Kadin suggests alternative financing schemes to TNI

Zakki P. Hakim The Jakarta Post/Jakarta

The much-hyped Ambalat dispute has encouraged the Indonesian Military (TNI) to renew its demands for more up-to-date weaponry, with the constraints on the military budget forcing it to look for new funding sources.

In response, Indonesian Chamber of Commerce and Industry (Kadin) chairman Mohammad S. Hidayat said on Tuesday that his association had offered alternative financing schemes to help the TNI update its weaponry.

"We are concerned about the living standards of our soldiers and the state of our defense capability," he said after a rare closed-door meeting between top Kadin officials and TNI chief Gen. Endriartono Sutarto, accompanied by military spokesman Maj. Gen. Sjafrie Sjamsoeddin.

Hidayat said there were a number of "business-to-business" financing alternatives that the TNI could avail of instead of relying excessively on the state budget.

"Kadin can play a role in identifying such financing schemes," he said after the two-hour meeting at the chamber's offices in Kuningan, South Jakarta.

The alternatives included countertrade, export credit and commodity financing deals, Hidayat said without elaborating.

The Kadin offer comes against a backdrop of increasing public demands for the TNI to surrender its businesses to the state in a bid to improve its professionalism.

This year's state budget allocated some Rp 21 trillion to the military, which, according to defense minister Juwono Sudarsono, will only cover around 50 percent of the its basic expenses.

To cope with its budgetary problems, the TNI has long relied on profits from its businesses. However, many believe corruption is widespread in senior ranks as the military has never publicly released audit findings on its companies.

Hidayat urged the government to learn from the past mistakes as regards alternative financing schemes for the military, particularly from the Sukhoi countertrade deal.

The Sukhoi purchase made headlines in 2002, when the government was accused of breaching existing purchasing procedures by excluding the Ministry of Defense from the entire process.

The government bought four Sukhoi fighter jets worth US$265 million from Russia based on a countertrade deal involving 11 commodities.

The dispute over the Ambalat offshore oil block erupted last month after Malaysian state-owned oil firm Petronas awarded production sharing contracts to Shell in areas that are also claimed by Indonesia.

The dispute prompted Jakarta and Kuala Lumpur to deploy warships, we each side accusing the other of infringing its sovereignty. However, the two neighboring countries have since agreed to settle the dispute peacefully.

Nevertheless, the brief spat has put the need for the TNI to upgrade its weaponry, including its warships and aircraft, under the spotlight.

Endriartono said the territorial dispute had persuaded the TNI to request an increase in the defense budget when the government proposed revisions to the state budget next month.

"Most of the additional money would be used to upgrade Navy and Air Force equipment," he said.

Asked if the dispute had affected foreign investment and trade, Hidayat said that there had been no major impacts thus far.

He said that despite the dispute, Malaysian Minister of International Trade and Industry Rafidah Aziz along with more than 100 businesspeople would visit Indonesia next week to meet Minister of Trade Mari E. Pangestu and local private sector firms to explore business opportunities between the two nations.

"But if the conflict is prolonged, it will eventually have adverse consequences," Hidayat said.