What it will take for the economy to recover

INDONESIA AFTER THE RIOTS

The rupiah must stabilise, the capital of Chinese Indonesians protected from expropriation, and social peace re-established. But can it be done?

GLODOK, once a beehive of business activity in Jakarta, has become a pale shadow of its former self. Gone are the crowds that throng the narrow roads and back alleys looking for anything under the sun, from electronic products to food and clothes.

The ethnic Chinese Indonesians, who own most of the shops there, are nowhere in sight.

Instead, there are many reminders of burnt-out shops that were looted and destroyed during the recent riots.

Nearly 5,000 buildings went up in flames not just in Glodok but in other parts of Jakarta as well. More than US$100 million (S$170 million) was lost in damaged property.

It is not just the money. The ethnic Chinese minority, numbering about five million, have been shaken badly by the attacks on them.

Their confidence, and their capital, could take a long time in returning to Indonesia.

Most of them are apprehensive and they are adopting a wait-and-see attitude. This will slow down the recovery of the battered Indonesian economy.

Mr Sofyan Wanandi, who heads the Gemala group, said: “Many of us live in fear that we will end up being scapegoats if there are more problems. It is traumatic to see what you work so hard for being burnt to the ground. We have just lost our confidence in the system.”

In fact, confidence had been on the wane over the last year with the worsening economic crisis, which saw the rupiah losing almost 80 per cent of its value.

This, together with high interest rates, have led to severe cash flow problems in many companies that are saddled with debts they cannot repay.

Said an investment banker: “Many are now insolvent. The balance sheet of their liabilities is four times higher than the value of their assets.”

Indeed, 90 per cent of huge Chinese-run conglomerates have been hit badly by the crisis, including Gemala, Lippo, Dharmala, Ciputra and the Salim group of companies.

Mr Wanandi said that Gemala, like others, was operating at 30 per cent of its capacity because of the uncertainties.

“We are thinking of survival, not profit-making these days,” he said.

The hardest hit is the Salim group, the largest conglomerate in Indonesia with assets worth US$17 billion. Managed by the country’s richest billionaire, Mr Liem Sioe Liong, its properties were a target of attack during the riots because of its owner’s close connections with former president Suharto.

Last week, Salim lost control of its crown jewel, Bank of Central Asia, Indonesia’s biggest private bank.

Its other major holdings – Indofood, Indocement and the Kemcana group – could face the same fate.

Said a businessman, who declined to be named: “Salim and Bob Hasan are high on the wanted list because of the special benefits they enjoyed under Suharto.

“This is a source of concern for us because there could be a witch hunt on all Chinese businesses.”

Confidence is also lacking because no one is sure what will come of the rising demands for political reforms and the call for elections by next year.

The businessman said: “There is nothing wrong with reform but it has to be done gradually and not cause too much instability that could shake investor confidence.

“With just three political parties contesting, there was already so much violence during past elections. Imagine the situation if there were as many as 100 parties contesting.

“It will be chaotic and difficult to control, and we Chinese will end up being the targets of the mobs again.”

This explains why many Chinese-Indonesian businessmen are still out of the country and not reviving their businesses.

Many have already transferred their funds out of Indonesia. Mr Wanandi estimated that 90 per cent of their funds, from US$10 billion to US$20 billion, had already been transferred out to Singapore, Hongkong, Australia, the United States and Europe.

“Many sense there are limited opportunities at home and are contemplating joint ventures with foreign firms to make up for their losses,” he said.

But some observers said the capital flight would slow down because high interest rates could encourage them to keep their money in local banks.

POTENTIAL DISASTER IN LONG-TERM

ECONOMISTS said the long-term effects of reduced business activities would be disastrous for the Indonesian economy.

The destruction of 70 per cent of the distribution network in Jakarta, controlled largely by the ethnic Chinese, could cause inflation to rise by 100 per cent by the end of the year.

An investment banker said: “The distribution network is at a standstill, as most of the Chinese middlemen are in other countries and too frightened to return. Prices of staples could double if there is limited supply.”

With rising unemployment, he said there would be social tension, and he feared the Chinese Indonesians would be blamed for the shortages and higher prices.

“People don’t think rationally with empty stomachs. They will only blame the Chinese for their hunger,” he said.

Many indigenous Indonesians were laid off when the Chinese-owned businesses closed in the wake of the economic crisis and riots.

Said a source in one conglomerate: “Many rioters who took part in the violence are now without jobs, having burnt down the shops they worked in. It is their folly.”

With many companies closed and three million job seekers entering the labour market each year, he feared that unemployment would be a big problem for the government.

Many Chinese businessmen are also concerned about the calls among the pribumis (indigenous Indonesians) to expropriate and nationalise the big Chinese companies.

Said Mr Wanandi: “The government has to be very careful in how it tackles the problem because conglomerates have contributed a big share to the economy.

“It will only hurt the economy more by doing something rash like nationalising all of them.”

Some Chinese businessmen, however, are not averse to the idea of a Malaysian-style New Economic Policy (NEP) favouring the pribumis.

Said the investment banker: “Many of the Chinese conglomerates became rich because of the special treatment they got from Suharto. They became economic animals with no concern for the pribumis.

“Now is the time to level the playing field. We can do that by following what Malaysia has done with the NEP. The aim should not be to favour any race but to give everyone, Chinese and pribumis, equal opportunity.”

Some businessmen said the new government had to give a reassurance that Chinese Indonesians would not be discriminated against, because President Jusuf Habibie and some of his closest aides had been perceived to be anti-Chinese.

Said economist Djisman Simandjuntak: “We still need to drive home the point that Indonesia is not a collection of ethnic groups with different rights and obligations.”

This, unfortunately, is still the prevailing sentiment among the ethnic Chinese Indonesians.

Said one businessman: “Our biggest challenge is to make others in this country accept us as Indonesians. It hurts because we were born and raised in this land, but are not being treated as equals.”

COUNTING THE COST: of the riots

* Over US$100 million (S$170 million) was lost in damaged property.
* The ethnic Chinese minority, numbering about five million, have been badly shaken by the attacks on them. Their confidence, and capital, could take a long time in returning, slowing down recovery.
* Capital flight by Chinese companies: about 90 per cent of their funds, from US$10 billion to US$20 billion, has been moved to Singapore, Hongkong, Australia, the United States and Europe.
* Damage to the economy since last year’s financial crunch has already seen the rupiah lose almost 80 per cent of its value.
* This, plus high interest rates, has led to severe cash flow problems in many companies.
* 90 per cent of Indonesia’s huge Chinese-run conglomerates – including Gemala, Lippo, Dharmala, Ciputra and the Salim group – have been hit badly by the crisis.
* Hardest hit is the Salim group, the largest conglomerate, with assets worth US$17 billion. Last week, it lost control of its crown jewel, Bank of Central Asia, Indonesia’s biggest private bank. Other major holdings – Indofood, Indocement and the Kemcana group – could face the same fate.
* The destruction of 70 per cent of the distribution network in Jakarta, controlled largely by the ethnic Chinese, could cause inflation to rise by 100 per cent by the end of the year.
* Many indigenous Indonesians were laid off when the Chinese-owned businesses closed in the wake of the economic crisis and riots.
* With many companies closed and three million job seekers entering the labour market each year, unemployment will be a big problem.
* With rising unemployment will come social tension, and Chinese Indonesians are likely to be blamed for the shortages and higher prices.
* Many big companies, whose bosses were connected to former president Suharto, were targeted during the riots. The threat of a witch hunt on Chinese businesses is also there.
* Many Chinese businessmen are also concerned about the calls among the pribumis to expropriate and nationalise the big Chinese companies.
* Some businessmen say the new government must give a reassurance that Chinese Indonesians would not be discriminated against, because President Jusuf Habibie and some of his closest aides have been perceived to be anti-Chinese.
* Confidence in the current government is also weak as no one is sure what will come of the rising demands for political reforms and the call for elections by next year.

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