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The business of politics in Indonesia
Inside Indonesia - July-September 2014
On the eve of Indonesia's third direct presidential elections, voters are faced with two candidates whose politico-business credentials couldn't be more different. The second contender, Jokwo Widodo (known as Jokowi), left his previous life as the owner of a furniture exporting business to enter local politics in Solo. A reputation for efficiency, pragmatism and clean governance led him to become governor of Jakarta, and then propelled him onto the national stage.
In many ways, Prabowo and Jokowi represent two contradictory features of Indonesia's democratic political economy. On the one hand, democracy has provided space for political outsiders, many from the private sector, to launch careers in government. Some, like Jokowi, come from industries comparatively free of rent seeking and corrupt licensing. They enter politics and leverage their business acumen to build more transparent and efficient government. At the same time, reform has provided ample opportunity for oligarchic dominance of mainstream politics, and for predatory alliances between political and business elites. These alliances are driven partly by personal enrichment; but politics is also a costly enterprise and state officials increasingly depend on wealthy donors to underwrite their political activities.
Enter the oligarchs
Indonesia's reform era has been marked by the rise of private sector entrepreneurs in political parties and public office. It's common for political parties and their leaders to forge formal relationships with wealthy donors and business tycoons. For example, in 2013 the National Awakening Party (PKB), Indonesia's largest Islamic-based political party appointed Rusdi Kirana as the deputy chairman. Rusdi is a Chinese non-Muslim businessman who owns Lion Air, one of the country's most profitable airline companies. Party elites did not unanimously support the appointment of a non-Muslim outsider, but the decision paid off. In the end, Rusdi's resources probably helped PKB receive around nine per cent of the vote in April's legislative elections, almost twice the proportion of votes it received in 2009.
In the early stages of the presidential elections, almost every potential candidate was either a business tycoon or bankrolled by one. Chairman of Golkar, Aburizal Bakrie, is one of Indonesia's most controversial businessmen. His empire, the Bakrie Group, stretches across property, agribusiness, media, and mining industries, and in 2013 was worth around 2.4 billion dollars US. Early in 2014 Bakrie announced his ill-fated bid for the presidency. Around the same time Surya Paloh, a powerful media tycoon, announced his own ambitions for the top job. Paloh had competed against Bakrie for the Golkar Chairmanship back in 2009, so three years later Paloh drew upon his personal wealth to establish the National Democratic party (Nasdem) as a vehicle for his 2014 presidential bid.
Meanwhile, Hary Tanoesoedibjo, Indonesia's other major media tycoon joined Hanura to run as Wiranto's vice presidential candidate. But when their party's poor showing in the legislative election put an end to that fantasy, Hary jumped ship and threw his weight behind Prabowo's candidacy. Golkar also now stands behind the Prabowo-Hatta ticket. With Hary and Bakrie's media companies onside, five of the country's free-to-air TV stations are giving huge airtime and unashamedly positive coverage to the Prabowo campaign. Surya Paloh's Metro TV is almost equally unashamedly pro-Jokowi, but his market share is dwarfed by that of his rivals.
Accordingly, Prabowo is now supported by a coalition of powerful politico-business elites and insiders say he is cultivating other major oligarchs that so far remain politically unaligned. But his rise to heavy-weight presidential candidate is the work of business tycoon and younger brother, Hashim Djojohadikusumo, who appeared at number 42 on Indonesia Forbes' rich list for 2013, and number 37 for Global Asia in the same year. Since 2008 Hashim has invested a significant amount of personal wealth into realising his older brother's political aspirations. The pair established Gerindra (Partai Gerakan Indonesia Raya) as Prabowo's political machine and vehicle for his presidential nomination, and they've run an effective and efficient campaign that has Prabowo now leading the polls.
Sons of the late New Order economist and cabinet minister, Sumitro Djojohadikusumo, Hashim and Prabowo were born into a well-heeled political dynasty and educated abroad (despite Prabowo's recent absurd claims to have experienced poverty as a youth). Sumitro's close connections to the Suharto regime meant Hashim was able to accrue significant personal wealth during the New Order through investments in the banking sector, cement, petrochemicals and coal. Much of this was lost after the economic crisis in 1998. But Hashim has clawed his way back. After a series of lucrative business investments, including in the oil fields of Kazakhstan, Papua and East Java, Hashim and his revamped conglomerate Arsari Group are, according to Forbes, now worth around US$700 million dollars. (Most of these oil assets have now been divested.) Other sources put Hashim's net worth at over a billion.
Prabowo, while not one of Indonesia's business tycoons, has accrued significant personal wealth through his own investments in the oil and gas and agribusiness sectors, and through business partnerships with his brother. Prabowo recently reported his wealth to the Electoral Commission and Corruption Eradication Commission to be at Rp.1.67 trillion, or approximately US$140 million dollars, and just over US$7.5 million in overseas currencies.
Thirsty for funds
Many observers believe business expansion and ego are what motivates these tycoons' foray into public office. The democratic era offered them more opportunity to access the state and, hence, more opportunity for expansion of their business empires. For example, Jusuf Kalla, Jokowi's running mate and former vice president under SBY's first government, owns the large and profitable conglomerate, Kalla Group (worth over US$550 million according to Globe Asia). His brother and business partner, Achmad Kalla, admitted to the media that their contracting businesses under the Kalla Group benefitted from priority access to government tenders while Kalla was vice president between 2004-2009.
However, oligarchic infiltration of political office is not simply a case of wealthy rent seekers penetrating the state to expand their private wealth, though there is certainly plenty of that. The relationship between wealthy businessmen and state officials is symbiotic. Without government subsidies, parties must raise their own cash to fund party events, pay staff, finance electoral campaigns, buy advertising and so on. Money is also an important part of building political coalitions. Press reports, for example, described how Prabowo requested payments from potential vice presidential candidates. He apparently demanded Bakrie pay Rp3 trillion, or $US250 million, in campaign funds. Gerindra asked Hatta Rajasa for Rp 1.7 trillion, or around $US140 million. But Hatta was able to close the deal by offering to pay 40 per cent of the campaign costs instead. This is an extreme case, in which one oligarch is extorting money from others. However, it does help illustrate the broader point that the parties are not simply captured by oligarchs, but they also target tycoons for their deep pockets.
The entry of people like Bakrie, Paloh, Rusdi and Hashim onto the political stage makes it tempting to conclude that Indonesia's political parties operate at the whim of economic elites. But two points are worth noting here. Firstly, Indonesia's mainstream, historically rooted political parties are not headed by economic oligarchs. Megawati, Chairperson of PDIP, Hatta Rajasa, Chairman of the National Mandate Party (PAN), and Muhaimin Iskandar of PKB, might be wealthy individuals (particularly Hatta), but they are not powerful tycoons who've moved suddenly onto the political scene. They have a long history of involvement with their respective parties, and have been placed at the helm for ideological, historical and political reasons – not purely because of their access to funds. If anything, it is their access to state office that has provided them with wealth – again, Hatta is the stand-out case here – not the other way around.
Secondly, both Bakrie and Paloh were quickly made aware of their limited popular appeal and pulled out of the presidential race early in 2014, showing that fantastic wealth isn't everything in Indonesian politics. In fact, association with wealthy oligarchs can be detrimental for a political party. A recent opinion piece by Bayu Daridas in The Jakarta Post argued that Bakrie has jeopardised rather than strengthened Golkar's political position. Dardias states that, 'for the first time since 1972, not only has Golkar failed to propose a presidential candidate, but as a latecomer, it might also receive the worst deal in a potential Prabowo Cabinet.'
Business and politics in the regions
Campaigning for office requires significant financing, even in the country's poor far-flung districts. Edward Aspinall's recent research on the legislative elections, for example, reveals a new electoral economy emerging throughout the country. Voter support is engaged through a layered system of professional consultants, brokers and campaign volunteers whose job is to distribute money or community gifts on behalf of an electoral candidate. This increasingly professionalised system of patronage necessitates large cash investment on the part of candidates. Given these spiralling costs, it's no wonder that established local business elites do well in regional elections. They can finance professional and efficient campaigns, distribute wealth or opportunity to political clients, and buy support from citizens leading up to election day.
The story of Governor Nur Alam is a good example. Nur Alam was well known in Sulawesi for his highly successful contracting business, PT. Tamalakindi Puri Perkasa. Then in 2008, Nur Alam ran a well-funded campaign for the governorship as a candidate for PAN, defeating Golkar incumbent and favourite, Ali Mazi. At the time, PAN was not a prominent party in Sultra. However, during his six years as governor, Nur Alam has ensured that a PAN district head wins almost every district election.
Nur Alam likes to emphasise his business acumen, describing his political strategy as a combination of 'research and resources'. By this he means hiring a professional consulting company that does everything from conducting community surveys to shaping public relations and campaign materials. These surveys are used to determine who, out of a list of potential PAN candidates, has the most name recognition and public support. Survey results are also used to gain investor confidence and are shown to private business donors in order to secure campaign donations. Similar stories of local business people entering politics can be found across the country. Indeed, Indonesia's reform era has been marked by the entry of entrepreneurs into public office on an unprecedented scale. Typically these characters have business interests in areas that are dependent on, or advantaged by, access to state contracts and licenses. Before reformasi, and during the early years of transition, all levels of government were stacked with career bureaucrats and military men. Today, many national and regional parliamentarians have backgrounds in the private sector – the 2004-9 parliament consisted of almost 40 per cent from the private sector and by 2009-14 it had increased to just over 47 per cent.
Licenses and alliances
Nur Alam's success in Sultra is owed, in part, to his close ties with Hatta Rajasa – former Coordinating Minister for Economic Affairs, PAN Chairman, and Prabowo's vice presidential candidate. In fact, the political careers and finances of local and national politico-business elites are often linked in important ways. Yet these connections remain an under researched area of Indonesia's political economy.
For example, during Hatta's tenure as Minister for Transport (2004-07), Nur Alam's contracting companies received considerable access to infrastructure projects across the country, contributing significantly to the expansion of his business. It seems that Nur Alam has repaid the favour, turning Southeast Sulawesi into one of the only PAN strongholds in the country. Hatta has paved a political path for other business allies. Jon Erizal is former Executive Director of PT Arthindo Utama, the Hatta family's oil, gas, mining and geothermal company. In 2010 Erizal was made PAN's party treasurer, then in 2013 he ran as governor of Riau. Erizal failed to mount a serious challenge against Golkar's candidate, Annas Maamun. This year, however, Erizal ran in the legislative election for a seat in the national parliament, winning the largest vote of any candidate in Riau.
Strategic alliances between regional and national elites like these are important, particularly when it comes to revenue generation in the natural resource sectors. Decentralisation gave district heads and governors the power to issue a gamut of business permits – everything from land conversion, mining, plantation licenses, among others. So having allies in resource rich local governments is an invaluable asset for politico-business elites at the national level. Prabowo, for example, has cultivated an important local alliance with Isran Noor, District Head of East Kutai in East Kalimantan. In 2012 London-listed Churchill Mining had its permit revoked by Noor, following the company's discovery of unexpectedly massive coal reserves. The permit was promptly transferred to Nusantara Group, a local mining company affiliated with Prabowo. Isran Noor, also the head of All Indonesia District Governments Association (APKASI), is believed to maintain a close political relationship with Prabowo and threw his support behind Prabowo's presidential bid early in the campaign period despite being head of the Democrat Party's East Kalimantan branch.
The business of parliament
Parliament is also a very important arena for business transactions and politico-business alliances. Every day it seems the newspapers report on corrupt transgressions by parliamentarians. The most sought-after positions in parliament are of course in 'wet' commissions which deal with lucrative sectors of the economy, such as oil and gas, or banking, and which therefore provide ample opportunity to extort funds.
For example, with a decade of experience in Hatta Rajasa's energy company, there's little doubt that Jon Erizal will be vying for a seat in Commission number 7 on Energy, Mining, Research & Technology and Environment. This is one of the most strategic parliamentary commissions because it oversees laws and budgetary processes for the energy and mineral resource sectors. There's also plenty of opportunity for lucrative kickbacks and bribes. Commission 7 works closely with the Ministry of Energy and Mineral Resources (ESDM) and SKKMigas (the oil and gas regulatory body). Together, members of these institutions can rig the bidding of oil, gas or mining contracts in order to favour their business alliances and collect kickbacks.
Given these rewarding business opportunities, it is an unwritten rule that whichever party maintains the most seats in parliament gets priority access to Commission 7, and will appoint one of its own at the helm. So during President Yudhoyono's second term, his Democrat Party held the largest number of seats in Commission 7, and placed party member, Sutan Bhatoegana as its chair. Minister for Energy, Jero Wacik, is also a Democrat and close ally of Yudhoyono.
The Corruption Eradication Commission (KPK) has now turned its attention to the natural resource sectors and the inner workings of Commission 7, ESDM and SKK Migas. Former head of SKK Migas Rudi Rubiandini was convicted of taking over US$900,000 in bribes from a Singaporean oil company to approve its bid for tender. Since Rudi's arrest, more claims have emerged. It now appears that Rudi was under pressure to provide funds to the Secretary General of ESDM, Waryono Karno, to more easily elicit parliamentary approval of ESDM's budget – at Sutan's request. This practice is ubiquitous across all parliamentary committees: parliamentarians leverage their authority to approve state budgets and request bribes in return for decisions on budget items. Journalists have speculated that some of the money collected by Rudi was intended for Democrat Party coffers.
Of course it's not all about vested business interests. Parliamentary processes are shaped by a composite of rent seeking and ideology; untangling their relative influence can feel like an impossible task. The 2009 Mining Law, for example, was discussed in Commission 7 for four years. It is often criticised in industry circles and international press for its protectionist character and many believe it was designed with a view to advantage domestic politico-business elites. But insiders also emphasise that much of the Law's contents were based on long-held dissatisfaction with foreign companies' extraction of the country's resources and attendant environmental consequences. For example, one of the key players in the negotiation of this law, former Minister for the Environment, Sonny Keraf, was a champion of its protectionist character and has no business connections to the industry.
The impact of public-private predation
Institutions like KPK and NGOs like Indonesia Corruption Watch play a pivotal role in uncovering collusive state-business alliances. The head of the KPK, Abraham Samad recently told the press that as of 2013, the KPK had recovered Rp. 214 trillion, or approximately US$17.8 million. The hope is that their work acts as a deterrent.
But most assume that the KPK is probably only scratching the surface. (Others believe there is at times beholden to the political sympathies of its leaders.) The entire political system – from the appointment of party leaders, to parliamentary decisions, to direct elections – turns on financial transactions, often illicit in nature. The consequences for policy outcomes can be tragic. Indonesia's expensive electoral system means that candidates for office often become the clients of wealthy businesspeople, so their time in government is spent serving debts to donors rather than the interests of their electorates. The environment suffers acutely at the hands of corrupt businessmen and politicians. Recent studies indicate that illegal logging increases 42 per cent in an election year as state officials trade land licenses for campaign funds.
More generally, where government contracts are awarded based on personal alliances and private interests, rather than on merit, efficiency and cost, Indonesia's infrastructure and the state budget will continue to suffer from debilitating weakness. According to the Forum Global Competitiveness Index (GCI, 2013-2014), Indonesia ranks 61st out of 148 economies in terms of its infrastructure, significantly impeding the country's economic growth.
The business of politics under a new administration
The transactions and transgressions outlined in this essay afflict institutions that are the backbone of Indonesia's democratic state – political parties, direct local elections, the parliament, and bodies like the Constitutional Court. The intention here was not to dismiss these institutions as completely dysfunctional or inoperative. Each continues to perform its role to a degree; indeed Indonesia's stable political and economic development over the past decade has received praise from many quarters (see Hill's contribution to this edition). The point is that Indonesia's democratic institutions are increasingly burdened by their alternative purpose as sources of private capital accumulation. Their weakness leaves the Indonesian state open to predation by corrupt politico-business elites, and prevents Indonesia from achieving important social and economic benchmarks.
The upcoming election is a critical turning point for Indonesian politics. Both candidates for the presidency have vowed to stamp out corruption and reform the bureaucracy. But which has the credentials and the political will to fulfill these illusive campaign promises?
A Jokowi government would not cure Indonesia of the political transactions laid out in this essay. But his previous record indicates the political will for slow and steady reform. A victory for Prabowo's coalition would be powerful confirmation of oligarchic capture. Prabowo and Hashim cut their teeth in Suharto's inner circle, and their nostalgia for that era is no secret – rather it has become part of their campaign message. Prabowo is making it increasingly clear he would sooner scale back, rather than improve, democratic institutions, like direct elections. Judging by the track record of Prabowo, Hashim and the powerful men who now stand by their side, we could assume that a Prabowo government will work to centralise and entrench, rather than reform, the business of politics in contemporary Indonesia.
[Eve Warburton is a PhD candidate in the Department of Political and Social Change at the Australian National University. Her thesis focuses on politics and policy making in Indonesia's natural resource sectors.]