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After Erick Thohir, left, successfully oversaw the 2018 Asian Games, President Joko Widodo, right, tapped him to run his 2019 re-election campaign. Now he's tasked Thohir with overhauling Indonesia's state-owned enterprises.   © AFP/ Jiji
CEO in the news

The mogul-turned-minister reforms Indonesia's state

Ex-Inter Milan owner Erick Thohir lights a fire under bloated state companies

ERWIDA MAULIA, Nikkei staff writer | Indonesia

JAKARTA -- Erick Thohir, Indonesia's recently installed minister of state-owned enterprises, was livid.

Just months after Garuda Indonesia was found to have falsified its 2018 accounts, Thohir was presented with reports that senior executives at the ailing state-owned airline had smuggled a Harley Davidson motorbike and other luxuries into the country on company aircraft.

"My statement is clear," Thohir warned then-CEO Ari Ashkara and four Garuda directors involved in the incident in December. "Please resign before you're sacked."

When they ignored him, Thohir made good on his threat -- much to the delight of the Indonesian public which is fed up with tales of venal government officials enriching themselves at taxpayers' expense.

"We at the SOE Ministry have worked on finding the best figures to manage our flight carrier," Thohir said last week, the same day that Garuda named veteran tech executive Irfan Setiaputra as its new CEO.

Since taking the helm at the sprawling ministry last October, Thohir has lit similar fires under the 113 state-owned enterprises (SOEs) in his portfolio, which together have assets worth $594 billion. A tough job by any reckoning, he says he now receives physical threats almost daily.

Youthful with thick black hair, the 49-year-old Thohir is one of Indonesia's most recognizable -- and popular -- business leaders. His track record of successes includes buying and later selling Italian soccer club Inter Milan, directing the 2018 Asian Games and managing Indonesian President Joko "Jokowi" Widodo's triumphant 2019 re-election campaign.

That is one reason why Widodo chose Thohir -- as well as a handful of other go-getters such as Nadiem Makarim, the founder of ride-hailing giant Gojek, and Bahlil Lahadalia, the former head of the Indonesian Young Entrepreneurs Association -- to give his second-term cabinet more of a business edge.

"Widodo wants to involve more of the younger generation," said Toto Pranoto, an economist at the University of Indonesia, of Widodo's new cabinet lineup. "There is that spirit of young people who dare to challenge established businesses and are seen as succeeding."

The new cabinet faces are not the only outsiders Widodo has called upon to help boost Indonesia's appeal to international investors.

Erick Thohir (second from the right) and Indonesia's Finance Minister Sri Mulyani (middle) inspect a Harley Davidson motorbike and other items smuggled into the country on board a newly delivered Airbus A330-900 by Garuda's then CEO Ari Askhara.   © AFP/ Jiji

In January, the president announced the appointment of SoftBank chief executive Masayoshi Son, former U.K. Prime Minister Tony Blair, and Abu Dhabi Crown Prince Mohammed bin Zayed al-Nahyan to a high-level committee that will steer what Widodo hopes will be his defining legacy: a new $34 billion capital city in East Kalimantan.

"This is part of the government's efforts to draw the interest of big, global investors to participate in the development of the new capital," Pranoto said. "That's too huge an investment to rely on government funds only."

In fact, Widodo will need even more foreign money to come close to completing his $400 billion infrastructure wish list. As it happens, the day before the steering committee announcement, the United Arab Emirates and Indonesia signed a partnership agreement for $22.9 billion worth of new infrastructure and energy projects.

It is this hunger for foreign direct investment and public private partnerships that makes Thohir's ministerial appointment such a crucial part of Widodo's second-term agenda.

A legacy of the mixed economy built by Indonesia's founding President Sukarno, many of the country's SOEs began as privately-owned Dutch companies that were nationalized shortly after independence in 1945. For the three decades that followed under Sukarno's successor Suharto, many SOEs served as cash cows for Suharto and his cronies.

Today, SOEs still account for 26% of the Indonesian Stock Exchange by value -- although just 25 enterprises generate 90% of their total revenues.

If Thohir can breathe new life into these languishing state-controlled companies and lift the sector's flatlining profits, it will not only enhance Indonesia's attractiveness to foreign investors but could also set up Thohir for a career in electoral politics.

"In order for him to be counted as a credible political candidate in his own right, he'd need a more public, less technocratic portfolio," said Marcus Mietzner, an associate professor at the Australian National University and an expert on Indonesian politics.

"Maybe a switch halfway through Jokowi's second term might do the trick, but my guess is that it would be rather late [to run] for 2024," Mietzner added, referring to the Indonesian president by his nickname.

The son of the late Teddy Thohir, a boss of one of Indonesia's biggest conglomerates, and the younger brother of billionaire coal king Garibaldi Thohir, Erick was born into one of Indonesia's most privileged families.

His first job was working for his father's barbecue restaurant chain, Hanamasa. Founding his own media company in 1992, Thohir completed an MBA at California's National University before acquiring Indonesia's largest Muslim newspaper, Republika, in 2000.

Thohir later moved into radio and television, partnering with industrial tycoon Tomy Winata and the Bakrie family dynasty.

An avid sports fan, Thohir bought his first foreign franchise in 2010 -- the U.S. professional basketball team the Philadelphia 76ers. He went on to buy a majority stake in Washington soccer club D.C. United in 2012 before taking a majority stake in Inter Milan the following year.

In 2015, however, Thohir agreed to Widodo's request to head the organizing committee for the 2018 Asian Games, which Indonesia hosted. Thus began a shift away from business as he started selling down his stakes in international sports teams.

By the time he took over management of Widodo's reelection campaign in 2018, Thohir had already sold his remaining 31% stake in Inter Milan for 150 million euros ($165 million at the current rate) -- earning a reported profit of 100 million euros in the process.

As minister, Thohir's headline-grabbing moves over the past few months include naming former Jakarta Gov. Basuki Tjahaja "Ahok" Purnama as the new chief commissioner of oil and gas giant Pertamina in order to help speed execution of the company's long-delayed mega refinery projects.

Thohir also picked former Corruption Eradication Commission (KPK) Commissioner Chandra Hamzah as chief commissioner of Indonesia's fourth largest state lender Bank Tabungan Negara. Respected technocrats Amien Sunaryadi and Zulkifli Zaini were put in charge of state utility Perusahaan Listrik Negara.

"Both Pak Amien and Pak Zulkifli have very good track records -- they're ready to sweat and uphold virtues," Thohir said in a written statement in December.

The University of Indonesia's Pranoto thinks Thohir made a strong start by clearing out many of the retired government and military officials that had populated the boards of many state companies. "No longer will retirees be randomly appointed to boards of commissioners without a fit and proper test," he said.

Another target Thohir has in his sights is the bloated structure of many SOEs. While ministry data shows that Indonesia had 113 SOEs as of 2018, the number of subsidiaries owned by them exceeds 700.

A case in point is Krakatau Steel, which owns 60 units including a real estate business, hotels, hospitals and even a water treatment business. The company is lumbered with 40 trillion rupiah ($2.9 billion) in outstanding debts.

Even Pertamina, despite being profitable, has been told to review the 142 separate companies that sit under its umbrella.

"Many SOEs run their own hotel businesses," Thohir told lawmakers in December, pointing to as many as 85 hotels as examples, not including state-owned operator Hotel Indonesia Natour. Thohir has since slapped a moratorium on the creation of new SOE subsidiaries.

Still, while many have welcomed Thohir's progress, Enny Sri Hartati, a senior researcher at local economic think tank the Institute for Development of Economics and Finance, said his overall direction remains unclear.

Despite acting decisively when it came to Garuda, Hartati said Thohir had responded slowly in the case of state insurance company Asuransi Jiwasraya, where long-running financial problems have prevented payouts on 12.4 trillion rupiah of claims.

Prosecutors announced recently that financial mismanagement at the company had cost taxpayers up to 13.7 trillion rupiah in further losses.

"Such differing treatments make one wonder if these are truly reforms, or if [Thohir] is targeting only surface problems at these SOEs, without touching the main actors," said Hartati.

Garuda's new board appointees did not make everyone happy, either. On social media, allegations swirled that vested interests had played a part in the choice of some of its new commissioners.

Whatever the reforms that Thohir may finally implement, his decision to trade-in a successful business for a job that pays him just 19 million rupiah ($1,400) a month remains something of a mystery. Does it signal a desire to seek higher office eventually?

For his part, Thohir only admits to being determined to leave a permanent mark on the sector.

"Whatever we work on must be a foundation for the future," Thohir said in an interview in December, adding that he had barely taken a day off since becoming minister.

"That is why we need to make breakthroughs, clean up and do something that has never been done before. For whom? For Indonesia and the people," he added, already sounding like a politician.

Additional reporting by Ismi Damayanti and Bobby Nugroho.

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