Page 72 - SCANDAL AND DEMOCRACY

Suharto’s Fall 57

regime’s excesses. Freed from oversight, the regime entered a period of virtually unre-
strained and ultimately self-destructive economic plunder that culminated in the 1997
economic crisis. The bad debt and losses to the state facilitated by presidential decrees

and media silence eventually led the country into financial collapse that drove Suharto
from offi ce and challenged earlier assumptions about the thinly disguised authoritari-
anism of “Pancasila democracy.”
The oppressive climate after 1994 limited the media’s ability to impose economic
transparency, facilitating the acceleration of corruption. Unrestrained by press or par-
liament, Suharto used the state apparatus to enrich cronies and family, above all his
children, whose business empires penetrated nearly every sector of the economy. In
July 1997, Forbes magazine estimated Suharto’s wealth at between $10 billion and $40
billion, making him the third-wealthiest person in the world after the sultan of Bru-
nei, Hassanal Bolkiah, and King Fahd bin Abdulaziz Al Saud of Saudi Arabia.
21
Most mechanisms enabling such accumulation were technically legal. Through
presidential decrees, for example, Suharto forced companies to pay levies or donate
to his “charitable” foundations and simultaneously allowed his children and cronies
to siphon millions in loans out of state reserves. In one blatant instance, the Ministry
of Forestry and Plantations made a multi-million-dollar loan to a pulp paper company
controlled by Suharto’s golfing partner and former minister of industry and trade, Bob
Hasan.
22
The president’s decrees also created the monopolies and tariff protections that
generated wide profit margins for even the most poorly run crony companies. Among
the seventy-nine such decrees between 1993 and 1998, Decree No. 42 of 1996, for
example, exempted a car company owned by Suharto’s son from tax and duties on
the Korean-made vehicles that it imported. Though Suharto was able to bypass par-
23
liamentary oversight in issuing most of these decrees, they still entered the public
record. Yet almost no mention of them appeared in the media.
As often occurs in a rent-seeking economy, these deals advantaged the president’s
entourage while disadvantaging the state and ordinary Indonesians. An audit by Price-
waterhouseCoopers revealed that at the end of Suharto’s reign, the state oil monopoly
Pertamina alone had been losing billions of dollars per year to corruption and inef-
ficiency. A study by the World Bank found that at least 30 percent of Indonesia’s
24
development budget over the previous twenty years had evaporated through such
deals.
25
The Suharto empire also grew through commissions the family collected as mid-
dlemen between the state and virtually anyone who wished to do business in Indone-
sia. After Suharto’s fall, the Ministry of Mines and Energy identified 159 companies
that held contracts with Pertamina through links to Suharto’s family or cronies. In
26
other lucrative deals, government offices arranged for Suharto’s children to purchase
shares of state-owned companies at below-market value, which the children then sold
for windfall profits.
27
The key vehicles that family and cronies used to accumulate and then launder
their fortunes were the dozens of foundations, exempt from taxes and external review,
that the regime had created over the years. Established to support charitable causes,
such as mosque construction or school scholarships, these foundations controlled
several billion dollars by the late 1990s. They grew through small deductions from the
salaries of all civil servants beginning in the 1970s and “donations” from state banks
or entrepreneurs seeking business opportunities. Larger foundations sometimes acted
as banks offering low interest rates for state-sponsored projects. They also funneled