ABRI, from war machine to big business bureaucrats

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.