SELLING WRECKS FOR A FORTUNE

A Case Study of Illegitimate Debt, involving German-educated cronies and German companies
by: George Junus Aditjondro[1]

THE collapse of the Berlin Wall, which has paved the way for Germany’s unification, has ironically left a big hole in Indonesia’s state coffers. This big hole was created due to the purchase of 39 used East German Navy ships by the Indonesian Government, which was not handled by the Indonesian Navy with the blessing of the Indonesian Ministry of Finance, but by the then Indonesian State Minister for Research and Technology, Dr. B.J. (“Rudy”) Habibie, without the blessing of the Indonesian Ministry of Finance, but with the direct approval of the then Indonesian President, Ret. General Soeharto.

After a lot of haggling between the Ministry of Research and Technology and the Ministry of Finance, the price of the 39 used East German Navy ships – nine Condor mine sweepers, fourteen Frosch troop landing ship tanks (LSTs), and sixteen Parchim corvettes -- was set at US$ 442.8 million, more than US$ 100 million higher than what the Finance Minister, Mar’ie Muhammad, was willing to approve, and supported by a US$ 200 million loan from the German Government’s credit agency, Kreditanstalt fuer Wiederaufbau, or KfW (Gaban & Muryadi 1999: 9).

Ironically, that big hole helped to subsidize the costs of Germany’s unification, while forcing Indonesian taxpayers to pay the bill. One of the costs which had to be born by the united German government was to get rid of the former East German Navy’s fleet, since the unified Germany was only allowed to have one fleet. Hence, since Germany’s unification, the fleet had been lying idle for nearly three years at the Peneemunde Wolgast shipyard in the former East Germany, for many years. The condition of those old Navy ships was very deplorable, according to the Indonesian Navy commander, Admiral Tanto Koeswanto who came to inspect the ships with his officers, before Dr. Habibie’s deal with the German government had been set (Gaban & Muryadi 1999: 11).

The Indonesian Navy commanders were not interested to buy those ships. Not only because of their age, but also because of their technical specifications which did not fit the Indonesian maritime situation. In contrast to the tropical warm sea water in the Indonesian archipelago, the old German ships were designed to deal with the cold Baltic waters. So, the ships were equipped with heaters, while in the Indonesian waters, they needed cooling air conditioners. Then, the German ships were designed to split the waves for only three to five days, again, since they were designed for the Baltic sea, not for the tropical waters of an archipelago of 17 thousand islands (Gaban & Muryadi 1999: 11-12).

Enriching Ferrostaal and the Habibies:
NEVERTHELESS, the unsuitable for Indonesian tropical waters, the sale of the ex German Navy ships has created a fortune for Dr Habibie’s family businesses, such as PT Citra Drews Indonesia, a company owned by Habibie’s youngest sister, Siti Rahayu Fatima, aka Yayuk Habibie, and her husband, Muchsin Mochdar. This company has obtained the order to supply freon and maintain the air conditioning systems of the 39 ships (Gaban & Muryadi 1999: 9-10).

Dr. Habibie and Ms. Yayuk Habibie were certainly not newcomers to the German business community. Dr. Habibie and Dr. Klaus von Menges, who later became the CEO of Ferrostaal, were good friends in Germany, when Dr. Habibie was studying at Aachen, one of Germany’s top engineering university, and Dr. Von Menges in Koln. During Von Menges’ tenure as president commissioner of Ferrostaal, one of Germany’s top engineering company, Yayuk Habibie was appointed as a representative for Ferrostahl in Indonesia, through PT Ferrostaal Niaga Utama, a joint venture between Habibie’s family companies an Ferrostaal. She claimed that she had left Ferrostaal between 1989 and 2004, to set up her own company, called, suspiciously, Ferrindo. But from her office in Wisma Ferrindo at Jalan Warung Buncit Raya, Jakarta, business sources in Jakarta informed the author of this paper that she still informally act as a broker for Ferrostaal, and receives fees for Ferrostaal’s successful deals in Indonesia. This is in addition to her other German-linked businesses, such as her share in the Jakarta branch of Deutsche Morgan Greenfell Securities and her 70% share in PT Deutsche Real Estate Indonesia (DREI), the owner of the Deutsche Bank building in Jakarta. The remaining shares of PT DREI are owned by her nephews, Ilham and Thariq Habibie, Dr Habibie’s sons (Gaban & Muryadi 1999: 10; Aditjondro 2006: 299, 320-2).

Back home in Germany, Ferrostaal also had high level contacts in the Government, with the then Chancellor Helmut Kohl sitting on its Board (Aditjondro 2006: 168). Kohl, in turn, kept a very close friendship with then Indonesian President, Soeharto, and often attended inaugurations of German joint ventures with the Soeharto family companies in Germany.

Ferrostaal, which is now a subsidiary of the German large engineering company, MAN, had played a very important role in the purchase of the 39 former German Navy ships, by brokering the KfW’s credit for the deal. Although Ferrostaal brokered the deal presumably free-of-charge, the large German steel and shipping company obtained two major bonuses: it was trusted to coordinate the repair of all the 39 ships, and also managed the training of 1,660 Indonesian Navy personnel in Germany. Not bad for the long lasting friendship of Dr. Habibie and Dr. von Menges! (idem).

Ferrostaal’s success in brokering KfW’s credit for the deal, however, could not be separated from Dr Habibie’s role in promoting German business interests in Indonesia, through his youngest sister, Yayuk Habibie, and through Habibie’s close links with the Soeharto family. For instance, Ferrostaal became an influential shareholder in two companies owned by Soeharto’s very business-oriented middle son, Bambang Trihatmodjo, namely in PT Samudra Petrindo Asia, a tanker company, and PT Samudra Ferro Engineering (Aditjondro 2006: 320).

Then, a much forgotten fact is that before the East German Navy ship sale took place, Yayuk Habibie had brokered the sale of 32 Boeing 737-200 from Lufthansa to the Indonesian Government. These were also old vehicles, since the airplanes had already been used by Lufthansa for twenty years. Under pressure from Dr. Habibie and his crony, Transportation Minister Haryanto Dhanutirto, Indonesian state-owned airlines, Garuda and Merpati, agreed to buy seven and three of those used Lufthansa airplanes each. This occurred after Wage Mulyono, then president director of Garuda, was sacked by President Soeharto, after he refused to buy those old airplanes (Aditjondro 2006: 321-2).

In contrast to the Lufthansa airplane sale, the sale of the used East German Navy ships was well publized by the Indonesian media, due to the controversy it created within Soeharto’s cabinet. The national media covered the raging debate between Dr. Habibie as the Minister of Research and Technology, who favoured the deal, against Mar’ie Muhammad, the Minister of Finance, backed by Indonesian Navy officers, civilian politicians and bureaucrats, who were against the deal. By exposing this internal government controversy during the peak of Soeharto dictatorship, three newsweeklier – Tempo, Editor, and Detik -- had to pay the price for their investigative reports: on 21 June 1994, the three newsweeklies were banned by Soeharto’s Information Minister, Harmoko (Thoha 2007: 20-5).

Understandably, one of the first cover stories to be published by Tempo after the departure of Soeharto from power was a review of this controversy. This was publicized in Tempo’s 19 October 1998 edition, republized in Gaban and Muryadi (1999).

Millions of Euros wasted:
SO, what is the current condition of the 39 ex East German Navy ships? Not all the ships are currently in sailing condition. The sixteen Parchim corvettes, which have had their German names changed into the names of Indonesian heroes, were incorporated into the Indonesian Navy’s East and West Fleets. These corvettes are mainly used to combat illegal fishery as well as piracy in Indonesian waters, while the ex East German LSTs are only used to transport transmigrants and rice. Some of the ex East German ships are docked, since their engines have been dismantled and brought to Ukraina for major overhaul services. While a significant part of servicing those ships are still handled by Dr. Habibie’s family businesses (Gaban & Muryadi 1999: 4-5; Thoha 2007: 411-2).

Certainly, the usefulness of the ex East German Navy ships is much below the value of their purchase. According to INFID’s investigation, only fourteen of the ships are still listed as Main Weapons on the list of Indonesian Security System, while the rest – 25 ships – have been declared as scrap iron. Nevertheless, to allow the remaining ships to operate, the Indonesian and German governments have signed at least three additional loan agreements to cover the repair and maintenance costs of the ships. On 17 October 2000, the two governments signed a loan agreement of EUR 28,142,222.00, and on 18 January 2001, two additional loan agreements of EUR 12,319,712 and EUR 980,414,43 were signed by the two governments.
Subsidizing the rich, and impoverishing the poor:
THIS case study shows how illegitimate debts – or, more correctly called “odious debts” -- have a double, contrasting, effect: these debts subsidizing rich German and Indonesian officials, while further impoverishing the Indonesian people, who have to pay the debts incurred by the Indonesian government to their German counterpart.

In this deplorable case, the German Government has used the close friendship of then Chancellor Helmut Kohl with then Indonesian President Soeharto, as well as the close links of then Indonesian Minister for Research and Technology, Dr. Habibie, with the German transnational corporation, Ferrostahl, to dump used East German Navy ships on the shoulders the Indonesian Government. Neither the Indonesian Navy nor the Indonesian people have benefitted from this deal, although all Indonesians are still burdened with the loans and associated interest. The only parties which have benefitted from this deal are Ferrostahl and Dr. Habibie’s family business.

Therefore, there is no other way to ameliorate the injustice done to the Indonesian people, in this case, than to scrap the entire loans for this odious debt project!
Medan, 11 June 2007.
[1] ) Independent researcher; Research and Publication Consultant of Yayasan Tanah Merdeka, Palu; Guest Lecturer at the Postgraduate Program of Sanata Dharma University in Yogyakarta and at the School for Ideology Critique of the Pancasila Study Centre of Gadjah Mada University in Yogyakarta.