Chapter 4. The abandonment of TNI’s business activities
4.1. TNI and their business activities
4.1.3. TNI’s business during Suharto era
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themselves decided to bring those who involved in these rebellions to martial court but instead they chose to integrate the leaders as long as they agreed to follow direction from central command. The armed forces also introduced inter-divisions’ tour of duty since then.
Another important result of the armed forces successes in putting the rebellions off was their de facto control over those contested areas. As noted before, these areas were crucial for the economy and hence it basically allowed the armed forces to control the production of these important economic sources. With the government began to nationalize foreign companies operating in Indonesia, the armed forces managed to capitalize their de facto control to gain economic advantages over their civilian counterpart. Hence, the armed forces then controlled some of former Dutch companies operating in Indonesia, which went through nationalization in the first phase. In mid 1960s, a second wave of nationalization took place aiming at British and American companies operating in Indonesia. Control over these companies was also given to the armed forces. The revenues from these companies allowed the armed forces to become more independent than before. Their autonomy in funding made civilian control impossible. The armed forces became an important actor in Indonesian politics. The only civilian group that dared to confront their growing political power was PKI. As noted in Chapter 2, TNI and PKI had a relatively bitter relationship. PKI’s group of militias, Pesindo, was not only refusing to join TKR but also raising their arms in the 1948 Madiun affairs. When PKI was implicated in the 1965 coup95, the armed forces found their chance to further enhance their position in governing by placing Suharto as acting President in MPRS96 assembly led by Nasution, two of the highest ranked general survived from the coup.
4.1.3. TNI’s business during Suharto era
During Suharto era, military business grew stronger. Each service within the armed forces as well as ABRI Headquarter had their own companies through
95 Scholars, however, were split in explaining this event. Some suggested that the 1965 affair was not a coup by PKI, while others hinted that it was a coup. Despite this debate, the affair was resulted in massive killings by the armed forces to those allegedly as members of PKI or their sympathizers.
96 MPRS, with the S refers to Sementara or Temporary or Interim, was established by Sukarno with the 1959 Presidential decree. Members of MPRS consisted of members of the abandoned DPR and regional envoys and groups’ representatives.
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cooperatives and foundations affiliated with them. The use of cooperatives and foundations was seen as way out to avoid violation of government regulation in Presidential Order no.6/1974 that stipulated that military officers with the rank of second lieutenant and above are forbidden to own business lines and to conduct business activities or to sit within private or public companies’ board of directors or board of commissars. They, however, can sit in any position available in any foundation established or affiliated with the armed forces, which was supposedly established as non-profit organization, with consent from their superiors. With regard to cooperatives, all services within the armed forces as well as the armed forces headquarter established their own cooperatives with business units.
TNI’s involvement in business activities during Suharto era was part of their role as, in the word of Crouch (1978, 273), “dynamizer” of national development. As Suharto built his legitimacy upon economic development, his government needed a partner to boost the then worsening economic situation during the end of Sukarno era.
To be able to conduct development programs, the government was struggling to maintain internal stability. In addition, the government also required to develop a strong economic actor. The armed forces were chosen to play both roles. Their role as dynamizer of national development allowed them to grow their business activities, either through their involvement in state-owned enterprises or through other channels such as through cooperatives and foundations. Their economic activities, however, also had effects such as the growth of personal economic interests of officers, mostly Army officers, and the rise of corruption (Crouch, 1978, 285-299). Robinson (1986) identified several generals who allegedly involved in business activities during the formative years of Suharto’s power such as: Soedjono Hoemardani, Sofjar, Soerjo, Alamsyah, Tirtosudiro, and Suhardiman. The mechanisms in which these generals used in getting benefits from business activities were threefold. First, they took over nationalized companies and placed them under the full control of the armed forces. By mid-1960s, most state owned companies had been transferred to the armed forces’ possession.
Second, they took over state assets from the government to private sectors affiliated with the armed forces. This was especially rampant in forestry concessions. Third, they provided access for government’s contracts to the armed forces especially in import and export activities of various items. It was extremely difficult during this period to clearly
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distinguish military’s business for military benefits from military business for officers’
benefits.97
The armed forces’ business activities through these big corporations were then widened. For example, Pertamina under Sutowo established various business lines in different sectors such as insurance business, trading business, petrochemical sectors, steel industries, and even aircraft industries. In addition, Pertamina also built hospitals, television studios, mosques, and presidential office. The armed forces also engaged in other business related activities through state institutions other than state-owned enterprises. Tirtosudiro, for example, was once the director of National Logistic Bureau (Badan Urusan Logistik, Bulog) that in charge of maintaining the stability of price for various products, most importantly foods. To secure their operations, Bulog received credit from Bank of Indonesia which, instead of using it to purchase harvest from farmers they channeled the credit to private banks to earn the benefits—since Bank of Indonesia charged them with lower interest rate at only 3% while by saving it to private banks they could get 10-15% of interest (Crouch, 1978; Samego, et.al, 1999; Widoyoko, et.al, 2003).
The armed forces also involved in business through cooperatives and foundations, established under the TNI or services within TNI. Samego, et.al (1998) noted that the total number of military business lines up until 1998 was 68.98 Yunanto, et.al (2005) provided a much detail accounting of the total number of military business lines which was reaching 1,335 in 1998, with 141 were companies under foundations and 1,194 companies under cooperatives.99 Widoyoko, et.al (2003) suggested that 102 business lines can be found at headquarters level up until in 2002.100 In 2008, the number dropped into 1,153 companies, with 53 companies under foundations and the rest under cooperatives (Mietzner & Misol in Ruland, Manea & Born 2013). The findings of TNPBT (2008, 32) suggested that only 53 business lines under foundations
97 As in the case of Pertamina, it was extremely difficult to really find out the share of benefits given by the company to the armed forces in comparison to that of Sutowo’s personal benefits. Crouch (1978, 275) wrote that officers responsible for military’s business “were permitted to reap off part of the proceeds as a reward for their efforts, provided they did not take ‘too much’.”
98 The number did not include those business lines under the Primary Cooperatives. Primary Cooperatives (Koperasi Primer, Primkop) were cooperative established in regional commands downward. For a clear explanation on this leveling, see the explanation of TNI organizational structure in Chapter 5.
99 Yunanto, et.al (2005) included those companies under Primko.
100 Similar to Samego, et.al (1999), Widoyoko, et.al (2003) did not include those at Primko level.
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and 2 business lines under cooperatives were found, while total number of foundations was 23 and total number of cooperatives was 1,098. TNPBT (2008, 32) found 742 business activities of the armed forces in the form of the use of assets (pemanfaatan aset). Mietzner and Misol (in Ruland, Manea & Born 2013) argued that the reduction in the number of military-affiliated companies throughout the years was not due to any reform taken by the armed forces or civilian authority but due to mismanagement and competition. Widjajanto (2017, interview) and Hardjapamekas (2017, interview) agreed to this observation noting that most of TNI’s business lines went to bankruptcy due to mismanagement. In 2009, all of the remaining business lines were transferred to the government under the Ministry of Defense oversighting.
What is striking with this evolution is the fact that their contributions to the armed forces overall budget or to military personnel were not significant at all. While Crouch (1978, 274) assessed that TNI’s business contributed to a third to slightly above half of actual defense expenditure in late 1960s and early 1970s, Rieffel and Pramodhawardani (2007) argued that the total amount of military business was only equivalent to 1.5-3% of government defense budget. With regard to personnel’s welfare, Hardjapamekas (2017, interview) firmly said that low-level soldiers only received benefits twice a year and earned a relatively low food supply (jatah pangan) a small amount of benefits (sisa hasil usaha, SHU). His statement contradicts with the rationale for military’s involvement in business as once was suggested by Suharto when he first established the Territory IV Development Foundation (Yayasan Pembangunan Teritorium IV) back in 1950s which then served as the role model for TNI’s foundations and cooperatives when he reigned in late 1960s.101 There is, however, no clear data that indicated the share of TNI’s business to soldiers’ welfare or to defense budget.
4.1.4. The call for abandonment of TNI’s business after Suharto era
The call for the disbandment of TNI’s business activities had been made since the 1998 as part of the call for TNI’s withdrawal from politics. TNI’s business activities had created complex problems including violations of human right in several areas.
Kingsbury (2003, 196-198) linked the killing of Theys Eluay, one of the leaders of
101 In his official biography written by Dwipayana and Ramadhan (1992, 73), Suharto said that the establishment of foundation within his command was intended to increase his troops welfare as well as to help the society in his troops resided who had given tremendous assistance to his troops.
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OPM who advocated the independence of Papua, in 2001 was not only related to his political activities per se but also due to his decision to block the approval of logging concessions to Army-linked logging company. Theys, who was a local leader in which the forest for logging area is residing, was responsible to grant permission to which company or companies to be given concessions. With several logging companies competed for his permission, it was very likely that owner of company or companies that failed to get concessions took harsh measure against Theys. Some of those companies that fought for Theys’ permission had close link to the Army, in particular with Kopassus, or retired generals of the Army. Azca, et.al (2004) provided an even detail explanation on the impact of military’s business activities to violation of human rights in three different places in Indonesia—Poso, Bojonegoro, and Boven Digul—in an investigative research supported by Kontras.
During the early phase of the military reform, however, there was no significant progress with regard to this issue. It was not until the enactment of the Law on TNI in 2004 that progress could be reached. Article 76 of the Law on TNI clearly states that the disbandment of military business activities should be completed within five year after the enactment of this law.102 Following the adoption of this law, the progress on the disbandment of TNI’s business activities once again slowed down.
On late August 2005, a team was established to deal with article 76 of this law and to draft a Presidential Order detailing the taking over. This team was led by Said Didu, the then Secretary to the Minister of State-Owned Enterprises, with Minister of Defense, Minister of Finance, and Minister of Law and Human Rights as its members.
The team was known as Supervising Team for Military’s Business Transformation (Tim Supervisi Transformasi Bisnis, TSTB). This team, however, failed to give a clear and coherent recommendation on how is the best possible way to take over military business activities. This failure, according to Widjajanto, is due to the lack of credible base for their works since this team was not established with Presidential mandate (Koran
102 Two points can be learnt from point 1 of this article. First, it clearly mentions the time limit of the taking over. Second, it also says that these business activities refer to businesses that are directly or indirectly owned and managed by TNI. In the original language point 1 is written “Dalam jangka waktu 5 (lima) tahun sejak berlakunya undang-undang ini, Pemerintah harus mengambil alih seluruh aktivitas bisnis yang dimiliki dan dikelola oleh TNI baik secara langsung maupun tidak langsung.” Point 2 of this article clarifies the details of the taking over which will be regulated by Presidential Order. In its original language it is written “Tata cara dan ketentuan lebih lanjut mengenai pelaksanaan ayat (1) diatur dengan keputusan Presiden.”
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Tempo, 6 February 2006). Hardjapamekas (2017, interview) stated that the main aim of this team is to takeover military business into the Ministry of State-Owned Enterprises and hence faced strong resistance from the armed forces. Didu himself denied the existence of resistance from the brass and stated that the slow progress in the work of this team was basically due to technical problems in which identifying whether certain assets belong to the state or not required a long and careful process (Koran Tempo, 6 February 2006).
In the meanwhile, TNI responded to the mandate of the law by organizing their own internal team to assist the work of TSTB. On September 2005, TNI handed over a list of 219 military business activities to TSTB. Six months later, TNI Headquarter released a statement and a document that listed 1.520 business lines owned and managed by the brass. However, this list only included business lines owned and managed by TNI and did not cover business lines owned by officers. According to Pramodhawardani, in December 2006, she received another list of 356 business activities (Kompas, 6 October 2009). She pointed out that prior to 2007 there was no detail information on the number of business lines that were actually owned and managed by the armed forces.
One of the recommendations made by TSTB was the establishment of National Team for Transforming Military Business (Tim Nasional Transformasi Bisnis Militer, TNTBM). Human Right Watch (2006) criticized this recommendation since the establishment of new team would only prolong the actual taking over of TNI’s business activities. Didu, however, argued that it was a necessary decision since the new team would work under the order of the President. His statement hinted that the previous team, TSTB under his leadership, was basically lacking of official mandate and faced resistance from presumably TNI or Minister of Defense. The new team, however, had never been established.
Progress in the taking over of military business did not materialized until 2008.
On 16 April 2008, President Yudhoyono signed Kepres No.7/2008 on the establishment of National Team for the Taking-over of TNI’s Business Activities (Tim Nasional Pengambilalihan Aktivitas Bisnis TNI, TNPABT). This team was led by Hardjapamekas, former Deputy Chief KPK. Two outstanding achievements of this team can be identified. First, they provided categorization of military business activities into four
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different types. These were TNI’s business activities through foundation, business activities through cooperative, the use of state-owned agency outside its roles and functions, and other activities outside of TNI’s roles and functions and. Second, this team managed to identify total assets owned by those businesses that worth of 3.2 trillion rupiahs with net assets worth of 2.1 trillion rupiahs. Both of those achievements were basically the main tasks assigned to this team. This team also recommended the taking over into three different options (TNPBT, 2008, 86-94). The first option was to keep the cooperatives and foundations under the armed forces but all their business activities should be transformed to the Ministries, either Ministry of Defense or Ministry of State-Owned Enterprises. Hence, it basically drove cooperatives and foundations under the armed forces to follow the law on cooperatives and the law on foundations. The second option was to merge all cooperatives as well as foundations under the armed forces into a unit under the Ministry of Defense specifically assigned to ensure the needs of soldiers that previously was fulfilled by those cooperatives and foundations under the armed forces. The last option was to merge cooperatives and foundations under the armed forces with cooperatives and foundations under the Ministry of Defense. This was seen as the most un-preferable option since it would not fully comply with good governance values since it retained the existence of cooperatives and foundations under governmental bodies. Hardjapamekas (2017, interview) said that these three options were basically a result of a compromise between his team, TNI’s Headquarter, and the Ministry of Defense. This team finished their task in October 2008 and left the actual taking over
On October 2009, President Yudhoyono released Perpres No.43/2009 to regulate the actual taking over of military’s business. The Minister of Defense then adopted Permenhan No.22/2009 to operationalize the Perpres and set up a special team, Team for Controlling TNI’s Business (Tim Pengendali Bisnis TNI, TPBT) which reported to the Minister of Defense. This team was founded on November 2009 and led by the Director General of Military Power of the Ministry of Defense (Direktur Jenderal Kekuatan Pertahanan, Dirjen Kuathan). Members of this team came from five different ministries (Ministry of Defense, Ministry of Finance, Ministry of State Owned Enterprise, Ministry of Law and Human Rights Affairs, and Ministry of Cooperative and Small and Medium Enterprises), representatives from TNI Headquarter as well as
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the three services’ headquarters, and two independent experts. To finalize the taking over of military’s business activities, the Minister of Finance (Menteri Keuangan, Menkeu) adopted Permenkeu No.23/PMK.06/2010 on 28 January 2010 to regulate State’s Wealth under TNI’s control. It specified the mechanisms of the transfer of all state’s capital that previously were used by TNI or cooperatives and foundations under TNI for commercial activities. It also regulated in detail the transfers of business lines owned by TNI through cooperatives and foundations into to the Ministry of State-Owned Enterprises or to Ministry of Cooperative and Small and Medium Enterprises.
Most NGOs remained critical to the work of this team due to several reasons.
First, the composition of the team indicated a lack of independence. With most members were government officials and only two were independent experts, which were Silmy Karim and Rahmawati W. Prasodjo, this criticism was well founded. Not to mention that Karim’s track record was relatively attached to TNI’s business activities in the past. The second reason, and more principle refusal, came from the definition of
First, the composition of the team indicated a lack of independence. With most members were government officials and only two were independent experts, which were Silmy Karim and Rahmawati W. Prasodjo, this criticism was well founded. Not to mention that Karim’s track record was relatively attached to TNI’s business activities in the past. The second reason, and more principle refusal, came from the definition of