In Indonesian business, the more things change...

Indonesia a top supplier of coal

A smart investment? Well, Indonesia is now the world's largest supplier of coal to power plants, a money-spinning business whatever the environmental costs. The Bakries' political leverage has made them major players in natural resources in Indonesia; licensing and business problems go much more smoothly in Indonesia when you're dealing with the politically connected.

But that's a double-edged sword. Rothschild has now fallen out with the Bakries, making the same complaints about them that a string of disappointed investors made in the 1990s and the early years of the last decade.

From my distance, it seems like the past made new. Many of the same local players and politicians remain as powerful, or more so, than ever; corrupt, cozy business practices remain the norm. And the "savvy" international investors who end up in Indonesia appear to be as far behind their local partners as the banks and other investors who lined up behind Indonesia's crony capitalists in the 1990s and lost billions of dollars in the process.

Aburizal Bakrie was one of the politically connected players then. How connected? In 1991, as Freeport McMoRan Copper and Gold Inc. renegotiated its contract to work the most profitable copper and gold mine on the planet, it provided gratis a piece of the mine worth about $200 million to Bakrie to smooth over negotiations with Indonesia's Soeharto government. 

Bakrie a presidential contender

Bakrie is even more powerful today, nearly 15 years after Soeharto was deposed. He's the chairman of the Golkar political party that Soeharto founded, which holds the second largest percentage of seats in the Indonesian parliament. He's considered a front-runner for Indonesia's presidency in 2014.

In November of last year, Rothschild released a letter in which he'd asked Bumi's chief executive to return corporate money "deposited with connected parties." The Bakries sold part of their stake in Bumi last year to Samin Tan for $1 billion. Rothschild complains that the sale to Mr. Tan was a sweetheart deal that hurt minority shareholders' interests. 

Is it true? In this case, unproven. But tangling with the Bakries has always been dicey. The Bakrie family's business practices in the 1990s, when I followed them closely, left a trail of disappointed minority shareholders and creditors. The family's publicly traded companies in Jakarta were in the habit of raising money from minority shareholders, then turning around and using the cash to buy assets from family members.

In 1997 and 2008, family companies were on the brink of bankruptcy, an eventuality that was staved off when creditors agreed to take pieces of family equity instead.

Investors often talk about doing "due diligence" ahead of time. Yet in 20 years of watching investment in Indonesia, time and again I've seen big capital apparently ignorant of recent history of corporations and individuals.

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