The Push for Reform of TNI’s Businesses

In the early 2000s, the erosion of the rationale for military businesses coincided with a process of accelerated democratization in Indonesia that opened space for independent observers to raise sharp questions about the true cost and repercussions

of military self-financing. 14 The slow but steady upswing in the level of government funding undercut the greatly overstated arguments that TNI enterprises served to subsidize necessary military expenses or finance soldier welfare programs. With the

13 Co-author interview with Juwono Sudarsono, Jakarta, 19 May 2010. 14 This section uses material from Lisa Misol’s study, Unkept Promise: Failure to End Military

Business Activity in Indonesia (Human Rights Watch, 2010). We would like to thank Human Rights Watch for allowing us to use this material.

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emergence of a vocal and independent media and strong civil society groups, Indonesian human rights activists highlighted cases demonstrating how the military’s profit motive created conflicts of interest with its proper security role and fomented abuses of power (Kontras, 2004 ). Growing controversies about military involvement in business tested the longstanding claims by TNI leaders that such activity provided an acceptable means for commanders and troops to supplement the funds allocated in the military budget. Government auditors and parliamentarians also voiced frustration over their inability to curb TNI financial abuses (Artjana, 2005 , pp. 149–164; Susilo, 2005 , pp. 69–77). The continued role of the TNI in business was at odds with the standards of democracy, civilian suprem- acy, and military professionalization to which Indonesian leaders and society at large aspired. Coupled with increasing demands for civilian bodies to improve oversight and control over TNI finances, the weakened justification for military businesses convinced some within Indonesia’s political elite that reforms were necessary.

In September 2004, the cumulative criticisms and recognized need to improve military professionalism led Indonesia’s parliament to adopt landmark legislation that, among other provisions, mandated the military to completely withdraw from business. Law No. 34/2004 was signed the following month by the outgoing president, Megawati Sukarnoputri, just as a new administration led by retired general Susilo Bambang Yudhoyono prepared to take office. Article 76 of the law mandated that “[w]ithin five years . . . the government must take over all business activities that are owned and operated by the military, both directly and indirectly.” Elsewhere, the law reinforced that provision by declaring that, by definition, “professional soldiers . . . do not do business” and by restating longstanding (but unenforced) prohibitions on soldiers engaging in business activities. The clarity of the demand was refreshing, but it masked the parliament’s reluctance to delineate what actions would be required to meet it. Law 34/2004 did not specify which categories of military business were to be eliminated nor did it spell out any accountability measures if the 5-year deadline was missed. Instead, it only provided that the incoming president should enact a presidential decree outlining the necessary elements to give effect to the legal mandate. This deference to the executive severely undercut the reform effort.

While top TNI officials publicly declared strong support for Law No. 34/2004, they nonetheless exploited its ambiguity to narrow the scope of this potentially radical reform and to delay its application. Upon taking charge as TNI chief in early 2006, Air Marshal Djoko Suyanto voiced his support for reform but insisted “businesses that serve the interests of TNI members and their families must be

retained.” 15 In the same vein, although the then TNI chief publicly offered to hand over all businesses within 2 years – rather than the five allowed by law – the TNI did

15 Soeryo Winoto, “Military must have a presence in the region,” The Jakarta Post, February 3, 2006.

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not provide the government with a preliminary inventory of its enterprises until September 2005, a full year after the passage of Law No. 34/2004.

The Yudhoyono government itself was similarly slow and hesitant: after initially delaying the formation of an inter-ministerial team to oversee the reform effort, that team subsequently spent several years repeating the same tasks of verifying and evaluating the identified businesses. A civilian nominally headed this reform effort with a top military official as his deputy, but there was little doubt that the government team as a whole was highly sympathetic to the views of its uniformed representatives. It did not object, for example, when TNI foundations took advan- tage of the long lull in government control to sell off shares in several companies

without prior approval. 16 Instead, the reform team signaled from an early stage that it would severely (and deliberately) limit the number of military businesses subject to government takeover. In the view of the team, the military was to retain those businesses that were nominally independent, arguably served a welfare purpose, or purportedly had not benefited from the use of state assets. Similarly, the team refused to handle the problem of informal or illegal business activity, claiming that those crucial matters remained outside the scope of the 2004 law. Finally, the government also failed to enact any plan to formally implement Law No. 34/2004, leaving it in legal limbo.

The reform drive made no progress until 2008, when the well-regarded former deputy chief of the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, KPK) was brought in to head an advisory group. Under the leadership of Erry Riyana Hardjapamekas, this group carried out a new review of the military’s businesses and proposed several options for reform (Tim Nasional, 2009 ). The proposals, although far from comprehensive, addressed a wider set of issues than prior government efforts and with greater effect; notably, one proposal would have resulted in the liquidation of TNI foundations and their enterprises. Hardjapamekas presented the advisory group’s various options to the government in October 2008,

1 year before the expiration of the 5-year deadline contained in Law No. 34/2004. He announced at the time that the work of his group had been guided by one fundamental principle: that any business activity that aims to fund or benefit soldiers or the TNI as an institution could “cause conflict of interests and thus

obstruct [. . .] the realization of TNI professionalism.” 17 While Yudhoyono had 1 year to consider Hardjapamekas’ proposals before the

hand-over deadline, he ultimately opted to ignore most of them. In October 2009, Yudhoyono issued a decree that formally announced the government’s takeover of TNI’s business activities – but not the ownership of military-linked enterprises. Beyond that, Presidential Decree No. 43 of 2009 on the Takeover of Business Activities of the TNI did not provide much detail. Instead, it simply set up another

16 See, for example, “Military allowed to sell assets from business ventures,” The Jakarta Post, 29 September 2005.

17 “Organizing Committee of National Team for TNI Business Activities Take-Over Submitted TNI Business Take-Over Final Report,” statement issued in English, Jakarta, 4 November 2008.

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Oversight Team that was tasked with working out the mechanism for the “hand-over.” No timeframe was given within which the team had to finish its assignment, nor was the group given managerial control over the businesses. Its responsibilities were limited to monitoring the “restructuring” (penataan) of military foundations and cooperatives, ensuring that they comply with applicable laws. The team was given no authority over TNI personnel, so it had to wait for new rules spelling out the restructuring to be issued in the form of regulations by the TNI commander. Given this vagueness, the team voluntarily set itself the goal of wrapping up by August 2010. 18

While the decree was lacking details, its conservative agenda became suffi- ciently clear in its definitions and broad outlines. It stated that only businesses classified as “directly military-owned” were intended for takeover by the state. Conveniently, businesses run by TNI foundations and cooperatives were to be

categorized as “indirectly owned.” 19 Instead of being subject to any hand-over, they would be “restructured” based on existing laws regulating foundations and cooperatives. With no business categorized as directly owned by TNI, the government had effectively circumvented the mandate given to it by the parliament in 2004. The only notable accomplishment of the decree was to impose modest restrictions on continued TNI leasing of state assets, requiring that the proceeds

be credited to the treasury. Thus, the creative (if not manipulative) introduction of new definitions such as “restructuring” replaced the initial concept of hand-over or termination of military businesses. Such distortions alienated Hardjapamekas, who made clear that the government’s plan fell short of his expectations. Speaking to the press, he said, “If we want to change the attitude [of the military], we should

liquidate all the businesses.” 20 Hardjapamekas chose not to join the new Oversight Team. As a result, the members of the team were conventional military officers and bureaucrats who believed that the government’s task of “taking over” military businesses could be achieved if it asserts some form of supervision over select

businesses. 21 The team’s secretary, Brig. Gen. Ali Yusuf, even emphasized that the team had no intention to touch “some cooperatives and foundations which belong to

individual TNI members, not to the TNI as an institution.” 22 By 2011, it had become apparent that the definitions set out in the 2009 decree helped TNI to maintain control over its remaining cooperatives, foundations and associated businesses. In March 2011, a TNI spokesman declared that the process of “restructuring” the cooperatives had been completed – meaning that they now

followed the regulations set out in Law 25/1992 on Cooperatives. 23 For example,

18 Co-author correspondence with Silmy Karim, official at the Indonesian Ministry of Defense in charge of military businesses, November and December 2009.

19 Co-author correspondence with Silmy Karim, November and December 2009. 20 Tom Wright, “Indonesian Military Misses Its Deadline,” The Wall Street Journal, 19 October

2009. 21 Co-author correspondence with Silmy Karim, November and December 2009.

22 “Military businesses handover by August,” The Jakarta Post, 15 April 2010. 23 “Pengambilalihan Bisnis TNI Tuntas,” Suara Karya, 15 March 2012.

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TNI cooperatives had held meetings to “elect” their leadership; their members were no longer holding “structural” positions in the TNI hierarchy; and the cooperatives

themselves were delinked from the organization of the military. 24 But the loopholes in this “restructuring” effort were gaping: for instance, the vast majority of the cooperatives’ functionaries were still TNI officers or civil servants active in the military bureaucracy; cooperatives were still allowed to own “businesses” (usaha) if they increased the welfare of soldiers and their families; and cooperatives could own shares in other companies or establish new ones, if their level of ownership did

not reach 100%. 25 Also, TNI unsurprisingly – and as already indicated in the definitions of the 2009 degree – claimed that it had found no businesses that were directly military-owned and thus would have to be handed over to the Indonesian state – a curious contradiction of the government’s own 2008 inventory. Presum- ably, the businesses listed in 2008 were now incorporated into the new structure of enterprises run legally by cooperatives. This change was reflected in TNI’s updated numbers for its “business” units in 2011: it had 1,301 cooperatives and more than 13

foundations in 2011, 26 which constituted an increase compared to the 2008 numbers. Overall, then, the military business reform process initiated in 2004 resulted in the sell-off of some key companies, but otherwise left the fundamentals of the cooperatives and foundations intact.

The Yudhoyono government’s formalistic circumvention of the policy guidelines set out in Law No. 34/2004 has illustrated its reluctance to genuinely insist on an end to military businesses practices. Despite the rhetoric of reform, military leaders have continued to justify the ongoing practice of military involvement in the economy. In early 2010, for example, a senior Ministry of Defense official responded to a newly published study documenting TNI’s deep involvement in illegal logging by acknowledging that such activity took place but arguing that it did not constitute a form of “military business” under his definition. He went on to rationalize that “life at the border areas can be difficult for soldiers. Their salaries are not enough to live in such areas, especially as daily goods are expen-

sive.” 27 Similarly, the Indonesian Minister of Defense, Purnomo Yusgiantoro, has maintained that military involvement in business has been a result of budgetary constraints that keep salaries low. Speaking in May 2010, he said that “on the one

24 Co-author interview with Silmy Karim, 10 February 2012. 25 “Penataan Kooperasi di Lingkungan TNI AD,” Document posted on the website of the army’s

cooperative at the Iskandar Muda command in Banda Aceh, available at: http://puskopadadamim. blogspot.com/2010/05/penataan-koperasi-di-lingkungan-tni-ad.html . As for foundations, they were still allowed to hold investments of up to 25% of a company’s share. Co-author interview, Silmy Karim, 15 February 2012.

26 “Pengambilalihan Bisnis TNI Tuntas,” Suara Karya, 15 March 2012. 27 “Study says military complicit in illegal logging,” The Jakarta Post, 29 January 2010. The

article describes research conducted by the University of Indonesia’s Center for East Asia Cooperation Studies that focused on the role of military personnel in illegal logging practice in the border area of East Kalimantan from 1999 to 2006. The official response was attributed to Rear Admiral T.H. Soesetyo, defense director from the Directorate General of Defense Strategy.

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hand we want a professional military, but on the other side the government budget is low.” 28

The Push for Reform of TNI’s Businesses