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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story


By Tom McCawley / Jakarta

TWENTY YEARS AGO, DEFENSE Minister Gen. Muhamad Yusuf issued a stern warning to Indonesia's armed forces. "All serving officers are forbidden to enter the world of commerce," he said. "Forget about trade if you want to be a good soldier." More than 300 military members were asked to resign. "Some officers were dragged through the mud," recalls Hasnan Habib, a retired general and former ambassador to the U.S. But it seems the call of profits was too strong. In 1997, Defense Minister Edi Sudrajat had to reiterate the edict. When ex-general Suharto resigned as president last May, the calls for the military to withdraw from business grew louder. "There are no real business people in the military," says political scientist Indria Samego. "They are all rent-seekers."

Another log has been thrown in the bonfire of business reformasi (reforms). The government of President B.J. Habibie is already being forced to dismantle parts of the vast business empire built up by Suharto and his family. Corporations controlled by the former president's ethnic Chinese cronies are under scrutiny. State monopolies are being slowly taken apart. But in some ways, the oust-the-military-from-commerce campaign may be the hardest one of all. Like their counterparts in China, Thailand and Vietnam, ABRI - the Indonesian armed forces - became involved in business to supplement an inadequate budget. Profits from military businesses are supposed to go to projects like housing for the troops and support the military's dwifungsi (dual) role of promoting national security and socio-political stability.

But reformers inside and outside the military argue that the businesses encourage corruption and violate the officers' oath. "And the gap between the haves [the officers] and have-nots [the foot soldiers] has become a problem," complains Habib. A military withdrawal can open up many opportunities for the private sector. Soldiers have their fingers in almost every industry. The army has a yayasan - a charitable foundation - with more than 64 companies, including one that is part-owner of Jakarta's Sudirman Central Business District. The navy, air force and police, as well as the reserve command Kostrad and elite commando unit Kopassus have their own empires. In all, the corporate wealth of the armed forces is estimated at more than $8 billion.

That's not counting the tens of thousands of distribution cooperatives across the country and the security and debt-collection services stretching from small corner stores to big companies. Then there are the informal arrangements - soldiers acting as personal bodyguards and the like. The military's influence extends to the boards of corporations, many owned by ethnic Chinese, which co-opt retired and even serving generals and other officers. In the past, state-owned enterprises like oil and gas giant Pertamina were run by former military men, the most well-known being Suharto friend Ibnu Sutowo, who quietly left Pertamina after a $10-billion corruption scandal nearly sank the company. He went on to build his own Nugra Santana conglomerate.

ABRI's business ties have long been an open secret. But their extent is only now being glimpsed as the call for reformasi echoes in the media, academe and other sectors of society. In September, a team of researchers from government think tank LIPI, headed by political scientist Samego, published a book about the military and business. "They were not too happy about it," says the academic. Publicly, though, the armed forces is conciliatory. "If the people want us to abandon our socio-political role and our business activities, ABRI will respond positively," says Lt.-Gen. Luhut Panjaitan, commander of the army education and training center. But the push will have to come from outside. ABRI commander Gen. Wiranto is too preoccupied with the current spate of rioting and religious violence.

The LIPI researchers focused on the charitable foundations, which are tax-exempt and difficult for government agencies to monitor. Among the biggest is the army's Yayasan Kartika Eka Paksi (YKEP), established in 1972 by army chief of staff Gen. Umar Wirhadikusumah. The foundation's aim is to help soldiers and their families. Thus, it has built 13,700 houses and several schools, including Ahmad Yani University in Bandung. The foundation grants high school and college scholarships to the children of military personnel and veterans and contributes to bonuses given to the troops during Christmas and Lebaran, the end of the fasting month. It runs medical clinics and hospitals. In the 1990s, the foundation is estimated to have spent $11.5 million on what it terms "army welfare."

Critics say it should have spent much more. It benefited greatly from lucrative franchises and businesses during Indonesia's go-go years. In addition to the $3-billion Sudirman Central District, which hosts the Jakarta Stock Exchange and the headquarters of Bank Artha Graha, YKEP has interests in timber, banking, aviation and transportation through its holding company, PT Tri Usaha Bhakti or Truba, the country's 140th biggest business group. The foundation is very close to Suharto Inc. Its 51%-owned International Timber Corp. boasts partners like presidential buddy Mohamed "Bob" Hasan (35%) and presidential son Bambang Trihatmodjo (14%). YKEP also owned 40% of now-bankrupt domestic carrier Sempati Airlines, in which Hasan had a 35% stake while another Suharto son, Tommy, had 25%.

Other military services have smaller holdings, but they too enjoy Suharto's patronage. The navy has Yayasan Bhumyamca, which has interests in shipping, trading, construction and industry. One subsidiary, PT Yala Perkasa, is a partner with Suharto daughter Siti Hardiyanti Rukmana in her toll-road enterprises. The air force established Yayasan Adi Upaya, which owns cargo agent PT Cardig Air along with Bambang. The police has Yayasan Brata Bhakti, which manages the Bimantara Building (recently renamed Plaza Kebon Sirih), headquarters of Bambang's Bimantara Group. Kostrad has Yayasan Dharma Putra Kostrad - established by Suharto himself in 1964, when he was commander of the army reserve unit.

Because they are charitable foundations, these bodies are exempted from the general edict against military men engaging in business. The prohibition is apparently aimed mainly at individual freelancers. But soldiers still offer personal protection for $50 a day, hire out military vehicles and ships for commercial purposes, lease military land for golf courses. Partly, that is because the government pays them a pittance - $150 a month on average. At less than 2% of the national budget, Indonesia's military spending is the lowest in the region. The foundations are meant to make up the shortfall, but Habib and other reformers say little of the profits actually trickle down to the rank and file.

So should the military be in business at all? Lt.-Gen. Bambang Yudhyono, the former chief of sociopolitical affairs, says armies are for defense, not commerce. "ABRI's involvement is a brake on economic and political reform," writes military historian Robert Lowry. Samego and his research team describe soldier-businessmen as "comprador capitalists" who restrict competition and promote corrupt and collusive practices. Suharto used to argue that tying the armed forces' economic interests to his regime gave them an interest to promote the status quo. That may be part of the present government's calculus - Habibie is not keen on taking away ABRI's seats in Parliament, for example. The reformers are calling for transparency in the military's business dealings. That seems as good a first step as any in untangling this Gordian knot.


This edition's table of contents | Asiaweek home



U.S. secretary of state says China should be 'tolerant'

Philippine government denies Estrada's claim to presidency

Faith, madness, magic mix at sacred Hindu festival

Land mine explosion kills 11 Sri Lankan soldiers

Japan claims StarLink found in U.S. corn sample

Thai party announces first coalition partner


COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state


COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

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