Democratic struggle

Cops Break Up Protest in Indonesia

Associated Press - October 28, 1997

Jakarta – Police and soldiers used sticks to break up anti- government protests by hundreds of students today in two cities.

Some students said they were protesting the planned re-nomination of Indonesia's President Suharto, who is likely to be re-elected unopposed to a seventh-consecutive term in March.

Suharto, 76, has governed Indonesia for three decades and is Asia's longest-serving leader.

In Jakarta, about 100 protesters, some waving placards and singing nationalistic songs, clashed with police when they were denied access to a monument to Indonesia's independence from Dutch colonial rule.

The gathering was dispersed within a few minutes, and about 30 protesters, some badly beaten, were taken away in police vehicles, witnesses said.

Earlier in Bandung, about 110 miles southeast of Jakarta, dozens of police and soldiers blocked 200 students from marching on a local government building, protesters said. Three students were hospitalized with injuries, witnesses said.

Police confirmed that a protest took place, but declined to comment further.

A student, who identified himself as Andi Triana, said the demonstration began peacefully as a protest against the government's response to drought-induced famine in the remote province of Irian Jaya.

He said the students also wanted more action to save the life of an Indonesian maid now facing the death penalty for murder in Saudi Arabia.

"It's not clear how it turned into an anti-Suharto protest. But it is clear that the students don't want Suharto to be nominated again," he told The Associated Press by telephone.

Suharto, a retired general, took office after his troops crushed an abortive, but bloody, communist coup in 1965. Since then, he has tolerated little dissent in his pursuit of political and social stability.

East Timor

East Timorese abroad to hold congress in Lisbon next March

Agence France Presse - November 4, 1997

Lisbon – East Timorese abroad will hold a national congress here next March, called by independence leader Xanana Gusmao, who is serving a 20-year prison term in Indonesia, resistance sources said Tuesday.

The congress is to consider a charter of rights, freedoms and guarantees to be applied in the former Portuguese colony annexed by Indonesia in 1976, they said.

Object of the congress, Xanana said in a letter to resistance leaders, is the reinforcement of national unity around a credible leader and strategy.

The sources said congress organizers intended to invite "all East Timorese fighting for self-rule and for national independence" of the territory.

The annexation of East Timor has never been recognized by the United Nations, which still considers Portugal to be the administrative power of its former colony.

East Timorese bombs - time to break the stalemate

DIGEST No. 44 - 1 November, 1997

For the first time, clandestine East Timorese fighters are building bombs. When one went off accidentally recently it introduced a new element into the East Timor problem and underscores the urgency of a resolution. The Indonesian Foreign Ministry says the explosives were intended to kill civilians in Dili indiscriminately. That is unproven, but the resort to bombs shows frustration is rising among young East Timorese over the diplomatic stalemate.

The incident is awkward for all sides. If the clandestine group the Indonesian military hold responsible for the explosion has any strong international connection at all, it may be as much with the one overseas East Timorese Indonesia regards as an ally - Abilio Araujo - as with resistance spokesperson Ramos Horta.

Furthermore, the alleged leaders of this group are now in the Jakarta embassy of Austria, which just hosted a UN-sponsored intra- East Timorese dialogue that Indonesia supports. Foreign Minister Ali Alatas wants the 'terrorists' back and says refusal could imperil Indonesian-Austrian relations. But the Austrians reject the tag and want more time to consider their asylum application.

The Indonesian press has carried several detailed accounts of the incident, mostly quoting military sources. The clandestine group they mention is the Timorese Socialist Association (Associacao Socialista Timorense, AST). This group occasionally pops up in press and solidarity reports.

In early 1995 AST joined a coalition of East Timorese clandestine groups in Indonesia called CCONTLI that, besides AST, included Renetil, Group Onze Doze (1.2), and the anti-violence committee Anvisti.

According to the Portuguese newspaper Publico in April 1994, AST supported the December 1993 London 'reconciliation' meeting, in which Abilio Araujo played a prominent role, and which was in some ways a precursor to the UN-sponsored dialogue. Other resistance movements, and Xanana himself, condemned the meeting at the time. Insiders confirm that AST was 'his' organisation at least in 1994, though by no means all members supported his London initiative.

Top Indonesian military spokesman Brig-Gen Mokodongan was quick to link the explosion in Demak, Central Java, on 13 September 1997 to their favourite bete noir Ramos Horta. Horta replied - perhaps disingenuously - that he rejected the use of bombs for any purpose.

The Indonesian government does not appreciate the role Ramos Horta has played in keeping the movement away from terrorism. He has done this by publicly placing a lot of faith in a diplomatic process mediated by the UN General Secretary. Meanwhile, no report has mentioned Abilio Araujo, who now has substantial business links with Indonesians in East Timor. If Araujo indeed still supports the clandestine movement, it would indicate (not so much Araujo's duplicity but) the unanimity of East Timorese dreams of freedom.

More importantly, neither Ramos Horta nor Abilio Araujo can hope to contain the use of increasingly violent methods whilst their diplomacy offers no progress. The parallel with burgeoning Hamas radicalism after Netanyahu effectively torpedoed the peace process is alarming.

According to Mokodongan, AST general-secretary Avelino Maria Coelho da Silva ('Dr Shalar Kossi') rented a house in Semarang, Central Java, in 1996 for the organisation's militant 'Brigada Negra' (Black Brigade). In May 1997 an Australian citizen, only named as Geoffrey, was sent by the Darwin East Timorese emigre community to the Semarang house and gave a month-long course in demolition for 'Section B' of the Brigade.

In July 1997 a group of three men from the Brigade moved into another house in Plamongan estate, Demak, 18 km east of Semarang, and began to construct a series of bombs using TNT. The military said that while simple, they were powerful enough to penetrate a centimetre of steel or even bring down a high-rise building.

Twenty of the bombs, as well as small quantities of assorted ammunition, a video camera, tape recorder, small radio and handphone together with books, letters and some cash for the guerrillas, left for East Timor with several other men on 6 September.

However, when the bomb-makers in Demak stored their work under the refrigerator rather than in it, one went off, injuring the only occupant present in the house and blowing out the rear wall and roof of the kitchen. The military found 11 bombs, along with a jerrycan of chemicals and a computer disk containing names within the organisation. The unprecedented use of explosives brought the case to the attention of the highest level in the military.

They quickly arrested nine men in the organisation's Semarang house - their names appear in Amnesty International releases, though some confusion remains and they have not been allowed visits by lawyers or friends - as well as two men getting off the ship in Dili harbour bearing the other bombs and equipment, and one waiting for them.

Avelino, his wife, two children, and two other men meanwhile entered the Austrian embassy on 19 September and asked for asylum. Gaoled resistance leader Xanana appealed to Austria to protect them. Several others are still being sought.

The military claim the bombs were intended to disrupt the installation of East Timor Governor Abilio Soares in Dili on 17 September. This led the Foreign Minister to insist that Avelino and Nuno Vicente Pereira Saldanha (both 35), still holed up in the embassy, are terrorists.

Clearly the incident is part of an increasing level of militancy on the part of the East Timorese resistance. Human Rights Watch Asia has shown recently that this violence is now also at times directed at civilians.

But it seems best at this stage to do two things. First, to hold it possible that the bombs could have been destined for use in more 'conventional' warfare by the resistance in the mountains, rather than for terrorism against civilians. Second, to place the possible emergence of terrorism in the context of a stalemated diplomatic situation, for which Indonesia bears a good share of responsibility.

[Gerry van Klinken, editor, 'Inside Indonesia' magazine.]

Arms/armed forces

Indonesian military to train more officers abroad

Agence France Presse - November 4, 1997

Jakarta – The Indonesian armed forces are to send more officers abroad for training, especially to Britain and the United States, a report said here Tuesday.

"The plan is in line with the program to form a professional, effective, efficient and modern Indonesian armed forces and (because) the growing problems faced by this nation are increasingly linked to foreign affairs," Army Chief General Wiranto was quoted as saying by the Antara news agency.

He said that bilateral and multilateral exercises involving the Indonesian armed forces were also on the rise and there was "a need to have officers with foreign affairs comprehension."

"I have decided to immediately provide the widest possible opportunities for relatively young military officers to undergo training overseas so that they become used to problems of a bilateral or multilateral nature," Wiranto said.

He also said that the program to train Indonesian officiers abroad would be fully funded by the armed forces and not be dependent on foreign aid.

Indonesia in June cancelled its planned purchase of nine US F-16 fighter planes from the United States citing "wholly unjustified criticisms" in the United States Congress against Indonesia.

Jakarta also withdrew from the US Expanded International Military Education and Training (IMET) program.

The US military program, worth an annual 600,000 dollars, was only restored in March 1996 after the US Congress cut off the funding in 1992 in reaction to Indonesia's human rights record in the former Portuguese colony of East Timor.

Economy and investment

U.S. signals support for Indonesia, seeks better ties

Dow Jones News - November 5, 1997

Jay Solomon, Jakarta – The U.S. further underlined its commitment to helping Indonesia recover from its financial crisis Wednesday, in the hope of finally putting a stop to the contagion effect rippling out of Southeast Asia.

The U.S. Federal Reserve and the Federal Deposit Insurance Co. will assign experts to aid Indonesian authorities in reforming its financial sector, visiting U.S. Assistant Secretary of Treasury Timothy Geithner announced in Jakarta Wednesday.

That follows the U.S.' pledge last week of $3 billion in 'contingent support' for the International Monetary Fund-led rescue package for the Indonesian economy.

'This is a signal of the importance we attach to a successful effort here in Indonesia and the region as a whole to restore financial stability,' Geithner told reporters.

And Geithner's visit marks the first of a slew of top U.S. government officials expected in Jakarta. Deputy Secretary of State Strobe Talbott and Assistant Secretary of State for East Asia Stanley Roth are set to arrive in Jakarta later Wednesday, while U.S. Secretary of Defense William Cohen is slated to visit Indonesia later the month.

Indonesia's financial markets, however, appeared less than impressed by the higher-level U.S. support for Indonesia. Analysts said there are still many unanswered questions about how Indonesia will implement economic reforms, which are backed with commitments totalling at least $33 billion from the IMF and other international donors.

As well as worries about policy backsliding, analysts said they want a better idea of how Indonesian companies will deal with the huge - and as yet unquantified - amount of foreign currency debt taken out before the rupiah's recent plunge.

The heightened U.S. support for Indonesia comes after criticism from Thailand and other Asian countries that the Clinton Administration was slow to wake up to the financial storm brewing in Southeast Asia. The U.S. contributed nothing to the $17.2 billion IMF bailout package for Thailand - in contrast to the Mexican rescue of 1995 to which the U.S. alone contributed $20 billion. Only the spread of the Asian crisis to U.S. markets last week pushed the Clinton administration to act, some analysts say.

'The U.S. realized they had to act when Wall Street was rattled (by the currency crisis),' said Christa Marti, an economist at the Union Bank of Switzerland in Singapore. 'I think they are making a concerted effort now to make sure that the recent crisis stops here (in Indonesia) now.'

Broader strategic and security issues are at play in Indonesia in a way that they aren't in Thailand or Malaysia, analysts say. Some analysts fear that worsening economic conditions in Indonesia could lead to social unrest, with implications for the whole Asian region.

'In this sense Indonesia is a whole different kettle of fish than Thailand,' says Dewi Fortuna Anwar, a regional affairs expert at the Indonesian Institute of Sciences. 'Concerns over regional stability, over the control of sea lanes, all come into play when looking at Indonesia, and I'm sure this is what's on (U.S.) officials' minds.'

Political relations with the U.S. soured earlier this year, when Jakarta cancelled the purchase of nine F-16 fighter jets from the U.S., and withdrew its participation in a U.S.-led military eduction program. That followed escalating attacks in the U.S. Congress against Indonesia's human rights record.

With Indonesia subsequently buying 12 Russian-made SU-30 Sukhoi jets from Moscow, one Western diplomat says the U.S. has grown concerned about a sense of drift in the relationship with Indonesia. Adds Dewi: 'Washington appears worried that things have not been as warm.'

The visiting U.S. State Department and Defense Department officials are expected to try to rebuild these ties.

But what must be disheartening to U.S., Indonesian, and IMF officials alike is the mixed response global financial markets have shown to the IMF plan since its announcement last week. The Jakarta stock market has actually dipped by nearly 2.5% since last Thursday's close, while the rupiah's nearly 10% gain is mostly due to joint intervention by the central banks of Japan, Singapore, and Indonesia.

Currency dealers in Singapore and Jakarta say that without this intervention, the rupiah wouldn't have gained much on the IMF package alone.

To the IMF and Indonesia's credit, many in the market say, in addition to the huge amount of money pledged, they are impressed by the Finance Ministry's willingness to clean up the finance sector, even at the expense of President Suharto's family. Three banks owned by Suharto family members have been liquidated this week, leading Suharto's middle son, Bambang Trihatmodjo, to commence litigation against the Finance Ministry over the liquidation of his PT Bank Andromeda.

'Their willingness to take on these interests has been impressive,' noted one senior executive at a Jakarta-based brokerage house. Moves to diminish state control over the nation's food distribution network and to cut further import tariffs have also been well-received. The approval for foreign companies to set up wholesaling operations to sell their Indonesia-made products was also a surprisingly liberal move.

But amid these positive signals, analysts say there is worry that the aid and the reforms addressed so far by Indoneisa and the IMF might not be enough to stop the bleeding of Indonesia's private sector.

Bank Indonesia estimates that private sector foreign debt totals around $60 billion, but analysts are concerned that the actual figure is much higher. With much of the debt short-term, and lent Taiwanese and South Korean banks that are now facing problems of their own, there is still concern that a growing number of Indonesian corporations could default in the coming months as they face repayment demands from the foreign banks.

The rupiah could be hit as more Indonesian companies buy dollars to hedge this exposure, undermining the IMF-sponsored reforms.

'Everyone is still unsure whether this package will allow Indonesian (private) debt to be properly sterilized,' says Scott Ashton, director of sales at Deutsche Morgan Grenfell in Jakarta. 'The private-sector problems are the key to Indonesia's fate.'

In addition to the debt problems, more than a few analysts - particularly in Jakarta - also question whether the reforms aimed at cleaning up Indonesia's financial sector and increasing export competitiveness will be effective. They note that the problems in Indonesia's banking system, for example, extend to many more than just 16 banks, and that reductions in food prices controls and tariffs are not much more than what's required under the program set by the Asia Pacific Economic Cooperation (APEC) - to which Indonesia was already committed.

The sense that more needs to be shown in the weeks and months ahead for the IMF package to really be a success.

'You could say that we've seen some initial positive steps, but that they're the first in a drawn-out process,' said William Keeling, chief representative in Jakarta for merchant bank Dresdner Kleinwort Benson. 'We certainly haven't seen a quick fix.'

IMF package for Indonesia more compromise than reform

Agence France Presse - November 5, 1997

Jakarta – Moves to deregulate the Indonesian economy following an IMF review are more a compromise than a reform measure, analysts say.

The government's decision to remove the National Logistics Agency's monopoly on the importing of wheat flour and replace it with a monopoly on distributing wheat flour is "a compromise solution," economist Rizal Ramli said.

"The government says the crisis must be handled in a firm and timely manner so why are they waiting until January 1 to implement the change and why is (the agency) still controlling distribution and subsidizing the millers?" Ramli said in an interview with AFP.

The International Monetary Fund (IMF) on October 31 announced a commitment of 38 billion dollars from multilateral agencies and individual countries to help Indonesia shore up its economy in the wake of a regionwide currency crisis.

The rupiah has plunged more than 30 percent in three months and was trading around 3,280 rupiah to the US dollar late Tuesday.

Ramli said he doubted that the logistics agency, established nearly 20 years ago, would give up its control over wheat flour. It is milled for a fee by Bogasari – part of the Indofood Sukses Makmur group whish is controlled by Sudono Salim, a long-time associate of President Suharto.

Indonesia is Southeast Asia's largest consumer of noodles and wheat importer. Imports are expected to climb from around four million tonnes this year to five million tonnes by 2000.

Ramli praised the government for eliminating the base price it sets for cement but feared that the oligopoly within the cement industry would now be able to set its own prices.

"If they do not lower the barriers to entry in the cement sector and if distribution is controlled only by a few players, will anyone be willing to set up a new factory?" said Ramli, who is also the director of the Econit Advisory Group.

Author Richard Robison agreed that many of the measures outlined by the government Monday were compromises but said they still represented challenges to the political foundations of the country.

"Structural pressure has weakened the power groups, who will now have to give way on certain polices," said the professor from Australia's Murdoch University.

But he called the government's closing of 16 problem banks "wimpish" and faulted the "unconstrained borrowing practices of large conglomerates and banks" for helping create the current crisis.

"Only 16 of the smallest and weakest banks were liquidated in the long-awaited attack on the ailing banking sector," Robison said, adding that reform of the banking and financial sector had yet to come.

One of the closures still aroused the displeasure of a son of Suharto. Bambang Trihatmodjo has threatened legal action against the finance minister for shutting a bank in which he holds a 25 percent stake.

Ramli said the first result of the banking liquidation was an increase in the interbank money rate Tuesday to 120 percent.

"It seems the banks are preferring to keep the money for themselves to prepare for the impact of the liquidation rather than give it to somebody else," he said.

He called on the central bank to be more transparent about why the latest 16 banks were chosen for liquidation. "An insufficient amount of criteria will lead to rumours being spread around," he added.

The government's closure of the banks and its subsequent trade deregulation of several commodities long monopolized by the state were part of steps taken after two weeks of negotiations between the IMF and Indonesian officials.

Soeharto son queries reforms

Australian Financial Review - November 6, 1996

Greg Earl, Jakarta – Indonesia is facing a major credibility challenge to its economic assistance package with President Soeharto's son yesterday launching a legal challenge to the closure of his bank.

The challenge dampened financial market sentiment towards the package again yesterday with the stockmarket maintaining its flat response and the rupiah losing some of the gains it made with the backing of the central banks of Singapore and Japan.

Bambang Trihatmodjo's court action followed a claim that the bank closures had been politically motivated to discredit the First Family and Mr Soeharto's election prospects.

"I think there's a political move to disgrace my family," he said, claiming that Mr Soeharto had not been fully aware of all the detail of the reform initiatives.

The developments have raised concerns that political lobbying may undo parts of the package and that Indonesia may be facing another destabilising intra-Soeharto family fight over business territory.

One foreign banker said yesterday: "This is going to be the real test case. If they don't implement these aspects (banks closures) the place will just collapse completely."

Three banks part-owned by Soeharto family members were amongst the 16 closed last Saturday in what has been widely interpreted as a major indicator that the Indonesian Government is serious about introducing the reforms which it outlined in response to the $40 billion plus assistance package.

But, in an extraordinary development, Mr Bambang has confirmed rumours that three other banks owned by family members were slated for closure but not included on the list which included Mr Bambang's Bank Andromeda.

He said the family members were his sister Siti Hardiyanti Rukmana, his brother Hutomo Mandala Putra and uncle Mr Sudwikatmono, indicating the saved banks were banks Yama, Utama and Subenta.

In another challenge to the banking authorities, Mr Soeharto's half-brother Mr Probosutedjo has kept his liquidated Bank Jakarta open and has been reimbursing some depositors from his own personal funds.

Mr Bambang says his Bank Andromeda was not given enough notice before the liquidation was announced. He says he was planning to inject new capital which would have saved it. In the lawsuit, Bank Andromeda demands that the liquidation ruling be rescinded and that the Government make moves to restore the "good name" of the bank's shareholders.

Andromeda was the fourth-largest of the 16 banks with assets of about $450 million. It has admitted that it broke the legal lending limits by lending about $75 million to the controversial Chandra Asri chemical plant which is owned by Mr Bambang. Mr Bambang says the lending limit violation was not serious because 90 per cent of banks in Indonesia also breach the rule.

Legal experts say that Mr Bambang is within his rights to challenge the decision but economic analysts say a court case would be seen as a test of the Government's resolve.

An Asian family values bailout

Wall Street Journal - November 5, 1997

Holman W. Jenkins Jr – Not often do you hear an Asian dealmaker wishing an unpleasant fate on the head of one of the biggest founts of Asian dealmaking, the Suharto family circle of Indonesia.

Last week just such a fellow told me if there was to be a silver lining to the region's economic troubles, "the whole lot of them would be lined up against a wall."

Here we come to one of Asia's open secrets, that the Indonesian elite are not well liked. Second only to Mobutu of Zaire and possibly ahead of Marcos of the Philippines, the Suharto crowd has laid its hand on every good thing the country has to offer, making themselves impossibly rich and, also, just impossible.

The stories told over drinks about their behavior on commercial air flights, their business dealings and their personal deportment are not for the children's bedtime. And almost everyone who sallies back and forth among Asian capitals doing business seems to have one.

Media

Not that these weigh heavily on the governments now moving to rescue the Jakarta regime. While most of us were sleeping Sunday, the U.S., Japan and Singapore were mounting a concerted defense of the Indonesian rupiah in world currency markets. Malaysia, in the soup itself, has managed to scrape up $1 billion for its much bigger neighbor. Tiny Singapore has pledged $10 billion.

Add to this the $23 billion promised by the IMF, and $6 billion courtesy of American and Japanese taxpayers, and you have a pretty impressive display that at least somebody loves the Suhartos.

This may be one instance where private financiers are more hawkish in demanding reform in return for IMF largesse than the donors themselves.

In consigning the country's debt to junk status because of its currency debacle, Standard & Poor's emphasized what it called "pervasive favoritism throughout the public and private sectors." Putting an even finer point on the obvious, a fund manager in Singapore lamented to the Journal's Richard Borsuk that President Suharto has "always been stubborn in not realizing how much unhappiness his family causes."

That little will change was already the conclusion of the markets, which is why the rupiah turned south again this week until global central banks showed up with help.

Investors were only mildly heartened by the decision to bounce Tommy Suharto, the littlest one, from his job as titular boss of a joint venture with Kia Motors of South Korea. He'll still remain a key shareholder, and still benefit from tariff preferences and mandatory bank loans that give him a nifty profit of 100% per vehicle, while Indonesians pay two or three times as much as Americans do for a car.

There will certainly be no end to the tradition by which nearly every foreign company investing in Indonesia has to assume the added role of adoptive parent to one of Suharto's children.

Lucent Technologies, which until last year was the equipment division of AT&T, had to take on the care and feeding of "Tutut," nickname of the president's eldest daughter. When she isn't telling the former AT&T personnel everything she knows about phone technology, she's showing General Dynamics how to sell fighter planes.

Another daughter, "Titik," has become the ward of General Electric and Edison Mission Energy, which benefit from her insight on how to build and run a power plant. She has also been adopted by Merrill Lynch, whom she instructs on the ins and outs of high finance.

If one of the Suharto brood stands out, though, it would be Bambang, who is said to actually show up at an office occasionally.

He has permitted South Korea's Hyundai to benefit from his expertise in car building, Deutsche Telecom from his wisdom in satellite matters, and Hyatt from his insights on running a chain of hotels. And he still finds time to run the giant Chandra Asri petrochemical complex, which managed to lose $400 million last year despite being granted a virtual national monopoly for its plastics and resins.

Proof that nothing lucrative goes down without their involvement, the Suhartos were knee-deep in this year's most spectacular business fiasco. The scene was the allegedly record-breaking Bre-X gold find in Busang, which turned out to be a fraud. One reason the fraud took so long to be exposed was a drawn-out squabble between two Suhartos over who would collect the family's cut from the international mining companies vying for the rights, as detailed by the Journal last March.

It was then that "Bob" Hasan, Indonesia's No. 1 golfing buddy and timber magnate, came into his own as the new arbiter of Suharto sibling rivalries. As widely reported, he helicoptered in with Freeport McMoran's Jim Bob Moffett to explain to the president why his children were making the country ridiculous in the eyes of foreign investors.

For some it was already too late. Ford and Motorola have reportedly been driven away. In the annual surveys of business folks by Transparency International, the clean-government lobbying group, Indonesia invariably ranks on a par with such showcases of peculation as Nigeria.

The paradox is that Indonesia under the Suhartos has enjoyed a genuinely rising standard of living. Some even discern a subtle Javanese way of reconciling the political correctness of Third World overregulation with the demands of global competitiveness – i.e., the overregulation exists, but a Suharto family member can always be enlisted to make it go away.

Yet Mr. Suharto cannot fail to be aware of the fate of Mr. Marcos, hounded out of office and his relatives prosecuted because his countrymen didn't look kindly upon his stealing. Nor can he fail to be aware of the many South Korean notables, including two former presidents and the son of the current president, who've been indicted for corruption as that new democracy feels its oats.

The Suharto children, meanwhile, cannot have failed to notice that their own future might be precarious without "Pak Harto" around to protect them. And the ethnic Chinese billionaires who've held their hands in so many business ventures cannot have forgotten the last upheaval, after the Sukarno regime in the mid-1960s, when resentment of the Chinese boiled over into communal bloodshed.

Lastly, in coming to the rescue of all of the above, the U.S. and the IMF cannot have failed to notice that Mr. Suharto has not allowed institutions to emerge that would ensure stable governance in so large and rowdy a country.

All are agreed that there is only one thing to do, and that's to go on living dangerously in the world's fourth most populous nation.

Suharto son escalates attack on bank closure

Dow Jones News Service - November 4, 1997

Jakarta – Bambang Trihatmodjo, the middle son of Indonesian President Suharto, stepped up his attack on Indonesian Finance Minister Mar'ie Muhammad Tuesday over the liquidation of a bank of which he is a major shareholder.

Citing the 'smearing of the Suharto name' and a politically- motivated plan against the President himself by Mar'ie, Bambang said that he would take legal action against the Finance Minister following the liquidation of PT Bank Andromeda last Saturday.

The liquidation is part of a wider clean-up of Indonesia's financial sector, agreed to under the $33 billion International Monetary Fund assistance package announced last week. In addition to Bank Andromeda, 15 other Indonesian commercial banks were liquidated Saturday.

'I see the liquidation as a move to ruin the reputation of my family and indirectly to disgrace Bapak (President Suharto), so that he will not be re-elected as President,' Bambang said following a meeting of Indonesia's parliament.

Bambang reiterated a threat he made Monday to take legal action against Mar'ie, but said he was still seeking advice from his lawyers over whether his case could be brought before an Indonesia court.

'I will face Mar'ie and any of his supporters, if it's proved to be a political move (against the Suharto family),' Bambang said.

Bambang also said that he didn't believe his father knew that his bank was on a list of those to be liquidated. He added that his five siblings stood behind him on this matter.

Bambang isn't the only Suharto family member fuming over the bank liquidations.

Probosutedjo, Suharto's half-brother, also claims that his bank, PT Bank Jakarta, was unfairly closed by government authorities. On Tuesday he also stated a government decree barring overseas travel for shareholders of the liquidated banks, violated his 'human rights.'

A third Suharto family member, middle daughter Siti Hediati Prabowo, also was a shareholder in a liquidated bank: PT Bank Industri. She, however, hasn't made any public comments about her bank's closure.

While some Jakarta analysts have brushed off the comments by Bambang and Probosutedjo, others are fearful that such politically powerful forces could stand in the way of an effective implementation of the IMF assistance package.

Bank Andromeda and Bank Jakarta are two financial institutions that analysts say have been in trouble for years. Bank Andromeda executives themselves have acknowledged the bank has breached Indonesia's legal lending limit.

Concern exists that if moves against financially-troubles banks such as these meets stiff political opposition, deeper and more complex reform could be doomed.

Soaring rates put house beyond reach

Straits Times - November 4, 1997

Jakarta – Early this year, 31-year-old Bimo, who works in the private sector, and his wife decided to buy a house where they could raise their newborn daughter.

The couple was set to obtain a housing loan to buy a medium-sized house in Jakarta's suburbs. Their plan was going smoothly until August.

Their hopes were torn asunder. The rupiah's value has dropped by over 35 per cent against the US dollar since July, causing the government to impose a tight money policy and credit crunch. Money became scarce and interest rates shot up almost overnight.

The couple now realises that getting a loan would be unwise – and unaffordable.

"I'll have to forget about buying a house for a while, because there is no way we could afford paying back the loan now," Mr Bimo was quoted as saying in The Jakarta Post on Sunday.

The newspaper said many others shared Mr Bimo's bleak position, forced to postpone the best-laid plans as the crisis took a chunk out of their incomes. No house, so wedding will have to wait. Mr Herman Tjahja, 28, has had to put off his marriage because soaring interest rates shattered his dream to buy a house in Bekasi, a township east of Jakarta.

Mr Herman was told before the crisis that he could buy the house for 80 million rupiah (S$36,800), with a 21 per cent interest rate. That translated into paying around 1.6 million rupiah every month.

The plan was dashed when the interest rate surged to 40 per cent, raising the monthly payment to about 2.8 million rupiah.

"That's crazy, I can't possibly afford it right now," he says. "My salary is small and it does not look as if I will get a pay rise." The newspaper said people were prevented from getting a home by the "skinning of the property sector".

There were fears of a property crash around the corner.

Several houses and plots in the Bintaro suburb in South Jakarta had been marked down to less than 50 per cent of their usual prices and many buyers were financially overextended.

Bank closures a good sign

Sydney Morning Herald - November 4, 1997

Louise Williams, Jakarta – Mobs of angry customers and employees gathered outside the branches of Indonesia's 16 liquidated banks yesterday, many refusing to believe they had lost most of their savings under the first reforms of the massive $US38 billion dollar ($54 billion) international bailout package.

The rupiah rebounded strongly yesterday morning on news of the bank closures, which analysts said was a sign that the Soeharto Government was serious about a shake-out in the over-supplied and under-capitalised banking industry. But the first victims of the reforms were devastated. Some got together to prepare legal action, others planned demonstrations, but most waited hopelessly for some news from the banks' directors. In Bandung, police reported that one closed bank was stoned, and in other provincial towns they were called to move customers away from the buildings.

"This is a very bad news day for ordinary Indonesian people, the people with only small accounts," one customer said.

The Government has promised payouts of up to 20 million rupiah ($7,900) for each small depositor, but frustrated customers outside the headquarters of the closed Bank Harapan Santosa (BHS) said they would still lose most of their life savings.

"I put my money in this bank because it is ranked 11th, out of 240, so I thought it must be safe. I want to know what is happening, but we aren't told anything," said Mr Pak Rudi, who had been waiting since early yesterday morning.

He said he had moved more than 200 million rupiah into the BHS, which has more than 50 branches, when they offered interest rates of around 40 per cent on large deposits, several points above their competitors.

Tens of thousands of bank employees are also unlikely to be able to find new jobs during the current economic slowdown.

The rupiah, which rebounded yesterday morning to 3,260 against the US dollar, from 3,600 on Friday, has been steadily declining – since trading banks were removed in August – from 2,400 to the US dollar.

Much of the new confidence reflects the massive capital injection the rescue package promises and which will allow the Central Bank to use its reserves to boost the currency and lighten the burden on companies with large US dollar debts. However, economists remained cautious about the package and said further details were needed. "The Government has finally sought the medical attention of a doctor. Now it depends on whether we follow the doctor and take the medicine or not," an economist, Mr Anwar Nasution, said.

An editorial in The Observer newspaper said: "The size of the reform package for Indonesia is a clear indication that contrary to general expectations Indonesia's economic position is in worse shape than that of Thailand."

The Jakarta stock market gained ground early, but confidence slipped back by lunchtime to leave stocks only 1.1 per cent ahead.

The Finance Minister, Mar'ie Muhammad, announced details of further reforms under the package yesterday. These included an end to garlic, wheat, wheat flour and soybean import monopolies. However, monopolies remain on rice and sugar as well as the distribution of wheat flour to industry and consumers. The biggest consumers of wheat flour are noodle manufacturers with close links to the Soeharto Government.

Price controls on cement, previously sold above world prices, have been abandoned and some import tariffs have been reduced and foreign investment regulations relaxed to allow foreign investors greater access to the domestic market.

Little fish caught while big players just cash in their less valuable chips

Comment by David Jenkins, Asia Editor

The list of those associated with the 16 Indonesian private banks that have been forced into liquidation reads at times like a glittering who's who of the Jakarta business and social elite.

But while many Indonesians will welcome the fact that even those at the top of the heap are being asked to make a few sacrifices, it is hard to escape the feeling that the bigger players on the national Monopoly board are simply cashing in their smaller, less valuable chips.

Among those involved in the banking drama are prominent members of the Soeharto family and some of the nation's most powerful ethnic Chinese businessmen.

All look set to survive the harsh - and long-overdue - medicine that has been prescribed for the Indonesian banking system under a $US23 billion ($32 billion) rescue package, the second-biggest in history.

But the crackdown on some of the more notorious examples of "rent-seeking", not least in flour-milling, is bound to cut deeply into the profits once generated so effortlessly by well- connected individuals and crony businessmen.

Bank Andromeda, one of the 16 institutions forced into liquidation under the IMF bailout, is jointly owned by the ethnic Chinese timber baron Prajogo Pangestu (50 per cent), Bambang Trihatmodjo, President Soeharto's second son (25 per cent) and Henry Pribadi (25 per cent), another prominent ethnic Chinese businessman.

But Andromeda is hardly the jewel in the crown of Prajogo, the son of a West Kalimantan rubber tapper. Prajogo is associated with Bambang (and Henry Pribadi) in the $US1.6 billion Chandra Asri petrochemical project. He is associated with Siti Hardijanti Rukmana (Tutut), the eldest daughter of President Soeharto, in a vast sugar plantation in Sulawesi. He also brought Tutut in on his $US1.2 billion pulp and paper plant in Sumatra.

Nor is that the end of the spider's web of connections that bind Indonesia's political and business community so tightly - and so profitably - together.

Henry Pribadi is the president of the Napan group, which has close links with Liem Sioe Liong, a Chinese immigrant who established himself as South-East Asia's wealthiest businessman on the back of his links with President Soeharto.

Liem, in turn, is the dominant shareholder in Bank Central Asia, Indonesia's largest private bank, which has not been touched. Tutut, together with her brother Sigit, the president's eldest son, holds 32 per cent of the shares in BCA.

Bank Harapan Sentosa (BHS), another of the institutions forced into liquidation, is headed by Hendra Rahardja, an ethnic Chinese businessman from Sulawesi who began his career selling motorcycles. His well-connected younger brother, Eddy Tanzil, who escaped from jail in mysterious circumstances a few years ago, was a business partner of President Soeharto's youngest son, Hutomo Mandala Putra, or Tommy.

Ibnu Harjanto, a brother of the late Madame Soeharto, was a senior member of BHS. Probosutedjo, a half brother of President Soeharto, is a part-owner of Bank Jakarta, which has also been closed.

Bank Industri, another of the failed institutions, is headed by businessman Hashim Djojohadikusumo. Hashim is the son of Professor Sumitro Djojohadikusumo, the doyen of Indonesian economists, and the brother of Major General Prabowo Subianto, the powerful red beret commander, who is married to President Soeharto's daughter Titiek.

Bank Industri will not be a major loss to the Djojohadikusumo family, which has an interest in a half a dozen other, and mostly larger, banks.

Bank Pacific, another of the banks to hit the wall, was established by Lieutenant-General Ibnu Sutowo, the free-wheeling former head of Pertamina, the state oil company. General Sutowo's once-close relationship with Soeharto came under strain in the mid-1970s when it was revealed that Pertamina was on the verge of bankruptcy, with debts of $US10 billion.

Another of the failed institutions, Bank Pinaesaan, is part of the Indauda Group, run by the Eman family of Menado, in North Sulawesi. Indauda is a joint partner in Indonesia's controversial national car project, along with Tommy Soeharto and the crippled Kia Motor group of South Korea.

"It seems to be a very gradual dismantling of the monopolies," says Dr George Aditjondro, a South-East Asia specialist at the University of Newcastle, "starting from the periphery and then slowly moving to the core. The banks they are closing down are the smaller banks."

Suharto's brother defies order to close bank

Reuters - November 4, 1997

Jim Della-Giacoma, Jakarta – Indonesian President Suharto's half-brother Probosutedjo said he had kept his PT Bank Jakarta open on Tuesday, defying a government order closing down the institution along with 15 other sick banks.

Probosutedjo, chairman of the Bank Jakarta board, said in a statement that he defied the central bank's order on Saturday to shut down the bank for the sake of the small depositors who would not be able to claim their funds through state banks until November 13.

`Pity them, if they don't have cash, they cannot keep going," he was quoted as telling the official Antara news agency.

Hundreds of depositors crowded the Bank Jakarta head office in central Jakarta on Tuesday to take advantage of the opportunity to withdraw up to two million rupiah ($615) from ordinary accounts and five million rupiah ($1,538) from clearing accounts.

The government said on Saturday it had closed down the 16 banks as part of a package of economic reforms sponsored by the International Monetary Fund (IMF) and depositors in these banks would be paid up to 20 billion rupiah per account using government bridge financing.

It said these funds, to be disbursed through state banks, would cover 93.7 percent of the savings of depositors in the liquidated banks.

`It needs to be said again that the funds we are paying out are the result of our own policy and is done without consultation with Bank Indonesia," Probsutedjo said in the statement, which was pasted up at all Bank Jakarta branches and given to reporters.

`We have done this in the interests of the customers of Bank Jakarta, primarily so the life of small businesspeople can go ahead," he said.

`We ask customers to be calm as your money in Bank Jakarta is safe. Bank Jakarta at this moment is fighting in order that the Finance Department review its one-sided decision to liquidate the bank and give permission for Bank Jakarta to re-open," he added.

The official Antara news agency quoted Probosutedjo as saying at the head office on Tuesday that if the review was unsuccessful he would take the government to the state administrative court (PTUN) to have the decision reviewed.

Bambang Trihatmodjo, chairman of PT Bank Andromeda and Suharto's second son, said on Monday he would take Finance Minister Mar'ie Muhammad to the PTUN in an effort to have the decision to liquidate Bank Andromeda overturned.

Suharto's second daughter Siti Hediati Prabowo, who was a eight percent stakeholder in another liquidated bank PT Bank Industri, has yet to announce any plans for a legal challenge.

Antara quoted Probosutedjo as saying he and the bank had assets, such as a share in Jakarta's Le Meridien Hotel, cocoa and rubber plantations, the local assembling franchise for General Motors and other property investments in the capital.

`Remember that Bank Jakarta never caused losses to the government or the community. We are optimistic that this struggle to reactivate the bank will not experience any difficulty," Probosutedjo said in the statement.

`Up to now Bank Jakarta never failed to clear funds, there is also still a balance of tens of billions of rupiah with Bank Indonesia," he said.

Regretful Indonesia depositors leave banks empty-handed

Wall Street Journal - November 3, 1997

Raphael Pura, Semarang – PT Bank Harapan Sentosa depositors who came to its big branch here Monday looking for what remains of their money were met by armed police rather than smiling tellers.

"You might as well all go home, we have no more announcements to make," a security officer of the bank told them through a bullhorn. "There's no need to be here."

During the day, hundreds of depositors came to the gate of the gleaming 10-story bank building in this bustling Central Java port. They didn't panic, but they expressed anxiety and bitterness. To ensure that anger didn't boil over in the broiling sun, a detachment of police armed with automatic weapons took up positions atop the staircase leading to the bank's lobby.

Throughout Monday, similar scenes took place in Indonesian cities at branches of the 16 banks that authorities closed Saturday. Jakarta bankers said they weren't aware of panic or violence anywhere. They said that branches of several banks that weren't closed but which have been the subject of closure rumors were hit by heavy withdrawals, but it was business as usual for most banks.

Payments Planned for Nov. 13

"We got through the day OK," one Indonesian banking executive said. "People are anxious, but I don't think there was any real trouble."

The crowds outside individual branches of the closed banks weren't huge; it appeared that many depositors knew they couldn't begin to get any money back Monday. The government has announced procedures for paying up to 20 million rupiah ($6,100, at Monday's exchange rate) to individual account holders, with payments beginning Nov. 13 at branches of state-owned banks.

As expected, the bank drawing the largest number of anxious depositors was Bank Harapan Sentosa, the biggest of the 16 closed banks.

At the Semarang branch of the bank, known as BHS, customers complained bitterly. Yanto, a businessman in his mid-30s, said the shutdown of the branch was the result of "trickery" by untrustworthy bankers and bureaucrats. Upset that he will get only 20 million rupiah in the near future, he yelled: "When do we get the rest? We don't know."

Far more quietly, a retired nurse said she needs to withdraw some of her pension money, which is paid into the branch, to meet routine living expenses. "Never mind, just don't eat this month," chimed in Sukarman, a retired engineer, who said he always kept his money at BHS because it offered high interest rates on savings accounts.

In Jakarta, the whereabouts of Hendra Rahardja, the principal owner of BHS, were unknown.

Expressions of Regret

On Monday, customers also flocked to the second-biggest bank that closed, PT Bank Pacific. It is partly owned by Bank Indonesia, the country's central bank, and the family of Ibnu Sutowo, a longtime ally of President Suharto and the former president of the state oil company, Pertamina.

Outside a Bank Pacific branch in central Jakarta, Andriani, a 42-year-old businesswoman, expressed regret that she listened to a bank officer rather than to her sister about the state of Bank Pacific. "The bank officer told me it's impossible for the government to close the bank because its owner is close to the president's family," Ms. Andriani said.

At some branches of closed banks, police kept the public out while allowing employees to enter. On Monday, Finance Minister Mar'ie Muhammad said the government will arrange to give all the employees of the closed banks three months' pay. The minister has also estimated that the government will spend 2.3 trillion rupiah to help the depositors of the 16 closed banks obtain a maximum of 20 million rupiah each.

Government officials on Monday renewed appeals for people to remain calm and not to believe rumors that more banks will be shut.

[Richard Borsuk and Puspa Madani contributed to this article.]

Indonesia announces reforms linked to $30 billion imf loan

Wall Street Journal - November 3, 1997

Indonesia announced a spate of measures to shore up its economy as conditions to receive more than $30 billion in aid from the International Monetary Fund, the World Bank and Asian Development Bank.

Separately, Timor Putra removed President Suharto's son from his post at the Indonesian auto maker in a partial concession to calm concerns over the national car project.

The moves to deregulate trade and industry are the latest indications that the government is being forced to carry out some major reforms in return for the IMF's support.

Separately, Indonesian automobile producer PT Timor Putra Nasional said that Hutomo Mandala Putra, the company's former president director and the youngest son of Indonesian President Suharto, has been moved to the role of president commissioner as part of a wider reshuffling of the company's management. Mr. Hutomo, will be replaced by Wardijasa, the former Deputy Chairman of Indonesia's Investment Procurement Board.

However, the government said Friday that the IMF hasn't ordered the halt of Indonesia's controversial "national car" policy, which gives huge tax breaks to Timor. Japan, the European Union and U.S. have frequently complained to the World Trade Organization about the policy.

Among the measures, Indonesian Minister of Industry and Trade Tunky Ariwibowo announced deregulation steps aimed at increasing the nation's export competitiveness and attracting foreign investment.

Mr. Tunky reaffirmed the government's commitment to deregulate the supply and price of wheat flour, soybeans and garlic – commodities currently regulated by the National Logistics Board, or Bulog.

Beginning on Jan. 1, 1998, these commodities can be imported by general importers and will be subject to tariffs. Tariffs on dried garlic will be raised to 20% from 0%; tariffs on dried soybeans will be increased to 20% from 0% while tariffs on wheat flour will rise to 10% from 0%. By the year 2003, however, these tariffs will be reduced to 5%.

The industry minister went on to say that over the next three to five years, the distribution of these commodities will go through a "transitional period." Bulog will be the sole distributor of wheat flour. Toward the end of the period, consumers will continue to receive a subsidy, equal to the difference between the factory selling price and consumer buying price. Bulog will also continue to stabilize the price and supply of rice and sugar.

Bulog, created more than 40 years ago to ensure food security and price stability for Indonesian farmers and consumers, had long been seen as the symbol of President Suharto's reluctance to make hard choices on deregulation and economic reform.

When local prices of essential food commodities rise above what Bulog deemed as excessive levels, the agency intervenes by selling the commodities at below prevailing market prices.

In a recent report, the World Bank criticized the regulations, which distort prices and business opportunities, thereby increasing costs and causing losses in efficiency, as resources become attracted to protected activities.

Mr. Tunky also reasserted the government's position to allow market forces to control the price of cement. The Administrative Retail Price for cement is no longer needed.

Meanwhile, in a move to increase Indonesia's non-oil-and-gas exports, the government will increase the number of commodity groups that receive "special export" facilities to 18 from 10. The eight new commodity groups are as follows: iron and steel, automotive components, machinery and machinery components, jewelry, chemicals, rubber, mineral products, and plastic sheets.

The minister also said that Indonesia's government is committed to reducing import tariffs in a move to improve export competitiveness. Tariffs on such fresh, cold, or frozen fish as salmon and trout will be lowered to 5% in 1998 from their current levels of 10%-20%. The tariff will be cut to 0% in 2003.

Tariffs on chemical products like ethylene, propylene, styrene, polyethylene, polypropylene, polystyrene will be reduced to 20% by the year 2000 from their current level of 25%-40%. The tariff will be lowered to 10% in 2003.

In 1998, tariffs on styrene and polystyrene will be reduced to 25% from 30%, while tariffs on polypropylene and polyethylene will be reduced to 35% from 40%.

Tariffs on metal products are scheduled to be cut as well. The tariff on coated steel, for example, will be lowered to 10% from 15% in 2003.

Meanwhile, exports having high growth potential also will have their export taxes removed, Mr. Tunky said. Items included in this group are rattan, rawhide leather, iron ore, copper ore, silver ore, processed and raw natural cork, and aluminum scrap. The income tax on gold bars was also removed.

Other moves aimed at assisting export growth include the elimination of the value added tax for indirect exports, a simplification of import permits and procedure, and the establishment of bonded zone import procedures.

The government also plans to improve the domestic business environment for foreign investors by allowing foreign investment companies to be the sole distributor and wholesaler of their products produced in Indonesia.

Meanwhile, in the currency market, buying by Bank Indonesia, the Bank of Japan and the Monetary Authority of Singapore sent the rupiah sharply higher against the U.S. dollar in late-morning trading.

The U.S. currency was quoted at 3,260 rupiah, down substantially from around 3,600 rupiah late Friday. Traders said the central banks bought the rupiah, because they were pleased with Indonesia's planned reforms.

In Monday's trading, the Jakarta Stock Exchange index rose 0.3%, or 1.296, to 501.714.

Banks prepare for depositors to swarm their local lenders

Wall Street Journal - November 3, 1997

Richard Borsuk, Jakarta – Indonesian bankers braced for a tense day of business Monday following Saturday's closure of 16 banks.

Tens of thousands of depositors of the 16 banks are expected to mob them to start the process of getting documentation needed to eventually recover a maximum 20 million rupiah (US$5,600) per account. Meanwhile, because of the shock of the closures, some other Indonesians may pull their savings out of other banks.

Over the weekend, at least some of Indonesia's bigger banks made preparations for the possibility of heavy withdrawals Monday. Police are expected to be out in strength as the country tries to cope with the aftermath of the closures, which reduced Indonesia's banks to 223 from 239.

"There's a pretty high likelihood there will be some panic [Monday]," one senior Indonesian banker said. "We just try to get ready and hope for the best."

Appeal for Calm

In announcing the closures and plans to pay customers up to 20 million rupiah, the government said: "We appeal to all members of society to remain calm." On Sunday, Bank Indonesia Gov. Soedradjad Djiwandono went on television to repeat the appeal and explain how depositors of the 16 banks will get money from three designated state-owned banks beginning Nov. 13.

Authorities haven't said how many depositors the 16 banks had altogether, though bankers estimate the total number at several hundred thousand. The government said that 94% of depositors at the closed banks had deposits of less than 20 million rupiah.

While there are worries about keeping Indonesian bank depositors calm in general, authorities get high marks from most analysts for the tough action to shut banks. Since August, Indonesia's central bank had repeatedly said it intended to close and liquidate bad banks to tackle woes in the country's banking system. Saturday's action was taken at the behest of the International Monetary Fund, which told Indonesia to move fast.

Late last week there was a flurry of speculation that nearly 20 banks were about to get axed, including some linked to President Suharto's family and other powerful Indonesians. Of the 16 closed, three are partly owned by, or connected with, Mr. Suharto's relatives. Harmful to Society

In announcing planned liquidations, the government said the 16 banks were "insolvent to the point of endangering business continuity" and "harming the interest of society."

Most of the 16 are very small. But the biggest, PT Bank Harapan Santosa, was at one time among the country's 15 largest privately owned banks in terms of assets. The main owner of the bank, which has more than 30 Jakarta branches, is Hendra Rahardja, a brother of Eddy Tansil, a businessman who in 1994 was jailed for 20 years for his role in a $620 million fraud at state-owned Bapindo Bank. Mr. Tansil later escaped.

The second-biggest of the closed banks, in terms of reported assets, is PT Bank Pacific, which is partly owned by Bank Indonesia, the central bank. Bank Indonesia became a shareholder more than 15 years ago when it shored up the founders, the family of Ibnu Sutowo, former president-director of Indonesia's state oil company Pertamina. Bankers say, and government officials privately acknowledge, that Bank Pacific in effect guaranteed hundreds of millions of dollars in promissory notes issued by a finance company owned by Mr. Sutowo's daughter.

Another of the closed banks is PT Bank Andromeda, which was co- founded in 1990 by three important businessmen: Barito Pacific Group Chairman Prajogo Pangestu, Mr. Suharto's second son Bambang Trihatmodjo and Napan Group Chief Executive Henry Pribadi. It wasn't immediately clear whether Mr. Bambang remains a shareholder.

More Ties to Suharto

Also closed was PT Bank Jakarta, whose shareholders include Probosutedjo, the president's half-brother. The third closed bank with a family link is PT Bank Industri, 8% owned by Siti Hediati Prabowo, Mr. Suharto's second daughter.

Another small shareholder in Bank Industri, and its chairman, is Hashim Djojohadikusumo, a prominent businessman. Mr. Hashim, the brother-in-law of Mrs. Prabowo, owned 8% of the bank, which is 60% owned by a pension fund of state-owned PT Bank Rakyat Indonesia. He said the closure was "embarrassing and irritating." Mr. Hashim, who is also a brother-in-law to Gov. Soedradjad, said he had earlier been told by authorities that owners had until the end of November to put in new capital.

In spite of his personal embarrassment, Mr. Hashim said that shutting badly run banks is a "good thing" to get other banks to manage themselves better.

Jakarta bankers said they believe Gov. Soedradjad was trying to close a smaller group before Indonesia called in the IMF in early October. Then, they said, the strategy was changed to close a bigger number in what authorities hope will be seen as one final sweep, rather than the first in several stages of closures. In the Saturday statement the government said "It should be emphasized that all banks that are not liquidated will carry out their operations as usual."

The statement also said owners and shareholders of liquidated banks "are responsible for all consequences that arise and are obliged to cooperate with the liquidation team." Finance Minister Mar'ie Muhammad on Saturday requested all owners and shareholders not to travel outside Indonesia until they have completed cooperation with the liquidation team.

Soeharto urges calm as banks are shut

Sydney Morning Herald - November 3, 1997

Louise Williams, Jakarta – The Soeharto Government has urged the public not to panic at the opening of business today after announcing the immediate liquidation of 16 non-performing Indonesian banks under an international economic rescue package worth up to $US40 billion ($57 billion).

The Government revoked the licences of the 16 private banks over the weekend, meaning that all branches will be unable to open today following the announcement by the International Monetary Fund (IMF) of the bailout package for Indonesia, the world's second-largest.

The largest ever rescue effort, worth about $US50 billion, was put together for Mexico in 1995.

Indonesia's State Secretary, Mr Moerdiono, said police would be on alert for "possible mass panic" as frustrated depositors attempted to withdraw their money from the closed banks, or a "run" on other banks reflecting public fears about the banking sector.

Local radio stations reported that immigration officials had been ordered to prevent the owners, shareholders and managers of the liquidated banks from leaving the country.

Mr Moerdiono announced that a fund would be established to compensate small depositors up to a maximum of 20 million rupiah (about $7,900).

Early on Saturday morning, the IMF announced in Washington that it would provide $US10 billion, that the World Bank would put up $US4.5 billion and the Asian Development Bank $US3.5 billion to help restore confidence in Indonesia's battered economy.

The United States Government also announced a $US3 billion contribution, adding to an initial $US5 billion promised by both Singapore and Japan, as well as $US1 billion each from Australia and Malaysia.

Singapore has said that another $US5 billion is available and both Hong Kong and China have offered help but have not specified an amount.

The IMF announced a $US17.2 billion loan package for Thailand in July after the collapse of the Thai baht triggered the dramatic slide in regional currencies and stockmarkets.

The massive cash injection is linked to a three-year economic reform package for the Indonesian economy that includes a shake- out in the financial sector, which has long been burdened by an oversupply of under-capitalised banks, an end to some key monopolies and an austerity program to reduce government spending.

The announcement of the bank liquidations was the first step in a program of reforms demanded by contributors to the package.

"Even the US, which didn't lift a finger to help Thailand in its financial crisis, has come into this package," said a political analyst, Dewi Fortuna Anwar. "I think it is a recognition that within South-East Asia Indonesia is as important as China and if there is social and economic turmoil in Indonesia the whole region is affected."

The banking liquidations touch on one of the most sensitive issues in the Indonesian economy - the distortion of access to funds and markets in favour of the political elite. Most of the liquidated banks are small, non-performers which have attracted depositors with promises of high interest and other incentives.

However, the list includes Bank Industri, controlled by Mr Hashim Djojohadikusumo, the brother of Indonesia's powerful special forces commander, General Prabowo Subianto, who is also President Soeharto's son-in-law. Also to go is Bank Andromeda, controlled by the timber baron Mr Prayogo Pangestu. Bank Andromeda was formerly part-owned by President Soeharto's son Mr Bambang Trihatmodjo, who disposed of his share before the liquidations were announced.

The largest bank, Bank Pacific, with about 25O branches, was controlled by a close ally of President Soeharto, Mr Ibnu Sutowo.

The Central Bank Governor, Mr Soedradjad Djiwandono, said: "These banks are insolvent to the point of endangering their continuity, disturbing the overall banking system and harming the public interests."

First dose of IMF's tough medicine begins to hurt

Sydney Morning Herald - November 3, 1997

Louise Williams, Jakarta – The massive bailout package for Indonesia goes some way to addressing economic distortions such as nepotism, favouritism and politically connected monopolies, but analysts say they are awaiting further details as well as the reaction of stock and money markets when trading opens today.

The announcement at the weekend of the liquidation of 16 banks was the first concrete step in a series of reforms promised by the Soeharto Government under the IMF rescue package, worth up to $US40 billion ($57 billion), and the first test of its political will to administer to the business elite, like everyone else, the bitter pill of austerity and restructuring.

Given the close links between political power and business here, analysts are looking for a clear signal that those who have enjoyed privileged access to the nation's resources are willing to share the pain with the tens of millions of ordinary Indonesians who have been hit by rising prices, unemployment and spiralling interest rates on car and home loans.

In Palembang, a major industrial city in Sumatra, police were called in on Saturday as scores of depositors tried to break into a bank after news of the bank liquidations were broadcast nationwide.

In Bandung, south of Jakarta, depositors flocked to branches of closed banks, but were turned back by police.

Kompass newspaper said hundreds of frustrated depositors had telephoned demanding the Government publish the names of the bank's directors so they could be prevented from leaving the country.

A clothing industry subcontractor who said she employed 60 machinists said: "My business has gone bankrupt because of the liquidations. I have lost everything. I will have to close because I cannot pay my workers."

The maximum payout for small depositors is set at 20 million rupiah ($7,900).

A vegetable vendor said he was ruined. "I have hundreds of millions saved in Bank Industri for almost 28 years of selling vegetables," he said. "I don't know how I can pay the salaries of my staff."

Earlier announcements said monopolies on wheat and flour, soybean and garlic would be scrapped, controls on cement prices removed, a range of import tariffs cut, fuel subsidies phased out and an austerity program imposed to cut government spending.

A further announcement is scheduled for this morning.

Details released so far indicate the three-year program touches some of Indonesia's most powerful and politically connected business personalities but leaves others unscathed.

A political analyst, Ms Dewi Fortuna Anwar, gave a cautious welcome. "The reforms are a good sign the Government is ready to bite the bullet. These programs coincide with demands for reforms. Now the Government has more money to bear the burden it will be willing to take harsh measures."

However, she did not think the measures adequately addressed nepotism. "I am afraid that once confidence is restored it could be business as usual," she said, referring to political favouritism in contracts and access to credits, markets and resources.

The abolition of the wheat and wheat-flour monopoly will affect Mr Liem Sioe Liong, Indonesia's richest man and a close friend of President Soeharto, as well as President Soeharto's daughter, Siti "Tutut" Hardyanti Rukmana.

The wheat monopoly has allowed the Government to sell subsidised wheat to Mr Liem's Salim group for milling and then to buy it back at a 30 per cent mark-up, handing the profits to Mr Salim and passing the price increase on to consumers.

Four of the banks liquidated are also linked to the political elite. However, notably absent from the list of monopolies to be abolished were cloves, controlled by President Soeharto's son, Hutomo "Tommy" Mandala Putra.

Cloves are the major ingredient in Indonesia's most popular cigarette brand, and through the clove monopoly Tommy Soeharto can dictate clove prices, which, critics say, has resulted in lower returns to farmers and higher prices to consumers.

The fate of the controversial national car program, also controlled by Tommy Soeharto, remains unclear. Last year the Soeharto Government introduced new legislation to hand exclusive tax and tariff concessions to a company controlled by Tommy Soeharto to produce a national car.

The project has been challenged in the World Trade Organisation by Japan, the United States and the European Union, alleging unfair trading.

The Government has said incentives will be phased out by 2000, and the national car is expected to be partly shifted to Astra, a company controlled by President Soeharto's golf partner, the timber baron Mr Bob Hasan.