Thu, May 15, 2008  05:32 PM

Indonesia's army to bid a farewell to business

Yahoo Web Services India
By Sara Webb 

JAKARTA (Reuters) - Indonesia's powerful military, pushed out of politics a decade ago when Indonesians embraced democracy, must soon relinquish another prize: a motley array of businesses including golf courses, offices, and taxi firms.

The overhaul of the military, known by its Indonesian acronym TNI, is an important part of Indonesia's political reform, set in train when former President Suharto stepped down a decade ago after 32 years in power.


"This is the last part of the TNI, or military reform. This is a big change," said Erry Riyana Hardjapamekas, head of a committee that will sort through the military's businesses and recommend what to do with them over the next few months.

While the sale of military-controlled firms to domestic or foreign investors will help raise money, it might also force the government to compensate the military for their loss of income.

For years, it was common practice for members of the armed forces to use their positions to make money on the side.

Many of the TNI's businesses, foundations and co-operatives were used to top-up meagre salaries, or pay for housing and education. In other cases, powerful individuals were able to operate more lucrative ventures and live well beyond their official means.

"The government has to think gradually about improving the remuneration system of the military" over the next five to 10 years, Hardjapamekas told Reuters in an interview.

That could mean spending more on education, housing, and healthcare for armed forces personnel, and raising salaries for soldiers, who typically earn $100-$300 a month.

MONEY-MAKING SCHEMES 

The armed forces have dominated Indonesia's modern history, especially under Suharto. They had a quota of seats in the rubber-stamp parliament, committed appalling human rights abuses in suppressing dissent in East Timor, Aceh, Papua and elsewhere, and were involved in widespread corruption.

Now President Susilo Bambang Yudhoyono, a former general and Indonesia's first directly elected leader, wants to turn the TNI into a more professional defence force. Getting the generals and soldiers out of their assorted money-making schemes is a key step in that transition. 

Despite Yudhoyono's backing, it may not be easy. Some of the military might not want to give up lucrative business interests or control of co-operatives that form part of a well-trodden career path in the armed forces. 

"If there is sufficient political will, this problem can be resolved. And the military has said it will co-operate," said Damien Kingsbury, associate professor at Deakin University.

Clamping down on the armed forces' involvement in freelance security deals, extortion, smuggling and illegal logging, will prove much tougher. 

"Income from illegal businesses is probably double that of the legal ones, so it is a much bigger problem. It could take 10 to 20 years to tackle those areas," Kingsbury said. 

CASH-STRAPPED 

Suharto, a general, came to power in 1965, crushing what was officially described as a Beijing-backed communist coup and unleashing a bloodbath in which as many as 500,000 Indonesians suspected of having communist links or sympathies were killed. 

Under Suharto, the military's influence increased, and for decades, the cash-strapped armed forces were encouraged to supplement their low pay with private money-making schemes or through state firms such as oil group Pertamina. 

Over the years, the TNI built up holdings in banks, shipping lines, airlines, and even shoe factories, and forged ties with powerful businessmen such as Tommy Winata, a big player in the construction and property sectors. 

Some of those interests, such as domestic carrier Mandala Airlines, have already been sold.

But the military still has over 1,500 co-operatives, firms and foundations, worth about $110 million, which include Matoa and Halim golf courses, shipping firm Admiral Lines, and a stake in Winata's Artha Graha office building, Hardjapamekas said. 

"It's very difficult to dispel this notion among people that there's no more giant octopus of the army presence as it happened during the seventies and eighties," Defence Minister Juwono Sudarsono told reporters on Thursday. 

"The military business is still very, very small in comparison to what it was 20-15 years ago." 

The most valuable assets may prove to be in the property sector. Apart from golf courses, the military has shopping malls and offices, some of which could be put into a property holding company and put up for sale. 

"The main option is to take them all out from the military, close down all the foundations, co-operatives and create a new clean sheet and fresh blood co-operatives," which could be modelled on the U.S. military's PX stores, Hardjapamekas said. 

"Some companies, going concerns are good. We can offer them to the state-owned enterprises ministry to buy them, or make it an open tender to the private sector. We will do it in a transparent way, so that there are no legal problems or commercial disputes." 

(Additional reporting by Ed Davies and Ahmad Pathoni)

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