Bakrie for President?

The mid-November announcement that banking scion Nathaniel Rothschild had acquired 25 percent of Bumi Resources, controlled by Aburizal Bakrie, has largely been met with astonishment by those familiar with the operations of Indonesia's most famous and notorious businessman.

That is because what Bakrie has done to minority shareholders over the last couple of decades is the stuff of legend. The Bakrie family empire has nearly capsized twice since the 1997-1998 Asian Financial Crisis, the first time bobbing back to the surface only because a thoroughly corrupt Indonesian government bailed Bakrie out. The second time, amid allegations of massive share manipulation, Bakrie shares fell by 30 percent and resulted in the closure for three days of the Indonesian Stock Exchange at the onset of the global credit crisis. That later resulted in a months-long campaign by furious bankers and shareholders to get their money back after the then-Finance Minister Sri Mulyani Indrawati blocked another round of bailouts.

Rothschild — a member of one of the world's most respected banking families, and one of te world's most cautious — now has put US$3 billion into Indonesia, metamorphosing Vallar Plc, a mining investment vehicle, into what amounts to an Indonesian coal venture. In addition to the US$1.43 billion to Bakrie, he put another US$1.57 billion in cash and new shares into Berau Coal and Energy, controlled by Indonesia's Roeslani family. Vallar's shareholders retain only a minority stake in the company.

Southeast Asia has not been kind to minority shareholders. They have regularly taken a fearful beating in Malaysia, Indonesia, Thailand and the Philippines among others. But Bakrie is arguably at the very top of the Asia minority-thumping pantheon. Even the docile Indonesian Stock Exchange, however reluctantly, gave three Bakrie companies a Rp500 million (US$55,550) slap on the wrist for misstating cash reserves. After the shares fell off the cliff in the wake of the global financial crisis, they suddenly caught fire again in May of 2009, with the shares of seven family company stocks tripling in value on average, causing the exchange to suspend trading in some companies because of suspicions they were being manipulated.

So the question has to be asked: did Rothschild know what he was getting into? Several news sources have pointed out that from beginning to end, the transactions only took a few weeks to conclude.

But some market-watchers might not be taking into account Aburizal Bakrie's growing clout. He is hoping to become the country's next president when elections are held in 2014 and improbably appears to be the front-runner – a far cry from July 2009, when the Golkar Party, which he now heads, was drubbed in national elections by what appeared to be a reform movement headed by reelected President Susilo Bambang Yudhoyono. Sri Mulyani Indrawati, reappointed finance minister, was clearly out to usher in a new political era in Indonesia.

There was a widespread perception that Bakrie's fortunes would reflect Indonesia's future path. If that is true, it is depressing. Today Sri Mulyani has been banished, quitting the government to join the World Bank as a managing director after charging in an interview with the Wall Street Journal that Bakrie had been behind the manufacture of a scandal over the US$710 million bailout of Bank Century in 2008, which at the time seemed poised to drag the country's banking sector into the muck of the global crisis. The point? To ensnare her and Boediono, the respected former Bank Indonesia head who became Yudhoyono's vice president.

Yudhoyono seems strangely lethargic in the face of Bakrie's resurgence. Golkar was nominally in the opposition after the 2009 national presidential election. The president should have been able to stop the action against the two officials back in October 2009 when he named his cabinet and, at the last minute, Bakrie brought Golkar in from the cold to rejoin the government. Yudhoyono could have extracted a promise that the Golkar leader would keep out of the fray. The president was at the height of his political power and personal popularity as a result of his strong electoral victory.

Instead, Sri Mulyani's resignation in May following months of bitter, highly political and inconclusive hearings in the House of Representatives, appears to have set the stage for five years of paralysis in which reform stops and Bakrie and his fellow businessmen go about business as usual.

Bakrie himself appears to be deeply enmeshed in a scandal involving former tax official Gayus Tambunan, who is charged with amassing vast wealth through taking bribes from corporations to cheat on their taxes. Tambunan has testified in court that companies that paid him off included subsidiaries of the Bakrie conglomerate. One report had Tambunan, whose latest shenanigans involve bribing his way out of detention on a regular basis, meeting Bakrie himself in Bali during a recent tennis tournament. Bakrie's lawyers and numerous Golkar politicians have denied that tale and preliminary criminal libel charges have been brought by Bakrie against five media outlets for running the story.

Bakrie has proven himself an adroit and ambitious politician who occupies a fairly unique place among Indonesia's upper-tier business community because he is a pribumi, or native Indonesian, while the bulk of the country's business establishment is dominated by ethnic Chinese. In May, he was appointed “managing chairman” of a new government joint political secretariat at a closed meeting of coalition parties at Yudhoyono's home, just two days after Sri Mulyani said she was leaving.

It is clear from his close confidants that he has his eye on the presidency, and as Indonesia's most powerful pribumi, he might appeal to the electorate despite his reputation as a corporate pirate. He is a Javanese, the dominant ethnic group, which gives him clout that Jusuf Kalla, a wealthy ethnic Bugis businessman and Golkar politician who served as Yudhoyono's vice president in his first term, was never able to muster. Kalla and Bakrie are fierce rivals.

Yudhoyono's Democratic Party has no one who looks capable of being a successor. Megawati Sukarnoputri, the leader of the Indonesian Democratic Party of Struggle, known by its Indonesian language initials PDI-P, appears to be a spent force. Wiranto and Prabowo Subianto, both retired generals, have been sanctioned by international rights organizations for their roles in attempting to suppress the East Timor independence movement, among other nastiness at the end of the Suharto era. Vice President Boediono seems to have no political ambitions, and aside from the tantalizing possible return of Sri Mulyani, whose support is largely limited to intellectuals and commentators, there appear to be few people at this point to challenge Bakrie.

So maybe Rothschild recognized something longtime Indonesia watchers didn't. Even as a minority shareholder, it doesn't hurt to be reflected in the glow of the leading presidential candidate, and one who, despite his reputation, could lead the country – albeit hardly in the direction of reform.