II. 2004 Mandate for Reform

On October 16, 2004, at the end of her administration, then-president Megawati Sukarnoputri signed Law No. 34/2004 on the TNI, which Indonesia’s parliament had approved in late September of that year. Among other changes, the law sought to give effect to existing prohibitions on military businesses by requiring the Indonesian government to assume full control over all legitimate businesses by 2009.

Article 76 of that law states: “Within five years … the government must take over all business activities that are owned and operated by the military, both directly and indirectly.” Other provisions emphasize that “professional soldiers ... do not do business” and include an unequivocal prohibition on soldiers taking part in business activities, which broadly restate long-ignored internal TNI rules governing military conduct.

The law, however, did not clearly identify which types of business activities were covered. This lack of specificity allowed for a narrow interpretation that excluded several types of money-making ventures, including protection payments for security services, criminal enterprises, and corruption. In addition, the law did not clarify how the reforms were to be implemented, instead stating that such details should be clarified in a presidential decree.