Indonesia Bribe Scandal Tests Jokowi’s Reform Plans

A long-simmering internal battle over natural resource policy under Indonesian President Joko Widodo is now being fought out in public with two cabinet ministers at bitter odds over charges that the Speaker of the House of Representatives – possibly with the backing of other elements in the government – attempted to extort shares from US mining giant Freeport McMoRan in exchange for help obtaining a long-sought contract extension for the company’s massive Grasberg gold and copper mine in Papua.

The outcome can be expected to have a major impact on public policy in Indonesia. It also presents dangers for Jokowi, as the president is known, who more than a year into his presidency has begun to show the kind of reform steel that voters expected of him when he was elected. However, he is also confronting powerful forces created by decades of corruption, secrecy and kleptocracy.

The scandal is pitting reform-minded Energy and Mines Minister Sudirman Said, who brought ethics charges Monday against House Speaker Setya Novanto for allegedly seeking the bribe, against Coordinating Security Minister Luhut Panjaitan, a savvy ex-general who is one of the president’s top aides. Setya is a member of the opposition Golkar Party.

Speak into the mike

Luhut used his previous perch as the president’s chief of staff to attempt to block a Freeport extension, supposedly to obtain a better deal for the country. It has long been rumored that Luhut also wanted the sacking of Sudirman, an anti-corruption activist put into a notoriously corrupt ministry to drive change.

On Monday, charges were filed by Sudirman after a recording transcript surfaced of the politician demanding shares in the company in exchange for political help with the contract extension. On Wednesday, Luhut questioned Sudirman’s claim that the president was informed that charges would be brought.

“The president told me that he had never instructed Sudirman to file the report [against Setya],” Luhut told reporters. “I feel it is very strange.”

While Luhut’s name is mentioned on the tape several times, there is no evidence of any wrongdoing on his part. Setya said in the meeting that he was seeking to obtain 20 percent of the company’s shares for the president and Vice President Jusuf Kalla. He has since denied invoking the president’s name and said the whole conversation was a joke. Late Friday, the confusion increased when a Golkar Party leader announced that Setya had resigned his post ad then an hour later retracted the "resignation," saying the party supported the embattled speaker.

With his move against the alleged bribe attempt Sudirman has arguably become the face of government reform. Inside the ministry, he is known for appointing reformist officials and attempting to end murky practices in the lucrative natural resources sector. Popular with investors, he is now a political star heralded by Indonesians sick of corruption in high places.

The recording was made in June by Freeport CEO Maroef Sjamsoeddin, himself a consummate insider, a retired general and former No. 2 at the national intelligence agency. Also in the meeting at which the bribe was allegedly discussed was Mohammad Riza, an oil trading kingpin and one of Indonesia’s most powerful and secretive businessmen. Freeport has made no comment on the matter. Luhut denies having any business relationship with Riza.

The dark side

In blowing the whistle, Sudirman has given the public a rare glimpse into the way business has long been done in the country. Powerful interests are frequently rumored to pass billions of dollars among themselves in exchange for favors, deals and influence. Rarely do any facts emerge.

The high-risk move to name and shame Setya, which is widely believed to have been done with the president’s blessing, may be a sign of more fundamental change under Jokowi but he has yet to tip his hand openly.

The three men present in the room – a shady politician, a businessman skilled at operating in secret and a former general – would all have known each other well and to have known the longstanding rules. The wild card is that Freeport’s Maroef now works for a unit of a publicly-traded US company that would risk prosecution under the US Foreign Corrupt Practices Act if it were to hand out billions of dollars in shares to crooked politicians. By making the recording and apparently arranging for its release to the government, Maroef betrayed the Mafia-like silence that governs the Indonesian elite.

The plot is stickier still given that both Maroef and Sudirman are said to be quite close to Vice President Kalla. Luhut and Kalla are seen as bitter rivals for power and influence in the administration.

Whatever his motivations for criticizing Sudirman and earlier seeking to block a Freeport deal, Luhut risks marginalizing himself if he appears to be standing against the reforms the president is seeking.

Timeline

The timeline for the affair seems to speak volumes. The secret meeting took place in June and seems to have come to the president's attention not long after. He was said to be furious.

In August, a cabinet reshuffle saw Luhut reassigned to the coordinating security post, a still-powerful role but not one with a direct impact on economic policy. In September, the President and Sudirman met with Freeport, giving the company a letter promising that an early contract extension would be worked out ahead of 2019, when by statute negotiations were to begin.

Freeport's current contract runs out in 2021 and the company has long sought the extension to raise funds on the market for a US$18 billion investment to take the Grasberg mine underground, where vast stores of copper and gold are waiting to be extracted. Freeport says the early extension is allowed under its current contract.

In order to continue operating, the government requires that Freeport divest an additional 20 percent of the mine to Indonesian investors. It currently holds roughly 90 percent of the asset, with the government owning just under 10 percent. It is the 20 percent up for grabs that the House speaker and numerous other powerful interests seem to consider as some sort of party favor to be divvied up for their benefit.

The Arizona-based Freeport has been planning to offer the shares in an IPO, perhaps as early as the end of the year.

‘Daddy wants shares’

The fallout may have also played a role in the president's recent trip to Washington. The US has backed Freeport's push for a deal, agreeing with the company that an early contract extension is promised under Freeport’s current deal. While it is unknown if the company was a focus of official discussions in Washington on October 26 when Jokowi met Obama, it is known that Sudirman was one of the ministers present in the White House. Luhut, who as chief of staff had planned the visit and taken a lead role, surprisingly stayed home, supposedly to manage the embarrassing forest fires in Sumatra that blanketed the region in choking haze. Those fires were also given as the excuse for Jokowi coming home a day early from the US.

All week, political junkies, insiders and the public have been speculating on the Freeport affair, with the phrase Papa Minta Saham (Daddy wants shares) having been coined online to sum up the House speaker's ploy. It is anybody’s guess how it plays out but the action by Sudirman is virtually unheard of.

Will Jokowi, a man who follows Javanese tradition by closely keeping his own counsel, openly side with his mines minister? Could Luhut, whose early friendship and backing of Jokowi was a key to the President's meteoric rise to power, lose out over the secret tape? Can these two figures – one a quiet and determined change agent, the other a brash and boastful retired general and wealthy businessman in his own right – coexist in Jokowi's government? The answer to those tantalizing and important questions for Indonesia are far more important even than the billions locked underground in the Grasberg mine.