Subject: Asia Sentinel: Indonesia's Army Seeks to Divest

Asia Sentinel November 28, 2008

Indonesia's Army Seeks to Divest

By Lisa Murray

Slow going to get rid of the tag ends of a once-rich military empire

Four years after the Indonesian government promised to dismantle its military's business empire, there is finally an official estimate of what the army-owned companies, foundations and assets are actually worth (the legal ones anyway).

It's underwhelming.

According to the team charged with verifying and valuing the businesses, the military has net assets of just Rp2.2 trillion, (US$186 million).

The empire is today a fraction of what it was at the height of the Suharto years, when the military loomed large in both political and business circles, with big investments in hotels, property developments and plantations. Its services were often used by other companies seeking protection for their mines or businesses in volatile regions and there are widespread claims of military involvement in illegal logging, gambling and prostitution rings.

But the party's over. Profits were severely dented by the Asian financial crisis 10 years ago. At the same time, the fall of the late strongman Suharto signaled the death knell for the military's overarching political and business influence. The military has lost all of its guaranteed seats in parliament and a 2004 law dictates the transfer of all business operations to the government by October, next year.

But despite the looming deadline, progress has been slow.

Just this month, recommendations from a government-backed team were sent to the Defense Minister, not directly to the president as previously flagged. Defense Minister Juwano Sudarsono now has the option to modify the recommendations before handing them on and then a process has to be set up about how the transfer will actually take place. It won't be easy. Some 23 foundations, 55 companies and 1,098 cooperatives need to be dealt with.

Also slowing things down, debate is now raging about whether the military should be able to retain control of some of its local level cooperatives. Senior military figures have ramped up their lobbying efforts in recent months, arguing that servicemen are underpaid, the budget is inadequate and cooperatives go some way towards supporting personnel and their dependents. But critics of such a move are skeptical.

"That is based on the false claim that local-level cooperatives are innocent entities that perform a social function for servicemen," says Lisa Misol, a researcher at Human Rights Watch.

According to HRW, that is not the case. The organization claims to have information linking a military cooperative to an illegal mining operation in South Kalimantan. The cooperative is alleged to have managed illegal miners, even issuing them with permits. It then bought the coal at a steep discount and sold it back to the company, which owned the mining concession in the first place. When faced with the allegations, the military denied any wrongdoing.

"We don't claim that none of the money goes to helping the servicemen and their dependents but there is no transparency," says Misol.

Still, there is an argument for supporting the poorly-paid foot soldiers of Indonesia's army, Tentara Nasional Indonesia, or TNI. Most of the benefit from its business activities goes to high-ranking officers while many in the army live in poor conditions on a salary of less than US$200 a month.

"The military is very tightly squeezed," says Tim Huxley of the Singapore-based International Institute for Strategic Studies.

"The government is trying to transfer the TNI from a land-centered force to one that is able to defend its maritime interests and airspace but there is no budget for procurement. I think there is a high degree of sincerity when senior TNI figures say that the profits from cooperatives go toward the welfare of servicemen and their dependants."

The problem is one of monitoring cooperatives to ensure they don't stray outside their mandate.

Bantarto Bandoro, a defense strategy analyst at the Center for Strategic and International Studies in Jakarta, says an independent body should be set up to keep an eye on cooperatives.

"I think that some cooperatives should be maintained," he says. "This is very important for the TNI. The problem is with monitoring."

The "TNI Business Activities Takeover" team, set up by the government, is certainly in favour of retaining some cooperatives. And that is a key part of the recommendations in their final report released on November 4. It put forward a few options: transfer the military-owned companies, foundations and cooperatives to the Defense Ministry and then sell them off or transfer them and maintain them, with improved financial transparency and monitoring.

In either case, local level cooperatives could be retained by the military to provide goods and services for personnel.

"This kind of organisation is essential to the TNI soldiers' basic requirements," the team's chief, Erry Rijana Hardjapamekas, said in a press release.

Alternatively, the cooperatives could be transferred to the Defense Ministry and restructured so that they are based on the US model of Port or Base Exchanges, which serve as small non-profit shops for servicemen.

Lisa Misol, researcher from the Human Rights Watch, says there are a number of problems with the recommendations and the best option by far would be to sell everything off.

"While the defense ministry is a civilian institution, it does not have a better track record of accountability," she says.

Misol also says it is important to treat the problem of an inadequate military budget separately from the need to dismantle the military's business activities.

The military were allocated 36 trillion rupiah (US$2.9 billion) in Indonesia's 2008 state budget to defend a population of 230 million. That compares to the US$7 billion Singapore set aside this year to defend just 5 million people.

"Getting a defense budget that makes sense for the country is important and servicemen are underpaid but you can't compensate for that by having these underground business activities," says Misol.

"Salaries need to be part of a budget that is approved, monitored and audited and that's not true of foundations and cooperatives."

Another criticism of the work done by the government team is that it has not made any investigation into the widespread claims of illegal military business activities.

"Over the last four years there has only been a focus on legal businesses and foundations but suspected criminal business activities are a serious issue and we estimate the income is higher than for legal businesses," says Mufti Makarim Al-Akhlaq, Executive director of the Institute for Defence Security and Peace Studies in Jakarta.

There's no doubt that military reform has come a long way in Indonesia. While some former high-profile army men, such as Wiranto and Prabowo Subianto, are among next year's presidential candidates, their polling numbers are very low. And the military gave up its 38 guaranteed parliamentary seats three years ago.

But there is a lingering sense of power attached to the military and that is prompting some reluctance among the political elite to make a swift and dramatic change on the issue of its business activities, especially so close to an election.

"It's less hard than they think but they're nervous anyway," says Misol.

"By this time, many people in the TNI have mentally given up on these businesses. There's not a lot to get wealthy from anymore. The uniformed military generally are ready to give them up but the civilians are nervous about the uniformed military being upset and so are reluctant to take this opportunity.


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