Time to turn off the lights on military's businesses

YOGYAKARTA (JP): Since the early years of its formation, the Indonesian Military (TNI) suffered from financial shortages. It became known that officers were fending for themselves, and for their men and their families. Their cooperatives have been among the sources geared to be money-spinning machines.

A dilemma arises now with public demand for clean governance. Military cooperatives and businesses must be subject to reform while the government is not yet able to improve the welfare of military personnel, says political economic observer Revrisond Baswir of Gadjah Mada University in Yogyakarta.

The following are excerpts from The Jakarta Post's interview with Revrisond last week concerning the military cooperatives, which is only one of the many aspects of the military's "dual function" (dwifungsi). The military has promised the doctrine will gradually be phased out.

Question: You have said that military cooperatives are among the military's sources of "extra" funds. Please elaborate.

Answer: It all started with control over cooperatives, followed by investments in various other businesses through share purchases, and also by TNI setting up its own businesses. There are dozens of Perseroan Terbatas (PT, limited liability companies) set up by forces in TNI (the Army, the Navy and the Air Force) as well as by the National Police. Shares purchased by TNI are spread everywhere ...

There are at least five cooperatives within TNI; namely the Army cooperatives under Inkopad, the Navy's cooperatives under Inkopal, the Air Force cooperatives under Inkopau and the cooperatives of the headquarters of TNI, as well as the police cooperatives under Inkopol, although the National Police is now no longer part of TNI's structure. Then we still have the cooperatives run by Pepabri, the TNI veterans organization.

Therefore, TNI has at least six representatives on the Indonesian Cooperatives Council (Dekopin), or seven if the representative of the cooperatives run by Pepabri is included.

TNI also still has the cooperatives of its respective wives' organizations. TNI thus dominates the council.

Q: Could you explain?

A: The membership of the council was 27 parent cooperatives during (former president) Soeharto's rule. Under minister of cooperatives Adi Sasono (in the Cabinet of Soeharto's successor president B.J. Habibie) there were 41 parent cooperatives. But TNI does not only have the most representatives compared to the others; it also virtually controls the country's cooperatives movement. Election of the chief of village unit cooperatives has in the past experienced intervention from TNI members.

TNI has many representatives on the council, compared with only one for civil servants representing some four million members (compared to TNI's 500,000 personnel).

Q: TNI's cooperatives are involved in what business areas?

A: Among them are the easily procured "orders" (for jobs). One examples is in trading, particularly the one linked to the trading system of fuel oil. TNI cooperatives always have their allotment of orders from (the state-owned oil and gas company) Pertamina to transport and distribute fuel oil to vendors, to gas stations and so forth. This job is done particularly by Army cooperatives.

Then the cooperatives run by the Air Force operate, among other things, a taxi business. They monopolize taxi services at all airports, except Jakarta's Soekarno-Hatta International Airport. This is quite bothersome as passengers leaving the airport do not have a choice. They have to take a taxi owned by the Air Force cooperative at a tariff already set.

The cooperatives run by the Navy usually operate businesses around seaports, in expectation of obtaining orders from the seaports and also from relevant government agencies without a clear market mechanism. The cooperatives run by the police operate businesses around their own surroundings and also elsewhere as long as they can get an allotment of orders.

Q: Does this mean the TNI cooperatives have contributed to unhealthy business practices?

A: Yes, and the damage is brought about not only by these cooperatives, but also by their other businesses. The simple description is like this: TNI is an institution which obviously monopolizes the use of arms and violence. So once it gets involved in business, other parties encounter a "terrorization" of sorts... We can imagine how it (TNI) does its business and how it can get orders. Besides, for many years TNI has assumed a central position in our national political arena.

There is also the factor of coincidence between the business interests of TNI and its (dual function doctrine including) "doctrine of civilian function", which has in fact helped develop the "crony" businesses. TNI members -- either those in active service or already retired -- are scattered across various positions in civilian bureaucracy. They have developed collusive and corrupt relations whenever they come across TNI's business interests.

For example, how have TNI cooperatives and businesses acquired licenses, orders, loans and so forth? I believe there is a preference (for TNI) in this respect and facilities are also extended thanks to the presence of TNI members in many civilian positions, such as governors, regents, subdistrict heads, commissioners of state enterprises, directors general and so forth.

If a TNI business needs a loan, you only have to go to a state bank where the commissioner is a TNI member. Such practices have led to TNI members in civilian positions and businesses which significantly contributed to the national economic disaster.

Q: How big are funds contributed by TNI cooperatives and businesses?

A: Roughly, we can say that TNI get its funds from four sources: the official source from the state budget and three "extra" sources, which are actually illegal, such as from cooperatives, the establishment of business companies, foundations and stock purchases and also from corrupt, collusive and nepotistic practices, both institutionally and individually.

These are illegal because the law on the civil service and state's apparatus does not allow the military to undertake a business.

The official budget from the government may account for only 25 percent of the entire funds amassed by TNI. The remaining 75 percent come illegally from various means, including cooperatives. TNI cooperatives alone contribute 20 percent to 25 percent of the entire military funds. We can understand then where the funds for military operations, especially secret and unofficial ones, have come from. The budget from the government is too small to cover all these operations.

We can imagine how reluctant TNI would be to let go of 75 percent of its financial sources because, individually, TNI's elite themselves also enjoy these "extra" funds. These illegal funding activities must, of course, be scrapped for the sake of good governance.

Q: But isn't the budget for the military too small? Low-ranking TNI members live on very limited means, don't they?

A: This is another problem in the context of establishing good governance. This is more attributable to injustice in the distribution of funds within TNI. On the one hand, it is true that the budget from the government for TNI is too small and this may be distributed equitably on the basis of the existing pay system. However, the illegal 75 percent of the financial sources is not distributed fairly and justly, and it is amassed by high- ranking TNI members, while the low-ranking ones can get extra money from illegal levies.

So, efforts at seeking unofficial funds also harm TNI because it has created a gap between officers and generals and lower- ranking soldiers. Therefore, attempts at promoting the welfare of TNI in general through official sources represents TNI's interest and the proceeds would be distributed fairly and equitably.

Further, the limited means of lower-ranking TNI personnel must be viewed proportionally because a greater concern can be found among civilian civil servants, who number about four million people, or eight times the 500,000 TNI members. TNI members still fare better than civil servants as they are provided with barracks, simple as they are, and receive a side-dish allowance, though only to cover the purchase of salted fish. The civil servants get neither.

Q: In the present condition, how can the government collect enough money to compensate for the loss of TNI's "extra" financial sources?

A: Ours is Asia's most corrupt state and the world's third because corruption in Indonesia has systemically involved all institutions. Our budget has always been small because, among other things, the bigger part of it goes into the pockets of corrupt officials.

Some say that 30 percent of the government's budget leaks every year because of corruption, but in fact, in terms of value, that amount is only 30 percent of the total value of corruption. Apart from budget-related corruption, corrupt officials also put into their own pockets nonbudgeted funds and direct funds from the community and so forth. Obviously, the total value of corruption equals the total value of our annual budget.

Therefore, to augment the value of the government's budget at this difficult time, the financial leakage or corruption has to be cut down to the minimum. Then nonbudgetary funds must be scrapped and included instead in the government's budget. If these two things can be done well, the amount of our budget will increase significantly, so demands to increase the welfare of the military and other state apparatuses could be raised, although this promotion cannot be substantial.

The government controls some Rp 75 trillion, and every year it has to fork out Rp 50 trillion to repay the loans plus the interest. This leaves a balance of some Rp 35 trillion. This is clearly not enough to promote the welfare of state apparatus personnel, including in TNI. However, if corruption can be cut down to the minimum and nonbudgeted funds be included in the budget, a total of Rp 125 trillion can be collected, or rather Rp 75 trillion, after being deducted by loan repayment installments.

The government will then be able to undertake programs to improve the welfare of the military and other state apparatus personnel as one step to good governance. This would be the most realistic step unless we wish to borrow more from abroad ... We should try not to make any more loans to improve welfare of the military and other state apparatus personnel because it is they, among other causes, that have contributed to our economic bankruptcy. Only when the needs for decent welfare have been met, or at least when the welfare level has been raised, can we settle problems related with TNI cooperatives, TNI businesses and other corrupt behavior of the TNI.

Q: How should the military cooperatives, businesses and other illegal financial sources be abolished?

A: The law on the civil service and state apparatus which ban them from undertaking businesses should be upheld. Of course, while all this is being done, the welfare of the military personnel must also be promoted. Cooperatives are in fact part of the problem related to the TNI businesses, although most of the TNI businesses now assuming the format of a PT started as military cooperatives. It must be borne in mind that not all the TNI businesses are in the form of cooperatives; some are in the form of foundations or limited liability companies.

Regarding institutional reform of cooperatives, TNI cooperatives must be dissolved because they violate the principle of cooperatives, namely that membership must be open to all. The Law No. 12/1967 on cooperatives should be changed with another that conforms to the cooperatives principle of open membership.

Military cooperatives should be dissolved because their membership is exclusive and is based on their common profession. Membership of a cooperative must be based on common economic interest, not common profession.

Therefore, students' cooperatives, civilian civil servants' cooperatives and employees' cooperatives must also be dissolved. What must be established are consumers' cooperatives, loan- savings cooperatives, production cooperatives and the like.

Q: How did cooperatives begin to be established within the military?

A: In the final days of the Old Order (until about 1966) the Indonesian Communist Party (PKI) owned a lot of cooperatives, and these were taken over by TNI during the transitional period to the New Order. This taking over of cooperatives by TNI was part of the efforts by Soeharto's administration to coopt the popular economic movement, which actually showed much potential.

The government later introduced Law No. 12/1967 with a view to "sterilizing" the cooperatives movement by, among other things, changing the principle of open membership into exclusive membership. As a result, "profession-based" cooperatives were set up with people of a common profession as members. This rang the death knell for the real significance of cooperatives as a potential popular economic movement.

The military then fully controlled the Indonesian cooperative movement by taking control of Dekopin, a council where policies on cooperatives are drawn up.

TNI has controlled the cooperatives movement ever since the minister of cooperatives was in the hands of a retired officer, Bustanil Arifin.

With its control of Dekopin, it became easier for TNI to enjoy economic gains from this council. Then it set up foundations, limited liability companies and invested through stock purchase in various business sectors.

Q: What is the average percentage of the budget allotted for the military?

A: The official budget for the military has never been bigger than 5 percent of the total state budget. This is the smallest military budget in Southeast Asia. An increase in the budget for the military is usually identical with improvement of military facilities and infrastructure, and is not usually related to a basic problem like military personnel's welfare. So it is actually irrelevant to talk about how big the military budget should be, because even the living needs of military personnel have not been fulfilled.

Q: Defense minister Juwono Sudarsono has asked for a 62 percent increase in the 2000-2001 state budget for the military and police, or an increase of Rp 18.9 trillion (US$2.7 billion) in the budgetary allocation of Rp 11.6 trillion. He argued it was to improve professionalism and to reduce the proportion of extra-budgetary sources of income. Your comment?

A: We cannot jump to figures of an increase; there must be a guarantee that reform within TNI is really taking place after an increase is agreed upon.

Second, TNI must realize the government's financial sources are in a very bad condition, while other sectors are also calling for an increase, such as a hike for civil servants' wages, regions, education and many other things.

The figure proposed by Juwono therefore becomes relative, depending on the government's ability to raise funds, such as from privatization of state run firms, rescheduling of overseas debts or maybe also adding offshore loans and more sales of state assets. If the government succeeds, Juwono's proposal may be considered not too big, or on the contrary.

What needs to be done is a kind of "letter of intent", or a type of work schedule about TNI's reform, among others thing to free soldiers from business. All this must be drawn up by taking into consideration the priorities of improvement within TNI, while paying attention to the state's priorities of expenses in other sectors.

Nevertheless, Juwono's proposal is good. It is true that TNI is in a sorry condition with outdated, ill-maintained equipment; so a scale of priorities must be drawn up based on the government's available financial sources.

In comparison, the House of Representatives once asked for a raise in civil servants' wages of 100 percent, which was then lowered to 25 percent, and the government bargained further for a 15 percent raise. (Asip Agus Hasani)