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Tremors From Indonesia's Timor (Int'l Edition)

International -- Asian Business: INDONESIA


Indonesia may outfox rivals of its national car but hurt free trade

Just outside Jakarta's international airport lies a huge parking lot filled to overflowing with new yellow, red, and black sedans, all of their trunks stamped with the brand name of Indonesia's national car, the Timor. The government set up the national car program a year ago to create a home auto industry. But in an ironic twist, the Timors aren't made in Indonesia: They roll off the assembly lines of Kia Motors, a South Korean manufacturer, which then sells them to a company run by President Suharto's son Tommy.

Yet President Suharto is still determined to make cars in local factories. To do that, the Suharto family and its allies are maneuvering two local companies, Astra International and Indomobil, into the national car program. They may also enlist the Japanese as allies--and so coax the Japanese government into dropping a complaint it is threatening to lodge with the World Trade Organization over Indonesian practices. Indonesia may still get its car industry--and outmaneuver global auto rivals as well.

Those rivals are fuming over Indonesian laws that boost the price of any cars made mostly with non-Indonesian parts. They also cry foul because the Timor is shipped in duty-free. These practices prompted Japan to threaten a WTO complaint. Meanwhile, auto makers hope Indonesia will abandon these tactics by 2003 when the Association of South East Asian Nations (ASEAN) is supposed to create a free-trade area.

There's some doubt the Indonesian government will ever lower its barriers. But even if it does, the Suhartos have time to build an unassailable position. Witness the latest events at Astra International, a blue-chip Indonesian company. Astra holds sole licenses to assemble and distribute Toyota, Isuzu, Daihatsu, BMW, and other cars, as well as Honda motorcycles and United Tractors. Through a complicated series of deals last fall, control of Astra shifted to Mohamad "Bob" Hasan, a close associate of President Suharto. In mid-February, Hasan was elected chairman at an Astra shareholders' meeting. Afterwards he announced: "I think we should be producing as many local [auto] components as possible, whether [for] Astra or Timor."

Analysts interpret that comment as a sign that Astra will be deeply involved in making Timor cars. That would raise the credibility of the national car program: Astra makes auto parts locally and has a major joint venture, Toyota-Astra, with the top Japanese carmaker.

Astra would also get assistance from Anthony Salim, chief executive of Indomobil, which assembles Suzuki and Mazda cars in Indonesia and which holds 8% of Astra. Salim, son of one of the country's richest tycoons and a close Suharto associate, announced in January that he would lease an assembly line to make Timors locally. With his control of Indomobil, his stake in Astra, and his new role in the Timor, Salim would control 70% of the local car-assembly market, estimates Terry Emrick, head of Ford in Indonesia. "Anthony Salim seems to be positioning himself as a major force in the Indonesian auto industry," says Anthony Wilkinson, an auto industry analyst at Jardine Fleming in Jakarta.

SQUEEZE PLAY. The next step for Salim and Hasan would be to end the threat of a Japanese complaint to the WTO. Local auto executives think Salim and Hasan may ask Toyota Motor Corp. and other Japanese companies to provide locally made parts for the Timor. That way, the Korean carmakers and parts makers would be edged out. In return, Tokyo would have to forget about filing the WTO complaint.

Executives at Toyota say they certainly want to avoid a drawn-out battle before the WTO, but they are unaware of any deal to cut out the Koreans. As for the Koreans, sensing a squeeze play, they vow to fight on. "Competitors are spreading those rumors, especially the Japanese," says one Kia executive. Kia President Kim Sung Hong recently attended a ground-breaking ceremony for a Timor plant on Java. Yet analysts suspect this is a ploy to raise the market value of Kia-Timor Motor and make it easier for Suharto's son Tommy to sell his controlling stake in that company soon.

Analysts now wonder if Thailand and Malaysia will imitate the Indonesians' efforts to nurture and protect their own auto industries. "Privately, officials in these countries say, `Well, the auto industry is pretty important to us. We're not ready to give up on that in 2003,"' says John Bonnell, director for Southeast Asia at Automotive Resources Asia, a consulting firm. In its own way, the Timor is having quite an impact.By Michael Shari in Jakarta, with bureau reports

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