III. 2004-2009: Five Years of Delays and Inaction

President Yudhoyono took office for his first term on October 20, 2004. The incoming Yudhoyono government pledged to implement the mandated reform of military business, which had strong support from the public and parliament. Military leaders signaled that they would not resist the changes. This was significant because the armed forces exercise important influence in Indonesia. The commander of the TNI reports directly to the president, with the same status as the minister of defense. The Ministry of Defense is itself largely staffed by uniformed military personnel. In addition, retired officers hold many positions of influence within political parties and elected office.

The 2004 law provided a watershed opportunity to assert greater civilian control over the TNI, consistent with democratic principles. Yet, from the very beginning, the Indonesian government demonstrated extreme reluctance to act swiftly or effectively on military reform.[9]

The government’s unwillingness to act was exemplified by the lax attitude of Minister of Defense Juwono Sudarsono, who served from October 2004 until October 2009. Although he had been the first civilian to hold that post (under a previous administration) and was a critic of military self-financing and corruption, Defense Minister Sudarsono frequently made excuses for the TNI. He argued that the TNI should not have to give up its businesses until the official military budget was raised.[10] For example, he stated in 2007 that “[t]he government’s operational budget for the TNI is still very low, so in order to finance defense and security operations the military institutions must fund themselves through business activities.”[11] Such claims lost force when audits showed that many TNI businesses were nearly worthless after years of mismanagement and corruption.

He also argued repeatedly that the government take over only the handful of TNI businesses of high value and leave the rest in military hands. According to him, “the smaller ones will not be taken over. They will still be owned by the TNI to help fulfill the soldiers’ needs.”[12]That rationale has long since been discredited: although ostensibly established to independently fund welfare activities for the troops and their families, the TNI’s businesses no longer generate significant funds for social programs, as even military officers have acknowledged.[13] Human Rights Watch research has demonstrated that foundations and cooperatives instead largely have benefited the officer corps and frequently have been implicated in financial scandals and abuses of power.[14]

For example, in a case documented by Human Rights Watch in late 2004, a coal mining company recruited a local military cooperative to help it combat the activity of illegal small-scale miners. Instead, the cooperative organized the illegal miners, using violence and intimidation to keep them in line, and earned profits by brokering sales of the illegally mined coal.[15] Military authorities at TNI headquarters failed to crack down on the cooperative or to punish those involved when the problem was brought to their attention in 2004, 2005, and 2006.[16] Such lack of accountability was typical and continued despite the adoption by Indonesia’s parliament of the 2004 law requiring the government to take over all military businesses.

For years the government took no action to formally implement that law. A government team formed in 2005, the Supervisory Team for the Transformation of TNI Businesses (Tim Supervisi Transformasi Bisnis TNI or TSTB), spent years reviewing and verifying data on military-owned businesses, ostensibly to determine which ones would be eligible for restructuring and which should simply be liquidated. The TSTB put forward deeply flawed reform plans in 2006 and 2007 but ultimately dropped these proposals.[17]Meanwhile, President Yudhoyono failed to issue the presidential decree needed to implement the 2004 law. The absence of this instrument gave an excuse to the TSTB to claim that it did not have any authority to assume management control over the military’s enterprises.

The absence of clear rules also gave the military the opportunity to sell off valuable businesses without adequate oversight. For example, in 2005 the army independently sold off its stake in Bank Artha Graha, a private company in which it held shares via a foundation, for Rp121 billion ($12.1 million). There were also persistent rumors that the military drained companies of value, transferring assets to private allies in anticipation of an eventual handover.[18]

The long-stalled reform effort appeared to gather some momentum when an official advisory group led by the former deputy head of the anticorruption commission, Erry Riyana Hardjapamekas, was formed in April 2008. It undertook a new accounting of the TNI’s business activities and presented the government with several options for reform. Disappointingly, all of the options involved transferring the TNI’s businesses to the Ministry of Defense, which as noted is dominated by uniformed military personnel. However, some of the options offered greater potential for reform than others. One proposal would have required the Ministry of Defense to liquidate the TNI’s foundations and assume control over most of its cooperatives in order to clean them up.

Hardjapamekas, announcing the recommendations in late 2008, said his team had worked quickly so the government would have a year to complete the handover process by the legal deadline, October 16, 2009. As that date approached, however, the government had not decided on a reform plan for military businesses, much less implemented it.