OCTOBER 19, 2009
Indonesian Military Misses Its Deadline
By TOM WRIGHT
JAKARTA - Indonesia's military missed a long-anticipated deadline to withdraw
from its many lucrative but controversial business activities, disappointing
activists who view the step as vital for modernizing Southeast Asia's largest
economy.
Human-rights advocates and other critics have long complained that Indonesia's
armed forces are allowed to participate in commercial activities ranging from
forestry to mining to banks to golf courses--a system they say fosters
corruption and gives the military too much influence over the Indonesian
economy.
Responding to the complaints, Indonesia's parliament in 2004 ordered the
government to shut down or take over the army's network of official businesses
within five years, though details were left vague and Indonesian officials only
recently began to make efforts to meet the target.
Earlier this week, President Susilo Bambang Yudhoyono issued a decree ordering
the armed forces to transfer their official foundations and
cooperatives--valued at $240 million or more--to Indonesia's civilian-led
Defense Ministry, which will run them and receive any profits. But his decree
didn't specify a time frame, and many businesses remained in military hands
Friday.
Critics say the president's decree didn't cover a myriad of much-larger
informal or possibly illegal businesses, which Human Rights Watch, a New
York-based advocacy group, claimed in a 2006 report could total hundreds of
millions of dollars. Human Rights Watch and others have said recently that
Indonesia should do more than force the military to transfer assets to the
Defense Ministry, which they say is heavily influenced by uniformed military
officers.
"If we want to change the attitude [of the military] we should liquidate all
the business," said Erry Riyana Hardjapamekas, the head of a government task
force set up last year to plan the takeover or liquidation of military assets.
He said he was disappointed with the government's decision to transfer
businesses to the Defense Ministry; the task force had recommended in October
2008 that the state sell or liquidate such assets, recouping the money from the
sales and sending a stronger signal of commitment to military overhaul.
Attempts to reach an army spokesman weren't successful. The military hasn't
published a complete list of its businesses, although senior generals have said
they are committed to transferring, selling or liquidating them.
Government officials couldn't be reached to comment Friday, but they have said
progress is being made. Defense Minister Juwono Sudarsono said Mr. Yudhoyono's
decree paves the way for the army to eventually move out of business entirely
and come more firmly under civilian control.
The practice of letting the military engage in business goes back decades.
During Indonesia's war of independence against the Dutch in the 1940s, the
ragtag army relied on business partnerships with local entrepreneurs to fund
its operations. That practice was formalized under former President Suharto, a
military general who ruled with the support of the army from 1967 to 1998.
Under Mr. Suharto, army businesses were granted permits to log forests and mine
natural resources, while military officers also headed huge businesses like
state-owned oil company PT Pertamina.
After Mr. Suharto's ouster amid pro-democracy protests, the army's role in
domestic politics receded--but it hung on to many of its businesses. Mr.
Yudhoyono, also a former military general, vowed to remove the army from
business on coming to power in 2004 as part of a broader program--applauded by
foreign investors--to clean up corruption and inefficiency in Indonesia.
Some army businesses have already been sold, including PT Mandala Airlines,
which was owned by the army's strategic reserve and was facing bankruptcy. In
2006, a local company bought the airline for $34 million and later sold a 49%
stake to U.S. private-equity company Indigo Partners LLC.
But many of the remaining businesses, including PT International Timber Corp.
Indonesia, an army-run forestry company, and PT Dirgantara Husada, a
pharmaceutical company owned by the air force, are unlikely to be attractive to
foreign investors, Mr. Hardjapamekas said.
Getting details on informal or potentially illegal businesses is more difficult
and wasn't part of the scope of Mr. Hardjapamekas's task force. The military's
"territorial command" structure, a relic of the Suharto era that allows
officers in the province to operate semiautonomously, creates opportunities for
the armed forces to get involved in illegal logging and mining ventures, a
problem that senior military commanders have acknowledged in the past.
In 2005, Mr. Yudhoyono ordered a crackdown on illegal logging in Indonesia's
remote Papua province, which led to the arrest of 186 people, some of them
military and police officers. Only a handful of people were convicted, all of
them low-level operators, and the suspected ringleaders including a military
police officer suspected of involvement were acquitted.
The army has also made money from providing security services for private
businesses. The best-known of these cases involve foreign companies that own
mines or natural gas projects in Indonesia, like Phoenix-based Freeport-McMoran
Copper & Gold Inc.
Freeport said in U.S. filings that it paid $8 million in 2008 to help fund the
operations of an almost 2,000-strong police and army contingent that provided
security for its massive gold and copper mine in Papua province. The police are
in charge of coordinating security at the mine since the 2004 decree, but the
military still plays a significant role, a Freeport spokesman said. The company
says most of the money goes to paying for food, housing and health care for the
troops, and only a small amount is transferred in cash, but it doesn't provide
a breakdown.
Some observers say the army needs to retain some businesses to be able to fund
its activities. Mr. Sudarsono, the defense minister, has in the past said
official military budgets cover only about half of necessary expenditures.
Military budgets will need to be raised significantly before the government
completely ends military self-financing, he has argued.
Write to Tom Wright at tom.wri...@wsj.com
Printed in The Wall Street Journal, page A3
http://online.wsj.com/article/SB125574270969591499.html
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