Lippo Group sues Wal-Mart over Indonesia pullout (Washington Times)

Washington Times, March 12, 1998

JAKARTA, Indonesia – The Indonesia connection that cost President Clinton political capital could cost Wal-Mart millions in hard cash.

The retail giant is being sued for $100 million by its Indonesian partner, James Riady’s Lippo Group, which charges Wal-Mart with “collusion,” “manipulation of data” and general incompetence in the operation of two stores just outside Jakarta.

Wal-Mart, in a statement to The Washington Times issued from its Bentonville, Ark., headquarters, dismissed the Lippo Group’s claims as “fiction.”

Mr. Clinton’s ties to Mr. Riady, who was at the center of the controversy over questionable Asian contributions to the Clinton campaign, go back to the days when the Indonesian businessman ran a small bank in Little Rock, Ark.

An Indonesian judge earlier this month granted a preliminary injunction barring Wal-Mart and its executives from leaving the country, and ordered it to continue operating the stores and turn over all accounting records and other documents. So far, the company has refused to comply.

The suit was necessary, Lippo’s lawyers claim, because in early February Wal-Mart abruptly advised its partner that it was pulling out of Indonesia, and began arbitration proceedings in California to cancel the joint venture, which, according to court documents, was losing more than $2 million a month.

Most of the 12 Wal-Mart executives barred from travel slipped out of the country the day the suit was filed, according to sources close to the company. But local newspapers reported that two of the executives are trapped in Indonesia.

Wal-Mart headquarters in Arkansas refused to comment on the employees’ status.

“Wal-Mart has acted with full integrity and taken great strides to abide by the franchise agreement,” the company said in a written statement released to The Times through its public relations company.

The suit includes claims of manipulated data, illegal invoices, unauthorized contracts, phantom employees and padded expense accounts.

But at heart, observers say, it’s about clashing cultures and red ink.

“It’s culture clash combined with ego, position, and what’s happening in the Indonesian economy,” said Harvey Goldstein, a Jakarta-based American business consultant.

Sources familiar with the operation said the two partners began butting heads early in the relationship, which brought together a cash-rich Lippo subsidiary new to the retail sector, called Multipolar, and America’s largest retailer, which had never run a store in Asia. Lippo provided the financing; Wal-Mart supplied the expertise.

By early this year, as the Indonesian economy collapsed, the wheels had come off the relationship.

On January’s “Black Thursday,” when the rupiah hit an all-time low, a top Multipolar official phoned Wal-Mart country manager Joseph Bombara and ordered him to clear the stores of customers and immediately raise prices, according to a source familiar with the conversation. Mr. Bombara refused.

“That really set off the fireworks,” the source recalled.

Meanwhile, out at Lippo’s SuperMall, Wal-Mart’s biggest competitor and neighbor, an Indonesian chain called Mega-M, was doing exactly that on orders from the same man. Just a few months earlier, Multipolar had purchased Mega-M’s parent company, Matahari, in a $70 million deal.

“The purchase raised a lot of questions among analysts,” said Noraya Soewarno, head of research at an Indonesian equities firm.

“How can you integrate Wal-Mart and Mega-M? Basically they’re cannibalizing each other, and yet Lippo tried to put both under one umbrella.”

Wal-Mart apparently felt the same way. The Matahari purchase is reportedly cited as a violation of the contract in the California arbitration proceedings to void the agreement.

According to the suit, the agreement required Wal-Mart to purchase 70 percent of the joint venture when the law changed to allow foreign investment in the retail sector.

That was expected to happen after the year 2000. But under an IMF reform package unveiled in January – shortly before Wal-Mart began arbitration – the change in the law was moved forward to this month exposing Wal-Mart to the possibility of having to pay almost $15 million to Lippo.

Even as Wal-Mart began the process of canceling its contract, another Lippo partner, J.C. Penney, also announced it was leaving Indonesia.

Observers claim Wal-Mart never adapted its American way of doing business to the Indonesian market, where a middle class household is defined as one spending the equivalent of just $40 per month

Credit: SPECIAL TO THE WASHINGTON TIMES

Copyright Washington Times Library Mar 12, 1998

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