B.J. Habibie: profile of a potential president

Wednesday, March 4, 1998 - 11:00

By James Balowski

Responding to hints by President Suharto that B.J. Habibie was his preferred choice for vice-president, the January 22 Sydney Morning Herald ran a background piece on Habibie titled "As 'Dr Strangelove' rises, the rupiah falls even further" (Dr Strangelove was a crazed German rocket scientist in Stanley Kubrick's film of that name).

The article said Habibie is "short, speaks shrilly and gesticulates wildly, has a decidedly Teutonic manner from his German education, has the ear of his president, and wants to build aircraft, rockets, ships and nuclear power plants. He is also the man who bought the East German Navy."

Despite Habibie's reputation among economic analysts as a financial maverick, in early February, the state party Golkar nominated 61-year-old Habibie, and the party's chairperson, Harmoko, as its candidates. In response, the rupiah plunged to a historic low of 17,000 to the US dollar.

On February 16, Harmoko bowed out of the "race". The newly appointed armed forces (ABRI) chief of staff, Wiranto, has thrown the military's support behind Habibie, as have both official "opposition" parties.

Following the worldwide drop in oil prices in the mid-1970s (oil was 70% of Indonesia's state income), the Indonesian economy was forced to diversify. "Habibienomics", as it is now commonly referred to, argues that Indonesia should invest heavily in technology to give an added value to domestic production, which, in the long term, will create spin-offs across the industry.

Habibie's "big bang" theory of development has never been popular with international financial institutions. On February 14, the London Financial Times wrote that diplomats and business people would roll their eyes and "crack jokes about his zigzag theory, which held that high interest rates boost inflation and should therefore be brought down, raised again and lowered once more to promote economic growth".

The IMF has also voiced reservations. Deputy managing director Stanley Fischer noted that Indonesia's rupiah was hit by the selection of a vice-president "whose devotion to new ways of doing things is limited". Fischer was referring to the IMF's US$43 billion bailout package, which is contingent upon a number of economic "reforms" that will affect Habibie's enterprises.

While officially Habibie is merely the minister of research and technology, he is in fact far more powerful. Habibie has considerable personal influence over Suharto and controls a number of key state industries that have enabled him and members of his family to amass a powerful business empire.

During the 1970s, control of several ABRI industries was transferred to the Coordinating Agency for Strategic Industries, headed by Habibie. This body covers 10 strategic industries, including the IPTN aircraft company, Krakatau Steel, the shipbuilding company PT PAL and the weapons and ammunition factory, PT PINDAD.

Habibie also holds at least a dozen other executive positions in state companies.

Habibie is chairperson of the Indonesian Muslim Intellectuals Association, created to counter the power of ABRI and to cultivate Islamic support. Earlier this year, Habibie used his position to sack a popular opposition figure, Amien Rais, from the association after he criticised Suharto's economic policy.

The Habibie family owns at least 40 companies involved in activities ranging from trade, consultancy work, plantations, chemicals, pig and poultry farming to construction, telecommunications, aerial mapping and tourism.

Many are joint ventures with one of Suharto's cronies, Liem Sioe Liong, or with members of the president's immediate family. In 1993, PT TIMSCO, in which the bulk of Habibie's companies are held, had a turnover of US$300 million and assets worth US$150 million.

The majority of Habibie's strategic companies are tied into Indonesia's military-industrial complex. This has provoked hostility from ABRI, which is resentful of civilian interference and angered by being forced to purchase military hardware from Habibie's companies when cheaper and better hardware is available elsewhere.

Former finance minister Radius Prawiro once remarked, "First Habibie comes to the government for the money to make the airplanes. Then he comes back for us to buy them."

Habibie's projects have always generated controversy. A 1990 tax audit discovered that PT PAL had under-reported its income for 1985-1987 by around US$80 million.

Habibie claimed in a letter to the department that the payment of past taxes "would be a burden for PT PAL and damage its future prospects". He sent a copy to Suharto, and two days later the matter was dropped.

A scandal erupted in 1994 over the purchase of 39 warships from the East German Navy when one of them sank during its passage to Indonesia. Two Jakarta magazines printed interviews with the ministers of finance (Mar'ie Muhammad) and defence (Edi Sudrajat) critical of the funding and benefits of the project. Both magazines were banned.

The same year, Muhammad refused to channel more money into one of Habibie's aircraft projects. To keep the project afloat, Suharto violated a number of laws by allocating US$185 million to the project from funds earmarked for reforestation.

If the IMF "reforms" are fully implemented, Habibie's business empire will be one of the big losers. Habibie, like Suharto, has been quick to use nationalist rhetoric to shift the blame for the economic crisis onto international speculators.

He has also tried to blame manoeuvres by an "international communist network", which he claims is trying to undermine the Indonesian economy by creating social unrest.

From GLW issue 308