TNI should cut its businesses

The following is an excerpt from an interview with Revrisond Baswir, an expert on political economy at Gadjah Mada University in Yogyakarta. He shared his views on reforms in the Indonesian Military (TNI) with The Jakarta Post's Agus Asip Hasani last week.

Question: Minister of Defense Juwono Sudarsono has said the government will liquidate "semiprofitable" institutions within the Indonesian Military such as foundations and cooperatives, while companies (Perseroan Terbatas) will be maintained as a source of operational funds for TNI, given the limited national budget. Your comment?

Answer: The amount of funds acquired by the TNI from businesses, cooperatives and foundations, usually managed under "nonbudgetary funds" reaches up to 70 percent or 80 percent of the military's overall operational funds.

This means the budget can only cover 20 percent to 30 percent of the military's operational funds. Pak Juwono's argument that the government cannot cover TNI's needs is still debatable ....

The establishment of (TNI) foundations is usually aimed at managing nonbudgetary funds acquired through illegal or corrupt ways, or at least through unfair ways such as selling security services to private firms -- the military is clearly a public institution.

The funds also come from cooperatives which monopolize the distribution of fuel and other (services).

The foundations then invests the nonbudgetary funds by setting up companies or by just buying shares in private firms.

So essentially, the nonbudgetary funds of firms, foundations and cooperatives within TNI are state assets; they belong to the public and are not entirely private firms of TNI.

Therefore, it is not TNI alone which is filling the (budgetary) gap.

So it is not that the government cannot fund TNI 100 percent if all nonbudgetary funds are handed over to the state coffers, to be managed and redistributed through the state budget. The accountability of the use of the funds would then be transparent.

The problem for us so far is that we don't know exactly how big TNI's assets are and how the assets are allocated, while we do know that it is a state institution. So how can such a public institution manage large public assets without the people knowing?

Q: You mean the government can actually fund TNI if it takes over TNI's nonbudgetary funds?

A: Why doesn't (the government) firmly designate military businesses as state-owned companies, enter its nonbudgetary funds into the state budget, liquidate its foundations ...?

The government's budget would be larger and only then could there be some compensation in the form of a bigger budget for TNI -- but only through the state budget.

Q: What do you think the constraints are to such measures?

A: I'm sure many within TNI, mainly from their elite, would resist such efforts. Even partial steps such as those suggested by Juwono would face resistance by those who so far have profited from TNI's foundations or cooperatives.

The issue here is not only that the military funds should go through the state budget, but also the incentive system in TNI which only benefits its elite. So this really is about the interests of the armed forces' elite, because if nonbudgetary funds were included in the state budget and TNI's sources of funds were liquidated or taken over by the government, the problem raised would not really be about the lack of operational funds, but of declining incentive among the TNI elite outside their actual salaries.

In short, such steps would disrupt TNI's distribution system. It would disrupt its incentive system, which has so far been nurtured among the military elite.

So an increased budget for the armed forces by the government first taking over their businesses would really increase the welfare of all TNI members.

In the current system, an officer has much more incentive than his salary, while a low-ranking soldier has a very small opportunity to enjoy extra incentives from TNI's nonbudgetary funds, or to share in the profits of its businesses and cooperatives.

This is actually a national problem which is not limited to TNI, but is pervasive throughout all levels of government. What's needed is an overhaul of the incentive system, or more correctly, of the management of public funds.

Q: Could you elaborate?

A: The existence of all nonbudgetary funds, foundations and companies owned by government foundations are evidence that corruption in this country does not happen only in each institution, but that it is systematic corruption.

Maybe what differentiated a civilian official and a military officer is that the military officer had more power, and maybe still does, through his control of many strategic businesses, such as fuel distribution.

I'm quite sure that similar to civil servants, only a small proportion of the income of TNI members, particularly among the elite, comes from their salaries. A minister may be paid a salary of Rp 14.5 million but we don't know how much he gets from other sources. A high-ranking official can get a monthly salary of Rp 4.5 million, but his incentives can reach four to five times that amount.

A general, apart from his salary, would surely get his "share", either from foundations, cooperatives or firms under TNI, or from private firms where a TNI foundation has shares.

Given the national scale of the problem, national measures are vital. There must be the political will to draw up a law or decree of the People's Consultative Assembly on regulating the management of public funds. This could take the form of turning into state assets those vague sources of funds which have become sources of nonbudgetary funds, and also reservoirs of corruption...

Q: To what extent could TNI afford to fund its operational needs?

A: From this year's state budget, TNI is receiving about 11 percent to 14 percent of the budget of Rp 200 trillion, meaning it gets some Rp 28 trillion. But this sum only means 20 percent to 30 percent of its needs. So TNI's real expenses can reach Rp 100 trillion, while Rp 60 trillion to Rp 70 trillion would actually come from its foundations, cooperatives, firms, etc.

Q: If TNI's business assets were taken over by the government, would it be able to give TNI Rp 100 trillion through the state budget?

A: Of course that would be difficult. That would be 50 percent of this year's budget -- that's crazy. But I'm sure TNI's needs would not really be that large if it wasn't burdened by the need for incentives for its elite.

Such large needs have not been fairly distributed within the military all this time. An officer can maybe take home Rp 100 million a month, or at least Rp 50 million.

Even if soldiers' wages were to be increased to Rp 1.5 million (a month), I suspect TNI's needs would not reach Rp 100 trillion per year.

With transparency and fairer distribution, its needs would maybe reach only twice its current share of the state budget, or some Rp 50 trillion to Rp 60 trillion.

Q: What about the involvement of individual TNI members in businesses, from their positions as commissioners in firms to those selling security services?

A: It's true that not all businesses can be taken over by the state. There are many forms of extra income among TNI personnel, like their involvement in the private sector which has nothing to do with the public sector.

There are firms using the services of a general in his position as a commissioner in a private firm, or those which use military members for their security services.

But it is hard to estimate the amount of funds raised through such channels, which are also forms of corruption. It's possible such funds are even larger given the pervasiveness (of such services) in our society.

For the sake of TNI's professionalism and as part of our efforts toward clean governance, such practices must be cut as much as possible, along with the acquisition of the sources of the above nonbudgetary funds. The rule that TNI personnel should not hold posts outside that institution should be firmly upheld.

The same must also apply to civil servants. This must be made clear in an anticorruption law.