V. The 2009 Decree and Regulations

On October 11, 2009, five days before the expiration of the legal deadline imposed five years earlier, President Yudhoyono signed Presidential Decree No. 43 of 2009 on the Takeover of Business Activities of the TNI (Peraturan Presiden Nomor 43 Tahun 2009 Tentang Pengambilalihan Aktivitas Bisnis Tentara Nasional Indonesia).[19] That decree directed the Ministry of Defense to establish a new inter-ministerial team, the Oversight Team for TNI Business Activities (Tim Pengendali Aktivitas Bisnis TNI), to oversee a partial reform of military businesses. The decree was supplemented on October 21 by Minister of Defense Regulation No. 22 of 2009 Concerning the Implementation of the Takeover of TNI Business Activities (Peraturan Menteri Pertahanan Nomor 22 Tahun 2009 tentang Pelaksanaan Pengambilalihan Aktivitas Bisnis Tentara Nasional Indonesia).[20]

Despite the title of these instruments and a statement in article 2 of the October 11 presidential decree that “[t]he government takes over all business activities owned and managed by the TNI, directly or indirectly,” they do not give effect to an immediate and complete handover of all such business activities and thus fail to meet the October 19 deadline. Instead, the government’s actions at best set in motion a new process to gradually assert greater government oversight, but not ownership, over TNI business activities. At the time the decree was announced, outgoing Defense Minister Sudarsono (who was replaced in a cabinet reshuffle) acknowledged this but was unconcerned, arguing that the deadline was only a technicality.[21]

The decree and regulations include elements that, if fully implemented, could lead to positive changes, but the few improvements are outweighed by numerous and serious weaknesses. Foremost among these is that the decree does not transfer the businesses to civilian hands as required by the 2004 law and instead permits the TNI to retain many businesses under its foundations and cooperatives. The Oversight Team is set to be composed primarily of uniformed members of the military, who will operate with neither a clear deadline nor provisions on transparency and accountability.

Positive Elements

On the positive side the government’s plans finally set in motion a process to address military business holdings, overcoming long-standing inertia. The new Oversight Team was formed on November 11, 2009, in keeping with the 30-day timeframe indicated in the decree, and several officials stated that the process was part of the priority agenda for the first 100 days of the president’s second term. The new decree and corresponding regulations also reinforce the landmark 2004 law in some measure. For example, both the decree and the ministerial regulations echo the 2004 law by including an expansive definition: “TNI business activities are all commercial enterprises owned and managed by the TNI directly or indirectly.” The presidential decree states that the process will be guided by several important principles, including participation, transparency, and accountability.

The decree and regulations assign the Oversight Team a monitoring and supervisory function over the military cooperatives and foundations, through which the TNI owns many of its businesses. This role aims to ensure that the foundations and cooperatives are managed in line with long-ignored requirements that restrain somewhat the business activities of such entities. Under the decree and regulations, TNI foundation or cooperative businesses that do not conform to these basic legal requirements are subject to liquidation or merger. The new instruments also require advance approval from the minister of defense before any transfer of ownership or assets from TNI foundations or cooperatives and forbid foundations from distributing wealth to officers, other than for payment of salaries or honoraria (as provided for under a 2001 law on foundations). Each of these changes reflects an improvement over the previous state of affairs, although they come late in the process, well after many company shares and valuable assets have already been sold or otherwise transferred and the proceeds distributed.

The decree also states that continued use of state assets for financial gain must conform to laws and regulations which require that any income must go to the state treasury. Further rules are to be spelled out in forthcoming regulations from the Ministry of Finance. The effort to regularize the TNI’s continued use of state assets represents progress, particularly given that the issue was not explicitly addressed in the 2004 law. However, it falls short of a proposal by the government advisory team in 2008 that the TNI be blocked from leasing out state assets to private parties and that any land and buildings not utilized for a legitimate military purpose be immediately transferred to government control.

The government announced its plans and engaged with its critics in a fairly open manner. The then-defense minister and other senior officials introduced the presidential decree at a press conference, and an official spokesman publicly acknowledged the concerns of independent observers who said that the measures amounted to no more than cosmetic change, arguing that the government was firmly committed to removing conflicts of interest. He also circulated new details about audits of TNI businesses and made himself available to explain the government’s plans to interested parties such as journalists and human rights organizations, including Human Rights Watch. These explanations were helpful in assessing the substance of the government’s plan, including the positive elements, but also the problematic provisions that seriously compromise the reform effort.

Failure to Withdraw the Military from Businesses

Although the presidential decree, echoing the 2004 law, states in general terms that all TNI businesses, whether owned and managed directly or indirectly, are to be handed over to the government, neither the decree nor the accompanying regulations accomplish this essential task. The decree and the regulations cover three categories of business activity: 1) directly owned businesses; 2) indirectly owned businesses; and 3) exploitation of state assets. The only businesses to be taken over by the government are those in the first category: “business activities directly owned and managed by TNI,” which must be in the form of legally registered companies of the TNI headquarters or the service branches. But government representatives have made clear to Human Rights Watch that such directly owned TNI businesses have not existed for many years and they included this first category only to match language contained in the original 2004 decree.

This weak and misleading approach—which contradicts the clear mandate of the 2004 law—is rooted in the false logic that businesses owned by the “private” foundations and member-owned cooperatives organized under each of the branches of the armed forces and TNI headquarters are not really owned by the military. Five years of discussion and debate provided many opportunities for the government to address the military’s self-serving argument that the TNI as an institution does not itself “own” any businesses, but instead it capitulated to the TNI, significantly undermining the potential for reform.[22]

Once it is understood that businesses owned by military cooperatives and foundations are not included in the government “takeover,” it becomes clear that neither the decree nor the regulations grant the Oversight Team or any other government entity ownership or managerial control over any of the TNI’s businesses.[23] The category of “indirect” TNI businesses (defined in the ministerial regulations as covering all businesses held by foundations and cooperatives) is subject only to “restructuring” (penataan), a process that may, over time, clean up some of the foundations and corporations and their businesses. The Oversight Team’s task with respect to such entities, as detailed in the decree, is vaguely stated as “suggesting steps for the transfer of business activities … consistent with laws and regulations” and then monitoring implementation. The ministerial regulations slightly expand the team’s mandate, stating that the Oversight Team is to “carry out oversight over the restructuring” (melakukan pengendalian terhadap penataan) of the cooperatives and foundations to make sure they follow relevant laws.

Specifically, under the new regulations, the Ministry of Defense, acting through the Oversight Team, is to monitor how the TNI’s foundations and cooperatives operate and bring their activities in line with long-ignored rules that apply to all foundations (for example, business holdings may not exceed 25 percent of a foundation’s assets) and cooperatives (for instance, business activities must be approved by the cooperative’s members). In both cases the businesses must serve an overarching social purpose, such as supporting soldier welfare. The regulations also specify that serving members of the military would continue to hold some, though not all, of the governance posts in TNI foundations and, as noted above, prohibit office holders from receiving any of the foundation's wealth, other than a salary or honorarium.  

Moreover, it is unclear whether the Oversight Team will have the power to vigorously monitor military foundations and cooperatives and to ensure that their operations are revamped. The regulations state that the restructuring will be subject to forthcoming regulations from the commander of the TNI, but the TNI hierarchy has not shown itself willing to crack down on military businesses. Prosecutions of military personnel for economic crimes are extremely rare.[24] The Oversight Team, for its part, is limited to “carrying out oversight over the restructuring,” a policy-level responsibility to supervise progress in cleaning up the foundations and cooperatives without clear operational control. For example, a government official consulted by Human Rights Watch said the Oversight Team would not attempt to assert managerial control but could propose new guidelines for military foundations and cooperatives that would be consistent with existing laws on foundations and cooperatives.

In some cases, if it is determined that these entities are unable to comply with relevant rules, the regulations provide that they may be merged or liquidated. The regulations fail to make clear who will make and enforce such decisions. The Oversight Team does not have clear management authority and, according to a government official whom Human Rights Watch consulted, it would need to submit a request that foundations be liquidated by the foundations’ own senior officers; alternatively, the government could seek a court order. If actively wielded, this power in principle could be used to reduce the number of TNI businesses and could make the foundations and cooperatives more focused on soldier welfare. These would be welcome developments, though far short of the comprehensive reform needed to correct the fundamental problem of conflicts of interest between the military’s proper defense role and its business interests.

Erry Riyana Hardjapamekas, the head of the government’s 2008 advisory team on military business matters, expressed disappointment with the government’s planned approach to reform, saying “If we want to change the attitude [of the military] we should liquidate all the business.”[25]   

Lack of Independence

Oversight responsibility for monitoring and restructuring the TNI’s foundations and cooperatives will reside with the Ministry of Defense, which is largely staffed by uniformed officers and is usually aligned with the TNI’s interests. The Oversight Team will report to a top ministry official, the secretary-general, a post that at the time of this writing was filled by a senior TNI officer, and its work will be subject to review by the office of the Ministry of Defense’s inspector general, another senior TNI officer. The Oversight Team will include representatives of nine government entities, as specified in the presidential decree, with TNI headquarters and its three service branches accounting for four of the designated seats. A fifth, that of the Ministry of Defense representative and chair of the team, has been filled by the director general for defense capability, a post currently occupied by a two-star general. 

Incomplete Mandate

The government’s plans do nothing to address the military’s many other forms of money-making, including informal and individual activities not registered as businesses, security payments from companies, and the extensive problem of illicit business such as illegal logging and extortion. There is no indication that the government intends to even track any of these illegal military money-making ventures. In the past when this issue has been raised, officials have said that such matters fall outside the scope of their work. This represents a missed opportunity.

Lack of a Clear and Reasonable Time-frame

The government’s plan also may take many years to carry out. No timeline for reform is provided in the decree or regulations, and as Said Didu of the Ministry for State-Owned Enterprises said publicly, the process could take years because of the complication of third parties that share ownership in the TNI’s businesses.[26] Didu had made the same point in 2006, but the government has taken no discernible steps to address it.

Lack of Accountability

The new plan presumes that military foundations and cooperatives can be cleaned up and run according to non-profit principles, but these same rules have long been in place and have routinely been flouted. The fact that the government’s plans entrust the process to the TNI commander does not inspire confidence. The Oversight Team is intended to monitor this transformation, but as a body established under the Ministry of Defense, it does not have authority over members of the armed forces.

If the government is serious about reforming the foundations and cooperatives, it needs to put in place an effective mechanism to identify, deter, and punish misbehavior. The government’s decree and regulations do not address accountability for the TNI’s unscrupulous behavior, including past misuse of state assets, unauthorized sales of its business interests, or any of the abuses associated with its commercial activities. Nor do they call for thorough forensic and legal audits of TNI businesses that would help to uncover such misdeeds and ongoing abuses. They do not explicitly authorize strict enforcement actions and identify corresponding penalties.

Lack of Transparency

The government has issued only aggregate data, and has never made public a complete list of the names, values, or activities of individual businesses, cooperatives, or foundations. It will thus be difficult or impossible for members of parliament, watchdog groups, or journalists to effectively monitor the activities of the Oversight Team or evaluate claims of progress. To give just one example, the 2008 advisory body on military business reform found that there were 53 registered companies under the TNI’s foundations (and two more under its cooperatives) but a government announcement in October 2009 instead referred to 109 TNI businesses under foundations, citing the results of an earlier review. It is unclear if the two studies defined businesses differently or why the government did not cite the more updated figure.

As the decree and regulations were being finalized and issued, the government usefully issued regular media updates and answered questions, which helped to keep the public informed. The instruments do not include an explicit commitment to extend and expand upon this practice in the future, such as by requiring regular progress reports.