In Indonesian business, the more things change...

I spent a decade covering Indonesia and a large chunk of that covering finance and investment there, most interestingly the "Asian tiger" bubble and the painfully deep hangover called the 1998 "Asian financial crisis" that triggered the end of the durable dictator and ally of the West, Soeharto. 

Though it's been a long time since I've been there, I keep an eye on the place.

The country has made great strides since the chaos of the immediate post-Soeharto years. Economic growth has resumed, living standards have improved, and the small religious wars and separatist conflicts that tore at the country in the early years of the past decade have gone off the boil. East Timor is now an independent nation, the Free Aceh Movement in north Sumatra has laid down its guns, and the jihadi Jemaah Islamiyah, which carried out bombings across the country, has been beaten back by an effective policing and intelligence effort.

The international banks that lost billions in the Indonesian crash, after various Indonesian conglomerates had spent years skimming off the top of loans for themselves rather than putting them to productive uses, have resumed lending heavily to the country and its businesses.

But it's still not an investment climate for the faint of heart, particularly if the complaints of Nathaniel Rothschild are to be believed. The scion of the Rothschild banking dynasty, which has funded governments, speculators, and kings for centuries, has seen a $3 billion tie-up with the politically connected Aburizal Bakrie family hit the rocks.

Judging from an article in The New York Times, Mr. Rothschild was extremely ignorant of the modern history of corporate Indonesia. In 2010, he led an investment group that spent $3 billion in cash and stock-buying stakes in two coal mining companies owned by family of Aburizal Bakrie, a scion of a business dynasty in his own right.

The complex transaction amounted to a reverse takeover of Vallar PLC in the UK, with Rothschild's Vallar taking stakes in two of Indonesia's largest coal producers (controlled by the Bakrie family), and Bakrie-controlled companies in Indonesia ending up with 43 percent of Vallar. Indra Bakrie, Aburizal's brother, took the chairmanship of Vallar, which was quickly renamed Bumi Resources ("Bumi" is Indonesian for "earth") and trades on the London Stock Exchange. The Bakrie family stake has since been reduced by a sale of some of its shares to another Indonesian tycoon.

Indonesia a top supplier of coal

A smart investment? Well, Indonesia is now the world's largest supplier of coal to power plants, a money-spinning business whatever the environmental costs. The Bakries' political leverage has made them major players in natural resources in Indonesia; licensing and business problems go much more smoothly in Indonesia when you're dealing with the politically connected.

But that's a double-edged sword. Rothschild has now fallen out with the Bakries, making the same complaints about them that a string of disappointed investors made in the 1990s and the early years of the last decade.

From my distance, it seems like the past made new. Many of the same local players and politicians remain as powerful, or more so, than ever; corrupt, cozy business practices remain the norm. And the "savvy" international investors who end up in Indonesia appear to be as far behind their local partners as the banks and other investors who lined up behind Indonesia's crony capitalists in the 1990s and lost billions of dollars in the process.

Aburizal Bakrie was one of the politically connected players then. How connected? In 1991, as Freeport McMoRan Copper and Gold Inc. renegotiated its contract to work the most profitable copper and gold mine on the planet, it provided gratis a piece of the mine worth about $200 million to Bakrie to smooth over negotiations with Indonesia's Soeharto government. 

Bakrie a presidential contender

Bakrie is even more powerful today, nearly 15 years after Soeharto was deposed. He's the chairman of the Golkar political party that Soeharto founded, which holds the second largest percentage of seats in the Indonesian parliament. He's considered a front-runner for Indonesia's presidency in 2014.

In November of last year, Rothschild released a letter in which he'd asked Bumi's chief executive to return corporate money "deposited with connected parties." The Bakries sold part of their stake in Bumi last year to Samin Tan for $1 billion. Rothschild complains that the sale to Mr. Tan was a sweetheart deal that hurt minority shareholders' interests. 

Is it true? In this case, unproven. But tangling with the Bakries has always been dicey. The Bakrie family's business practices in the 1990s, when I followed them closely, left a trail of disappointed minority shareholders and creditors. The family's publicly traded companies in Jakarta were in the habit of raising money from minority shareholders, then turning around and using the cash to buy assets from family members.

In 1997 and 2008, family companies were on the brink of bankruptcy, an eventuality that was staved off when creditors agreed to take pieces of family equity instead.

Investors often talk about doing "due diligence" ahead of time. Yet in 20 years of watching investment in Indonesia, time and again I've seen big capital apparently ignorant of recent history of corporations and individuals.