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CHEMICAL BOOM IN INDONESIA Intrepid investors rapidly build up a chemical industry to serve huge, erratic Indonesian market

Jean-François Tremblay C&EN Hong Kong

I ndonesia offers a rich picking of enter­taining anecdotes about its businesses and industry. The list is so long that

one could be tempted not to take Indone­sia seriously. In fact, some Indonesians laugh heartily when relating the tales.

For instance, although cars are manu­factured in Indonesia, the government-ap­pointed "national car" is imported from South Korea, made by Kia Motors, a com­pany flirting with bankruptcy. Earlier this year, what was thought to be the world's largest gold deposit at Busang was ex­posed as the largest mining fraud in his­tory. And three to four years ago, a busi­nessman—sent to jail for diverting hun­dreds of millions of dollars of state-bank funds that he said he was using to build petrochemi­cal plants in western Java-was often seen playing golf or going to his office while sup­posedly serving his sentence. He eventually "escaped."

These stories may distract an observer from a country that has caught the interest of the in­ternational business communi­ty. For the past few years, Indo­nesia has registered an excellent economic performance and a surge in foreign investment. The outlook is exuberant. Activity is booming right, left, and center, and nowhere is that more true than in the chemical industry.

Last year, Indonesia's econ­omy grew 7.8%, and it will re­peat that performance for the next three years, according to World Bank forecasts. Between 1991 and 1995, Indonesia's

DuPont's Issaly participates In the celebration of the opening

of a village's public bath.

gross domestic product (GDP) grew more than 7% per year, according to a recent report by Mitsubishi Chemical's subsidiary Martech Inc. GDP per capita is approaching $1,000, although a depreci­ating rupiah lately has been altering that figure. And Indonesia's stock market has been among the best performing in Asia for the past year.

Chemicals these days are the hottest in­dustrial sector for foreign and local inves­tors alike. Last year, the chemical sector attracted about 35% of all foreign invest­ment in Indonesia, says Roderick Brazier of Jakarta-based Castle Group, a market-en­try consulting firm. And Indonesia's Invest­ment Coordinating Board, which approves all investments made in the country, re­ports that in the first half of 1997, petro-

indonesia at a glance Population*. 198 million in 1996; world's 4th most populated country after China, India, and the U.S.

Land area: 741,000 sq miles

Gross domestic product (GDP): $174 billion in 1995

Exports: $49 billion

Imports: $46 billion

External debt: $108 billion

Main components of GDP in 1995 (and projected for 2005): Agricul­ture 16% (10%), services 42% (43%), industry 33% (39%)

chemicals represented 43% of a total of $16.2 billion of foreign investment in Indo­nesia. Domestic investment in petrochem­icals approved by the board represented 20% of the total value of the projects re­viewed in the period.

It is a tribute to the Indonesian market that a chemical industry is emerging so rapidly when less difficult operating envi­ronments can be found next door in Singa­pore, Malaysia, or even Thailand. Japan's Martech predicts in its report, "Petro­chemical Industry in Southeast Asia 1997," that polyethylene demand in Indonesia

will grow from 1.38 billion lb this year to 1.88 billion lb in three years. Similarly, it expects demand there for polyvinyl chloride to grow about 30% from 660 million lb this year to more than 880 million lb in 2000. As for the fiber intermedi­ate purified terephthalic acid (PTA), Martech forecasts this year's demand of 375 billion lb will grow 29% to nearly 4.85 bil­lion lb in 2000.

Growing household incomes in Indonesia also are injecting new life into the agricultural sector, which employs most In­donesians. Spurred by an ex­panding and increasingly afflu­ent urban middle class, demand for food is growing in quantity, quality, and variety, says Gilles Issaly, head of agrochemicals at DuPont in Jakarta.

DuPont expects that the market for fungicides, herbi­cides, and insecticides will grow from about $235 million this year to $312 million within five years, representing an annual

16 AUGUST 11, 1997 C&EN

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growth of 6 to 7%. Although insecticides account for the bulk of this market, sales of rice herbicides are rising fastest, from about $10 million this year to $26 million in 2002.

In view of market prospects, DuPont has begun production in Indonesia in an 80-20 joint venture with local partner Maspion. In July, production of its local­ly sold herbicides began at the $10 mil­lion plant located in Surabaya, on the eastern portion of the island of Java. Al­though there is a problem with herbicide poisoning in Indonesia, Issaly explains at length all the measures that DuPont takes to educate farmers on the proper use of its products. He says DuPont also has built public baths in villages around Indonesia to make it easier for farmers to wash after treating their crops.

Much of the country's petrochemical industry presently is concentrated about 85 miles west of Jakarta, in the Merak pen­insula. Vividly illustrating the rapid growth of the area, executives of fiber-intermedi-ate-producer Bakrie Kasei report that al­though one or two petrochemical plants were operating in the area in 1990, there now are more than 40.

Bakrie Kasei itself embodies one of Mit­subishi Chemical's largest overseas invest­ments. Mitsubishi's partner is the local group Bakrie Brothers. The joint-venture

company now produces up to 1.3 billion lb of PTA per year locally, as well as some polyethylene terephthalate. Bakrie Kasei's president, Yoshiaki Shiratsutchi, says pro­duction of PTA started slighdy ahead of schedule in February 1994.

Santoso W. Ramelan, Bakrie Kasei's chairman, points out the venture was sixth in line to build a PTA plant in Indo­nesia. However, as other projects were abandoned, Bakrie Kasei made its way to the top of the list to become the first PTA project on the list to be implemented. Ra­melan, who is a senior executive in sever­al of Bakrie Brothers businesses, says the government looks favorably upon the group partly because its management is ethnic Indonesian.

Japanese trading companies are partic­ularly active in Indonesia. And in the chemical and petrochemical sector, they seem to be part of most deals. Executives of Japanese trading company Marubeni say Indonesia represents Marubeni's third biggest foreign "risk exposure" in the world—trading company jargon for how much the company stands to lose in Indo­nesia if its investments, loans, and loan guarantees were to fall through. It is a sim­ilar story at Mitsui & Co. where Sentaro Yamazaki, the Jakarta-based executive who oversees the chemical business, says Indonesia contains the firm's biggest risk expense outside of Japan, at $2 billion.

U.S. and European firms also are quite active. Ventures are under construction or up and running by BP Chemicals, Du­Pont, Amoco Chemical, and Arco Chem­ical, to name a few.

Bank of America became heavily in­volved in Indonesia's chemical sector last year as a financial adviser to Trans-Pacific Petrochemical Indotama (TPPI), a new company that is building a $2.3 billion pet­rochemical complex in Tuban, on the northeast coast of Java. The complex will require more than $3 billion in investment if downstream facilities are included. TPPI will feature Indonesia's second ethylene complex. The first, Chandra Asri, near Merak, came on-line in 1995 after endur­ing long delays during its construction.

About 75% of TPPI's planned facilities will be financed by international loans, and much of them will be underwritten by BA Asia, a Bank of America merchant banking arm. Robert A. Johnson, a Hong Kong-based chemical engineer and BA Asia project financier, comments, "We have loan commitments for $1 billion al­ready." He adds that construction is un­der way, with the facility scheduled to start operating in 1999. He expects no delay or interference from authorities.

TPPI's Tuban project is impressive. Within three years—on what until re­cently was a greenfield site devoid of sig­nificant infrastructure—an integrated petrochemical facility will be producing olefins, aromatics, and downstream chemicals. Initially, ethylene output will be 1.5 billion lb per year. According to Johnson, TPPI will meet about two-thirds of its feedstock requirements by using condensate from Pertamina, the state-owned oil company. This is unlike the Chandra Asri complex, which uses most­ly imported naphtha to make ethylene.

AUGUST 11, 1997 C&EN 17

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Yamazaki: earlier ventures not profitable

The main sponsor of TPPI, with a 70% stake, is the Tirtamas Group, a large In­donesian conglomerate with close ties to the family of Indonesian President Suhar­to. Another 20% stake is owned by Siam Cement, Thailand's largest business group. The other partners are Japanese trading companies Nissho Iwai and Ito-chu, which have a central role in orches­trating the downstream portion of the project. The U.S.'s Koch Refining is also likely to acquire some equity, says John­son. Engineering will be mostly by U.S. firm Stone & Webster.

A seemingly well-thought-out project such as TPPFs in Tuban gives Indonesia's chemical industry an aura of reassuring fa­miliarity. Much like most successfully fi­nanced projects around the world, it is built on the conservative assumption of no tariff protection, says Johnson. Moreover, its justification is a combination of familiar

rationales: market, feedstock, and integrat­ed design. Johnson is convinced TPPI will be one of the most cost-competitive com­plexes in the world.

Unlike the Tuban project, which so far is proceeding more or less as planned, the history of Indonesia's chemical industry is not so smooth.

Pertamina originally was responsible for managing the growth of industries that depend on oil and gas feedstocks. But a scandal in the mid-1970s, in which several billion dollars were lost, caused Pertamina to be stripped of some of its clout and influence. Fertilizer producer Pupuk Kaltim was born out of this crisis, and it had a rough beginning.

Trading company Mitsui had a diffi­cult time in Indonesia at first. In the 1970s, the company became involved in eight chemical joint ventures with Indo­nesian partners, says Yamazaki. "Most of these eight joint ventures suffered loss­es," he says, and as a result no more joint ventures were established until five years ago.

Chandra Asri is probably most illustra­tive of the difficulties that the country's chemical industry has had to suffer. The government halted construction of the complex for almost two years after all the necessary funds had been borrowed. That two-year delay was costly—$500 million is the company's estimate for losses, includ­ing currency fluctuations, interest, and lost revenue.

But these fits and starts that Mitsui, Pu­puk Kaltim, and Chandra Asri experienced should not detract from the point that Indo-nesia's chemical industry has been develop­ing rapidly in the past few years. The envi­ronment has changed. For Pupuk Kaltim, the collapse of the Soviet Union has changed the world fertilizer market. For

Bakrie Kasel President ShIratsutchI (left) and Chairman Ramelan

Johnson: loans for Tuban complex In place

other firms, investing in Indonesia has sim­ply become more attractive.

Jackson Yu, a vice president at consult­ing firm SRI International, Menlo Park, Calif., cites a series of factors that have helped the Indonesian industry in recent years. He says the government has abol­ished some foreign ownership limitations, reduced tariffs on more than 700 consum­er and capital goods, removed minimum investment levels, and eliminated the re­quirement that foreign investors operate in an industrial park. He adds that the cor­porate tax rate has also been reduced, but that "to offset this tax decrease, the gov­ernment removed the tax deferral it al­lowed on capital goods imported as part of an investment."

The experience of Salim Group's in­volvement in the chemical sector and its propensity to commit to increasingly larg­er investments provide an example of the sort of thinking behind some of the proj­ects being considered. Salim is Indonesia's largest business group, with annual sales of about $20 billion, or more than 10% of Indonesia's GDP. About two-thirds of the group's business is conducted in Indonesia.

Salim's chemicals division president and chief executive officer, Hartono Gu-nawan, relates that in 1984 Salim acquired a food company that had some chemical business. As Salim realized links with some of its manufacturing businesses, it gradual­ly began to build more chemical plants. Today, Salim operates or has stakes in plants producing polyethylene, alkyl ben­zene, polyvinyl chloride, caustic soda, and styrene, as well as monosodium glutamate and pharmaceuticals.

"We're basically capturing business op-

18 AUGUST 11, 1997 C&EN

portunities," says Paulus I. Setiawan, depu­ty group general manager of petrochemi­cals at Salim. "There is big demand here— population growing at 2 to 2.2% per annum; GDP is growing 7 to 8% per an­num. So the obvious thing is to put a downstream unit next to the customer, which can tap all of this demand."

In the process of building petrochem­ical plants, Salim has established relation­ships with several international compa­nies. Among them are BP Chemicals, Dow Chemical, and Japanese trading companies Tomen, Mitsui, and Sumito­mo. This stable of ventures consumes olefins that in large part have to be im­ported from abroad. Gunawan notes that $100 million annually could be saved in transportation costs alone if Salim had ac­cess to a domestic source of ethylene.

Plans are under way to build such a plant. Salim—together with BP Chemi­cals, Tomen, Sumitomo, Nichimen, and Mitsui—is studying the possibility of building a naphtha or condensate crack­er capable of producing at least 1.5 bil­lion lb per year of ethylene. Setiawan says that, unlike TPPI's situation, only a cracker will be built because most of the downstream facilities already exist. The investment would be about $1 billion.

Official announcement of the feasibility study was made in January. However, it appears that Salim and some of its partners had been considering the idea for an even longer time than has TPPI. Mitsui's Yama-zaki says partners are currently discussing how to split the equity. He adds that it is also necessary to coordinate with Chandra Asri so that both crackers can operate smoothly in the future. According to sev­eral recent press reports, firms in the Salim Group and Chandra Asri investors have ex­changed equity, but none of the entities involved would officially confirm this.

Salim's Setiawan insists there is a need for the Salim-BP cracker. He says an official announcement that the companies will proceed with the project is "imminent." The announcement will be followed by an international "road show" to gather loan commitments for up to 75% of the cost of the project. The British financial firm Schroders-Indonesia has been retained as financial adviser, he says.

Moreover, Salim recently obtained a li­cense from the Investment Coordinating Board to build its project. Although en­couraging, the development is not neces­sarily all that significant because obtaining licenses tends to be not much more than a formality in Indonesia. Companies often apply for licenses before they have even

fully decided to build a project, says Hideo Tokuya, Jakarta-based general manager of chemicals at Marubeni.

Citing the growth of demand in Indo­nesia, Setiawan says the domestic market alone in 2001 will absorb the output of at least three crackers in that country. And by 2005, he says, Indonesia will have room for a fourth facility. Making his case for the Salim cracker even stronger by al­luding to a domestic source of feedstock, he says partners are "now thinking to pro­duce naphtha by the means of splitting [lo­cally sourced] condensate." Setiawan adds that the Salim cracker will also import naphtha to "increase its comfort margin."

What Setiawan does not say is that the sourcing of raw materials from state-owned Pertamina is not a straightforward process. Over the past few decades, off­take agreements with Pertamina have been linked to instances of high-level cor­ruption and nepotism, according to Far Eastern Economic Review journalist Adam Schwarz, in his book on Indonesia, "A Nation in Waiting." Having alternate sources of supply would therefore appear to make sense.

As the sobering episode of the birth of Chandra Asri has shown, there is a large element of unpredictability in es­tablishing a large petrochemical project in Indonesia. To some extent, one can­not tell whether a project will indeed be implemented until it actually starts to produce. Much of this randomness origi­nates from the government, so whether Salim's project will be implemented soon depends to some degree on the at­titude of the authorities.

But the message there is reassuring. "Look at ethylene balances. We need to build these new crackers—TPPI and Sal­im," says H. Ahmad Gazali, director for the

chemical industry at the Indonesian gov­ernment's Ministry of Industry & Trade. A ministry background paper prepared in June with the help of Japanese foreign aid outlines the government's positive attitude toward petrochemicals.

First noting that basic chemicals play a central role in industrial development, the paper describes broad policy objec­tives. However, the paper is not specific on any new incentives or policies that the government might adopt to help fur­ther development of the industry.

"There is no tax holiday in Indonesia," says Gazali. "But depending on the proj­ect, we might offer some incentives." He also expresses a bit of displeasure over the heavy involvement of trading companies in development of the chemical industry. "There is little R&D performed in Indone­sia, because it is the traders that develop the projects. If there was an R&D compo­nent to the investment, we'd provide in­centives," he says.

Mitsui's Yamazaki offers a mixed re­view of government policies toward the chemical industry. On the one hand, he says, there is no master plan. As a result, it is left up to companies to build things such as jetties, to secure electricity, and to buy land. "Not like in Singapore, total­ly opposite," he says. He refers to the cluster of chemical companies near Mer-ak as a "coincidence" rather than the re­sult of an overall plan.

"The government has not helped, gen­erally," he says. But he can nonetheless point to a few instances of government support for the industry. Corporate tax was recently reduced to 30% from 35%, he says. Additionally, some struggling chemi­cal companies have at times benefited from narrowly targeted tariff protection.

Much has been made of how corrupt

Salim Group's Setiawan (left) and CEO Gunawan

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Chandra Asri tells cautionary tale Cruising down the highway at about 100 mph—which is not uncommon in Indo­nesia—it takes a bit less than one and a half hours to reach Chandra Asri from the center of Jakarta. The complex is in the heart of Indonesia's main petro­chemical cluster, in the Merak peninsu­la, by the sea west of Jakarta. On a clear day, one can see the volcano Krakatau, which exploded in 1883.

Once at Chandra Asri, one encounters gleaming facilities that began commer­cial production in May 1995. Built at a cost of $1.2 billion and maMng use of en­gineering finn ABB Lummiis technology, Chandra Asri incorporates a cracker with an annual capacity of 1.12 billion lb of ethylene and 529 million lb of propylene. It also has a polyethylene unit that can produce 660 million lb annually and a wastewater treatment facility that meets world standards, according to Bob Payne, an Australian who is a construction man­ager for Chandra AsrL

Managers and workers at the site seem proud to be operating the first ole­fin complex in Indonesia. "There had been a total of tikie licenses issued for petrochemical complexes to other com­panies before usf

w says Sharif S. Beck, manager of public affairs at the com­plex. *wVre the only [company} to have actually gone ahead with implementa­tion/ Adds his assistant Emir Faisal, UA few years ago, I never would have be­lieved that Indonesia could have facili­ties such as these."

But there's a complicated story behind the project And that story shows why, despite Chandra Asri's being technically operational, it's fer from having become the resounding commercial success that its sponsors had originally hoped.

Chandra Asri is essentially a 75-25 joint venture between Indonesian and Japanese investors. Of the Japanese, Ma­rubeni Corp. has the bigger share, at 17.5% of the total; the other 7*5% Japa­nese-owned stake is held by Showa Den-ko. Hie main Indonesian investor is the Barito Pacific Group, which is also an important producer of wood pulp. Chandra Asri is well connected. Its chief officer, or "president commissioner," is Bambang Trihatmodjo, Indonesia's President Suharto's son.

When the original plans were made in 1990, the promoters envisaged an ethylene capacity of 1.5 billion lb per year, says Hideo Tokuya, general man­ager of chemicals at Marubeni in Jakar­ta. A total investment of $1.7 billion was foreseen for the entire complex. And, according to Chandra Asri's project de­velopment director, Tom Jones, mi

American who has been with Chandra Asri from the start, an aromatics and a polypropylene unit were to be part of the package.

Unfortunately, in 1991 the Indonesian government ordered that construction of the Chandra Asri project be halted. "We were 60% done by then," says Jones. Con­struction had begun the previous year. Authorities were reportedly acting on a World Bank repeat that Indonesia's for­eign debt exposure was getting too high.

Construction was restarted almost two years later, Beck says. Chandra Asri officially says restructuring the debt is what did the trick. According to Maru­beni officials, this was accomplished by the Indonesian investors' move to cre­ate an overseas corporation in Hong Kong. They channeled hinds into this shell company, which became the main

However, $500 million worth of capital equipment had been stripped from the original plan. Beck notes that if the cost of servicing the debt is excluded, Chan­dra Asri today is a profitable concern.

Another exacting repercussion, which could not have been predicted at the time, was that the project came on-line at a time of depressed petrochemical prices, just after a worldwide surge that Chandra Asri narrowly missed. Had the project come on-line at die time that was origi­nally scheduled, it would have captured these high margins, says Jones.

The Indonesian government has pro­vided some relief to Chandra Asri since it became operational Last year, it imposed a tariff of 25% on imported ethylene to help convince polyethylene producer Petrokimia Nusantara Interindo (Peni) to source its ethylene from Chandra Asri Peni's main shareholders are BP Chemi­cals and Indonesia's Salim Group. Chan-

sponsor of the project. In this way, Chandra Asri became a "100% foreign-funded" investment. Additionally, Chandra Asri's sponsors agreed to re­duce the scope of the project. The planned ethylene capacity was lowered to 1.1 billion lb per year, and plans to implement the polypropylene and aro­matics units were dropped.

The halt in work was traumatic for Chandra Asri. Construction was fi­nanced largely through yen loans, and the freeze coincided with a period of record highs for Japanese currency. The freeze also meant that interest charges built up for a longer period, and cash flow was delayed. Adding in all these costs, construction of the Chandra Asri complex cost $1.7 billion, Beck says, which is just as originally planned.

dra Asri did not come on-line at full ca­pacity, partly because orders from Peni weren't placed. The government also has imposed tariffs on propylene.

Chandra Asri currently is expanding op­erations. Basically, it will implement the original design of the petrochemical com­plex, says Jones. Capacity will be boosted to 1.5 bilHon lb per year of ethylene and 728 million lb of propylene. Another polyethylene unit with an annual capaci­ty of 440 million lb will be added. Butadi­ene and pofybutene units will be in­stalled, and a 400 million-lb-per-year poly­propylene unit will be set up.

"One could write a book about the his­tory of Chandra Asri," says NewZealand-er Beck, a resident of Jakarta for 18 years. But he himself prefers to do research for a book about the city's night life.

20 AUGUST 11, 1997 C&EN

Tokuya: considering new Investments

the Indonesian government is. It regularly comes near the top of regional rankings of corrupt governments, attracting much me­dia attention in the process. Surprisingly, some executives appear not to be too con­cerned about this. One foreign executive tells C&EN: "I've been posted in other countries. Sure, [government officials are] corrupt here, but at least it is organized. There are established rates, it is clear who gets what and what the results will be. And once you've paid, you indeed get the results." Another executive, whose job is to select investment opportunities among the countries of Southeast Asia, similarly shrugged off the problem: "It's okay. We can learn to live with this."

Corruption appears to have a more sin­ister side where environmental protection is concerned. One plant manager says it is normal practice to pay off Indonesian gov­ernment officials in charge of enforcing environmental standards because compli­ance procedures are cumbersome and time-consuming. On the other hand, un­lawful emissions of harmful chemicals do not necessarily result from these practices. "If a plant is found to be polluting its sur­roundings, the farmers, fishermen, or tribesmen living nearby get furious and quickly launch an assault on the plant car­rying spears or traditional weapons," he says. "So you know immediately when you have a problem."

The combination of corruption and lack of infrastructure, however, raises the cost of doing business in Indonesia and therefore reduces the country's competi­tiveness with its regional neighbors. And it's not surprising that in some industries the cost of making additional payments to

I government officials or to individuals with I close links to the center of power can eat into the profitability of firms.

In addition to these problems, anoth­er difficulty of operating in Indonesia is retaining skilled workers. Chandra Asri's manager of public affairs, Sharif S. Beck, says his firm is a training ground, that

L workers are often poached by other companies opening up chemical plants in Indonesia. Bakrie Kasei reports a simi­lar situation.

The companies say this is happening despite offering their staff very attractive compensation packages, including free company housing. Indonesia's chemical industry is young, they point out, and ex­perienced labor is fully employed by the existing chemical plants. New facilities typically pay higher salaries than the go­ing rate, hoping to lure experienced staffers into switching jobs.

Competition from foreign countries is another challenge in operating in Indo­nesia. When producers around the world have difficulty getting rid of their stock, ships often make their way toward Indo­nesia's friendly markets. Tariff protection shields Indonesia to some extent, but not all chemicals are protected in this way. In addition, several executives confirm to C&EN that the country's geography of thousands of islands indeed makes it the ideal staging ground for rampant smug­gling activities.

As in other countries, general condi­tions in the chemical industry also affect companies. For instance, Bakrie Kasei is bracing itself for additional supplies of PTA on the market when new plants come on-line soon. Similarly, Tri Polyta, a sister company of Chandra Asri because the largest investor in both is Barito Pacif­ic, is suffering from a downturn in the price of polypropylene. The company is particularly hard hit because it does not produce much other than polypropylene, and it is dependent on outside suppliers for its raw materials. Hans Mawenkang, Tri Polyta's plant operation manager, says it would make sense to merge the two com­panies. Beck says this would be impossi­ble, because Tri Polyta is listed on the stock markets in Jakarta and New York, but Chandra Asri is privately held.

Political uncertainty is also on the minds of at least some chemical compa­nies when considering significant invest­ments in Indonesia. There have been nu­merous editorials, news items, and even books over the past several years written about the lack of a clear succession after

I Suharto—who has been president for 32 I

Gazali: chemical Industry welcome

years—leaves his post. Recent riots offer a clue, but an idea of how bad political violence can get in Indonesia is provided by the period when Suharto assumed power from his predecessor Sukarno. About 300,000 Indonesians died at that time in a purge of the Communists, who had been accused of fomenting a coup. For a period of several months in 1965, the country was in complete turmoil.

Consultants at Castle Group com­pletely dismiss the idea that total chaos could occur anytime soon in Indonesia. "There is no Sarajevo or Cambodia here," says Richard S. Howard, Castle's head of research. His colleague, consultant Hi-dayat Jati, says the economic progress of the past few years has given Indonesians in all walks of life a stake in seeing progress continue: "People may argue here about techniques, but not about the aims of economic policies. The model works, more or less."

Castle's consultants point out that signs of a breakup in law and order will cause the military to intervene. They say the military is a "strong institution." Mit­sui's Yamazaki concurs, believing that the military can be counted on to main­tain law and order within the country should social order break down.

But Indonesia apparently isn't such a bad place. Although Marubeni has been embittered by its participation in the Chandra Asri saga, the firm is returning to a positive outlook on Indonesia. Ques­tion Tokuya about what will happen in Indonesia after Suharto, and he says: "I don't expect big changes. We're think­ing about new projects. We have a few

I plans under consideration."^

AUGUST 11, 1997 C&EN 21