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In Indonesian business, the more things change...

A Rothschild scion is disappointed to learn that his Indonesian partners have treated him much like politically connected Indonesian businessmen have treated foreign partners for decades.

By Staff writer / October 22, 2012

I spent a decade covering Indonesia and a large chunk of that covering finance and investment there, most interestingly the "Asian tiger" bubble and the painfully deep hangover called the 1998 "Asian financial crisis" that triggered the end of the durable dictator and ally of the West, Soeharto. 

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Though it's been a long time since I've been there, I keep an eye on the place.

The country has made great strides since the chaos of the immediate post-Soeharto years. Economic growth has resumed, living standards have improved, and the small religious wars and separatist conflicts that tore at the country in the early years of the past decade have gone off the boil. East Timor is now an independent nation, the Free Aceh Movement in north Sumatra has laid down its guns, and the jihadi Jemaah Islamiyah, which carried out bombings across the country, has been beaten back by an effective policing and intelligence effort.

The international banks that lost billions in the Indonesian crash, after various Indonesian conglomerates had spent years skimming off the top of loans for themselves rather than putting them to productive uses, have resumed lending heavily to the country and its businesses.

But it's still not an investment climate for the faint of heart, particularly if the complaints of Nathaniel Rothschild are to be believed. The scion of the Rothschild banking dynasty, which has funded governments, speculators, and kings for centuries, has seen a $3 billion tie-up with the politically connected Aburizal Bakrie family hit the rocks.

Judging from an article in The New York Times, Mr. Rothschild was extremely ignorant of the modern history of corporate Indonesia. In 2010, he led an investment group that spent $3 billion in cash and stock-buying stakes in two coal mining companies owned by family of Aburizal Bakrie, a scion of a business dynasty in his own right.

The complex transaction amounted to a reverse takeover of Vallar PLC in the UK, with Rothschild's Vallar taking stakes in two of Indonesia's largest coal producers (controlled by the Bakrie family), and Bakrie-controlled companies in Indonesia ending up with 43 percent of Vallar. Indra Bakrie, Aburizal's brother, took the chairmanship of Vallar, which was quickly renamed Bumi Resources ("Bumi" is Indonesian for "earth") and trades on the London Stock Exchange. The Bakrie family stake has since been reduced by a sale of some of its shares to another Indonesian tycoon.


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