Lapindo Victims Portal

Thursday, 16 October 2008
Government companies step up to buy shares in a flailing family group

As it has in the past, the Indonesia government stepped in Wednesday to stop the unravelling of the empire of the politically powerful Chief Welfare Minister Aburizal Bakrie with a deal to allow government-owned companies to buy shares in Bakrie concerns – and apparently let the Bakries stay in control.

Shares in Bakrie & Brothers and its five subsidiaries, PT Bumi Resources, Energi Mega, Bakrieland, Bakrie Telecom and Bakrie Sumatera Plantation were suspended from trading on October 6 amid wild gyrations in their share price that wiped out 30 percent of their value, with a devastating effect on the rest of the local market. The Indonesian Stock Exchange was closed for three days amid the carnage after falling by 21 percent, the biggest fall in 20 years.

The market reopened Monday but without the Bakrie companies, which remained suspended while the group said it was working on a deal to sell a raft of assets -- including a stake in coal miner Bumi, at one time the biggest company on the exchange – to pay off $1.2 billion in debt. Shares in Bumi are down 74 per cent since their peak in June.

However, the Minister for State Enterprises, Sofyan Djalil said Wednesday that state-owned PT Aneka Tambang and PT Tambang Batubara Bukit Asam would be allowed to buy shares in Bumi if they want, which almost certainly means they will. That way the Bakrie family may still be able to maintain control over the company despite a reduction in their 35 percent stake.

That decision is likely to be greeted by less than enthusiasm on the part of the electorate, and could spell trouble for President Susilo Bambang Yudhoyono, who has made erasing corruption and cronyism a major goal of his administration, so far with less than notable success. Although he has moved up recently in the polls, Yudhoyono is locked in a close race with former President Megawati Sukarnoputri in the runup to the presidential election next April.

While the Bakrie enterprises are hardly as important to Indonesia’s economy as Fannie Mae or AIG are to the US, the alternative to saving Bakrie is not saving him, something that could be politically unappetizing for Yudhoyono, who so far doesn’t appear to consider himself independently powerful enough to let the Bakrie group go.

Despite the fact that he was a general himself, Yudhoyono got considerable backing for his 2004 election came from Kadin Indonesia, the Indonesia Chamber of Commerce, which has long-standing links to Sofyan’s State-Owned Enterprises Ministry.

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