Conglomerates in Contemporary Indonesia

Abstract

This paper seeks to analyse the patterns of industrial power and competitiveness in contemporary Indonesia through a detailed examination of three large conglomerates, dominant in different industrial sectors: the Salim group in cement and food manufacturing; Sinar Mas in pulp and paper; and Texmaco in textiles. The paper traces the changes in ownership and concentration that occurred from the late 1980s, and the restructuring that took place after the crisis of 1997. The focus is on the governance structure of these family-dominated conglomerates; and how banks and capital markets were exploited by the large family shareholders, who also occupied the top management positions. The role of external capital inflows is also analysed. It is argued that the family-dominated ownership structure, the preference for debt-driven growth, and weak corporate governance were implicated in the crisis of 1997 and these have since rendered restructuring extremely difficult. The final section suggests that restructuring has often involved little more than the rescheduling of debt, although it has certainly increased foreign equity and ownership.