U.S. Has Wrong Idea on Riady, Associates Say

Shortly before President Clinton flew here for a state visit and regional economic summit in November 1994, longtime friend and local tycoon James T. Riady called contacts in Arkansas and Washington to propose that the president visit the elite school he had just built.

“He wanted Clinton to inaugurate his school,” said a former Riady aide. “He even named it Hope, the same as Clinton’s hometown in Arkansas.”

But American and Indonesian government officials quickly nixed the trip. They also vetoed Riady’s invitation for the Clintons to dine at his massive new marble mansion, complete with a moat and helicopter pad, on an exclusive golf course he also had just built.

The problem wasn’t just protocol. Riady is ethnic Chinese, a wealthy minority who are frequent targets of resentment and violence here. And his Hope International School offers a Christian curriculum, a potential lightning rod in this volatile Muslim nation.

“It was really dumb,” said an official involved in Clinton’s visit. “It would have been crazy to bring attention to himself that way.”

The incident reveals a surprising side to Riady. He is widely portrayed in Washington as a Machiavellian billionaire who masterminded a scheme to subvert American politics by helping to funnel illegal contributions to the Democratic Party during the 1996 presidential campaign. Senate hearings into the controversy began Tuesday, and will focus this week on his company’s activities.

But friends, business associates and former aides here describe the 41-year-old financier and property developer as more of a brash idealist than a wily con man, and more of a political bumbler than a major power broker. Many call him unsophisticated and naive--or worse.

“I think he’s lightweight,” said Eugene Galbraith, managing director of ABN Amro Hoare Govett Asia, an investment and brokerage bank. “In terms of influence in the economy or politics here, it’s quite limited.”

If Riady hoped to win favor from President Suharto’s military regime by trumpeting his ties to Clinton, it backfired badly. Fallout from the campaign finance controversy has helped sink relations between Washington and Jakarta to their lowest level in years.

“I think it has paralyzed U.S. relations in regard to Indonesia,” said Louis A. Clinton, a business executive (and no relation to President Clinton) who heads the American Chamber of Commerce in Indonesia. “Everyone’s afraid to make a decision in Washington,” he added, for fear they will be accused of assisting Indonesia in a quid pro quo with Riady.

The State Department deniesthat charge, but demoralized diplomats here don’t. They complain privately that Suharto’s government increasingly views the Clinton administration as unreliable and unwilling to defend shared strategic interests in the face of intense congressional scrutiny.

“We are all blaming Riady,” said Sofjan Wanandi, a prominent businessman and political analyst. “Now, if anyone stands up for Indonesia in Washington, people will say, ‘Ahh, Riady paid you.’ ”

The ripple effects have been dramatic. Suharto last month angrily canceled a Pentagon training and education program for Indonesian military officers that began in 1950. Diplomats fear that the U.S. will lose influence with the officers likely to take power in the post-Suharto era.

Suharto also canceled plans to purchase nine American F-16 fighter jets--an $80-million deal Clinton proposed during Suharto’s visit to the White House in October 1995. Although F-16s are the core of Indonesia’s air force, Suharto pointedly sent a 30-member delegation to Moscow last week to inspect Russian jets and helicopters instead.

In a letter to Clinton, released by the government here, Suharto blamed the deal’s collapse on what he called “wholly unjustified criticism” of Indonesia in Congress.

American complaints about Suharto’s heavy-handed regime are not new. But they are growing and getting more attention in the wake of the finance controversy.

The House of Representatives, for example, unanimously approved a motion on June 10 condemning the regime’s dismal human rights record in secessionist East Timor. And the State Department publicly rebuked Jakarta for widespread fraud and polling abuses during recent legislative elections, which Suharto’s ruling Golkar party won in a landslide.

The Clinton administration also moved this month to join the European Union and Japan in asking the World Trade Organization to rule that Indonesia discriminates against foreign auto makers. The problem is preferential tariffs and tax breaks lavished on a new car company owned by Suharto’s youngest son, Hutomo Mandala Putra, better known as Tommy Suharto.

So far, it is not clear what benefits Riady’s giant Lippo conglomerate, based here and in Hong Kong, got in the United States for largess distributed by current and former Lippo employees, including former Democratic National Committee financial Vice Chairman John Huang.

Ironically, as a Senate committee looks into whether Huang may have secretly spied for China after he was named deputy assistant secretary at the Commerce Department in 1994 and then later at the DNC, the uproar apparently has pushed Jakarta closer to Beijing. China was demonized here for years, and the two nations only normalized relations in 1990.

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“Now relations with China are becoming much better,” said Christianto Wibisono, director of the Indonesian Business Data Centre. “Because they both share the same distrust of the U.S. They don’t like being lectured on human rights. They don’t like the U.S. trying to impose Western democracy and Western values.”

American prestige clearly has suffered in the shift. “People are saying the Americans are just like us,” said one local banker. “You say you’re holier than us. That’s the whole justification for your foreign policy. But now we see the presidency is up for sale. That’s what this shows.”

Worst of all, perhaps, is the ridicule. “Businessmen are amazed [Riady] got so much access to the president for just a few hundred thousand dollars,” said economist Umar Juoro, who heads the Institute for National Development Studies. “They laugh at how cheap Clinton is. Here that would go to a district chief, not even a governor.”

Since 1991, Riady’s companies, their executives and associates have contributed a total of $854,300 to the DNC.

Neither Riady nor other Lippo executives named in the campaign finance inquiry responded to repeated interview requests.

When news began to break last fall of Riady’s 20 visits to the White House, he was hailed here for his influence. Few knew of the friendship that began by chance in 1977 in Little Rock, Ark., when Riady was an ambitious young banker and Clinton an ambitiousyoung state attorney general.

But Riady sometimes exaggerated his pull. At a dinner for stockbrokers last November in Bali, “[Riady] claimed he was responsible for bringing Clinton here” to meet Pacific Rim heads of state at the 1994 summit, recalled Maysa Spek, head of research at PT Rashid Hussain Securities. “People just laughed.”

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And Muslim leaders upbraided Riady for steering money to Washington instead of helping Indonesia. Others accused him of being unpatriotic. “What’s his nationality? Where does he work?” Suharto’s eldest daughter, Siti Hardiyanti Indra Rukmana, demanded at the time.

Riady quickly disappeared from view. He stopped giving speeches, networking at conferences and glad-handing at embassy parties. And he’s no longer being considered to head Jakarta’s new Institute for the Study and Advancement of Business Ethics.

“To some extent, James has been isolated by other businessmen,” said Fachry Ali, director of the institute. “He has shamed them.”

Still, Ali said, the fuss confuses many Indonesians. “Giving gifts to politicians is usual here,” he said. “There are no restrictions. Not just in terms of our law, in terms of our culture.”

The culture and the country are dominated by Suharto, who first took power in 1966. Contrary to news reports, Riady was never close to Suharto or his family, who have grown fabulously rich through sweetheart business deals, lucrative monopolies and special government licenses.

“The Riadys are outsiders here, unlike all the other major companies who got big by being close to the president, or a relative of the president, or a general,” said another economist. “Lippo never had the right connections. They’ve never had an identifiable government patron.”

There was one exception that has cost Riady money. In the early 1990s, analysts say, Riady joined an unsuccessful joint venture with Suharto’s second son, Bambang Trihatmojo, to attempt to rescue his Royal Sentul Highlands. The failing polo resort and residential complex is near the city of Bogor.

“Once you become big, you cannot refuse an ‘invitation’ from the palace,” Wibisono explained.

The regime also helped stop a $500-million run on Lippo Bank in November 1995, after rumors spread that the company was overextended and running out of cash. The Central Bank quickly organized a consortium of banks to bail out Lippo until the crisis passed.

The current size of Riady’s Indonesian empire is unclear. The Lippo Group has nine companies, selling everything from insurance to spark plugs, on the Jakarta Stock Exchange. But experts say Lippo has more than 100 subsidiaries across Asia, including growing investments in China, in a murky and constantly shifting corporate structure.

“Ultimately, nobody knows who owns what,” complained Spek. She and other analysts scoff at reports that the conglomerate is worth $12 billion. “If you count all the liabilities, there’s not even $1 billion there,” she said.

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One reason for the confusion is that Lippo--the name comes from Chinese characters meaning “strength” and “treasure”--works hard to boost its image. Huge signs with the company’s name and distinctive red logo are ubiquitous on the skyline here and in Hong Kong. But they are deceptive.

“They regularly buy the naming rights of buildings,” explained Michael Backman, an investment analyst here. “They may only have a small office inside, but their name is out front. It makes them look bigger than they actually are.”

Backman, author of a book on the business ties and tactics of Chinese doing business in other parts of Asia, said Americans may be wrong to assume sinister motives in the campaign finance controversy. Given the importance of personal relationships in business here, he said, Riady and his status-conscious colleagues would gladly pay to meet the president.

“A picture of them with Clinton is easily worth $100,000,” he said. “It’s nothing. They would see it as a very good buy. It’s credibility.”

Riady’s father, Mochtar, built the family fortune by creating a vast retail banking, insurance and financial services network. But James Riady has moved into far riskier property development, department stores and other high-stakes enterprises.

The most ambitious projects are an astonishing pair of satellite towns Lippo is building on more than 50 square miles of former rice paddies on both sides of Jakarta, one of Asia’s fastest-growing cities.

Lippo Cikarang, to the east, is an industrial and office development. Lippo Karawaci, an hour’s drive west of the capital, boasts Indonesia’s largest shopping mall, complete with an indoor roller coaster, a six-screen cinema and the country’s first J.C. Penney and Wal-Mart stores.

Huge apartment and office towers jut into the sky, overlooking plush, tree-lined subdivisions, a luxury hotel and a 328-bed hospital. Riady’s opulent new home and red-brick Hope school complex sit on the edge of a manicured 18-hole golf course and country club.

Lippo insists the projects are successful, but analysts and investors are dubious. On a recent visit, many homes and offices clearly were unoccupied and streets were deserted. So was the hotel. The upscale Lippo Supermall was packed, but few people were shopping.

“They decided to build entire cities, based on a ‘Field of Dreams’ idea,” said banker Galbraith, who recently moved to Hong Kong after 15 years here. “You know, ‘If you build it, they will come.’ . . . Well, they haven’t come. It’s been a debacle.”

Riady defended his pet projects in a June 1996 document on file at the Jakarta Stock Exchange. But he could just as easily have been addressing his current troubles at home and in Washington.

“Long-term developments not only require vision in the beginning,” Riady said. “You need to be strong enough to follow the project through. I call this having stomach, having the ability to cope with the difficulties that come your way.”