Singapore Business Times

Shoeb Kagda

A GREAT battle is raging in Indonesia and it is not the one between the students and security forces that has been broadcast to the world these past six months.

There is another, and in some ways more crucial, battle that is being fought away from the news cameras. This is the battle in corporate boardrooms and corridors of power across the country. It is the fight for the country's economic assets between those who would like to see these assets remain in the hands of their current owners and those who want them transferred into the hands of new owners.

Under former president Suharto's New Order government, it was clear that the bulk of the nation's wealth would be concentrated in the hands of his family and about 200 of his closest cronies and through the trickle-down effect, it would flow to the rest of the population.

But since his downfall, this system has come under attack and a new call for the country's economic assets to be transferred to the country's indigenous businessmen under the banner of the Ekonomi Rakyat or a "people's economy" has emerged.

Led by the Minister of Cooperatives Adi Sasono, the proponents of the people's economy want economic resources to be transferred, by government, from mainly Chinese-owned companies to the 52,000 cooperatives owned by mainly pribumi businessmen.

Mr Sasono has on several occasions denied that his policies are anti-Chinese or anti-conglomerates, saying that his aim is a fair distribution of economic assets.

No one can argue against the need for the country's resources to be more evenly distributed. But what analysts and foreign investors privately fear is that a new economic nationalism is on the rise in Indonesia which, if left uncontrolled, could backfire on the country's efforts to regain credibility in the eyes of international investors.

Rather than being thought of as an economic blueprint for the future, the concept of a people's economy is seen as a populist policy to gain control of economic resources at the expense of efficiency.

Mr Sasono has already pushed some of his policies through parliament, which last year approved more than 11 trillion rupiah (S$2.3 billion) to be given to his ministry to promote cooperatives and extend cheap loans to small and medium-sized enterprises.

The minister has also tried to get his hands on assets currently under the control of the Indonesian Bank Restructuring Agency and the Ministry of State Enterprises -- he has asked for 20 per cent of all revenue generated by the state plantation companies and a certain percentage from the liquidation of banking assets to be channelled to his ministry.

Recently, the government announced that it will push ahead with its plan to set up a People's Economic Development Body, an agency to facilitate the flow of funds from government agencies to small and medium-sized enterprises.

More worrying for foreign investors, however, is the government's seeming backpeddling on foreign investment laws introduced in 1994 allowing for 100 per cent foreign ownership in a number of sectors.

In November last year, Trade and Industry Minister Rahardi Ramelan said that the government would table new laws to open up the country's retail sector to foreign companies. But foreign investors inquiring into the possibility of setting up such businesses have been told to find local companies or cooperatives as partners if they want to participate in the country's vast and lucrative distribution sector.

The danger is that the influential elites will put up dummy companies and shareholders or appoint certain "favoured individuals" just to gain the licence and add to the cost burden of doing business in Indonesia.

Foreign companies are also less likely to be tolerant of pressures to have a certain type of partner when doing business in Indonesia and may opt to place their money elsewhere in the region.

The biggest losers, however, are likely to be the people who run small and medium-sized enterprises. Their hopes have been raised by the slogans but may be dashed by the reality of Indonesian politics as usual.