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Indonesia: Elimination of All Military Business?

High Time for the Government to Take Over All Military Businesses

By Lisa Misol

Published in The Jakarta Post

Now that the Indonesian military might be independently selling off its shares in private companies, the government has no time to waste in setting ground rules to eliminate military businesses. A year after a landmark law mandated that the TNI end its involvement in business, regulations have not yet been issued. The policy vacuum creates the opportunity for mischief.

The government must not squander this opportunity. Grappling with military financing is essential to bolster democratic governance, improve accountability, help professionalize the military and prevent abuses of power that threaten human rights. Civil society can and should help shape the agenda and monitor progress. But government authorities need to jumpstart reform.

The Ministry of Defense chairs an inter-ministerial group charged with planning how the government will withdraw the military from business within five years, as required under a provision of the Law No. 34/2004, known as the TNI law. The group’s recommendations are expected to result in implementing regulations, in the form of a presidential decree, by November.

The authorities deferred action until the TNI completed an inventory of military-owned businesses, which was handed in on October 3. They should not wait any longer. Already the army reportedly sold shares in one company, held via a foundation, and allocated the 121 billion rupiah proceeds without notifying the authorities responsible for overseeing the transfer of military businesses. A September 29 report in The Jakarta Post suggested that other deals have been concluded or are in the works. “Changes of ownership are not a problem,” defense minister Juwono Sudarsono told a House of Representatives commission, “as long as the procedures are in line with the law.” But procedures have not yet been spelled out. Without clear rules governing the process and independent oversight, the result could be a fire sale of what should be considered state assets.

The government must move quickly to assert control. It should immediately place all known military businesses under scrutiny, initiate an independent auditing process, require advance approval for sales, reviews bids carefully, and demand that all proceeds be fully accounted for in the state treasury. An independent body should oversee this process. As a further deterrent, authorities should make clear that unscrupulous behavior, such as diverting profits from sales, will not be tolerated and will be subject to serious penalty. The rules should apply equally to everyone involved in the business restructuring—whether they are military or civilian, officials or private citizens.

Government plans to eliminate military businesses should be guided by four essential principles.

First, the government must acknowledge the full scope of the problem. Estimates vary, but it appears that the Indonesian military’s official budget covers only about half of its actual spending. The rest comes from off-budget funds derived from military-owned enterprises, informal alliances with private entrepreneurs, involvement in the criminal economy, and corrupt fund-raising practices.

The TNI law passed a year ago requires the military to cease all business involvement—not simply give up its formally established businesses. The full reach mandated under the law is critical because the issue is not money alone. Military self-financing has far-reaching corrosive effects. Inherent conflicts of interest pit TNI profit-seeking against its security function. This distorts the role of the military, leads to corruption and abuses of power, and fundamentally undermines the rule of law. In short, guns and money make an unholy alliance.

So far the inter-ministerial working group has focused exclusively on businesses in which the military has a documented ownership share, ignoring the informal and illegal arrangements that also need to be eliminated. Moreover, the lead ministry—though headed by Sudarsono, a longtime critic of military business—recently declared that the government was only interested in the most lucrative military holdings: the 10 or so companies worth 15-20 billion rupiah each. This falls far short of what the law demands.

To begin to address the full scope of the problem, the government should ensure that regulations to implement the TNI law specify that “military businesses” include the full range of the military’s economic activity and clearly declare these to be illegal. And it should widen the focus of its planning accordingly.

Second, it must stand firm in the face of likely resistance. Past efforts to halt the military’s business activity failed in part because the military establishment resisted reform and was able to gain the upper hand. This time, the TNI leadership has pledged to cooperate. Earlier this year the chief of the TNI, General Endriartono Sutarto, even volunteered to speed up the handover process, from five years to two. Yet subsequent pronouncements have undercut promises of cooperation. The TNI leadership has said it will gladly give up those businesses that are money-losers or whose revenues accrue only to private partners. But it argues that it needs to keep other businesses for the welfare of the troops. That rationale has been discredited by mounting evidence that these money-making ventures benefit senior military officials much more than enlisted personnel.

Third, the government should commit to full transparency. Top officials acknowledge that they do not have a grasp of the extent, nature or value of all the military’s economic interests. The government should make public the inventory of military businesses and associated financial data along with the results of prior reviews. Moreover, the authorities should publicly investigate and catalog all businesses in which the military has an economic stake, irrespective of their legal status and ownership structure. These measures would be a good start toward greater openness.

Finally, the government needs to focus on accountability from the outset. To rein in military commercialism, it must take firm measures against those who commit economic crimes and associated human rights abuses. It can begin by establishing and enforcing strict penalties against those who flout the ban on military economic activity. It also should ensure financial accountability. Many military businesses that were formerly cash cows no longer show profits. Forensic audits are needed to expose the reasons, which include corruption, mismanagement, and misuse of state assets. More broadly, ending off-budget practices will require measures to assess actual needs and improve budget oversight and accountability.

Effective reform of military financing will necessarily be a complex process that will unfold over years. Like all difficult endeavors, the long path ahead begins with a few first steps. Standing still is not an acceptable option.

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