I. Military Business in Indonesia

Indonesia’s armed forces have a longstanding practice of raising independent income outside the approved budget process.[1] The military’s role in Indonesia’s economy takes several forms: military-owned businesses organized under TNI foundations and cooperatives; collaboration with the private sector, including protection payments and leasing of public land for profit; criminal enterprises, such as involvement in illegal logging; and various forms of corruption, including inflating the cost of military purchases.

The military has long argued that they need to operate independent businesses in order to supplement the funds allocated by the government, but the reality is that these businesses do little to cover unbudgeted expenses. According to government data, the military’s foundations and cooperatives had gross assets of Rp3.2 trillion (US$350 million) and net assets of Rp2.2 trillion ($235.4 million) as of the end of 2007 and their business activities brought a profit of Rp268 billion ($28.5 million) that year. (No estimates are available for protection payments, land and building leases, criminal enterprises, and corrupt practices.) By contrast, the official budget allocation to the TNI (which reflects only part of government spending on the armed forces), was Rp29.5 trillion ($3.2 billion) in 2007 and by 2009 had grown to Rp33.6 trillion ($3.6 billion).

Many government agencies in Indonesia have established foundations and cooperatives to provide funds and services to supplement official budget allocations, some of which have been involved in business. However, military businesses raise special concerns because of the potential for conflicts of interest and abuse of power. In fact, although the TNI’s businesses contribute very little to the bottom line, they come at a great cost. As documented by Human Rights Watch, money-making ventures by the military undermine civilian control over the armed forces and fuel human rights violations.[2] They also contribute to crime and corruption, impede military professionalism, and distort the function of the military itself.

An extreme example of the problem of conflicts of interest took place in 2007, in the East Javanese district of Pasuruan. The Navy had expropriated land from several local villages decades earlier and by 2007 was leasing it to a state-owned company to operate a plantation. On May 30, 2007, after villagers protested the bulldozing of their productive land to expand the plantation, Navy personnel providing security for the company opened fire, killing four villagers and wounding eight.[3] 

In other examples, the military has had a prominent role in large timber operations that have displaced communities from their ancestral lands and fueled rampant illegal logging.[4] Military units providing protection services to companies have earned off-budget cash payments, raising serious corruption concerns.[5] The armed forces lease government buildings and land to private companies for a profit, which constitutes a misuse of state assets.[6] The military also has been implicated in illegal businesses and extortion operations.[7]Individual officers allegedly own their own businesses, frequently together with a private partner who serves as the public face of the company while the military officers take a percentage of the profits.[8]