Angry, driven, smart – and gone. Kwik Kian Gie, Indonesian finance minister, Asiamoney, September 2000

Asiamoney, September 2000

Kwik Kian Gie was the highest-ranking ethnic Chinese in the Indonesian government: an outspoken economic visionary who used his 10 months in office to wage war on the country’s conglomerates. But his tenure as coordinating minister for the economy, during which he was criticized for being both ineffectual and loud-mouthed, is at an end.

In Kwik’s last interview before Gus Dur announced his reshuffled cabinet, he spoke candidly to Asiamoney about the successes of his office and the challenges ahead. By Chris Wright and Maggie Ford.

 We caught Kwik Kian Gie at a difficult time. When our interview took place on August 21 in Jakarta, he had no idea whether or not he would have a job in the cabinet in a few days’ time. We now know the answer: no he doesn’t. But he won’t have been entirely surprised.

Kwik has been replaced by Rizal Ramli, an academic, following president Wahid’s reshuffle of his cabinet. But in fact, Kwik had actually handed in his resignation – for reasons he explains below – some three weeks earlier. The day before our interview, following criticism of his achievements as a minister, he had visited the president to present a report outlining exactly what he thought his team had accomplished in the last 10 months. Our opening question was to ask what was in that report; his response to that question lasted fully half an hour. (See our website, www.asiamoney.com, for the full interview transcript.)

It can be distilled like this: things are getting better, but nobody appreciates it. Kwik points out that when the cabinet was installed on October 29, there were serious problems with the budget, and relationships with the IMF had been scrapped because the government had refused to publish the full report into the Bank Bali scandal. But by January 20, less than three months after the economic team took office, the first letter of intent with the IMF – containing 118 separate measures – was signed and the budget was submitted to parliament. Relations with the IMF remained solid throughout his term.

Since January, results have started to pick up. Economic growth was 4.17% in second quarter 2000. Investment was up 21.14% and exports 21.4% (these are all Kwik’s figures). But Kwik has his critics – and he does not take criticism well.

He resents any comparison between Indonesia’s post-crisis progress and that of Thailand and Malaysia. “The magnitude of damage in the banking sector from abuse, misuse and corruption – there is no comparison.” He points out that recapitalization of the banks in Indonesia through government bonds creates a Rp600 trillion (US$71.3 billion) burden, requiring interest payments by the government of Rp42 trillion in budget year 2000 and Rp78 trillion in 2001. “If you take all this into consideration it is impossible to rebound within three years.”

He is also irritated that critics say bank restructuring has not been completed. “I don’t understand! How can they be so stupid? It is 100% done. Bank Bali is not completed but it is only a question of signing government bonds by the Ministry of Finance, which can be done any time.” Kwik also says the debt of 13 big companies has been completed, along with the sale of receivables from a further five. New programmes to rejuvenate activity in agriculture, marine and fisheries, natural resources such as forestry and minerals, and small and medium enterprises, are underway.

He speaks repeatedly of “they”. As in: “They say nothing has happened.” Or, “They have launched a smear campaign against me.” In these contexts, he says “they” means Indonesian economists. But an angry sense of unfairness resonates through our interview, and it seems directed not only at economists but conglomerates, the media and even his own government. At one stage, following a question about IMF deadlines, he asserts: “The big conglomerates have been my enemies from 1989 or 1990. For two years I wrote once a week [in an influential publication called Kompas] exposing companies, pinpointing the dirty tricks they used to cheat investors on the Jakarta stock exchange. You can imagine how angry they were. They launched a campaign that I should not be in the government.”

 The interview continues:

 Why did you resign when you can point to the economic progress that has been made?

The president made a speech to the People’s Assembly on August 9, saying he was going to restructure and reshuffle his cabinet. My resignation letter was to say to the president: my portfolio is empty so you can fill it with anybody you want. The resignation is not a sign that I do not want to go back in to the cabinet, just that I understand how democracy works.

 How have your recent relations with the IMF been? Are its policies and requirements relating to Indonesia the right ones?

Generally speaking they are excellent. Months before I came into the cabinet, my party already had regular communication with the IMF: specifically Megawati, Laksamana Sukardi [controversially fired from the cabinet in April] and myself. At that time they asked: if our party is in the cabinet, what will our position be on the IMF? We said we want to continue with the IMF, because we have studied the letter of intent and it is very good for Indonesia. It is all about transparency, due diligence, law enforcement.

That is all basically agreed but on some technical items we have different opinions. As soon as I became minister we had a debate on the concept of recapitalization of a bank. [Under the IMF] a bank eligible for recapitalization should be recapped until its capital adequacy ratio reaches 4%. That is translated into a certain amount of money, which should be injected into the bank by the government. The question is: if the number is 4%, who says the money will be enough? It should be the other way around: how much money is needed to recapitalize the bank? And if the answer is capital adequacy of 40%, then let it be 40%. Otherwise the bank will go bankrupt again. Bank Danamon came up with a calculation that it should be recapitalized by Rp8 trillion. That is the amount of money they needed to be sustainable, but it represents 36% capital adequacy. Some said this is in contradiction with the IMF. I said, I don’t care: done.

We do not just  accept whatever the IMF says. If we do not agree, we debate it. That is different to previous governments. We are not against the IMF, we just want to be rational. My impression is that the IMF is not used to such personalities in Indonesia – they were shocked that I took that position. But why shouldn’t I debate? We are colleagues, we have the same education.

 You have been quoted on your unhappiness with the master settlement agreement [liquidity loans given to Indonesian corporates during the financial crisis, in exchange for those companies handing over assets – which have dropped considerably in value].

Habibie [former president] has said that it is a fact that they owe money to the government. And if you owe money, logically you have to pay. Just pay then! If you cannot pay now, let’s negotiate on when you want to pay. That’s my personal thinking.

There is a holding company called PT Holdiko consisting of 109 companies given to IBRA as collateral. Ownership is not transferred, only collateral, and they are managed by the old owner, the Salim group. The Salim group owes Rp51 trillion to the government. Cacuk [Sudarijanto, chairman of IBRA – now also junior minister in charge of economic restructuring] wrote to the president saying: there is an interested party wanting to buy the group as a package. The president agreed. But the price was Rp20 trillion. That means that we realize a loss of Rp31 trillion. Who should bear the loss? According to the agreement, which is already signed, it should be borne by the government. I said: I refuse to sign.

Altogether five groups signed master settlement agreements. If one is done this way, the other four will follow. According to market price, the total loss would be Rp80 trillion. If it is followed by others in the same spirit, it would be Rp250 trillion. And they say: a contract is a contract. You have to respect a contract. Well if the contract was made during the old corrupt regime, and yet we have to respect it, then why did Suharto fall? Why are we prosecuting him?

Another claim is that they were hit by prices, and the country should take over the losses of business people. I can’t abide that. Anthony Salim is not bankrupt: he is not a poor man. Many business people are very prudent and don’t borrow at all. Many of them lost 70% to 80% of their wealth. Yet they have to pay the tax to support these companies. That’s crazy! How can I take a decision like that?

All the agreements were made together with the IMF. Well, I am sorry to say the IMF was wrong. So the ultimate decision is: we will decide together with the parliament in September. If I am not in the government I will become a member of parliament and will still deal with this. I am going to fight, inside or outside the government.

They owe money to the government and they have given many companies as collateral. I say that if you want to consider that as final, the ownership should be transferred to the government: we have to kick out the owner. But the government says the management should be in the hands of the old owner. Why? Because the founder of the company is the soul of the company and without them the company will go bankrupt. I say, if you are talking about an able entrepreneur, doesn’t that include the capability to assess the risk of foreign exchange? The answer should be yes. If they fail to do that they cannot say: as a result I have to be paid by the government. Is it logical to say that because a man like Anthony Salim was not able to assess the risk of foreign exchange, the government is to blame?

 Let me put to you a quote attributed to you in May. You said: if I was a foreign investor, I wouldn’t come to Indonesia. Where do you stand on that now?

Exactly the same words. I want to repeat it again. You can print it again, even stronger. I said that if I were a foreign investor I wouldn’t come to Indonesia. Everyone was angry and even the Economist called me artless, tactless, maladroit. Just because I said that! I don’t understand. Every foreign investor says that. They say Indonesia has great potential but they have to wait because the situation is unstable. It means I am not allowed to be honest. It means to be an Indonesian minister I must lie. I have European values, I spent 14 years in Europe, my wife is Dutch.

 It would appear that your honesty is greater than that of European politicians in any government in power. It is extremely rare for people to put a view like that forward and it might be considered foolhardy to do so.

But it is the truth! Even foreign investors here have complimented me. I have told the president there is anarchy in Indonesia right now. The military should take action and use force. But if I say that, I am wrong. The implication is that Indonesian ministers should lie.

 This is a question of moving markets, isn’t it? A minister makes a remark suggesting that something is wrong, and the market acts accordingly. Often ministers will avoid saying something for that reason.

Not important. I’m stating facts. And by saying it I hope I will push my own police, government, president to be serious in tackling these problems – this anarchy.

I remember what Mao Zedong said: if you are weak, every statement you make is evidence of your weakness. If you are strong, you don’t have to say anything. Learning from that statement you don’t have to make any promises to the world. Tell the truth. Do your homework. Make Indonesia conducive and very pleasant, then they will come.

Let’s talk about the central bank. What do you think its role can, and should, be going forward?

The central bank of Indonesia’s independence is excellent, of course, but it is also necessary to clean up the management team: all of them. It has already been proven by the BPK, the central auditing agency, that the management up to the highest level is at fault. Based on that report the attorney general is starting an investigation right now.

But it can be a useful, independent, respected force again?

Yes. The independence should be maintained. The management should be changed.

Should it be supervising banks in the future? It couldn’t in the past. It couldn’t supervise itself.

It should, but the people must be changed. Clean, able people.

And in terms of the structure of the government, the team that manages the economy? What would you like to see?

I don’t agree with the president in this case. It’s OK as it is now, with a coordinating minister, and ministers of finance, trade and industry, and SOEs. I think the economic team will stay the same. The president is thinking of other ministries. He wants to reduce to 25 ministers [from 35 – in fact he settled on 26 and left almost no part of the economic team in place].

Why was Laksamana sacked?

I don’t know. Nobody knows. There are so many of Gus Dur’s steps I do not understand very well.