity even amongst the businessmen (Coppel 2002). He, however, paved the way for a

group of economists and sociologists whose research deviated significantly from the ethnic

paradigm, giving attention to the underlying economic structures and the position of Chinese

capitalists within.

While studies on the macro economy (such as Booth 1998; Hill 2000) contributed im-

mensely to our understanding of the economic setting but rarely discussed Chinese conglom-

erates in particular, micro economic studies, on the other hand, have produced several re-

markable works, most important of which is the research of Sato (e.g. 1994; 2004). In her

view, scholars should pay attention to endogenous forces of private capitalists themselves,
 24

such as corporate strategies to cope with the given external conditions, ranging from the

fields in which to invest, and how to accumulate business resources, to how to organize the

corporation on the strategic level (Sato 1994: 103). While she did not disregard political fac-

tors, her approach remains largely empirical and not particularly theoretically informed, and

displays the same technocratic inclinations that characterise the works of neoclassical and

neo-institutionalist economists.

The latter consider economic policies as an instrument to find the best solution for prob-

lems that are essentially technical in nature (e.g. Hill 1999; Thee 2003). Good governance

widely identified with the following four attributes: transparency, accountability, efficiency

and fairness (Soesastro 2000: 125) is seen as a precondition for efficient institutions and

vice versa, resulting in economic growth and prosperity. Development can only be obstructed

by bad economic policies and interfering politicians. It is thus an approach that disregards the

vested interests of the actors as well as the systemic impediments to reform. The inherent

shortcoming of such perspectives is that power is not an issue dealt with when the question of

Chinese capital arises.

The second major stream of interpretations based on the structural underpinnings of the

political-economic system emerged in direct opposition to the culturalist approaches and was

concerned with social conflict. One of its key proponents, Robison (1982: 131), rebutted the

mainstream propositions of Indonesianists as inadequate in two respects: they fail to com-

prehend the dynamics of politics; and, more importantly in terms of New Order Indonesia,

they fail to provide a means for explaining why power and conflict exist there in their present

form. Instead, he offered a class analysis based on the assumption that modern societies were

characterised by class divisions, and capitalism was their main driving force (Robison 1986).

Without the crude simplification of Andersons proposal, he as well as other political econo-

mists such as Evers & Schiel (1988), Shin (1989), MacIntyre (1990), Winters (1996), and

Rosser (2002), firmly abandoned cultural explanations for Chinese business success in favour

of structural interpretations. By eliminating the ethnic variable, they were able to focus on
 25

statebusiness relations, political partnerships, and the composition of certain conglomerates,

providing a wealth of information that obviously bore no significance to culturalist accounts.

However, the main advantage of this perspective was also its major limitation. By discussing

Chinese businessmen as part of the capitalist class and not as members of an ethnic group,

class-based approaches merely addressed ethnicity coincidentally. Chinese capital was only

worth being dealt with insofar as it was part of a larger bourgeoisie. In fact, ethnicity was im-

plicitly regarded as false consciousness; its deep and comprehensive political impact was

therefore negligently overlooked.

For that reason, the contradiction of Chinese big business economic strength and political

weakness is difficult to explain from a purely class-based perspective. Consequently, most

accounts simply played down or ignored this issue. Robison (1982: 134), for instance, could

only offer the weak explanation that Chinese capitals inability to translate economic power

into political authority was voluntary. Banking on their structural veto power, the Chinese

capitalists preferred, as he put it, to take a low profile and rely on personal links with the poli-

tico-bureaucrats with whom they coincidently shared the same interests, instead of becoming

actively and publicly involved in politics a role that perfectly fulfilled the expectations and

aspirations of the powerholders. Shin (1989: 40), even less interested in ethnicity, regarded

their racial attribute as relatively insignificant to the common interest and characteristics the

emerging new capitalists share, thereby massively understating the relevance of being Chi-

nese especially during the New Order. Like MacIntyre (1990: 256), he emphasised the inter-

ethnic composition of the business class, criticising Robison who until the mid-1980s still

differentiated between Chinese and indigenous capitalists and considered the deep political

and social divisions between them as the factor which has proven most fundamental in the

development of the Indonesian capitalist class (Robison 1986: 271). The latters stance on

Chinese capitalists, however, shifted with time. He suggested that they surmounted their role

as client bourgeoisie: They are now capitalists whose position and power is based to a sig-

nificant degree on the ownership of capital (Robison 1986: 318). In subsequent works, Robi-
 26

son (e.g. 1993) also regarded the ethnic partition of capital to be secondary. Together with

Hadiz, he combined powerful bureaucratic and corporate families (Hadiz 2001b: 120) in one

group that they termed capitalist oligarchy (Robison & Hadiz 2002; 2004). Although they

frequently referred to internal conflicts, their main focus was on the ascendance of the capital-

ist oligarchy rather than on the friction between the components within it. Thus, it was of no

major concern for this perspective to explore why the capitalists were predominantly Chinese

and how they were instrumentalised.

In the course of this study, I will demonstrate that it is indeed very rewarding to focus on

such questions. Notwithstanding the inherent incapability of class-based approaches to take

ethnicity into consideration, they, however, offer a more appropriate, albeit incomplete

framework for analysing Chinese capital. Logically, Chinese big business has not yet been the

main focus of a structural analysis of Indonesia. This study attempts to fill the existing void

identified here.

An analysis of Chinese capitals ethnic and material conditions

Although the two frameworks seem to oppose each other paradigmatically, culturalist and

structuralist considerations are not as mutually exclusive as it may appear. Indeed, a judicious

and simultaneous application of both is not only useful but also very necessary in order to

analyse Chinese capital in its entirety. Reids (1961) mediation between the two Australian

schools of Indonesian studies, that neither approach is more legitimate or objective than the

other, that both have been and will be productive of fine scholarship, and that the tension be-

tween the two is likely to be particularly creative, is as much valid for analyses on Chinese

big business in Indonesia.

There were a few culturalist studies that tried to combine class and ethnicity. In particular,

Mackie (e.g. 1998; 2000; 2003), who frequently published on ethnic Chinese businesses, at-

tempted to expand the scope of socio-cultural accounts. However, he still put more weight on
 27

ethnic factors, making clear himself that it is appropriate [] to take the vertical divisions as

the primary point of reference (Mackie 1988: 218):

To try to account for their economic, social or political actions solely in class terms, as if they

had a stronger sense of class solidarity with other wealthy capitalists in the Indonesian bourgeoi-

sie, and to disregard their status as members of an ethnic minority also, would require us to

leave out a large part of the story, in many cases the more important part. One of the striking

features of all overseas Chinese communities has been the way their strong sense of ethnic soli-

darity has overridden the wide social differences between towkays and coolies

(Mackie 1988: 234)

The latter proposition reveals that it remains inadequate to merely add some elements of the

structural approach while basically upholding the ethnicity-centred perspective. As long as

more weight is given to the strong sense of ethnic solidarity between towkays and coolies

an assumption that lacks empirical proof16 it is not possible to analytically isolate the capi-

talists to discuss them in regards to their class position.

Management perspectives do not provide an apposite platform either. The study under-

taken here is concerned about the political-economic position of Chinese capitalists and can

thus largely disregard entrepreneurial decisions. Corporate strategies per se are not of interest;

they only come into the picture if state policies impinge on them or vice versa. Moreover, it is

hardly suitable here to use an approach that explains patterns as deriving from values. More

helpful in dealing with capital are studies in the field of economics, although they usually lack

the political-sociological dimension and ignore the aspect of embedded vested interests.

However, contrary to many of the quantitative methods applied by economists, precise figures

16
I could neither observe an innate solidarity between ordinary ethnic Chinese and the major Chinese
capitalists, nor has it been expressed by any of my towkay interviewees and middle/lower class Sino-
Indonesian conversation partners. One of my respondents, tycoon Tomy Winata (interview 17 Septem-
ber 2004), even explicitly rejected this assumption. To my question if he feels a sense of ethnic solidar-
ity towards members of his ethnic group, he asked me if I do. After I negated this, he said: See, so why
should I?
 28

(on assets, investments, etc.) are not of the utmost importance to this study. Unquestionably,

they can be very illustratative of certain points and trends, but without being interpreted in re-

lation to the broader political economy, such data alone make little sense. The institutionalist,

often functionalist viewpoints of economists additionally obstruct a discussion of issues of

power.

Hence, for an analysis of the power of Chinese Indonesian capitalists (and not the values

of capitalistic Indonesian Chinese), a perspective, based on the economic divisions of society,

has to be adopted, which takes into account the material conditions as well as the interests of

the various factions who compete with each other for power, resources, and non-material

gains. To categorise the Chinese tycoons as the main element of the capitalist class, therefore,

brings us closer to a more accurate and objective analysis than one that is based on their as-

cribed affiliation to an ethnic minority. However, ethnicity as a vertical pillar of society and a

powerful political instrument must not be neglected as it justifies class divisions. Hence, a

class analysis should also include Mackies (1988: 234) valid objection that the capitalists

are subject to a constant tension between the imperatives of their status as members of that

class and the imperatives of their ethnicity, since they cannot cease to be members of a highly

vulnerable and politically suspect minority group.

This study takes up the position that there are no ethno-cultural reasons for big business in

Indonesia to be predominantly Chinese; nor is it a coincidence. It is a question of power and

the related usage of ethnicity. Thus, analysing the structure of Indonesias political economy

will give an insight into statecapital power relations. Starting from this viewpoint, a struc-

tural approach to Chinese big business can be developed as an analytical framework that

helps to explain the Chineseness of capital in Indonesia and leads towards a more holistic ex-

ploration of the contingent power of Chinese capital.

 29

2.2 Identifying the ruling class: Capital and the state

If the Chineseness of Indonesias capitalists is to be seen as a socially constructed and politi-

cally instrumentalised variable and not as a primordial given, we need to shift the focus away

from ethnicity to more explanatory categories such as the state, the bureaucracy, and capital,

to assess the power configurations in Indonesia. Who has power over the state? In what ways

do capitalists exert authority over the state apparatus? How does the state represent and real-

ise the interests of capital? This section will discuss the specific Indonesian conditions during

the New Order.

As Jessop (1990: 44) rightly claimed, it is debatable whether it is possible to develop a

theory of the capitalist state in general. For, since capitalism exists neither in pure form nor in

isolation, states in capitalist societies will necessarily differ from one another. Moreover,

there are not only variations from state to state; one state at a particular point in time hardly

resembles the same state in another period. Therefore, different states at different times re-

quire a different set of theories to explain them. For the Indonesian case, I will outline the

most applicable interpretations of the New Order and potential configurations of future re-

gimes, despite their inconclusiveness for other states as well as for other time spans than that

which is specified.

I argue that traditional Marxist theories of the state remain unable to grasp the complex

power relationships between the state managers and capital during the New Order. Instead, I

suggest describing the New Order as bureaucratic capitalism in which the state elite managed

to preserve its autonomous appropriation of the state apparatus and its hegemony over the

capitalist class. As a discussion of various forms of capitalism will illustrate, the post-

Soeharto Indonesian state is moving towards a plutocratic capitalist regime, where capital fi-

nally has the best opportunity to exercise structural and even instrumental control over the

state.
 30

Theories of the capitalist state

The most well-known understanding of the state goes back to Weber (1926: 8-9), who attrib-

uted three major characteristics to the state: territoriality, monopoly of coercion, and legiti-

macy. However, this formal definition mainly refers to the institutional dimension and lacks

any evaluation of power relations. It comprehensively describes the state apparatus, but it

does not seek to find out who controls it.

Thus it is necessary to turn to class-based approaches to the state. Classical Marxist analy-

ses share the basic assumption that capitalist states in general serve the interests of the capital-

ist class, i.e. a continuous reproduction and accumulation of its capital. Of main concern are

the motives, modes, and the extent of class domination. In that respect, the answers given

vary significantly. Most accounts can be broadly distinguished into two perspectives that em-

phasise either the instrumental grip of the ruling class on the state or the structural contradic-

tions and constraints of the capitalist system mediated by a relatively autonomous state.

The former, instrumentalist approach presupposes that the executive of the modern State

is but a committee for managing the common affairs of the whole bourgeoisie17 (Marx &

Engels 1993: 21). The instrumental seizure of state institutions through individuals enables

the capitalists to implement policies serving their interests. Miliband (1969: 23) accordingly

maintained that the ruling class of capitalist society is that class which owns and controls

the means of production and which is able, by virtue of the economic power thus conferred

upon it, to use the state as its instrument for the domination of society. Through the method

of power structure research (e.g. Mills 1956) instrumentalists seek to reveal the existence and

composition of the capitalist class and its links to the state managers and intermediary institu-

tions, thereby proving capitals instrumental domination over the state apparatus. Originally,

this approach was intended to confront advocates of the pluralist school that regarded the state

17
Original (1848): Die moderne Staatsgewalt ist nur ein Ausschu, der die gemeinschaftlichen Ge-
schfte der ganzen Bourgeoisklasse verwaltet.
 31

as inherently neutral and focussed on individuals and groups and their decisions. However, al-

though instrumentalists indeed questioned the neutrality of the state, proponents of the oppos-

ing structuralist school argue that most such studies remained largely in the same pluralist

framework, totally leaving out the structural context.

Referring to Marx (1962: 16) dictum that individuals are dealt with only in so far as they

are the personifications of economic categories, embodiments of particular class-relations and

class-interests18, these critics of the instrumentalists reject the latters scope and maintain that

the direct participation of members of the capitalist class in the state apparatus and in the

government, even where it exists, is not the important side of the matter (Poulantzas 1969:

245). Instead, they identify the state as a relatively autonomous actor not directly under the

control of a ruling class, but nevertheless reconciling the major contradictions of capitalism

and thus implicitly accomplishing the long-term interests of the capitalists.

Although instrumentalists and structuralists argue about the nature of power and the re-

spective conceptualisation of the state, both approaches define capitalists as the ruling class.

Kautskys (1902: 13) seemingly paradoxical statement that the capitalist class rules but does

not govern. It is satisfied, however, to rule the government, referred to the variety of ways in

which capitalist interests could be represented. Therborn elaborated on the question what

then does the ruling class do when it rules?:

Essentially, it reproduces the economic, political and ideological relations of its domination.

This rule is exercised through state power, that is to say, through the interventions or policies of

the state and their effects upon the positions of the ruling class within the relations of produc-

tion, the state apparatus and the ideological system.

(Therborn 1978: 161)

18
Original (published 1867): Aber es handelt sich hier um die Personen nur, soweit sie die Personifi-
kation konomischer Kategorien sind, Trger von bestimmten Klassenverhltnissen und Interessen.
 32

Whether a state was ruled directly or structurally by capital could have perhaps been better

depicted as an empirical question rather than a matter of theoretical proposition. The consen-

sus was, however, to regard the capitalist state as generally conducive to the advancement of

capital.

A study on big business cannot do without the insights of these basic theories. It is inade-

quate, however, to rely solely on structural or instrumental explanations. Certainly, no state is

totally under control of the capitalists, or structurally completely autonomous. The previously

mentioned models describe ideal types to which any existing state is nothing more than an

approximation. Statebusiness relations are contingent on time and place and require thor-

ough empirical as well as theoretical research to determine whether the bourgeoisie has pre-

dominantly instrumental or structural power over the state. In the case of Indonesia, the given

characterisation of the capitalists as ruling class further calls for an amended, more differenti-

ated analysis. In the following, I will show that especially for the New Order classical

Marxism does not provide an adequate framework to explain the power relations of Chinese

big business and the state.

The New Order state

From the point of view of classical class-based interpretations, the New Order in Indonesia

constituted nothing less than an abnormality. As I will show in Chapter 3, the predominantly

Chinese capitalist class could hardly be considered as a ruling class, while the governing poli-

tico-bureaucrats were primarily self-interested, relatively independent managers of the state

and only additionally owners of capital. I will thus outline an alternative perspective to de-

scribe the power structure in Indonesia until 1998. For this, it is necessary to briefly discuss

the roles and characteristics of bureaucrats and capitalists during the Soeharto regime.

According to Therborn (1978: 181), the ruling class exercises its ruling power over other

classes and strata through the state through holding state power. Therefore, I suggest that
 33

the state managers of the New Order were not mere functionaries, but constituted the ruling

class in Indonesia, or at least its predominant part. They succeeded in limiting the power of

capitalists by marginalising them through the exercise of ethnic politics on the one hand,

while at the same time building up their own capital base on the other. Although some power-

ful families especially the Soehartos managed to transform themselves into capitalists,

their capital was highly related to and dependent on their position inside the state apparatus.

Therefore, I regard them following Robison (1986: xxiv) as politico-bureaucrats, who

merged political and bureaucratic authority, rather than as capitalists-proper. In the years of

their rule they appropriated state power so absolutely that the state lost its autonomy and be-

came their instrument (see Robison & Hadiz 2004: 69-144).

The capitalist class in New Order Indonesia, in contrast, was severely restricted through its

ascribed ethnicity. While, in Marxist schemes, capitalists have at least a structural veto even

in the absence of direct political power due to the investment imperatives of the capitalist

state that can only be met by them, big business in Indonesia could not count on this source of

authority. Unquestionably, the Chinese capitalists were, especially in the latter half of the

New Order, increasingly vital for the successful continuation of the state, but their political

influence remained widely clientelistic in nature (MacIntyre 1994: 253). Links to state offi-

cials as patrons were critical for the emergence of business groups and crucial for further

capital accumulation. Riggs (1966) thus termed such businessmen pariah capitalists, which

is indeed a very accurate description (that is also adopted here in this study), although he, as

well as most other patronclient-approaches, depicted the capitalists as mere compradors,

who were totally dependent upon the bureaucrats.19 In New Order Indonesia, Chinese big

business was indeed restricted, but they were more than the ersatz capitalists portrayed by

19
To prevent a misunderstanding of the term patronage, Robison (1982: 136) emphasised that pa-
tronclient political forms do not indicate an absence of classes, but constitute one form in which
classes work out relationships and seek political and economic accommodation.
 34

Yoshihara (1988) and more than just the financiers of the state elite. They were real capital-

ists, and as such part of the oligarchy presiding over the state.

However, their exact position inside this coalition is debatable. Robison & Hadiz (2004)

fused both bureaucrats and businessmen into a single entity they called capitalist oligarchy,

perceiving potentially antagonistic political and economic concerns as secondary. Indeed, the

two parties long-term interests always coincided and it never came to a serious clash

throughout the whole Soeharto era. Nevertheless, as I will demonstrate later, the state manag-

ers were ultimately in the drivers seat, because there were severe limitations in the capacity

of Chinese capital even big Chinese capital to confront and challenge state bureaucrats

when it suited their interests.

It is therefore more helpful to talk about a division of labour between those who accumu-

late capital and those who manage the state apparatus (Block 1987: 54) and view the oligar-

chy as a power bloc, into which the highly fractioned bourgeoisie has organised itself (Pou-

lantzas 1969). The ruling class could thus be regarded as a political alliance between a hege-

monic bureaucracy totally embedded in the state and a politically circumscribed business

class lacking the means of direct political action. This was by far no static ensemble, but a

coalition whose internal dynamics were permanently negotiated. Chinese capitalists in the

early 1970s were undoubtedly more clientelistic than the ones in the 1990s, and the bureau-

cratic authority over capital certainly decreased towards the end of the New Order regime.

Nevertheless, it still gives us analytical clarity to regard the politico-bureaucrats as personifi-

cation of the state, because the political institutions remained under their complete control un-

til 1998. Therefore, investigating the characteristics of the relations between Chinese busi-

nessmen and the state elite helps to reveal the general conditions of the states power struc-

tures.

Hence, to explain the New Order, I propose a perspective that addresses the state as an

autonomous actor, thereby integrating important insights of both instrumental and structural

approaches, but further expanding on the latter. On the one hand, I concur with the instrumen-
 35

talist assumption that the state can be used as a tool. However, in the case of the Soeharto re-

gime it was not the instrument of the capitalist class, but of the politico-bureaucrats. On the

other hand, the bureaucrats policies were confined to favouring capital accumulation, thereby

fulfilling the needs of the Chinese capitalists. The important deviation from conventional

class-based approaches, however, was that the state managers support of capital was neither

an end in itself nor forced upon the state by the capitalists, but a means to an end for the bu-

reaucrats, which was to stay in power and to enrich themselves. Block (1987: 84) suggested

that state managers collectively are self-interested maximizers, interested in maximizing their

power, prestige and wealth. This view corresponded with Skocpols (1979) historical-

institutionalist approach, in which she emphasised the disjunctures between state and capital.

States with their administrative and coercive organizations as the basis of state power as

such (Skocpol 1979: 29) should not be seen as mere analytic aspects of abstractly con-

ceived modes of production, or even political aspects of concrete class relations and strug-

gles, but actual organizations controlling (or attempting to control) territories and people

(Skocpol 1979: 31). In order to focus on the class character of state power, it then makes

sense to define the bureaucratic authority over the state apparatus as a means of production,

as Budiman (1988: 124) suggested. It was the politico-bureaucrats who controlled the most

relevant source of power to satiate and further their own interests. Only incidentally did they

look after the interests of the capitalists. As Anderson (1983: 478) maintained, the policy

outcomes of the New Order [] are best understood as maximal expressions of state inter-

ests. The strong state of the New Order, therefore, was a rather autonomous actor in its own

right, independently managed by the politico-bureaucrats, and relatively sovereign vis--vis

capitalist power.

The New Order should thus be regarded as a bureaucratic capitalist state (Budimann 1988)

bureaucratic, because the state managers appropriated the state apparatus and were the

dominant part of the ruling class; capitalist, because the state subscribed itself to relatively

unlimited capital accumulation. The role of the Chinese capitalists inside such a state was
 36

ambivalent: They benefited from the capitalist system, but were harnessed by the all-

encompassing politicians. As long as the New Order regime fared well, there was no reason

and no practical possibility for big business to change the internal hierarchy of the oligar-

chy, for their interests coincided with those of the rulers. But the moment the system got into

a crisis as it happened at the end of the 1990s the stakes had to be renegotiated. The typol-

ogy that I will develop in the following section will classify the New Order and outline possi-

ble future constellations of the Indonesian state.

Forms of capitalism

As pointed out before, for an analysis of the New Order it is necessary to expand the concept

of the ruling class by not only including the top personnel of the bureaucracy, but also attrib-

uting a hegemonic position to it. It is thus constructive to factor the state managers into the

equation.

In this vein, Hutchcroft (1998) introduced a useful heuristic typology of capitalist sys-

tems (see Figure 1). For this, he applied Webers ideal types of rational-legalism and patri-

monialism very insightfully to categorise different capitalist states, further differentiating be-

tween relatively stronger and relatively weaker state apparatuses vis--vis business interests.

He classified most western states as more rational-legal and thus either as developmental or

regulatory states, and the more patrimonial Southeast Asian states as either patrimonial ad-

ministrative or patrimonial oligarchic, referring to Webers (1978: 1041) definition of

patrimonialism: Practically everything depends explicitly upon the personal considerations:

upon the attitude toward the concrete applicant and his concrete request and upon purely per-

sonal connections, favors, promises, and privileges.

 37

Figure 1: Typology of capitalist systems

more
rational-legal

statist laissez-faire
capitalism capitalism
(developmental (regulatory
state) state)
relatively relatively
stronger weaker
vis--vis state vis--vis
business business
bureaucratic booty
capitalism capitalism
(patrimonial ad- (patrimonial
ministrative state) oligarchic state)

more
patrimonial

(Adapted from Hutchcroft 1994: 221)20

As the character of state power represents the ruling class as well as the relevant mode of pro-

duction, Hutchcroft further typified the systems of capitalisms determined by the respective

states. More patrimonial states with relatively weak state managers enabled a system of capi-

talism he termed booty capitalism, while relatively strong states facilitated a bureaucratic

form of capitalism.

Hutchcroft (1994: 220) considered Indonesia to belong to the latter category, as rents are

most commonly grabbed by a bureaucratic elite based inside the state. The politico-

bureaucrats thus benefited disproportionately from the patrimonial administrative state, un-

hindered by an initially limited and marginalised capitalist class. In the Philippines, on the

contrary, a powerful oligarchic business class extracts privilege from a largely incoherent bu-

20
To depict both axes of the typology as continua as Hutchcroft (1998: 20) explicitly emphasised in a
footnote I modified his too rigid matrix.
 38

reaucracy (Hutchcroft 1994: 230). It is thus the principal direction of rent extraction that de-

termines the nature of capitalism.

This typology is indeed very helpful to describe statebusiness relations due to its two-

dimensionality that incorporates the relative strengths and the nature of states, although it fails

to consider the possibility and direction of change. Instead, it relies on a Weberian approach

that widely neglects the structural dimension. However, the characterisation of the state as

patrimonial taken as a symptom deriving from specific power structures illustrates the an-

tipodal resilience of oligarchic interests vis--vis rational-legal reforms very well. While it

was widely expected that post-New Order Indonesia would change from a strong patrimonial

bureaucratic state into an either developmental or regulatory state, capital obviously found a

more conducive shell to achieve a more efficient representation of its interests. The reforms

weakened the bureaucrats in relation to business interests, but did not endanger the whole

static of the ruling oligarchy. Therefore, even in a more democratic regime, patrimonialism

prevailed and enabled the politicobusiness oligarchy to remain in power. However, inside

the ruling class, the hierarchy had changed. The politico-bureaucrats lost in strength, while

the capitalists as I will empirically substantiate later had become more assertive towards

the state.

The new regime will be based on a plutocratic state where power is mainly derived from

capital. During the New Order that can be rightfully termed as bureaucratic capitalism, the

state was dominated by its managers who, however, had to face an increasingly independent

capitalist class. Both factions joined hands in a predatory oligarchy controlled by the politico-

bureaucrats. In the years after the crisis there might still be an equivalence of power inside the

oligarchy that was forced to reorganise itself in 1998. The trend, however, is moving in fa-

vour of the Chinese capitalist class which decreasingly needs the politicians at the levers of

formal power. What we observe in Indonesia is therefore an assimilation of the state to the

Thai and Philippine types. Figure 2 illustrates this development very schematically and with

it the major hypothesis of this study.

 39

Figure 2: Development of capitalism in Indonesia

relative strength
oligarchic Chinese
capitalism capitalists

bureaucratic plutocratic
capitalism capitalism

politico-
bureaucrats

New Order 1998 future

2.3 From bureaucratic to plutocratic capitalism

This chapter positioned this study within the broad range of research on the Chinese minority

as well as on capital in Indonesia and developed an analytical framework to be used for the

subsequent historical and empirical chapters. Because, as always, neither economics nor cul-

ture can explain everything (Reid 1997: 37), I made clear that I regard ethnicity as an impor-

tant variable that, however, has to be embedded in a structural discussion based on the mate-

rial politico-economic conditions. Only then is it possible to adequately inquire about the

power of the bureaucrats and the role of capital during the New Order and outline potential

developments for the post-Soeharto time.

In general, the study is in agreement with classical social conflict theories of the capitalist

state that regard capital as the ruling class, with either instrumental or structural power over

the state apparatus. In fact, I argue that after 1998, the capitalists have increasingly been able

to loosen the reins that used to hold them down, while the politico-bureaucrats have much less

of an uncontested, instrumental grip on the state and its apparatus.

For the New Order, however, we have to reconsider the position of the Chinese capitalists.

Given their ethnic ascription, they can hardly be seen as the ruling class. Instead, it makes

more sense to define the state managers as the dominant part of a politicobusiness power

bloc in charge of and in complete instrumental control over the state. The reason they were
 40

quasi autonomous from capitalist power lay in the effective limitations they put in place

against the (Chinese) capitalists through (1) the marginalisation of Chineseness, (2) the accu-

mulation of an own capital base (that, however, derived from within the state), and (3) the co-

optation of the capitalists in their bureaucratic oligarchy, in which they were the dominant

fraction (see Chapter 3). Capital was structurally important (particularly towards the end of

the New Order), but politically so much handicapped that it could have never translated its

structural power into direct political action.

The end of the New Order can thus be seen as the end of a deviation and as a normalisa-

tion of capitalism. With the help of Hutchcrofts typology of capitalisms, it is possible to de-

scribe the shift of Indonesias political economy from a bureaucratic form of capitalism to-

wards a more distinctly plutocratic form. This change, however, merely reflects a modifica-

tion of the internal hierarchy of the oligarchy in favour of capital, but not a disruption of the

basic oligarchic power structures prevalent in Indonesia for the last decades.
 41

3
LIMITED CAPITALISTS:
CHINESE BIG BUSINESS AND THE STATE BEFORE 1998

The often turbulent history of Indonesia had one constant element: a predominantly Chinese

capitalist class characterised by economic strength and political weakness. This chapter seeks

to make sense of this contradiction, explaining the reasons for Chinese big business incapa-

bility to translate economic power into political power. At the same time, I will explore why,

since colonial times, the economic vigour of Chinese capitalists remained unimpaired. More

pertinently, how did they maintain and even expand their economic power despite being per-

manently branded and treated as foreign Orientals by successive governments? Or did the

perpetuation of their pariah status constitute the necessary conditions for their success?

Culturalist accounts perceived Chinese business success as an inconsistency difficult to

explain, because in most regimes the rhetoric as well as the corresponding policies of the re-

spective rulers were targeted against ethnic Chinese. Hence, many culturalists attributed the

prominent economic role of Sino-Indonesians to their primordial business acumen that pre-

vailed over all political adversity (e.g. Mackie 1989; Suryadinata 1997). In contrast, I argue

that the Chineseness of the capitalists was indeed the most important factor, not because it

referred to innate ethnic abilities but to a feature that could be purposefully constructed and

instrumentalised by the state. It is suggested here that ethnic Chinese businessmen, as mem-

bers of a marginalised minority, were deliberately placed in the position of what I term lim-

ited capitalists wielding structural power through their ownership of capital, but remaining

politically handicapped due to the marginal social position of the ethnic group they were as-

signed to. Through this they constituted an ideal, rather harmless bourgeoisie to be co-opted

as willing financiers and junior partners in mutually beneficial predatory alliances with state

officials, thus perfectly complementing the hegemonic authority of the politico-bureaucratic

rulers.
 42

By tracing back the structural conditions for the emergence and existence of Chinese big

business, this chapter will show that colonial patterns of statebusiness relations persisted

throughout Indonesian history. Every regime maintained and used these historical legacies,

which singled out the Chinese capitalists as foreign; and they themselves as essential out-

siders (Reid 1997) benefited from these arrangements no less than the holders of bureaucratic

power. I will focus on the symbiosis between the conglomerates and the state during the New

Order, which will provide detailed observations on the power structures that were rooted in

colonialism and at the same time remain immensely significant for contemporary Indone-

sias political economy.

And even if they seem to be busy revolutionising

themselves and the conditions, creating something
which has never been there before, exactly in such
epochs of revolutionary crisis they conjure anx-
iously the spirits of the past to be of their service,
assume their names, battle slogan, costume, to en-
act, in such time-honoured disguise and with such
borrowed language, the new scene of world history.
(Marx 1960: 115)21

3.1 Determinants: Chinese capital in historical perspective

The relationship between the state and capital can only be understood in regard to histori-

cally-rooted developments, tensions, and contradictions in Indonesian society. It is thus nec-

essary to analyse the economic history of Indonesia with reference to the role of Chinese capi-

talists by going back to pre-colonial times during which particular social and political tenden-

cies and patterns were forged that remain relevant to current issues and problems. It is in pre-

colonial society that we find the beginnings of many of the social processes that came to posi-

21
Original (published 1885): Und wenn sie eben damit beschftigt scheinen, sich und die Dinge um-
zuwlzen, noch nicht Dagewesenes zu schaffen, gerade in solchen Epochen revolutionrer Krise be-
schwren sie ngstlich die Geister der Vergangenheit zu ihrem Dienste herauf, entlehnen ihnen Namen,
Schlachtparole, Kostm, um in dieser altehrwrdigen Verkleidung und mit dieser erborgten Sprache
die neue Weltgeschichtsszene aufzufhren.
 43

tion the Chinese in a particular way during colonialism and early independence so that Chi-

nese capitalists played the role we associate with them during the New Order.

Pre-colonial times (From the dawn of history to 1600)

The first Chinese are believed to have arrived in Java as early as the Tang period (618907)

or, as historian Onghokham (2003: 183) put it, probably as far back as the dawn of history.

However, it was the intensification of trade during the Ming dynasty (13681644) that led to

an increased migration from the Southern provinces of China to the so-called nanyang (south-

ern seas), todays Southeast Asia (Heidhues 1974: 6).

Reid (1988) has referred to the time before industrialisation and modern imperialism as

the age of commerce in order to emphasise the importance of trade, which was, on the one

hand, the main motivation for Chinese to leave their homes, and on the other hand, the occu-

pational niche that was not already monopolised by indigenous social groups (Wertheim

1965: 43). These protocapitalist activities thus gave the Chinese a possibility to fit into the

pre-colonial societies whose economic gap they could bridge.

This went well with the preferences of many local regents who liked to appoint foreigners

as intermediaries between them, the indigenous population, and outside markets. The advan-

tage of such constellations that were also imposed by mediaeval European rulers upon the

Jews (Reid 1997: 44) was that trade as a necessary but unpopular task was being assumed

without the risk of letting indigenous people rise to positions that might challenge the local

regents. Chinese merchants were not mere stopgaps, but ideally situated for this role. They

could facilitate trade with China, the largest market for Southeast Asian goods at that time

(Reid 1992: 464). They were already present in substantial numbers and very mobile, moving

from the coast to the interior in ways only sojourners could. Most importantly, they were a

minority without a local homeland and without the resultant political rights of people re-

garded as indigenous, coming from far away without the intention to remain permanently.
 44

The assigned role was utilised and well expanded by the Chinese, most significantly

through the monetisation of the subsistence and cash crop economy that gave them a clear ad-

vantage above other groups. This also prevented the development of an indigenous merchant

class, as the required licences were too expensive and thus out of reach for local entrepreneurs

(Kathirithamby-Wells 1993: 133-4). Chinese traders as partners or agents therefore became

indispensable for many rulers who established strong symbiotic patronage networks that fur-

thered the political ends of the local aristocrats and the economic targets of the Chinese so-

journers, thereby launching persistent patterns of relationships in Java and elsewhere in

Southeast Asia (for the Thai case, see Hewison 1989: 34-5).

However, this basic structural framework differed from future regimes in one decisive

condition: In pre-colonial times, the Chinese had the possibility to completely assimilate

within the native population, which brought about an absorption into the local elite and thus a

rise in social status (Wertheim 1965: 46; Skinner 1960). Albeit having certain economic func-

tions, the Chinese were not as excluded from broader society in ways that would occur under

the European colonialists who neither allowed assimilation of the Chinese into their caste, nor

encouraged them to blend into the native society.

Colonial rule (16001949)

As the Dutch arrived in Java in 1596, they were only one group amongst other traders (Ong-

hokham 2003: 151). In 1602, they founded the Vereenigde Oost-Indische Compagnie (VOC

Dutch East India Company) and established Batavia in opposition to the prospering Sultanate

of Banten as the centre of its operations in 1619 (Bluss 1986: 73-96). This city that later be-

came Jakarta was built around the Chinese settlement, todays Glodok. The proximity to the

Chinese was not coincidental. The Dutch utilised the existing political structures (Robison

1986: 5) through which they were able to benefit from the intermediary position of the Chi-

nese as much as the local rulers did before. The Chinese merchants were essential and irre-

placeable in setting up and later supporting the economic infrastructure, because the VOC
 45

could not advance into the intermediary trade; thus the Chinese with their already established

networks and infrastructure of commerce complemented them ideally.

Initially, the VOC officials tried to populate Batavia with their fellow citizens from the

Netherlands, but soon they changed this plan, as Dutch people were regarded to be more criti-

cal towards the authority of the VOC, the authoritarian political structure, and its trade mo-

nopoly (Onghokham 2003: 184; Bluss 1986: 25). The Chinese, however, were no immediate

threat for them, as long as they could be separated as a distinct group and curbed in their eco-

nomic range. The Dutch thus tried to lure Chinese merchants to their trading post; they even

sent out expeditions to China to kidnap some Chinese and populate Batavia with them (Liem

1980: 131). Positioned as outsiders at the center (Reid 1997: 34) who were occupying essen-

tial niches in the economic system, they were, from the nineteenth century, restricted from

owning land or, later on, joining the civil service, thus being left with only few alternatives

but to engage in trade, tax-farming, and other activities regarded as morally questionable

(Diao & Tan 2001: 125). This special economic position as entrepreneurial middlemen minor-

ity paved the way for them to becoming crucial agents of a slowly emerging state (Reid 1997:

43), but simultaneously led to their social exclusion as foreign Orientals, an image that

reinforced the gradual perception of Chinese ethnicity as most prominent boundary marker

(see Carey 1984).

It was already in the beginning of the eighteenth century that the Dutch began to fear the

increasing market power of the Chinese settlers. The intensity of migration as well as the

growth of their economic activities went beyond the control of the Dutch. This led to anti-

Chinese regulations like head taxes, deportations, and a ban on owning agricultural land.

Whoever was caught without a letter of permission (Permissiebriefjes) was to be sent to Cey-

lon as a slave (Bluss 1986: 94). Dutch paranoia about the growing Chinese dissatisfaction

with these measures as well as their general economic advancement, led to the killing of

10,000 Chinese in the massacre of Batavia in 1740 almost the whole Chinese population of

the city (Bluss 1986: 94-5; see also Setiono 2003: 107-19). However, the Company soon re-
 46

alised that these measures were a big mistake, as the economic life of Batavia broke down af-

ter the pogrom. They had to recruit new Chinese to take over the now vacant positions in the

intermediary trade (Liem 1980: 139). The lesson learned by the VOC officials was that the

Chinese were essential for the colony and, as middlemen, served the colonialists very own

interests. Moreover, if necessary, it was always possible to constrain the economic power of

the Chinese through acts of repression, thereby corroborating their subordinate position. From

1800 on, after the VOC was dissolved and taken over by the Netherlands monarchy, the ob-

jectives of colonialism shifted from trade to the exploitation of raw materials. This modern

form of imperialism required a more effective administrative framework and economic infra-

structure. However, the state itself was too weak for these tasks, lacking an appropriate appa-

ratus. Therefore it sub-contracted the sovereign right of tax collection and revenue farming to

private interests, preferably to already wealthy and well-connected Chinese businessmen

(Dick 1993: 3-9). The benefits for the colonial state were obvious: It neither needed to own

capital, nor bankroll an existing bureaucracy for this task. Moreover, power did not have to be

shared with Javanese aristocrats (Reid 1993: 78).

Many new intermediary positions in the economy were thus created, accelerated through

the expansion of foreign trade. The Chinese were the natural partners in this alliance of con-

venience (Dick 1993: 3). They already had an advantage as first-comers through their mid-

dlemen status (Wertheim 1969: 94). A good example is provided in the case of So Bin Kong,

who became the first opsir Tionghoa (Chinese officer) 22 after having been a trading partner

with both the VOC and local regents for many years. However, at least from this time on, we

have to carefully differentiate between Chinese petty traders and Chinese big business, as

only the elite of the Chinese business community was eligible to play an important role in the

22
The Chinese officers had to oversee the administration and internal regulations of the Chinese com-
munities, explaining and carrying out political decisions of the colonialists as well as collecting taxes
and revenues. In return, monopolies and exclusive licenses were bestowed upon them (see Suryadinata
1997: 26).
 47

colonial system (see Fernando & Bulbeck 1992: 77). Wealth and political connections were

the basis for an appointment as revenue farmer or Chinese officer, for which huge sums had

to be paid up-front; such positions in turn intensified the concentration of economic and po-

litical power in a few Chinese hands and were therefore out of reach for most (Onghokham

2003: 189).

In the colonial administration and economy these businessmen had several possibilities to

accumulate capital: as Chinese officers or tax collectors, through opium farming, monopolies,

gambling dens, or pawnshops. The basic premise of what Kwee (2006) called elite synergy

between Chinese merchants and VOC officials was the acceptance of Dutch pre-eminence. To

be as close to power as possible gave a small group of Chinese towkays the much needed se-

curity and access to business opportunities. Through the consequent emergence of private

capital the Chinese were prepared to take part in the more developed capitalism and colonial

administration starting in the latter half of the nineteenth century. The capital accumulation

process of the Chinese reveals the main contradictions of the colonial economy: The state

needed the Chinese middlemen and tax collectors, but it was inimical to its interests to let the

Chinese become a powerful capitalist class, whereas the Chinese owed their existence to a co-

lonial state that could not do without them. Their actions, however, nurtured a state, that, in

the end, found it expedient to place restraints on their economic role. Clearly, there are paral-

lels to be drawn here with some of the patterns of stateChinese capital relationships in New

Order Indonesia.

From 1850 onwards, however, several Chinese families accumulated capital that they

could invest elsewhere. In 1892, Chinese were in possession of, for instance, 45 per cent of

land that could be legally owned by non-natives, 63 per cent of all private estates, 31 per

cent of buildings and premises on land not privately owned, 22 per cent of tonnage of ships

and vessels, 18 per cent of the sugar mills, and 32 per cent of timber concessions (Diehl 1993:

202). This undoubtedly indicated the magnitude of Chinese commercial influence, giving

them a relatively autonomous base of social power a development that the colonial rulers
 48

saw as a threat. The Companys attitude towards and treatment of the Chinese economic elite

therefore changed significantly, leading to their perception as the foremost enemy of the

state (Phoa 1992: 14), even though there was still plenty of collaboration going on. Again it

boiled down to many restrictions against them, discriminatory regulations, and clashes under

the label of ethical policies a programme implemented to better the situation of indige-

nous, which was explicitly directed against the Chinese (Wertheim 1965: 58). This forced

many Chinese businessmen into informal, illegal operations such as smuggling, gambling,

and the illicit opium trade. In the meantime, however, the whole economic and administrative

system was dependent on Chinese and their investments, taxes, revenue collections, and trade

activities, which were urgently needed by Dutch businesses. This exemplified a theme which

was to recur in history. Chinese were indispensable in the running of the economy, but they

could not be allowed to have any significant social and political influence exceeding the au-

thority of individuals (e.g. the Han family in East Java; see Salmon 1991). It was an intended

vicious circle. By emphasising the Chinese as a functional group consigned to trade, Chinese

exclusivity was fostered, which in turn cultivated anti-Chinese sentiments among the local

people and manifested itself as ethnic segregation.

After 1900, the major paths to wealth for Chinese capitalists were in sugar production, tin

mining, rice milling and trading, retail and wholesale trade, shipping, and rubber cultivation

or trading (Mackie 1996: xxvi). The economic competition of Chinese businesses with Dutch

corporations as well as with indigenous traders increased significantly due to amplified recip-

rocal interferences into formerly exclusive economic sectors and a gradual breaking down of

traditional occupational dividing lines (Wertheim 1965: 76). The Depression in 1930 finally

weakened many Chinese businesses, but it also damaged in an even more devastating way

their competitors, thus boosting Chinese dominance over domestic trade (Geertz 1965: 59).

The subsequent decade until 1940 saw the increasing importance of Chinese capital, a decline

of the estate sector, and a growth in the manufacturing industry (Robison 1986: 9-10), which

enabled the Chinese businessmen to leave the shady niches once provided by colonial capital-
 49

ism. They could henceforth invest in new, innovative sectors like estates, mines, factories,

steamships, and banks (Onghokham 2003: 181).

To conclude, a few Chinese established strong relationships with the holders of political

power under Dutch rule. The Chinese officer system despite being abolished after 1916

was the pattern of accommodation for the future, preparing the ground for the patronage net-

works between political and economic elites to come. Despite all anti-Chinese measures, the

existence of the capitalists was never endangered, as an eradication of the Chinese element

would have meant an annihilation of one of the pillars upon which the whole system was

built. However, as Rush (1991: 24) observed, the perception of the Chinese as collaborators

even though they played a crucial role in the early awakening of Indonesian nationalism23

also linked a powerful wave of sinophobia [] with the embryonic stages of the Indonesian

nationalist movement, a movement whose heirs would build the new state and decide who,

exactly, was truly Indonesian. And who was not. The considerable implications of this will

be discussed below.

The post-colonial state (194965)

A modern capitalist state requires a union of political and economic power in the hands of the

ruling class, as Twang (1998: 318) emphasised in regards to the young Indonesian nation.

However, as a legacy of colonialism, the Chinese economic elites and the Indonesian political

leaders were divided into antagonistic racial blocs, thereby complicating the nation-building

process. Nevertheless, during the struggle against the colonialists some indigenous revolu-

23
The Chinese contributed to the nationalist movement in several ways: First, through the participation
of a few Sino-Indonesians as Indonesian nationalists (Pramoedya 1998; see also his Buru novels, e.g.
Pramoedya 2001), second, by constituting the pivotal counterpart (see Anderson 1991), especially
through the simultaneously emerging Chinese nationalism (see Suryadinata 1978: 63-79), and third, by
providing the technical and infrastructural means, e.g. newspapers (see Suryadinata 1978: 129-41), as
well as an inspiring model to organise and agitate against the colonialists (Purcell 1965: 446).
 50

tionaries already overcame the incongruity between ethnic sentiments and economic necessi-

ties and co-operated with some Chinese capitalists (Twang 1998: 324). This reconciliation of

mutually exclusive political and economic forces under the umbrella of business operations

led to the realisation that both groups interests were compatible and that their cooperation

would benefit both parties. Twang (1998: 325) interpreted these business alliances as a nas-

cent multi-ethnic bourgeoisie, in which political protection was given in return for economic

co-operation. This, however, risks being misunderstood. The loose coalition was not a fusion

of political and economic power; it was not more and not less than a pragmatic solution to se-

cure the existence of both groups.

The benefits deriving out of it convinced the Indonesian political elite to leave the Chinese

capitalists in their colonial position and to take over the general structures of the old regime.

Elements of the colonial state were incorporated with apparent ease into the succeeding na-

tion-state, as Dick (1993: 4) observed: The state as an institution seems to have been more

durable and more significant than the garments in which it is clothed, be they of the colonial

state or of the nation-state. In particular, the post-colonial state inherited a class structure in

which power was concentrated in the state apparatus and thus confined to the bureaucracy and

army, who were given a certain degree of autonomy due to the economically weak indigenous

classes and the politically limited Dutch and Chinese bourgeoisie (Robison 1982: 139-41).

For the Chinese, this also meant a continuation of their status as aliens. Indeed, as a minority

group, they were regarded as the others in relation to an indigenous majority; in that way

they constituted the crucial counterpart necessary to define the non-Chinese imagined com-

munity (Anderson 1991) of the newly built Indonesian nation. There was thus no legitimate

place in the young republic for the Chinese capitalists. This combination of economic strength

and political impotence, however, secured the survival of the essential but innocuous Chinese

capitalist class in an environment that desired stabilisation and rehabilitation. The social os-

tracising of Chinese capital thus served two ends: (1) To contain the economic power of Chi-

nese business as much as it was acceptable for the whole economy, and (2) to weaken the
 51

bargaining power of the Chinese capitalists vis--vis the indigenous officials who had taken

over the political positions from the Dutch.

After the Indonesian republican state assumed sovereignty at the end of 1949, policy-

makers made a move against foreign and Chinese merchant capital, with the intention of alter-

ing the colonial economy into a more self-sufficient industrial economy based on indigenous

ownership of capital. By that they could give in to demands of the aspiring indigenous busi-

ness class that regarded Chinese merchants as immediate competitors. The first measure was

the benteng (fortress) programme, implemented in 1950 to counter Dutch and Chinese eco-

nomic interests. Import licenses and credits were given exclusively to indigenous importers

(Thee 1996: 317). Chinese businessmen, however, benefited from this regulation through the

backdoor by using indigenous license holders as substitutes, thereby effectively contraven-

ing the efforts. In 1959, the Peraturan Pemerintah (presidential regulation) No. 10 forbade

the alien Chinese to conduct retail businesses outside the cities (Heidhues 1974: 24-5). How-

ever, the ones who suffered through these policies were mainly the poorer Chinese, not the

more established Chinese businesses (R. Brown 2000: 8). Significantly, most political actors,

such as Vice President Hatta, prioritised focussing on the lower levels of the economy and,

for instance, the transfer of small shops and business opportunities to non-Chinese coopera-

tives (Heidhues 1988: 122). Sectors that did not require too much capital and experience were

seen as an ideal starting point to form an indigenous business class (Robison 1986: 86). How-

ever, as I will demonstrate, neither did the latter materialise, nor was it the political will of the

powerholders to nurture pribumi capitalists.

Indeed, the state leaders around President Soekarno did not intend to fully eliminate Chi-

nese capital, even though they tried to keep their promises of economic nationalism that they

gave during the struggle for independence and the process of nation-building. However, the

push for indigenisation turned out to be undeliverable. The state could have fostered the

emergence of an indigenous capitalist class through state credits. Further, it could have trans-

ferred the Dutch enterprises that were confiscated in 1957/1958 to pribumi businessmen. In-
 52

stead, however, they were seized by the state and handed over to the military to manage.

Moreover, the ruling elite could have proceeded with Chinese businesses as they did with for-

eign capital, but no major centre of power really wanted to get rid of them, because this would

have caused irreparable economic damage to the Indonesian economy as well as to individual

alliances between state managers and Chinese capitalists (Robison 1986: 87). Furthermore, it

served the interests of the former best to leave the economic power in the hands of the latter

instead of an indigenous bourgeoisie, as Robison accurately assessed:

The particular importance of indigenous businessmen as opposed to Chinese is essentially po-

litical. Whereas a dominant Chinese capitalist class may impose the general interests of capital

upon the state, an indigenous capitalist class possesses the potential for direct and public politi-

cal action. Chinese capital may impose constraints and imperatives upon the policies of the

state, but a powerful indigenous capitalist class has the potential to transform the very structure

of power.

(Robison 1986: 88)

Following this argument, the continuing economic strength of Chinese businesses was an ex-

pression of a political interest in keeping the post-colonial state relatively free from bourgeois

dominance, leaving state power as the domain of state bureaucrats. The position of Chinese

capitalists, who had neither aspiration nor the possibility of entering the state bureaucracy,

was thus relatively secure, providing them with an inbuilt resilience in the face of political

assault (Robison 1986: 87).

During the last years of the Guided Economy regime (195765) the military emerged as

the most powerful politico-bureaucratic force (Robison 1986: 96). As the Soekarno regime

further stagnated, at the same time that the president was forging an ever closer alliance with

the armys arch-nemesis, the Indonesian Communist Party, the army took its chance to appro-

priate state power (Crouch 1978). All the while, some of the generals had already started to

forge alliances with Chinese entrepreneurs during and shortly after the independence struggle

(see Twang 1998: 254-316), of which the most famous and momentous connection was that

between Soeharto and Liem Sioe Liong. These future powerholders were well aware of the
 53

inherent contradictions in the position of Chinese capital, and, from historical experience, re-

alised the potential value to them of Chinese businessmen in the post-Soekarno set-up. The

temporary hibernation of Chinese big business before 1965 that neither destroyed nor particu-

larly furthered Chinese capital thus came to an end, while its contradictory status was to be

amplified.

3.2 The New Order accommodation

In 1965, the military took over executive power, terminating a politically and economically

dilapidated regime. The appropriation of state power was so comprehensive that the generals

around Soeharto were increasingly able to use the state apparatus in the most instrumental of

ways (see Chapter 2). To uphold and broaden the social and financial base of their power, an

authoritarian, centralised, and predatory system was put in place that secured the hegemony of

the politico-bureaucratic rulers, thereby replicating patterns of relationships between the state

and Chinese capital that were rooted in the dynamics established during the colonial period.

One essential component of bureaucratic authority and the main subject of this chapter

was the subordination and co-optation of capital. Hence ethnic Chinese businessmen, who

were still regarded as non-indigenous, were seen as ideal partners for collusion. The poli-

tico-bureaucrats had to ensure that the social status of these Chinese remained weak. I will

demonstrate how the state managers successfully turned them into pariahs and, at the same

time, designated them as their main business partners. They thus succeeded in intensifing the

contradictions of Chinese capitals economic strength and its political weakness. I will show

that the limitations of the capitalists were a key pillar of the bureaucrats watertight system of

societial dominance, which could neither be challenged by an indigenous bourgeoisie nor by

the Chinese outcasts, thereby securing for the politico-bureaucrats unimpeded control of the

state apparatus.
 54

Subsequently, I will analyse the complex arrangements between capital and the state in In-

donesia during the years spanning 1965 to 1997. I will demonstrate how an economically sig-

nificant class of politically limited capitalists came into being and disclose the role it played

inside the New Order regime. The reason why this sophisticated system of bureaucratic capi-

talism with Chinese conglomerates being dominated by a politico-bureaucratic elite could

last for more than 30 years can be found in the establishment of a mutually beneficial poli-

ticobusiness oligarchy, a process that Robison & Hadiz (2004: 47) described as a metamor-

phosis that was to transform the New Order from a regime serving the interests of its own of-

ficials into a regime that produced and served a growing and complex business and political

oligarchy. Its chronological anatomy is the focus of the following discussion.

Conditions: The creation of a pariah business class

The policies of the New Order towards the Chinese minority were inexplicable for most ob-

servers. Why did some ethnic Chinese manage to become the leading businessmen of a coun-

try that was so overtly anti-Chinese? Mackie (1999: 188-9) regarded this inconsistency as

laissez-faire strategy of the powerholders. He argued that Soehartos government ignored

the broader problem almost completely for over 30 years. Harry Tjan Silalahi (CSIS, inter-

view 22 September 2004) even claimed that there were no minority policies during the New

Order. It will be shown that this was not the case. On the contrary, I will demonstrate that the

policies towards the Chinese were purposeful and for the most part perfectly orchestrated to

aggravate the contradictions of Chinese capital.

Soeharto did not have to start from scratch. The Chinese as a minority and non-indigenous

group were already defined and segregated for centuries. As mentioned earlier, the tradition

of exclusion can be traced back to colonial times in which the Chinese were positioned as

middlemen. Their exclusion was continued by Soekarnos relatively successful attempts to

build an Indonesian nation based on an imagined pribumi community, largely leaving out the

non-pribumi (Chua 2002: 83-114). The New Orders Chinese policies were thus a consistent
 55

take-over and expansion of pre-1965 patterns of statebusiness alliances, aiming at the estab-

lishment of a pariah business class. This was done in three steps that will be discussed in the

following three subsections. (1) An important condition for embedding the Chinese capitalists

into the master plan of the New Order was to extinguish Chinese culture and thus marginalise

the ethnic group the tycoons were associated with. (2) Then, discriminatary policies and state

sanctioned violence against the Chinese minority relegated the Indonesian Chinese to second

class citizens and limited their social radius. (3) Finally, the powerholders succeeded in stig-

matising ordinary orang Tionghoa as rich expropriators. Through this they dichotomised so-

ciety into pribumi and non-pribumi groups and thus linked the capitalists inextricably to a

marginalised, restricted minority. Together with all Sino-Indonesians they hence attained the

status of social outcasts. MacIntyre summarised the results of the anti-Chinese policies in the

following way:

The uncertain social position of the Chinese has generally been seen as depriving the business

community of the capacity to project collective political interests in any direct or organised

manner. Along with other segments of society, it has been regarded as effectively excluded from

political participation by the state.

(MacIntyre 1990: 3)

An analysis of the process of exclusion will provide insights into reasons and motivations of

the powerholders to place their partners into such a fragile social position.

Marginalisation: Extinguishing Chineseness

The desired marginalisation of the Chinese minority was to be achieved by what was euphe-

mistically termed the assimilation programme that the state oversaw in a relatively coherent

and straightforward way, striving to eliminate everything that was traditionally seen as Chi-

nese. The officially proclaimed goal was to completely absorb the Chinese in society and

thus to solve the so-called masalah Cina (Chinese problem). The government justified the

rigorous steps taken to force the Chinese to assimilate by referring to their supposed incom-

patibility with the Indonesian people. Hence, it was said, the Chinese posed a threat to na-
 56

tional unity and security. Their perceived cultural difference was presented as the main obsta-

cle to ethnic harmony. The rage of the people, resulting in anti-Chinese riots during the first

years of the New Order, was used as a proof for the incompatibility of Chinese and Indone-

sians. Thus the blame for the Chinese problem was put on the Chinese themselves (Hery-

anto 1998: 103). Accordingly, the Badan Koordinasi Masalah Cina (BKMC Coordinating

Body for the Chinese Problem) gave the following instructions:

Guidance in assimilation in the framework of the realization of unity of the nation should be

geared towards the establishment of unity in the value system. [] All forms of cultural affinity

based on the country of origin should be removed, in order to give all elements of culture in In-

donesia the opportunity to develop according to the Pancasila.

(BKMC, cited in Tan 1991: 115)

This was the outline for an extensive process of cultural genocide that started right at the be-

ginning of the New Order. Everything that was suspected of maintaining Chinese identity was

to be removed. In the first year of its rule, the new Indonesian government thus published a

decree in which it urged the Chinese to change their names into Indonesian sounding ones to

accelerate the assimilation process (see Coppel 2002: 33-4). In order to avoid further difficul-

ties and in a bid to escape anti-Chinese discrimination, many Sino-Indonesians followed this

demand. By the middle of 1969, about 250,000 Chinese discarded their names (Heidhues

1974: 83-4). Moreover, the public practice of Chinese religion and customs was prohibited:

Chinese religion, beliefs and customs [in Indonesia] originated in their ancestral land and their

various manifestations may generate unnatural influence on the psychology, mentality and mo-

rality of Indonesian citizens and therefore impede natural propensity [for assimilation].

(Presidential Decree No. 14 of 1967, cited in Suryadinata 1986: 160)

For fear of being perceived as communists, many Chinese converted to Christianity, the more

so as Confucianism lost its status of being an official Indonesian religion later in 1979 (see

Coppel 1983: 164).

 57

In 1966, the Peoples Consultative Assembly of the Republic of Indonesia (MPR) forbade

the use of media in the Chinese language (Tan 1991: 117). Chinese characters were removed

from shops or other public displays. Chinese newspapers24, literature, and documents became

subject to the same import restrictions as pornography, weapons, drugs, or dynamite.25 In this

atmosphere of fear, one did not dare to speak Chinese languages even in the private sphere. It

is reported that people were publically slapped by passers-by if they were caught using Chi-

nese or one of its dialects. Officials monitored and interrupted telephone calls and conversa-

tions in Chinese (Heryanto 1999: 327). The Guidelines for the Implementation of Presiden-

tial Instruction No. 14 of 1967 (see Coppel 2002: 37-9) revealed that the government pro-

ceeded with the utmost care to completely extinguish the characteristics and features of Chi-

neseness (ke-Cinaan) of the Chinese minority, even prohibiting the barongsai (dragon

dance) or Indonesian plays based on Chinese fables (Tan 1991: 118). Public celebrations of

the Chinese New Year were not allowed, and in Semarang even the sale of Chinese cookies

was forbidden (Heryanto 1999: 327). Mandarin-speaking schools were closed in July 1966

(Tan 1991: 117). All Chinese associations were dissolved, leaving the minority group without

the main elements of social coherence and communal identity (Heidhues 1998: 166). To-

gether with the other regulations and measures directed against Chineseness a radical forced

indigenisation of the Sino-Indonesians took place.

The result of these policies was the near-extinction of Chinese culture and with it, as the

original objective, a marginalisation of about 3 per cent of Indonesians who were defined as

Chinese. However, the officially stated aim, to assimilate the Chinese, and its logical implica-

tion to let them eventually become part of the majority, was never an element of the New Or-

24
There was still one single Chinese paper (Harian Indonesia from Jakarta) which served as a platform
for propaganda and advertisements, or, in the wording of the Instruction of the Cabinet Presidium No.
40 of 1967 as a channel for information and fostering of Indonesian residents who only understand
the Chinese language, in the framework of overcoming subversive activities and foreign propaganda
that is hostile to the Indonesian Government (see Coppel 2002: 47).
25
This regulation only disappeared from the embarkation forms in the beginning of 2003.
 58

ders solution of the Chinese problem, as Wertheim already analysed with great foresight in

the beginning of the 1960s:

Lack of assimilation is not the real motive force for the campaign: it is a convenient rationaliza-

tion. It provides an excuse to select a special group of foreigners as the target. If this group

should actually decide to try collectively to assimilate, it would not provide a solution accept-

able to the competitors.

(Wertheim 1965: 79)

In the following section, I will provide proof of Wertheims claim and thereby demonstrate

how the Chinese were refused integration on the social and structural levels.

Discrimination: Making the Chinese visible

Coppel considered discrimination against the Chinese to be no more than the consequence of

the ideological imperatives of the assimilationist policy:

The logic of the assimilation policy required the ethnic Chinese to lose their Chineseness and to

be absorbed without trace into the wider Indonesian population. [] A policy which requires

one particular ethnic group to be assimilated into the rest of the population cannot help but be

discriminatory, no matter how sincerely the government which formulated it may profess to

guarantee equality of rights for all citizens.

(Coppel 2002: 27)

With this statement he risks being interpreted as implicitly justifying the measures against the

Chinese while misjudging the intentions behind it. Many scholars of the ethnic Chinese in In-

donesia agreed with him in principle, while others only diverged in their interpretations of the

New Order policies by describing them as inconsistent or arbitrary (e.g. Tan 1991: 118;

Suryadinata 1998).

However, if we acknowledge that the regulations decreed to discriminate against the Chi-

nese eventually even increased their visibility, it becomes obvious that the Chinese problem

was not to be solved but kept alive to prevent an amalgamation of the Chinese and the

pribumi majority. Therefore and it will become even more obvious in the next section when
 59

looking at the reasons for these measures the minority policies of the New Order state were

indeed consistent and full of determination, albeit very different in motivation from Coppels

understanding.

The existence of the Chinese as socially stigmatised and politically marginalised outcasts

was in fact politically useful. Many regulations were thus produced to ensure that there was

no complete assimilation. The identity card of Indonesians of Chinese origin carried a certain

code, on their birth certificate was a note about their Chinese descent, and they always had to

prove the legal acquisition of Indonesian citizenship with the respective documents (Tan

1991: 123). This marking opened the flood gates to bureaucratic arbitrariness. Whoever had a

Chinese name and/or looked Chinese and/or could be exposed by official documents or ques-

tioning as a Chinese had to pay higher fees or bribes (Heidhues 1998: 167). This illustrated

that name changing was of limited use in decreasing discrimination. As a further example of

bureaucratic obstacles, access to state universities was restricted for Chinese. Usually only 5

to 10 per cent of the students could be of Chinese descent. This meant that many Sino-

Indonesian parents sent their children to private universities or to study abroad. Likewise,

parts of the job market were blocked for them. Unwritten and unexpressed barriers excluded

the ethnic Chinese from working as civil servants, in the army, the parliament, and the MPR

(Mackie 1999: 191). With these occupational constraints the Chinese were confined to busi-

ness. As a result, the bureaucratic and political spheres of the state remained inaccessible for

them.

The main consequence of these limitations was that the Chinese, after being marginalised,

became visible again. On the one hand, their traditional Chineseness disappeared by the

elimination of what was perceived to be Chinese culture; on the other hand, they were still

branded as Chinese in identification documents, in dealing with the bureaucracy, universities,

and the job market. The request in 1979 for all persons of Chinese descent to register, regard-

less of their citizenship (Coppel 1983: 156), illustrated very clearly that there was no way for
 60

the Sino-Indonesians to achieve complete assimilation in terms of being unreservedly in-

cluded in the imagined community of Indonesians.

On the contrary, their distinctiveness was not only kept alive, it was redefined since Chi-

neseness had an unambiguously negative meaning by this time. Significant for this was the

1967 regulation to label the Chinese with the pejorative Cina instead of Tionghoa, which

was used up to then and considered to be neutral (Coppel & Suryadinata 1978). The official

decision made at a gathering of army leaders in Bandung containted the following wording:

Particularly in order to remove a feeling of inferiority on the part of our own people, while on

the other hand removing the feeling of superiority on the part of the group concerned within our

State, [...] the seminar has decided to use again as the term for the Peoples Republic of China

(Republik Rakjat Tiongkok) and its citizens, Republik Rakjat Tjina (Peoples Republic of

China) and warganegara Tjina (Chinese citizens).

(Cited in Coppel & Suryadinata 1978: 121-2)

The implementation of this decision took place comprehensively, and ethnic Chinese in gen-

eral, not only the ones with Chinese citizenship, were from then on called orang Cina. In so

doing, the government not only slighted Sino-Indonesians (Coppel & Suryadinata 1978: 124),

but legitimised racist offences exacted against them. Their position as outcasts became mani-

fest in language and thus justified and normalised anti-Chinese riots which had no legal and

rarely moral consequences, for the victims have lost any means of articulating or defending

themselves (Heryanto 1999: 303).

Stigmatisation: The Chinese as expropriators

Despite the politico-bureaucratic elites direct connections to Chinese big business, Soeharto

was to cast economically powerful Chinese in a role detrimental to the economic development

of the Indonesian nation. He wanted to be seen as the champion and defender of pribumi

rights against the economically strong group, that is, the Chinese. Such diction ensured that

the economic gap between rich and poor was perceived as an ethnic gap between Chinese and

pribumi. Moreover, after the distinction of pribumi and non-pribumi was officially discarded
 61

in 1984, ostensibly to lessen discrimination, it became conventional to differentiate between

the economically weak and the economically strong group (Coppel 1983: 168). From the

start the new term took over the function of the old dualism and became a code phrase

(Schwarz 1994: 117) for the officially tabooed discourse of race26, and furthermore height-

ened the impression that all members of the Chinese minority were rich and powerful. Thus

the New Order succeeded in ethnicising a phenomenon with an originally non-ethnic back-

ground.

This image of the economically powerful Chinese was intensively fostered by the regime.

One example was the widespread belief that the Chinese were in control of more than 70 per

cent of the economy (see Chapter 1; see also the Kwik-Amir debate in Chalmers & Hadiz

1997: 208-13). It did not really matter if this was true or merely a myth. Its implications were

obvious. There seemed to be a disparity of wealth along ethnic boundaries, between the Chi-

nese as one monolithic block and the poor rest, consisting of about 97 per cent economically

weak pribumi.27 Another event served the same purpose: the meeting in Tapos 1990, where

31 heads of the largest conglomerates, all but two of Chinese descent, were ordered to come

to Soehartos ranch. Covered extensively by the media, the president urged them to show

more responsibility for Indonesian society and to transfer 25 per cent of their enterprises to

Indonesian cooperatives in order to close the social and economic gap (Schwarz 1994: 98-

102). The end result they only had to transfer 1 per cent was relatively unimportant con-

sidering the message delivered by this meeting. Soeharto could not only dissociate himself

from the patronage networks in which he was deeply involved, but also managed to fortify the

26
The SARA-policies that forbade talking about suku, agama, ras and antargolongan (ethnicity, relig-
ion, race, and class) can be interpreted as means of the government to control and monopolise the dis-
course on those topics and did not have the objective, as it was often assumed, of protecting minority
groups.
27
Many scholars on the ethnic Chinese tend to base their analyses on this assumption as well (e.g. A.
Chua 2003b: 152). They either eventually believed it through endless repetition or, which seems to be
more likely, accepted it willingly and thus even helped in constructing this myth, as it fitted with their
ethnic frameworks that overstated ethnicity.
 62

perception of the Chinese as disproportionately rich and powerful and as the ones responsible

for social inequalities. Many other politicians repeated this political message and did their

stint in this ethnic blame game (Schwarz 1999: 345-6).

As political and social outcasts, the Chinese did not have any means to correct this impres-

sion nor prevent being represented by 29 tycoons of Chinese descent. They were at the re-

gimes mercy and had to put up with these kinds of stigmatisation that were meant to instru-

mentalise them as scapegoats in several ways. On the one hand, problems inherent in the sys-

tem or for which the government itself was responsible, could be veiled in a simple manner.

For instance, at the beginning of the economic crisis in 1997, the price rises and shortages of

basic items were explained by referring to the Chinese shopkeepers and suppliers who were

apparently hoarding products because of their well known profit seeking inclination (Purdey

2002: 72).

On the other hand, they were blamed for the misery of the pribumi. The discontent of the

powerless masses and the anger about their economic situation could be diverted from the

rulers towards the Chinese minority. This happened, for instance, in 1974, when an internal

government conflict took the form of anti-Chinese riots (Rosser 2002: 107-9), as well as in

1994 during the unrest in Medan, which was, as Heryanto (1994) observed, in fact an expres-

sion of workers demand for better wages and a further manifestation of a more organised ur-

ban poor. However, the mass media and communiqus of the government succeeded in de-

picting the Medan incidents as another anti-Chinese riot, caused by racial prejudices that had

to be curbed, giving the authorities legitimate reason to arrest labour leaders as alleged insur-

gents.

By defining the economic problems of the pribumi as the Chinese problem, the New Or-

der managed to prevent the consolidation of a class consciousness, which would have been di-

rected against the ruling oligarchy in general and against the politico-bureaucrats in particular,

who nurtured a tiny faction of compliant Chinese capitalists for their own benefits. The per-

ception of the social inequalities as an ethnic conflict between weak pribumi and strong Chi-
 63

nese could not harm the pribumi-elite; on the contrary, they were even seen as economically

weak group since this term became a synonym for indigenous (Coppel 1983: 153).

Implications for the Chinese capitalists

The state-defined Chinese problem set social barriers for all Indonesians regarded as Chi-

nese. Not only the vast majority of ordinary Chinese was affected by the ethnic policies of

the New Order, but also the big businessmen. Indeed, to associate the major capitalists of In-

donesia with a weak minority through constantly blurring any distinctions between poor Chi-

nese hawkers and rich tycoons was one of the intentional rationales of the government. It was

part of the political strategy of the bureaucratic power holders to sustain the marginalising,

discriminative, and stigmatising anti-Chinese policies and stabilise the ethnic dichotomisation

of society.

Under such circumstances, it became crucial for the tycoons to turn to the ruling elite for

defending them and providing the necessary functions and distributions of a state apparatus

that remained inaccessible for them. The state managers could thus absorb the upper reaches

of the Chinese capitalists into the ruling oligarchy. This was, as will be shown later, beneficial

for both sides. Chinese big businessmen were politically and socially handicapped, but eco-

nomically they were given the special right to partake in the predatory networks that ulti-

mately came to be centred on Soeharto himself.

Certainly, the Chinese tycoons did not benefit equally from the ethnic policies of the New

Order. Chinese conglomerates were always in a vulnerable position in relation to powerful

politico-bureaucrats. As the Tapos incident revealed, Soeharto could command the biggest ty-

coons of the country to come to his ranch and threaten to seize a huge portion of their assets.

It illustrated clearly the authority of the political elite, which capital could not oppose. How-

ever, Tapos disclosed at the same time that the tough stance against the capitalists was merely

rhetorical and meant to keep up the pro-pribumi Robin-Hood-image of the government.

 64

In Tapos, the contribution expected from the conglomerates was eventually reduced to an

irrelevant amount. This signified that most deprivations for the capitalists were not material

and that the tycoons indeed remained largely unaffected by the anti-Chinese policies. The ac-

tual sufferers were the ethnic Chinese who were neither that well connected nor represented

by the bureaucrats. Still, the fate of the Chinese minority had indirect, but important, conse-

quences for the capitalists, codifying their subordinate and dependent role in statebusiness

relations. In fact, this was the biggest barrier to a translation of their economic might into di-

rect political power, but simultaneously one of the reasons for being a perfect silent partner to

rule and exploit Indonesia.

Through the Chinese problem the New Order bureaucrats managed to disempower capi-

tal politically and, at the same time, veil and assure their own dominance. Hence, the political

and economic measures of the New Order only seem incoherent at first sight. In fact, they

elucidate a major consistent motivation: the establishment of a frail class of pariah capitalists.

The way the latter was brought into being will be addressed below.

The formation of the alliance (196674)

Such a marginal business class was well suited to join up with a bureaucratic elite that yet

lacked a capital base of its own. Here, I will point out how the Chinese capitalists were pur-

posefully raised and installed as junior partners in pervasive patronage networks. It will be

shown that the establishment of a mutually beneficial symbiosis with Chinese capital was a

crucial step in the formative years of the New Order that warranted the ascendance of both

political patrons and their business clients.

Raising Chinese cukongs

With Soehartos seizure of power after 1965, the politico-bureaucrats, initially dominated by

its military element, obtained complete control of the state apparatus. Their foremost task was

to revive the crippled economy with an inflation rate of 636 per cent in 1966 (Thee 2003: 18).
 65

They immediately stopped the former governments economic nationalism and invited for-

eign companies to bring in loans and investments and thus launched an ambitious industriali-

sation programme, drafted by US trained technocratic economic advisors (Robison & Hadiz

1993: 18-20). In only two years, by 1968, relative price stability was achieved, allowing the

economic policymakers to shift their focus from stabilising the economy to its rehabilitation

and long-run development (Rosser 2002: 40-1).

The Soeharto government had sufficient resources to change the structures of the econ-

omy, especially through the confiscation of assets belonging to capitalists close to former

President Soekarno as well as through the massive number of state corporations (Robison &

Hadiz 2004: 54). Moreover, it disposed of the means to allocate these resources, as the new

rulers were in control of the centralised gatekeeping institutions such as the Forestry Depart-

ment, the Trade Ministry, the state logistics board Bulog, and the national oil company Per-

tamina (Robison & Hadiz 2002: 45). Most enterprises remained in the possession of the state,

while, as second pillar of the economy, a domestic private business class was to be formed.

These capitalists were recruited from the ranks of the Chinese minority.

Chinese businessmen the so-called cukongs (a Hokkien word used in Indonesia for well-

connected Chinese tycoons) turned out to be the only group with relevant business experi-

ence, entrepreneurial skills, and networks to generate profits and to support general economic

growth. A few traders were already partners of the actual rulers long before, such as Liem

Sioe Liong and Bob Hasan, who were closely linked to the Diponegoro Division of then-

Lieutenant Soeharto (Robison & Hadiz 2004: 54). The political powerholders knew that these

capitalists were effective and reliable. Through anti-Chinese policies they assured that their

allegiance would not change. The new economic elite of the New Order was harmless be-

cause it was marginalised, and if required further marginalisable (see above); a condition

that allowed the emergence of Chinese capitalists as key business players.

Most crucial for their enhanced economic stance was the Foreign Investment Law No. 1 of

January 1967, followed by the Domestic Investment Law of 1968. The former gave foreign
 66

capital guarantees and incentives such as a continuation permit for over 30 years, tax holi-

days, and exemption from import duties (Robison 1986: 138-9). Chinese businessmen became

the preferred partners in joint ventures with foreign capital that served as incubator for the rise

of Chinese big business. Hence, the cukongs could shift from trade and distribution to the

more lucrative sectors the labour based industry provided, being offered an epoch-making

momentum for potential businessmen with no experience, capital, and technology to jump

into the manufacturing sector, enter into new fields of industry, and further diversify their

lines of business even into unrelated industries (Sato 1994: 128).

The second law catering to domestic investors was implemented more than one year later

following the earlier law on international capital, because pribumi Indonesians were busy

bashing the countrys ethnic Chinese during 1966 and 1967, as Winters (1996: 77) explained

the delay. The investment potential of Chinese businessmen, however, was far too massive to

be ignored, as stated already in Article 5 of The basic policy for the solution of the Chinese

problem (Instruction of the Cabinet Presidium No. 37 of 1967):

Different from FOREIGN CAPITAL as mentioned in Law no. 1 of the year 1967, capital which

has been accumulated and expanded in the territory of Indonesia, which is domestic foreign

capital is basically national wealth in the hands of aliens; therefore it is to be mobilised, fostered

and used in the interest of rehabilitation and development.

(Official translation, cited in Suryadinata 1986: 218)

The Domestic Investment Law was meant to reanimate specifically domestic Chinese capital,

as only Chinese businesses had the required financial resources and were thus even as aliens

eligible for the subsidised credits (Winters 1996: 77-8). Therefore, they were given, for the

first time in history, relative security to invest in Indonesia, while the benefits stipulated in the

law were out of reach for pribumi businessmen. Winters (1996: 77) remarked that either the

economic ministers did not know what they were doing with these laws, or they never seri-

ously intended to give a boost to pribumi investors. The latter assumption appeares to be

more accurate, as signified by the wealth of economic privileges the state provided for certain
 67

Chinese businesses, such as exclusive contracts, licences, and credits (Robison 1996: 91), that

constituted a further, not less significant factor of their growth. For example, through Bulog

Chinese businessmen received import and distribution monopolies for food, several ministries

provided them with concessions and protective trade regimes, and, as former Minister of Fi-

nance Bambang Subiyanto claimed,

if we were to believe in a conspiracy theory28 at all, then the most important event in fostering

the Chinese was the special credit scheme masterminded by Soeharto, through which state banks

willingly gave Chinese businessmen highly subsidised special credits below the market rate, to

be used for huge investments.

(Bambang Subiyanto, interview 16 September 2004)

With tariffs and non-tariff barriers to trade and certain restrictions to foreign investment the

market was sufficiently regulated, resulting in a concentration of Chinese businesses on the

highly promoted import-substitution industries (Rosser 2002: 34).

This protectionism facilitated an unrestricted growth. The cronies grabbed every chance

that they were offered. Anthony Salim described the formative period of the New Order:

Everything you touch at that time is basically a very big opportunity, everybody is doing it, and

so the new conglomerates are being born Salim is one of them. [] This is the period where a

lot of new companies, new groups are being formed, and a lot of capital formation is taking

place at that time.

(Anthony Salim, interview 13 April 2005)

Possibilities were indeed innumerable; thus the tycoons founded companies in multiple sec-

tors, thereby forming the basis of the diversified shape of Indonesias conglomerates. As

many as 17 of the 30 largest business groups before the crisis all but one owned by Chinese

28
Subiyanto (interview 16 September 2004) himself did not believe that there was a master plan of the
New Order government to foster Chinese big business: That the Chinese were economically so strong
in the New Order was simply a coincidence, or perhaps the government could not foresee or ignored
the impact of the 1967 law.
 68

were established in 196673 (see Appendices, Table 1). 29 Considering that three of the

seven groups that already existed before 1965 were single product companies from the highly

constant cigarette sector, a comprehensive exchange of capitalists had taken place with the

advent of the New Order.

One of these new cukongs was William Soeryadjaya, whose Astra Group capitalised on

his connections with Pertamina chairman General Ibnu Sutowo, who controlled government

contracts for supply and construction (Robison 1986: 293). Through the latter, Astra became

the sole agent for Toyota, Honda, Fuji-Xerox, and Daihatsu (Shin 1989: 337). Another major

beneficiary of import substitution and exclusive protection by the government was Liem Sioe

Liong. His close partnership with Soeharto, deriving from long-term business relationships

with the latters military division, secured him two central monopolies one for cloves and

the other one for flour, as well as many more privileges (Shin 1989: 352-4; see also case

study on Salim in Chapter 5.3). By the mid-1970s, these conglomerates formed the largest

two of the country. According to Robison (1986: 305), it was the windfall profits derived

from the monopolies and secured through political connections that constituted the basis of

domestic private capital formation. In the first years of the New Order, the politico-

bureaucrats therefore succeeded in raising a client bourgeoisie that as will be shown below

was to be co-opted in a mutually beneficial symbiosis.

The foundations of symbiosis

Most Chinese businessmen used to be only more or less successful traders before the new re-

gime gave them the possibility of becoming major capitalists. They were therefore highly de-

pendent on the political elite that guarded their quick rise and could also decree a sudden fall

29
Most of the favoured businessmen already had some rather small scale companies before 1965 (see
Sato 1994: 129). The year of establishment (as indicated in Appendices, Table 1) thus refers to the time
in which they took the decisive step towards conglomeration.
 69

if deemed necessary. The alliance between the state and capital at that time was thus very

much under the control of the political patrons.

The networks of patronage between the politico-bureaucrats and their Chinese business

clients functioned in the following way (see Figure 3): The political elites controlled minis-

tries, state banks, and regulating agencies that could give out licenses, credits, and facilities.

The Chinese tycoons were the recipients, who were then able to realise a formidable profit, as

most of the ventures provided opportunities for market domination. In return, the conglomer-

ates offered the politico-bureaucrats shares or business partnerships or simply channelled

some of the profits back to their political protectors, often via donations to the latters chari-

table foundations (yayasan) (Schwarz 1994: 133-61).

Figure 3: Patronage networks in the New Order

centralised licenses,
gatekeeping opportunities,
institutions credits

Politico- Chinese
bureaucrats conglomerates

funds, bribes, monopolies,

partnerships profits

(Based on Chua 2004b: 72)

For both parties involved it was a win-win situation. Although the political powers lacked the

economic know-how, connections, and capital, they could access the markets through their

Chinese cronies from whom they extracted massive gains. These payments acted as bribes to

open up opportunities, as commission charges for profits, or as protection money for the rela-

tive security the new regime guaranteed. The kinds of trade-offs they received for their rents

was extensive, as listed by McLeod (2000: 155-6): (1) Favoured companies were protected

from competition from imports; (2) government departments and state owned enterprises
 70

awarded contracts without bidding; (3) state banks including Bank Indonesia gave cheap

loans at highly subsidised rates with very generous repayment options; (4) close cronies re-

ceived the right to exploit natural resources such as forests or even gold; (5) the government

bestowed permits to take over land; (6) cronies were further designated to be the obligatory

partner in foreign joint ventures. (7) Moreover, they were favourably treated when it came to

dealing with state enterprises, being able to purchase inputs for artificially low prices. (8) Fi-

nally, they benefited from extra low taxes or tax holidays and, (9) in the latter years of the

New Order, they even obtained the right to collect taxes. This system based on korupsi,

kolusi, dan nepotisme (KKN corruption, collusion, and nepotism) became the basis of the

predatory New Order alliance.

The patronage networks secured the integration of Chinese capital into a symbiosis be-

tween politics and business. They further provided the bureaucrats with start capital and were

the foundation of Indonesias stunning economic growth. However, these networks were not

incidental results that could be forged between any partners in arbitrary combinations. This

kind of alliance was only possible between the politico-bureaucratic authorities and the Chi-

nese capitalists in the given power configuration. Moreover, this coalition required an elabo-

rated authoritarian and centralised system that the state managers developed soon after they

took over power. The thriving partnership with Chinese capital was the result, but it also un-

derscored the need for a more stable form of regime that could consolidate and remain virtu-

ally unchallenged in the second decade of New Order rule.

The consolidation of bureaucratic power (197482)

The oil boom that started with a sudden rise in oil prices at the end of 1973 massively filled

the states coffers and caused a shift in economic policies from a relativly liberal regime to-

wards increased protectionism and patronage disguised as economic nationalism. An industri-

alisation programme with the aim of developing a self-sufficient economy hampered foreign

investors involvement in certain sectors (Robison & Hadiz 1993: 18-20). The Malari-riots of
 71

January 1974, in which middle class protestors demonstrated against the dominant role of for-

eign and Chinese businesses (see Rosser 2002: 107-9), gave the politico-bureaucrats the ac-

cordant political justification as well as the initial ignition to better their own economic

stance.

Sato (1994: 136) listed three aims the government announced right after the riots: giving

priority (1) to national capital instead of foreign capital, (2) to state capital instead of private

capital, and (3) to pribumi capital instead of Chinese capital. As the policy guidelines and

their later realisation showed, all three dimensions of capital that were to receive favourable

treatment, i.e. national, state, and pribumi capital, were under control of or even synony-

mous with the politico-bureaucrats. However, the development of private capital remained

largely unaffected. In the oil boom period, ending in the early 1980s, as many as five of the

pre-crisis top 30 conglomerates emerged (see Appendices, Table 1). Moreover, despite the

populist attitude, the politico-bureaucrats did not see their Chinese cukongs as competitors or

opponents, but rather as the main vehicles for the growth of indigenous capital, which was to

be represented by the state managers themselves. The collusion between capital and the state

was thus intensified.

By means of massive state interventions the powerholders transformed the formerly loose

business alliance into a politicobusiness oligarchy and induced a comprehensive metamor-

phosis of state and class power (Robison & Hadiz 2004: 43). The Chinese capitalists tran-

scended their role as mere financiers preying on quick profits while the political elites did not

confine themselves to being only gate-keepers and toll collectors to a class of business sup-

plicants (Robison & Hadiz 2004: 53), figuring out that their widely congruent interests

with their Chinese clients could best be promoted in an internally united and structurally

deeply entrenched oligarchy. The absolute control over the state that became the main catalyst

for the consolidation of patrimonial bureaucratic capitalism was utilised to actively promote

the oligarchys needs (Hadiz 2001a: 129).

 72

In the following, I will illustrate how state power manifested itself in the economically

protectionist and politically authoritarian and centralised system that turned out to be the best

if not the essential shell for the oligarchy-in-formation. By 1982, the oligarchy had firmly

established an administrative patrimonial regime, in which the politico-bureaucrats effectively

ruled in tandem with the still dependent Chinese tycoons. The transformation of the bureau-

crats into indigenous capitalists was the decisive difference to the formative years, firmly

rooting the state managers power over the state and inside an emerging bureaucratic oligar-

chy that was under their control.

The system of dominance: Authoritarianism, centralism, and protectionism

The New Order regime was founded on three pillars: authoritarianism, centralism, and protec-

tionism. This political system that provided the fundamental setting for the unchallenged

dominance of the politico-bureaucrats and a further rise of Chinese capital became even more

entrenched through the immense revenues of the oil boom, allowing the government to bask

in enormous economic growth and depict itself as the engine of a successful developmental

state (Liddle 1996: 36-42). By means of the hijacked state apparatus that was penetrated by

the omnipresent bureaucracy and backed by the powerful military, the political powerholders

had the means and legitimation to rule without constraints.

Their immediate authority was based upon a regime of state terror (Aditjondro 2002: 34),

whose foundations were laid when between 500,000 to one million alleged communists were

killed between 1965 and 1966 (Cribb 2001). The military, as the bodyguard of oligarchic in-

terests (Hadiz 2001a: 136), with support of paramilitary groups, instigated violence against

any form of opposition to the state (Wessel 2001). The Gleichschaltung of all other non-state

social forces was virtually absolute. Political adversaries were murdered, suppressed, or in-

corporated by the system. Although opposition groups existed here and there, civil society

was on the whole muted and restricted. The lack of avenues to voice and organise criticism or

opposition forestalled any possible challenge to the regime. The executive forces were abso-
 73

lutely in the hands of the politico-bureaucrats, and nothing could be done without their con-

sent.

However, the regime had a broader base than just coercion. With the help of organisations

which were purposefully established and controlled by the state, a corporatism was put in

place that channelled and regulated political engagement consensually (Robison & Hadiz

2002: 17). For business the widely impotent Indonesian Chamber of Commerce and Industry

(KADIN) provided the platform upon which capitalists could voice out their concerns. Ac-

cording to MacIntyre (1990: 44-7), only a few of the leading Chinese tycoons bothered to join

it, although they were forced to subsidise its costs. All other social groups as well had to be

founded on the principles of the state ideology Pancasila that laid out the boundaries of le-

gitimate political activity, emphasising the consent-oriented integralist character of the New

Order (Robison 1993: 42-4). Any action undertaken against the state and its managers was

thus interpreted as an attack on the nation. However, economic advancement endorsed the

politico-bureaucrats. The eradication of poverty the population living below the poverty line

fell from 60 per cent in 1970 to 11 per cent in 1996 (Azis et al. 2002: 199) and the general

progress in living standards and income that even affected Indonesian villagers in distant re-

gions therefore ideologically sanctioned the idea of a strong state. As long as their pockets

were filled, most citizens appeared prepared to do without some of their basic rights.

Another crucial element in the system of dominance was the extreme centralism that bun-

dled all decisions in the hands of the political elite in Jakarta. Through the major gatekeeping

institutions the bureaucrats monopolised the allocation of licenses and resources, thus ensur-

ing the obtainment of adequate gratification from the beneficiaries. The centralised structure

enabled the political elite to completely control the economy and determine the recipients of

favours unimpededly. This so-called dirigisme fostered the great leap forward of Chinese

business groups to big conglomerates and was thus an essential factor for the rise of the capi-

talists (Robison 1993: 58). It also led to the emergence of corporations belonging to the major

politico-bureaucrats. A key institution for this was the State Secretariat (Sekneg), through
 74

which patronage and the allocation of government-funded projects was coordinated, and

within it Team 10, established in 1979 as a locus of far-reaching government control and an

enclave for kickbacks to officials and contracts for everyone from backers of the Suharto re-

gime to the presidents children (Rosser 2002: 125). Officially, it was supposed to secure

preferential allotment of government contracts to small and medium pribumi enterprises that

were badly impaired by the rupiah devaluation in November 1978. This aim was if at all

only partly reached. Instead, as Rosser (2002: 125-39) explained, Team 10 was misused as a

cash cow for the officials who allocated the contracts and as an instrument to nurture the ven-

tures of politically connected businessmen. It was thus a vehicle that amplified the New Or-

ders centralism and concentrated it in the closest circles around Soeharto, thereby widening

the reach and impact of the patronage networks. Perhaps more importantly, Team 10 was the

decisive midwife to a class of pribumi politico-bureaucratic capitalists, enshrining the struc-

tures of patronage even after its dismantling in 1998.

The third pillar on which the system was based was the unlimited accumulation of capital

for both political and economic elites. It took place under the protectionism of an interven-

tionist, patrimonial state. Robison & Hadiz (2002: 37) characterised the regime as predatory,

a system where the state apparatus and public authority become the possession of a corps of

politico-bureaucrats whose main objective is their own political and economic enrichment.

The state was increasingly turned into an instrument of the ruling class. Through it the politi-

cians hijacked the markets and subjected them to their authority and, at the same time, intensi-

fied the patronage networks with their Chinese cronies (Robison 1993: 44-5). The ever-

growing state sector with capital-intensive upstream activities taken over by state-owned en-

terprises such as Pertamina and Krakatau Steel played a most crucial role in capturing and al-

locating the utmost lucrative downstream activities among political patrons and their business

clients. As Habir (1999: 179) observed, most of the corporations that benefited from these

collaborations were owned by ethnic Chinese entrepreneurs.

 75

This system of dominance consolidated the New Order regime for the next few decades to

come. Authoritarianism successfully forestalled any potential internal threat to the oligarchy

in the form of criticism against the predatory alliance between the bureaucrats and Chinese

big business, thus presenting a political apparatus that perfectly served the political elites

greedy needs of plunder and control as well as the capitalists longing for security and devel-

opment.

Indigenous capital

On their way towards the consolidation of their authority as ruling class, it was not sufficient

for the politico-bureaucrats to control the state apparatus, but further to prevent the rise of a

class that could challenge their rule. This was to be achieved (1) by impeding the influence of

other capitalists and (2) by building an own capital base to prevent being used as compradors

of domestic and international corporations. They wanted the state to be their instrument, and

not to constitute a mere committee to oversee the needs of capital.

In accordance with these aims, the government ended the relatively liberal regime in 1974.

The responsiveness to international capital decreased significantly, as the end of many privi-

leges and incentives as well as new restrictions and conditions for investments from abroad

showed, leading to a massive reduction of foreign investments (Rosser 2002: 110-6). In addi-

tion, and as outlined before, they further socially marginalised the most significant domestic

capitalists, the Chinese, thus increasing their dependency and co-opting them in the politico

business oligarchy. The category pribumi capital, however, which would have been entitled to

share in the biggest part of the economy, was successfully usurped and monopolised by the

politico-bureaucrats themselves.

Pribumisasi, which stood for protectionism in favour of the pribumi in order to have a

more equal distribution of wealth in society, was the official policy of the New Order. How-

ever, it turned out that this was nothing more than a legitimacy device for the predatory self-

enrichment of the ruling class (Robison & Hadiz 1993: 26). Shin identified the unsuccessful

policies of indigenism as an ideological project of the New Order

 76

to cushion the effects of a rapid restructuring of the Indonesian economy in which the new capi-

talists, along with the military-dominated state, rose to dominance. The policies, which achieved

little progress over time, nevertheless had to be created repeatedly, only to make the state appear

neutral and above class interests.

(Shin 1991: 142)

In fact, one main effect of economic policies was to prevent a broad indigenous middle class

and a more powerful pribumi bourgeoisie emerging outside the realms of the politico-

bureaucratic families. A native entrepreneurship would have had more moral right to speak

out against the Soeharto regime, contrary to the Chinese pariah capitalists. This was the rea-

son why, as Schwarz (1991: 41) justly claimed, the prospect of an indigenous business class

wielding political power may prove to be more of an obstacle to pribumi business ambitions

than their access to capital or the quality of their entrepreneurial talents. Therefore, the po-

litical powerholders did everything to retard the rise of independent indigenous businessmen

in order to protect their own position and keep a potentially challenging pribumi bourgeoisie

at bay (Budiman 1988: 121). However, a small number of individuals such as the Bakries

were allowed to rise as capitalists, making use of the pro-pribumi phrases of the government

(Robison 1996: 96). They remained, nevertheless, far too few to challenge the system and

were, indeed, very close and loyal to Soeharto and his family and thus quickly became a part

of the oligarchy.

The vacant position through the lack of indigenous capitalists inside the national economy

was filled by the politico-bureaucrats themselves. Businessmen were recruited from their

midst. The most significant example was Soehartos own clan. Revealingly, the presidents

son Bambang was amongst the main proponents of pribumisasi, signifying for whom these

measures were really meant (Hadiz 1997: 206). They facilitated the emergence of the Cen-

dana groups (named after the address of Soehartos house) in the 1980s. Bambang Trihat-

modjos Bimantara, Tommys Humpuss, Tututs Citra Marga Nusaphala Persada, Sigit Harjo-

judantos Arseto, and Titiek Prabowos Maharani Group as well as many other ventures of

further relatives belonged to Soehartos extensive business empire, with Bimantara and Hum-
 77

puss being two of the largest conglomerates in 1996 (see Appendices, Table 1). Many other

politico-bureaucratic families also managed to establish their own business groups (Habir

1999: 188). The examples that Aditjondro (2002: 40-1) mentioned read like a comprehensive

list of persons of distinction and importance in the New Order, including relatives of former

Vice President Habibie, former Information Minister Harmoko, and former Development

Planning Minister Ginanjar Kartasasmita.

The politico-bureaucrats thus started to accumulate sufficient capital themselves, thereby

decreasing their financial reliance on Chinese businesses. They could even hope in the long

run to become their own class of businessmen and eventually be able to substitute for their

Chinese counterparts. For this the permanently sustained anti-Chinese xenophobia was in-

strumental in several ways: (1) It gave the politico-bureaucratic justification to represent and

expand pribumi capital; (2) it reproduced Chinese dependence on the state, while (3) it di-

verted criticism against the New Order, blaming the increasing inequalities solely on the Chi-

nese. (4) Moreover, it provided a reason for the ruling powers to re-establish order through

the military, whereby the army could underline its own indispensability. The implementation

of new repression against the population could thus be justified, while the demand of the poor

masses as well as the populists and indigenous businessmen who supposedly spoke up for

them for a larger share of the Indonesian economy was discredited and de-legitimised, link-

ing these postulations to anti-Chinese violence (Heryanto 1998: 102). Thus it was not surpris-

ing that riots were more than once instigated by the military itself (see McBeth & Tripathi

1998). However, it was a fine line to walk for the government. As will be shown later, social

unrest could not always be channelled and became increasingly harmful for the rulers (Robi-

son & Hadiz 2002: 52).

The emergence of politico-bureaucratic capitalists helped the oligarchy to anchor itself

both politically and economically and to organise the New Order as a regime that gave its

dominant element, the politico-bureaucrats, nearly absolute power. They managed to subdue

or co-opt all actual and potential opponents. Foreign investors usually appreciated and sup-
 78

ported the corrupted system as long as it fulfilled its function as a cash cow, delivering profits

unthinkable elsewhere. Domestic private capital, as well, took a share in the predatory alli-

ance and was efficiently repressed through the permanently maintained fragile social status of

the predominantly Chinese business class and the hindrance of pribumi capital. The politico-

bureaucrats therefore succeeded in depriving capital of its general authority and as is the

case in many states even command over the political sphere. Significantly, the only capital-

ists who could overcome the effective separation of money and power were the political elites

akin or close to Soeharto, who increasingly grew into big business themselves at eye level

with their main Chinese cronies, occupying an advantageous political position due to their

family links with the government.

The expansion of oligarchic capitalism (198297)

Robison & Hadiz (2004) characterised the alliance between the politico-bureaucrats and the

Chinese capitalists as forming a capitalist oligarchy. In fact, after the collapse of oil prices

first in 1981/1982 and again in 1986 it became even more obvious that the two groups were

combined in more than just a partnership of convenience. Although Chinese capital and the

state managers were still two distinct entities, they constituted a ruling class bound together

by common strategic interests. Significant for this were the predatory raids on markets that

became possible through the technocratic policy reforms in the 1980s that were implemented

to find a replacement for the oil exports (Robison & Hadiz 1993: 20). They ended the protec-

tionist economic policies and relaxed many regulations for foreign investors. However, what

first looked like a bitter defeat for the oligarchy turned out to be one of its most decisive vic-

tories. The reforms admittedly meant a retreat of the state, but at the same time constituted a

shift in policies in favour of private capital. Through the deregulation packages that involved

an opening of sectors formerly closed to investments and a radical liberalisation of the capital

markets, both politico-bureaucratic and Chinese capitalists were given the opportunity to

grow domestically. In the 1990s, finally, the conglomerates were liquid enough to engage
 79

themselves internationally as well. In the following, I will demonstrate how the capitalist oli-

garchy expanded. We will see, however, that the increasing success also disclosed some signs

of tension between the two parties involved. The contradictions that became more apparent

towards the end of the regime reveal the faultlines between the state and capital, helping us to

determine the respective positions inside the New Order power structures.

The politicobusiness oligarchy

The reforms implemented in the wake of the oil crisis were meant to structurally adjust the

state-led interventionism of the late-1970s to the requirements of a post-oil recession. Accord-

ing to the technocrats, Indonesias international competitiveness would be hard to maintain

without the immense oil revenues, if the domestic markets were not liberalised (Pangestu

1996: 141). They hoped that a thorough deregulation would lure foreign direct investment and

loosen the grip of the politicobusiness oligarchy on the economy (for a good overview of

major contending groups in the economic liberalisation process, see Basri & Hill 2004: 647).

From 1982 to 1986, the financial and tax system was modified and many industries such as

banking, transport, trade, and manufacturing were deregulated in order to vitalise the private

sector and non-oil exports as an alternative to the state sector and oil related businesses re-

spectively (Sato 1994: 141). By 1987, the measures yielded fruit. Foreign as well as domestic

investments rose significantly.

Contrarily to the reformers expectations, however, it was these policy changes that made

the instruments for an unprecedented capital accumulation available to the oligarchy. Robison

& Hadiz (2002: 48) observed that the move towards deregulation was only implemented in

certain economic areas, leaving monopolies in the most lucrative sectors intact and exclu-

sively under oligarchic control. In fact, the capitalists succeeded in grabbing many state ven-

tures that were to be deregulated. It was thus a colonisation of a system of state monopolies

by state-backed private conglomerates (Robison & Hadiz 1993: 26) that took place in Indo-

nesia in the 1980s.

 80

Most vital for the massive expansion of big business was the liberalisation of the banking

sector after the mid-1980s economic crisis (see Rosser 2002: 51-83). This gave the conglom-

erates the opportunity to acquire capital from sources that were not accessible for them be-

fore, enabling them to grow even more rapidly in and beyond Indonesia (Hadiz 2001a: 130-

1). On the one hand it was a huge advantage for them that the Central Bank as well as state

banks lost their quasi monopoly of giving credits. From 83 per cent of all outstanding bank

credits in 1982, the ratio of politico-bureaucratic controlled loans fell to only 40 per cent in

1995 (Rosser 2002: 57). On the other hand, the reforms of the banking sector also terminated

most special credit programmes for small indigenous companies that constituted half of the

total credit by the early 1980s (Rosser 2002: 65), resulting instead in a massive increase of

loans for Chinese big business groups who could easily afford to pay market rates for interest

(Rosser 2002: 63). In the mid-1990s, preferential credits to small businesses had fallen to 7

per cent, while 80 per cent of all bank credits went to the conglomerates (Habir 1999: 186-7).

From 1988 to 1994, the number of private banks more than doubled, while the amount of

commercial bank loans quadrupled (Rosser 2002: 63). Financial services offered quick and

lucrative returns on investments, which was, as Hing (1987: 409-35) observed for Malaysia,

very attractive for a group highly dependent on lenient ethnic policies. Almost every big Chi-

nese group founded one or more private banks, thereby decreasing their dependency on funds

from state banks. Indeed, in the early 1990s, they intensively made use of intra-group loans

that, in many conglomerates, rose up to a level of 90 per cent, bringing some corporations

close to bankruptcy, only to be eventually rescued by the government (Robison & Hadiz

2002: 49-50).

A further step was to reform the capital markets. The government increased the impor-

tance of the Jakarta Stock Exchange (JSX), giving in to the pressure of potential international

investors (Rosser 2002: 90). From only 24 listed companies in 1988, the number rose to 250

eight years later (Rosser 2002: 89). With the stock market the conglomerates found a source

to raise capital, substituting for the decreasing ability of the state to protect and finance them.
 81

Moreover, being partly owned by the public enabled Chinese big business to hedge some of

their companies against confiscation.

The deregulation measures were thus a process that provided adequate backup, calculable

risks, and unending possibilities. Indeed, they were an inevitable, necessary step the con-

glomerates had to take to overcome the glass ceiling of growth under the protectionism of the

1970s. This made them the main beneficiaries of the reforms, as Sato observed:

Now dominant private capitalists (even those who were developed by patronage) have outgrown

the initial stage to become the main engine of the revitalization of the economy, regarding liber-

alization not as a threat but as an opportunity. The evidence for this is the recent prominent per-

formance of business groups in every deregulated sector.

(Sato 1994: 147)

This resulted in the formation of domestic capital in the hands of a state-sponsored private

oligopoly (Robison 2001: 33). Chinese businessmen could henceforth count on their own

immense capital base that allowed them to seize the many opportunities created by deregula-

tion. The greater access to capital further allowed them to play an important role globally and

shift their assets overseas, which, in turn, made them relatively independent from the Indone-

sian market. The second beneficiaries from the reforms were the politico-bureaucrats, espe-

cially the Soeharto family that increasingly replaced the Chinese in the statebusiness net-

works, thus becoming the main recipients of patronage. They induced power through a fric-

tionless fusion of both political and economic authority. Being combined in one politico

business capitalist oligarchy the state managers and the Chinese corporate moguls had thus

erected an apparatus of power that was unassailable for outsiders, enshrining their might

through an ever growing capital base.

They were an ideal team. In an elaborate division of labour the Chinese tycoons and the

indigenous political powerholders complemented each other perfectly. There was no need for

the capitalists to possess own political power, as their interests were well represented by the

politico-bureaucrats. The latter, on the one hand, needed Chinese capital to finance projects
 82

and even invest in various unprofitable sectors which the government wished to see devel-

oped (e.g. steel production; Robison 1986: 314). On the other hand, the Chinese fostered them

and helped them become capitalists. Therefore, despite the enormous economic growth of

Chinese conglomerates, the powerholders saw no reason to exchange their partners, the more

so as the social and political position of the tycoons remained weak. Chinese big businessmen

were thus unwilling to revolt against their subordinate position, as the system still served them

very well, and they remained unable to do so due to their pariah status.

It is not possible to determine the exact degree of the capitalists power during the New

Order. Certainly, their capital resources gave them a structural veto, but they never had to ap-

ply it as their loyalty had never been put to the test. Although some of the governments deci-

sions were overtly anti-Chinese in character and consequence, the tycoons were aware that

the discriminatory policies were necessary to mediate, legitimise, and stabilise the system.

However, for a potential dissension, the politico-bureaucrats had put in place sufficient provi-

sions such as riots or demonstrations to curb a more immediate grip on power of the Chinese,

whose position was still too delicate to have a stake in Indonesian society and politics. The

Chinese capitalists were thus reliable partners, whose economic growth did no harm to the po-

litical powerholders. They secured the latters political authority and economic rise, for which

they became stakeholders in a predatory form of oligarchic capitalism. Therefore, both part-

ners benefited immensely from this intensification of the well-established statecapital sym-

biosis.

Contradictions

The inherent contradictions between Chinese capitals economic power and its political vul-

nerability were increasingly difficult to conceal towards the end of the Soeharto regime. On

the one hand as has been shown they constituted the basic foundation of the successful

oligarchic alliance and were critical for the functioning of bureaucratic capitalism. On the

other hand, however, they more and more endangered the very existence of the New Order

accommodation between the state and capital.

 83

One major problem for the government was its increasingly untrustworthy claim to repre-

sent pribumi interests. The more predatory the politico-bureaucrats proved to be, the more dif-

ficult it became for them to depict themselves as an economically disadvantaged group. The

recurring pronouncements in favour of economic democracy (e.g. Suryadi in Chalmers &

Hadiz 1997: 199-203) threatened some of the ideological legitimacy of the state, highlighting

the discrepancy between the political leaders egalitarian pretension and rapacious bearing

(Robison 1993: 69). As it turned out, populist protests against the prominent role of Chinese

big business became a powerful tool of opposition to the regime, providing an outlet to chal-

lenge the otherwise unassailable position of the bureaucratic powerholders indirectly. As

mentioned before, the government did not have to fear the critics and had sufficient retaliatory

actions at hand to curb, channel, or even make use of upcoming dissent with its rule. How-

ever, on the coat-tails of the criticisms some potent opponents rose, emerging out of the ranks

of the indigenous or Muslim bourgeoisie. They could resort to an increasingly more assertive

media that moved the conglomerates to the focus of their attention (Habir 1999: 183). The ex-

cesses of capital were intensively monitored and scrutinised, often in a mix of racist and anti-

capitalist attitudes (see Figure 4).

Figure 4: Anti-Chinese/anti-capitalist cartoons

(Mingguan Trisakti 25 May 1966, taken from Coppel 1983: 55)

 84

(Taken from Far Eastern Economic Review 2 May 1991: 39)

The state managers thus had to take care that they did not overstretch their ethnic policies.

Anti-Sinicism was only helpful in certain, instrumentalisable doses. Too much of it could

backfire on them and inhibit the whole regime.

Another key contradiction that led to strain inside the politicobusiness oligarchy was the

unending growth of Chinese capital. As explained earlier, at the end of the day Chinese busi-

ness success had never seriously threatened the durability of the alliance with politico-

bureaucrats. However, it elevated the Chinese into a potentially more assertive position vis--

vis the political elite and thus distorted the carefully negotiated balance of power between the

state and capital. The bureaucrats had to rely on the congruity of interests with their cronies

and could not be sure of the consequences a clash of interests would bring about. According

to MacIntyre (1990: 251-2), from the mid-1980s on, business interests were ready to organise

and act outside the given corporatist structures. This signified a degree of economic matura-

tion of the conglomerates, which obviously could as well do without protectionism. In fact,

MacIntyre (ibid.) even noted that Chinese businessmen became more and more accepted in

society, gradually losing the negative image that used to hinder them before. Moreover,

through their overseas investments and expansion into global markets they became interna-

tional players and hence did not have to confine themselves to Indonesia. The assets that they
 85

silently shifted abroad to safer shores gave them an insurance against crisis, social unrest, and

regime change. They had achieved a certain degree of autonomy, as their fate was neither de-

termined by, nor linked with the political elites.

In the early post-crisis years, Hadiz (2001a: 131) suggested that it is possible that such in-

ternationalised conglomerates have survived the recent Asian crisis. By now, almost one

decade after the crisis, it can be assessed that they indeed did in contrast to the politico-

bureaucratic business groups that obviously failed to grow beyond the status of mere rentiers

dependent on political protection. The power of Chinese big business apparently was more

substantial and structurally anchored, even though the restrictions during the New Order were

comprehensive, but not absolute. Although they were necessary for the functioning of the

politicobusiness oligarchy, before the crisis the capitalists already managed to limit their

limitations effectively, thus providing successfully for the post-Soeharto era. Eventually, this

was the ultimate reason that the crisis became the catalyst for a regime change from bureau-

cratic to plutocratic capitalism, with capital claiming a position that better suited its actual

power.

3.3 The limited power of capital

The New Order was a sophisticated system based on an authoritarian, centralised, and preda-

tory state apparatus that effectively secured the dominance of the state elite for more than

three decades. A pervasive ideology and the comprehensive control of executive, legislative,

and judiciary powers in tandem with enormous economic success shielded the dominant poli-

tico-bureaucrats from any threats to their ascendant position. There were almost no sources of

effective challenge to the Soeharto dictatorship. Most decisive was the co-optation of Chinese

capitalists through the predatory networks and their marginalisation with the help of ethnic

policies, turning them into willing helpers and prospering junior partners. The compliant class
 86

of restricted capitalists gave the politico-bureaucrats the much needed financial base to collat-

eralise their rule and prevent the rise of politically more threatening indigenous businessmen.

In this chapter, I pointed out where this system of dominance had its historically rooted de-

terminants. Already before 1600 the indigenous rulers established relations with Chinese

traders that bore patterns to be bequeathed for the centuries to come. During Dutch rule Chi-

nese businessmen became indispensable to the colonial economy and especially to the power-

holders, who soon realised the crucial role of non-indigenous entrepreneurs for their own au-

thority and economic endeavours. By the end of colonialism, Chinese capitalists became so

important that even explicitly anti-Chinese nationalist policies of the independent Indonesian

republic could not and did not intend to do them any serious harm. Chinese big businesses

maintained their economic power since colonial times; a circumstance economic historian

Thee Kian Wie (interview 19 April 2004) called the tragedy of Indonesia because of the

fateful repercussions of anti-Sinicism culminating in the May 1998 riots.

The New Order regime purposefully took over the precarious Chinese position in economy

and society and further amplified the contradictions. This can be gleaned through four main

trajectories: (1) The ruling politico-bureaucrats marginalised the ethnic group of Sino-

Indonesians and recruited the major capitalists out of it, thereby linking capital to an outsider

group that was thus turned into a pariah business class. (2) The Chinese capitalists were co-

opted in patronage networks with the political powers, which laid the foundations for the rise

of Chinese capital. (3) This symbiosis was consolidated during the 1970s, a time of immense

revenues for the state due to the oil boom. The politico-bureaucrats secured their dominance

in a bureaucratic oligarchy and with an authoritarian, centralised, and protectionist system

that facilitated the emergence of the political powerholders as indigenous capitalists. (4) From

the 1980s onwards, the politicobusiness oligarchy managed to exercise and expand class

power through a rapacious form of oligarchic capitalism, effectuating unlimited capital accu-

mulation of both political and economic elites at home and abroad. At the same time, how-

ever, these successes resulted in increasing tensions and hardly concealable contradictions.
 87

This historical overview of Chinese big business and the state before 1998 therefore re-

veals the following power relations: In Indonesia, the bourgeoisie was predominantly Chinese

and relatively weak until the late 1960s. Political power was first in the hands of colonial and

later indigenous bureaucrats who managed to tame the capitalists and prevent their access to

direct executive power. Although the state elite succeeded in transforming itself into an in-

digenous capital class in the latter half of the New Order regime, the politicobusiness ac-

commodation became increasingly unhinged in favour of Chinese big businesses through

their impressive success at capital accumulation from the 1970s paradoxically facilitated

and guaranteed by the state. The growing economic power of the Chinese capitalists thereby

intensified the need to counterbalance Chinese economic strength through instigating popular

anti-Sinicism and implementing discriminatory policies. This indicated that a slow transfor-

mation had taken place in Indonesia, in which the hegemony of the politico-bureaucrats stead-

ily lost its material foundations, although, as long as the New Order regime existed, the Chi-

nese capitalists were not willing and had no need to apply their structural veto power. In

the final analysis, however, they succeeded in entrenching themselves as a ruling class-in-

hibernation that could do very well with patronage, but would also survive without.

Through the crisis, as will be shown, parts of the state apparatus before under absolute

control of the administrative rulers unravelled. Chinese conglomerates, formerly integrated

in a flourishing regime of bureaucratic capitalism and an integral part of the politicobusiness

oligarchy, were not yet sure if they could sustain themselves without protection. The follow-

ing chapters provide some strong indications that they can. Indeed, they were very well

equipped to thrive in a post-authoritarian regime in many ways, as the reforms offered a more

congruous setting for an emerging plutocracy in contemporary Indonesia in which the Chi-

nese bourgeoisie was able to steadily extend its structural veto power to a more unrestricted

rule.
 88

4
CAPITAL IN CRISIS:
THE CONGLOMERATES AND THE END OF THE NEW ORDER

The New Order accommodation between the state elite and the Chinese capitalists ended

abruptly when the economic crisis hit Asia in 1997. Many members of the oligarchy were se-

riously struck by the unexpected dishevelling of the Soeharto regime. The big conglomerates,

as the financial backbone of the system, were especially affected. Threatened with bank-

ruptcy, they were thought to be unable to survive without centralised KKN and the conducive

environment of a corrupt economy and authoritarian state. The aim of this chapter is to exam-

ine how these times of economic and political crises affected the conglomerates and to evalu-

ate their impact. To what extent did the state-centred patronage networks disintegrate? Could

the reforms help constitute a new system that would finally pave the way for an eventual dis-

solution of the oligarchys cling to power? Before I discuss in Chapter 5 how the conglomer-

ates reacted to an unknown terrain of democracy, decentralisation, and deregulation30, it is

necessary to analyse the unravelling of the New Order in some detail.

I will show that the crisis had indeed been a significant disruption that resulted in a break-

down of the conglomerates collusive arrangements. They were affected considerably, many

of them so much that a recovery seemed to be unlikely. The reforms the crisis triggered were

powerful enough to destabilise and temporarily paralyse the New Order oligarchy. This chap-

ter seeks to outline the resulting changes and their consequences for the conglomerates.

30
In this chapter, I use the terms democracy, decentralisation, and deregulation merely in relation
and contrast to the New Order regime, being aware that in most characteristics the post-Soeharto Indo-
nesian state remains only formally democratic, decentralised, and deregulated.
 89

It is important to bear in mind the manifest limitations to historical change, which Marx

(1960: 111) referred to in his 18th Brumaire.31 The ability of social actors to refashion an en-

trenched social order is encumbered by the historical and structural circumstances they im-

mediately encounter. Here and in subsequent chapters, I will show that so-called democratic

transitions are by no means tantamount to transformations automatically leading to an ideal-

ised world of free markets and good governance, as expected by the IMF, the World Bank,

and others in the neo-liberal camp (e.g. Sen 1999). I suggest that reformasi in Indonesia nei-

ther resulted in the end of the conglomerates, nor has it been the starting point for a new and

significantly different system of power relations, as the changes failed to alter the underlying

structures of power (see Chapter 1.1). Instead, a regime was swept away and replaced by an-

other more democratic, decentralised, and economically liberalised one, while the old power

elites managed to survive and re-establish themselves in the new post-authoritarian environ-

ment.

Therefore, it is misleading to consider this transitory period as a kairos, a potential turning

point where everything was possible. However, even though the modifications to the regime

were not substantial enough to entirely disempower the New Order forces, the changes in the

years 1997/1998 were constitutive for the post-Soeharto time and relevant for the future

stance of capital in Indonesia. They thus deserve detailed elaboration.

31
Men make their own history, but they do not make it just as they please, not under circumstances se-
lected by themselves, but under directly prevailing, given and historically transmitted circumstances
(Marx 1960: 111).
Original (published 1852): Die Menschen machen ihre eigene Geschichte, aber sie machen sie nicht
aus freien Stcken, nicht unter selbstgewhlten, sondern unter unmittelbar vorgefundenen, gegebenen
und berlieferten Umstnden.
 90

4.1 The crisis in context

On 2 July 1997, the Bank of Thailand floated the Thai baht to defend the currency against

speculation and further capital outflow. This prompted a 7 per cent fall of the Indonesian

rupiah on 21 July. Many experts did not attach great importance to this plunge and anticipated

the economy to be back on track soon, believing that Indonesia is not Thailand (e.g. Ferid-

hanusetyawan 1997: 8). Indeed, its astonishing boom, which led to forecasts that saw the Ja-

karta stock market index heading for the stratosphere in the period leading up to the year

2000 (Faulkner 1995: 11), made it hard to believe that the amazing transformation of Indone-

sia from a formerly poor Third-World country into an up-and-coming high-performing

economy was about to be reversed. The widespread enthusiasm was endorsed by authoritative

global institutions such as the World Bank, which published its widely anticipated eulogy on

The East Asian Miracle only four years before the crisis took place (World Bank 1993).

In the first half of 1997, Indonesias economy still performed as impressively as in most of

the 30 years before and achieved a growth rate of 7.3 per cent (Soesastro & Basri 1998: 3). In

July 1997, therefore, nobody wanted to acknowledge the severity of the monetary problems

which surfaced. However, what was first perceived to be a passing blip (Hill 1999) turned

out to be a major crisis of an enormity unbeknownst before in Indonesian history, as the gov-

ernments inability to halt the financial meltdown inevitably transformed the economic crisis

into a political one with far-reaching implications and consequences. These resulted in futile

attempts of the powerholders to save their regime, major social upheavals and riots, and ulti-

mately in nothing less than the end of the New Order.

Interpretations

There have been various attempts to explain this development and the crisis in general. Rodan

et al. (2001: 2-9) divided them into neo-classical, historical institutionalist, and social conflict

approaches. The neo-classical approach constitutes the mainstream perspective. It emphasises

 91

the functioning of markets, seen as inherently efficient mechanisms that regulate themselves

and every other aspect of society. Neo-liberalism, the ideology that is derived from this the-

ory, not only makes a distinction between the political and economic spheres, but regards

politics as naturally antagonistic to the market. Good public policy should thus annihilate it-

self and leave it to the market or, at best, ensure that the market is allowed to operate effec-

tively (e.g. World Bank 1983: 47-56; Soesastro 1998). The latter proposition is only partly

shared by historical institutionalists. For them it is not just the rational choice of individuals

aiming for higher profits that contribute to economic growth as assumed by neo-classical

theory but also, and more importantly, the institutions and organisations that forge markets.

The state, therefore, becomes a main focus of such interpretations (e.g. Booth 1995). Institu-

tionalists are especially concerned about institution-building and good governance. Funda-

mentally different from these two perspectives is the social conflict approach. It is based on

the main assumption that neither markets nor institutions can be insulated from politics and

interests. On the contrary, specific power relations produce particular institutional arrange-

ments. Markets as well as institutions are thus not neutral, mechanical entities operating in a

vacuum, but embedded in the hierarchical order of society determined by systemic processes

of social and political conflict (Rodan et al. 2001: 7-9).

Based on these basic suppositions, exponents of the various schools of thought analysed

the crisis and revealed the flaws they held responsible for it. Neo-classical economists

claimed that the economic downturn corroborated their main assumption about the necessity

of keeping markets free of political obstructions. The New Order state with its pervasive mar-

ket distortions through corruption, collusion, and nepotism had offended this universally valid

rule, made worse by wrong decisions and bad policy responses of Soeharto (e.g. Soesastro &

Basri 1998) as well as the erosion of the quality of technical competence and integrity of

President Soehartos cabinet ministers, as he relied more and more on his family members

and cronies for advice (Nasution 2001: 38). The crisis was thus seen as a wake-up call by

financial markets, which might in a relatively painless fashion curb very high current ac-
 92

count deficits, induce governments to clean up the financial sectors, and reign in the prolifer-

ating, mostly dubious and off-budget, mega-projects (Hill 1999: 15). Backed by interna-

tional donor organisations such as the IMF and the World Bank that provided the much

needed funds, neo-liberals had the leverage to anchor their normative views and solutions so

that a retreat of the state as well as deregulation and privatisation became the commonly ac-

cepted remedies to which governments were forced to subscribe.

Institutionalists, on the other hand, blamed the crisis precisely on the insufficient interven-

tion of the state (e.g. MacIntyre 1999). They declared the economic prescriptions of the neo-

liberal camp, i.e. liberalisation and deregulation, as the very cause of the havoc that ruined the

formerly extremely successful developmental state model of the booming tiger nations in East

and Southeast Asia. To protect the vulnerable economy from slipping again into yet another

crisis, institutionalists demanded even more capacity for the state to prevent further market

failures. However, although both sides varied considerably in their basic assumptions and

long-term solutions, they were not too far apart from each other in their immediate objectives:

good governance and institution-building to achieve quick economic recovery and growth.

The lack thereof inevitably led to the disaster as the economy became more open and interna-

tionalised, because Asian capitalisms 32 , in particular the Indonesian adaptation, could not

cope anymore with the demands of a more sophisticated and global market system (Boorman

& Richer-Hume 2003). The argument between neo-liberals and institutionalists was therefore

merely about the right form of capitalism and the roles that markets and institutions play

therein.

Social conflict theorists rightly dismissed these discussions as bagatelles that do not ad-

dress the core of the problem (e.g. Robison & Hadiz 2004). Concerns about power relations

32
Particular to the Asian versions of capitalism was the role of the state, its links to big business, and
an aversion to handling economic matters in a laissez-faire style (Beeson & Robison 2000: 9). It was
planned capitalism, or, as Beeson & Robison (2000: 11-13) called it, coordinated capitalism that
helped a scrupulous power-interested predatory regime to get into and stay in power.
 93

and interests were lacking in both other approaches. While poor regulation, inadequate super-

vision, and bad governance did aggravate the crisis, works that exclusively emphasised these

factors and identified the main problems merely as technical or even behavioural ones remain

inadequate to understand the fundamental dynamics of the Indonesian political economy. Fur-

thermore, such explanations are often ambiguous as it is very uncertain whether appropriate

institutional arrangements or completely deregulated markets could have prevented the crash,

or would turn out to be the panacea for the problems. Without a framework that amply con-

siders the contestations within state and society, observers from a neo-liberal or institutional

perspective had difficulties explaining the severity of the crisis, why it was sequenced with

the fall of long-time dictator Soeharto, or for which reasons a revitalisation of the Indonesian

economy did not set in immediately, such as in the cases of Korea, Thailand, and Malaysia

(see Basri 2004: 40-1). Therefore, this chapter considers the crisis as a social conflict regard-

ing the distribution and (re)configuration of power before, during, and after the collapse of the

New Order.

I will also examine how the crisis unsettled the New Order arrangements, particularly in

relation to the Chinese conglomerates. The social conflict perspective allows us to compre-

hend the development of capitalism as a specific manifestation of its normal cyclical boom

bust nature (Hewison 2000: 210) and the Indonesian crisis in particular as a significant dis-

ruption of the highly centralised, predatory patronage networks of the New Order. At the

same time, it also acts as a facilitator and an arena of a new round of power struggles (Robi-

son 2001: 109). I will therefore begin with a brief analysis of the configurations of power be-

fore the crisis commenced.

Capital on the eve of the crisis

The sudden economic collapse came as a shock. Nothing extraordinary happened in Indone-

sia. There had been no catastrophe, no political incident, or any other event of sufficient sig-

nificance that might have caused the economic ruptures. Nobody anticipated a crisis, and
 94

definitely not one in such severity. On the contrary, until the end of 1997, most observers ad-

mired Indonesias remarkable record of socioeconomic development, achieved through

macroeconomic stability over many decades (Boorman & Richter-Hume 2003). For instance,

only two years before the crash, Hill (1996) saw no indication of a nascent crisis while still

emphasising the robust characteristics that by far outweighed the negative ones. The crisis

took him admittedly by surprise (Hill 2000: xiv). Why were all economic forecasts com-

pletely inaccurate? Why did every early-warning system fail?

The problem was that most economists were dazzled by the massive growth and convinced

of the general functionality and effectiveness of the New Order. Their analyses therefore did

not question the structural system on the whole and scrutinise its constituent powers and in-

terests, but addressed only relatively minor economic policy issues, thereby neglecting the

immense structural changes that reconfigured Indonesian capital. As described in Chapter 3,

capital emerged during the early 1970s and became a major social and economic force. How-

ever, these capitalists, who were mainly Chinese, were constrained by being labelled and

stigmatised as Chinese. They were thus dependent on their partners in the bureaucracy and

executive. The opening of the financial markets in the mid-1980s eventually gave them the

possibility to amass sufficient capital to establish an independent power base relatively

autonomous from the state and its rulers. The conglomerates gained further immunity and se-

curity by transferring enormous sums outside of Indonesia, propelling them into an advanta-

geous bargaining position through which they attained a structural veto that compensated for

their lack of direct political power.

However, by no means did the capitalists want to jeopardise the bureaucratic capitalism

that brought them into being and continued to nurture them. Even though they had to face

significant limitations, the circumstances they were in were much too convenient and profit-

able to be broken up. It required the Asian crisis to dissolve such collusive arrangements. The

sudden deterioration of the economy also revealed the inherent contradictions of Indonesian

capitalism. More than ever, it became obvious that the very bases of the New Orders boom
 95

were also the reasons for its bust. KKN, on the one hand, was a vital precondition for the poli-

ticobusiness oligarchy and also for the economy as a whole to grow. On the other hand,

it was also one of the attributing reasons for the collapse of the financial system. While the

socially weak, ostracised position of Chinese capitalists was necessary for the establishment

and functioning of the New Order regime, it was also the very cause for the tycoons to bring

their capital to safer havens as insurance for times of political turmoil. This fragile, carefully

balanced system worked well as long as the economy boomed. The moment the capital mar-

kets in Asia collapsed and capital deserted Indonesia, the New Order tumbled down as well.

The crisis illustrated most clearly the indispensable position capital had achieved. From

dependent clients the Chinese tycoons silently emancipated themselves to become a structur-

ally decisive bourgeoisie inside the capitalist oligarchy, which was, however, still restricted

by the social status of its ethnicity. Whoever was to rule Indonesia required an accommoda-

tion with the forces of capital. At the end of the day, it was the sudden pull-out of Chinese

capitalists from the Indonesian economy, along with the diminishing international investor

confidence, that triggered the unravelling of the economic and political arrangements which

had been so beneficial for them.

Monetary crisis

Most conglomerates emerged in the 1970s and 1980s out of virtually nothing more than their

good connections with the political elite (see Chapter 3). By the mid-1980s they started to be-

come global players, financed by their domestic, extremely lucrative patronage networks.

Many monopolies and exclusive contracts were bestowed on them without much competition.

Through these arrangements they grew and contributed to enormous growth rates. As the

main engine of Indonesias economic boom, the conglomerates became megalomaniac. The

unending possibilities for reaping giant profits lured them to invest in increasingly gargantuan

projects. For this, they needed money that they borrowed from banks outside of Indonesia or

from their own banks, neglecting all legal lending limits. In only eight years, the private sec-
 96

tor debt rose more than six times, from US$12.4 billion in 1989 to US$80.1 billion in 1997,

which even surmounted the public sectors debt (see Nasution 2001: 27). Most of these li-

abilities were unhedged and denominated in US dollars, thus making the Indonesian corporate

sector very vulnerable to depreciations of the rupiah. Relatively minor disturbances in the

capital market could therefore demolish the conglomerates impressive looking empires like a

house of cards.

The problems became acute as Indonesias big businesses panicked through the currency

problems in Thailand and started to buy US dollars to minimise the effects of a devaluating

Indonesian currency. The haemorrhaging of capital further intensified the fall of the rupiah,

which led to a collapse in confidence in the general economic situation, aggravated by the

perceived helplessness of the government. The result was, in turn, an even larger scale of

capital outflow, as private enterprises sought to prevent insolvency, fearing that their widely

unhedged liabilities, denominated in foreign currencies, would exceed the value of their

rupiah based assets.

To alleviate the exodus of capital, the government floated the rupiah on 14 August 1997

(for a chronology of events, see Hill 1999: 11-14) and announced several packages to rescue

the currency. This, however, did not keep the stock markets from plunging on 28 August

1997, thereby compelling the government to turn to the IMF for assistance. On 31 October, it

signed an agreement with the Fund that provided US$43 billion financial aid package, which

was tied to demands for strengthening monetary and fiscal policies, a major restructuring of

the financial sector, significant deregulation measures, and trade reforms, as well as the pro-

motion of transparency and openness (IMF 1997). On 1 November, 16 banks were closed at

the request of the IMF, a step that increased uncertainty and further worsened rather than

helped the situation (Cole & Slade 1998: 63). None of these ambitious reforms designed to

equip Indonesias economy for the challenges and opportunities of globalization in the com-

ing decades, as the IMF (1997) praised them, could either prevent the rupiahs devaluation of

by September 1998 eventually 78 per cent against the US dollar (Evans 1999: 119), or
 97

stop the massive capital flight that reversed the net inflow of US$16 billion in fiscal year

1996/1997 to a net outflow of US$13 billion the year after (IMF 2002).

Certainly, the conglomerates did not do this voluntarily, arbitrarily, or even purposefully.

They were in existential distress to safeguard the value of their assets by seeking shelter in

other, more stable currencies. The latent flaws of the whole financial system, i.e. the lack of

appropriate macroeconomic management, regulation, and governance, which they had previ-

ously profited from, induced them before to increase their external debts and the level of mo-

bility of their capital, thus amplifying the harshness of the situation. At the same time, it ob-

structed any effective and immediate solution of the problem.

Through the sudden absence of economic growth the regime lost the main foundation of

its legitimacy. Not being able to redress the situation further strengthened the impression of a

fundamentally weakened government, which lost its authority and credibility to the IMF that

determined the necessary actions to be taken to solve the crisis.

Regime crisis

Soeharto realised quickly that the foreign-led initiatives to save the Indonesian economy were

harmful to the continuing existence of his regime. The recommended reforms not only con-

signed him to the role of one who was vanquished, but also threatened directly the bases of

the patronage networks he had carefully built over the years, as well as the politicobusiness

alliances that lay at the heart of the New Order oligarchy. Not surprisingly, the president was

not committed to the intentions he was forced to declare. He thus decided to stall for time.

The Letters of Intent (LOI) signed by the Indonesian government (IMF 2003: LOI 31 October

1997, 15 January 1998, 10 April 1998) complied with the demands of the IMF, but appar-

ently, the concessions were mainly tactical in nature. By acceding, he intended to divert the

attention of IMF from him and receive some urgently needed money to circumvent the imme-

diate doom of his order. However, he increasingly ignored the suggestions of reformers, as
 98

the constellation of his last cabinet of March 1998 showed. This included free-spending re-

search and development minister B.J. Habibie as Vice President, Soehartos business and

golfing buddy Bob Hasan as Trade Minister, and his daughter Tutut as Minister of Social Af-

fairs, accomplishing the unusual feat of offending nearly everyone, as Schwarz (1999: 351)

remarked. The formerly invulnerable dictator desperately tried to save the old apparatus an

objective destined to fail as the remaining stakeholders were about to shift their stakes from

the road to ruin to a rather unpredictable future. The Chinese capitalists, as pointed out before,

had already deserted the sinking ship by transferring parts of their capital abroad.

As the oligarchy fell into a spin, the rudiments of Indonesias civil society, which was effi-

ciently disorganised and suppressed under the New Order, seized the opportunity to stage pro-

test against the regime. Prompted by inevitable price rises due to the devaluation of the cur-

rency, impoverished people were starting to show their displeasure openly. In January and

February 1998, the first serious riots were directed mainly against Chinese Indonesian shop-

keepers in small towns of Java (Purdey 2002: 73-5). The elimination of fuel subsidies as part

of the IMF stabilisation programme (IMF 2003: LOI 15 January 1998) and the immediate in-

crease in price of petrol after implementation on 1 April led to outbreaks in Medan and other

cities.

This social unrest got out of control, even though some fractions of the powerholders,

amongst them most likely elite units of the military around Soehartos son-in-law Prabowo

Subianto (Schwarz 1999: 355), played the Chinese card once more to direct the anger of the

people away from the government towards the Chinese minority that served as ideal scape-

goat (see Chapter 3.2). This was a well tried method the New Order government periodically

resorted to, such as during the anti-Chinese demonstrations in Jakarta and Bandung in 1973

and 1974 (Setiono 2003: 1001-6), during the riots in Solo in 1980 (Setiono 2003: 1025-8),

and in Medan in 1994 (Heryanto 1994). This time, however, things got out of hand. Instead of

being satisfied with seemingly obvious explanations for the crisis that blamed the Chinese

shop-owner for the shortage of rice or the Chinese tycoon for the economic deterioration, the
 99

instigated rage of the mob did not stop at burnt-down cars, houses, shopping centres, and

murdered or raped bodies of Sino-Indonesians, but was intensified and re-orientated against

the actual powers by demonstrators from the universities. If there was any hidden master plan

to save Soeharto through initiating chaos, it failed entirely. On the contrary, the fragility of

the system increased and it became clear all the more that Soeharto had gradually lost control

over the situation.

It would be an exaggeration to assert that it was the students and other protestors who

overthrew the regime (as suggested by, e.g., Sukardi 1999: 204). However, they exposed that

the system had no means anymore to contain the unrest. This contributed to the more decisive

factor: Old stalwarts and former reliable bases of Soehartos power turned away from their

leader in the moment in which a new person on the apex of the system seemed to be a better

alternative to ensure their own survival. The treason of his most loyal allies such as the erst-

while Golkar chair and Speaker of the MPR Harmoko, then-Housing Minister Akbar Tand-

jung, or former Coordinating Economy Minister Ginandjar Kartasasmita (see ORourke 2002:

118-35) symbolised the new divide of the power elites who were lining up for better starting

positions in a new round of power allocation in a new regime. The same applied to his one-

time business partner Sofjan Wanandi who voiced his concerns and had to bear the discipli-

nary sanctions (Schwarz 1999: 346-7).

Soeharto finally stepped down on 21 May 1998. The oligarchic powerholders saved their

system by sacrificing its main architect. This was very risky, largely because the presidents

dismissal could potentially affect or cause the deterioration of their links with the political-

economic bases. Without him, would the whole apparatus disintegrate? How did the end of

the New Order affect the conglomerates, which were suddenly lacking political protection?
 100

4.2 Economic impact:

The dismantling of the business empires

The economic and political changes generated by the crisis disrupted the symbiotic accom-

modation that had been achieved by state and capital during the Soeharto regime. The New

Orders unsettling caused immense distress to the conglomerates, who were perceived to be

largely responsible for the whole crisis (Rosser 2002: 95). It appeared to put an end to an ex-

traordinary economic success story and deprived the business groups of the networks and ar-

rangements from which they had profited. Before I discuss the breakdown of the very suppor-

tive and protective environment the authoritarian, centralised, and collusive New Order re-

gime provided, I will show in this section how the capitalists material base eroded, making

them for the first time ever vulnerable to attempts to hold them responsible for their prac-

tices.

Financial collapse

The economic damage caused by the sudden and deep plunge of the Indonesian currency

massively disrupted the corporate world, whose composition was regularly depicted in the

annual Top 222 of Warta Ekonomi and other magazines. Despite the lack of such rankings for

post-crisis Indonesia (see Chapter 1.3), it is certain that an actual configuration and order

would vary significantly from the last list compiled in 1997 (Warta Ekonomi 24 November

1997: 32-5; also Appendices, Table 1). It is safe to assume that todays key data of most busi-

ness groups, i.e. the value of assets, the number of companies and employees, and the turn-

over rate, are now by far more modest than before. Economist Chatib Basri estimated that the

conglomerates lost 25 to 30 per cent of their assets (interview 12 May 2004).

Data Consult (1998: 184) assessed that 55 per cent or 138 of the 250 conglomerates it

monitored have to face the fate of being removed from business stage (Data Consult 1998:

152), because those which were very close to the political elite in the New Order Era and en-

joy[ed] special facilities and privileges, are now being investigated, scrutinized and cornered
 101

(Data Consult 198: 145). Eight business groups out of the largest 30 pre-crisis conglomerates

were not mentioned in the list of surviving conglomerates, i.e. Gajah Tunggal, Argo Manung-

gal, Barito Pacific, Humpuss, Danamon, Metropolitan, Matahari, and Ometraco (Data Consult

1998: 184-90).

Certainly, it was inevitable that some groups faced bankruptcy. Danamon Group, for in-

stance, lost its bank and was therefore not able to sustain its operations in the financial sector

that used to be by far the core business of the group. While Bank Danamon, which was later

sold to Singaporean DBS and German Deutsche Bank, continued to exist, former owner Us-

man Admajaya was banned from leaving the country and had to face prosecution (Data Con-

sult 1998: 176). The end of the regime also meant the loss of economic power for Soehartos

closest cronies. First, the presidents family enterprises under the Cendana group were placed

under great pressure. Tommy was convicted of fraud, while his brother Bambangs group

Bimantara owed US$2.5 billion to state banks. Most of his major partners cancelled joint ven-

tures and contracts, as Bimantara lost its main appeal, the direct access to the president. The

market capitalisation of Bimantara Citra, the publicly listed companies of the group, dropped

from US$2 billion in 1997 to US$40 million in 1999 (Far Eastern Economic Review 13 May

1999). Another prominent casualty was Soehartos close friend, timber baron Bob Hasan,

who forfeited all his monopolies, concessions, and positions and eventually was jailed for

cheating the government out of US$75 million.33

Other conglomerates at least had to declare huge losses and struggled to repay their do-

mestic and external debts as well as the loans Bank Indonesia had provided for their banks.

For the non-recoverable domestic loans, which well-connected business groups received

mainly from state-owned banks, the tycoons had to negotiate with the government (see fol-

33
Both Tommy Suharto and Bob Hasan were released early. The latter, because he showed a good ex-
ample in prison by organizing a business in which inmates turned volcanic rock into jewellery for sale
to tourists (Far Eastern Economic Review 4 March 2004).
 102

lowing section). To illustrate the immenseness of the amounts in question: Texmaco and

Barito Pacific, for instance, had outstanding debts of Rp17.3 billion and Rp8.4 trillion respec-

tively, while Bakrie defaulted on Rp6 trillion (Sato 2004: 30). The external debts were even

more gargantuan. As of the end of 1997, the three largest, most highly diversified and global-

ised conglomerates, Salim, Astra, and Sinar Mas, were estimated to owe US$5.5 billion, 5.1

billion, and 3.8 billion respectively only to foreign creditors (ibid.). The Far Eastern Eco-

nomic Review (14 February 2002) reported that Sinar Mas Groups prize asset Asia Pulp &

Paper (APP) alone had to repay US$13.9 billion in total. Furthermore, it disclosed the struc-

tural deficiencies of these groups, such as APPs decentralised procurement of supplies and

its inefficient and costly marketing and distribution network tying up capital and inventory,

which was regarded as a mess with hundreds of subsidiaries and affiliated companies scat-

tered around the world (ibid.). The biggest problem for most conglomerates, however, was

the debts of their private banks. Due to unresolved structural weaknesses in the real estate and

banking sectors, where the level of unhedged short-term debts was high and the one of capi-

talisation low, a serious liquidity crisis developed that brought many of the 238 pre-crisis

banks on the brink of collapse, such as Liem Sioe Liongs BCA, which was indebted by

Rp52.7 billion, Sjamsul Nursalims BDNI, Rp28.4 billion, and Usman Admadjajas Bank

Danamon, Rp12.5 billion (Tempo 27 January 2002).

Through the financial breakdown of the conglomerates an important split was now driven

into the business/state relationship, as Robison & Hadiz (2004: 154) observed, because this

not only put an end to the patronage networks, but also tied up enormous financial resources

of the government that was forced to bail out the defunct business groups. The old ways of

collusion were henceforth not feasible anymore. On the contrary, to prevent its own bank-

ruptcy, the state established the Indonesian Banking Restructuring Agency (IBRA) in January

1998, which it sought to recover the debts of its former partners.

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Debt settlement

The thorough restructuring of the banking sector began with the closure of 66 banks by

IBRA, the take-over of 11 banks, the merger of 14, and the recapitalisation of 9 others as-

sessed as viable (Adiningsih 2001: 180). With this, the government had three explicit objec-

tives, namely to rehabilitate the banking sector, reduce the debt burden, and restructure the

private sector debt (IBRA 1999: 5). Through IBRA, in cooperation with the Indonesian Debt

Restructuring Agency (INDRA) and the Jakarta Initiative (jointly established by the Govern-

ment of Indonesia, the World Bank, and USAID), it implemented a guarantee scheme and re-

habilitation programme for the banking sector and undertook corporate debt restructuring,

shareholder settlements, assets divestment, and the recovery of government funds (IBRA

1999: 11-17).

IBRA soon became the largest creditor of the conglomerates by buying the non-

performing loans (NPLs) that crippled the banking system. These loans were the consequence

of an anarchic financial sector without prudential regulations, which allowed 23 of the top 30

business groups to have one or more of their own affiliated banks (Sato 2004: 30). Banks

were not only status symbols and flagships, but also used as internal cash cows by channel-

ling funds to other businesses inside the conglomerate, complementing the enormous sums of

loans already received from state-owned banks. According to Bambang Subiyanto, Minister

of Finance under Habibie (interview 16 September 2004), most of the banks in Indonesia

should have been liquidated due to an overall quota of 80 per cent NPLs (Rp320 trillion) of

the Rp400 trillion in total liabilities. As this was economically and politically not feasible, the

government gave blanket guarantees that accumulated including interest to Rp650 trillion

in government bonds by the end of 1999, through which in effect private losses were trans-

ferred to the public. Additionally, the ailing business groups received Rp146 trillion of Cen-

tral Bank Liquidity Funds (BLBI) from Bank Indonesia for the recapitalisation of their banks

(Hadiz & Robison 2005: 227).

 104

IBRAs main task was to recoup these contingent liabilities from the conglomerates. To

force them to liquidate assets, it had several instruments at its disposal: It could threaten de-

faulted debtors to bring them to trial before the new commercial court on the basis of a re-

vised bankruptcy law implemented in April 1998 (Rosser 2002: 183), or simply seize the

needed assets, a sanction which IBRA was authorised to mete out. Hence, debt settlement and

corporate restructuring were closely interwoven. IBRA was therefore in a potentially very

powerful position that some politicians such as the Minister for Cooperatives Adi Sasono

wanted to use to expropriate the conglomerates and redistribute their assets to cooperatives

(Murphy 1998). The tycoons were thus in the dock, a situation further intensified by their

huge foreign debts (see Sato 2004: 27, 30). The immense losses caused by the economic crisis

and the plans the government tentatively devised to recoup them gave the tycoons an unambi-

guous signal that times had changed. IBRAs rules were the new norm with which the busi-

ness groups had to comply, removing their immunity and hindering them from proceeding as

they used to. To survive, they needed to make this new institution subservient to their needs.

In 1998, it still looked as if the conglomerates were not able to do that and to recover fast and

easily, as not only their economic empires collapsed, but also the political regime in which

they had emerged.

4.3 Political impact:

The dissolution of predatory arrangements

As outlined in Chapter 3, the New Order was based on authoritarianism, centralism, and col-

lusion, thereby enabling the oligarchic elites to maintain their dominance. It was this political

environment that bore and moulded Chinese big business. The crisis terminated the quasi ab-

solutist, openly predatory characteristics of the old regime. Suddenly both businessmen and

politicians were exposed to reforms that sought to undermine the foundations of the New Or-

der (Bhakti 1998: 174-5). More specifically, reformasi was intended to reconfigure the power

structures in three areas: shifting power away, first, from the president and the political elites
 105

to the people and society; second, from Jakarta based gatekeeping institutions to provincial

parliaments and regional decision makers; and third, from the major cronies and parasitical

capitalists to free markets and international investors. I will examine and analyse the struggles

to democratise, decentralise, and economically liberalise Indonesia that took place right after

the breakdown of the old regime, and evaluate the consequences for the conglomerates the

demise of the New Order brought about. I will show that the implementation of the reforms in

1998 seriously threatened the business groups by dismantling the foundations of the old oli-

garchy.

The end of authoritarianism

Authoritarianism was imperative to uphold the New Order. Not being hindered by any note-

worthy opposition, the ruling state elite around President Soeharto could engage in predatory

capitalism without checks and balances (see Chapter 3). The Chinese cronies especially

needed a strong, protective state that defended them against populist racism (that, in turn, was

instigated by the government itself). This situation changed tremendously with the advent of

the formal-institutional and the civic sphere of democracy, i.e. parliamentarism and the awak-

ening of civil society.

With the fall of their leader, the politico-bureaucrats were suddenly confronted with at-

tempts to install a new democratic framework designed to override their former centralised

institutional power. This suddenly became possible because the army that safeguarded the old

system had only one feasible option during and after the final days of the New Order: to sub-

mit itself to civilian supremacy. The alternative would have been to use violence openly to

break down the student movement, which the military leadership under Wiranto deemed un-

wise (Schwarz 1999: 363-4). Thus, the soldiers retreated partially from the political sphere

they had dominated for decades. This paved the way for some important reforms that included

the reduced powers of the presidency and the state party Golkar, which were formerly the

main political centres of the old regime.

 106

After 32 years of Soehartos rule, the legislative period of presidents was limited to five

years with the possibility of one re-election. Significantly, none of Soehartos immediate

three successors Habibie, Abdurrahman Wahid, and Megawati managed to remain in of-

fice for a prolonged period. Indonesias sixth president, Susilo Bambang Yudhoyono, became

the fourth head of state in only six years after Soehartos resignation. He has to share power

with many other political institutions at various levels, above all with the DPR (Dewan Per-

wakilan Rakyat/House of Representatives), formerly a rubber-stamp parliament par excel-

lence (ORourke 2002: 88). The DPR has grown so much in power that it is able to control

the executive body and even hold the president accountable for his actions. The impeachment

of Abdurrahman Wahid in July 2001, for instance, exemplified the shift of power from the

executive to the legislature.

The strengthening of parliament led to the emergence of politicians and parties. The num-

ber of the latter rose from only three government funded and largely impotent ones to more

than 140 by end of 1998, out of which 48 were eligible to compete in the national elections

(Fealy 2001: 100). Golkar, the undisputed political instrument of the politico-bureaucrats,

suddenly had to face serious competition and was forced to transform itself from a govern-

mental state party with 75 per cent of the vote in 1997 to an ordinary participant in the strug-

gle for votes with only 22 per cent in 1999 which made it a distant second to the PDI-P (Fe-

aly 2001: 101). Most notably, two leading former opposition politicians, Abdurrahman Wahid

and Megawati, assumed the post of president and vice president following the first free elec-

tions of post-Soeharto Indonesia. Parties and candidates were now forced to appeal much

more directly to the electorate. This was a considerable renunciation of the formerly rigged

electoral procedure that took place every five years, which had been merely in place to sustain

the appearance of a democratic system. Through the new regime of parliamentarianism the

elected politicians needed and obtained democratic legitimacy, thereby ending the monopoly

of unlimited authoritarian power.

 107

This was a major drawback for the conglomerates. The time of guaranteed political protec-

tion was over and a new era of great uncertainty had begun. Without their main patron, Presi-

dent Soeharto, the architect and integral facilitator of the New Order patronage networks, they

suddenly lacked the reliable political backing necessary to uphold the well established symbi-

otic arrangements between capital and the state. Furthermore, they lost their access to unlim-

ited funds, which, during the New Order, merely depended on the proximity to Soeharto and

his family. Additionally, due to their ethnic ascription, they became assailable to populist de-

mands for a redistribution of assets a code-phrase for the expropriation of Chinese con-

glomerates (Murphy 1998), best epitomised by Amien Rais attempts to define the Chinese

tycoons as parasites:

We must respect the economic achievements of our Chinese brothers and sisters. But at the

same time we must tell them frankly that in the future we would like a fairer distribution of the

national wealth. I can say that 95% or more of the Chinese love Indonesia like I do. Only a very

small percentage are absorbed with economic greediness. They have become parasites.

(Amien Rais, cited in Asiaweek 29 May 1998)

Thus the appointment of Soehartos confidante B.J. Habibie known for his anti-Chinese

sentiments as his successor was met with consternation. At the beginning of his presidency,

he wanted to replace Chinese businesses and give the opportunity to the pribumi, who make

up the largest population and build them up (cited in Suryadinata 1999: 11). Commenting on

the exodus of Chinese businessmen and their capital, Habibie noted: If the Chinese commu-

nity doesnt come back because they dont trust their own country and society, I cannot force,

nobody can force them. [] But do you really think that we will then die? Their place will be

taken over by others (cited in Washington Post 19 July 1998). He was backed by the parlia-

ment that called upon the government in November 1998 to shift assets and preferential atten-

tion away from the conglomerates to cooperatives and small and medium enterprises (Em-

merson 1999: 341-2).

 108

The many unknown parties, politicians, and administrative authorities that the reformed

framework brought about were even more disconcerting than the new president, who was in

the end himself a product and one of the main protagonists of the New Order. As former PAN

General Secretary Faisal Basri (interview 14 September 2004) reported, many businessmen

relied heavily on Golkar to which they felt indebted, because it protected them and provided

them with economic privileges. However, the politico-bureaucrats who used to penetrate the

state apparatus through Golkar were forced to take a back seat. It therefore became very un-

clear for the conglomerates whom to choose as a suitable partner. Politicians, and even presi-

dents, were appearing and disappearing quickly. For the immediate post-Soeharto years, no

distinct power centre inside the party system was able to establish itself. Thus, it became

problematic to identify what the important positions were and who filled them, making the re-

turn on investment in bribes very unpredictable.

A similar threat to them was the emancipation of the civilian sphere from the former all-

embracing state that rather than the formal aspects of democracy made a real difference to

the populace. The newly achieved liberalisation of society was in stark contrast to the former

corporatist regime of the New Order, in which a suppressive state apparatus with the help of

the pervasive ideology of integralist developmentalism (Bourchier 2001: 116) either co-

opted or dismantled all societal groups and muted every kind of serious dissent (see Chapter

3). With reformasi, civil society regained two of its basic rights, namely the freedom of asso-

ciation and the right to express opinions openly.

An increasingly critical population started to organise itself through numerous new and

older NGOs to fight for human rights, equality, transparency, or other concerns, thereby di-

rectly or indirectly balancing the ones in power. A few groups were explicitly geared towards

controlling big business. One example was the Koalisi Masyarakat Anti Skandal Bank Lippo

(peoples coalition against the Lippo Bank scandal), led by prominent figures such as Lin Che

Wei and Faisal Basri, that closely monitored the Lippo Group and aimed to prevent excessive

fraud (Agam Fatchurrochman, Programme Manager Partnership for Governance Reform in

 109

Indonesia, interview 2 September 2004). Indonesia Corruption Watch (ICW) was another

group that effectively exposed many cases of KKN. According to its Vice Coordinator

Danang Widoyoko (interview 7 September 2004), ICWs strategy against systemic corruption

was to create publicity for shady dealings and arrangements, thereby minimising any form of

secrecy possible, which would henceforth change the overall business culture.

This reveals the second characteristic of a more vibrant civil society. Public opinion sud-

denly became an important factor which could be used by NGOs and other critics to mobilise

for their aims. The growing media industry also gave them an appropriate platform. The free

press could print opinions in unrestrained, critical ways unknown before and still alien to the

media of some other countries in the region. Kontan journalist and Head of Aliansi Jurnalis

Independen (AJI Alliance of Independent Journalists) Eddy Suprapto (interview 8 Septem-

ber 2004) emphasised that most of his collegues were eager to prove their indispensability for

a liberal society and saw themselves as guardians of the new, weak democracy. The press

constituted the fourth power that has to substitute for a non-existent system of checks and

balances, as the Executive Editor of Rakyat Merdeka, Teguh Santosa (interview 14 June

2004), described the role of his newspaper.34 Through the media, liberal reformasi ideas be-

came ascendant in the public discourse. The unanimous goal was to strive for an open, de-

mocratic society.

This objective, of course, was not at all in accordance with the interests of the conglomer-

ates. Indeed, it was detrimental for them. In the eyes of many activists, the corrupt Chinese

tycoons disqualified themselves through their behaviour and could hardly play a role in a

people-based democracy. In a few cases, anti-conglomerate sentiments became emotionally

or instrumentally mixed up with anti-Chinese resentments, creating a politically powerful tool

34
Rakyat Merdeka is one of the most outspoken daylies that gained prominence as a result of its gritty,
often abrasive, style, with articles and caricatures that frequently strongly criticize the political estab-
lishment (Amnesty International 2003). As such, it was sued for defamation of then-Speaker of the
DPR Akbar Tandjung and then-President Megawati.
 110

at the disposal of populist politicians or indigenous competitors (e.g. Jusuf Kalla, see Wibowo

2004).

Chinese big business was under close supervision of the media and under public scrutiny.

Economic historian Thee Kian Wie (interview 19 April 2004) stated confidently that, with a

freer press, the same kind of cronyism would not be possible anymore. Businessman Sofjan

Wanandi (interview 8 June 2004) agreed and lamented that the conglomerates cannot expect

anything from the government anymore. It [] cannot just give monopolies because we now

have so many watchdogs here and there that are complaining all the time. Elsewhere, he de-

plored that the overall environment for business is far from being favourable. In the case of

some, most likely Soehartos children and cronies, there is a witch-hunt taking place (Wan-

andi 1999: 131). An anonymous consultant who works with many Chinese conglomerates in

Jakarta, cited by The Wall Street Journal (22 May 1998), claimed with justification that the

tycoons would much prefer martial law. [] They at least know how to get along with the

army. Hence, with the end of the New Order style of authoritarianism, they had to face an ac-

tive, organised, and critical civil society that treid to make their lives more difficult.

The end of centralism

The highly centralised and unitary New Order state ensured Jakartas institutional and politi-

cal authority over the provinces and districts. Demands for greater regional autonomy were

not tolerated during the Soeharto years. As the dominance of the centre faded in 1998, several

regions started to demand more rights; some of them, such as Aceh or East Timor, called for

independence more intensively than before. To prevent the balkanisation of Indonesia, the

central government had no other feasible alternative than to give in to demands for greater

self-determination. These intentions were corroborated by the World Bank, which expected

that
 111

decentralization may create a geographical focus at the local level for coordinating national,

state, provincial, district, and local programs more effectively and can provide better opportuni-

ties for participation by local residents in decision making. Decentralization may lead to more

creative, innovative and responsive programs by allowing local experimentation. It can also

increase political stability and national unity by allowing citizens to better control public pro-

grams at the local level.

(World Bank 2001)

In essence, decentralisation was seen as a means to increase the efficiency, immediacy, and

accountability of governance to secure political stability and national unity. In this sense,

many responsibilities were handed over to more than 400 local governments, and the distribu-

tion of revenues from natural resources was renegotiated in favour of the districts of origin

(Brodjonegoro 2004: 128). Kabupaten (districts) and bupati (district heads) thus became

newly powerful in relation to many institutions and ministries based in Indonesias capital

(see Bnte 2003: 129-41). Another step in this direction was to take away the right of the

president to virtually approve every single investment. Authorisation was only required for

huge projects worth more than US$100 million (Rosser 2002: 183). This symbolised that the

conglomerates main vehicles for the allocation of favours that used to be based in Jakarta

were considerably threatened to be vitiated by Indonesias move from centralism to decen-

tralisation.

These structural adjustments were anticipated to be paralleled by fundamental changes in

the way that power operates. For the World Bank (2004a), the decentralisation of power was

the precondition for an ambitious program to tackle corruption in Indonesia from the ground

up by implementing its good governance initiative that may pave the way for a major im-

provement in accountability, transparency and participation at the local level in Indonesia

and it is hoped the economic and poverty reduction performance in the selected regions. For

this, the Bank appealed to local authorities with the prospect of substantial funding and in-

vestments for the 50 to 60 of the best local governments in the amount of more than US$200

million per year, in so far as they adhered to good governance reforms and participated in
 112

anti-corruption initiatives (Laksamana.net 10 April 2004). As the World Banks Chief Gov-

ernance Advisor of Indonesia, Joel S. Hellman (interview 16 September 2004), pointed out,

decentralisation did not only yield new institutions, but also led to a vastly different range of

political actors and entirely different interactions with institutions. The traditional strategies

of the conglomerates were thus no longer apposite.

Corruption had become less predictable in its outcomes. As economist Faisal Basri (inter-

view 11 September 2004) stated, there is no guarantee, no certainty anymore that your busi-

ness is successful, because power is more distributed and you have to deal with more than one

instance. He expected that this eventually would result in cleaner companies. Analyst and

politician Sjahrir (interview 24 September 2004) concurred and asserted that the conglomer-

ates were being forced to change their behaviour, because in a decentralised Indonesia sub-

stantial capital accumulation through corruption was not possible anymore. Businessmen,

such as Pharos boss Eddie Lembong (interview 21 October 2004), confirmed that the situa-

tion now is difficult. Power is scattered and not concentrated, which makes it complicated for

businesspeople to deal with. The boss of Artha Graha, Tomy Winata, declared that

During the New Order, everything was easy for Chinese big business: There was one pot of

money, contracts and opportunities, and the pot was with the Cendana; now the pot is spread to

thousands of people. The political landscape has changed a lot and is more complex than before.

Now the social cost of doing business in much higher.

(Tomy Winata, interview 17 September 2004)

Thus, the end of centralised authoritarianism spelled the end of the New Orders centralised

system of patronage, from which the conglomerates benefited immensely before.

The end of protectionism

As long as the statebusiness oligarchy allowed others to take a share in the huge profits gen-

erated during the New Order, predatory and instrumental control of the Indonesian economy

on the part of Soehartos family and his Chinese business cronies was tolerated. Indonesians
 113

outside the immediate power circle as well as foreign investors were not too worried about the

hijacked markets that still yielded sufficient revenues for them. Driven by internal techno-

crats, external creditors, and a poor macro-economic environment, Indonesia experienced

some market-oriented reforms in trade, investment, and the financial sector from 1986 to

1988 and from 1994 onwards (Soesastro 1998). However, the areas in which the predatory in-

terests of the ruling alliance were most thoroughly entrenched in remained untouched by the

deregulation measures. In general, they enabled the statebusiness oligarchy to seize new

monopolies (Hadiz & Robison 2005).

Nevertheless, Indonesia was held up as an example of an economic miracle (World Bank

1993), despite massive corruption and widespread overregulation of the economy. Indeed, it

was the successful Indonesian case which the neo-liberal World Bank premised for an ad-

justment of its stance on capitalism and the state (World Bank 1997). However, as soon as the

economy crashed, the former apologists resorted to their old neo-liberal recipes, which, from

their perspective, obviously proved to be superior. Therefore, Indonesia had to undergo a

thorough process of deregulation to free the markets, preceded by institution-building, to en-

force and safeguard the contentious economic liberalisation.

In fact, after the crisis the paradigm of economic policies changed dramatically. While lib-

eralism used to engender negative connotations in society (Hadiz 1997: 139; Hill 2000: 250)

and was highly contested in Indonesian history (see Rosser 2002), it became the cure-all for

the crisis and the detrimental effects of KKN, which was regarded as nothing more than a

debilitating luxury Indonesia could not afford (Borsuk 1999: 140). The still highly regulated

economy was to be transformed into a liberal market system. Through much needed injec-

tions of funds and the implementation of programmes from neo-liberal institutions such as the

IMF or the World Bank, reformers suddenly had the leverage to push for their economic vi-

sions of transparency, competition, equal access to opportunities, and a less distorted market

that was deemed to be self-regulatory (e.g. Simanjuntak 2000). Many Indonesian economists

as well as international organisations pointed out that liberalisation, deregulation, and privati-
 114

sation were imperative to regain international business confidence and eradicate unproductive

and costly rent seeking (e.g. Basri 2004: 55-6; Boorman & Richter-Hume 2003). The media

rejoiced that Indonesias doors were finally wide open for foreign investors, a condition

which was supposed to further foster free markets (Bisnis Indonesia 29 July 1998).

As a first step, the acceptance of the new rules of capitalism had to be ensured by creating

an appropriate institutional framework. During the New Order, supervisory boards that lim-

ited the cruising radius of the oligarchy were non-existent. Thus a system of checks and bal-

ances was urgently needed that set out the rules and kept the market free from entrenched

predatory interests. Being aware that the strengthening of prudential rules and regulations is

essential to rebuild the banking industry (Nasution 2003), and that international investors

needed an accountable, reliable, and predictable business environment, the new government

had to install effective watchdogs, reform the courts, and implement laws that stemmed cor-

ruption.

A few measures in this direction were carried out decisively. The authority of former stra-

tegic gate-keeping terminals (Robison & Hadiz 2004: 76) such as the State Logistics Agency

(Bulog) or the National Development Planning Agency (Bappenas) was significantly cut

down. New institutions such as IBRA (see Chapter 4.2) or the Business Competition Supervi-

sory Commission (KPPU), modelled on the German Kartellamt, were put in place to scruti-

nise and prevent business practices aimed at the establishment of monopolies or market

dominance, as KPPU Commissioner Faisal Basri (interview 11 September 2004) pointed out.

They acted on the basis of a new anti-monopoly law that sought to maintain and promote

market competition as a means to achieve economic efficiency, and thus improve the welfare

of the general public (Thee 2002: 333-5). Notwithstanding the elusiveness of these guidelines,

they signalled to the conglomerates that they finally had to deal with a modified regulatory

framework that made it difficult for the capitalists. New people (such as economist Faisal

Basri), some of them very idealistic, were appointed in new boards that were crafted espe-
 115

cially to inspect the behaviour of big business, with new rules to protect the market from dis-

tortions. These cumulatively connoted an end of the conglomerates immunity.

The post-KKN economy could not be used as the personal playground of the oligarchy

anymore. This especially became clear through the abolition of privileges. Most special gov-

ernment projects in, for instance, the automobile and aircraft industry, and all state-sanctioned

licences for the import and marketing of commodities ranging from cement and food to silly

things like garlic (Bambang Subiyanto, former Minister of Finance, interview 16 September

2004) were revoked. Licences, reserved for well-connected businessmen, including bank

credits, were annulled. All government contracts were reviewed and dismantled in case they

had been concluded through KKN (James & Nasution 2001: 199). Huge SOEs like Pertamina

that served as generators of collusive contracts and cartels were dissolved or subjected to

gradual privatisation (Laksamana.net 21 September 2003). Significantly, as suspected by

Tempo (10 November 1998), the Salim Group wanted to dispose of its flour producer,

Bogasari, due to the abolishment of the lucrative flour monopoly it enjoyed over the decades.

Former President Abdurrahman Wahid (interview 17 September 2004) maintained that Indo-

nesia was on the way towards an improved capitalism, in which businessmen could not

count anymore on their close connections with the government and had to subordinate them-

selves to the needs of the market and the people.

It is useful to recount Wallersteins (1988: 103) premise about the inherent interest of capi-

talists in monopolies. As he suggested, capitalists do not want competition, but monopoly,

because they seek profits, maximal profits, in order to accumulate capital, as much capital as

possible. They are thereby not merely motivated but structurally forced to attain monopoly

positions. Thus, a liberal economy from this perspective obstructs big business particu-

larly. Economist Chatib Basri (interview 12 May 2004) pointed out that, with the implementa-

tion of regulations leading to free markets, old-style business groups would cease to exist.

Reformers such as Sjahrir (interview 24 September 2004) were quite sure that there was no

way [for the conglomerates] to enjoy the sort of facilities they had in the Soeharto era. In-
 116

stead, it was widely expected that they had to adapt to western norms of corporate govern-

ance, transparency, and professionalism to exist in a liberal economy. Similarly, Gunadi

Sindhuwinata, President Director of Indomobil, contended that

since the environment has become liberal and you are a part of the international society, the way

of doing business has to be tuned up and trimmed accordingly. We now have to let professional

people run the business.

(Gunadi Sinhuwinata, interview 22 September 2004)

The conglomerates that survived the crisis had to realise, according to Farid Haryanto (Lippo

advisor, interview 21 June 2004), that growth was only possible through the market.

Sofjan Wanandi (interview 1 July 2003) was not alone in his prediction that the conglom-

erates of the New Order would disappear sooner or later if they stuck to their old patterns of

collusion. Sampoernas Angky Camaro acceded:

Now everything is open, licences are available for everyone. The conglomerates have to com-

pete in the free market. That leads to a change. [] Who has the mentality of the New Order

cannot survive.

(Angky Camaro, interview 17 September 2004)

If they were right and in 1998 there were not many indicators that contradicted them big

business in Indonesia indeed had to transform itself fundamentally to be able to carry on in

deregulated markets without the help of protectionism and KKN. But were the conglomerates

able to survive in those new, even alien conditions?

4.4 The end of the conglomerates?

The political environment in Indonesia changed immensely after the crisis. From predatory,

centralised authoritarianism, the country moved towards deregulation, decentralisation, and

democracy. Economic liberalism, safeguarded by various watchdogs, was expected to replace

the collusive appropriation of the markets by the oligarchy. Regional autonomy was also sup-
 117

posed to shift more power to the districts and away from Jakarta. Moreover, political parties

and civil society groups seemed to thrive in new ways that were not possible under the old

dictatorship. All these reforms at least in intention were potentially harmful to a continu-

ing existence of the conglomerates, as they swept away the financial and political arrange-

ments that held this system together (Robison & Hadiz 2002: 39). Thus, it was widely ex-

pected that the unravelling of the old regime was equivalent to an end of Chinese big busi-

ness, as many observers assumed that the conglomerates were not suited to survive in an

open, transparent political and economic setting (e.g. Sjahrir 2004). Capital was believed to

be economically and politically in a deep, severe crisis. Therefore, political risk consultant

Kevin ORourke concluded that

the conglomerates are longing to have the New Order back, because for them the succeeding re-

gime is neither efficient nor reliable. They are forced to pay off too many persons, while being

constantly harassed by critics, media, and politicians.

(Kevin ORourke, interview 6 September 2004)

As the President Director of Indomobil, Gunadi Sindhuwinata, confirmed:

Under the New Order the directions were clear: I give you opportunities, you develop that, in re-

turn you get some amount of money. [] Suddenly you are confronted with all this profession-

alism, with all the ways to do business by, first thing, non-corruption, second, non-nepotism,

and third, non-collusion. Under the New Order it was very easy, and people felt also at that time

that it was safe and secure because of the strong hand of the regime.

(Gunadi Sindhuwinata, interview 22 September 2004)

He certainly missed the convenience and security of the former regime. However, there was

nothing to be done. The New Order was irrevocably gone for good, and with it the political

environment without which the conglomerates were left unprotected. This chapter has shown

in detail how democratisation, decentralisation, and deregulation brought about many changes

that initially were totally unfavourable for big business.

 118

However, much of this turned out to be just a temporary setback. Only a few years later,

Anthony Salim (interview 13 April 2005), boss of Southeast Asias formerly biggest business

group, praised the new business environment and called it encouraging and much more bene-

fiting than harmful. The crisis, obviously, did not at all terminate the conglomerates. It was

an enormous shock that hurt them significantly and destroyed some of them, but it did not

obliterate them. On the contrary, most were able to reorganise and adapt, but not necessarily

through business practices that were any more transparent than during the New Order. It is

thus necessary to take a closer look on the sort of markets that were to be established.

As will be discussed in the following chapters, the reforms were eventually and paradoxi-

cally even advantageous for the capitalists. They removed the barriers designated for Chi-

nese big business and enabled capital in general to emancipate itself from the dominance of

the politico-bureaucrats, whose intertwined system of political hegemony disintegrated. To

those observers who expected real structural change and the dissolution of the economic and

political foundations of entrenched oligarchic interests, the outcomes of the crisis were disap-

pointing. However, behind the surface of the lingering status quo, a major shift in the balance

of power between the political and economic elites is taking place, which would allow capital

to gain an upper hand over the political sphere. Chapter 5 will show how the capitalists re-

sisted, diverted, or took instrumental control over the reformasi process and thus laid the

foundation for a plutocratic post-Soeharto Indonesia regime on the basis of enduring power

structures.
 119

5
CAPITALS REACTION:
THE SURVIVAL OF THE CONGLOMERATES

The reforms that were meant to change Indonesia seemed to be the end of the road for the

conglomerates. The crisis threatened their economic empires and unravelled the political ar-

rangements that had underpinned them. It was widely assumed by observers (such as Mackie

1999: 189) that Soehartos cronies would not be able to carry on in an environment lacking

the formerly crucial authoritarian, centralised, and protectionist features of the New Order.

However, the fact is that most of them obviously survived the end of the old regime. The ob-

jective of this chapter is to explore how they managed to do so and what implications their re-

silience had for the actual state of Indonesia.

I suggest that the main reason for the conglomerates survival was the indispensability and

importance of Chinese capital for a recovery of the Indonesian economy. The tycoons could

thus prevent their impending collapse and ensure that the whole reformasi process took place

under the premise of structural continuities that did not endanger their existence. As I will

show, the reforms were too incoherent and superficial to completely destroy the power bases

of the New Order forces and to subordinate them to a substantive reform agenda. The elites,

their interests, and institutions that constituted the old system did not completely vanish into

thin air. On the contrary, as long as the more fundamental power structures of a predatory

form of capitalism remained intact, the New Order oligarchy had time and opportunity to re-

store its collusive politicobusiness networks and to silently reinvent itself in a post-

authoritarian environment, in which the majority of the conglomerates quickly re-emerged

from the brink of oblivion.

Before I point out in Chapter 6 how the capitalists utilised the possibilities of the new re-

gime to emerge as an autonomous bourgeoisie, I will focus on their reaction to Indonesias

democratisation, decentralisation, and deregulation. I argue that reformasi weakened the state

considerably, but failed to impede the conglomerates sufficiently, although, in such a situa-
 120

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 1997/1998. Only after the third quarter of 1998 did the econ-

omy begin to slowly recover, while Malaysias or Koreas growth, for instance, was already

above pre-crisis level by the end of 1999 (Bird 2001: 46). According to the IMF (2001), the
 121

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 business35.

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.
 122

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 US$5 to

10 billion of private capital that left Indonesia in 1997/1998. Other sources even estimated a

much higher sum, ranging from US$80 billion (Jakarta Post 26 Oktober 1999) to even

US$165 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 navely 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 Habibies 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 Indonesias 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.

 123

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. Indonesias 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 familys 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, Soehartos 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
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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 (ORourke 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. Megawatis 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

Indonesias 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 Soehartos resignation the limits of any potential transition were apparent.

Significantly, it was the then-high ranking general Susilo Bambang Yudhoyono, who cau-
 125

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 DPR/MPR 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

Foreign organisations in particular that supported the Indonesian democratisation process

with material and non-material help were very optimistic in their evaluation of the post-

Soeharto situation (e.g. for the German Friedrich-Ebert-Stiftung: Kleine-Brockhoff 2004).

They hoped that the existing problems would be solved eventually through institutionalisation

and further reforms, following the way outlined by the reformasi movement in 1997/1998.

The changes I discussed in the previous chapter and the difficulties that emerged for the state

business oligarchy seemed to substantiate this perspective.

However, a closer look will reveal the actual outcomes of democratisation, decentralisa-

tion, and deregulation the three major objectives of reformasi that were purported to put an

end to the New Orders authoritarianism, centralism, and KKN-protectionism. I will show

that they were not the foundations of a regime without entrenched interests, but provided the
 126

very vehicles that transported the conglomerates into a new social and political order in which

many of the old forces had been able to reposition themselves favourably. The first step had

to be to halt the reforms that could be prevented and modify the ones that were already im-

plemented. The result was a regime that forfeited its instruments of authority over the Chinese

capitalists.

Democratisation

As I pointed out elsewhere (Chua 2004a), the holding of free elections in Indonesia in 1999

was often portrayed by observers as the ultimate indicator for the success of the democratisa-

tion process, despite the fact that the majority of the population was still excluded from sub-

stantive participation in the political process. Indeed, the struggle for power was confined to

only a small group of people, a melee of the elites, as ORourke (2002) remarked. They re-

arranged themselves in hardly distinguishable parties whose only ideology was the acquisition

and maintenance of power and access to state resources. Hence, coalitions amongst the major

parties were possible in any arbitrary combination. Most of the political actors were also in-

terchangeable, with only very few new faces in the limelight. Since 1998, many leading poli-

ticians former apparatchik, military men, entrepreneurs, and assorted political hustlers,

peddlers and enforcers of the old New Order, as Hadiz (2004: 699) described the personnel

of the PDI-P had already played a role in Soehartos corporatist regime, in which even op-

position politicians were an immanent part of the system (Aspinall 1996). During the ensuing

years after the collapse of the New Order, they simply moved from the periphery to the actual

centres of power. Having arrived there, the new protagonists most importantly former high

profile critics of Soeharto such as Abdurrahman Wahid, Amien Rais, and Megawati obvi-

ously did not want to dissolve the old regime completely, but to reform the state only to the

extent that its previous crew was reshuffled. The revamped institutions could then serve as

shells for the recent powerholders and their followers. It was thus a competition for the cap-
 127

ture of the vehicles of KKN, and not for their abolishment or total reform (see Robison &

Hadiz 2004: 223-52).

This basic principle of the post-Soeharto power struggles allowed the conglomerates to be

more than just passive outsiders. They observed the new regime for a while, but their shock

about the loss of their main protectors, who were once organised in the state party Golkar,

soon gave way to confidence that electoral democracy was by no means tantamount to struc-

tural change and could not do them much harm, especially as it was characterised by major

continuities in relation to the kinds of interests that would preside over the political process.

In fact, the cost-intensive electoralism provided the setting in which capital became a neces-

sity, without which candidacy for political office was not affordable. According to Hadiz

(2004: 714), even a local election required several billions of rupiah, let alone presidential

campaigns, which Tempo (21 June 2004) estimated to require between Rp140 billion to

Rp500 billion per team just for the first round in 2004. Thus, the political parties were de-

pendent on large donations from the business world, from where the Megawati camp received

about Rp66 billion in legal contributions, while Rp16.4 billion reportedly went to Susilo

Bambang Yudhoyono and Jusuf Kalla (Tempo 30 August 2004).

Many NGOs therefore trusted in the new strength of civil society rather than in such kind

of parliamentarianism (Danang Widoyoko, Vice Coordinator ICW, interview 7 September

2004). The emergence of a non-state sphere that efficiently controlled and restricted the for-

merly unchecked activities of the conglomerates set certain standards which entrenched busi-

ness interests had to uphold. It was impossible for them to take no notice of or even contain

the new openness of society. Their only chance was to adjust which they did, although in

ways reformers envisioned otherwise. Indeed, the new modes of representation offered by

civil society provided the tycoons with genuine democratic means that they could utilise for

their own purposes. For instance, demonstrations were staged to protest against foreign com-

petitors that wanted to take over their companies (Roland Haas, former President Director

Lippo Investments, interview 21 September 2004). Riots, as the ones against the Tempo
 128

headquarters by a mob supporting Tomy Winata, could be easily organised supposedly by

the businessman himself (see Taufik 2003). The alleged puppeteer consistently recognised,

that its much easier to influence decision making in a democratic environment specifically

in Indonesia. Famished and poor people will do everything to maintain their survival (Tomy

Winata, interview 27 September 2004).

A further decisive undertaking was to manipulate public opinion. The Salim Group, for in-

stance, was eager to get back into the media business, repurchasing its former television

broadcasting company Indosiar through proxies (Kwok 2002). According to Ahmad Taufik

(Tempo journalist, interview 1 September 2004), Tomy Winata was also keen on entering the

media business: Tomy Winata is becoming very big in the media. First, he tried to pressure

the press not to write negatively about him. Now he makes media himself. Besides the police

radio station 911, the newspaper Harian Jakarta, and Jakarta TV, he established the maga-

zine Pilar, positioned in direct competition to his arch-enemy Tempo, thereby revealing a

possible motivation to crush the latter in order to increase Pilars market share (ibid.). Futher,

Winata could revert to his allegedly good relations with individuals like the son of Jakob

Utama, owner of the influential daily Kompas, and with the TV station Lativi, owned by for-

mer New Order Minister Abdul Latief. To his critics, allegations of such relations were cor-

roborated by the nature of the coverage of the two media of the notorious tycoon, which

tended to be mild at best (ibid.). Lippo, as another example, had a relationship manager for

extraordinary public relations efforts such as taking journalists around in helicopters, bringing

them to the nightclubs of Kota on an all inclusive joyride or, openly, increasing their income

(Roland Haas, interview 10 August 2004). During my fieldwork, I experienced myself how

they were even concerned with what would be written about them in PhD theses, which sup-

posedly was the main rationale for granting interviews to me in the first place. One respon-

dent threatened to sue me in the event that I wrote unfavourably about him. At the same time,

he offered to pay for a trip throughout Indonesia for me and 20 of my NGO friends, so that
 129

we could observe that his expositions were accurate. This illustrated clearly the tycoons per-

ception and handling of civil society.

The same carrot-and-stick methods were applied to establish a complaisant journalistic

culture favourable to business interests. Besides bribes, some businessmen counted on vio-

lence and lawsuits. For instance, in an angry reaction to a Tempo article which implied that

Winata was behind a fire at the market in Tanah Abang (Taufik et al. 2003), the tycoon alleg-

edly sent his mob to the Tempo headquarters (Taufik 2003), then sued the journalist Ahmad

Taufik, subeditor Teuku Iskandar Ali, and editor Bambang Harymurti for defamation, and

took the magazine to court in seven other cases, where Tempo had to face penalties totalling

US$40 million (McCawley 2003). The decision of the courts to use criminal legislation in-

stead of the press code and the subsequent conviction of Bambang Harymurti (Laksamana.net

16 September 2004) revealed the fragility of press freedom and liberal elements in society in

general. The conglomerates, forced onto the defensive, could obviously count on corrupt, in-

competent judges as well as on sections of the media itself. They also used many other tools

at their disposal to intimidate journalists. Most effective though rather conventional was

the threat to withdraw advertising (Teguh Santosa, Executive Editor, Rakyat Merdeka). A

more eccentric method, as Far Eastern Economic Review correspondent Jeremy Wagstaff re-

ported (interview 11 June 2004), was to send a dead cats head to the editor of an online news

magazine that investigated some of Lippos more shady businesses. The journal was later ac-

quired by Lippo boss James Riady, which was yet another way of keeping the media report-

ing favourable to Chinese big business.

Thus, the democratisation in Indonesia did not at all anchor the kind of norms hoped for

by reformers. On the contrary, parliamentarianism as well as the civil society were regarded

and treated by the conglomerates as simple instruments to legitimise their dubious business

practices that could henceforth be hidden behind a democratic faade. Indonesian post-

Soeharto democracy thus provided capital with powerful means and influence on politics and

society.
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Decentralisation

There is no doubt that regional autonomy has helped to make unfeasible the kind of heavily

centralised patronage networks that characterised the New Order. The conglomerates previ-

ous partners as well as the formerly guaranteed gains receded into a dim distance, as the pow-

erful politico-bureaucrats in Jakarta were replaced by regional authorities, who were increas-

ingly in charge of the allocation of resources. The New Order dimensions of KKN were ap-

parently only possible in a centralised, authoritarian regime. However, although many busi-

nessmen initially deemed their business model obsolescent due to the new complexities of de-

centralisation, otonomi daerah (regional autonomy) could neither meet the expectations of

eliminating corruption, nor offer a more transparent and immediate decision making process

regionally. In contrast, new decentralised, diffuse patronage networks emerged that, in many

ways, replicated the old systems of patronage in miniaturised forms. With the shift of author-

ity to regional bodies, KKN was also transferred to the corresponding lower levels. According

to disillusioned reformers, this was the only real democratisation that happened (Sjahrir,

Head Partai PIB, interview 24 September 2004). The centralised KKN was merely replaced

by decentralised collusion.

In fact, it was highly unrealistic to expect corruption to be eradicated by relying on the in-

tegrity of the new officials in charge of the local or regional institutions. Although Pharos

boss Eddie Lembong (interview 21 October 2004) anticipated that the behaviour of the bupati

would change by and by, actual developments did not seem to reflect his optimism. Other

businessmen complained that the district heads behaved like absolute rulers over their little

fiefdoms, which was regarded as a general problem that furthered KKN and hindered profes-

sionalism (Angky Camaro, Managing Director Sampoerna, interview 17 September 2004).

Far away from Jakarta, it was even more difficult to impose effective controls. One example

from West Sumatra illustrated this very well: Almost all members of the legislative council

were jailed for misusing budgets, while eight more councils in other districts had to face graft

probes (Jakarta Post 3 July 2004).

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Such politicians, extremely prone to seeking extra-legal funding, were therefore ideal for

the conglomerates. The new decentralised environment turned out to be even cheaper and eas-

ier to help accelerate the realisation of projects with financial injections, because a bupati

could not ask for as much money or shares as high-ranking bureaucrats used to do (Joel S.

Hellman, Senior Advisor The World Bank, interview 16 September 2004). The major diffi-

culty to identify the right persons could be solved within a short time. It did not take long

until the conglomerates found out whom they should deal with. Anthony Salim (interview 13

April 2005), for instance, was sure that his group mastered the new, confusing situation of

post-Soeharto Indonesia, stating: I think we adapted ourselves. Obviously, he was not both-

ered by the greater unpredictability of corruption and contently noticed that his managers fig-

ured out whom to address: All the directors of my company must have relations with each

political department. If its about distribution, of course, they have to talk to the trade depart-

ment. If its about plantations, they have to talk to the local government.

Thus, regional autonomy did not end corruption at all, but provided notwithstanding the

measure of uncertainty and unpredictability a relatively favourable environment for big

business that, as I will show in the following chapter, leveraged the conglomerates in an ad-

vantageous position vis--vis their former political patrons.

Deregulation

The neo-liberal economic policies that Indonesia adopted created a dilemma for the conglom-

erates. On the one hand, the market offered plenty of new opportunities for businesses. On the

other hand, with the termination of state sanctioned protectionism, they lost their exclusive

business opportunities, including the immense guaranteed profits. Therefore it was, for the

time being, more convenient and less risky for big business to retain as many elements of the

KKN economy as possible.

The more transparent, equally accessible system was indeed very unfamiliar to the struc-

tures in which the conglomerates originated. Many well-established entrepreneurs, such as

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Sofjan Wanandi (interview 8 June 2004), initially expressed their dismay, complaining that

sometimes Indonesia is too liberal. He feared that too much competition might decrease the

margins of profit or, even worse, put the conglomerates out of business. Therefore, the capi-

talists quite successfully tried to revive the networks of patronage and collusion, as the

still rampant usage of corruption illustrated (Indonesia Corruption Watch et al. 2004). Ac-

cording to a rating of the Political Economic Risk Consultancy (PERC), post-Soeharto Indo-

nesia was assessed as the most corrupt country with the worst achievable score 9.9 points

out of 10 (Castle 2004: 76). The same applied to the perceived inadequacy of the legal sys-

tem, which was significantly worse than during the period under Soeharto (Castle 2004: 77).

Reformasi obviously did not manage to structurally anchor effective checks and balances.

Thus, reform was perhaps doomed to fizzle out without real impact, as change solely de-

pended on the persons inside the institutions. Moreover, it was not in the interest of these

people to renounce KKN. The post-Soeharto regimes personnel, therefore, constituted a vul-

nerable flank for the capitalists to invade, allowing them to subordinate the new watchdogs

that were put in place to supervise them.

Indeed, the impact of deregulation was highly volatile and superficial, allowing the capi-

talists to pledge themselves to it but to proceed otherwise. Many old practices were simply

renamed. Instead of collusion, businessmen talked about lobbying (Eugene Galbraith,

BCA President Commissioner, interview 8 September 2004) or communication (Anthony

Salim, interview 13 April 2005), thereby seemingly adopting practices associated with west-

ern-style capitalism, leaving former corrupt ways behind. The truth was, though, that the new

economic environment was paradoxically even more infused with money politics. This appar-

ently turned out to be the most practical way for the capitalists to secure political support and

protection, which they still needed to compensate for the loss of certainty.

However, compared with the New Order economy, these informal and now illegal

channels were rather insecure, ineffective, and risky. In contrast, for pribumi capitalists, it

was easier to demand the adoption of protectionist policies in favour of indigenous busi-
 133

nesses. Aburizal Bakrie, for instance, wanted the government to use the golden opportunity

to redistribute Chinese Indonesian property (Eklf 2002: 232), while Jusuf Kalla planned to

help small and medium enterprises, because 90 to 95 per cents of the small businessmen

are pribumis (cited in Harsono 2004). Past experiences corroborated their concerns against

liberalisation: Through the economic reforms of the 1980s, the big Chinese conglomerates

became the main winners of deregulation and privatisation (see Robison & Hadiz 1993). At

that time, public monopolies simply became private ones, further strengthening the domi-

nance of Chinese Indonesian business groups and catapulting many of them into the league of

multi-national enterprises. This historical trauma fuelled the opposition to the neo-liberal ap-

proach favoured by the IMF and others, especially from pribumi business groups that have

always been suspicious of free-fight-capitalism as a disadvantage to indigenous capitalists

(see Kwik in Chalmers & Hadiz 1997: 239-41). They feared further marginalisation and an

impending verification of A. Chuas hypothesis (2003a) that minority groups will dominate

the markets in democratic, liberal economies. Populism in Indonesia usually referring to

economic nationalism, i.e. protectionism for pribumi became an important instrument in po-

litical debates, which was powerful enough to prevent noted economist and regional IMF

head Sri Mulyani from taking up the post of the Minister of Economics in 2004 (Jakarta Post

20 October 2004). Instead of her, pribumi entrepreneur Aburizal Bakrie was put in charge of

the economy. Together with Vice President Jusuf Kalla, two businessmen-turned-politicians,

who suggested ethnicity-based redistribution programmes such as those in Malaysia, occupied

key positions in the new government. Free markets, therefore, were highly contentious.

Thus, the conglomerates had to carefully balance their apprehension against IMF proposed

economic liberalisation and deregulation, since a swing of the pendulum in the other direction

would cause much more discomfort. It was better for them to deal with and in an economic

environment that was perceived as neutral and conducive than with one that was basically

hostile towards them. In fact, they soon found out that less nepotism meant a certain inde-

pendence from the Cendana clan. One businessman, cited by the Far Eastern Economic Re-
 134

view (Cohen 1998a), expressed a collective sense of relief about the downfall of the Soeharto

family: Before we were afraid to do business. The family could take over anytime. Now, we

dont have to feel afraid. Moreover, economic liberalism provided new opportunities of

growth for the capitalists, as deregulation followed the simple logic of capitalism to favour

capital-rich incumbents. Thus the Chinese conglomerates were best equipped to start the new

era of post-crisis economy from a pole position, with still significant funds at their disposal.

Most tycoons therefore became fervent supporters of free markets, such as Anthony Salim

(interview 13 April 2005), who asserted that all conglomerates with a clear market orientation

were successful in the new competitive environment. He claimed that his company Bogasari,

for instance, the worlds largest flour producer, became even more profitable than with its

former wheat monopoly, as did Indomobil and Indocement, compared to pre-crisis growth.

Angky Camaro, former Salim manager and actual Managing Director of Sampoerna, con-

firmed this:

The Salim Group is still the biggest group in terms of assets, because now everything is based

on a market economy and there are no special licences like before. And that is positive for the

Salim group. Take a look at Bogasari. Before it had a special license for the processing of flour.

Now there is a free licence for everything and everyone. And Anthony Salim prefers Bogasari

now.

(Angky Camaro, interview 17 September 2004)

In the first years after the crisis, the conglomerates tried to undermine the new regime wher-

ever possible by reverting to KKN. In the long run, however, they will take even more advan-

tage of the freer markets. The neo-liberal deregulation efforts, another project intended to take

market shares away from the New Order cronies, therefore turned out to effectuate the oppo-

site, as it was the case with decentralisation and democratisation.

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You see Anthony Salim, he has not been called to the at-
torney-general till today. Salim and Lippo have never
been investigated. Tell me why? You think they don't
have very good relations with the past government and
the present government and the future government?
(Marimutu Sinivasan)36

5.3 Economic recovery: Recouping the losses

The ultimate litmus test to ascertain whether the conglomerates could be held accountable for

their plundering of resources and thus be made to submit to the new regime was the set-

tlement of their debts. It was of utmost symbolic as well as financial importance for the state

to force its main 21 defaulters to repay their Rp650 trillion of non-performing loans, which

were taken over by IBRA, and offset these against government bonds (Bhui 2004). However,

the way IBRA, the institution entrusted with the task of recovering the gargantuan debts, dealt

with its debtors, demonstrated clearly the continuities of relations between the new power-

holders and old business interests, indicating the newly achieved strength of the conglomer-

ates vis--vis the weakness of the state. Instead of viewing the tycoons as criminal defaulters

obliged to pay, IBRA became the major instrument for nursing the ailing business groups.

Although the rules of restructuring were rather straightforward debts had to be settled in

cash or in assets, which were to be sold to investors unrelated with the former owners (Sato

2004: 34) there remained several ways for the capitalists to get around the worst conse-

quences, as the slow pace of IBRAs programmes indicated: Up until end of the year 2000,

only 15 per cent of the total private debt had been restructured (Bird 2001: 63). In 2002,

IBRA still expected to recover 42 per cent from assets disposals and loans cash settlements,

emphasising that this recovery rate achieved by IBRA/government in relative term, could

hardly be considered as disappointing (IBRA 2002: 3). However, as its five year mandate

came to an end in February 2004, IBRA merely recouped 28.5 per cent of the total debt,

thereby failing to reach its own modest targets by far (IBRA 2003).

36
Texmaco boss Marimutu Sinivasan, interview in Far Eastern Economic Review 9 August 2001.
 136

The whole process of debt settlement began quite promisingly in September 2000 with

several Master Settlement and Acquisition Agreements (MSAA) between the Agency and its

main debtors, where the payment obligations were put on record. Soon, however, it became

clear that, despite the MSAAs, the conglomerates were free to do whatever they wanted to do

(as will be shown through the case studies in this chapter). They were in a strong position,

protected by the IMF, supported by the government, and unimpeded by courts that regularly

sided with them and refused to declare them bankrupt.

The patterns of the indebted groups in dealing with the state were broadly the same: As

they became insolvent, IBRA as their creditor only had the option of seizing some companies

of the liquidated conglomerates to recoup at least a portion of the money. The tycoons, how-

ever, still owned the strategic assets privately and held on to them, while the companies they

transferred to IBRA were worth much less than initially stated, heavily indebted, and without

the respective licences, thus being of no use and value. IBRA, having to recover as much of

the debts as possible, recapitalised the companies to turn them into saleable assets or bonds

and tried to sell them for a fraction of their actual prices. Due to the inscrutability of the real

composition of the companies and the generally opaque business environment in Indonesia,

external investors were not enthusiastic about taking over the assets on sale. Thus, IBRA of-

ten had no other choice but to give the companies to whomever was willing to pay for them

and these were in many cases the old owners, either disguised as offshore buyers, through

third parties, or their overseas companies as they themselves were officially banned from

repurchasing their firms. Putting back the missing pieces into their corporations thus resulted

in a valorisation of the assets whose debts were mainly undertaken to be paid by the govern-

ment.

Many debtors further utilised the opportunity to blatantly make money through the recapi-

talisation programme, as they took cash out of the US$11 billion in Bank Indonesia Liquidity

Support (BLBI) credits, provided by the government in order to save some of the banks. They

used it for overseas investments, currency speculations, and debt servicing on other compa-
 137

nies in the group (Hadiz & Robison 2005: 227). This money deprived Indonesia of much

needed funds and gave the conglomerates the possibility of getting some high returns for

cheap loans (Eugene Galbraith, President Commissioner Bank Central Asia, interview 8 Sep-

tember 2004).

Although initially regarded as the main losers of the economic downturn and some un-

questionably were (see Chapter 4.2) many conglomerates managed in various ways to sur-

vive and even benefit immensely from the crisis. The more time passed, the better their

chances were in striking a deal with IBRA, due to a lack of interest and competition from out-

side. Under these circumstances, the debtors were able to determine the conditions of their

debt settlement and the price of the assets that they wanted to buy. Hence, many corporate

moguls that were thought to be economically finished were left in charge of their conglomer-

ates and propped up through generous amortisation terms. A few high profile cases (such as

Texmaco, Far Eastern Economic Review 9 August 2001, or Lippo and Salim) were subject to

intensive press coverage; other groups have survived without causing much of a stir.

IBRAs staff usually had no way of examining the cases they had to deal with and of ex-

posing the financial tricks and concealment of the assets they were holding, the financial

situation of their debtors, or the identity of the bidders, though they were certainly aware of

the rumours or often even had evidence that old owners were also the buyers of the shares on

sale. In fact, former IBRA Deputy Chairman Farid Haryanto (interview 21 June 2004) openly

admitted: Perhaps IBRA knew who was buying back the assets, but it did not want to know,

thus confirming that immediate money was more important than a long-term reorientation of

the economy.

The process of bank recapitalisation, debt settlement, and asset sales hence turned out to

be the lifeline for the conglomerates. As I Putu Gede Ary Suta, who later became Head of

IBRA, accurately observed, it was a successful attempt to reconstruct an obsolete and defec-

tive structure: Instead of rigorously separating ownership of private banks from borrowers,

there is an eagerness to return banks to their original owners as long as they can raise capital
 138

to repay government loans (cited in Hadiz & Robison 2005: 227). The request of Lippo Bank

boss Mochtar Riady for the government to rescue the banking sector, and not to clean it up

(Jakarta Post 28 July 1998), was thus granted. The conglomerates indispensability, together

with compliant officials, thus paved the way for Chinese big business to a soft landing after

what at first seemed to be a massive nosedive. I will illustrate this point with two detailed

case studies that depict the survival of the Lippo Group and the Salim Group, two leading In-

donesian conglomerates.

The principles of good corporate governance,

transparency, and effective communication are go-
ing to establish a stronger trust amongst the gen-
eral public and international investors.
(Mochtar Riady)37

The Lippo Group

In 1996, the Lippo Group38 was the fifth biggest conglomerate in Indonesia with a turn-over

of Rp9 trillion/US$3.8 billion per year. Its survival especially the methods its owners ap-

plied to sustain demonstrate that, despite all changes, the new regime still provided plentiful

opportunities for capital to conjoin with decision-makers and proceed in old ways that ought

to have been vanquished through reformasi. Founded in 1976 by Mochtar Riady, a successful

banker who built up Liem Sioe Liongs Bank Central Asia, this group was centred on its

bank, the Lippo Bank, which, in 2001, had more than 2.4 million customers with 3.5 million

bank accounts and 366 branch offices in Indonesia (Lippo Bank 2002: 3). Besides its core

business, the group was involved in stock brokerage, retail, insurance, and property, which it

expanded after 1989. From the early 1990s, a gradual handover to Mochtars son, James, took

37
Original (cited in Lippo Bank 2002: 8): Prinsip-prinsip good corporate governance, transparansi
dan komunikasi yang efektif akan mewujudkan kepercayaan masyarakat publik dan investor
internasional yang lebih kuat.
38
The information reported here, unless specified, is gathered from several interviews (in June, August,
and September 2004) with actual and former Lippo executives as well as external observers who did
not want to be mentioned.
 139

place. As compared to his media-shy father, he was described as a flamboyant, outgoing, and

an extremely good marketing person, but less interested on the operational side (Roland

Haas, former President Director Lippo Investments, interview 31 August 2004). Although

Lippo mainly focussed on the domestic market, it achieved international prominence through

the campaign-financing scandal in the United States, where James Riady illegally donated

more than US$1 million to the election campaign of Bill Clinton (Solomon & Holloway

1996; Gatra 26 July 1997).

Before the crisis, Lippo was, as every successful business venture in the New Order, suffi-

ciently close to the political powers. However, the Riadys never belonged to the innermost

circle of Soehartos cronies, as one occasion in 1996 revealed. According to a Lippo execu-

tive (interview July 2004), the presidents children wanted to take over Lippo Bank. As Mo-

chtar Riady refused to sell, stakeholders and clients were pulling their money out of the bank,

causing a severe liquidity crisis that led to a restructuring of the whole conglomerate. Hence,

a vertical structure was implemented, where Lippo Securities owned Lippo Life, which in

turn owned Lippo Bank, making it exorbitantly expensive for anyone to buy the group or

parts of it.

This emergency solution eventually turned out to be very functional for the group during

the crisis in 1997/1998 and decreased its vulnerability, providing it with lots of cash and low-

ering its debt rates (Djisman Simandjuntak, Commissioner Lippo Bank, interview 27 Febru-

ary 2004). Thus, Lippo was only relatively mildly affected, although it had to sell its life in-

surance business, Mochtars new baby (Roland Haas, interview 31 August 2004), to AIG.

The Riadys, however, could forestall a loss of their bank. By calling in related party loans that

were settled by means of handing over group-related properties, which were owned by the

debtors, to the bank, they managed to prevent Lippo Bank from breaching the legal lending

limit. This averted a classification of Lippo Bank as a takeover bank and Riadys inclusion in

the DOT (daftar orang tercela), the list of former bank owners who were banned from bank-

ing. It was of utmost importance for the Riady family to stay off the black list, as this would
 140

have been the end of the whole business group, because Lippo was not a very diversified fi-

nancial group with export business that could survive without banking at that time. Thus, the

Riadys were the only ones who were legally allowed to buy back their bank although this

was difficult to convey to the public and to most politicians who wished for a clear cut solu-

tion that excluded any involvement of the former owners. Therefore, the methods Mochtar

used to pull the strings inside the group, and the means which James eventually employed to

regain control of Lippo Bank, were characterised by rule-breaking and deception, as shown

below. The Lippo experience reveals the relative ease with which the conglomerates dealt

with the new regime.

Many competitors complained that the Lippo Group received privileged treatment, as it

obtained US$500 million in recapitalisation funds before other qualified banks even knew

that this money was available (Shari 1999). Indeed, Lippo Bank was the first bank to do an

IMF sponsored rights issue in December 1998, in which the government, through IBRA, took

over 80 per cent of the new shares (Kontan 21 December 1998). For this against all tradition

and usual procedures the bank only offered Rp10 nominal instead of Rp500 nominal shares

(Bisnis Indonesia 22 December 1998), thereby diluting the shares of minority shareholders

and intentionally squeezing them out (Suara Pembaruan 22 December 1998). Public shares

thus went back to Lippo Life, which was with 65 per cent Lippo Banks majority share-

holder before the recapitalisation (Suara Karya 24 December 1998). This first round, which

was hardly noticed by the market, was carried out so early and quickly that nobody under-

stood the process. The sole participants were the government and the old owners, who fi-

nanced the remaining 20 per cent.

The second recapitalisation took place in July 1999. This time, the Riadys were not par-

ticipating because they assessed that the crisis would take a longer time than expected and

that the shares would go down in the long run. In fact, they were even clandestinely, but ag-

gressively selling their shares while they continued to convince others and the government to

put money in the recapitalisation, triggering a strong demand by investors. One interviewee
 141

suspected that the old owners determined their strategy (see below) at that point in time, and

thus did not want to put any of their own money into a bank that they were going to deliber-

ately run into the ground. Another observer called this an abuse of tax-payers money and a

clear breach of law, as a secret selling of shares was against the regulations of the Capital

Market Supervisory Board (Bapepam).

Altogether, the bank received cash injections by the government of Rp7.2 trillion (Jakarta

Post 19 February 2003), raising the states costs to up to more than Rp10 trillion including the

interest it had to pay for the recapitalisation bonds. From the end of 2002, one year before the

planned divestment of IBRAs Lippo Bank shares, the Riadys began to engineer the recapture

of their bank, leaving their marks with a trail of scandals. Their most effective instruments to

obviate a takeover of the bank by others were the foreclosed assets or AYDA (aset yang

diambil ahli) that the bank had previously received from debtors related to the group in order

to be within the legal lending limits, supposedly worth Rp2.4 trillion (Tanjung 2003: 53). No-

body but the former owners of these assets was able to assess their actual value, making it dif-

ficult, if not impossible, to sell them. However, as long as they kept on appearing on Lippo

Banks balance sheet, their undeterminable value was a deterrent for potential investors. De-

pending on the Riadys needs, the value rose and fell, with audited sums ranging from Rp1.1

trillion to Rp2.1 trillion 46 or 88 per cent of the officially stated figure. As Hadiwinata re-

marked,

this was because the former owners of Lippo Bank were actually playing two roles, both that of

potential buyer as well as that of seller. In other words, it was suspected that they could adjust

the value of the AYDA assets in line with their own interests: raising or lowering the value to

suit themselves.

(Tempo 6 October 2003)

These tricks, or financial engineering, as Faisal Basri (interview 11 September 2004) called

them, required the assistance of Lippos Dutch partner and best-practise-advisor ING, which

was needed to overstate the foreclosed assets and to manipulate the annual reports to keep the
 142

value of the property high. After ING left, the assets were devalued massively and were sup-

posed to be sold for Rp500 billion (Koran Tempo 15 January 2003), only via internet, during

the New Year-vacations and within 10 days a plot that made the media suspect that the Ria-

dys were behind this as well (e.g. Bisnis Indonesia 03 January 2003). By writing off a signifi-

cant portion of the property values, Lippo Bank could not meet the central banks CAR (Capi-

tal Adequacy Ratio) requirements and requested a third recapitalisation round (Republika 22

February 2003) in order to dilute the governments stake and increase the Riadys ownership

at a cheaper cost (Jakarta Post 17 February 2003), to which IBRA chairman Syafruddin Te-

menggung had already privately agreed (Roland Haas, interview 31 August 2004). Following

severe public scrutiny, he prohibited the write-off of AYDA values and publicly argued

against the third rights issue (Koran Tempo 28 February 2003). As such, the banks CAR was

actually still acceptable (Suara Karya 28 February 2003).

Another means to buy the bank back cheaply from IBRA was the issuing of two versions

of the same financial report in 2002, one submitted to the general public, showing a profit of

Rp98 billion, and the other one to the Jakarta Stock Exchange with a loss of Rp1.38 trillion

(Bisnis Indonesia 20 January 2003), thereby reducing the sales price of Lippo Bank shares

while misleading the public. Additionally, the price of the shares was systematically cornered

from 4 November 2002 until 10 January 2003, as a concerned minority shareholder reported

(interview August 2004). The latter revealed this scandal by sending letters under the pseudo-

nym of Scott Ashton to the press (Koran Tempo 19 February 2003) as well as to all in-

volved authorities such as Bapepam, IBRA, Bank Indonesia, Jakarta Stock Exchange, IMF,

the World Bank, and the police without receiving any serious or apposite answer, which led

him to assume that they were all on Riadys payroll. The public only took notice after well-

known analyst Lin Che Wei (interview 22 September 2004) repeated these allegations in a

Kompas article (Lin 2003). The investigation that Bapepam consequently carried out only re-

sulted in a fine for the Lippo management, although Mochtar Riadys critics expected him to
 143

be jailed or at least put on the black list (Koran Tempo 19 March 2003). Instead, he was con-

firmed as President Commissioner (Kompas 16 April 2003).

As IBRA finally decided to divest its 52 per cent share in Lippo Bank at the end of 2003,

hoping to reach at least 1.1 to 1.4 times of the Rp590 book value (Tempo 6 October 2003), the

three remaining consortia that took part in the tender were not willing to offer more than

Rp470 per share. The Riadys were believed to be involved in all three bidding parties (ibid.),

while one consortium, the Eurocapital Asia Limited Bank, evidently belonged to them (Koran

Tempo 26 September 2003). In the end, Swissasia Global, which was, according to an insider

(interview August 2004), a very dubious consortium from Switzerland with their main office

in a shoe-shop and staff who looks like the mafia, bought the bank at Rp592 per share and,

significantly, did not change the management; an indication that it was indeed Lippos Swiss

proxy (ibid.). This was the final victory of the Riady family, which thus managed to still

control the bank through one or the other way (Sofjan Wanandi, interview 08 June 2004).

This whole operation only became possible through the active collusion of Lippo and the

government, i.e. the finance ministry, the central bank, the president, Bapepam, and IBRA.

The case illustrated the means through which an established conglomerate was able to survive

in the initial tumult of the demise of the old regime by using long-standing methods of cor-

ruption, collusion, and nepotism in the context of the new one.39 In the modified conditions, it

was at least as important as ever for the Lippo Group to have access to the new powerholders

and establish helpful political connections. It is true that democracy was perceived as a possi-

ble threat to the interest of the conglomerates, with the critical public being a major source of

39
Intriguingly, while most business groups were eager to depict themselves as reformed and profes-
sionalised, Lippos advisor Farid Haryanto (interview 21 June 2004) was not able to give a clear an-
swer, whether Lippo had changed or not. It must have been a sensitive question, as he told me to ask
James Riady himself.
 144

discomfort.40 However, the Riadys managed very well to manoeuvre through the difficulties

the more transparent environment imposed upon them. With their proximity to decision mak-

ers, financial engineering, and tricks, Lippo could continue to be involved in the murkiest of

murky fields, as one Lippo executive (interview August 2004) remarked, and has yet to lose

out to its critics. But KKN, particularly in post-Soeharto Indonesia, requires enormous re-

sources and is immensely time- and money-consuming. In an ever changing democracy, the

costs and risks of building up close personal relationships with new political patrons are very

high, as partners might vanish after the next elections. Therefore, one analyst was sure that

Lippo would not benefit greatly with every change in the highest office. Nonetheless, this as-

sertion remains questionable, as the Riadys would have by now established new links with

new repositories of power. In the longer run, however, either Lippos strategy will change and

adapt to the new openness, or the latter will give in to the interests of the former.

What is so wonderful about market forces, they can be

black, they can be white tomorrow, [] but the main
thing is that during black and white you have to survive.
(Anthony Salim)41

The Salim Group

Southeast Asias former largest conglomerate, the Salim Group, used to be in a different

league altogether compared to the other Indonesian business groups. With 600 companies in

1996, its annual sales of US$22.3 billion were almost three times the amount of the next larg-

est one, Astra, more than 12 times greater than the sixth largest group, Bimantara, and 33

times greater than the Gemala Group, which was ranked at number 30 (see Appendices, Table

1). In some years, Salims sales constituted 5 per cent of Indonesias GDP. After the crisis,

40
James Riady disinvited me from an already confirmed interview appointment. Instead, I first had to
talk to his friend, advisor, and Lippo Commissioner Farid Haryanto who so it seemed was supposed
to find out if the questions I wanted to ask were too critical. Obviously I failed this fit-and-proper test,
as Riady henceforth refused to meet me. This might be coincidental or due to other reasons, but it is not
unlikely that this signified Lippos stance on how to deal with the public.
41
Interview 13 April 2005.
 145

the enormous gap with competitors became smaller and Salim lost its extraordinary size and

status, although it is still one of the largest (Gunadi Sindhuwinata, President Director Indo-

mobil, interview 22 September 2004), if not the biggest group in terms of assets (Angky

Camaro, former Salim manager, interview 17 September 2004). The Salim boss Anthony

Salim himself (interview 13 April 2005) claimed: I dont know if we are still the biggest, but

at least were still there, thus referring to the remarkable fact that the group survived the cri-

sis at all. In the following, I will point out how the conglomerate expanded, almost vanished,

and re-emerged again. I suggest that the Salim Group was sufficiently developed to carry on

in the post-authoritarian environment by adopting new strategies of survival. Salim thus

represents the type of business group that was able to sustain without political protection. In-

deed, it required the new, post-authoritarian regime to grow further.

The incredible success story of Salim started with the migration of the then 21 year old

Liem Sioe Liong (also known since the 1960s as Soedono Salim, his Indonesian name)

from Fujian in China to Kudus in Central Java in 1937 (see Schwarz 1994: 109-15). The

problems he had to face as an indigent immigrant gave him, according to his son Anthony

Salim (interview 13 April 2005), the necessary drive and urgent need to succeed in an alien

environment. He thereafter established himself as a trader and expanded into the lucrative

clove business. While he undoubtedly possessed high self-motivation and good business

skills, his links with the republican army, which he supplied with goods, were clearly impor-

tant to his initial success. In the 1950s, he became a major business partner of the Diponegoro

Division in Semarang that was commanded by Lieutenant-Colonel Soeharto. From 1966 on-

wards, as the latter took over political power in Indonesia, these connections paid off and

Liem emerged as the presidents main crony. Through exclusive access to state credits and all

kinds of business fields where everything you touch at that time was basically a very big op-

portunity (ibid.), the Salim Group rapidly became Indonesias largest business group. Most

instrumental were the trade and flour milling monopolies that served as the major money-

making machines of the group, facilitating capital accumulation on an immense scale.

 146

Basking in windfall oil revenues from the mid-1970s to 1980, the focus of the New Or-

ders economic policies changed from light to heavy upstream industry. The Salim Group

correspondingly shifted its activities to cement, steel, and automobiles. In the mid-1980s, In-

donesia slowly undertook deregulation policies under pressure from falling international oil

prices, which provided new opportunities for the conglomerate outside the immediate protec-

tion of state powerholders. The decisive factor, however, that triggered a cautious orientation

of the Salim Group towards the market in general, was the deregulation of the capital markets

at the end of the 1980s (ibid.). Consequently, the group established its dominance in the bank-

ing and financial service sector that, together with construction, food/consumer products, and

automotives, constituted one of Salims four most important divisions (out of 11). The Salim

groups flagship companies were thus Indocement, Indofood, Indomobil, and Bank Central

Asia (BCA) (Sato 2004: 41).

With the help of the latter, Indonesias largest private bank, the conglomerate was suffi-

ciently liquid to expand more extensively beyond Indonesia, a process that had already begun

in the late 1970s. Particularly in the 1990s, Salim branched out and established its headquar-

ters in Hong Kong and Singapore. According to Anthony Salim (interview 13 August 2005),

35 per cent of Salims operations were overseas before the economic crisis of 1997. He de-

scribed the rationale behind overseas diversification:

Between the mid-1980s to the 1990s, we already geared up in order to balance our portfolio, not

only for Indonesia, but also multi-dimensionally, regional as well as international. So we had a

diversification not only of markets, but also a diversification of activities, and more importantly

a diversification of the portfolio. That enabled us to have a better balance during crisis.

(Anthony Salim, interview 13 August 2005)

Significantly, he assessed Indonesia in the 1990s as a political risk, which he tried to com-

pensate through international expansion in order to have a diversification of our difficulties

(ibid.). This reveals that the Salim groups main motivation for overseas investment was to

minimise the problems that they expected to experience should regime change occur in Indo-
 147

nesia. Indeed, in the third decade of Soehartos rule, the group had begun to gradually dis-

tance itself from the president and his family, albeit not to the extent that was claimed by An-

thony Salim (ibid.). He suggested that Salim companies were not taking government con-

tracts anymore by the 1990s, and even during the mid-1970s to the 1980s, we were hardly

having government contracts at all. The truth is that the Salims always kept their proximity

to Soeharto, whose family held 30 per cent of BCA shares, while Bambang Trihadmodjos

Bimantara Group was a favourite partner for joint ventures. Only two years before the end of

the New Order, the Salim Group was involved in the takeover of Astra International, com-

monly regarded as a Cendana deal. Even after the crisis, Soehartos half brother, Sudwikat-

mono, remained a major shareholder of the conglomerate (Laksamana.net 7 December 2002).

However, the increased market focus as well as the strategy of regional expansion was

seen as complimentary to the political patronage Salim enjoyed and, moreover, provided the

group with the option of reducing its dependence on political connections in the long run.

This was made possible because the Liem family had gained enough economic clout that it

could no longer be regarded as client or comprador hanging onto the coat-tails of Indonesian

generals and foreign banks (Robison 1986: 297). The group was thus relatively well

equipped for a time when the old dictator, Soeharto, would no longer be around.

Liem Sioe Liongs success before the crisis was based on three elements. First, undoubt-

edly, he was a good entrepreneur with enormous adaptability to changing political environ-

ments. He thus managed to select the right projects and partners at the appropriate time and

seized every kind of opportunity that arose, often before others realised the potential of cer-

tain markets. Second, he had immense capital resources which made him economically indis-

pensable and structurally powerful to the extent that he as it was widely believed or ru-

moured became the only person who did not have to make an appointment before meeting

the president. Third and most decisively, he had the right political connections. They were the

necessary condition for his success without which the other factors would not have been as

important. Anthony Salim emphasised this himself:

 148

Soeharto is a friend of my father for a long time. So being friends, of course, you have advan-

tages, at least an information advantage. And number two, you can see different things on dif-

ferent levels, if you are high, you can see more things. But whether we capitalised, as in utilised,

the position of Pak Harto, has yet to be defined by other people.

(Anthony Salim, interview 13 April 2005)

Connections, he added (ibid.), are very important, because connections mean you can see

opportunities, you are able to identify opportunities faster. Without them the Salim Group

would not have been able to become a big business group, let alone Indonesias leading con-

glomerate. If the patronage was taken away from the group, what was left? Was Salim mature

enough to sustain itself in a less protectionist and more market based economy?

As the crisis began and the New Order ended, not many would have given a positive an-

swer to this question. Liem Sioe Liong, as Soehartos main cukong, was a major symbol of

KKN and Chinese economic dominance. Therefore, during the riots preceding Soehartos

demission, he had to take most of the blame and anger of the people who ransacked and

scorched his house in Jakarta, demonstrated against him by shouting and displaying anti-

Salim slogans, and burnt his portraits. After the family fled and sought shelter in Singapore,

these sentiments were taken up by politicians who envisioned an economic future without

cronies in general and the Salim Group in particular. The end of the New Order was seen by

detractors as a perfect opportunity to dismantle the conglomerate that was now regarded as

one of the most dangerous threats to the Indonesian economy due to its closeness to Soe-

harto (Laksamansa.net 7 December 2002). Burdened by debts and without political protec-

tion, economists and politicians demanded a redistribution of Salims assets through fire sales

(Solomon 2000), obviously supported by the new president Habibie who was eager to take the

lead of the rising populist wave. His governments target, according to Swa (17 September

1998), was to dissolve Salim. For Anthony Salim, who took sole control of the group from his

father in 1998, nothing was left to do than to pay the debts or to cease operations. Many ex-

pected the latter: The Salim Group is finished, as the The Wall Street Journal (Solomon

2000) proclaimed, quoting another Indonesian tycoon after Soehartos resignation. Data Con-
 149

sults (1998: 166) assessment in October 1998 was a little bit less devastating but still ex-

plicit: With the vulnerability of the conglomerate to corruption and collusion charges be-

cause of its long connection with the Soeharto family, the Salim Group is predicted to shrink

badly in performance and its position as the largest conglomerate may become a legend.

Indeed, the enormous obligations of Salims flagship BCA alone made the survival of the

group seem rather unlikely. The demise of BCA started with a run on the bank as the crisis

reached its climax in May 1998. Ironically, the company had earlier been praised by the Re-

view 200-ranking of the Far Eastern Economic Review as an example of financial sound-

ness (McBeth 1995). But, following the anti-Chinese riots from 14/15 May 1998 and Soe-

hartos resignation on 21 May, depositors withdrew about Rp4 billion in only 10 days, fearing

a collapse of the bank because of its closeness to the presidents family (Mahmud 1998).

Eventually the government had to take over the bank, thereby discovering that almost 70 per

cent of BCAs loans went to other companies inside the Salim Group. This constituted a

breach of the 20 per cent legal lending limit. Anthony Salim thus not only owed Rp52.7 tril-

lion in debts to the new government about the amount of the whole conglomerates annual

sales in 1996 but also faced imprisonment. To prevent this, he started to negotiate and co-

operate with the new government, which itself was pressured by the IMFs US$43 billion res-

cue package that was conditional on the termination of cronyism and the settlement of pay-

back agreements by November 1998.

However, the Salim boss still had sufficient leverage to prevent the worst. Indonesia in cri-

sis could not afford to forgo the Salim Groups economic role. In 1996, 210,000 people

worked for the business groups companies, as many as for the next 20 largest conglomerates

put together. Therefore, Salims threat that if you want to kill us off, fine, but youll lose

100,000 jobs (cited in Solomon 2000) had its impact, as the conglomerate was too important

to be dismembered. Further, he was needed by the government to convince Chinese capital to

return to Indonesia; a fine line balance between reform and pragmatism, as Dasa Sutantio,
 150

IBRA Vice President, characterised the governments treatment of Indonesias main private

employer (ibid.).

Salim could thus take issue with the Habibie government. In order to repay the Rp52.7 tril-

lion worth of debt, he agreed to transfer shares in 78 companies to a holding company, PT

Holdiko Perkasa, that belonged to the government but left the respective managements to the

Salim Group. As soon as the debts were repaid, he was to be exempted from all criminal

charges (Tempo 6 October 1998). Habibie, who did not like this deal as he doubted the verac-

ity of the value and wanted Salim to use his offshore capital to fully repay the loans in cash,

initially refused to sign the agreement and demanded that if the companies are worth that

much money, then they should just give us cash (cited in Solomon 2000). He gave Salim two

years to settle his debts. However, as an unexpected ally the IMF came to the rescue, asking

for some flexibility in the repayment schedule to prevent serious disruptions to the econ-

omy (Solomon 2000). Habibie thus had to accept the unclear, manipulable complexity of the

collateral and was forced to grant a four years repayment period and Salims immunity from

criminal prosecution.

Habibies hesitation was not unjustified. After a re-assessment of the groups assets under

IBRAs control, it turned out that the value was much lower than stated. Therefore, Salim had

to add 30 more companies to Holdiko (Sato 2004: 33). Furthermore, in 2000, Anthony Salim,

through foreign funds manager Citicorp, tried to buy back his assets from IBRA in bulk for

only Rp20 trillion (Kontan 31 July 2000), thus openly admitting the actual market value far

below the obliged amount. President Wahid and then-IBRA Head Cacuk agreed, thereby ac-

knowledging the fraudulence of the asset sales by accepting a loss for the state of more than

Rp33 trillion and allowing the former owner to buy back his companies at a discounted price.

Eventually, Salim failed to proceed with this plan because Coordinating Minister of Economy

Kwik Kian Gie backed by public outrage objected (Kompas 13 November 2000).

However, the group was under the prevailing circumstances in a good position to re-

coup its losses. Even though former shareholders were banned from repurchasing their old as-
 151

sets, there were manifold ways to bypass this Financial Sector Policy Committee (KKSK)

declaration that failed to specify sanctions (Tempo 18 December 2001). The main method was

to use proxies in pyramidal structures through which the real buyer remained unknown, as

Djisman Simandjuntak (Director Prasetiya Mulya, interview 27 February 2004) revealed. The

sale of TV station Indosiar and car producer Indomobil illustrated this clearly. The former

was officially bought by TDM Asset Management, while the other by Trigemah Securities.

However, there were five reasons to suspect that Salim was behind this questionable transac-

tion, as Tempo (18 December 2001) called this deal. First, the tender period was much too

short. A divestment in only two weeks did not leave any time for due diligence. The buyers

thus had to buy a pig in a poke without knowing the real value and contents of the deal.

Second, the successful bidders had no relevant experience in the respective business fields.

Third, the assets were actually way too expensive for investors such as Trigemah and espe-

cially TDM, which was only set up a few months before. Fourth, the management of Indosiar

and Indomobil remained completely unchanged, which is very unusual after a takeover.

Lastly, in relation to the supposed value of the companies, the price at which the assets were

sold off was significantly below expectations because the 25 per cent recovery rate for the

sale of Indomobil would mean a 75 per cent loss for the government (ibid.). Faisal Basri

(Commissioner KPPU, interview 11 September 2004) maintained that the anti-monopoly

commission KPPU could prove price-rigging in the bidding for Indomobil as well as the in-

volvement of Salim in the process. However, these two transactions were relatively easy to

see through, and Anthony Salim himself was not too cagey about it.42

More difficult to disclose were purchases through nominees that were well established

businesses. Here, the Djarum Group played an important role. According to Faisal Basri

(ibid.), Djarums Hartono family owed the Salims a personal favour. Thus, Djarum took over

42
For the first interview that was scheduled with him, he sent Indomobil President Director Gundadi
Sindhuwinata as his representative, whom I met in Salims own office in Wisma Indocement, Jakarta.
 152

the role as buyer of Salims stakes, as it was the case with Salim Oleochemicals, which again

did not result in a single replacement of top management (Tempo 18 December 2001). In a

consortium with the American based investment company Farallon Capital Management, Dja-

rum was involved in another spectacular purchase, that of BCA. Indonesias most important

private bank was thus sold to companies without any experience in the banking sector at all

(Sato 2004: 35). Even though BCAs actual President Commissioner Eugene Galbraith (inter-

view 8 September 2004) claimed that Salim had nothing to do with the new owners (and of-

fered to resign should I prove him wrong), the press suspected that the whole deal was mas-

terminded by the Salim boss himself (Laksamana.net 30 January 2002). Another indication

was that the Salim family never wanted to give up its 7.19 per cent stake in the bank, although

this was explicitly demanded by Bank Indonesia, as the Salims were included in the DOT

black list (Kontan 16 July 2001). This minority stake was obviously the foothold to get back

this jewel of Salims business empire (ibid.), while the Djarum/Farallon deal served as first

masterstroke for a comeback in all his old business areas (Laksamana.net 7 December 2002).

We lost our bank, but one day well be back, when, I am not sure, but not in a far distant fu-

ture. Well be there!, Anthony Salim (interview 13 April 2005) revealed the next possible

steps of the plan. As soon as there exists a legal and moral chance to claim back his bank offi-

cially, he would not hesitate to replace his proxies and again operate as the rightful owner of

BCA.

For Indofood, another of Salims cash cows, the conglomerate applied yet another strat-

egy. Its Hong Kong based investment arm, First Pacific, acquired 40 per cent of Indofood,

thus bringing the company back under Salims control, and at the same time out of Indonesia,

thereby safeguarding it against confiscation. This move was justified by Salim as a rational

step of consolidation (Aji & Suprapto 2000). Indeed, while the group still had to repay its

enormous debts in Indonesia, it was busily expanding overseas. First Pacific bought Philip-

pine Long Distance Telephone (Tempo 1 December 1998), while Salims Singapore proxies

acquired his former shares in the bread producing company QAF from IBRA. Economists
 153

such as Didik J. Rachbini demanded that Salim should be sued for not paying his debts to the

state, despite buying back his companies. Emil Salim, the chairman of the National Economic

Council, asked why he did not pay his debt first, if he had the money (both cited in Kompas 8

November 2000). Then-Economic Minister Rizal Ramli labelled Salim as untrustworthy and

threatened him with imprisonment for such practices, but as he turned to Attorney General

Marzuki Darusman to take the accused to court, he was given the answer by the Attorney

General that Anthony Salim in fact was the most cooperative debtor (Kontan 20 November

2000). On 26 November 2002, finally, IBRA announced that the Salim Group settled its debt

completely and was thus free of any barriers (Laksamana.net 7 December 2002).

Since then, the conglomerate has been on its way back to the top, although the formerly

diversified business group henceforth had to face competition and the loss of privileges. It

also had to adjust to a transformed political economy and concentrate on certain business

fields. However, Anthony Salim was very content with the situation of his group in the post-

Soeharto economy (interview 13 April 2005; see also Chapter 6.1). Many new characteristics

of the regime that initially seemed hazardous for the Salim Group turned out to be the oppo-

site. They enabled the conglomerate to streamline its activities. The forced reconstruction

came during an appropriate period, in which Soehartos former client was already sufficiently

strong and independent to endure the financial crisis. In the long run, the restructuring even

was the necessary step Salim needed to survive in further globalised markets. Thus, Anthony

Salim successfully regrouped and realigned his conglomerate. From Holdiko, he only bought

back the most lucrative companies, thereby trussing his interests. In Indonesia, these were the

automotive and food industries. The latter was controlled by its Hong Kong First Pacific

Group, which also owned several telecommunications and real estate ventures in the Philip-

pines. Salims Singaporean KMP Group focussed on food related industries and on property

mainly in Singapore and China. Sato (2004: 41) interpreted this as a shift from one extreme

of a high degree of diversification to the other extreme of concentration on a core business

 154

and the most radical case of a transformation from conglomeration to concentration. The

Salim Group was thus losing some typical traits of a conglomerate.

The group adjusted to the changing environment not just structurally, but also in its strate-

gic methods. The crisis triggered the long needed shift from cronyism towards professional-

ism, as Gunadi Sindhuwinata (interview 23 September 2004) claimed. According to Anthony

Salim (interview 13 April 2005), his group was already geared up for this during the New Or-

der, but the political environment did not allow for this. Therefore, the collapse of the regime

together with old style-KKN caused, in a sense, a normalisation of the Salim Group that

continued to receive protection, but could not count on it anymore. On the contrary, serious

opponents, who were longing to see the end of the Salim Group, arose after Soehartos per-

sonal patronage ceased. Thus, the group had to be able to survive on its own. The fact that

Anthony Salim (interview 13 April 2005) had no problems in stating that nowadays, after the

crisis, only 50 per cent of his business activities were domestic, clearly proved that Salim has

emerged as an established, highly developed business group that considerably decreased its

dependency on Indonesia and was no longer cautious about admitting this openly. Indeed, it

adjusted very well to the grey areas of the post-authoritarian but not yet fully democratic In-

donesia, grasping all kinds of opportunities that were offered. The ways Anthony Salim man-

aged to recoup his losses illustrated his finesse in handling the endless possibilities the new

regime provided for him to fight against great odds.

To conclude, the Salim Group boss succeeded in five ways. First, by decreasing the degree

of diversification of his conglomerate, he concentrated on certain, profitable business sectors.

Second, Salim gradually converged with international corporate governance practices. Third,

he increased the groups global expansion and thus became independent from Indonesia.

Fourth, Salim turned to the market and was mature enough to remain in existence without po-

litical help. Last, he still operated with tricks on the fringes of legality, where usually, besides

rumours and insinuations, there was nothing to prove. However, despite all irregularities in

the debt settlement process, the group had indeed succeeded in cultivating a reputation for
 155

professionalism, purgation, and presentability in order to continue operating in post-Soeharto

Indonesia. In fact, Salim could claim to be one of the first big debtors who had settled his debt

completely and in a relatively short period. This will help the group to re-emerge as Indone-

sias largest conglomerate and its boss to become the most powerful tycoon in the footsteps of

his father, with the difference that in the long run politicians will be going to him to tender

themselves as patrons who, however, will increasingly lose their usefulness for the Salim

Group. While Liem Sioe Liong was dependent on business as privilege (Anthony Salim, in-

terview 13 April 2005), his son was about to free himself from such constraints, making his

group sustainedly stronger than it had ever been before.

5.4 Capitalist consolidation, consolidated capital

As the case studies demonstrated, there were several ways for the conglomerates to survive in

post-authoritarian Indonesia. Lippo, on the one hand, applied a more defensive strategy that

resembled the corrupt methods the conglomerates used before in the New Order. It was still

very dependent on patronage and connections with the political decision makers, which even-

tually brought them through the crisis. In comparison to the Soeharto regime, democracy was

considered to be a more difficult environment that immensely restricted the range of Lippos

activities. The Salim Group, on the other hand, embarked on different tactics. It progressively

adjusted to the changes. While the group still reverted to KKN whenever it was deemed pos-

sible and profitable, it realised that there were indeed a lot of benefits to gain from democ-

racy, decentralism, and deregulation. Salim was mature enough to survive without President

Soeharto as major protector.

The resilience of these two groups and the many more that are still alive and kicking

revealed the nature of the new regime. Even though many new conditions emerged through

reformasi, which at first sight seemed to inhibit the continuation of the old elites, a fundamen-

tal break with the past failed to take place. Democratisation merely modified the workings of
 156

the predatory arrangements without fundamentally transforming them. The basic structures of

power were not altered significantly because post-reformasi powerholders have merely tried

to capture rather than overcome the old system. The changes that have occurred, however,

were adequate to please and appease international observers and creditors, as well as the few

credible internal voices of reformasi. Still, the restructuring of the new regime was by far too

inconclusive to overturn the position of those that had been incubated within the New Order

oligarchy.

In this chapter, I identified capitals indispensability as the basic cause for structural con-

tinuance. As demonstrated, the crisis resulted in a mechanism that turned out to be very ad-

vantageous for the conglomerates: The more money they pulled out of Indonesia, the more

the economy needed them. As long as the old system was in the process of revitalisation, the

capitalists knew that they were the oxygen any post-Soeharto regime required to stay alive.

This gave them the opportunity to recover and recoup many losses as the case studies

showed and further increased their importance. Moreover, they managed through these

processes to resist unpleasant reforms.

Here, I analysed the reactions of the capitalists to reformasi. They were substantially re-

sponsible for many of the continuities between the New Order and the post-Soeharto regime.

Beyond this, they could soften the consequences of the changes. Their capital was the basic

condition for this, without which politicians could not run for elections in the new parliamen-

tary democracy. It also gave them the opportunity to make use of the many avenues of civil

society. The end of the centralised state offered grey areas, provided new possibilites, and

simplified the access to regional decision makers, who were easier to bribe than the former

powerful gatekeepers in Jakarta. Through corruption, co-optation, or infiltration, the decen-

tralisation of power as well as the emergence of new watchdogs posed few serious difficulties

for big business to pursue their strategies of survival in more deregulated markets. However,

we cannot evaluate the conglomerates response to the demise of the New Order as strictly re-

actionary. The cases of Lippo and Salim elucidated that the new regime allowed the simulta-
 157

neity of reactionism and professionalism in corporate behaviour. Moreover, they also indi-

cated the potential future course of big business in Indonesia, making clear that the political

system was no longer the main variable that determined the options of the conglomerates. On

the contrary, the capitalists were ready to determine politics. They realised that they indeed

could influence the outcome of democratisation, decentralisation, and deregulation and what

was left of reformasi in accordance to their requirements. The post-Soeharto environment

provided conditions particularly beneficial for the Chinese conglomerates that did not only let

them survive, but substantially decreased the authority of the state over business. The follow-

ing chapter will explore actual and possible scenarios of Chinese capitals accommodation in

an initially unfamiliar, post-authoritarian environment that they moulded in such a manner to

pave the way for the establishment of an increasingly plutocratic regime.

 158

6
CAPITAL UNLIMITED:
TOWARDS A NEW ACCOMMODATION

The economic and political crisis in Indonesia ended the New Order regime, leaving one of its

main pillars, the Chinese conglomerates, damaged but not destroyed. I have demonstrated

how and why Chinese business groups emerged and flourished (Chapter 3) and how the end

of the New Order disrupted the predatory arrangements and endangered the continuing exis-

tence of big business (Chapter 4). However, I have also shown how the new regime turned

out to be less inhibiting for the tycoons than widely expected (Chapter 5). Indeed, they man-

aged to survive the crisis. But where did they go from there? In what ways did they cope with

the dismantling of the old patronage networks? How did they attempt to thrive in a democra-

tised, decentralised, and deregulated post-1998 Indonesia?

Most big businessmen were initially afraid of Indonesias democratisation, because, as

Pharos boss and chairman of the Indonesian Chinese Association INTI, Eddie Lembong (in-

terview 21 October 2004), remarked, democracy is unfortunately related to numbers, and the

Chinese are very small in numbers. Ufen (2002: 187) pointed out that the capitalists as eth-

nic Chinese had to fear a loss of their good relations with state officials which would leave

them unprotected against anti-Chinese groups and sentiments. Amy Chua expected a similar

outcome:

In the numerous countries around the world that have pervasive poverty and a market-dominant

minority, democracy and markets [] can proceed only in deep tension with each other. In such

conditions, the combined pursuit of free markets and democratization has repeatedly catalyzed

ethnic conflict in highly predictable ways, with catastrophic consequences, including genocidal

violence and the subversion of markets and democracy themselves.

(A. Chua 2003a: 16)

She concluded that market-dominant minorities do not really want democracy due to its po-

tential to be inimical to their interests and to cause ethnic hatred (A. Chua 2003a: 259), an
 159

analysis and prediction shared by many Indonesian experts. Almost all my interviewees knew

and mentioned her book in which she explicitly discussed the case of the Chinese in Indone-

sia, showing that the question of economically powerful minorities and democratisation is a

very relevant and timely one in the post-Soeharto era.43

However, I offer a different interpretation of reformasi. Here I suggest that the capitalists

were well represented by the new regime. Indeed, the democratic transition strengthened their

stance in Indonesian society and resulted in a more beneficial political economy for the cor-

porate world that would eventually lead to the emergence of a relatively autonomous capital-

ist class. I argue that the regime change removed the social limitations of the Chinese tycoons,

empowered them politically in relation to the politico-bureaucrats, and secured their eco-

nomic revival. This set the stage for an increasingly plutocratic Indonesia, in which these

capitalists dominate the state unambiguously and assume the characteristics of a ruling class

(see Chapter 2.2).

Therborn (1978: 203) proposed that how far it [the bourgeoisie] is prepared to accept lib-

eralization will depend on the availability of modes of transition to other, equally good or bet-

ter, formats of representation. The aim of this chapter is thus to observe the modes of transi-

tion through a micro-level analysis of old, revised, and new patterns of political business

prevalent in contemporary Indonesia and disclose capitals corresponding formats of repre-

sentation, thereby providing empirical evidence that the tycoons while still in hibernation

were quietly forging a new form of statebusiness accommodation, in which their dominance

would be firmly established.

43
Financial analyst Lin (2004), for instance, based a Tempo article on the Chinese role in Indonesia
on A. Chuas propositions. In the interviews I conducted, he as well as other respondents (such as
Sjahrir, Faisal Basri, Anton Supit, Alvin Lie) repeatedly referred to A. Chuas hypothesis to substanti-
ate their arguments.
 160

6.1 Capital in post-Soeharto Indonesia:

Un-limiting Chinese big business

With the end of the Soeharto era, the New Order form of accommodation between the ruling

politico-bureaucrats and the Chinese capitalists was terminated as well. Capital, however, was

needed for a reconstruction of the Indonesian economy and could thus prevent significant

changes to the system that were detrimental to its interests. The modifications related to the

sudden impracticability of authoritarianism, centralism, and KKN badly impaired the politico-

bureaucrats, but failed to neutralise the capitalists. On the contrary, as shown before, the

structural continuities as well as the modest moves towards the objectives of reformasi were

helpful to let Chinese big business survive and hibernate until a more stable form of accom-

modation emerged.

This new arrangement between the state and capital is well on its way. Its point of depar-

ture was the democratised, decentralised, and deregulated regime without the limitations set

by the authoritarian New Order state. It provided a basically amicable environment in which

the conglomerates were socially, politically, and economically better positioned than before. I

will focus on the most significant consequences of reformasi for Chinese capital. Through

them, Chinese big business was elevated to a new social status, which constituted the precon-

dition for the overall political emancipation of capital.

Democracy: Social de-marginalisation

The capitalists in Indonesia have always been in an ambivalent position due to their precari-

ous societal status, which prevented a fusion of their high economic capacities with direct po-

litical power. As explicated previously (see Chapter 3), this particular position secured them a

co-optation in the politicobusiness oligarchy. With the fall of Soeharto in May 1998, anti-

Chinese discrimination abated through the abrupt disruption of authoritarian rule and the ad-

vent of democratic reforms. The concerted state-led instrumentalisation of Chinese ethnicity,

through which the New Order marginalised, discriminated, and stigmatised the Chinese mi-
 161

nority (Chua 2002), was currently not viable and enforceable anymore. On the contrary, the

shock of the anti-Chinese riots and the encouragement of the liberal Abdurrahman Wahid

presidency (19992001) saw the Chinese revive their cultural traditions on the basis of new

anti-discrimination and human rights regulations. Celebrations of Chinese New Year, Chinese

characters, and political and social groups of ethnic Chinese became legal, while most of the

racist laws were abrogated (Lindsey 2005).

Besides President Wahids genuine respect for minority rights (interview 17 September

2004), the indispensability of Chinese capital also led to a shift in government policies. The

World Bank Vice President for the Asia Pacific, Jean-Michael Severino, warned the new gov-

ernment that the Chinese are the issue in Indonesia []. How they fix [the Chinese problem]

is up to the Indonesians, but the economic impact if they do not fix it will be huge (cited in

Purdey 2005: 20). As a symbolic measure to reverse the capital flight, Habibie eliminated the

legal distinction between pribumi and non-pribumi per decree in September 1998 (Cohen

1998b: 15). Wahid, as one of the most eminent Muslim leaders, even proclaimed that he was

of Chinese ancestry, went to China on his first official state visit, and appointed Kwik Kian

Gie to his cabinet (Indonesian Observer 1 December 1999). He emphasised that the Chinese

act in tandem with the interests of the nation, not in their own interest. [] Yes, there has

been a purposeful construction of ordinary Chinese [under Soeharto]. But now, there is no site

anymore to do that (interview 17 September 2004). This signified the considerable shift in

official government policies towards the Chinese minority. In post-Soeharto Indonesia ethnic

Chinese were seen, for the first time in Indonesian history, as legislatively equal members of

the nation and were finally regarded as a suku, a domestic ethnic group.

Elsewhere, I pointed out how the Chinese capitalists were used by the government to stig-

matise all Indonesians of Chinese origin as rich (Chua 2004b). The marginalised social status

of orang Tionghoa, in turn, diminished the power of the capitalists. Therefore, even though

Chinese capitalists had nothing in common with small Chinese shop-owners except the

ethnic label, the change in minority policies had tremendous effects on all people categorised
 162

as Chinese. Thus the big tycoons also benefited from the opening of societal spaces for

Sino-Indonesians, who could now become regular participants in politics and civil society.

These developments finally liberated the capitalists from being categorised as aliens and re-

moved the basic foundation of the New Order patronage networks: the pariah status of the

limited Chinese capitalists that used to be incapable to challenge the absolutist rule of the

politico-bureaucrats.

The formerly much needed political protection henceforth became unnecessary, offering

the tycoons a new, independent sense of security that boosted their self-confidence and let

them proclaim that the Chinese are in a very good shape, contrary to what people say (An-

thony Salim, interview 13 April 2005). However, businessman and INTI Chair Eddie Lem-

bong was still very cautious, believing that the ethnic label of capital will not vanish: It wont

be like in Thailand; people wont forget that you are Chinese, he said (interview 21 October

2004). Gemala Group boss Sofjan Wanandi (interview 8 June 2004), in contrast, predicted

optimistically that there will be no more tension in the future. [] Chinese big business will

be national business, not Chinese anymore. The President Director of Indomobil, Gunadi

Sindhuwinata (interview 22 September 2004), made a similar claim, suggesting that the iden-

tity of a company, what belongs to whom, wont be important in the future. Salim, for in-

stance, will become a real Indonesian company, although it is run by an ethnic Chinese. The

threat of confiscation of ethnic Chinese property, demanded by some demagogues and feared

by many capitalists in the beginning of the post-Soeharto regime, therefore paled into insig-

nificance.

Certainly, the sudden diminution of Chineseness as an important, demarcating boundary

was not uncontested. On the one hand, the Chinese tycoons themselves selectively made use

of their Chinese ethnicity whenever they deemed it beneficial. The Chinese Indonesian asso-

ciation INTI with its successful lobbying efforts is one such example (see Jakarta Post 14

August 2002), demonstrating the new political weight the Chinese as a group have achieved.

INTI Chairman Eddie Lembong (interview 21 October 2004) as most other entrepreneurs
 163

was still thinking in Chinese/non-Chinese terms: Business requires attitudes that pribumi

dont have. Its still the Chinese that will dominate the economy even in the distant future.

Anthony Salim (interview 13 April 2005), who identified the upcoming of the Chinese and

mainland Chinas strength and [] a lot of interaction inside ASEAN between [ethnic] Chi-

nese people as the major economic trends for Indonesia, had a more instrumental view on

ethnicity: While maintaining that he is an Indonesian businessman, he also stressed how im-

portant it is to be identified as Chinese the reason why all his business cards had to be bilin-

gual (ibid.). The increasing economic importance of China will thus reconfigure local ethnici-

ties and foster the tycoons Chinese identity.

On the other hand, some prominent pribumi competitors used populism to raise their eco-

nomic and political profiles. The new system based on elections and popular vote, through

which pribumi capitalists such as Jusuf Kalla and Aburizal Bakrie emerged as Vice President

and Coordinating Economy Minister respectively, was a latent danger for Chinese tycoons.

The disquiet amongst Chinese Indonesians was immense when vice presidential candidate

Kalla suggested affirmative action for pribumi (see Wibowo 2004). However, it was obvi-

ously their knowledge of history in which pribumisasi affected only small Chinese businesses

that kept most tycoons calm over this issue. With their capital, connections, and friendships,

they were not afraid of the Kallas or Bakries, as Artha Graha Group boss Tomy Winata (in-

terview 27 September 2004) proclaimed: There is no worry of protectionism for native Indo-

nesians since Indonesian economy is still dependent on Chinese businesspeople.

However, it cannot be ruled out that, in the future, further attempts will be made to rede-

fine indigenous in order to justify pribumi protectionism. If populist nationalist policies gain

importance, they will be most probably based on anti-Chinese sentiments, as they used to be

before. As long as the Chinese in general are seen as rich, big businessmen, this perception

will remain useful as a tool to mobilise the masses and other interests. No indigenous power

bloc would voluntarily relinquish this instrument of authority. Thus, the Chinese problem is

likely to reappear. That the conglomerates still feel vulnerable towards such threats can be
 164

seen by the actual eagerness to reconcile their ethnic identity and stress their solidarity with

the people and the country: I love Indonesia. It was where I was born, where I grew up. I

have my family here. I have a lot of friends, and I believe in the future prospects of Indonesia.

And I do believe the Indonesian people are among the nicest people in the world, genuinely

so, James Riady (cited in Business Week 7 June 1999) rhapsodised. Similarly, Gunadi Sind-

huwinata (interview 22 September 2004) emphasised: As entrepreneur it is important to in-

vest in Indonesia as long as you do this for the people, you do this for the country, under-

lining that his boss, Anthony Salim, is staying in Indonesia because he loves this country,

because he is committed to the development of this country. [] He will stay here although

he is facing all these difficulties, all these problems, but he is trying to solve and overcome

them. Tomy Winata (interview 17 September 2004) declared that his Artha Graha Group

grew in Indonesia, stayed in Indonesia during the crisis and is investing in Indonesia now af-

ter the crisis. Artha Graha is a truly patriotic enterprise. He added that he is purely Indone-

sian, loyal to this country and socially responsible (ibid.). However, it will still take some

time until his self-ascription corresponds with the way others see him, for, as Budiman (2005:

95-6) reported, people felt that Winatas actions were typical Chinese behaviour, espe-

cially for Chinese businessmen. They felt that the Chinese always bribed state officials, par-

ticularly the police and the military. As long as these traditional anti-Chinese sentiments re-

main prevalent in Indonesian society, pribumi capitalists would exploit them in their fight for

market shares, thus preserving the century old demarcation between Chinese and non-Chinese

further.

However, these instrumentally used ethnic boundaries will never be as strong as those

constructed by the state. In fact, the strengthening of Chinese identity was, momentarily, more

beneficial than detrimental, fitting the conglomerates into Indonesias more inclusive diver-

sity and simultaneously linking them up to the emerging markets in China. Democracy,

eventually, largely de-marginalised the capitalists and liberated them from their social chains,

thereby placing the Chinese tycoons irreversibly at the centre of the Indonesian nation.
 165

Decentralism: Political strengthening

It was not possible to uphold the large-scale patronage networks between the leading politico-

bureaucrats and the most eminent tycoons after the fall of Soeharto. The new decentralised

regime was incompatible with the former system of KKN that required centralised decision-

making, exclusively allocatable businesses, and potent investors. The absence of all these fac-

tors required a reorganisation of the mutually beneficial politicobusiness relations. This was,

at the beginning, a major set-back for both parties involved.

First, the once powerful top officials in Jakarta either lost the command over the huge

gatekeeping institutions that presided over business opportunities, or the institutions author-

ity was considerably reduced or even eliminated. The politico-bureaucrats had thus compara-

tively little to offer, which diminished their capacity of extracting rents and bribes from the

capitalists as they used to do for decades. Second, the entrepreneurs were deprived of their in-

fluential partners and had to learn to get by without the reliability and the clarity of the tradi-

tional KKN process. The old oligarchy in the way it was constituted, obviously, was consid-

erably weakened.

However, although the situation of both allies deteriorated, the politico-bureaucrats status

was more irreparable. While, there was no way of doing big business during the New Order

without the Jakarta gatekeepers, most of them were replaced by a new set of relatively small

scale bureaucrats in regional bodies that did not possess the same kind of authority. These po-

litical actors, with whom the conglomerates henceforth had to deal with, were thus less pow-

erful than their former colleagues in Jakarta. With them, the tycoons replicated the networks

far away from Jakarta in the provinces.

Initially, this was merely an emergency solution, meant to quickly rehabilitate the forfeited

connections with the abdicated authorities, as the conglomerates could not imagine surviving

without political patronage at all. However, they quickly adjusted to the new situation, in

which you cannot do KKN anymore because everybody can, as Angky Camaro (interview

17 September 2004) remarked, referring to the elapsed exclusivity of KKN. Monopolies on

 166

huge projects and the respective exorbitant profits were a thing of the past; but on the other

hand, the end of the unconstrained power of the bureaucrats had significant positive effects

for the conglomerates, enabling them to become relatively independent from the political

elite. The projects in the aftermath of the tsunami in Aceh, where Artha Graha submitted a

blue print for the reconstruction of Meulaboh before and without the endorsement of the cen-

tral government (Tempo 8 February 2005), disclosed the newly gained sovereignty of the

business groups.

Sofjan Wanandi (interview 8 June 2004) asked candidly, why do you need to be close to

the government if there are no facilities there? The tycoons could detach themselves from the

politico-bureaucrats, who had no leverage anymore to coerce the businessmen to pay. Not

even the president was considered to be crucial anymore. Gunadi Sindhuwinata (interview 22

September 2004) stated: If you stand beside Megawati or whomever, people will think that

you are recognised also in that level. This is important. It is the emotional touch, but it does

not necessarily mean that you are supporting her. As the politicians could not deliver any-

more, they became rather irrelevant for the conglomerates, which were increasingly able to

acquire their businesses themselves. They were given direct access to the markets, and, if still

required, they could refer to the respective authorities at the regional level. The Chinese capi-

talists were thus positioned favourably vis--vis their former political patrons and would be

the main beneficiaries of the centralised regimes weakening. While the bureaucrats power

faded, Chinese big business gained political strength that they henceforth applied in their

daily interactions with the authorities.

Free markets: Economic resurgence

The overall effects of the new, more deregulated economy on big business continued to be

disputed. Sato (2004: 42), who studied Indonesias business groups, especially the Salim

Group, in detail, suggested that the golden age of conglomerates in Indonesia has come to an

end. Sofjan Wanandi (interview 1 July 2003) shared this allegation: Chinese big business?
 167

Dont waste your time. They are all bankrupt, he told me after I mentioned my research pro-

ject to him. BCA President Commissioner Eugene Galbraith (interview 8 September 2004),

however, suspected that Wanandi was probably on drugs as he proclaimed the death of the

business groups. In fact, Wanandis statement was in stark contrast to perceptions of other ty-

coons who considered the business climate in post-Soeharto Indonesia to be tremendously

positive.

Due to the ongoing restructuring process and a lack of relevant figures and rankings, it re-

mains on the one hand impossible to substantiate the economic resurgence of the con-

glomerates with sufficiently reliable data (see Chapter 1.3). The persons who ought to know

the actual state of the business groups, the owners themselves, refused to reveal their knowl-

edge, as it would make them vulnerable to further demands and weaken their leverage in the

ongoing debts negotiations. Indeed, there was a trend to understate the size of their own en-

terprise. For instance, Artha Graha, Salim, or Sampoerna were each mentioned by different

respondents as one of the largest groups in post-crisis Indonesia. Nevertheless, Tomy Winata

(interview 17 September 2004) averred that his Artha Graha Group might be solid, but not

big: There are a few giant business groups in Indonesia such as Sampoerna, Djarum, Salim,

and Lippo. We are not comparable since our size is much smaller. Anthony Salim (interview

13 April 2005), as well, asserted that he did not know whether the Salim group was still the

biggest conglomerate in Indonesia, and Angky Camaro (interview 27 September 2004) of

Sampoerna emphasised that Sampoerna is only a company, not even a conglomerate.

On the other hand, however, it is not necessary to measure the degree of consolidation

quantitatively. Instead, it is sufficient to analyse the tycoons subjective perception of the

business climate after the New Order. Significantly, most businessmen were very content

with the actual situation, declaring that nobody wants to have the New Order back. Chinese

big business is psychologically and technically prepared to deal with democratisation and

democracy (Eddie Lembong, interview 21 October 2004). Others such as Sindhuwinata (in-

terview 22 September 2004) stated that we cannot turn the wheel reverse and we have to
 168

look forward. Even the conglomerate of Soehartos major crony Liem Sioe Liong, the Salim

Group, did not go bankrupt because of the regime change. On the contrary, its boss, Liems

son Anthony, was enthusiastic about the post-New Order situation: The total product []

now is more than before, [] in fact, it increased by many percent compared to pre-crisis

(Anthony Salim, interview 13 April 2005). He further claimed that, generally, most of the

businesses that are basically market related or with market orientation, they are in fact not

only not affected, but thriving because of the new conditions (ibid.).

There was obviously no longer a need to fight the post-Soeharto regime. The current eco-

nomic conditions were indeed very favourable for the capitalists. Their well-being indicated

that the conglomerates consolidated socially, politically, and economically, and made them-

selves comfortable in the new Indonesia, best prepared to defend and expand their empires in

a democratised country.

We are well positioned to take advantage

of a more open Indonesia.44

6.2 Modes of transition: Patterns of political business

What did the conglomerates do politically? How have the Chinese capitalists modified their

ways of doing business in post-Soeharto Indonesia? If we were to believe the assertions of

leading tycoons, the corporate world simply adjusted to the new democratic order. Busi-

nesses adapt to whatever political or social situation is prevailing. Thats what I call a healthy

attitude. Businesses should adapt, Anthony Salim (interview 13 April 2005) stated, while his

friend and Indomobil executive Gunadi Sindhuwinata (interview 22 September 2004) con-

firmed that Pak Anton, whatever politics or government [], must also comply with the

situation every time. Thats why, after Soeharto, Habibie, Abdurrahman Wahid, he is able to

44
A high-ranking member of the Salim family, cited in Solomon (2000).
 169

survive, he is able to master the situation as business enterprise and businessman regardless

who is controlling the country. Tomy Winata (interview 17 September 2004) concurred:

Whoever will be in power, I am loyal to the government.

Indeed, the conglomerates have proven their flexibility in times of fast changing govern-

ments; otherwise they would not have survived the transition from the New Order to the post-

Soeharto regime. However, the myth of apolitical business that the tycoons tried to foster with

these statements did not correspond with practice, as the following observations of modified

and new business patterns will reveal. They indicate a steady shift of power in favour of the

capitalists that they translated into more efficient representations of their interests.

The restoration of KKN

According to Alatas (1999: 6-7), corruption, collusion, and nepotism denote the subordina-

tion of public interests to private aims involving a violation of the norms of duty and welfare,

accompanied by secrecy, betrayal, deception and a callous disregard for any consequences

suffered by the public. Its Indonesian version, KKN, expressed the New Order oligarchys

predatory, instrumental, and unrestricted use of the state apparatus, based on mutually benefi-

cial arrangements in which the Chinese conglomerates channelled huge sums to the authori-

ties as bribes, as commissions for business opportunities, and as protection money for politi-

cal shelter. This accommodation collapsed in May 1998. After the fall of Soeharto, many of

these old practices have thus become different, some of which were impractical due to the

new openness and institutionalised checks and balances. However, a new regime does not

mean the eradication of the predatory appropriation of the state and its apparatus by economic

and political elites. Democracy provided no barriers against KKN. On the contrary, more op-

portunities emerged, revealing that the capitalist oligarchy survived and still held the state

firmly under control. However, as I will point out, the patterns of political business in post-

Soeharto Indonesia were different from the ones before the crisis, demonstrating that the hier-

archy of politicobusiness relations became massively deranged.

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Money politics

In the New Order, corruption involved a semi-formalised process of channelling back some

gains from the conglomerates to the politicians as required rewards for shoving profitable

business facilities off on to them. During, and immediately after the crisis, this not only be-

came more difficult because of the increased public awareness, but also lost its applicability,

as new business opportunities and the possibility to share profits were rare. However, corrup-

tion had not at all ceased in Indonesia, which was still perceived to be one of the most corrupt

countries in the world (Castle 2004: 76). The rationale behind corruption, though, had

changed. In the immediate post-crisis period, it was for the pure survival of the business

groups that were dependent on leniency and preferential treatment of the decision-makers,

who resided over the assessment of their obligations, the allocation of financial injections, and

the conditions of a continuing existence. The past theme of corruption was economic expan-

sion; in and after the crisis it was the settlement of debts.

Due to the more decentralised structure of post-Soeharto Indonesia, the new political pow-

erholders were less influential, but because of this also less demanding and, in general, more

receptive for money. Hence, it was much easier to reach and bribe the respective persons in

charge than before. This was the breeding ground for money politics (i.e. politics determined

by money) that spread out from the top where ICW (2004) discovered more than Rp14.5

billion of unreported and thus illegal funds for the presidential candidates down to the bot-

tom of the parliamentary system with systematic approaches to members of parliament to

vote in favour of certain business groups, as MP Alvin Lie (interview 7 September 2004) re-

ported. He experienced the wily way in which tycoons were able to use the new institutions of

Indonesias democracy. In one case, where the DPR had to decide about the sale of Indosat,

material gains and favours were offered so abundantly and constantly that even some of the

initiators of the parliamentary fraction against the sale finally supported the opposite position.

Instead of separating money and politics, as most reforms explicitly intended, the two be-

came even more intertwined. The new Indonesian democratic system with its decentralised,
 171

more diffuse power structure, capital intensive campaigns for votes, support, and posts, and

power hungry politicians and bureaucrats desperately looking for financiers, offered manifold

hunting grounds for capital to reach an even higher return on investment than was possible

before. They could rely on a seamless transition in personnel and mentalities from the New

Order to the post-Soeharto era in which many Indonesian institutions, such as the central

bank, still resembled a den of thieves or nest of crooks in the words of former Bank In-

donesia Senior Deputy Governor Anwar Nasution (Laksama.net 10 May 2003).

After the consolidation of the conglomerates was achieved, the tycoons returned to the tra-

ditional objectives of corruption and again focussed on the facilitation of business opportuni-

ties, although the money was spent to expedite the process rather than to accrue certain con-

cessions (Faisal Basri, interview 11 September 2004). However, the application of the same

pattern took place under opposite signs. The politico-bureaucrats were no longer decisive and

could not count on a permanent flow of money. On the contrary, the conglomerates were free

to decide whom to bribe and were aware that it was often not necessary at all to use money to

reach the wanted goal. Hence, the former hierarchy was turned upside down with politics that

was determined by capital. Money politics became the main characteristics of Indonesias po-

litical economy and would be increasingly omnipresent in the future as integral part of pa-

tronage and infiltration.

Patronage

The character of patronage underwent significant changes as well. Most traumatic for the

capitalists were the experiences of the riots in May 1998, where the authorities exposed the

Chinese tycoons ruthlessly to a hostile social environment. The businessmen drew two con-

clusions. First, they could not rely on the politico-bureaucrats anymore and had to take care of

their safety themselves. Second, they were forced at the same time to seek new patrons to get

by the turbulent times of transition and political instability.

James Riady was the corporate mogul who was most active in establishing himself as the

main partner of the new political leaders. As Soehartos authority faded and the military was
 172

expected to intervene, Riady set up direct contact with General Wiranto. He never wanted to

experience the same kind of insecurity again, as he told Far Eastern Economic Review corre-

spondent Jeremy Wagstaff (interview 11 June 2004). This also meant that he had to be flexi-

ble. In fact, as Wiranto did not turn out to be the new president, he shifted his allegiance to

Habibie, joining his team as business ambassador (Shari 1999). As major Habibie crony

(ibid.) he intended to be the new Liem Sioe Liong of post-Soeharto Indonesia. For this he

could revert to his experiences in the United States, where he wanted to be known as main

importer of best American values to Indonesia, but became main exporter of corruption to

America, as Lippo critic Lin Che Wei (interview 22 September 2004) declared, referring to

the funding scandal (see Solomon & Holloway 1996) in which Riady proved his strength to

tie the right political relations.

James Riady was the indisputable czar of Indonesias new money politics (Shari 1999),

but others tried to catch up. Habibies successor, Abdurrahman Wahid, claimed that no ty-

coon attempted to establish links with him while he was president, because they knew about

his integrity and were afraid of him (interview 17 September 2004), although there were

strong indications that he sought to have his own group of cronies. This would explain why

he, without any substantiation, intervened in the judicial processes against Marimutu Siniva-

san of Texmaco, Prajogo Pangestu of Barito Pacific, and Syamsul Nursalim of Gadjah Tung-

gal, and demanded the delay of the three tycoons prosecution (Bisnis Indonesia 20 October

2000). He himself only admitted that he was close to Putera Sampoerna, who used to take him

on his private plane to Singapore and discuss economic issues with him (interview 17 Sep-

tember 2004). However, the former head of state observed that during the Megawati years,

the black conglomerates (as examples, he mentioned James Riady, who likes to cater to the

needs of high officials and throw money away, Anthony Salim, a bad guy who lives through

cronyism, and Tomy Winata, who owns a bank that is controlled by the armed forces and by

hooligans) succeeded in finding their partners (interview 17 September 2004).

 173

These ad-hoc partnerships, though, could not replace the patronage relationships of the

New Order that grew over decades. Before the crisis, the combination of patrons and clients

was inherently habitual. Every politico-bureaucrat matched up with a compatible business-

man, and it was clear that the most important decision-maker, i.e. Soeharto, could gather the

most decisive tycoons, such as Bob Hasan and Liem Sioe Liong, around himself. In post-

crisis Indonesia, political positions were uncertain and transient, as were many of the tar-

nished businesses. The high complexity and unreliability of the new power constellation was

not conducive to an arrangement that required consistency. Patronage, as the efforts of James

Riady revealed, was, for the short term, still useful. Indeed, it helped the conglomerates to

survive, as I showed in the case studies (see Chapter 5.3). Furthermore, it secured them pref-

erential treatment deemed impossible in a democratic country. One open secret in Jakarta

was that electronic goods in Electronic City or cigars and other luxury goods in a shop of the

Borobudur hotel were substantially cheaper because Tomy Winata as the owner did not have

to pay the respective taxes (Chatib Basri, interview 12 May 2004). Political connections were

therefore still advantageous, and groups such as Lippo continued to rely on them, as the con-

stellation of its new board disclosed. This included influential persons and politicians such as

former Minister of Domestic Affairs Suryadi Sudirja, former Minister of State-owned Enter-

prises Tanri Abeng, and former IBRA Deputy Farid Haryanto, who were co-opted as directors

(Trust 24 May 2004).

To balance the diminished effectiveness and reliability of patronage, the conglomerates

started to spread their risks, knowing the price of every party. The politico-bureaucrats could

henceforth not count anymore on exclusive patronclient relationships. On the contrary, the

former dependents were able to choose among a number of power brokers. Hedging thus be-

came a common practice, making it difficult to identify a distinct affiliation of the financiers.

The political environment of elections further complicated the patronage process, as it was

too uncertain to put all the eggs in one basket. Angky Camaro (interview 17 September 2004)

remarked: If we choose one party then we limit our market. Hence, almost no tycoon re-
 174

vealed his favourite candidate before the first round of the presidential elections in 2004, as

well as in the second round, where only a few supported one of the two remaining candidates

openly (see Tempo 30 August 2004). The sometimes contradictory assumptions of observers

portrayed the same situation: If one claimed that, for example, Tomy Winata was close to

Megawati through his business connection with her husband Taufik Kiemas (e.g. Kevin

ORourke, political analyst, interview 6 September 2004), he was as correct as another person

emphasising Winatas link to the other candidate, Susilo Bambang Yudhoyono, through one

of his closest associates and former President Commissioner of his Bank Artha Graha, T.B.

Silalahi, who became the key advisor of the latter (e.g. Lin Che Wei, economist, interview 22

September 2004). Winata was also suspected of financing Yudhoyonos campaign, while oth-

ers believed he funded Megawati. All allegations were probably true, as Faisal Basri (inter-

view 14 September 2004) suspected, who asserted that Winata had his money in every party.

Significantly, the Artha Graha boss himself admitted:

Up to now businessmen dont want to be seen as supporting just one party. [] It will be the

end for many businessmen who supported the wrong person. You cannot put all money on one

horse, because the uncertainty of winning is too high. Besides this the president now changes at

least every 10 years.

(Tomy Winata, interview 17 September 2004)

Often, family members carefully split their political loyalties, such as the Wanandis, where

Sofjan was favouring Susilo Bambang Yudhoyono (Sofjan Wanandi, interview 8 June 2004)

while his brother Jusuf used the Jakarta Post to secure support for Megawati (J. Wanandi

2004). For the Riady family, James sided with the actual powerholders, while his father, Mo-

chtar, was hedging the family's bets by courting opposition leaders (Shari 1999). For busi-

nessmen, it was quite problematic not to be certain where to put their money. However, for

politicians, it was devastating not to have a stable cash inflow. To stay politically alive, they

permanently had to make sure that their fountains did not run dry.
 175

What we observe in post-Soeharto Indonesia is thus a modified way of collusion, where

the traditional patronclient relationship has been turned upside down. It became the job of

the politicians to seek new partners, although they had nothing much to offer in return. In the

immediate post-crisis years, they could still provide social protection and secure the economic

survival of the conglomerates. In the medium term, however, the capitalists would be able to

unhitch from their former patrons.

Infiltration

Nepotism in Indonesia used to refer to the appropriation of the state and economy of the ex-

tended Soeharto clan. Certainly, this lapsed as the patriarch stepped back. However, it was re-

placed by the informal links between certain persons inside the political or bureaucratic sys-

tem and Chinese big business that were stronger than normal patronage relationships. In order

to reduce the risk of wasting money, tycoons started a long time ago to identify potential poli-

ticians and establish relationships that went beyond material interests. These included people

like Laksamana Sukadi, former CEO of Lippo Bank and later Minister of State-owned Enter-

prises, and several young military staff supported by Tomy Winata who were groomed

since their youth. When they became powerful, it was almost impossible to separate the ties

with their sponsors, as Member of Parliament Alvin Lie (interview 7 September 2004) ob-

served. This replicated the virtual family bonds between Soeharto and Liem Sioe Liong, or

General Gatot Subroto and Bob Hasan. The significant difference was that the generals no

longer adopted a businessman, but the other was round the tycoons chose their personal

politicians and bureaucrats, seeking to find someone whom they can groom for the next 10

years (Tomy Winata, interview 17 September 2004).

To prevent uncontrollable interference from potentially hostile new regulators the moguls

tried to bring in and further the careers of close, sympathetic people or those who could be

easily bribed in order to influence the composition, orientation, and arbitration of many insti-

tutions. The secretive nature of this procedure meant that it was difficult, if not impossible, to

produce evidence for it, unlike cases of corruption. However, the incidents that made it to the
 176

press, recurring allegations in Jakartas rumour mills or among competitors, as well as suspi-

cious outcomes indicative of collusion provided sufficient proof for such endeavours of the

business groups. There are numerous examples illustrating how capital market institutions

were especially dominated by big business proxies. Bapepam was said to be in the hands of

the Riadys conglomerate, Lippo, as were several IBRA chairs (Roland Haas, former Presi-

dent Director Lippo Investments, interview 31 August 2004). Previous IBRA Deputy Chair-

man Farid Haryanto, for instance, used to be Lippo advisor before he worked for the agency,

and has resumed this post again after he left the office. Several Bank Indonesia officials were

suspected by prominent observers of being on the payroll of the Riadys. These included Aulia

Pohan, Deputy Governor, or Miranda Goeltom, Senior Deputy Governor, whose election was

supposedly secured by bribes to members of parliament. Lippo and other conglomerates ex-

pected them to hinder unfavourable investigations and to help them retrieve their assets

(Faisal Basri, interview 11 September 2004). Others assumed that Tomy Winata supported

Goeltom so that she would assist him to get hold of Bank Permata, which she actually but in

the end unsuccessfully did by lobbying for him at the state-owned asset management com-

pany PPA, IBRAs successor and the overseeing agency for the sale of the bank, as its Vice

President Director, Raden Pardede (interview 17 September 2004) confirmed.

There were rumours that Salim was behind the sudden and instantaneous selection of

three BI Deputy governors that gave rise to strong suspicion that the selection of the BI

Deputy Governors was expedited to make it easier for the Salim Group to get back into BCA

(Tempo 18 December 2001). One of the governors was Bun Bunan Hutapea, the husband of

Eva Hutapea, then-President Director of Indofood, who was put in charge of the fit-and-

proper test for the BCA investors. According to Rizal Ramli (ibid.), this was an intentional

positioning to make it easier for Anthony Salim to buy back BCA.

This revealed that compliant, reliable people inside the institutions that presided over the

future status of the conglomerates were still essential for the capitalists and their efforts for

sustenance in the new regime. At the same time and increasingly so in the future, the moles
 177

were and would be needed to open up new business opportunities. For this, as Faisal Basri

(interview 11 September 2004) reported, some big tycoons tried to influence the outcome of

elections by supporting certain candidates or installing their own men as district heads, in one

case even a relative nepotism in its literal sense. The latter attempt was unsuccessful, but

this is likely to be different in the future or in other elections, thus showing that the political

system became very manipulable and susceptible to interventions of the conglomerates. Poli-

tics and institutions, the former exclusive domains of the politico-bureaucrats, thus became a

playground of the capitalists.

The politicisation of business

These rather indirect interferences of capital in the political system were only part of the

whole equation. Through their new status in Indonesian society as well as the possibilities the

post-Soeharto regime provided, the Chinese conglomerates were able to steer politics in a

more direct way than ever before, making use of legal and extra-legal means.

Political activism

The new framework gave businessmen the opportunity to get actively involved in politics.

During the Soeharto period it was expected that the Chinese restrict themselves to business

and leave the state to the pribumi. Thus, no ethnic Chinese made it into higher military or po-

litical positions (Heryanto 1999: 327). With the exception of Soehartos favourite crony, Bob

Hasan, in the former presidents last officiating cabinet (which lasted for only two months),

there has never been a minister of Chinese descent. Only a few, selected Sino-Indonesians be-

came members of parliament after 1965, of which the Wanandi brothers and Harry Tjan Sila-

lahi conceivably be likened to the court Jews of an earlier era in Europe (Coppel 1983:

168) were the most eminent Chinese politicians, without ever reaching cabinet rank. With

this effective, one-sided separation of politics and economics, the politico-bureaucrats suc-

ceeded in decreasing capitals potential to interfere in political decision-making.

 178

Since 1998, things have changed. The new authorities could not uphold their arbitrary and

instrumental use of the state apparatus and had no means to hinder the emergence of Chinese

Indonesian politicians. Symptomatic for the changed environment was the foundation of the

ethnic Chinese pressure group, INTI, led by businessman Eddie Lembong, that lobbied effec-

tively for the rights of the Chinese minority. It encouraged the orang Tionghoa to become po-

litically active. Human rights lawyer Frans Winarta proclaimed at one of INTIs conferences

that Chinese Indonesians should not merely concentrate on business, but must also consider

entering politics. By entering politics, they could gain significant bargaining power in the de-

cision making process in the country (Jakarta Post 29 April 2002). This was already pursued

by some well-known Chinese with business backgrounds, who started to be involved in party

politics, such as Alvin Lie in PAN or Murdaya Poo in PDI-P. According to James Riady

(cited in Business Week 7 June 1999), there was an increased level of awareness in the busi-

ness community of politics. We see a number of political parties that have as their official

leaders people from the business community. In the provinces, as Hadiz (2004: 713-4) re-

ported, many entrepreneurs began to take advantage of the new avenues of power and ran for

the posts of bupati.

Property mogul Ciputra (cited in Straits Times 20 April 2000) emphasised that it is a dras-

tic change from the past that we now have important figures in essential positions within the

government. Legally, all political posts were opened up for Indonesians of Chinese origin,

including the presidency. While the highest office was confined to asli/original Indonesians

(i.e. pribumi) before, the 2002 amendment of Article 6 of the 1945 Constitution stated that all

citizens born in the country were eligible (Lindsey 2005: 58). Although this was merely a po-

litical symbol albeit not an unimportant one Anthony Salim, for instance, self-confidently

proclaimed that an ethnic Chinese could indeed become president in todays context:

It is still some time to go [for a businessman of Chinese origin to become president], but we are

closing the gap. We have a Chinese to sit [in government] as Coordinating Minister of Econ-
 179

omy. This is close to the Vice President already. Below the Vice Presidents rank is the Coordi-

nating Minister. Its one of the highest.

(Anthony Salim, interview 13 April 2005)

Sjahrir (interview 24 September 2004) contradicted him, maintaining that this is still not real-

istic in Indonesia: Anthony Salim can become very strong, but he can never become presi-

dent. In fact, the label of Chinese would still be a barrier, but their material background as

businessmen was not.

On the contrary, among the post-Soeharto politicians to claim important offices were two

of the most successful pribumi entrepreneurs: Jusuf Kalla, who became Vice President and

Head of Golkar, and Aburizal Bakrie, Coordinating Minister for Economy under President

Susilo Bambang Yudhoyono. This revealed that an own capital base was indeed very condu-

cive to assuming decisive posts. Chinese businessmen, who do not yet have the same kind of

political standing like Kalla and Bakrie and were thus still not very comfortable with being so

open to the public eye, will follow this trend with a certain time lag. They are, essentially,

only one step away from becoming politicians themselves. The case of Thailand, for instance,

has shown how Chinese tycoons became actively involved in politics and assumed leading

roles in parties and governments (Hewison 1989; Handley 1997). With the absence of official

restrictions, the involvement in political affairs obviously turned out to be a possible and ef-

fective way to further business interests and underpin their claim to power.

Premanism

While political activism was within the legal limits and the reinvention of KKN at least inside

the traditional, partly accepted boundaries, premanisme/gangsterism was definitely outside

the given rules. Formerly, the government itself often made use of such extra-legal measures

to intimidate its citizens. For example, in the beginning of the 1980s, petty criminals were

executed or, in the last decade of Soehartos dictatorship, pro-democracy leaders were at-

tacked by thugs (Aditjondro 2002: 45-9). In post-Soeharto Indonesia, the weak state no longer
 180

had such capabilities anymore and gave capital the opportunity to subdue and replace it where

it could not exert its influence.

One basic condition was the incapability, ignorance, or goodwill of state institutions. As

shown before, through bribes, patronage, or infiltration, the conglomerates succeeded in in-

fluencing the judicative, legislative, and executive massively. Without the backing of an inde-

pendently functioning legal system, opponents of the capitalists had problems in bringing

cases to the court, pushing through their views, or defending themselves. The conglomerates

relied on corrupt judges (see Indonesia Corruption Watch 2004), as one example clearly illus-

trated: Through judgements that appeared to be bought, the courts turned the anti-monopoly

commission KPPU into a paper tiger by regularly ruling in favour of business interests, as it

happened in the case of Indomobil. Despite evidence that the process of bidding for Salims

former car manufacturer was massively manipulated by collusion between the bidders to keep

the price low and enable Salim to recoup his company (Faisal Basri, Commissioner KPPU,

interview 11 September 2004), the ruling of the anti-monopoly commission was rejected first

by district courts and finally by the Supreme Court. The latter stated as justification for its de-

cision that the KPPU, not being a legal body, had presumptuously used the words for the

sake of justice, based on the belief in one Supreme God in its decree (Jakarta Post 17 Januar

2003). Such miscarriage of the courts was due either to gross incompetence or because of

tremendous financial lobbying by the business parties as Jakarta Post (30 July 2002) sug-

gested. Both possibilities were not meant to inspire confidence in the legal system, which

was, apparently, under the control of big business.

The absence of rule of law has, in many cases, helped the conglomerates to flourish again.

Most significant is the alleged success of Tomy Winata in the illegal sectors of prostitution,

gambling, and drugs. According to his critics, he had dominated organised crime in such a

way that it became the basis of his growth into one of Indonesias most eminent businessmen.

He himself, of course, denied these allegations: If I have a casino, you can take it for free.

[] Whatever we do, we follow legal procedures (cited in Borsuk 2003). However, the point
 181

is that, with or against the law, capitalists were free to do whatever they wanted to do in post-

Soeharto Indonesia.

Not surprisingly, Tomy Winata was purportedly closely linked to groups such as Pemuda

Pancasila, Indonesias largest organisation of political thugs (Aditjondro 2002: 37-8), and

Pemuda Panca Marga. Through these connections, he had his own vigilante groups at his

command. One interviewee told me that banks sold their open loans to Winatas Bank Artha

Graha, as only BAG had the means to make defaulting debtors pay. Mobs were also hired in

the provinces to terrify the local politicians to subordinate them to private interests (Lindsey

2001). Indeed, the influence of the tycoons was even greater far away from Jakarta. For in-

stance, Winata was given the relatively exclusive opportunity to do business in regions such

as Aceh or West Papua, for which he was admired as a real nationalist by the President

Commissioner of BCA, Eugene Galbraith (interview 8 September 2004). The husband of

former President Megawati, Taufik Kiemas, as well eulogised that the country needs more

crazy men like Winata willing to invest in Indonesias remote provinces (cited in Borsuk

2003), concealing that only the latter could go into conflict areas because of his close ties with

the military. Therefore, other observers disclosed a different motivation for these engage-

ments, reporting that Artha Graha, in tandem with the army, grabbed most of the funds meant

to rebuild the regions destroyed by the tsunami, drafted blueprints for the development of

Meulaboh/Aceh even before the government, and terrorised the local population to relocate

(e.g. Tempo 8 February 2005; Kompas 28 January 2005; confidential interview with an Aceh

volunteer, December 2005). The prominence of money and intimidation in Indonesias more

decentralized and democratic politics (Hadiz 2004: 714) was a major indication for the way

some of the conglomerates wielded their power after the crisis.

These new possibilities revealed that collusion with existing officeholders was probably

only the second best option for the capitalists. A more ideal proposition was to fill the power

vacuum themselves, including through premanism. Especially where an alternative hierarchy

of authority was yet to be established, the conglomerates filled the gaps with extra-legal ac-
 182

tivities. On both fronts, from the inside and outside of the system, capital was actively claim-

ing its rightful place at the apex of power in a state whose personnel was partially paralysed.

6.3 Formats of representation:

The rise of an autonomous capitalist class

With the end of the New Order the configuration of power was reorganised. This continues to

be an ongoing process. Even one decade after the crisis, the post-Soeharto regime was still in

the process of being re-moulded. James Riady (interview in Business Week 7 June 1999)

commented: The new political system and the new order of politics would start to be formed.

The old political system is not completely gone, but the new system is not formed. Tomy

Winata similarly stressed that Indonesias democracy is still in its embryonic stage:

Democracy in Indonesia has to be done step by step. At this time it has been progressing too

fast, as the country itself is still underdeveloped. More than 50 per cent of the citizens are still

underpaid, uneducated and unemployed. You can compare Indonesia only with Europe and the

US 100 years ago.

(Tomy Winata, interview 27 September 2004)

The same controversial tycoon, who has yet to prove his democratic credentials, maintained

that, as an Indonesian, it is part of my responsibility to help the country to democratise. []

We [Bank Artha Graha] are built to become the main engine of democracy in Indonesia.

(ibid.). Many observers, understandably, did not accept these statements at face value. How-

ever, I suggest that the capitalists stance on democracy should indeed be taken seriously. It

indicates their confidence in being able to shape the new regime to align with their interests.

I will demonstrate how they started to achieve dominance in some spheres. The corporate

moguls were in the process of replacing the politico-bureaucratic elite as the dominant frac-

tion of the ruling class, as the observed political business patterns illustrated. They alluded

to three major trends: A detachment from their former patrons, the reversal of dependencies,

and a more direct access to power. While capital only wielded indirect authority during the
 183

New Order, mediated and limited by the politico-bureaucrats (see Chapter 3), the new regime

provided the tycoons with an autonomous, dominant, and immediate stance towards the state.

I will show that we can observe a plutocracy in the making, in which Chinese big business

has found a favourable context within which it ensures, by numerous different means, that

the reproduction of its positions is represented (Therborn 1978: 203).

Autonomy

During the Soeharto regime, the capitalists were effectively dominated by their senior part-

ners in the bureaucracy who held quasi absolutist power through the appropriation of the state

apparatus. The socially marginalised tycoons were limited to an economic role. However,

both parties involved fared very well with this type of accommodation, as I demonstrated in

Chapter 3.

Nevertheless, since the 1970s, businessmen have tried to make use of their economic liber-

ties, not only to maximise profits, but also to safeguard their precarious societal position. The

politico-bureaucrats widely tolerated their endeavours as they themselves partook in the prof-

its, but they had the means to deterring excessive capital accumulation that would have de-

creased the tycoons dependency on them. Through the stigmatisation of the conglomerates as

Chinese and thus non-Indonesian, Chinese big business economic success was defined as

undeserving and unfair to the indigenous population. With such discourse, the politico-

bureaucrats set the capitalists thumbscrews that they tightened at times to keep them at bay.

The pursuit of anchoring Chinese capital globally particularly in China was an espe-

cially delicate undertaking that could be politicised and used against them. Hence, whenever

the authorities deemed it necessary, they publicly questioned the loyalty of the entrepreneurs,

as, in the case of Anthony Salim in 1994, when he stated that more than 30 per cent of his

groups operations were overseas. Politicians accused him of capital flight and regarded over-

seas activities as proof for his lack of patriotism. The tycoon tried to assure the public that
 184

these were merely rational business decisions meant to enhance the Salim Group while still

keeping 70 per cent of its assets in Indonesia (cited in Solomon 2000), concealing the benefi-

cial side effect of securing the groups existence in times of political turmoil or transition. In

fact, the expansion beyond Indonesia was one of the factors that helped Salim to survive the

economic and political collapse in 1998, although, during the crisis, it became even more in-

convenient for the capitalists to be questioned about their offshore assets, because they had to

pay back their obligations to the state. After the debts were settled, however, it was very re-

vealing that, for instance, Anthony Salim (interview 13 April 2005) did not have any prob-

lems to admit that the ratio of his operations overseas has risen to 50 per cent, denying that

this issue was still a sensitive one. He even proclaimed that the main reason to still invest do-

mestically was not because our attention is fifty-fifty, but because Indonesia is cheaper. You

buy with the same dollar, but we are able to get more things here (ibid.). The attitude that the

Salim boss displayed in his comments symbolised the economic self-confidence the entrepre-

neurs gained and highlighted their new autonomy in relation to the politico-bureaucrats.

This exuberance became possible through the new liberalised framework. Democratisa-

tion, decentralisation, and deregulation did not turn out to be detrimental for big business, but

enabled the conglomerates to emancipate themselves from the authority of the state managers.

Their social, political, and economic limits vanished, allowing them to seek their own, inde-

pendent bases of power in the domestic and international markets. On the one hand, this made

them rather unassailable. While their global investments were generally out of reach for the

Indonesian state and thus secure from confiscation, domestic capital was safeguarded against

expropriation through the stock market. On the other hand, the unrestricted devotion to mar-

kets multiplied the prospects for huge returns and increased the tycoons capital even more.

Therefore, these independent fields of capital accumulation were not just symptoms of the

new environment but they were the very material basis of their increased economic auton-

omy. The times were over in which the Chinese tycoons could still be contained, as they be-

came ordinary capitalists who generated power out of the neo-liberal markets and did not
 185

have to rely on the politico-bureaucracy and a state-controlled economy. Thus, the most sig-

nificant enhancement of Chinese big businessmens power was simply their normalisation

as capitalists-proper.

Dominance

Through the reforms the politico-bureaucrats lost their firm hold on some of the levers of

power. This enabled the Chinese conglomerates to liberate themselves from the Babylonian

Captivity of the political powerholders. While politicians were previously the decisive force

that treated Chinese business like concubines to be enjoyed but not recognized (J. Wan-

andi 1998), the capitalists in post-Soeharto Indonesia turned the tables.

The authorities no longer had the means anymore to secure the proximity of their former

protgs. According to one of my respondents (interview September 2005), Megawatis hus-

band Taufik Kiemas, for instance, was upset that Tomy Winata did not contribute enough to

his wifes campaign. He thus ordered the police to attack some gambling dens of Winata. The

Artha Graha boss, however, could easily ignore such idle threats. Megawatis presidency

came to an end shortly after this, while Tomy Winatas power continued to grow.

The changing role allocation inside the collusive relationships could best be illustrated by

the modifications to the old networks of patronage. During the New Order period, Chinese

big business could not exist without sufficient political protection. After the crisis, conversely,

politicians were not able to survive without adequate funding. The shift of power was slowly

taking place. As former Minister of Finance Bambang Subiyanto (interview 16 September

2004) maintained, politicians were still the ones who forced the conglomerates to donate.

Some tycoons whom he knew left Indonesia for a while before the presidential elections, es-

caping from the pressure to make campaign donations. James Riady rejected such claims:

I get the sense that there has not been a lot of fund-raising targeted at the business community,

for the simple reason that the economic crisis has paralyzed and crippled a lot of business
 186

groups. And I think there is also a general reluctance by the business community to give when

they can ill afford to, when they can just barely meet the daily need of payrolls and paying sup-

pliers.

(James Riady, interview in Business Week 7 June 1999)

Tomy Winata agreed with him, firmly contesting Subiyantos assertion. He stated that

Politicians dont go around, ask for money and use the businessmen. It is the politicians them-

selves who get misused, not the other way round. Business groups approach politicians and not

vice versa.

(Tomy Winata, interview 17 September 2004)

While Riadys statement in 1999 of businessmens general reluctance to be the cash cows of

the politicians was already remarkable and unimaginable only two years before Winatas

allegation demonstrated that the capitalists had already taken the initiative. Moreover, the lat-

ter emphasised his patronising role towards the political sphere, applying the same concept of

organic statism that the New Order used to legitimise its own existence and authoritarianism

(see Hadiz 2001b: 273), except that the former protges now emerged as the new godfathers:

The new democracy needs businessmen like me. I see the country as a big family. Politics in In-

donesia at the moment are out of control, as much as the politicians that went wild, comparable

with children that suddenly reach puberty and just go wild. I look at them like kids with myself

taking over the role as a father who has to take care that the children grow and things dont get

too wild.

(Tomy Winata, interview 17 September 2004)

The hierarchy of governmentbusiness relations was massively. In an economically sound

and socially safe environment, the capitalists not only detached themselves politically from

the bureaucrats and politicians, but also began to dominate them and turned them into their

clients, thereby creating new dependencies that helped the tycoons to determine the outcomes

of reformasi and the future of the Indonesian state in relative autonomy from their former pa-

trons.
 187

Immediacy

During the New Order, the Chinese entrepreneurs undoubtedly exerted influence, but only via

the politico-bureaucrats. As capitalists, they had structural power, but as members of a mar-

ginalised ethnic group, they were ultimately dependent on the state apparatus, which was

completely appropriated by the political elite. The power that the corporate elite wielded dur-

ing that period was, at best, indirect. With the end of the old regime, the formerly crucial me-

diators and their gate-keeping institutions vanished or became less necessary for the tycoons,

who, additionally, reconciled their social stigma, so that more immediate modes of represen-

tation became feasible. The patterns in Chapter 6.2 revealed this new situation of business, in

which the corporate moguls could henceforth beget political power through the bureaucrats,

inside the institutions, and instead of the state apparatus.

The first means of securing capitals positions was rather traditional through the given

state apparatus and the politico-bureaucrats therein. The new institutions and selection proce-

dures for the states personnel were very money-intensive and enabled the capitalists to be-

come sponsors, thus being indispensable for the parties and politicians of parliamentarianism.

However, it was not a mere continuation of the New Order coalitions between the political

and economic elites. The hierarchy had been reversed, with the ability of capital to dominate

the bureaucrats and take advantage of them as their proxies inside the institutions. Through

money politics and the restoration of KKN, Chinese big business thus exercised effective con-

trol over the state.

Second, the social de-marginalisation of the capitalists gave capital the opportunity to re-

present itself inside the reformed political system. Ethnic Chinese as well as other business-

men were no longer rarities in the political landscape of post-Soeharto Indonesia, in local in-

stitutions up to the national government. Indeed, recognised as an indigenous ethnic commu-

nity, the Sino-Indonesians, who were approximately 3 per cent of the whole population, con-

stituted an own pressure group and an important electorate that could no longer be easily

overruled. In the near future, a bourgeois party that exclusively embodies capitals interests
 188

might as well be possible, replacing, supplementing, or taking over actual parties. With the

existing groups clumsy efforts to be attractive to the broad masses, the distinctions in pro-

grammes and aims between the major political parties had evaporated, thus they became po-

tential vehicles for well-heeled business interests to hijack. Alternatively, entrepreneurs could

opt to establish their own parties, as the Sino-Thai tycoon and former Prime Minister Thaksin

did before in Thailand.

The third way to exercise power became possible through the weak state that allowed capi-

tal to replace it. The Tempo case illustrated this very well. The mob that ransacked the maga-

zines headquarters, the police that interrogated the attacked instead of the attackers, as well

as the courts that acted on behalf of Tomy Winata appeared to be on the payroll of this par-

ticular businessman. An analyst of the Washington Post (29 August 2004) said that what sets

Tempos case apart is that the state took up a criminal prosecution on behalf of a private citi-

zen. It proved that capital had the potential to appropriate executive and legislative powers

and could thus steer the state. Moreover, where the state apparatus was not yet entirely estab-

lished, the capitalists were able to fill those gaps of power. Premanism was the most spectacu-

lar option, where certain capitalists took the law in their own hands. With thugs, whom they

employed as their private mercenaries, they infringed upon the states monopoly of coercive

force.

Capital in Indonesia, therefore, was given a more immediate access to state resources.

Nevertheless, the Chinese capitalists were still far from being a ruling class in the traditional

sense. However, considering their ostracised status until 1998 as well as their impending

bankruptcies in and after the crisis, it was rather remarkable that they became widely autono-

mous and independent from the politico-bureaucrats in a matter of only a few years after the

end of the New Order. Hence, it is merely a question of time for a more plutocratic regime to

become fully entrenched.

 189

6.4 Plutocracy in the making

The aim of this chapter was to disclose the characteristics of the new form of accommodation

between the state and capital that had been on its way after the politico-bureaucrats as the

predominant part of the New Order ruling class abdicated. The alterations in the power con-

figurations of post-Soeharto Indonesia were an immediate consequence of the regime change.

For the conglomerates, democracy, decentralisation, and deregulation brought about social

de-marginalisation, political appreciation, and economic recovery. These were the precondi-

tions for an overall emancipation of capital.

The observed modes in the initial phases of transition provided empirical references for

this claim. The patterns of political business, such as money politics, patronage, and infiltra-

tion, signified a different application of these practices, with a role-reversal between business

and politico-bureaucracy. Moreover, the politicisation of business enabled the capitalists to be

politically active inside and outside the given laws. These new arrangements that were

hardly feasible before disclosed an extension of capitals possibilities to exercise power.

The events and processes reported here elucidate an advantageous modification to state

business relations in favour of the capitalists. They ceased being pariah entrepreneurs with, at

most, only indirect ways to determine the outcome of politics. The new foundations of capi-

talist rule were autonomous and even dominant positions of business vis--vis the state man-

agers. They were adequately and immediately represented in the new regime. Therefore, there

was no longer a need for the capitalists to fear democracy, because it facilitated their emer-

gence, ensured their influence, and secured the legitimisation of their rule. The post-Soeharto

regime thus provided an ideal shell for capital to work slowly but steadily on a plutocratic or-

ganisation of power in Indonesia.

 190

Any particular organization of capitalist wealth

[] can be challenged, even wrecked, but the capi-
talists involved can simply restructure their wealth,
restore their profits in another form, and resume
their destructive activities.
(Wood 2003: 13)

7
CONCLUSION:
THE STATE OF CAPITAL

Democracy, literally, means the rule of the people. In theory, it connotes a system of govern-

ance in which the lawful rule of the many in the true interests of the whole community is

most efficiently realised (Corcoran 1983: 13), therefore constituting the antonym of oligarchy,

the rule of a few. It is an idea that often inspires optimistic expectations about the conse-

quences of regime change once authoritarianism meets its demise.45 In Indonesia, the advent

of the new reformasi regime raised hopes about the termination of the oligarchic power struc-

tures that had underpinned the authoritarian New Order. There were anticipations that free

markets would reinforce democracy and vice versa.

However, democracy can be manifested in many forms. The case of Indonesia illustrates

that there is no predestined correlation between liberal markets and liberal societies as envi-

sioned by many neo-liberal theorists of social change (e.g. Sen 1999). It also challenges the

contrasting hypothesis that democracy and free markets in combination fundamentally endan-

ger the Chinese capitalists (A. Chua 2003b). On the contrary, I demonstrated that, even

though reformasi in Indonesia entailed a regime that formally adhered to the principles of

democratisation, decentralisation, and deregulation, important elements of the old oligarchy

have prevailed and took part in the constitution of an institutional framework that would safe-

guard their interests quite well. This has important consequences for understandings of possi-

ble changes in statebusiness relationships in post-authoritarian situations.

45
For instance, Magnis-Suseno (1999: 228) enthusiastically proclaimed right after the crisis: There is
now a real chance, our real chance, to realise the central ideal of our founding fathers: to realise the
sovereignty of the people!
 191

The main objective of this research was to assess the current situation of Chinese capital in

post-Soeharto Indonesia and explore how the regime change in 1998 affected the conglomer-

ates as one of the main pillars of the New Order oligarchy. The financial crisis in 1997 termi-

nated the Soeharto regime, and with it the features considered to be essential for the success

of Chinese capital. Therefore, reforms were advanced that were thought to be prohibitive of

the re-emergence of the old big business groups. Actual developments, however, have been

rather different. The unravelling of the New Order did not entail the collapse of the oligarchy,

but it did facilitate a change that saw a rearrangement of the respective positions of state man-

agers and capitalists. As I pointed out, democracy provided even better conditions for capital

in Indonesia than the former authoritarianism. Reformasi thus endowed the Chinese tycoons

with a very conducive political shell that first resulted in their liberation from some of the

limitations imposed by politico-bureaucrats and, in the long run, is likely to lead to a more

plutocratic form of capitalism with a relatively autonomous Chinese business class that is able

to increasingly exert direct power on the state and its officials. By pointing out the emergence

and growth of Chinese capitalists, their survival and successful reorganisation despite the

breakdown of the political regime, and the advantageous reconfiguration of power relations,

this study has highlighted the major indicators of this trend.

To understand these developments, it was necessary to first focus on the ethnicity of the

capitalists. Private capital in Indonesia is largely Chinese. Indeed, 26 of the top 30 groups be-

fore the 1997/1998 crisis were owned by Sino-Indonesians. This was no coincidence, but to

look solely at cultural explanations to account for the economic predominance of Chinese

capitalists is hardly helpful. However, we still have to take the constructed and instrumental-

ised albeit not primordial character of ethnicity into consideration, which was for the most

part determined by state policies. In New Order Indonesia, the capitalists were restricted and

did not comprise the dominant element of the ruling class. More central throughout the New

Order have been the politico-bureaucrats many of whom also transformed themselves into
 192

capitalists who held nearly absolute state power and were able to subordinate even the large

Chinese corporations to their broader interests.

Politico-bureaucratic elements, in other words, dominated the oligarchic capitalism that

was predicated upon the specific role of Chinese businessmen, which had its antecedents in

economic and social structures of colonialism. Their intermediate position between rulers and

ruled already existed in pre-colonial times, but it was the Dutch that economically functional-

ised and ethnically segregated the Chinese minority as non-indigenous middlemen, more in-

tensively from 1800 onwards. This later led to their exclusion from the nation-building proc-

ess and the corroboration of their status as necessary, but disliked outsiders. Throughout In-

donesian history, the Chinese contributed significantly to the economy and even became an

indispensable part of it, but their political weakness remained and was further aggravated. As

economically strong but politically limited capitalists they could fulfil crucial functions that

were useful for all regimes, enabling the state officials to prevent the emergence of a poten-

tially too powerful indigenous business class and effectively distance money from power,

which is usually more closely interrelated.

The New Order took over and even expanded these colonial policies, reinforcing the Chi-

nese status as pariahs through policies aimed at the marginalisation, discrimination, and stig-

matisation of the Chinese minority. Chinese capitalists some of whom the new powerhold-

ers already had long lasting business contacts with were subject to the same limitations.

They were ultimately subordinate to and dependent on the political elite, regularly harassed

by populist rhetoric and measures, and subject to extortion. In this way they constituted per-

fect clients for bureaucratic patrons. Of course, they as well benefited tremendously from

these arrangements, which provided them with endless opportunities to economically exploit.

In the 1970s and 1980s, the previously loose alliance was consolidated in the form of an oli-

garchy underpinned by politico-bureaucratic authority. Among the main beneficiaries of these

arrangements were also the state elites themselves, who succeeded in filling the vacant posi-

tion of indigenous capitalists. Besides the facilities and opportunities provided by the state
 193

which they completely controlled they relied on the money and business knowledge of their

Chinese partners. The two decades from 1980 onwards witnessed a further expansion of a

capitalism that was still dominated by the bureaucrats, but in which the business element be-

came more prominent, as expansion took place in domestic as well as regional markets. Se-

lective deregulation policies enabled predatory raids on the economy especially the opening

of the financial sector thus equipping the conglomerates with a massive capital base through

which they could develop a stronger bargaining position in relation to the politico-

bureaucrats. However, until the financial crisis in 1997, the basic hierarchy of governing state

bureaucratic and business relations was still maintained, even as the conglomerates began to

internationalise.

The breakdown of the New Order regime in 1998, finally, provided a breakthrough for the

emergence of a more plutocratic form of capitalism. In my study, I focussed on three consecu-

tive processes to illustrate the transformation of statebusiness relations: first, on the financial

crisis at the end of the old regime; second, on the survival of the conglomerates in a new re-

gime, revealing the continuity of the structural underpinnings of the system; and third, on the

vibrant development and reorganisation of big business groups in post-Soeharto Indonesia.

The success story was at first situated in a most dire setting. Indonesia was devastated by

the financial crisis. The conglomerates were hurt tremendously, especially Soehartos clan

and major cronies. More pertinently, with the collapse of the New Order, the old accommoda-

tion between the capitalists and the political powerholders was not feasible in the fashion in

which it had existed for decades. The Chinese conglomerates had to face the unknown terrain

of reformasi that required endurance and new strategies in a hostile political setting. In par-

ticular, the end of authoritarianism dispersed power and obliterated the formerly state guaran-

teed protection the conglomerates had enjoyed. Anti-Chinese populism, mirrored by general

resentments against big business, became a new threat. As this antipathy could be channelled

through parliamentary democracy, the latter too was perceived as potentially dangerous by

many businessmen. Civil society, including many NGOs and the free press with new facilities
 194

to control and impede the conglomerates and their collusive activities, made it difficult for the

capitalists to maintain their close links to government officials. The end of centralism further

eradicated the easy, straightforward process of corruption and replaced it with more complex

procedures of doing business. Economic reforms, geared to curb KKN and rid Indonesia of

monopolies, threatened the conglomerates to the very core. The unravelling of the New Order

thus marked a point of no return for Chinese capital insofar as the old practices were con-

cerned. Many business groups were indeed close to collapsing. The crisis was therefore a se-

rious test of their survival and adaptation abilities.

Most conglomerates passed this test. In fact, their reactions to the crisis showed their ma-

turity as capitalists. Contrary to how the situation may have looked at first glance, a closer

analysis of the immediate post-crisis period revealed that they were given the leeway to re-

constitute themselves from a rather advantageous position, being able to count on their eco-

nomic indispensability as well as on certain prevailing structural continuities. The focus of

post-Soeharto governments and their international creditors was on a quick revival of the

economy, not on a thorough restructuring. Therefore, due to a lack of alternatives, Chinese

capital was needed to prop up the ailing economy. Most changes they had to bear were, as it

turned out, not at all prohibitive for them, because the reforms only affected the legal and po-

litical superstructure of the system. These were problems they could deal with, allowing them

to adapt and even influence the scope and outcomes of reformasi. In all three battlefields in

which the struggle for the new regime was fought out, they proved to be enormously resilient:

Democratisation, for instance, facilitated a relative de-marginalisation of Chineseness, which

gradually removed the capitalists ethnic limitations. This observation alone is important in

terms of understanding the possible changing social position of economically dominant ethnic

minorities. A more open society, in the long run, provides more opportunities for Chinese

businessmen to participate in politics or the civil sphere, as shown in the case of Alvin Lie,

for example, but also a number of other Chinese politicians albeit still quite limited. On the

institutional side, the money politics dominated system of electoralism increased the impor-
 195

tance of wide-ranging alliances between business and capital, even at the local level. Decen-

tralisation may have cut off the links to the formerly important gate-keeping institutions in

Jakarta, but liberated the capitalists from the major politico-bureaucrats that used to preside

over them. Moreover, regional autonomy gave the conglomerates many new opportunities in

the provinces and regions. Economic reforms induced freer markets that were despite the

loss of many privileges particularly beneficial for already established capitalists, who man-

aged to quickly gain new market shares. As the two case studies of Lippo and Salim illus-

trated, there were many possibilities for the capitalists to carry on and reorganise. On the one

hand, they could still count on the remnants of the former regime that continued to occupy

important offices and oversaw the debt settlements and the restructuring of businesses. On the

other hand, they had already internationalised their interests to a sufficient degree so that a na-

tional crisis would not result in their complete annihilation. On the contrary, the political and

economic regimes forged after reformasi gave them the chance to rebound in conditions that

were less antagonistic for them than initially feared. This environment allowed them to recon-

stitute as part of the overall process of resuscitating the Indonesian economy.

Post-authoritarian Indonesia did not only guarantee the survival of the Chinese capitalists;

it further allowed them to elevate their position vis--vis the politico-bureaucrats significantly.

They established new modes of political business that tied in with traditional patterns, but in-

dicated a considerable difference from the New Order relations of power. First, there was the

restoration of corruption, collusion, and nepotism. These practices reappeared but adhered to

the modified hierarchy between business and government. The proliferation of money poli-

tics, new configurations of patronage, as well as an instrumental grip on institutions that were

infiltrated with willing helpers and loyal representatives of big businesses signified a new de-

pendence of politicians on owners of capital. Further, some capitalists became politically ac-

tive themselves, either inside the formal political framework as politicians in parties or as

leaders of pressure groups, or outside the law as preman (gangsters) or their initiators who

were immune from prosecution, monopolising activities out of reach for the state. The cases
 196

in which struggles between civil society and corporate interests were overtly carried out,

demonstrated not only the weakness of the state, but also its crude appropriation on behalf of

particular capitalist interests.

Ultimately, there was no mere return to old modes of patronage politics. Instead, three ma-

jor modifications characterised the post-New Order political economy: (1) greater autonomy

of the Chinese capitalists from the state apparatus, (2) their new-found dominance over old

politico-bureaucratic partners, and (3) their more direct access to political power. The

changed political environment thus strengthened capital enormously vis--vis the state. The

corporate elites could still refer to old methods that they used successfully under the bureau-

cratic capitalism of the New Order, but they were more than ready to face free markets and

democracy, as their rapid adjustment to conditions imposed by reformasi showed. Therefore,

Indonesia can be seen as moving towards a plutocratic form of capitalism in which the Chi-

nese tycoons as capitalists-proper have gained leverage other than their pribumi counter-

parts that had less to benefit from a weaker state. The new regime has thus turned out to be at

least as favourable for Chinese big business as the protectionism of the New Order.

By observing, interpreting, and presenting data on the development of capital in this cru-

cial historical intersection from boom to crisis to recovery, this study has demonstrated that

there is not necessarily a conjuncture between regime changes and a disruption of the under-

lying structures that underpinned the preceding political system. Instead, I have shown that,

particularly, the capitalists have remained resilient, making use of their economic power to re-

fashion statebusiness relations in ways that reflected their importance. Further studies on In-

donesia as well as on democratic transitions in general should take these significant modifica-

tions to the prevailing power relations into consideration.

Will the capitalists be able to maintain the momentum towards their emancipation? The

requirements of the Indonesian economy, and the way in which it is linked to the global capi-

talist economy, guarantee a conducive environment for big business. A backlash against capi-

tal is hardly possible due to structural constraints of the capitalist system and will not be tol-
 197

erated by the international community with its manifest interests in a stable business envi-

ronment in Indonesia. Thus, in spite of continuing pressures to regulate business activities

based on predatory alliances with state officials, a return to the New Order regime will be ob-

viated. Even in the unlikely event of a re-establishment of military-dominated rule, it will not

be possible to downgrade the position of the conglomerates significantly. However, the

metamorphosis of capital, and its dominant Chinese element, into an assertive social force is

not all that extraordinary in the context of broader global historical processes. Whatever the

future brings, Chinese big business is currently in a quite comfortable position in the twilight

zone between the dusk of the New Order and the dawn of more thorough reformasi. The state

of capital in post-Soeharto Indonesia thus indicates that the Indonesian state will become, in-

creasingly, the state of capital.

 198

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NEWSPAPERS, MAGAZINES

AFX Asia
Asian Wall Street Journal
Bisnis Indonesia
Far Eastern Economic Review
Gatra
Indonesian Observer
Jakarta Post
Jawa Pos
Kompas
Kontan
Laksamana.net
Pilar
Prospek
Rakyat Merdeka
Straits Times
Suara Karya
Suara Merdeka
 214

Suara Pembaruan
Tempo
Trust
Wall Street Journal
Warta Ekonomi
Washington Post

Asiaweek 29 May 1998: The scapegoats. Once again, the Chinese have paid for the flaws in
Indonesian society.

Bisnis Indonesia 29 July 1998: 10 grup usaha besar catat kerugian kurs Rp 11 triliun.

Bisnis Indonesia 22 December 1998: Lippo Bank perkecil nominal agar raih agio besar.

Bisnis Indonesia 20 October 2000: 3 Pengusaha besar diberi dispensasi.

Bisnis Indonesia 20 December 2000: DPR tak setuju Guthrie beli Salim Indoplantation.

Bisnis Indonesia 3 January 2003: Cara Lippo jual asset janggal.

Bisnis Indonesia 20 January 2003: Bapepam akan sidik Bank Lippo.

Business Week 7 June 1999: Lippo is not like the stereotype.

Far Eastern Economic Review 2 May 1991: Piece of the action.

Far Eastern Economic Review 28 May 1998: Shattered confidence. Ethnic-Chinese hold the
key to economic revival.

Far Eastern Economic Review 13 May 1999: Things fall apart.

Far Eastern Economic Review 9 August 2001: Texmacos survival guide/I am not a crony.
Interview with Marimutu Sinivasan.

Far Eastern Economic Review 14 February 2002: Pulp fiction.

Far Eastern Economic Review 4 March 2004: Regional briefing: Indonesia.

Gatra 26 July 1997: Bukti baru suap Lippo.

Indonesian Observer 1 December 1999: Wahid to heal racist wounds on China visit.

Jakarta Post 28 July 1998: Lippobank chief endorses scheme to help ailing banks.

Jakarta Post 26 October 1999: Chinese-Indonesian expect return of overseas funds.

Jakarta Post 29 April 2002: Ethnic Chinese urged to enter political arena.

Jakarta Post 30 July 2002: Antitrust body challenged.

 215

Jakarta Post 14 August 2002: Activist of a different kind.

Jakarta Post 17 January 2003: KPPU loses legal battle in Indomobil case.

Jakarta Post 17 February 2003: IBRA says no to Bank Lippo rights issue plan amid contro-
versies.

Jakarta Post 19 February 2003: Bapepam considers tough action against Lippo.

Jakarta Post 3 July 2004: Eight more councils face graft probes.

Kompas 23 June 1998: Gus DurWilliam Soeryadjaya: Bangun kembali perekonomian.

Kompas 8 November 2000: Grup Salim dicurigai telah berbuat curang.

Kompas 13 November 2000: Liem Sioe Liong harus tiru William Soeryadjaya.

Kompas 16 April 2003: Grup Lippo dominasi posisi komisaris dan direksi Bank Lippo.

Kompas 28 January 2005: Cetak biru Meulaboh akan diserahkan ke Artha Graha.

Kontan 21 December 1998: Pemerintah masuk Lippo. Skenario rekapitalisasi Bank Lippo.

Kontan 31 July 2000: Babak baru Kwik versus konglomerat.

Kontan 20 November 2000: Salim terancam dipenjara.

Kontan 16 July 2001: Pertaruhan terakhir Om Liem. Menelisik kegagalan penjualan sahan
BCA babak II.

Koran Tempo 15 January 2003: BPPN: Manajemen Lippo harus tanggung jawab.

Koran Tempo 19 February 2003: Investor cium kejanggalan transaksi saham Bank Lippo.

Koran Tempo 28 February 2003: BPPN pernah setuju Lippo tambah modal.

Koran Tempo 19 March 2003: Bapepam dianggap lindungi komisaris Lippo.

Koran Tempo 26 September 2003: Mochtar Riady kendalikan penuh penawar Bank Lippo.

Laksamana.net 30 January 2002: BCA sale. A quagmire of intrigue, online:

<www.laksamana.net/vnews.cfm?news_id=1923> (accessed 29 June 2005).

Laksamana.net 7 December 2002: Liem Sioe Liong is back in business, online:

<www.laksamana.net/vnews.cfm?news_id=4404> (accessed 29 June 2005).

Laksamana.net 10 May 2003: BLBI muddies Bank Indonesia governor race, online:
<www.laksamana.net/vnews.cfm?news_id=5312> (accessed 29 June 2005).

Laksamana.net 21 September 2003: Review oil & gas. Refueling Pertamina, online:
<www.laksamana.net/vnews.cfm?news_id=6059> (accessed 29 June 2005).
 216

Laksamana.net 10 April 2004: A long way to go, online:

<www.laksamana.net/vnews.cfm?ncat=25&news_id=6892> (accessed 29 June 2005).

Laksamana.net 16 September 2004: Tempo editor jailed, 2 journalists acquitted, online:

<www.laksamana.net/vnews.cfm?news_id=7504> (accessed 29 June 2005).

Merdeka 6 June 1998: 110,000 WNI keturunan belum pulang ke Indonesia.

Merdeka 4 July 1998: James Riady: Pengusaha asing masih dipersulit.

Newsweek 03 February 2003: The cronies return.

Republika 17 February 1998: Konglomerat dan pemerintah kini cenderung berseberangan.

Republika 22 February 2003: Untuk naikkan CAR Lippo, butuh 12-21 juta Dolar AS

Straits Times 20 April 2000: Tycoon praises govts pro-Chinese policies.

Suara Karya 24 December 1998: Bank Lippo butuh tambahan modal Rp 4.7 trilyun.

Suara Karya 28 February 2003: Kepala BPPN bantah Lippo mengalami penurunan CAR.

Suara Pembaruan 22 December 1998: Alasan Krisis Moneter. Penerbitan saham baru Bank
Lippo dengan nominal Rp 10.

Swa 17 September 1998: Kembalikan BCA ke tangan Salim.

Tempo 6 October 1998: Salim habis? Nanti dulu.

Tempo 10 November 1998: Ketika jimat Salim dilepaskan.

Tempo 1 December 1998: Akhirnya: Salim di Filipina.

Tempo 18 December 2001: Salim Group behind the scenes?/Passing BI and BCA in one
stroke/Questionable transaction.

Tempo 27 January 2002: Beginilah kelakuan para pengutang.

Tempo 6 October 2003: The Riady Trojan Horse.

Tempo 21 June 2004: Crooning for campaign funds.

Tempo 30 August 2004: When money talks.

Tempo 8 February 2005: Acting regent of West Aceh, Syahbudin B.P.: There is an agree-
ment with Artha Graha.

The Washington Post 19 July 1998: Habibie pushes for visit to U.S.

The Washington Post 29 August 2004: Magazine case tests Indonesian press freedom.

Trust 24 May 2004: Merger Lippo. Membesar lewat kawin massal.

 217

Wall Street Journal 22 May 1998: Wealthy Chinese who fled unrest in Indonesia itch to get
back to the only world they know.

Warta Ekonomi 24 November 1997: 220 peringkat konglomerat, pp. 15-37.

 218

APPENDICES

Table 1: The 30 largest conglomerates in Indonesia before the crisis (1996)

Estab- Annual sales

Conglomerate Main owner Chinese name
lished in (tril. Rp / bil. US$)

1 Salim Soedono Salim Liem Sioe Liong 1969 53.12 / 22.3

P. Sampoerna/Prajogo Liem T.P./Phang
2 Astra International 1969 20.20 / 8.5
Pangestu/Bob Hasan D.P./The K.S.
3 Sinar Mas Eka Tjipta Widjaja Oey Ek Tjhong 1970 20.19 / 8.5

4 Gudang Garam Rachman Halim Tjoa To Hing 1958 9.44 / 3.9

5 Lippo Mochtar Riady Lie Mo Tie 1976 9.03 / 3.8

6 Bimantara Bambang Trihatmodjo 1981 4.29 / 1.8

7 Gajah Tunggal Sjamsul Nursalim Lim Tek Siong 1970 4.20 / 1.8

8 Ongko Kaharuddin Ongko Ong Ka Hwa 1971 4.18 / 1.8

9 Djarum Robert Budi Hartono Oei Hwie Tjhong 1951 4.03 / 1.7

10 Rodamas Tan Siong Kie Tan Siong Kie 1967 3.97 / 1.7

11 Nusamba Bob Hasan The Kian Seng 1981 3.89 / 1.6

12 Kalbe Franciscus Bing Aryanto Khouw Lip Bing 1966 3.66 / 1.6

13 Dharmala Soehargo Gondokusumo Go Ka Him 1970 3.43 / 1.4

14 Argo Manunggal The Ning King The Nin King 1961 3.36 / 1.4

15 Barito Pacific Prajogo Pangestu Phang Djoen Poen 1975 2.87 / 1.2

16 Maspion Alim Husein Lim Wen Kwang 1971 2.46 / 1.0

17 Bakrie Aburizal Bakrie 1942 2.45 / 1.0

18 Humpuss Hutomo Mandala Putra 1984 2.32 / 1.0

19 Danamon Usman Admadjaya Njauw Jauw Woe 1976 2.32 / 1.0

20 Cipta Cakra Murdaya Murdaya Poo Poo Tjie Gwan 1970 2.25 / 1.0

21 Panin Mumin Ali Gunawan Lie Mo Ming 1968 2.24 / 0.9

22 Jan Darmadi Jan Darmadi Fuk Jo Jan 1968 2.23 / 0.9

Jakarta Govt,
23 Pembangunan Jaya 1961 2.12 / 0.9
Ciputra Tjie Tjien Hoan
24 Sampoerna Putera Sampoerna Liem Tien Pao 1913 2.09 / 0.9

25 Raja Garuda Mas Sukanto Tanoto Tan Kang Ho 1973 1.97 / 0.8

26 Texmaco Marimutu Sinivasan 1970 1.78 / 0.8

Ciputra, Tjie Tjin Hoan,
27 Metropolitan 1962 1.71 / 0.7
Budi Brasali Lie Toan Hong
28 Matahari Mochtar Riady Lee Mo Tie 1972 1.69 / 0.7

29 Ometraco Ferry Teguh Santosa Kang Som Tjhiang 1971 1.64 / 0.7

30 Gemala Sofjan Wanandi Liem Bian Khoen 1973 1.63 / 0.7

Source: Warta Ekonomi 24 November 1997: 32; Data Consult 1998: 44-6; Sato 2004: 25.
 219

LIST OF PEOPLE INTERVIEWED

Onghokham (Historian, LSSI), 11 September 2002

Hadi Soesastro (Executive Director, CSIS), 11 September 2002, 2 July 2003 and 23 Septem-
ber 2004
Eddie Lembong (Pharos Group boss/Chairman INTI), 12 September 2002 and 21 October
2004
Mely Tan (Sociologist, LIPI), 12 September 2002
Thung Ju Lan (Sociologist, LIPI), 30 June 2003
Thee Kian Wie (Economic Historian, LIPI), 30 June 2003 and 19 April 2004
Sofjan Wanandi (Gemala Group boss/Chairman APINDO/Chairman National Economic
Recovery Committee), 1 July 2003 and 8 June 2004
Klara Juwono (CSIS), 1 July 2003
Yasmin Sungkar (LIPI), 03 July 2003
Alexander Irwan (Economist, Partnership for Governance Reform in Indonesia), 3 July 2003
Hans-Dieter Evers (University of Bonn), 23 July 2003
Solvay Gerke (University of Bonn), 23 July 2003
Djisman Simandjuntak (Director Prasetiya Mulya/Commissioner Lippo Bank), 27 February
2004
Marcus Mietzner (Australian National University), 3 March 2004
William Wiriawan (Chinese Chamber of Commerce), 6 April 2004
M. Chatib Basri (Economist, FEUI), 12 May 2004
Jeremy Wagstaff (Indonesia Correspondent, Far Eastern Economic Review), 11 June 2004
Harry Bhaskara (Managing Editor, Jakarta Post), 14 June 2004
Teguh Santosa (Executive Editor, Rakyat Merdeka), 14 June 2004
Derry Habir (Senior Advisor on Governance, UNSFIR), 15 June 2004
Anton J. Supit (KADIN), 15 June 2004
Roland Haas (former President Director, Lippo Investments), 16 June 2004, 10 August 2004,
31 August 2004, 21 September 2004
Farid Haryanto (Commissioner, Lippo Group/former Deputy Chairman IBRA), 21 June
2004
Shin Yoon-hwan (Sogang University Seoul), 31 July 2004
Agam Fatchurrochman (Partnership for Governance Reform in Indonesia), 2 September
2004
Leanika Tanjung (Journalist, Tempo), 1 September 2004
Ahmad Taufik (Journalist, Tempo), 1 September 2004
John McBeth (Indonesia Correspondent, Asian Wall Street Journal), 3 September 2004
Kevin ORourke (Principal, Reformasi Information Services), 6 September 2004
Umar Juoro (CIDES/Commissioner BII/former advisor President Habibie), 6 September
2004
 220

Alvin Lie (Member of Parliament, PAN), 7 September 2004

Danang Widoyoko (Vice Coordinator, ICW), 7 September 2004
Ibrahim Fahmy (Investigation Division, ICW), 7 September 2004
Eddy Suprapto (Journalist, Kontan/President AJI Indonesia), 8 September 2004
Eugene Galbraith (President Commissioner, BCA), 8 September 2004
Faisal H. Basri (Economist FEUI/Commissioner KPPU), 11 September 2004 and 14 Sep-
tember 2004
Bambang Subiyanto (former Minister of Finance/Partner Ernst & Young), 16 September
2004
Joel S. Hellman (Chief Governance Advisor, The World Bank), 16 September 2004
Henny A. Nangoi (Vice President Director, Bank Artha Graha), 16 September 2004
Aloysius Etjun (Senior Manager, Bank Artha Graha), 17 September 2004
Inge S. Purwita (President Commissioner, Bank Artha Graha), 17 September 2004
Tomy Winata (Artha Graha Group boss), 17 September 2004 and 27 September 2004
Raden Pardede (Vice President Director, PPA), 17 September 2004 and 22 October 2004
Yudy Rizard Hakim (Head Public Relations, Sampoerna), 17 September 2004
Angky Camaro (Managing Director, Sampoerna), 17 September 2004
Abdurrahman Wahid (former President of Indonesia), 17 September 2004
Harry Tjan Silalahi (Board of Trustees, CSIS), 22 September 2004
Lin Che Wei (Economist/Director, Independent Research & Advisory), 22 September 2004
Gunadi Sindhuwinata (President Director, Indomobil), 23 September 2004
Sjahrir (Economist/Chair Partai PIB), 24 September 2004
Anthony Salim (Salim Group boss), 13 April 2005
 221

ABBREVIATIONS AND GLOSSARY

AJI: Aliansi Jurnalis Independen (Alliance of Independent Journalists)

APINDO: Asosiasi Pengusaha Indonesia (Indonesian Employers Association)
APP: Asia Pulp & Paper
AYDA: Aset yang diambil ahli (foreclosed assets)
BAG: Bank Artha Graha
Bank Indonesia: The central bank of Indonesia
Bapepam: Capital Market Supervisory Board
Bappenas: National Development Planning Agency
BCA: Bank Central Asia
BDNI: Bank Dagang Nasional Indonesia
BEJ: Bursa Efek Jakarta (Jakarta Stock Exchange)
BII: Bank Internasional Indonesia
BKMC: Badan Koordinasi Masalah Cina (Coordinating Body for the Chinese Problem)
BLBI: Bantuan Likuiditas Bank Indonesia (Bank Indonesia Liquidity Support)
BPPN: Badan Penyehatan Perbankan Nasional (see IBRA)
Bulog: Badan Urusan Logistik Nasional (National Logistics Board)
Bupati: District head
CAR: Capital Adequacy Ratio
Cendana: Soeharto family business groups
CIDES: Centre for Information and Development Studies
Cukong: Master, boss (Chinese business partners of political elite; hokkien)
CSIS: Centre for Strategic and International Studies
DOT: Daftar orang tercela (list of banned people)
DPR: national parliament
Golkar: Golongan Karya (functional groups); the state party under the New Order
IBRA: The Indonesian Bank Restructuring Agency
ICW: Indonesia Corruption Watch
INDRA: Indonesian Debt Restructuring Agency
INTI: Perhimpunan Indonesia Tionghoa (The Chinese Indonesian Association)
Kabupaten: District parliament
KADIN: Kamar Dagang dan Industri (Chamber of Commerce and Industry)
KKN: Korrupsi, kolusi dan nepotisme (corruption, collusion, and nepotism)
KKSK: Komite Kebijakan Sektor Keuangan (Financial Sector Policy Committee)
KPPU: Komisi Pengawas Persaingan Usaha (Commission for the Supervision of Business
Competition)
LIPI: Lembaga Ilmu Pengetahuan Indonesia (The Indonesian Institute of Sciences)
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LPEM-FEUI: Lembaga Penyelidikan Ekonomi dan Masyarakat, Fakultas Ekonomi Univer-

sitas Indonesia (Institute for Economic and Social Research, Faculty of Economics Univer-
sity of Indonesia)
LPKB: Lambaga Pembinaan Kesatuan Bangsa (Institute for the Promotion of National Unity)
LSSI: Lembaga Studi Sejarah Indonesia
Malari: Malapetaka 15 Januari; the anti-government and anti-Chinese riots in January 1974)
Masyumi: Majehlis Syuro Muslimin Indonesia (Consultative Council of Muslims in Indone-
sia)
MPR: Majelis Permusyawaratan Pakyat; the convention which, until 2004, elected the presi-
dent
NPL: Non-performing loans
Orang Cina: Derogatory label for Chinese Indonesians
Orang Tionghoa: Chinese Indonesians
PAN: Partai Alamat Nasional (National Mandate Party)
Pancasila: The state ideology
Partai PIB: Partai Perhimpunan Indonesia Baru (New Indonesia Alliance Party)
PDI-P: Partai Demokrasi Indonesia (Indonesian Democratic Party)
Pertamina: The national oil company
PP10: Peraturan Presiden No. 10; presidential decree by Soekarno (1959) that forbade foreign
businesses outside the cities
PPA: Perusahaan Pengelola Aset (State-owned Asset Management Company)
Preman: Gangster
Pribumi: Indigenous Indonesians
Sekneg: State Secretariat
UNSFIR: United Nations Support Facility for Indonesian Recovery
Yayasan: Charitable foundations used for political funding and rent extraction