For many local elites wealth is increasingly obtained through a formal role in the colonial bureaucracy rather than through privileges granted by powerful patron. State monopolies and licenses are fairly transparent but discriminate against local businessmen in favor of European and Chinese firms.
A worsening economy and an increase in labor strikes leads the colonial government to change colonial laws and penal codes, severely restricting civil liberties such as freedom of assembly, speech and expression.
The Japanese mobilize the economy to meet their needs for raw materials, taking over plantations and factories and instituting massive forced labor projects with high fatalities.
The self-financed nature of the independence forces establishes a pattern that continues to the present day. Military commands at various levels generate revenue through enterprises or ties to businesses.
Setting a pattern that persists for decades, the 1950-55 Benteng Program allocates import licenses, bank credits, contracts, and concessions based on political ties, not transparent economic criteria. As many as 90 percent of import licenses are then resold to Chinese and foreign businessmen.
As parties weaken, the army and the president become the main source of patronage. The rise of state corporations reinforces a system that blurs the line between public office and personal gain. Military-run state trading companies control access to the market, creating wealth for army factions, families, and government offices. Inflation leads to smuggling and black-market operations.
Private conglomerates, mostly owned by Suharto's family and backers, are built through government-granted monopolies, contracts, and preferential access to credit, licenses, and raw materials. Monopolies such as the state oil company and the food logistics agency operate as giant army fiefdoms. Instead of reselling licenses and concessions, joint ventures become the new model of influence trading.
Policies to protect indigenous businesses from ethnic Chinese and foreign competition once again become instruments for the political connected to gain access to licenses and permits.
Reforms reduce the personal influence of officials of Pertamina, and the taxation and customs departments. But crony capitalism is still the norm, as Suharto friends and family expand their enormous empires.
The Asian crisis reveals the "corruption, cronyism, and nepotism," (KKN in the Indonesia acronym) riddling the economy.
Corruption obstructs recovery as the IMF and World Bank stop loans when a bank is found to have made payments to the former ruling party. Suharto's son is sentenced to prison but disappears; the judge in the case is later assassinated. Attempts to try Suharto himself are delayed by a lack of political will and his poor health. There is still little commitment to prosecute human rights violations.
President Wahid is ousted, ostensibly for corruption but primarily for political reasons. After Megawati takes over, a new human rights court is set up to try military abuses; its prospects for success are uncertain. Constitutional amendments make the presidency and vice presidency subject to direct popular vote. Corruption remains widespread, and various high-profile cases go unresolved.
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