[asia-apec 263] Re: Suharto in the Philippines (I)

[George J. Aditjondro]

>Dear George: Many thanks for the updated version of your paper on Suharto
>family/crony interests in the Philippines, and permission to publish. I
>will run extracts in the first 1997 issue of "Kapatiran", the PSNA
>newsletter, and send you a copy. I am posting you the last spare copy of
>the latest "Kapatiran", which focuses on APEC. Murray
--------
Dear Murray: before you start editing it, here I'm sending you another
update, since from my further library research, it is clear now that
Bambang Trihatmojo, Suharto's second son, will benefit from two major
decisions made in the pre-Apec meetings in Manila: he has shares in the
Mabuhay satelite, which has received a loan committment from the US Exim
Bank, and he also has shares in an infrastructure company, which will build
Cebu's new water supply, which MOU has been signed by the Oz & Fil trade
ministers. Isn't that something? GJA
-----------------------------------------

FURTHER UPDATED version of paper prepared for the Manila People's Forum on
APEC (MPFA), 22-25 Nov. 1996.

The "ASEAN-ization" of Suharto's family businesss in the Philippines
By Dr. George J. Aditjondro

WHY did President Fidel Ramos of the Philippines prohibited the Nobel
laureate Jose Manuel Ramos-Horta from visiting Manila to present a keynote
address at the People's Forum on APEC, last week? Or, why did Manila stated
that it would maintain the 100 persons immigration black list, which was
hastely drafted before the first Asia Pacific Conference on East Timor
(APCET) in Manila, in May 1994?

As you already know, the most popular reason why all ASEAN member countries
work hard to prohibit any frank debate about the plight of the East Timor
people on their soil is "ASEAN solidarity". In the specific case of the
Philippines, Manila has always been reminded by the Suharto regime of
Jakarta's "diplomatic favour" in  mediating between Manila and Nur
Misuari's Moro National Liberation Front (MNLF), to solve the "Moro
problem" in a peaceful way.

This "diplomatic favour" is supposedly based on Indonesia's sense of
"Muslim brotherhood" towards the Bangsa Moro. However, as far as Suharto is
concerned, this "Muslim brotherhood" rhetoric is simply a myth. The real
reason for Jakarta's role in helping to settle the "Moro problem" is not
necessarily Suharto's love for fellow Muslims in the South.

The real reason is the "ASEAN-ization" of businesses owned by the Jakarta
oligarchy, pioneered by Suharto's closest and oldest business partner, Liem
Sioe Liong, through the Salim Group. Suharto's half-brother, Sudwikatmono,
is also a major shareowner in this group, while two of Suharto's children,
Siti Hardiyanti Rukmana and Sigit Harjojudanto, own 32% shares in the
group's Bank Central Asia (BCA). Following the track of his older brother
and sister, Bambang Trihatmojo, Suharto's second son, has also formed many
joint ventures with the Salim Group, especially in the tourism and
petro-chemical industries. Salim's patriarch Liem Sioe Liong himself is
closely connected with other Chinese tycoons in South East Asia and Hong
Kong (Soetriyono, n.d.; Swasembada  [Swa ], August 1995: 12-55).

After accumulating their capital from the Salim Group and from their
father's patronage, the Suharto children have ventured into the "brave new
world" of ASEAN with their own business conglomerates. These "ASEAN-ized"
Indonesian businesses have now spread its wings to the Philippines, from
Manila to Cebu, and also probably to Davao and General Santos.

Of all these Suharto family businesses, the Citra Lamtorogung Group
controlled by Suharto's eldest sibling, Siti Hardiyanti Rukmana, or "Tutut"
as she is popularly called, is the most "ASEAN-ized". After her success as
contractor of toll roads, airports, and harbours in Indonesia, she expanded
her operations, with the blessings of her father and his Malaysian
counterpart, to construct a 22-km portion of the 512-km North-South highway
between Singapore, Johor, and the border of Thailand, through a joint
venture with a company associated with the ruling Malay party, UMNO. She
has also won a tender to construct Kuala Lumpur's second international
airport at Sepang, claimed to be larger than Singapore's Changi Airport
(Info-Bisnis, June 1994: 11-13; Forum Keadilan, Sept 1, 1994; Warta Ekonomi
[WE ], Sept 12, 1994, Nov 20, 1995).

For the last two years, she has been involved in building the 45-km Metro
Manila Skyway Project through her Citra Consortium, with a total investment
of US$ 475 million. This mega-project will involve a 12.5-km elevated
skyway above the South Luzon Expressway (SLE) and a 14.5-km surface road
portion of the SLE from Alabang to Nichols. Tutut's Citra Consortium has
received exclusive authorization from the Philippine National Construction
Company (PNCC) to undertake the construction, financing and management of
the toll road projects, through a 30-year built-operate-and transfer (BOT)
contract with the Philippine government.

The share composition and construction schedule of this mega-project is as
follows. PNCC will own 20% of the shares of the Skyway project, a private
Filipino entrepreneur, Cezar Qulambao 10%, while the Citra consortium will
own the majority share of 55%. The remaining 15% shares will be owned by a
US finance company, American International Group (AIG), through its
subsidiary, AIG Asian Infrastructure Fund, for providing 76% of the
project's capital investment. The construction of this mega-project, which
was finalised by President Fidel Ramos and his Indonesian counterpart
during the APEC summit in Jakarta, two years ago, will be completed next
year (Indonesia Business Weekly  [IBW ], Nov. 25, 1994, Sept. 11, 1996; WE,
Nov. 6, 1995: 9).

This mega-project is only Tutut's first venture in the Philippines. Her
second one is  a US$ 2.2 billion oil refinery at Nonoc Island, south of
Manila. This mega project, which will yield a maximum of 120,000 barrels of
refined oil products per day, is a joint venture between PT Elnusa and the
Philippine's Kaibigan Holdings. PT Elnusa itself is a joint venture between
the Indonesian state oil company, Pertamina, and Tutut's Citra Lamtorogung
Persada (IBW, Nov. 25, 1994).

So, for the next 25 years, after the Metro Manila Skyway project is
finished, all Filipino/a motorist who drive along these toll roads will
contribute to the wealth of the Suharto family. During that time, the
gasoline (petrol?) used by the cars which will drive along the Skyway
project may come from the Nonoc Island refinery. Which means that
regardless whether motorists choose to drive along the skyway or not, they
will still contribute to the Suharto family's wealth.

***

IN the mean time, a consortium of twenty Indonesian, Malaysian, Thai, and
Filipino companies has forged the biggest property deal in Asia, so far.
This Metro-Pacific Group won a US$ 2.4 billion contract to rebuild the
former army base, Fort Bonifacio, into a 117-ha commercial and residential
complex, adjacent to Manila's Makati business district. Many of the people
within this group are no strangers to the ASEAN ruling elites. It includes
a subsidiary of the First Pacific Group, a subsidiary of Robert Kuok, the
well-known Malaysian property and sugar tycoon, Thailand's Land & Houses
Public Co., Ltd, the Filipino tobacco magnate, Lucio Tan, and the Filipino
food and beverage magnate, Raul Concepcion.

After the new Fort Bonifacio is completed, they will control 55% of its
shares, while the remaining shares will be owned by a Philippine state
company assigned to privatize former military instalations, BCDA (Bases
Conversion Development Authority) (WE, Jan. 23, 1995: 68-69; Asia Business
Review, March 1995: 53; Jawa Pos, March 8, 1996;The Australian, September
23, 1996).

Prior to the Fort Bonifacio deal, Metro-Pacific has also biten a big chunk
out of the Philippines' telecommunication pie. Its subsidiary, Smart
Communications, has become the second largest cellular telephone operator
in the Philippines, in cooperation with NTT of Japan, with 113,000
subscribers (IBW,  Dec. 9, 1994; International Business Asia, June 23,
1995: 29; Jawa Pos, March 8, 1996; Asiaweek, August 2, 1996: 50)

The leader of Metro-Pacific, namely the First Pacific Group is no stranger
to the Philippine business community. This Hong Kong-based conglomerate
handles the overseas operations of the Salim Group, headed by a Filipino
banker, Manuel Pangilinan. After some initial work at the Bancom
Development Corporation in Manila and the American Express Bank in Hong
Kong, in 1979 this graduate of the University of Pennsylvania Wharton
School of Finance was asked by Liem Sioe Liong to prepare and head the
First Pacific Group in Hong Kong.

Within two years, the group was officially founded with Manuel Pangilinan
as the managing director, two other Filipinos -- Ricardo Pascua and
Vincente Tansay II -- and an American, Robert Meyer, as executive
directors, in charge of 50 ethnic Chinese staffpersons from Indonesia and
Hong Kong. In 15 years time, this management team was able to build First
Pacific Group into a business empire with US$ 3.3 billion assets, employing
more than 45,000 people in 40 countries in the world (Soetriyono, n.d.:
65-71; Schwarz and Friedland, 1991; The Australian , Sept. 23, 1996).

With his Filipino background, Manuel was instrumental in the Salim Group's
forrays into the Philippine economy. In 1986, four Philippine companies
were acquired by the First Pacific: Berli Jucker Industries, a producer of
cosmetic products; Berli Jucker Philippines, the marketing network of
cosmetic products; Holland Pacific Paper, the producer and distributor of
Scott Paper products; and Tanduy Distillery, one of the top Philippine
beverage producers. In 1987, the First Pacific Group took Metro Drug over
from its previous owner, and not long after that, began to distribute
pharmaceutical drugs from Salim's pharmaceutical company, PT Darya Varia
Laboratories. It also set up financial companies in the Philippines, namely
First Pacific Capital Corporation, First Pacific Metro, an investment
holding company, and the First Pacific Bank ( Soetriyono, n.d.: 80-811;
Swa, Jan. 25-Febr. 7, 1996: 37-38; The Australian , Sept. 23, 1996).

Recently, the First Pacific had found an Australian partner, David Davies,
to branch out into a new group, First Pacific Davies, which specializes in
real estate and property consultancy. This new group also has branch
offices in the Philippines, apart from offices in seven other countries
(WE, Sept. 13, 1983: 87-89; Australian Financial Review [AFR ], May 19,
1995).

In 1991, Salim Group companies in Indonesia also began to expand directly
into the Philippines. PT Bogasari Flour Mills (BFM) and its affiliate, PT
Indofood Sukses Makmur established a US$ 3.5 million instant noodle factory
in the Philippines, which is 40% owned by Salim, while the majority shares
(60%) is owned by the Concepcion family's RFM Corporation.

That was Salim's first step to ASEAN-ize its food division, which was soon
followed by acquiring the shares of a flour mill in Kuantan, Malaysia, and
by establishing a joint ventures with a state company in Vietnam and
another instant food company in Singapore (WE, March 2, 1992: 29; Sinar,
Dec. 3, 1994: 84; Economic & Business Review Indonesia  [EBRI ], Sept. 4,
1996: 28).

This expansion of the Salim Group's instant noodle empire, which had
received an management award from the Manila-based Asia Institute of
Management on September 24, this year, need to be put in a political
economic perspecive. For 25 years, the Bogasari flour mills has been a
major money maker for the Suharto family, the Indonesian army, and the
family of another former general, Bustanil Arifin, legalized through
Bogasari's share arrangements (Schwarz and Friedland, 1991; Shin Yoon Hwan,
1989: 354). Therefore, all Indofood instant noodle consumers have
contibuted to the wealth of the families of Suharto and other generals as
well as to overseas wheat farmers, at the expense of Indonesian rice
farmers.

While the food division of the Salim Group began to ASEAN-ize, PT Branta
Mulia, another member company was doing a similar thing. This tire cord
fabric manufacturing company has as much to do with Indonesia's invasion of
East Timor, as with the growth of the Salim empire. Its largest shareholder
(22.5%) is Robby Sumampouw, a Sino-Indonesian businessman who made his
fortune from supplying the Indonesian troops in East Timor, and in 20 years
time achieved a near monopoly over all Indonesian businesses in East Timor,
making his family one of the sixty richest families in Indonesia (IEFR,
1994: 228-229; Info-Bisnis , Special Edition 1994: 68)

After establishing its first plant in Indonesia in 1985, Branta Mulia has
in ten years time set up a 49% joint venture in Thailand with a Thai
textile tycoon, Boonnam Boonamsap, and the Bangkok Bank. After that it
established a 40% joint venture in Malaysia. Currently, these three
operating factories have a total production capacity of 38,000 tons,
booking a net profit of US$ 18.5 million. Two years ago planned to set up
another joint venture in the Philippines, which will be completed next
year. It is estimated to have an annual production capacity of 12,000 tons
with US$ 90 million investment (IBW, Oct. 8, 1993: 43, EBRI , Nov. 12,
1994, June 19, 1995).

Branta Mulia's CEO is an indigenous Indonesian businessman, Ibrahim Risyad,
who is slowly but surely building his own business empire, the Risyadson
Group. So is Sudwikatmono, Suharto's foster brother who represents the
Suharto family's interests in the Salim Group. Sudwikatmono's children,
have also become some of the rising stars in Indonesia -- and in ASEAN.
Miana Sudwikatmono, for instance, is the franchise holder for the US T-bone
steak chain, Tony Roma's. She has outlets in Jakarta, Singapore, Bangkok,
Hong Kong, Taipei, and certainly, also in Manila. Each outlet involves an
investment of around US$ 1.5 million (Swa, Oct. 3-16, 1996: 14).

Probably, since so many members, divisions, and overseas units of the Salim
Group had invested in the Philippines, four years ago the Singapore-based
Business Times  already estimated that the Salim Group was the largest
foreign investor in the Philippines. This trend is certainly not going to
slow down, since the group has more "Philippine connections" than before.
Since the early 1990s, they have recruited a seasoned accountant as their
advisor, who has had twenty years of experience in working with one of the
most well-known Philippine accountant offices, SGV. This person, Utomo
Josodirdjo, formerly owner and director of SGV-Utomo, is also a
commissioner of a Philippine company. A former staff executive of
SGV-Utomo, Andi Sahiri, has also become a director of the Salim Group's
financial flagship, Bank Central Asia (Swa, Oct. 1991: 60-63;WE , April 27,
1992: 24).

***