Crony Capitalism Built Indonesia's Biggest Business Empire
at its peak Indonesia Asylum group was a 22 billion dollar giant the country's biggest business group its founder and top boss Lim Sol young also called sudano Salim was Southeast Asia's richest man Saleem group's incredible rise came on the back of the company's personal connection to the authoritarian leader suharto a personal friend of Liam the dictator leaned on the company as one of its core collaborators few companies dominated a single country like salim's companies did Indonesia until the Asian financial crisis this is its story in 1938 at the age of 21 Liam born Lin xiaolian flees the fighting of the second sino-japanese war to arrive at the shores of java Liam did not have too much when he first came but he wasn't penniless he had a thriving network of family and ethnic clan members who offered help at this time Indonesia was still a Dutch Colony with an economy mostly geared towards commodity exports and dominated by Dutch businesses taking whatever job he could Liam became just another ethnic Chinese Trader he started off by selling clothes and then started a coffee grinding business with his family then the Japanese arrived quickly dispatching the Dutch Colonial forces and occupying the area being an ethnic Chinese the M was Under Suspicion one time being arrested for having a gun in his house despite this he married and survived selling whatever he could including fermented tofu peanuts rice wine and fruits after Japan's occupation of Indonesia ended in 1945 the Dutch and their allies returned attempting to reimpose Colonial rule however a nationalist movement emerged demanding Independence two students sukarno and Muhammad Hatta raised an army and started a revolution this sparked a brutal four-year struggle between the Dutch and the Indonesian Republican Army the country split between the two Liam launched a supplies business smuggling Essentials like soap coffee sugar and rice to the Republican Army it has been said that he also ran guns and ammunition but he denies this working in the hills of Central Java Liam impressed the soldiers of one particular military unit there with his hard-working nature and good personality the unit's Logistics officer cilardi thus introduces Liam to his cousin a native Javanese named saharto in the end increasing War damage and international pressure Force the Dutch government's hand Indonesia won its independence in December 1949 the Republic of Indonesia received its sovereignty with sicarno as its first president those early days of Independence under sukarno were difficult for both foreign investors and the Chinese ethnic minority zakara no had socialist leanings and was suspicious of foreign Capital perhaps not unfairly he and his cohorts held the universal opinion that the European colonialists had exploited the old Netherlands East Indies his government passed a series of New Economic policies with the goal of gradually indigenizing foreign businesses then in 1958 in retaliation to the Dutch refusing to give up their hold over what is now Western New Guinea sicar knows government seized all Dutch Assets in Indonesia despite warming relations with the People's Republic of China Indonesia's Chinese minorities experienced discrimination and violence their dominance of the business sector and perceived support of the Dutch generated resentment causing anti-chinese violence to break out and the government did not seem concerned enough to protect their Chinese in 1952 facing racial discrimination in the rural areas the M joined many others of his race in moving to the city of Jakarta there Liam was just another hustling Chinese businessman in a city with a half a million of them he traveled around the country frequently visiting port cities like semarang in 1956 saharto is appointed commander of the local division at semarang there the two rekindle and deepened their friendship despite the fact that suharto did not always understand Liam's heavily Chinese accented Indonesian Javanese pigeon language saharta was a man who valued reliability Liam was a guy who came through no matter what even if it meant losing money for him over time Liam became saharto's go-to guy for all Money Matters has a ladder Rose through the military ranks suharto in turn became Liam's Patron and protector saharto is described as the epitome of a Javanese polite calm and seemingly a bit slow a big contrast to sicarno known to be a great speaker and a flamboyant leader it might be easy to underestimate saharto but that would be a mistake throughout the second half of the 1950s economic weakness and political turmoil swept the country sakarno's Anti-Imperialist ideologies edged him closer to the Communists he accused the American CIA of fomenting Revolution against them and even trying to assassinate him for this reason however sukarno's vision of endless Revolution neglected the economy the end of the Korean War crashed Indonesia's commodity exports leading to hyperinflation he steadily lost power culminating in the chaos of 1965 and 1966. presidency saw the rise of two opposing forces the Communist Party of Indonesia and the Indonesian Army the party increasingly penetrated Indonesian Society including the Army creating worsening tensions between the left and right wings then on September 30th 1965 an attempted coup troops kidnapped seven senior Military Officers including six generals they were all shot and killed but the coup controversially attributed to the Communists failed to take hold and saharto for some reason not targeted led a western-backed counter coup that then devolved into mass killings of hundreds of thousands of suspected Communists ethnic Chinese and other leftists I watched an amazing documentary film called The Act of Killing which invited former members of the death squads doing the killing to reenact their experiences I highly recommend it in March 1966 sicarno meekly transferred power to suharto who declared a new order sicarno died a few years later it represented a 180 degree turn in the country's internal and external policy Indonesia terminated its undeclared war with Malaysia dissolved its alliances with communist China and rejoined the United Nations internally the government had a lot of work to do in order to reform its economy after its extended dalliance with revolutionary communism the economy suffered from hyperinflation and insufficient Revenue but the country also had a lot to offer this includes a large population a cheap and willing labor force and a great deal of Natural Resources the country rebuilt the tax base and opened itself up to foreign capital and foreign aid these foreigners were invited to set up light manufacturing facilities to produce shoes textiles and the like this development plan worked Indonesia would see consistent economic growth throughout saharto's Reign unfortunately this new growth also offered new opportunities for corruption long before suharto came along the military and the business Community were closely and corruptly intertwined back in the 1950s the Republican government often failed to provide his fighting units with enough financial resources the commanders United with local businessmen to raise funds these businessmen referred to as kukong which is hokkian for Boss were often ethnic Chinese they received favors and concessions in exchange for funneling cash to the military men after Independence and Dutch nationalization the government turned to the military to provide daily services this got the military increasingly involved in everything from shipping to hotels to Timber this set of roles only strengthened after saharto ascended to power throughout his presidency saharto crafted a crony capitalist political pyramid that collected rents on a broad range of economic activities those rents flowed upwards to himself and his circle of Elites at the very top the government partnered with and relied upon economic cronies in the private sector to follow the government's goals receive preferential benefits to help execute those goals and generate profits for redistribution saharto and his government were always careful to separate economic and political power so heart knows Chinese business partners relied on him for their protection Liam began as just another one of saharta's Chinese cuckoo but would quickly rise to become the biggest in 1966 the government granted Liam one of two exclusive licenses negotiate for and import cloves from Africa clothes are a critical ingredient to Indonesia's widely smoked unfiltered cigarettes cretek the clove industry became a massive one has smoking cretek became increasingly popular it was also a rough business since the government was only willing to pay a certain price and negotiating with the suppliers was tough though the license only granted Liam a small percentage of the profits the majority went to a slush fund owned by the president it provided the critical early funds for Liam to expand into new more lucrative businesses like food Indonesia was first introduced to wheat through the United States in 1967 saharto asked the U.S government for food Aid in the form of rice but the U.S was going through a rice
shortage at the time so they sent wheat instead which rapidly became popular that wheat at the time had to be milled in Singapore since Indonesia did not have any Milling capacity in the late 1960s Robert Kwok the Malaysian Tycoon suggested to Liam that he opened flour Mills to Mill wheat the two partnered together under the table since Quark was a foreigner and in 1969 founded bogasari flower mills bogasari quickly received a monopoly in the import milling and distribution of wheat for Western Indonesia eighty percent of the country's population their first Mills were located in Jakarta flower Milling became an immensely profitable business with 25 to 35 percent profit margins That Grew extremely rapidly as Indonesians warmed up to weak products like instant noodles again the right people also got their share 26 percent of the company's profits were designated to foundations headed up by saharta and his family Asylum groups Food business later expanded to create what is now Indo food a sprawling seven billion dollar conglomerate producing instant noodles biscuits milk and chips the ones that you can eat they are one of the world's biggest instant noodle producers controlling 90 of the total Indonesia Market throughout the 1990s Salem stood out from the other Chinese business groups in how they competently followed and executed on the government's development plans an example of this is their entrance into the cement industry in its first five-year development plan or repolito Indonesia planned to build up domestic cement capacity saharta recounts that an American company likely Kaiser cement offered to help in exchange for a monopoly license saharto declined and instead directed leaving to enter the industry with the help of taiwan's tuntech's group Salim built a massive cement complex near Jakarta Indonesia's ongoing oil export boom throughout the 1970s field demand for new construction and infrastructure during these boom times Lim built up one of the world's biggest cement companies eventually controlling 60 percent of Indonesia's total cement production capacity fortunes change in 1984 when oil prices tumbled and the cement industry fell into a deep recession limb turned to saharto for a bailout and saharto came through ordering his government to purchase 35 of what today is known as PT Indo cement at the end of the 1970s Salem had become a large business group in 1957 the group consisted of just three companies at the end of the 1970s the group consisted of about 54 companies in six Fields trading automobile manufacturing property and construction finance and natural resources this was only the beginning starting in the mid-1980s the company exploded outwards like a weed by 1986 there were over 225 limb Affiliated businesses making nearly a billion dollars in Revenue in total another estimate in 1989 counted far more than that 350 separate companies with some affiliation to Lim many of these companies were monopolies or near monopolies in their field indomobile group is one of Indonesia's biggest car manufacturers the company received many attractive orders from the government and Indo maret is Indonesia's biggest convenience store chain with nearly 200 000 stores across the country the challenge with identifying these companies is that many are separate from each other for instance the cement factories of what we might call Endo cement were not part of a single corporate entity rather each Factory was its own company directly controlled by Lim and his investors for tax reasons the only commonality between them is that they are owned by Lim his family and his various business partners one of Salem group's biggest and most valuable businesses was its Bank back during his days at samarang in the 1950s Lim had purchased a small knitting company not unusually for that time the company also had a banking license Lim changed the company's name to Bank Central Asia and moved it to Jakarta some shares were distributed to several sahartos generals and his children but BCA stayed small until 1975 when he recruited a banker named mukhtar riyadi to help build it up riyadi is a banking wunderkind having built up pen Indonesian bank or pen in bank to be Indonesia's largest private bank at the time but riyadi clashed with his business partners at panin tired of cleaning up their messes sensing an opportunity Lim asked riyadi to run BCA instead making him its single biggest shareholder to grow BCA riyadi went to the customers of Liam's Empire from the flower Monopoly to the then booming cement businesses and got them to bank with BCA he also overhauled the bank's systems and offerings BCA computerized and linked their branches they were one of the first Indonesian Banks to issue credit cards cross-selling other Financial products like insurance and they installed hundreds of ATMs all over the country in just three years reality turned BCA into Indonesia's biggest Private Bank deposits soared over a thousand fold from 1 billion Indonesian Rupiah in 1974 to 7.5 trillion Rupiah in 1990. reality eventually transitioned out after working 15 years at BCA he was getting more involved in a family-owned business he was building up on the side lipo Bank considering the conflicts of interest and a serious heart issue he decided that it was time today lipo group is one of Indonesia's biggest conglomerates owning a variety of businesses and real estate across Asia BCA continued growing but by then the business environment had changed reforms passed in 1989 made it easier to start new Banks this new competition would cause significant Troubles Down the Line having dominated Indonesia for decades and heading into his 70s saharta was starting to get a little out of touch in 2003 one of his economic advisors the respected and Berkeley educated with JoJo Nita sastro said indeed in the past president saharto took notes later on we were the ones who took notes more troublingly his children were grown up and were flexing their political muscles elbowing out once trusted advisors their incompetence and self-interest started to turn public opinion against the president in one Infamous example in 1990 saharto egregiously created a single clove Monopoly for his youngest son Tommy to run now every crept tech maker had to buy their Clove from a single source if you're going to get blatant favors and concessions from the government the least you can do is to run the business competently surprisingly but perhaps unsurprisingly the 28 year old Ran the industry into the ground saharto had to order the bank Indonesia to contribute 350 million dollars to bail out the Monopoly and restart reliable clove deliveries to the cigarette makers lean and his family felt this change in the winds back in 1981 he had founded a small financial services company in Hong Kong called first Pacific his stayed small while he built up his businesses in Indonesia but starting in the mid-1980s Lim started building up real estate and consumer businesses in Hong Kong China and Singapore through first Pacific many of these foreign investments no longer relied on his political relationships to saharto a very noticeable diversification the oil export boom that drove Indonesia's growth during the oil scarce 1970s dried out in 1985. in response the government passed a package of reforms to make Import and Export easier this includes cutting red tape lowering tariffs reforming the old sales tax system and so on and at first the reforms seemed to work Shifting the country's economy more away from oil and gas revenues however in 1994 non-oil exports sputtered with foreign direct Investments declining in the first half of that year from two years prior the most significant factor for this seems to be China by now China's opening up was growing at a torrid speed and investors like Japan were pivoting away from Indonesia to China in response the Indonesian government passed more reforms these include removing limits on foreign investment and opening up new sectors though protections remain for the sectors which so heart those children dominated this seemed to work with foreign investment flows rebounding in the second half of 1994. over the next few years GDP growth rebounded to about eight percent annually per capita income exceeded 1 100 everything seemed groovy the salon group saw some of its greatest expansions during this period with all the Investments Partnerships and Acquisitions he was making across Asia his companies grew with the region expanding at about 40 to 50 percent a year newspapers and analysts at the time have tried to estimate the true size of Lim's Empire remember Lim's Empire is a wild messy network of private and public companies most people Define a company to be part of Salem Group if Lim Ohms a majority share but even that can be hard to discern foreign newspapers like the financial times pegged the Empire's total revenues to be about 9 to 11 billion dollars by 1995. independent analysts however estimated that total 1996 revenues across all of Lim's Company's top 22.8 billion dollars this stupefying number would constitute four percent of Indonesia's total GDP in 1997 Lim's net worth reached 4 billion dollars making him the world's 68th richest man according to Forbes under the hood however there was a reason to be concerned about this latest Indonesian economic boom all these new Investments flowing into Indonesia were short-term external debts looking for low risk returns most of it was invested into domestic Ventures like construction and residential real estate the sheer amount of this external debt was a concern as well doubling from 70 billion to 1990 to 140 billion by mid 1997. the majority of it was Borrowed by
the private sector but Indonesia's banking system including Salem's BCA seemed Rock Solid BCA was so confident that they participated in several other bank bailouts then in July 2nd 1997 Thailand shocked the financial World by free-floating its currency Indonesia had better macroeconomic fundamentals than Thailand and so at first most Indonesians ignored what was going on over there but the bot's devaluation had started a contagion everyone scrambled to pull their Capital out of Asia no matter the fundamentals is soon done that bank Indonesia did not have enough reserves to defend the currency in July they loosened the rupiah's trading ban and then in August they floated it causing it to lose over 30 percent of its value this devaluation deeply affected many Indonesian Banks therefore in denominated debt suddenly grew higher in value and in December 1997 20 billion dollars of that debt had to be paid back within a year at the same time intense competition throughout the 1990s due to the 1989 banking reforms combined with high amounts of non-performing loans meant that many small Banks did not have the assets or the profits to cover their liabilities they were insolvent at the end of October 1997 16 commercial banks closed down despite the announcement of a bank resolution package and limited Deposit Insurance people started running on the banks rumors flew that Lim had died and BCA Singapore branches closed down BCA doesn't have a branch in Singapore Lim made a public appearance but the subsequent run on BCA still costed 150 million dollars eventually the IMF had to get involved believing Indonesia too big to fail in October 1997 they announced a 33 billion dollar bailout package as is so often the case the IMF bailout came with stringent economic reform conditions this includes disassembling State and private monopolies cutting subsidies on basic goods and further opening up the imf's actions during the Asian financial crisis remain controversial the IMF imposed them genuinely believing that it would help Indonesia's recovery their demands would eventually lead to saharto's fall from Power the Indonesian economy still managed to grow 4.6 percent in 1997 but the next year in 1998 GDP contracted by 13 percent the construction sector shrank by 37 the financial sector down by 26.6 and the manufacturing sector down by 11 percent 1.8 million formal employees lost their jobs perhaps another 2.8 million
informal employees too these new unemployed workers faced skyrocketing food and living costs due to the weak currency and domestic food production in Indonesia was down that year due to an unusually difficult El Nino drought the IMF imposed reforms attack monopolies and cloves cashews oranges and vanilla a national car manufacturing initiative lost its tax incentives many of these were dominated by sahartos cronies and family hitting his supporters when he needed them most the elderly president chafed at having these conditions imposed on him by foreigners in a rare press conference he said we have 30 years experience building a strong Foundation then in six months it collapses not because of an eternal crisis but because there is manipulation of our currency relations between the government and the IMF deteriorated and the fund eventually began withholding payments they did not want to be seen as supporting an authoritarian and increasingly unpopular regime they say every society is three meals away from chaos in May 1998 Mass riots broke out in response to an announcement that the government would cut fuel subsidies many of these riots targeted ethnic Chinese and their businesses causing millions of dollars of damage and injuring many Chinese men and women a massive pro-democracy student demonstration also arose protesting for suharto's resignation his cabinet members began abandoning him and so on May 21 1998 saharta resigned his position Lim was out of the country at the time of the riots having mostly relocated to Singapore but the rioters attacked his home and set it on fire his son and financial Heir Anthony Salim evacuated the country via the old Harlem airport in eastern Jakarta paying bribes to pass the various roadblocks along the way BCA and other Asylum companies experience massive fire damage from the riots but the real damage came after saharto's fall causing the bank's association with a government crony to turn against it a Titanic run on the bank followed too big to defend this time BCA collapsed forcing the central bank to take over it and its 5 billion dollars in debts with a new president and political environment the massive and now largely insolven Salome Empire started to break apart many at bca's debts had been to other solemn group companies the bank's failure threatened them all popular Fury towards Lim and his family was fierce they wanted blood but Anthony Salim was a fierce negotiator telling the government if you want to kill us all fine but you'll lose 100 000 jobs in the end the two sides came to a settlement Salem Group handed over its stakes and over 100 Indonesian businesses like Indo cement and indomobile to pay back the five billion dollars the government spent for the BCA bailout but crucially Asylum managed to hold on to a 50.1 percent share in their food company Indo food and using a series of complex transactions move those Holdings offshore to the family's first Pacific financial company in Hong Kong another Savvy move has Indo food has since become one of the world's biggest food companies lim never returned to Indonesia after 1998 he died peacefully in Singapore in 2012 at the age of 95. his estimated net worth at the time was a mere 655 million dollars despite the rise in Fall considering how it ended I would say it worked out for him Lim was the right person who made the right friends at the right time saharto and his ruling Circle all had Chinese business partners none of them executed as well or succeeded as wildly as them saharto's governance did bring substantial economic benefits for the country his 32 years in power saw seven percent annual economic growth and the development of a legitimate Agricultural and Manufacturing base the dark side to this economic growth was whom it enriched saharto made the nation richer yes but perhaps not always as rich as he made himself his cronies or his family all right everyone that's it for tonight thanks for watching subscribe to the Channel Sign up for the newsletter and I'll see you guys next time
2023-01-06 12:54
