Aid vanishes with Suharto

Corrupt Indonesian officials and Chinese businessmen have pocketed up to a third of Indonesia’s international aid, according to an internal World Bank document. Since 1967, the World Bank has lent Indonesia at least $24bn (£14.3bn) to build its infrastructure. It also contributed about $4.5bn to a recent $43bn IMF rescue package. The report warns that […]

Corrupt Indonesian officials and Chinese businessmen have pocketed up to a third of Indonesia’s international aid, according to an internal World Bank document.

Since 1967, the World Bank has lent Indonesia at least $24bn (£14.3bn) to build its infrastructure. It also contributed about $4.5bn to a recent $43bn IMF rescue package. The report warns that spending on national projects and social infrastructure improvements now faces further cuts.

Most of the national projects were connected to former president Suharto’s family members, relatives or business cronies, and are now in limbo as the funds allocated for them have disappeared overseas.

The projects include new and upgraded roads, ports, telecoms, industrial construction, shipbuilding and aircraft industries.

Development of the first south-east Asian passenger jet has been abandoned as the state-run aircraft manufacturing firm, Industri Pesawat Terbang Nusantara, no longer receives government subsidies. The state-owned shipbuilding company, Perindustrian Angkatan Laut, also faces a bleak future as import restrictions on foreign ships have been eased.

Also on hold is development of the gas field off Natuna island. This was due to start producing early next century, with participation from Japanese and US companies. The price for natural gas has made the project economically unfeasible.

An important industrial park at Batam island, south of Singapore, is also threatened as many Suharto relatives and associates have withdrawn funds.

The Suharto regime’s core development policy was industrialisation based on advanced technology. In the previous government, as minister of state for research and technology, President Habibie headed projects for domestic ship and aircraft production. Having instigated these projects, in his new role he will have to axe them.

Japanese car makers are also having to rethink their Indonesian strategies as car sales plummet. Nissan, which started local production last year, has put it on hold.

Demand for electrical appliances has also fallen sharply. Sharp Yasonta, one of Indonesia’s biggest manufacturers of electrical appliances, has cut monthly production of domestic refrigerators by 70% to 8,000 units. With the price of materials rising steeply after the rupiah’s catastrophic fall, Sharp last year doubled retail prices.

On top of all this, the country’s national distribution systems have fallen apart. Sharp Yasonta reports that 100 outlets more than a fifth of the total closed or stopped selling its products in the last six months because they could not obtain operating funds. This trend is continuing.

A few months ago, this column forecast that international funds could go missing. We said that if the IMF funds lent to Indonesia to complete vital infrastructural developments were channeled through local banks, most owned by the very people who were responsible for the monetary crisis, they would seize the opportunity to divert even more monies to their own pockets. Unfortunately, this has proved to be the case.

Ed Weiss