Chapter 4. The abandonment of TNI’s business activities
4.1. TNI and their business activities
4.1.1. The evolution of TNI’s business activities
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This chapter intends to seek the stumbling blocks in the disbandment of TNI’s business activities. It argues that military’s business activities is closely related to the factional/personal interests within the brass instead of directly related to the interest of TNI or services within TNI as an institution. The taking over of TNI’s business lines tends to be smooth with limited resistance from the brass since it only focused on the formal business of the armed forces and did not touch upon informal and criminal business activities of officers. The problems in the taking over are basically of technical issues. This chapter is divided into two parts. The first part provides a short historical overview on military’s involvement in business activities to show the changing pattern of military business throughout the years and identifies efforts that have been taken to disband military’s business activities. The next part explores the interests of the armed forces, mainly factional/personal interests, and how they affect the progress of the reform in this issue.
4.1. TNI and their business activities
This part has two aims. First, it lies out a chronological explanation on military’s business activities to peel out the myths surrounding this issue.87 Second, it also intends to measure the degree of the progress in the disbandment of TNI’s business activities since 1998. It should be noted that the way to measure the progress of the reform in this issue is slightly different from the proposed framework in Chapter 2. This chapter focuses on the second area of the proposed framework, but it is not only examining the structural framework, but also assessing the behavioral change.
4.1.1. The evolution of TNI’s business activities
TNI’s involvement in business activities has a long history. It dated back to the early days of the republic. During these days, TNI engaged in small and local scale business activities to fund their operations. It should be taken into attention that during these days, TNI had yet managed to develop a well-organized country-wide
87 Finding a reliable data source for military’s business activities is extremely difficult. Hence, in most cases, scholars can only rely on confessions, which usually are only shared by few officers or soldiers to few audiences. Due to the same reason, this chapter relies more on confessions and secondary sources. In addition, this chapter also takes the advantage of several key documents which mostly gained through personal access to those individuals who worked with or involved in this issue. Copy of these documents are with the author.
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organizational structure. In late 1950s, their economic activities grew bigger with the nationalization of foreign companies that operated in Indonesia. It began with the taking over of Dutch companies operating in Indonesia, including sugar cane refineries and oil companies, which then legalized with the enactment of UU No.86/1958 on the Nationalization of Dutch Companies Operating in Indonesia. Sukarno handed the management of most of these new state-owned companies to TNI, mostly due to the de facto control over these companies or areas in which these companies were operating by the armed forces. It started an era in which TNI was able to secure funding for themselves outside of the state budget allocation (known as off-budget funding). Since then, TNI’s involvement in business activities became massive since these companies were able to diversify their business activities to the point they themselves could no longer handle these companies’ activities. Throughout the years, military’s business activities became smaller due to mismanagement and fierce competition with civilian groups within the government until its disbandment in 2009. Figure 4.2 shows the evolution of military business activities in Indonesia, which will be dealt in detail in the next few paragraphs.
Figure 4.2. Evolution of TNI’s business
Two cases can illustrate TNI’s involvement in business activities. First, the story of Pertamina, the Indonesia’s national oil company, suggests a close affinity between the armed forces and state-owned business ventures. Second, relationship between business tycoons and military officers, as in the case of Suharto friendship with Liem Sioe Liong, also known as Sudono Salim, which was rampant modus operandi in TNI’s business activities, a practice known as “Ali-Baba alliance” (Samego, et.al, 1998, 53) or
“patron-client relationship” (Kingsbury, 2003).
1945-1957
• Small and local scale
• Sporadic
1957
• Big-business
1980s
• Diversification
1998
• Small-scale
2009
• Non-existence
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The story of Pertamina began in 1957. Indonesia’s economic following the transfer of power in 1949 was far from good. The new government was struggling to fund their expenses. The Indonesian economy was basically under the control of the Dutch. Thee (2012, 7) noted that only 19% of the invested-capital in non-agriculture sector was owned by Indonesians, which also meant that 81% of non-agriculture sector was at the hand of foreigner. In early 1950s, the Indonesian government took over the ownership of various Dutch companies operating in Indonesia started with the Bank of Java in 1951. While the government faced resistance from the Dutch in the taking over in the early phase, the latter finally agreed to hand over the control over the Bank of Java since they realized that this control would allow the former to take care of their debts.88 The wave of the nationalization of Dutch companies operating in Indonesia then grew as the political relationship between the two countries worsened due to the conflict over Papua.
In the meanwhile, the government was facing difficulties in fulfilling funding for the armed forces, while political situation in the new country was at its lowest point due to rampant rebellions throughout the archipelago. In 1957, Sukarno adopted a martial law and declared state of emergency to allow the armed forces to take all necessary actions to put the rebellions off. The armed forces’ successful effort in crushing those rebels resulted in their de facto control over the contested areas, which mostly were crucial for economic activities. Their control over Sumatera, for example, allowed them to control important oil and gas field in Riau areas previously cultivated by various foreign companies. The government then decided to nationalize these foreign companies,89 including Dutch Royal Shell, which previously operated in those areas and established Permina. The government then established Pertamin to in charge of the distribution of the products. Later in 1968, Permina and Pertamin were merged as Pertamina. Permina and then Pertamina were both under the control of Major General
88 According to the 1949 agreement, the Indonesian government should take responsibility for all liabilities previously owned by the Dutch Indies. It meant that all foreign debt made by the Dutch Indies (Dutch colonial government) felt to the burden of RIS. In addition, the agreement also mentioned that RIS government would guarantee the operations of Dutch companies and business activities under the new government.
89 During the first phase, the nationalization was only targeted at Dutch companies. During the latter stage, it also targeted at several British and American companies. There were, however, two types of nationalization. First, the foreign companies were fully taken over by the government. Second, the government established its own company and the foreign companies operated as contractors (Kuncoro, 2009, chapter 2).
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Ibnu Sutowo.90 Since then, Pertamina became the main source of funding for the armed forces. During the reign of Suharto, he allowed Sutowo to basically do whatever business plan the latter had. Sutowo then developed Pertamina into a conglomeration with oild and gas extraction as its core business.91 Sutowo, however, mismanaged Pertamina and involved in massive corruption that nearly brought Pertamina into bankruptcy. As a result, Suharto decided to release Sutowo from Pertamina in 1975 but he took no further attempt to investigate Sutowo’s corruption cases. The role of Pertamina as one of main funding sources for TNI, however, remained until the end of Suharto era.
The second and more complicated business activities that the armed forces were involved in were their relationship with business tycoons, as suggested in the case of Suharto. The “beautiful friendship”—borrowing the words of Borsuk and Chng (2014)—between Suharto and Liem dated back since the end of Japanese occupation in 1945. During these times, Liem provided logistics for Suharto regiment in Central Java.
The two also engaged in various illegal business activities to fund the armed forces’
struggle against the Dutch colonial power. Some officers, however, went too far.
Suharto’s involvement in business activities was so deep that there was a time when he was taken out from active command in 1959 (Samego, et.al, 1998). Suharto argued that the decision to send him to Sesko AD (then was SSKAD) had nothing to do with accusation of his misconducts. He, however, acknowledged that he involved in economic activities in order to fulfil his troops’ need. He said that “by virtue of my status as War Commander, I took an emergency measures in the interest of the people, too barter sugar for rice. I instructed Bob Hasan to carry out the bartering in Singapore, on the condition that the rice should be delivered first to Semarang before the sugar was to be exported. If the sugar were to be transported first, and, for some reason or other, the rice did not turn up, I would be blamed, and possibly sentenced to hang”
(Dwipayana & Ramadhan, 1992, 76).
90 Sutowo was then a Colonel when he first time managed Permina.
91 Pertamina business activities grew at during the 1970s due to the global oil crisis caused by Saudis oil embargo (1973) and Iranian revolution (1979). It allowed not only the revival of Pertamina but also, at a larger scale, an increase in Indonesia’s earning. Hence, despite Sutowo’s mismanagement and corruption, Pertamina remained as important source of funding for the government even if it was no longer under the full control of the armed forces. In addition, Pertamina had several business lines that remained at the hand of or closely controlled by the armed forces.
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Suharto was by no means the only officer who engaged in business activities. In fact, it has become public knowledge that most officers, especially within the Army, engaged in business activities to a different degree. Rudini, former Army Chief of Staff, admitted that when he was assigned in South Celebes as battalion commander, the supply for food was never enough to fulfill his troop’s need. He then received official order from Commander of Wirabuana Regional Command, Sarbini, that “each battalion could seek their own funding through foundations and cooperatives under their command and that they were allowed to use all military equipment except for the weaponries to seek this funding” (Samego, et.al, 1998, 52). He then used military vehicles under his command to transport soil for infrastructure project in his nearby headquarter or to transport other goods for various purposes. The funding that he got from these activities was then used to provide cheap goods for his troops and their families. Officers without business skills, on the other hand, usually took a different approach in fulfilling the needs of their troops. Instead of directly involved in business activities, these officers provided protection to traders and businessmen, mostly of Chinese origin, in their business activities or asked them to capitalize military’s equipment to do their business in exchange for funding.
This practice still exists until today. Erry Riyana Hardjapamekas (2017, interview), former Deputy of KPK and the head of the National Team to Takeover Military Business Activities (Tim Nasional Pengambilalihan Bisnis TNI, TNPBT), said that Tommy Winata, a well-known tycoon in Indonesia, is basically paying all graduates of Military Academy in exchange for their allegiance.92 He added that in most cases, public can easily identify which officers who engaged in business activities when they were still in service once they have retired. Those who serve in board of directors or board of commissars of certain companies usually have been involved in business activities when they were active officers.93
92 Previously, I have heard similar information from various sources, either officers within TNI or intelligence agencies as well as scholars and NGO activists working on defense issues. This, however, remains as allegation since no one willingly to testify of such an occurrence.
93 Tirto.id, an independent internet-based platform news agency, published four reports in 2016 that focused on military officers’ involvement in business activities. One of those reports focused on Brigadier General Slamet Singgih, former Deputy of TNI’s Intelligence Agency (Badan Intelijen Strategis, BAIS) who acknowledged his long involvement in business activities with several tycoons, including Tomy Winata. He even published his involvement in his memoir in 2014. His account basically confirms Hardjapamekas statement in both patron-client relationship between officers and tycoons and that military
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