Suharto Family Casts Huge Shadow Over Indonesian Business

JAKARTA, Indonesia —  When a private company bought an Indonesian space satellite from an insurer with the intent of reselling it to the government, no one was surprised that the company was headed by one of President Suharto’s sons.

In another case, the signature of a Suharto brother-in-law turned up on promissory notes at the root of a $3.5-billion financial scandal, but no indictments are expected.

“Who is going to stick his neck out to pursue one of the Suharto family?” one diplomat asked with a shrug.

In yet another case, a grinding-tool manufacturer in eastern Java recently decided to expand operations but took the unusual step of splitting off the additional factory capacity to a new company.

‘Wanted to Stay Small’

“They wanted to stay small to avoid attracting attention from the Suharto family,” one source aware of the arrangement said. “Local entrepreneurs here know that whenever a sector gets too big or profitable, the family moves in to take its cut.”

Suharto, in his 22nd year of rule over the oil-producing nation of 167 million, demonstrated his political muscle in April with a resounding victory in tightly controlled national elections.

But Indonesian and foreign observers said that Suharto, 65, is the target of increasing criticism for government favors that have allowed his family and close associates to set up business empires.

Election campaigners, forbidden from making direct attacks on Suharto, called for an end to the overregulation and monopolies that have helped the Suharto family prosper.

‘Locusts of the State’

Crowds chanted slogans against corruption, carried signs saying, “The corrupt are the locusts of the state,” and groaned when speakers had to dutifully note that all three parties supported Suharto for another term as president.

“It is not among the poor that you hear the nastiest stories, it’s among the business class that find the family cutting them out of a shrinking pie,” one Western business manager said.

The powerful military still supports Suharto, a retired general, but a number of sources report that the military is uneasy with the scale of Suharto family activities and its political effect.

“The army doesn’t want to have to defend this government against a huge, frustrated mass of unemployed youth,” one diplomat said.

Journalists Expelled

Last April the Suharto government made a major issue of foreign reporting on the wealth of the first family, expelling journalists and briefly cutting off visas for Australian tourists after the Sydney Morning Herald carried a story on the matter.

It also shut down Sinar Harapan, one of the country’s largest newspapers, when it reported that 44 import monopolies would be abolished. Several of the monopolies were held by Suharto-family companies.

Later, however, the government changed its tactics, choosing to ignore an extensive and well-documented series on Suharto family power and privilege in the Asian Wall Street Journal.

The joke in Jakarta is that the Journal articles were free advertising that sent even more business to Suharto and sons.

Even the U.S. Embassy has reportedly compiled an internal report on the financial affairs of the family.

“It is no longer possible for the government to suppress all reporting on this,” a government official said. “The family’s activities have just gotten too big. So the best thing may be to just ignore it.”

Untangling the affairs of the clan is not simple.

Suharto has 14 half-brothers and half-sisters, along with 10 foster brothers and sisters. His wife, Siti Hartinah, known as “Tien,” was one of nine children. The immediate first family also has six children, five of whom are active in business.

Suharto also has long had a close relationship with a Chinese-Indonesian businessman, Liem Sioe Liong, now reputedly one of the richest men in the world.

Aside from a ranch in West Java, few details are known of Suharto’s own business affairs.

Family Holdings

His family has been less discreet.

His eldest child, Siti Hardijanti Hastoeti, and her husband control the Citra Lamtoro Gung Persada Group with investments in plantations, general trade, animal husbandry, industry and toll-road construction.

The oldest son, Sigit Hajoyudanto, 35, has a wide variety of interests in banking, timber, tea and car sales in partnerships with his brothers or members of the Liem family. With state enterprises he shares in monopolies in tin canning and insurance.

Suharto’s third child, Bambang Trihatmodjo, 33, who was able to complete one year of university, controls the Bimantara group, which includes more than 50 companies.

Favorable Treatment

The fifth child, Hoetomo (Tommy) Mandala Putra, 24, who finished one semester at a college in Iowa, owns the Humpus group with interests in avionics, electronics distribution and toll roads.

Diplomatic sources who asked not to be identified said that Suharto-family companies often enjoy favorable treatment from the government, special licenses, quotas and dominant market positions.

In cooking oil, for instance, PT Sinar Mas Inti Perkasa controls 80% of the market and a large portion of the country’s producing and processing capacity. The company is owned by Suharto’s second child, Sigit Harjoyudanto, Liem and another partner.

When the government banned imports of pharmaceutical capsules, PT Kapsulindo Nusantara, with Bambang as the majority owner, was the sole producer of the capsules.

Businessmen say the family’s business dominance drives up costs and slows down development.

“The monopolies, graft and influence-peddling are noticeably holding back the economy,” a diplomat said.

The source said his embassy calculated that the system of special privileges was costing the economy 0.5% to 1% of national production growth per year.

“That really hurts. Instead of growing at 3%, it grows at 2%,” he said.

Suharto has not completely ignored the problem.

“Development does not merely pursue growth because mere growth frequently brings about injustice,” Suharto said in a speech that called for “equitable distribution of development.”

Last year he hired a Swiss company to oversee international trade in place of the corrupt customs service. After initial problems, importers say that the new system has increased the speed and reduced the risks of importing.

The government also cut back on 165 of the smaller import monopolies, cut tariffs and reduced government regulations. But so far the reforms have not touched the main income-earning activities of the family.

Government technocrats are pressing for more change.

The Justice Ministry, headed by a retired army general, has already given notice it is drafting a new law against monopolistic practices.

Baharuddin Lopa, a senior official at the Ministry of Justice, told the national news agency Antara the law would obligate those enjoying monopolies to protect and support economically weak sectors, “thus guaranteeing equal prosperity for the whole Indonesian people.”

Little Sign of Change

One of Suharto’s half-brothers, businessman Probosutedjo, has already come out against the proposed law, saying private monopolies and cartels were already unlawful under the constitution.

Whatever the fate of the law, diplomatic and business sources say that the most effective action would be for Suharto to simply rein in his relatives and friends.

“The president is politically astute. He must know that this is dangerous to him,” said Slamat Bratanata, a former Cabinet minister under Suharto who is now an independent critic of the regime. “But there is little sign he is doing anything.”