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  The feverish ambitions of nationalist officials could evaporate, as they had during previous interventions, but by early 2014 Jakarta had virtually stopped all new exploration and development of the harder-to-get minerals since the turn of the century. Likewise, the export of mineral ores, aside from the exempted cases of Freeport and Newmont, had come to a halt, robbing Indonesia of billions of dollars in export earnings and throwing thousands of miners out of work. The government had applied a ban on the export of ores and concentrates in the hope that this would enforce investment in metal refineries, thereby increasing the value of mineral exports. But most of the mining industry had held back, expecting the policy would be rescinded before it came into force. It was a classic case of industrial policy overreach. Even in the humble quarrying and processing industry of cement making, officials helped the local duopoly of Gresik and Indocement delay the entry of Bangkok Cement—from an ASEAN partner country that was theoretically in a free-trade arrangement with Indonesia—thereby keeping cement prices 40 percent higher than in neighboring countries.

  The cost-of-living push on wages, too, could be eased by more deregulation of domestic markets. In the last years of the Yudhoyono presidency, the government’s Ministry of Agriculture distinguished itself by creating the world’s highest prices for beef, by then a staple source of protein for Indonesian households. A temporary cut in the shipment of live cattle from Australia to the country’s abattoirs, after a television program showed video of cruel slaughtering practices, inspired ministers and officials to apply quotas on live cattle and beef imports, with the aim of achieving self-sufficiency.

  Meanwhile, domestic supplies were constrained by the licensing of dealers for cattle raised inside Indonesia. The governor of Nusatenggara Timur authorized a Jakarta company as the sole buyer of cattle shipped out of the province, making the company the monopoly buyer. When politicians and officials were revealed to have been allocating beef quotas in return for large bribes, the face-saving exit from the predicament was to announce a plan to buy a million hectares of cattle ranch land in northern Australia as a way of achieving “self-sufficiency.”

  Since 2010, Jakarta also applied import quotas to rice, sugar, corn, and soybeans, with the aim of meeting all domestic demand. This was seen as being possible with rice, although urban sprawl was fast eating up a lot of rice paddies, and perhaps with corn as well. For soybeans and sugar, it would seem to depend on clearing or restoring land in the outer islands, a return to an old dream. Much of the new agricultural land was already earmarked for biofuel crops, to ease the petroleum supply gap. Cartels operated in numerous other food items and spices, helping keep market prices up and grower earnings down.

  If the Indonesian army was still gearing itself to fight the Dutch military nearly sixty-five years after the Belanda (as the Dutch were known) gave up, Jakarta’s civilian officials sometimes still seemed to be protecting the country against the ghost of the Netherlands East India Company. The protectionist attitude to domestic markets—that competition was unseemly and that private-sector profits were somehow only legitimate if conferred by official monopolies or licenses—is still holding the Indonesian economy and people back from their great dream of “emerging” in the twenty-first century.

  8

  Capital

  The Nederlandsche Handel-Maatschappij (NHM, Netherlands Trading Company) built its new branch in Batavia to last. Completed in 1933 and designed in a style related to art deco called “new objectivity,” its white triple-fronted façade faced across a square to the terminus of a railway system that connected the main cities of Java. Just to the north, lines of ships from all over the Indies filled the old harbor, while a modern steamer port lay just along the coast. Incorporated under royal charter in 1824 to fill a gap left by the collapse of the Netherlands East India Company, the NHM had grown into a trading and banking giant.

  Its grand new office in the main city of the Indies was a sign of the company’s confidence that its role would continue throughout the twentieth century. Less than a decade after the office was built, however, the Dutch were swept aside by the Japanese, and the city was renamed Jakarta. Although the NHM and other Dutch firms regained control of their trading houses and plantations after the end of the Second World War and continued to operate them into the first decade of the Indonesian republic, they were all nationalized by 1960 in Sukarno’s initial response to the Netherlands’ refusal to transfer sovereignty in western New Guinea. The NHM’s assets, including the building, passed into the hands of a succession of state-owned banks, the latest being Bank Mandiri, formed out of the wreckage of the 1997–98 financial crisis.

  The building’s interior is much as it was when the Dutch left in 1942. It has a shadowy central banking chamber cooled by fans, which is furnished with solid wooden counters and steel grills to protect the cashiers. Heavy safes are visible in back rooms. With a sentiment not always associated with banking, its new owners have kept it as a museum, equipped with cumbersome electromechanical calculators and a phantom staff of mannequins dressed in early-twentieth-century clothes, including a European “manager” in a white cotton drill suit, who sits behind a vast desk.

  Bank Mandiri’s museum, often overlooked by tourists on their way to buildings from the earlier centuries of imperialism in Jakarta’s old Kota district, is a quirky and unintended reminder of the lessons in commerce given to the Indonesians by their former rulers. The core elements of the modern economy started with a push from the state. This intangible legacy of the NHM remains, even if the company itself does not. A second layer of activity formed out of numerous medium and small enterprises that were linked by networks of mostly Chinese family businesses, plus some of Arab or Indian origin. A third layer was an even more “informal” stratum of petty trading among the various indigenous peoples of the Indies.

  This heritage has been hard for the Indonesian state to throw off, perhaps because many of its leaders and officials are not conscious of it. Most of the enterprises inherited from the Dutch administration—what became the national airline, Garuda, the shipping company, Pelni, the railways, and so on—or nationalized in the late 1950s remain under state control, if partially privatized in some cases. The idea of the state as a pioneer of industrialization and technological advancement is dearly held. It overlays an older heritage of tax, opium, and other “farms” allocated by rulers to favored merchants. Where it does not run the activity directly, the state regulates competition to avoid “waste” and other adverse effects.

  Indonesia’s first leader was less aware of private-sector entrepreneurialism as a driver of economic growth and innovation. But Sukarno’s better educated colleagues would have known that Joseph Schumpeter’s ideas about the “wild spirits” of capitalism apply in the archipelago as much as anywhere else. The political dilemma, as noted by the development economist Gustav Papanek and others, was that Schumpeter didn’t address what happens when the wild spirits of innovation emerge first and most visibly among an ethnic minority.

  Across Southeast Asia, these local innovators have tended to be the Chinese settlers and their descendants, or southern Indians in the case of Burma. In some countries (Thailand and the Philippines) these communities have been sufficiently assimilated to lessen envy. In others (Indonesia, Malaysia, Vietnam, and Burma) the rise or return of indigenous political dominance brought responses ranging from discrimination in economic policies to outright expulsion.

  Chinese migrants had been in the Indies for centuries, some as semiprivileged “compradors” and intermediaries for the Dutch, many others as laborers or small traders. These older families became partially assimilated into the Indonesian societies around them, speaking the local language more fluently than their ancestral Chinese dialects, their knowledge of Chinese written characters slipping away over the generations. Sometimes men took local wives, and most still held to Buddhism or Taoism if they did not convert, as many d
id, to Christianity. These were the peranakan Chinese, a name suggesting intermarriage.

  As their new generations took advantage of education in government and church schools, the peranakan moved into bureaucratic, commercial, and academic roles. Then in the 1920s and 1930s came a new wave of Chinese settlers, many from the coastal province of Fujian, which doubled Indonesia’s ethnic Chinese population to about 1.2 million. Escaping civil war and poverty, they were a brash lot, desperate to make their fortunes. The name for these Chinese immigrants was totok, meaning “full-blooded and newly arrived.” They moved out into provincial cities and towns, setting up shops, trading houses, and restaurants. Some of these entrepreneurs helped the Indonesian republicans evade the Dutch embargoes during the independence struggle, smuggling commodities out to earn hard currency and bringing arms back in. Some of the peranakan, too, became revolutionaries. Generally, however, Indonesians regarded the Chinese, along with the part-European or “Indo” minority, as political fence-sitters.

  In April 1950, only four months after the formal transfer of sovereignty from the Dutch, Sukarno applied what was known as the benteng (fortress) policy, to give preference in import licenses and the allocation of foreign exchange to companies that were at least 70 percent owned by pribumi (literally, “sons of the soil,” or indigenous) Indonesians. The policy did help the formation or growth of several pribumi enterprises, notably that of Sudarpo Sastrosatomo (who ran the Samudra shipping line and distributed Remington and Univac business machines), and also those of Achmad Bakrie (trading and rubber processing) and Hajji Kalla (trading). It was also widely subverted through the use of so-called Ali Baba companies or by simply selling import licenses to Chinese traders, the pribumi thus acting as a broker or seller of privilege rather than an entrepreneur. Another policy promoted the formation of cooperative societies, particularly in agriculture. It was part of the dream of a harmonious village society. Tens of thousands of cooperatives formed and were later promoted by the army as an alternative to communism. Many still operate, though they amount to only a tiny percentage of the gross national product.

  By the late 1950s, the benteng policy was dropped as Sukarno’s attention turned to nationalization of Dutch assets, and his leftist senior ministers threatened Caltex and other foreign oil producers. The question of whether the Chinese belonged in Indonesia simmered. Their citizenship was left in doubt. Then, in 1959, Sukarno issued a decree banning foreign-owned shops and businesses in rural areas. Some provinces ordered ethnic Chinese to move into the cities. In 1960 about 130,000 took up an offer of repatriation by the communist Chinese government in Beijing.

  The links formed between army commanders and Chinese merchants in the independence war had not ended in 1949, however. Regional military commanders allied with local traders to raise cash to pay their troops and to finance operations, giving protection to smuggled exports of sugar and other commodities out to Singapore, Malaya, and the Philippines, and imports of goods in short supply. Suharto was among them, as a colonel and then commanding general in the Diponegoro (Central Java) division, which was based in the port city of Semarang, for most of the 1950s. Diponegoro’s chief financial and supply officer, Sujono Humardani, combined the foraging talents of a Milo Minderbinder with deep insight into Javanese spiritualism, meaning that he got on very well with his superior.

  As we saw in chapter 3, Liem Sioe Liong (Sudono Salim) was one of the region’s totok merchants, initially in Kudus, a manufacturing center for the kretek (clove-scented) cigarettes that are the poor man’s luxury in Indonesia. When war and Dutch embargoes disrupted the supply of cloves for the kretek factories, Liem found ways to bring them in from the other islands. In the late 1950s, with a new disruption to the domestic clove supply caused by the Permesta rebellion in Sulawesi and the Moluccas, Liem tapped a new external source with imports from Madagascar and Zanzibar, via Singapore and Hong Kong, with protection from the Diponegoro officers. Another rising business talent in Semarang was Mohamad “Bob” Hasan (born The Kian Seng), who was initially known to the officers as a foster child of the division’s first commander, Gatot Subroto, and later became close to his successor Suharto. In the 1960s Liem moved his operations to Jakarta, setting up two new banks in the old Kota commercial district, Bank Central Asia and Bank Windu Kencana. Bob Hasan also followed the political sunlight to the capital on Suharto’s rise to power.

  As president, Suharto took a two-level approach to the position of the ethnic Chinese. Although the Chinese embassy was sacked after the September 30, 1965, “affair,” the Indonesian communists had already decided to keep ethnic Chinese figures out of leadership positions. The anti-PKI massacres did not spread to the Chinese community in Java and Bali, though a pogrom did occur in West Kalimantan for distinct reasons; indeed, several peranakan Chinese, such as the legal scholar Liem Bian Kie (later Jusuf Wanandi), became leaders in the student movements against Sukarno and the leftists.

  Under pressure from his more chauvinist regional commanders, Suharto applied a new policy that was intended to assimilate the Chinese rather than expel them. The public display of Chinese script and religious practices was banned, and the adoption of Indonesian-style names was encouraged. Some simply merged their names into one, like the historian Onghokham or the banker Jusuf Panglaykim. Others took the kind of grandiose Sanskrit names favored by the Javanese aristocracy.

  Liem took advantage of the second level of Suharto’s policy. In 1968 he and Suharto’s younger half-brother Probosutedjo received the exclusive rights to import cloves directly from the Indian Ocean islands, with part of the profits going to “charitable” foundations set up by the president. The following year, Salim (as we will now call him) gained one of two import licenses for wheat and flour milling. (A Singaporean rival was confined to the less-populated eastern islands.) His Bogasari Flour Mills received its imported wheat via the state food-price stabilization agency known as Bulog, getting a hefty subsidy on the way. Then it sold the flour back to Bulog with another high profit margin. Suharto also gave Salim licenses for cement making, and his firm Indocement steadily overtook the state-owned Semen Gresik, becoming the largest producer by the mid-1980s.

  A constellation of other totok businessmen started as Salim’s lieutenants and partners, and many later formed separate but friendly business empires. Mochtar Riady worked with Salim in banking before consolidating his Bank Lippo group; Ciputra in property; Eka Cipta Wijaya in palm-oil plantations and processing, later separating as the Sinar Mas group; Djuhar Sutanto in cement; the Malaysian tycoon Robert Kuok in flour milling. Salim was also careful to cut in Probosutedjo and Suharto’s cousin Sudwikatmono as minority shareholders, or as beneficiaries of profit shares. Later, this “first family” homage extended to the Suharto children, two of whom owned 32 percent of the shares in Bank Central Asia, which became the largest private-sector bank.

  Suharto’s favors carried other obligations. Salim dutifully helped bail out a loss-making sheet mill that the government had attached to the state-owned Krakatau Steel at Cilegon in West Java, another money sink under the Pertamina umbrella. He also helped open new land for rice and sugar at Suharto’s behest. Further introductions by Suharto’s financial adviser and spiritual guru, Sujono Humardhani, linked up Willem Soeryadjaya with Toyota and Thajeb Gobel with Matsushita as local manufacturing and distribution partners.

  The rise of this clutch of mostly totok tycoons—many of whom, like Salim, spoke only rough Indonesian—to domination of the modern private sector did not go unnoticed by the Indonesian public. The term cukong, roughly meaning “boss,” came to refer to ethnic Chinese businessmen who had thrived under military patronage. The link became highly contentious for Suharto. He ordered investigations of corrupt linkages, but little or no action followed. By 1973–74, criticism from newspapers and students, and internal regime rivalries, led to the so-called Malari riots in Jakarta, which targeted businesses seen as being symbolic of the favoring of
ethnic Chinese and foreign capital, such as Astra’s showrooms for Toyota cars. As well as political repression, Suharto’s response was a new suite of policies aimed at favoring pribumi-owned businesses. The issue was revisited in the 1980s, and in 1990 he gave his cukong a public dressing down, calling them to his cattle farm in the hills outside Jakarta and ordering them to transfer 25 percent of their listed-company shares to Indonesian cooperatives; this demand was later watered down to a token 1 percent.

  Complaints continued from pribumi businessmen that they had missed out on the head start given to Suharto’s favored cukong, which they blamed for their absence from the top corporate rankings. Yet many had a natural advantage as indigenous champions and were not without their own preferential policies. They suffered from a perception that pribumi tended to onsell licenses rather than steadily develop businesses themselves and to regard loans, particularly those from state banks, as gifts not needing to be repaid. Nonetheless, several pribumi businesses grew strongly in the latter years of the New Order, notably the Bakrie group and the Kalla group. Both of these cultivated political support through active membership in the New Order’s favored political machine, Golkar. Chinese and pribumi enterprises alike became active listers in the Jakarta Stock Exchange, revived in 1977 after being two decades dormant, which lessened the overwhelming reliance on banking finance.

  From the mid-1980s, the Chinese were eclipsed somewhat as targets of resentment by the burgeoning business groups of the Suharto children. Still, the ethnic Chinese tycoons kept their heads down as much as possible. Where they were noticed intervening in politics, it was outside Indonesia. Mochtar Riady got into controversy in 1977 by offering to buy US president Jimmy Carter’s budget secretary, Bert Lance, out of some embarrassing bank shares. His son James Riady pursued connections in the United States, befriending then Arkansas governor Bill Clinton and getting embroiled in campaign-donation and money-laundering scandals in the mid-1990s—to the point that he was persona non grata in the United States until Hillary Clinton became secretary of state fifteen years later.