TNI to leave businesses in two years, No more comprador capitalists?

Indonesian military (TNI) said Tuesday it would abandon its lucrative enterprises within two years as part of reforms of the once-powerful armed forces.

"Whether (their assets) amount to one trillion rupiah or five million, they will no longer exist in two years," TNI chief Gen. Endriartono Sutarto quoted by The Jakarta Post today.

Sutarto urged government to balance the policy with an increase in the military budget and soldiers' welfare payments.

The general admitted that some of the businesses had produced "negative effects" even if they were profitable. He did not elaborate, but there have been allegations Indonesian military businesses have been involved in poaching, illegal logging and other unlawful activities.

Under laws recently passed by parliament (Law No.34/2004), commercial ventures acquired by the military during the rule of dictator Soeharto when the armed forces enjoyed a free hand must be surrendered within five years.

The erosion of the military's power after Soeharto's fall has also meant fewer opportunities to take advantage of the various businesses and foundations that it has run for more than five decades.

The Indonesian military's budget is among the lowest in Southeast Asia with the government meeting just about 30 percent of it. The rest is funded through business ventures. These businesses support military operations and increase the welfare of military personnel, their families, and civilians involved.

In the 2003 budget, military got Rp24.7 trillion from the state budget. They were asking for Rp50 trillion for the current year budget, but parliament only approved half of it.

General Sutarto’s statement indeed is good news. But what he really means is direct participation of military foundations in business activities. Critics say the military's involvement in business activities increases corruption and undermines military professionalism.

"There are no real business people in the military," says political scientist Indria Samego in an interview with Asia Times few years go. "They are all rent-seekers."

Samego described soldier-businessmen as "comprador capitalists" who restrict competition and promote corrupt and collusive practices.

Soldiers have their fingers in almost every industry with corporate wealth of the armed forces is estimated at more than $8 billion.

Take a look at these facts.

The army has Yayasan Kartika Eka Paksi-a charitable foundation-with more than 64 companies. Their businesses ranging from banking, forestry, telecommunications, mining, property, aviation, insurance, travel and even higher education. The foundation even has direct shareholding in four banks. Bank Artha Graha is the largest, where YKEP has 20% shares.

Other important subsidiary is PT Tri Usaha Bhakti (Truba). Truba is one of shareholders in PT Cilegon Fabricators, a joint venture with Ishikawa Jima (Japan) and Jurong Engineering (Singapore).

Truba also the largest shareholder in PT Truba Jurong Engineering (TJE) with 48% shares. The company is a leading engineering company in Indonesia. Since its establishment 25 years ago, TJE has become the leading power and industrial plant contractor in Indonesia. TJE has completed a large number of Industrial Plant construction that covers 12 Cement Plants, 8 Fertilizer Plants, 30 Chemical & Petrochemical Plants, 15 Oil and Gas processing facilities and about 20 Pulp & Paper Plants and many more.

Army Strategic Reserve Command (KOSTRAD), is one of the strongest business player in Indonesia. KOSTRAD-linked foundations are also a direct shareholder in several companies, such as Mandala Airlines and PT Bank Windu Kentjana.

In an interview with Tempo last year, Navy Chief of Staff Bernard Kent Sondakh admitted navy only has six companies, significantly dropped from 26 before the deliberation of Indonesia Military Law No.34/2004. Out of six companies, only one (land/building rental in Cilandak, Jakarta) that is really profitable with net income of Rp13 billion per year.

“While every Lebaran (Moslem holiday marks the end of Ramadhan/fasting month), we have to disburse at least Rp15 billion to our soldiers. So we still have to fill the gap,” he said.

Navy also has foundations that run education services from kindergarten to university. But Navy denied those foundations is regarded as business enterprises.

Navy will close down tens of military bases, which, according to Commodore Kent, utilized by his men to make money from sailors and fishermen.

Air force has two main business vehicles, Yayasan Adi Upaya and Inkopau, through which it control Bank Angkasa and PT Cardig Air (cargo services) among others. Just to get the sense of Inkopau’s business, visit their website www.inkopau.com. It is the money from this organization that used to build houses for air force soldiers.

Their business ranging from aviation (spare parts for aircraft, commercial and military), hotels, construction, general trading, military shoes manufacturing, and freight forwarding.

While it might be easy to surrender these businesses to private sector or government (let say under state-owned enterprises ministry), it is harder to strip off high rank officers’ informal protection on private enterprises in what Indonesian normally identify as beking or what analysts termed as comprador capitalists.

It is common practice that conglomerates in Indonesia have their military patron informally and secretively. This is the biggest challenge in the coming years for president Susilo Bambang Yudhoyono, a retired general known as military reformist.

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