Ibnu Sutowo’s Rise and Fall

Posted by on Aug 8, 2014 in Uncategorized | 2 comments

Ibnu Sutowo’s Rise and Fall

Ibnu Sutowo was born into the privileged Javanese priyayi class. His father was the chief (wedana) of Grobogan Regency (District) near Purwodadi, Central Java under the Dutch. Young Ibnu was educated in France and Holland, followed by training at the colonial medical college in Surabaya. Graduating in 1940, he was sent to Palembang to supervise the malaria eradication program in local transmigration colonies. He was elected to chair the South Sumatra Indonesian National Party (PNI) chapter. Ibnu ran the Palembang hospital during the Japanese occupation and married into a wealthy local family. After the war, he organized a youth militia, the Indonesian Nationalist Youth (Nasionalis Pemuda Indonesia, Napindo). He was granted military commission as a major, while continuing to administer the Palembang hospital. South Sumatra Military Governor A.K. Gani (a fellow doctor and nationalist) promoted Ibnu Sutowo to lieutenant colonel and placed him in charge of PT Permiri (Perusahaan Minyak Republik Indonesia), comprising former Shell Oil assets taken over by the Japanese. He was given an additional post in February 1948 as chief of staff in the South Sumatra Gajah Division under Colonel Bambang Utoyo.[1]

Showing keen organizational skills and early entrepreneurial talent, Ibnu invested in tin, rubber and tobacco production during the Revolution. He retired to private medical practice in South Sumatra after the transfer of sovereignty but was recalled in June 1955 to become South Sumatra Sriwijaya Regional Commander, after the Ali Sastroamidjoyo Cabinet appointed Colonel Bambang Utoyo Army Chief of Staff. Restored Army Chief Major General Abdul Haris Nasution brought Ibnu Sutowo to Jakarta in July 1956 as his Army Logistics Assistant. After Dutch properties were seized in December 1957, Nasution asked Ibnu Sutowo to manage the valuable Sumatran oil assets, consolidated under army control as PT Permina (Tambang Minyak Sumatra Utara, North Sumatra Oil Company). As logistics assistant, Ibnu helped Colonel Ahmad Yani plan operations against PRRI rebel forces in West Sumatra; he resumed duties as South Sumatra Sriwijaya Commander after rebel leader Lieutenant Colonel Barlian was arrested in June 1958.

Nasution promoted Ibnu Sutowo to brigadier general. He stacked the Permina staff with friends, mostly officers he had known since the Revolution. During 1958, Nasution was forced to relieve Ibnu from his headquarters duties after it was revealed he was running an illegal smuggling operation exporting rubber and bringing luxury automobiles into the country through Jakarta’s Tanjung Priok Port. Nasution temporarily suspended him from active duty but left Ibnu as president-director for the lucrative Permina oil business.[2] The suspension didn’t last long. Nasution returned the dark-skinned, chain smoking Javanese entrepreneur to his logistics duties at Army Headquarters, where Ibnu forged an enduring friendship with Army Administration Deputy Colonel Soeharto.[3]

Ibnu Sutowo parlayed the Permina state-run oil corporation into a profitable business empire. Initially, Japanese companies financed millions of dollars in urgently needed equipment and technical assistance for Permina in exchange for repayment in crude oil. A Japanese cartel invested over $50 million in Permina during the late-1950s, working with Ibnu to establish the model for the dozens of ground-breaking “production sharing” agreements that followed – wherein the state enterprise maintained full ownership and mineral rights, while foreign (mostly western) oil and mining companies managed operations in exchange for an agreed upon production share above and beyond their recovery costs. The foreign companies worked through a local agent who dealt with the cumbersome bureaucracy, arranging visas, work permits, and handling other red tape. The contractor received all payments in product. The state corporation had little or no costs. Its production share was pure profit. The original reason for such arrangements was to get around the Sukarno government’s nationalist foreign ownership restrictions.

In 1965, Permina bought Shell Oil’s Indonesian assets – already under “protective custody” – for $100 million and entered into production sharing agreements with the two American oil firms, Caltex and Stanvac. Ibnu Sutowo was a junior minister in Sukarno’s August 1964 Dwikora Cabinet. At Soeharto’s urging, in February 1966 he was appointed Petroleum and Natural Gas Minister in the 100-member Revised Dwikora Cabinet with promotion to major general. In August 1966, Permina absorbed the other two state oil firms – the Indonesian Oil Mining Company (Pertamin) and National Oil and Gas Company (Permigan) – and in 1968 was renamed the National Oil Company(Perusahaan Negara Pertambangan Minyak Nasional, Pertamina). The new oil corporation exercised complete control over the industry, including exploration, production, refining, transportation and marketing. Mobil Oil signed a production sharing agreement for natural gas operations in Aceh in October 1968 and by 1971 had discovered the massive Arun gas reserves near Lhokseumawe. The Pertamina-Mobil Lhoksukon natural gas liquification plant became the world’s largest, accounting for 30 percent of Indonesia’s energy exports.

Liberal investment policies and the mutually beneficial production sharing arrangements attracted extensive foreign capital to the resources sector, leading to a remarkable turn-around in the national economic situation by the early-1970s. The oil and gas contracts generated an enormous flow of revenues through Pertamina and completely bypassed government coffers. Company royalties and profits were returned to Pertamina, rather than Bank Indonesia, to the technocrats’ dismay. For his part, Ibnu made little effort to hide his disdain for fellow civilian ministers. By 1975, Pertamina had entered into production sharing agreements with thirty-five companies, operated seven oil refineries with a combined 400,000 barrels per day capacity, and ran a network of 2,680 gasoline stations. Overall production rates increased from 510,000 barrels per day in 1967 to 1,080,000 barrels in 1972 and nearly 1,500,000 barrels by 1975.[4]

The 1973 global oil crisis generated windfall profits for Pertamina. Although an OPEC member, Indonesia did not participate in the Arab oil embargo. Pertamina opened new offices in Singapore, Tokyo, Hong Kong and Los Angeles, while Ibnu Sutowo and his directors diverted vast sums of money. Pertamina became the largest single source for the government’s off-budget funds and Soeharto allowed Ibnu to run the state oil company as his personal fiefdom. Pertamina subsidized often extravagant purchases – headquarters facilities, housing and equipment, plus all sorts of perks for officers and troops. The generals drew freely on the Pertamina helicopter fleet for their transport needs. Ibnu was also a benefactor to the President’s wife, Ibu Tien, and partner in several of her charitable foundations. They all came to Ibnu when they needed money.

Unlike Soeharto, Ibnu Sutowo lived ostentatiously. He was chauffeured around Jakarta in a Rolls Royce with gold plated fittings and lived in a mansion surrounded by his private security force. He entertained lavishly, hosting an opulent wedding for his daughter in 1969 that drew public criticism and a series of investigative articles by journalist Mochtar Lubis in the Indonesia Raya newspaper. Sutowo and his family members often flew by private jet to the United States and other countries. Ibnu was a regular at the Palm Springs, California golf course. Following his example, top Pertamina officials lived similar lives of luxury.

Ibnu Sutowo entered into a variety of highly speculative ventures. Riding the crest of the worldwide oil boom, he embarked on a vast diversification program, underwriting many of Soeharto’s national development projects not covered by the national budget. Pertamina sunk billions of dollars into liquid natural gas facilities in East Kalimantan and Aceh, its own tanker fleet, a domestic airline (Pelita), the Batam Island Industrial Development Authority, the $2.5 billion Krakatau Steel facilities in West Java, in addition to generous donations for the Bina Graha presidential office complex, roads, schools, a mosque at the University of Indonesia, a $2.5 million sports stadium in Palembang, South Sumatra, the College of Qur’anic Studies and state-of-the-art Pertamina Hospital in Jakarta. Pertamina revenues provided $1.4 billion for Soeharto’s prestige project, the Palapa satellite system to facilitate national communications.

There were kickbacks on the purchase of used tankers and shady oil deals with Japanese trading companies – and no transparency or public disclosure about questionable ventures. Pertamina committed to buy or lease thirty-four oil and natural gas tankers at a cost of $3.3 billion, despite a worldwide tanker glut due to the global recession. Ibnu Sutowo recklessly comingled Pertamina assets with those owned by him and family members. He held personal interests in thirty-five Pertamina subsidiaries. In 1968, Jakarta Governor Ali Sadikin granted Sutowo permission to build a five-star Hilton Hotel on prized property that was part of the Senayan sports complex, adjacent to Parliament, on the understanding it would be owned and operated by Pertamina. Only years later was it divulged the valuable property was not held by Pertamina but privately by the Sutowo family.[5]

Ibnu’s son, Adiguna “Ponco” Sutowo, owned the PT Adiguna shipyard and enjoyed an exclusive contract to service his father’s Pertamina ship fleet. His sister ran the Pertamina travel agency; other relatives controlled the Pertamina-backed Pacific Bank. Soon Ibnu was expanding Pertamina’s investments into hotels, guest houses and office buildings. The oil company owned a television station in Medan, a travel agency, two hotels in Jakarta and the Ramayana Restaurant in the Rockefeller Center in New York City. By 1975, Pertamina had become one of the world’s 200 largest corporations.

Leveraging Pertamina’s cash flow, Ibnu drew heavily on the world capital market. Ironically, the 1973-1974 oil crisis and spike in global energy prices precipitated a recession in the West and tightened bank lending standards. The International Monetary Fund tightly regulated Indonesia’s longer term borrowing. Ibnu found it increasingly difficult to roll over his roughly $1.5 billion in short-term loans. Pertamina defaulted on payments to the National Bank of Dallas on February 18, 1975 and to Toronto Dominion Bank on March 10, triggering a national crisis. The Bank of Indonesia was forced to assume Pertamina’s debt, paying out over $1.2 billion by October 1975, an amount roughly equal to the nation’s foreign exchange reserves. The government scaled back the ambitious Krakatau Steel project and, along with other non-oil projects, turned over management to the technocrats, who worked diligently to cancel and reduce the scope of as many of those ventures as possible.[6]

Ibnu Sutowo’s excesses paralleled the growing corruption around Soeharto, among friends and family members, prominent generals and their circle of wealthy, mostly Chinese partners. The Pertamina default was a huge blow to Indonesia’s reputation as a stable and profitable place to invest, an image Soeharto had carefully nurtured. The oil company’s accounts had never been audited. Records were incomplete and in disarray. Soeharto curtailed Ibnu’s borrowing authority and assigned Lieutenant General Hasnan Habib to sort out Pertamina’s messy organization and finances. The government hired American audit firms to help clean up Pertamina’s books.

Economic Minister Widjojo Nitisastro testified before Parliament in June 1975 that Pertamina’s foreign debt was $2.3 billion, plus another $120 million in domestic borrowing. In April 1976, Mines Minister Mohammad Sadli told Parliament Pertamina’s total commitments in early-1975 had been $10.5 billion – an amount greater than the entire 1976-1977 national budget; project cancellations and hard-nosed negotiations with creditors reduced the total to $7.6 billion.[7] Soeharto could not simply fire Ibnu Sutowo, his trusted friend who had for so many years provided him, his wife and fellow officers with billions in soft money to pay for their schemes and extravagant lifestyles. Ibnu had pioneered Indonesia’s modern oil industry. His largesse had been crucial to development programs. Pertamina provided an estimated 40 percent of Armed Forces operating expenditures.[8] Despite cries from critics at home and abroad to dismiss the Pertamina boss, Soeharto, in his indirect Javanese style, delayed the inevitable. Ali Moertopo strongly defended Ibnu Sutowo, advising Soeharto that he was “irreplaceable.”[9]

Revelations in late-1975 about the improper tanker deal (which Ibnu had neglected to tell the President about), and the continuing negative press coverage, added pressure on Soeharto to act. Ibnu’s truculence and arrogance in the face of public outrage ultimately left Soeharto no choice but to replace his old friend. Even then, Soeharto postponed the decision until March 3, 1976, when Sutowo was “dismissed with honor.” By then, the embattled general had been abroad for nine months. Ibnu Sutowo’s successor at Pertamina, Major General Piet Harjono, had been budget director in the Finance Ministry, where he worked closely with Finance Minister Ali Wardhana and other cabinet technocrats. A no-nonsense team of army generals, including Harjono, Hasnan Habib and military lawyer Brigadier General Ismail Saleh, launched a review of the state oil company’s organization and operations. With support from cabinet technocrats, they fired forty top management officials and entered into fresh negotiations with foreign oil companies to boost Jakarta’s share of profits.[10] The government’s profit share increased from 65 percent to 85 percent.[11]

After the Pertamina crisis, the government denied state enterprises access to foreign commercial loans. Soeharto hiked taxes on the foreign oil producers to help compensate for the massive Pertamina losses, effectively halting further oil exploration efforts for several years and causing a slight decline in national oil production during the late-1970s. Armed Forces Commander Maraden Panggabean and other generals who had benefited from Ibnu’s munificence insisted he should not go to jail. Soeharto agreed on condition he never publicly divulge Pertamina dealings. Ibnu’s only indiscretion was when he spoke with a reporter at the Palm Springs golf course. Three weeks later, authorities in Jakarta brought Ibnu and twenty associates in for questioning. After that, Ibnu did not discuss Pertamina. In July 1978, Attorney General Ali Said announced the government investigation was completed and Ibnu Sutowo was cleared of all charges. The government did not release any of Pertamina’s operations and finance records until 1985.[12]

The Pertamina episode left Soeharto angry and depressed. It was another painful lesson following the January 1974 Malari riots and earlier Bulog and Berdikari scandals. Golkar ran short of funds during the 1977 elections primarily because the oil company’s generous contributions were absent. The government sought alternate sources, particularly from the Chinese-Indonesian conglomerates.[13] Ali Moertopo and Ibnu Sutowo had always been close. Pertamina’s collapse further damaged Moertopo’s influence, coming a year after the Malari Affair. Soeharto resolved to impose even greater control over his subordinates. In mid-1977, he appointed his military secretary, Lieutenant General Nolly Tjokropranolo, another old and loyal friend from his revolutionary days in Central Java, as Jakarta Governor, replacing the popular, but independent-minded Marine Lieutenant General Ali Sadikin, who had held the job for eleven years. Sadikin had distanced himself from the New Order’s more repressive practices.[14]

Lieutenant General Nolly Tjokropranolo was a Peta veteran and Military Police officer who was senior aide to General Sudirman during the Revolution. He served under Soeharto at Kostrad during the Trikora West Irian campaign and helped him establish the Kostrad Foundation. As a member of Ali Moertopo’s Opsus, Tjokropranolo was involved in secret negotiations to end the Malaysia Confrontation. He was military adjutant to President Sukarno in 1965-1966 and for many years served as Soeharto’s Military Secretary and Security Coordinator, in addition to holding duties as Hankam Director of Intelligence Strategy, prior to his posting as Jakarta Governor from 1977 to 1982. Tjokropranolo authored a definitive book about General Sudirman, Panglima Besar Sudirman: Pemimpin Pendobrak Terakhir Penjajahan di Indonesia (General Sudirman: The Leader who finally Destroyed Colonialism in Indonesia), originally published in Jakarta during 1992, later translated and published by the Australian Defence Studies Centre.

The Malari and Pertamina debacles effectively sidelined many of Soeharto’s financial generals and bolstered the cabinet technocrats’ influence, along with those senior officers who favored greater professionalism and less political and economic involvement. The government made no real effort to recoup the huge Pertamina losses. Ibnu Sutowo remained unrepentant, although he kept a low profile throughout the 1977-1978 Pertamina court battles. He and his family retained their substantial fortune. While still at Pertamina’s helm, Ibnu Sutowo had built a business conglomerate, PT Indobuildco. After retiring, he shrewdly expanded that business empire – as local distributor for Toyota, Mitsubishi, Daihatsu, Mercedes, Chrysler and Westinghouse. He invested in land, golf courses, hotels, cement, steel, shipbuilding, livestock and fertilizers. Ibnu Sutowo was rich and managed to retain the aura of respectability. He served as the Indonesian Red Cross Chairman from 1986 to 1994. Ibnu Sutowo died in January 2001 at age eighty-six.

There are a few tragic footnotes to the Ibnu Sutowo story. He had placed his civilian Pertamina deputy, Major General Achmad Thahir, in charge of the Krakatau Steel project. Following Thahir’s death in 1976, President Soeharto sent Intelligence Chief Benny Moerdani and his CSIS associates, Harry Tjan Silalahi and Jusuf Wanandi, abroad to recover some $82 million he was alleged to have embezzled from the national project. Thahir supposedly received 5 percent kickbacks on project payments.[15] The money was secreted in overseas bank accounts in Japan and Singapore, controlled by Thahir’s Chinese-Indonesian widow, Kartika, and other family members. During her defense in a Singapore court, Kartika alleged it was New Order standard practice to solicit “commissions.” Moerdani took a personal interest since the widow told the court he had admitted to her he had collected 5 percent and 7 percent commissions on arms deals with Israel and West Germany, respectively, on Soeharto’s behalf. Those embarrassing statements were censored in Indonesia. Finally, after a fifteen-year legal battle, in December 1992 the Singapore High Court ruled in Jakarta’s favor. The recovered funds went to Soeharto and were never properly accounted for.[16]

Ibnu Sutowo’s daughter, Endang Utari Mokodompit, was managing director at the Jakarta-based Pacific Bank when it defaulted on nearly $1 billion in bad loans during 1997, including several hundred million in offshore loans to a company owned by her family. Creditors accused her of embezzling hundreds of millions of dollars. Pacific Bank closed, but as a major shareholder, Bank Indonesia made good on its losses. The loans were written off; the state suffered the loss; Endang Mokodompit, thanks to her family connections, was not prosecuted and no serious effort was made to recover the stolen millions.[17]

Seven years later, Ibnu Sutowo’s son, Adiguna (Ponco), while attending a New Year’s celebration early on January 1, 2005 at a club in his family’s Jakarta Hilton Hotel, pulled a pistol and shot dead a waiter following a dispute over the bill. The country was mourning the tsunami disaster that killed hundreds of thousands in Aceh. Allegedly intoxicated on a mixture of crystal methamphetamine and alcohol, Adiguna flew into a rage after the waiter told him his credit card had been rejected and shot the young man in the head, killing him instantly. A friend and business partner with Tommy Soeharto, Adiguna chaired the Communication Forum of Daughters and Sons of the Indonesian Armed Forces (Forum Komunikasi Putra-Putri Purnawirawan ABRI, FKPPI), a vigilante youth group that attacked pro-democracy groups throughout the 1990s. He was convicted in the killing, but sentenced to just seven years in prison, despite the prosecution request for life imprisonment. Adiguna was released in December 2007 after just two years behind bars.

 

[1] Mara Karma, Ibnu Sutowo (Jakarta: Gunung Agung, 1979), pp. 122-133. As South Sumatra Military Governor, the Minangkabau Muslim Adnan Kapau Gani ran an operation to smuggle urgently needed supplies from Singapore. He went on to become Deputy Prime Minister and Welfare Minister during the two Amir Sjarifuddin Cabinets and was involved in the Linggajati negotiations. Gani retired to private practice after the Revolution. He died in December 1968 at sixty-three. President Susilo Bambang Yudhoyono designated A.K. Gani a national hero in 2007.

[2] Ibid, pp. 182-183, Hamish McDonald, Suharto’s Indonesia (Honolulu: University of Hawaii Press, 1981), pp. 144-146, and Bruce Glassbruner, “In the Wake of General Ibnu: Crisis in the Indonesian Oil Industry,” Asian Survey, Volume 16, Number 12, December 1976, p. 1100.

[3] Karma, Ibnu Sutowo, p. 189.

[4] McDonald, Suharto’s Indonesia, pp. 152-153.

elebrating Indonesia: Fifty Years with the Ford Foundation 1953-2003 (New York: Ford Foundation, 2003), p. 121.

[6] McDonald, Suharto’s Indonesia, pp. 158-160.

[7] Ibid, p. 161.

[8] Roland Challis, Shadow of a Revolution: Indonesia and the Generals (Gloucestershire: Sutton Publishing, 2001), p. 124.

[9] R. E. Elson, Suharto: A Political Biography (New York: Cambridge University Press, 2001), pp. 214-215.

[10] Harold Crouch, The Army and Politics in Indonesia (Ithaca: Cornell University Press, 1978), p. 301.

[11] John Bresnan, Managing Indonesia: the Modern Political Economy (New York: Columbia University Press, 1993), p. 187.

[12] Ibid, pp. 185-186.

[13] Suryadinata, Military Ascendancy, pp. 61.

[14] Elson, Suharto, p. 216.

[15] Bresnan, Managing Indonesia, p. 183.

[16] Julius Pour, Benny Moerdani: Profile of a Soldier Statesman, translated by Tim Scott (Jakarta: Yayasan Kejuangan Panglima Besar Sudirman, 1993), pp. 433-448, Adam Schwarz, A Nation in Waiting: Indonesia’s Search for Stability (Boulder, Colorado: Westview Press, Second Edition, 2000), p. 138, Julie Southwood and Patrick Flanagan, Indonesia: Law, Propaganda and Terror (London: Zed Press, 1983), pp. 87-88, and Jusuf Wanandi, Shades of Grey: A Political Memoir of Modern Indonesia, 1965-1998 (Jakarta: Equinox Publishing, 2012), p. 236.

[17] Richard Borsuk, “Markets: The Limits of Reform,” in Donald K. Emmerson (editor), Indonesia Beyond Suharto: Polity, Economy, Society, Transition (Armonk, New York: East Gate Books, 1999), p. 146.

2 Comments

  1. 8-19-2018

    Who was Pak Ibnu’s procurement partner in Singapore?

    • 8-20-2018

      David,

      I checked my references, including Mara Karma’s excellent 1979 biography of Ibnu Sutowo. Apparently Robin SK Low was one of Ibnu Sutowo’s closest business associates in Singapore. He owned a shipyard and other businesses. You can find his bio on Wikipedia. There were probably others but I have no further details.

      Ibnu Sutowo/Pertamina bought an oil tanker from Chin Yeong Company Ltd in Singapore in the early-1960s while Sukarno was still the Indonesian President.

      Ibnu Sutowo and Pertamina had extensive dealings with Kobayashi Group and Far East Oil Trading Company Ltd in Japan, American Harold Hutton of Refining Associates, and other American oil companies, most prominently Caltex/Stanvac, ARCO, Mobil Oil and Shell.

      Ibnu Sutowo was primarily involved in the oil trade and shipping. Pertamina had offices in Singapore, Tokyo, Hong Kong and Los Angeles. Sutowo was not in Soeharto’s inner circle. Closer Soeharto aides Ali Moertopo and Soedjono Hoemardani had extensive financial dealings in Japan and Taiwan, to a lesser extent in Singapore and other Asian counties. Abdul Rachman Ramly (later lieutenant general) was Ali Moertopo’s Opsus (Special Operations) liaison officer in Singapore.

      Hope this helps.

      Joe

Leave a Reply

Your email address will not be published. Required fields are marked *