Philippines A Prime Case Study For Fixing Soeharto Cronyism
Eric Ellis

05/21/1998

The intensity of the popular rage against the Soehartos and their cronies suggests there could be enormous pressure for some sort of corporate reckoning when the old man goes.
How are their $US40 billion assets held? Will their assets be sequestered? How much will they be allowed to keep?

Will the international community, in particular its banks, co-operate? Probably the most important issue is that with such a pervasive grip on the economy, how can any such action be undertaken without further paralysing an already shattered economy?
For some indication, it may be instructive to look to the Philippines, and how it has dealt with the residual effects of crony capitalism.

In Manila, for years after the 1986 fall of the Marcos regime, an impromptu agency set up by Corazon Aquino could claim to be the Philippines's biggest company.

Indeed, at one point, the assets controlled by the nobly named Presidential Commission on Good Government paid about 15 per cent of the country's tax bill, such was its dimensions.

The PCGG was born for partly economic but mostly political reasons. Originally set up to recoup the plundered loot stored in Swiss and US banks by Marcos, the PCGG sequestering assets and shareholdings left in legal limbo by fast-exiting cronies. It was staffed by Filipino bureaucrats and economists, supposedly untainted by the Marcos stain of corruption.

Virtually overnight, the PCGG effectively controlled the Filipino economy, seizing much of the banking and financial sectors, the national telephone carrier PLDT, food and brewing giant San Miguel Corporation, the electricity utility Meralco and other corporations.

When Australia's Coca-Cola Amatil wanted to buy a share of the San Miguel franchise last year, it spent as much time negotiating with the PCGG as it did with San Miguel management. The same was true for fallen Australian heroes Elliot, Bond and Parry before, all of whom coveted assets held by the PCGG. All these assets were theoretically on the block, turning the Philippines into the world's biggest bazaar.

The PCGG employs as many lawyers as it does investigators.

Its job has been made harder by a myriad of legal challenges aimed at keeping old Marcos cronies from reclaiming their former empires "on the cheap".

Foreign businessman have walked away from PCGG negotiations in frustration, depriving Manila of much-needed investment and modernisation. Given the PCGG's experience, it is sobering to consider that the Soeharto grip on the Indonesian economy is more pervasive than was the Marcos's on the Philippines at the height of their greed.

It is impossible to spend a day in Indonesia without contributing to the wealth of the Soeharto inner-circle.

The extent of their stranglehold is well-documented. From tollroads and five-star hotels to taxis, banking and the humble kretek cigarette, their grip on the economy is deep. And it's not just the Soehartos.

Various banks in Jakarta are known colloquially not by their official name but by that of the general or crony who ultimately controls them.

Jakarta so far differs significantly from the Filipino people's power revolution, in that 30 years of popular rage is being vented against the corporate symbols of the Soeharto rule. In Manila, Filipinos did not suddenly boycott San Miguel beer just because it was controlled by a Marcos crony, or smash the windows of the United Coconut Planters Bank or stop making phone calls.

But last week in Jakarta, the reaction has been much more violent. Rioters rampaged through the obvious symbols and spoils of the Soeharto rule, smashing and torching anything even vaguely related to the Soehartos.

KEY POINTS

* The Soeharto family's involvement in the corporate sector will make reform difficult.

* Lessons from post-Marcos Philippines could help guide the recovery of misguided funds.