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Geschreven door finance@evb.ch op 24 Jul 1998 10:35:28 met als onderwerp: Report: The Swiss connections of the Suharto regime (II)

From: Peter Bosshard
Subject: Report: The Swiss connections of the Suharto regime (II)

Report: The Swiss Connections of the Suharto Regimeu in Indonesia


Summary of two reports published by the Berne Declaration (BD) on July 22,
1998 (*)


Trade:

Trade between Switzerland and Indonesia is not very significant. In 1997,
Indonesia accounted for some 0.3 % of Swiss exports, and for less than 0.2
% of Swiss imports. Swiss exports in 1995 accounted for 1.0 % of Indonesian
imports. Switzerland has traditionally posted a trade surplus with
Indonesia, which helped to cover its trade deficit with industrialized
countries.

Two aspects of Swiss-Indonesian trade - tennis shoe imports, and arms
exports - created public controversy in the past. Shoes in 1997 accounted
for 15 % of Indonesian exports to Switzerland. Working conditions in the
tennis shoe industry are the subject of the BD's ongoing "Let's go fair"
campaign. Officially, Swiss arms exports to Indonesia since the mid-1980s
have been close to nil. Yet several Swiss companies have given licenses to
foreign subsidiaries which produce Swiss rifles and anti-aircraft weapons
for export to Indonesia. There is also evidence that the German company,
Messerschmidt Boelkow Blohm (MBB), in the early 1980s illegally exported
helicopters to Iraq via Switzerland and B.J. Habibie's Nuratnio Aircraft
Company. In 1994, Habibie's company (meanwhile renamed as IPTN) had
business links with no less than 40 Swiss companies.


Investment:

By 1997, 45 Swiss companies had invested a total of $ 1.3 billion in
Indonesia. After Great Britain, the Netherlands and Germany, Switzerland
ranked fourth among Indonesia's European investors. Many Swiss
transnational corporations invested in joint-ventures with companies
controlled by relatives or cronies of General Suharto. Examples are Nestle,
Ciba-Geigy and Sandoz (meanwhile merged to Novartis), Holderbank, Cementia
Holding, ABB, or the Swiss Reinsurance Company. The business links of these
companies are extensively documented by George Aditjondro's new report.

Through their joint-ventures, Swiss investors profitted from the corruption
and human rights abuses on which the Suharto empire was based. Companies
may argue that cooperation with the Suharto clan was the only way to do
business in Indonesia during the past 32 years. This still leaves the
question to be answered what Swiss companies did to help overcome the
unjust Suharto regime.


Banking relations:

The Credit Suisse Group and the Swiss Bank Corporation (now merged with
UBS) bought into Indonesian banks which were part of the Suharto empire.
Swiss banks also extended loans or underwrote bonds of companies controlled
by the Suharto family or their cronies. The CS Group, e.g., extended loans
and bonds for a pulp and paper company, a controversial golf course, a
satellite company, oil palm plantations, a geothermal power station, or a
large shipping company. UBS in turn syndicated loans for certain power
projects of ABB which were covered by official export risk guarantees (see
below).

At the end of 1997, Swiss banks were enganged in Indonesia to the tune of
2.6 billion Swiss francs. This amount did not include loans extended by
foreign branches of Swiss banks. The CS Group, which has the largest
Indonesian exposure of all Swiss banks, supports the debt agreement between
the Habibie government and the foreign private creditors of June 4, 1998.


Capital flight:

According to official statistics, Indonesians had deposited a total of 2.8
billion Swiss francs on Swiss bank accounts by the end of 1997. This figure
is misleading, in that it does not include Indonesian capital transfered
via off-shore centres, or via Swiss intermediaries. E.g., 8.2 billion Swiss
francs had been deposited from Singapur. A portion of this amount must be
attributed to Indonesian clients as well.

On May 19, 1998, the Berne Declaration and other Swiss NGOs called on the
Swiss government to investigate and freeze any Suharto accounts on Swiss
banks. The Federal Banking Commission (FBC) refused to do so, arguing that
there were "no signs of special relations between Suharto and Swiss banks".
Interestingly, the FBC director still informally advised Swiss banks to
dissolve any such accounts in due time shortly before Suharto resigned on
May 21. On July 9, the former dictator boasted at a Jakarta press
conference that he did "not own a single bank account abroad".

The BD's new reports produce evidence that the Suharto family does indeed
have special relations with Swiss banks. The loans, bonds and equity
participation linking Swiss banks and the Suharto empire can easily be used
to transfer flight capital to Switzerland. Several mysterious private
visits of the Suharto family added to the suspicion that part of the family
wealth had been hidden in Switzerland:

* In summer 1996, General Suharto visited Germany, supposedly for health
reasons. The Indonesian newspaper, "Suara Indepen", reported that the
dictator used this trip for visiting banks in Switzerland. The BD was not
able to confirm a 1996 visit to Switzerland.

* On November 26, 1997, General Suharto and his six children stopped over
at Zurich airport, supposedly in order to refuel their private plane on a
long-distance flight. Aviation specialists do not see any sense in
refueling a plane in Zurich. Fuel prices and taxes are much higher than at
other European airports, and landing slots are more difficult to get. The
fact that the Indonesian embassy rented a hotel suite in Zurich for the
Suharto family also indicates that refueling was not the only reason for
the Zurich stop-over.

* Finally, Tommy and Tata Suharto, a son and daughter-in-law of the retired
dicator, visited Switzerland in early July 1998, so that Tata could give
birth at a Geneva hospital. Since flights are not recommended in the later
stages of pregnancies and children are also born in Indonesia, the official
reason given for this visit again seems to be spurious.

In a letter to the government and the Federal Banking Commission, the BD on
July 21 reiterated its demand for an immediate investigation and freeze of
any Suharto accounts on Swiss banks.


Development assistance:

Until 1996, Indonesia was a focus country of Swiss official development
assistance. Human rights or "good governance" programs had never been part
of this assistance. The Swiss government argues that since assistance was
reduced after 1992, due to Indonesia's economic progress, such a new and
delicate program area could not be introduced. This does not explain why
Switzerland did not at least support human rights groups on an ad-hoc level.

While Swiss cooperation mainly consisted of technical assistance,
Switzerland in 1985 and 1991 also extended two (public-private) mixed
credits in order to finance Swiss investment projects in Indonesia. The
1985 credit of 153 million Swiss francs financed a thermal power station at
Belawan and was highly controversial for environmental reasons. Except for
this credit, all Swiss assistance to Indonesia was awarded in the form of
grants. World Bank statistics show that a $ 31 million part of the Belawan
grant has still not been repaid. When the BD raised this issue with the
Swiss authorities, they were not aware that Indonesian official bilateral
debts to Switzerland were still outstanding.

The Consultative Group on Indonesia will convene in Paris on July 29/30 in
order to discuss future cooperation with the Indonesian government.
Switzerland is part of this group. In its letter to the Swiss government,
the BD supported the call of the International NGO Forum on Indonesian
Development (INFID) that any future economic assistance to Indonesia should
be made contingent on clear steps towards democratization.


International Financial Institutions:

Indonesia is a prominent client of the World Bank. While the Bank had not
extended any loans to the former Sukarno government, it extended $ 23
billion to the pro-Western Suharto government between 1967 and 1997. Among
the projects financed were the desastrous Transmigrasi program, the
controversial Kedung Ombo dam, and a $ 307 million loan to state-owned
banks which was partly used to refinance Suharto companies.

Throughout the years, many rumours regarding corruption in Bank financed
projects surfaced. The World Bank did not see any need for thoroughly
investigating such claims. "We're not judge and jury. We're a development
organization", argued Dennis de Tray, the Bank's country director for
Indonesia, in the "Wall Street Journal" of July 14, 1998. "They don't want
to know", said his colleague Scott Guggenheim. On July 2, 1998, the World
Bank resumed lending to Indonesia with a $ 1 billion loan, which the "New
York Times" considered "highly risky". In a letter to the Swiss
authorities, the BD had opposed World Bank support to an Indonesian
government lacking any legitimacy.

The International Monetary Fund on November 5, 1997 approved a $ 10 billion
rescue package for Indonesia, which was complemented by $ 30 billion from
other donors. It disbursed $ 4 billion to the defunct Indonesian government
shortly before the resignation of Suharto, and resumed lending on July 16.
In an interview with the Swiss "Tages Anzeiger" of May 26, 1998, Prabhakar
Narvekar, a former director of the IMF and advisor to Suharto, deplored the
corruption and nepotism of the Indonesian dictator. Yet just like the Bank,
he maintained that it had not been the role of the IMF "to criticize the
political situation in Indonesia".


Export risk guarantees:

With guarantees of 1,1 billion francs (or 17 % of the Swiss total),
Indonesia was the most important recipient of official Swiss export risk
guarantees (ERG) at the end of 1997. ERG guarantees the repayment of export
credits to Indonesia of roughly 100 million Swiss francs per year, and has
already built up reserves of 215 million francs to cover against potential
losses. The losses of the semi-autonomous ERG are covered by advances from
the public purse.

Most of ERG's Indonesian guarantees were extended to cover thermal power
projects of ABB. Two of them - the 1090 Muara Tawar project and the 135 MW
Sengkang project - share all signs of corruption. ABB's Muara Tawar
contract was not based on public tendering, and was criticized as
overpriced in Indonesia. Muara Tawar is operated by the state electricity
agency PLN, while Suharto's daughter Tutut owns a stake in the private
company which operates Sengkang. Both PLN and Tutut have a reputation of
being highly corrupt.

So far, ERG does not have any guidelines on dealing with corruption. Still,
according to ERG law, guarantees may not become effective if an exporter
incurs a damage due to uncontractual behaviour. In a letter to the ERG
board, the BD on July 21 argued that this should prevent ERG from covering
ABB contracts which might be terminated by a new Indonesian government due
to corruption. It proposed the creation of new guidelines ruling out the
coverage of corrupt projects by ERG, and the discussion of such guidelines
by OECD's Export Credit Arrangement.

Finally, the BD uncovered that ERG had recently approved a guarantee of 6
million francs covering the export of encrypting machines of the Swiss
company, Crypto AG, to the Indonesian army. According to sources, the
Suharto regime has been a prime customer of Crypto AG, which is the world
market leader for encrypting machines, for several decades. While ERG does
not cover military exports, it does guarantee so-called civilian-military
"dual use" goods. The BD called on the ERG board not to cover any more
"dual use" exports to countries were human rights were violated in the future.


Political relations:

Swiss political relations with the Suharto regime have been ambiguous for a
long time. The Swiss government openly criticized the rampant corruption in
Indonesia, but still supported Swiss companies forging business links with
the Suharto empire. It criticized human rights abuses in Indonesia and East
Timor at many instances, e.g. by co-sponsoring a resolution on Indonesia at
the UN Human Rights Commission in 1993. At the same time, the Swiss
government approved arms exports to Indonesia, and supported "dual use"
exports to the Indonesian army with an official guarantee. And in April
1998, the Swiss embassy in Kuala Lumpur handed over refugees from the Aceh
province to the Malaysian police, which turned them over to the Indonesian
authorities without delay.

In its letter to the government, the BD called for more active Swiss human
rights policies in Indonesia and East Timor, and the support of
self-determination in occupied East Timor, in Irian Jaya/West Papua and the
Aceh province. And it pointed out that Swiss human rights policies should
not be undermined by regulations on Swiss banks, arms exports or export
risk guarantees which only served Swiss self-interests.


Initial government response

The government, the Federal Banking Commission and the ERG board have not
yet formally responded to the BD's demands. Yet several spokespersons
responded to media inquiries, and the BD and Eva Philipps of INFID met with
officials of the Swiss foreign ministry on July 22.

FBC and government spokespersons argued that Switzerland could only
investigate and freeze Suharto accounts in response to a formal request
from the Indonesian government. While this is formally true, the Swiss
government made exceptions to this rule and was more proactive in earlier
cases (after the fall of Ferdinand Marcos and Nicolae Ceaucescu,
respectively). An ERG spokesperson did not rule out guidelines on
corruption altogether, but said the issue was very complicated. And the
diplomats of the foreign ministry supported INFID's concerns on
democratization, but did not clarify whether Switzerland would condition
its economic assistance on respective measures. The BD expects a formal
reply from the various government agencies after the summer break.


Peter Bosshard, Berne Declaration, July 24, 1998

(*) 1 Swiss franc roughly equals $ 0.67 or 10,000 Rupiah.


Sources:

Peter Bosshard, Schweiz-Indonesien: Die Helfershelfer des Suharto-Regimes,
Erklaerung von Bern, 22. Juli 1998.

George J. Aditjondro, The Swiss Business Links of the Suharto and Habibie
Oligarchy of Indonesia, A report prepared for the Berne Declaration, July
22, 1998.

The Berne Declaration is a Swiss public-interest group with 16,000
individual members. For 30 years, it has promoted more equitable
North-South relations through research, public education, and advocacy work.

Address: Berne Declaration, P.O. Box 1327, 8031 Zurich, Switzerland; Phone
+41 1 271 64 25, fax +41 1 272 60 60; finance@evb.ch, www.access.ch/evb