The Bakrie Empire and Indonesia's government
sym·bi·o·sis (sĭm'bē-ō'sĭs, -bī-) n. pl. sym·bi·o·ses (-sēz)
Biology: A close, prolonged association between two or more different organisms of different species that may, but does not necessarily, benefit each member.
There may be no better example of a symbiotic relationship anywhere than the relationship of the companies of Aburizal Bakrie to the Indonesian government, especially given the most recent episode, in which a state company intended to generate wealth for Indonesia’s microbusinesses ended up pouring US$131 million into distressed units of the giant Bakrie empire in July and August.
Bakrie, the country’s richest man unless the current financial crisis has undone him completely, is Indonesia’s Coordinating Minister for People’s Welfare in the cabinet of President Susilo Bambang Yudhoyono. The job is widely considered to be a plum awarded to Bakrie because of his crucial backing for Yudhoyono’s 2004 presidential campaign, not only with financial resources but by swinging Kadin, the Indonesian Chamber of Commerce and Industry, behind Yudhoyono.
PT PNM Investment Management, the finance arm of state-owned PT Permodalan Nasional Mandiri, appears set to lose the entire investment, made as purchases of Bakrie Group shares during the period when the tycoon’s conglomerate ran into increasing trouble in the global financial crisis. Some 40 percent of the government agency’s funds appear to have gone down the drain.
PNM’s former chief executive officer was B S Kusmuljono, who is married to Aburizal’s sister. Kusmuljono was previously the chief of PT Bank Nusa Nasional, a Bakrie-owned bank that was one of the largest recipients of liquidity assistance from Bank Indonesia during the 1997-98 economic crisis, receiving more than Rp3 trillion. He joined PNM when it launched in 2000 and left in 2006. Although the investment in Bakrie Capital didn't happen until 2007, analysts and political commentators say Kusmuljono would still have remained connected to PNM's management "although he is not a top official there any more."
Outraged Indonesian lawmakers are calling for an investigation into how the government money ended up in the Bakrie coffers.
“If we look at it from the perspective of a purely investment decision, the investment was dubious," said Drajad Wibowo, a member of the House of Representatives Commission XI overseeing finance and budget issues. "The huge amount of investment by PNM in the Bakrie Group of companies is not usual and it must be questioned."
Drajad also said the commission would investigate whether the family relationship influenced the investment decision. "Does the investment involve a family connection with the Bakrie family? We need to investigate it. It might be bordering on scandal," he said.
Shares in Bakrie Group companies have lost on average more than 90 percent of their value. Once worth an estimated US$5.4 billion, the Bakrie family fortune has dwindled to about US$1 billion, analysts believe. The company that first sold the shares to the government agency, PT Bakrie Capital Indonesia, is refusing to pay the interest on them as stipulated in the repurchase agreement. The shares are set to mature from December to January, at which time they are supposed to be bought back by Bakrie Capital at a higher price.
When asked why the investment fund had risked so much money in a scheme that had so little to do with microfinance, the agency’s spokesman, Firmansyah, said the main reason was because of the high promised rate of return. He denied that political influence played a role in the investment decision, saying that Kusmuljono’s relationship to the agency had ended in 2006. PNM’s activities, he said, were approved by Indonesia’s Capital Market Supervisory Agency, or Bapepam. "We have a license from Bapepam as a investment manager for mutual funds," Firmansyah said, adding the company's decision to invest in the Bakrie repo deal was based on promised high return rates of 13 percent to 14 percent.
Bakrie is probably Indonesia’s biggest private enterprise, with interests in coal mining, banking, telecommunications, construction and a panoply of other fields.
For decades, government has played a crucial role in providing business opportunities for the Bakrie empire and more than once keeping it alive. Decades ago, Sukarno, the country’s first leader, promoted Bakrie as a pribumi, or indigenous businessman. The group defaulted on vast debts during the 1997-1998 Asian Financial Crisis, costing its shareholders and bankers millions. Bakrie, a stalwart crony of the former president, the strongman Suharto, negotiated a government bailout on the theory that he was one of Indonesia’s few non-Chinese businessmen.
After Suharto fell, skeptical bankers now demanded that loans be backed by Bakrie company shares. As the global financial meltdown sent Indonesia’s markets into wild gyrations in October, the group again ran into serious trouble. This time, bankers began demanding repayment of short-term loans, or share forfeitures, particularly in Bakrie flagship PT Bumi Resources, Indonesia’s biggest coal mine.
Bakrie expected the government to step in with another rescue, this time through the purchase by government-owned companies of Bakrie shares. But possibly as a harbinger of Bakrie’s waning power, or the changing political situation in the country, Sri Mulyani Indrawati, the finance minister, staged a fierce struggle to keep Bakrie from tapping government coffers. In a speech to Kadin, she told the reportedly told the organization: "I am the Finance Minister, my job is to protect the state fund. Companies have a job to protect their own financial affairs. If they fail, it is their fault and they deserve to go bust."
Mulyani appears to have won the battle, apparently winning out over her cabinet colleague, Sofyan Djalil, the State-Owned Enterprises Minister, who was found to have held roughly 1 million shares of the Bakrie flagship PT Bumi Resources bought at about Rp7,000. He claimed there was no conflict, even as he was encouraging two state owned firms to buy into Bumi Resources
Bumi has unloaded a major part of its debt to Northstar Associates, a private equity firm of which Texas Pacific Group is a mjor shareholder. However, the overhang of debt continues to threaten the empire. Bumi comprises 70 percent of the Bakrie and is trading at about 0.5 times earnings, which ought to be a huge bargain. But investors remain wary of the Bakries, who are desperate to hang onto the company because it is a cash cow.
Just how the political equation will play itself out remains to be seen. The 62-year-old Bakrie remains a powerhouse within the formerly dominant Golkar political party. Kadin, widely recognized as a fief of Bakrie and Vice President Jusuf Kalla, endorsed Yudhoyono again for re-election this week.
Although Bakrie told Forbes Asia in October that he would step down as welfare minister. Although he says his main ambition is to retire, play with his grandchildren and let his family run the Bakrie empire, most Jakarta political observers and analysts find that hard to believe.
What happens next will determine whether there is indeed a new Indonesia. Yudhoyono continues to seek to preserve his reputation as a political reformer, and the mix of technocrats and oligarchs in his cabinet is an interesting dynamic. Every time a prominent person is hauled before the Anti-Corruption Agency, Yudhoyono’s popularity rises.
A disastrous gas well blowout on the part of the Bakrie-owned PT Lapindo Brantas caused the eruption of a mud volcano that has driven more than 75,000 East Java villagers from their homes and turned into the biggest man-made environmental disaster in Indonesia’s history.
Lapindo Brantas claims the rupture was caused by a distant earthquake fault. The government may have held its nose, but although Bakrie has so far paid out Rp4 trillion to the displaced villagers for their land while denying culpability, Jakarta has assumed responsibility for cleaning up the disaster, if it can be cleaned up. There is no diminution of the mudflow and nobody has figured out a way to shut it off.
The next event to watch, one assumes, is whether PT PNM Investment Management gets its money back.
Portions of this first appeared in the Jakarta Globe