ABRI, from war machine to big business bureaucrats
By Johannes Simbolon
JAKARTA (JP): The Indonesian timber industry recently experienced an important event. In June, PT International Timber Corporation Indonesia (ITCI) took over 280,000 hectares of forest concessions from PT Kayan River Timber Product in East Kalimantan, bringing the concessions of ITCI to a total of 800,000 hectares. Kayan River had reportedly failed to manage its concessions properly.
"We picked ITCI because it has a good record in forestry management," head of the East Kalimantan office of the ministry of forestry, Walter Nadapdap, said.
ITCI has won praise from many officials and ecology experts for its sound management. Controlled by the Army's Kartika Eka Paksi Foundation, it is a favorite showcase company for foreign visitors. A group of members of the U.S. congress were taken to see the company's mill on their recent visit here to acquire first-hand information on Indonesia prior to a Congress debate on the continuation of Indonesia's Generalized System of Preferences privileges.
ITCI is not the only business the Army has. Sempati Air, Indonesia's biggest private airline, is 40-percent owned by PT Tri Usaha Bakti, a holding company under the Army foundation. Other Army firms include PT Bank Arta Graha and the PT Danayasa Arthatama property company. The Army is not the only group in the Armed Forces keen on business. The air force, navy and police force also have their own businesses.
The Armed Forces' prowess in maintaining stability and managing socio-political affairs is all but undeniable. But how about their business management?
The military's engagement in business is not new. It dates back to the revolutionary era, during which time the Armed Forces were forced to seek money for themselves to feed their members and finance their warfare. After independence, the military carried on their businesses because the young state was still too broke to ensure their welfare. Many commanders even ordered their men to commit contraband activities.
The military did not manage big corporations before the late 1950s, when all Dutch companies were nationalized by the government. Then the Army replaced the Dutch managers with its own personnel. The measure was adopted to prevent the Indonesian Communist Party's labor union from taking over the companies, the then Army chief of staff, Gen. AH Nasution, told The Jakarta Post.
Realizing the danger of corruption, Nasution made a deal with the U.S. army chief of staff General Taylor in 1963 by which the U.S would help train the "servicemen to become business bureaucrats." The training was to be provided in the U.S. in disciplines relevant to the soldiers' business positions in Indonesia.
"I sent the first group, comprised of 100 to 150 officers. But, the program was dropped after the president (Sukarno) made his 'Go to hell with your aid' speech" Nasution said.
The officers were then given business training of a modest nature in Indonesia.
Between 1966 and 1967, Soeharto, then Army chief of staff, allowed all units of command in the Army to make money for the units' welfare through firms and cooperatives. In order to coordinate all the businesses, the then Army chief of staff Gen. Umar Wirahadikusuma formed the Army foundation in 1971 with the permission of President Soeharto.
Other groups in the Armed Forces also formed their own foundations. The navy formed the Bhumyamca Foundation, the air force the Adi Upaya Foundation, the police force the Brata Bhakti Foundation. All of them share the same purpose of obtaining enough funds to enhance the welfare of their members.
The foundations engage in any kind of business they consider profitable and cooperate with business people in doing that. Each first seeks to make money from the fields close to its authority.
The police's Brata Bhakti Foundation, for example, benefits from vehicle ownership documents and driver's license services through its Bhakti Bhayangkara Insurance Company. Applicants for driver's licenses and vehicular ownership documents are not obliged by law to insure themselves against traffic accidents with the insurance firm. But, for fear of failing to obtain their driver's license and vehicle documents, applicants always pay the premium.
The navy's Bhumyamca Foundation, meanwhile, was first involved in marine-related business, including shipping, diving services and maritime telecommunications. Similarly, the air force's Adi Upaya Foundation first plunged into airplane-related businesses.
Later, they expanded into "alien" fields which promised money.
But the Army foundation is the most successful of all. According to the latest data, the foundation, through its holding company Truba, has become a giant, with 41 firms engaging in various fields including banking, textiles and logging.
Initially, the Army ran its businesses by itself, but these mostly failed. Aware that they lacked professionalism, they then cooperated on a joint venture basis with noted entrepreneurs, such as Liem Sioe Liong, Liem Bian Koen (Sofyan Wanandi), Mochtar Riyadi, Sudwikatmono, Mohammad Hassan and the children of Soeharto.
ITCI, for example, was a failed business before it teamed up with the Bimantara Group, controlled by Soeharto's son Bambang Trihatmodjo, and the Nusamba Group, chaired by timber tycoon Mohammad Hasan in the late 1980s. Under the joint venture agreement, the foundation owns 51 percent of the company. ITCI raked in profits of Rp 200 billion last year.
Another proud business of the Army foundation is PT Bank Arta Graha. Formerly called Bank Propelat and owned by the Siliwangi military command, it nearly went bankrupt with assets of Rp 8 billion when the foundation took it over in 1989. The foundation invited Tomy Winata of PT Karya Nusantara Permai and Santoso Gunara of PT Cerana Arthapura to jointly own the bank. The foundation controlled 40 percent of the shares, and Tomy and Gunara owned 30 percent respectively. Today, it already has Rp 482 billion in assets, 20 branch offices across the country, and raked in Rp 4.6 billion in profits last year. In 1992 it officially became a foreign-exchange bank. About 30 percent of its employees are reportedly the children of Army members, who are all professionals.
Sempati Air was a little-known private air carrier with only seven F-27 aircraft before the foundation allowed the Humpuss group, controlled by Soeharto's son Hutomo Mandala Putra and Bob Hassan's Nusamba Group, to buy into it in 1988. Truba has 40 percent of the shares, Humpuss 25 percent and Nusamba 35 percent. Now, Sempati has become Indonesia's biggest private airline with an armada of five Fokker 27s, seven Fokker 100s, six Boeing 737- 200s and three Airbus 300-B4s.
Through PT Danayasa Arthatama, the foundation and business partners including Sugianto Kusuma and Tomy Winata -- its partner in Bank Arta Graha -- is now building the Sudirman Central Business District, a $3 billion megaproject on 40 hectares of land on Jl. Sudirman, South Jakarta.
Using the profits, the Army as well as other arms of the Armed Forces have gradually enhanced the welfare of their people by building houses, schools, orphanages, and providing fellowships to talented children.
Both the Armed Forces and their business partners seem to benefit from the joint ventures. The lack of professionalism on the part of the military is balanced by the skills of the business people, while the latter gain greater access to the halls of power through the Armed Forces.
Some experts, however, have reservations about this cooperation.
"In Indonesia, where the culture of business is still about the proximity to power, the practice may not make for fair competition. If that culture didn't exist, there wouldn't be any problem," noted economist Kwik Kian Gie told The Post.
He also warned that the Armed Forces could be "used" by entrepreneurs in such a way that, ultimately, the businessmen would gain more from the joint ventures than the military. Thus, the Armed Forces could become more an instrument than an equal partner.
The Armed Forces, he said, can prevent themselves from being "manipulated" by hiring capable professionals to deal with their business partners on their behalf. Alternatively, the military could train its own professionals. The Armed Forces have actually taken the latter measure by sending their officers to institutions such as the Jayakarta Business and Management Institute in Central Jakarta. But as the program started only a few years ago, the military will have to wait some time before it feels any benefits.
Minister of Security and Order Gen. Edi Sudradjat expressed concerns similar to Kwik's at a recent seminar, saying that the Armed Forces was now being dismissed by the people as the protector of the rich, especially of Indonesia's ethnic Chinese population.
"On the other hand, businessmen dismiss ABRI (the Armed Forces) as a handy tool," he added.
As if to vindicate Kwik's warning, there have been press reports recently that the military's share has dwindled in some joint ventures.
Forum Keadilan magazine, for example, recently reported that YKEP is no longer the major shareholder of Bank Arta Graha. The bank is now controlled by Tomy Winata, who initially owned only 30 percent of the shares.