Few issues in Indonesia are as pressing or as potentially explosive as the widening chasm between rich and poor. True, over the past three decades Suharto's government has built many hospitals, schools and roads, and has overseen an impressive reduction in poverty. But it has also presided over the concentration of most of the nation's wealth in the hands of less than five percent of the population.
Political commentators have repeatedly warned that the highly conspicuous gap between an enormously wealthy elite and the mass of ordinary Indonesians could lead to social upheaval, or even revolution. Suharto understands the threat as well as anyone, and has recently attempted to seize the initiative with a remarkable political gesture reminiscent of his predecessor, Sukarno.
In December 1995 the Self-Reliant Welfare Fund Foundation (YDSM, Yayasan Dana Sejahtera Mandiri) was established, a private foundation under Suharto's own leadership. The Foundation's ostensible objective was to collect two percent of the after-tax revenue of Indonesia's 11,025 top bracket tax payers. This money was to be distributed to the poor, who would use it to open a savings account to buy seeds and start small businesses.
This dramatic move was not Suharto's first attempt to force Indonesia's new rich to help the poor. But the recent history of such efforts does not augur well for the success of the YDSM Foundation.
In March 1990 the President summoned Indonesia's largest capitalists to Tapos, his private ranch in West Java. In a nationally televised address he lectured the assembled multi-millionaires - most of them Chinese and all men - on the virtues of the Constitution. He then asked them to transfer 25 percent of their shares to local cooperatives.
This was good theatre. Suharto, whose own family ranks as one of the richest in Asia, cast himself as champion of the little people. But if Suharto's intention was to show that it was he, and not the wealthy Chinese business conglomerates, who called the shots, the exercise turned out to be an embarrassing failure.
Despite repeated reminders by the President, and intense press interest, he was unable to generate any meaningful commitment from the conglomerates. Liem Sioe Liong, head of the massive Salim group, did at one stage indicate he was willing to donate just one percent of the company's shares to cooperatives, but even this was never realised.
A few years later Suharto made another well publicised effort to cajole large corporations to pay more attention to poverty alleviation. In August 1995 he summoned business leaders to the Hotel Bali Intercontinental at Jimbaran, Bali, to take part in a four day course aimed at making them more aware of 'Pancasila values'. The meeting produced the 'Jimbaran Declaration', a statement in which large corporations promised to help promote small business as a means to spread wealth more evenly.
The creation of the YDSM Foundation a few months later was clearly closely related to this declaration. It had some initial success. By September 1996 the Foundation was reported to have collected Rp 320 billion (AU$ 172 million) and helped about ten million poor families.
But it has fallen far short of expectations. Suharto lamented in September 1996 that only half of those liable for the 'tax' had paid up. Only weeks after the pro-Megawati riots rocked Jakarta, Suharto told rich business people: 'I want to know why only half of you have been able to contribute to the scheme. Do you have difficulties? If so, I will help you. The Director-General for Taxes and Customs will help business people having difficulty in calculating your taxes.'
Finally, frustrated by the failure of businesses to take his appeal seriously, Suharto issued a Presidential Decision at the end of 1996, making contributions to the Foundation compulsory for all those whose taxable income exceeds Rp 100 million (AU$ 53,900).
Why not tax them?
If poverty alleviation is the real purpose behind the scheme, why not simply increase the top tax rate from 30% to 32%? After all, as recently as January 1995 the government dropped the corporate and top individual tax rate from 35% to 30%. Many observers are asking the same question, especially in the wake of YDSM Vice-Chair, and Population Minister, Haryono Suyono's baffling announcement that contributors would receive a two percent reduction in their income tax.
As is often the case, the wording of the Presidential Decision governing the Foundation is vague. It is not clear exactly who has to pay the private tax. Many are puzzled about whether it applies to foreign corporations, joint ventures and public companies, for instance. Neither is it clear whether the Decision is legally enforceable, because it appears to conflict with the Taxation Law which, in theory at least, is superior to Presidential Decisions.
According to the quality independent newspaper Suara Independen, the point of all this uncertainty is that it gives the managers of the fund a great deal of flexibility. They now have access to enormous sums of money. The projection for the first year is Rp 400-500 billion (AU$ 216-269 million), rising to Rp 700-800 billion (AU $377-431 million) in the second year. Of particular concern is that these funds can be utilised without the constraints or accountability arrangements to which ordinary taxation revenue is subject.
As Suara Independen points out, the track record of the Suharto family's other charitable `foundations' is less than encouraging. Several of them serve as huge political slush funds, especially for Golkar. They are also very active in business, making them virtually indistinguishable from conglomerates. Three of Suharto's foundations, Yayasan Supersemar (education), Yayasan Dakab (religious activities) and Yayasan Dharmais (health) together reaped Rp 29 billion (AU$ 15.63 million) in profits from one business alone (Bank Duta) in 1994. Ironically, the main advantage of running a business as a foundation (yayasan) is that foundations do not pay income tax.
If YDSM is largely a mechanism for diverting public funds into private hands, who stands to gain? The governing board comprises high level bureaucrats and some of the biggest names in Indonesian business (see box). It includes billionaire Liem Sioe Liong, real estate baron Eka Tjipta Widjaya, and Bob Hasan and Prajogo Pangestu, both big in timber. Suharto's second son, Bambang Trihatmodjo, is treasurer, and Liem Sioe Liong's son is his deputy. These are not people normally associated with social welfare.
Particular concern has been raised by the inclusion on the board of Suharto's golf partner and financial adviser, Bob Hasan. Farmers will receive loans to purchase seeds from one of Hasan's companies, which will also be responsible for marketing arrangements. This 'welfare' foundation will thus make Hasan the supplier, purchaser and marketer of commodities produced by poor farmers using state finance.
PDI parliamentarian Aberson Marle Sihaloho is one prominent critic who has spoken out against the foundation. He points out that Article 33 of the Constitution specifies that Indonesia's natural resources are to be controlled by the state and harnessed for the welfare of the people. 'What is happening now is that the earth and water belong to the conglomerates. Collusion between officials and the conglomerates has seen our natural resources disappear', he said.
Such nepotism exists in many newly industrialising countries. It is particularly acutely felt in Indonesia because of the country's powerful anti- capitalist ideological traditions. Many see Suharto's liberal capitalist economic policies as having betrayed the collectivist ideals forged during the struggle for independence and enshrined in the Constitution.
'This Foundation was set up so that the President and the conglomerates could demonstrate that they care about the poor', Aberson asserted. 'But that is bullshit, because overcoming poverty is not a matter of compassion. Poverty must be tackled through the state budget and government policies, not by a private foundation'.
Even conservative allies of Suharto are critical of the foundation, seeing it as additional evidence that the ageing President has abandoned his once famous caution in favour of nepotism and fast money. In a clear reference to the YDSM, the Chair of Parliament and former Golkar head Wahono recently called for an end to 'non-budgetary practices which favour short term interests'.
In short, while YDSM may help some of Indonesia's poor, it is not designed for their benefit. The establishment of the foundation gives every impression of being a cynical and desperate exercise intended to bolster the government's social justice credentials at a time of increasing popular anger directed at the rich in general - and at Suharto's family in particular. It shows that even the objective of social justice is subject to the politics of patronage.
Ian Chalmers teaches Southeast Asian Politics and Indonesian Studies at Curtin University, while David Bourchier teaches Asian Studies at Murdoch University, both in Perth, Western Australia.
Yayasan Dana Sejahtera Mandiri
(incorporated January 1996)
Vice-Chairs: Haryono Suyono (Minister of State for Population), Liem Sioe Liong (Head, Salim Group), Sudwikatmono (Suharto's half brother).
Director: Subiakto Tjakrawerdaja (Minister for Cooperatives and Promotion of Small-scale Business).
Deputy Director: Fuad Bawazier (Director-General of Taxation)
Treasurer: Bambang Trihatmodjo (Head, Bimantara Group, Suharto's son).
Assistant Treasurer: Anthony Salim (Salim Group, son of Liem Sioe Liong).
Members of Board: Inten Soewono (Minister of Social Affairs), Saadilah Moersjid (Cabinet Secretary), Prajogo Pangestu (Barito Group), Eka Tjipta Widjaja (Sinar Mas Group), Mohammad 'Bob' Hasan (Indonesian Wood Producers Association), Rachman Halim (Gudang Garam Group), Putra Sampoerna (Sampoerna Group) and Henry Pribadi (Metropolitan Group).