Until Gus Dur can bring military business activities under control, they won't go 'back to barracks'.

Lesley McCulloch

In 1998 a study by the Indonesian Institute of Sciences (LIPI) exposed, not for the first time, the fact that the military had their fingers in the country's economic pie. What was different this time was the coverage it received in the media, exposing the size and variety of the pies in which the generals had their 'sticky fingers'. Amid the protests that led to Suharto's fall, military business activities were yet another 'open secret' to join the fray. Business down the barrel of a gun, a practice as old as Indonesia itself, has been lucrative indeed. Military business assets were estimated to be greater than US$8 billion in 1998. These activities are pervasive, corrupt and exist in the formal, informal, and even criminal economic sectors.

There can be no mistaking Gus Dur's desire to return the military to barracks and democratise both politics and the economy. But it is proving to be a delicate balancing act. The president has warned that the country still needs the armed forces as an institution, and should therefore not engage in 'anti TNI sentiment'. Defence Minister Juwono Sudarsono remarked recently that Indonesia couldn't yet afford democracy. For most it is a daily battle for survival, he observed, and only 10% of Indonesians can afford the luxury of participating in democracy.

Like most ordinary Indonesians, the military rank and file does not reap rich rewards from their institution's business activities. The military initially became involved in commercial activities because the government could not afford to provide for their welfare and running costs. So what has changed since Gus Dur became president?

The government is still unable to provide for the needs of the military. Regular salaries do not adequately provide for the basic needs of personnel. Recent salary increases to public servants and the military averaging 30 percent are a start, but have made little difference with prices spiraling. While it is generally agreed that higher salaries do not necessarily guarantee less corruption and 'extra-military' activities, it would at least be a starting point.

Late last year Juwono Sudarsono demanded a 62.9 percent increase in the 2000-2001 defence budget, arguing that if this was not forthcoming the professionalism of the military as a defence force would continue to be compromised by corruption and commercial activities. Theodore Friend of the Foreign Policy Research Institute in Washington says such commercial activities only produce 'clumsy entrepreneurs and flabby soldiers'. However, the 2000 defence budget did not include any raise. At Rp 10.1 trillion (about US$ 1.4 billion) it involved no change - it was merely a percentage of the 1999 budget to reflect its nine-month duration.

Nevertheless the military's hierarchy of needs is no secret. Armed forces chief Admiral Widodo Adisucipto has announced a 'wish list' of naval vessels and aircraft upgrades. He specifically mentioned the planned purchase of two Parcham-class corvettes and upgrades of seven F-16A/B jet fighters, at a combined cost of over Rp60 billion. He also wants large fast patrol craft. Navy chief Admiral Sucipto recently revealed plans to increase personnel numbers by 20,000 over five years to facilitate the expanding role of the navy. The result? More sticky fingers will be dipping into the economic pie.

The government has recently announced it intends to turn to China for weapons in its attempt to side step what it regards as politically motivated procurement barriers raised by the US and other Western defence manufacturers. Preference for these equipment upgrades was borne out by a confidential Indonesian military source who recently conceded to me that the priority is to channel additional government defence allocation to 'modernisation and maintenance of equipment', rather than to use it as a lever to extract the military from business by raising salaries even more.

In addition to weapons a considerable portion of the budget is to be allocated to recruitment and training. Here we have an institution that openly declares its inability to adequately compensate existing personnel, but still intends to increase its numbers. Until the effects of the crisis were felt in 1998, military budgets increased throughout the 1990s. But the number of active personnel also rose, from 270,000 active regulars in 1990 to 298,000 by the late 1990s (excluding paramilitary forces of around 177,000). These personnel increases made it impossible for budget increases to deliver enhanced welfare benefits.

Off-budget

Indonesian defence spending is much higher than that declared in the official budget. Revrisond Baswir, a prominent Indonesian economist, has suggested that the declared defence budget accounts for only 25 percent of true defence spending. The rest comes from military cooperatives, foundations and stock purchases, and from corrupt practices at the institutional, group and individual level. Profits from these 'ventures' are divided three ways. Some is siphoned off to well-placed individuals, some is reinvested in the companies, and some becomes extra-budgetary income for the military. The true amounts can only be guessed at.

The government has stated it must continue to accept these commercial activities as an inevitable necessity until it can afford to increase the defence budget. This means it is also implicitly saying it has no alternative but - to use an increasingly popular Indonesian euphemism - to expect a certain 'leakage' of any profits from these unsupervised businesses to individuals and groups within the military.

Gus Dur has recognised the wisdom of not trying to put the cart before the horse. Only when the problem of the official defence budget has been addressed can the government claim the moral authority to insist that the military relinquish its hold on the economy. Indeed in a country where the military remains the most efficiently functioning institution, this may be a wise move. Meanwhile a network of military influence continues, together with an institutional mindset that accepts off-budget financing as normal - a potentially unsettling combination.

Gus Dur wants to turn Indonesia into a fully functioning democracy, but removing the military from business is not top of the list on his hierarchy of priorities. In the months since taking office he has certainly declared his intention to stamp out endemic corruption, improve corporate governance (a pledge to the IMF), and oversee the retreat of the military from civil society.

But his real priorities have become quite apparent. They have been, firstly, to adopt an individual rather than an institutional focus by filling key positions with reformists both in the military and in government.

His second priority seems to have been to meet the requirements of the January 2000 IMF Letter of Intent (LoI) in order to secure the economic bailout on offer. Failure to deliver all reforms stipulated in the LoI has already led to a delay in the next US$ 400 million of the three-year US$5 billion support package. Following this action by the IMF, Gus Dur's somewhat confusing policy orations quickly sharpened to focus on these reforms, 90 percent of which the government says have now been met. Article 31 of the LoI addresses off-budget funds. The government intends to increase transparency and has instructed the State Audit Board (BPKP) that future audits of government agencies' financial operations should 'take full account of all extra-budgetary sources of support'. This 'best practice' begins in 2000 and 'will include the military'. Unfortunately this is the limited extent of the government's attempts to extract the military from business - military businesses will now be accountable to an independent audit.

Gus Dur is no doubt treading carefully. Powerful interests are at stake, perhaps none more so than the very existence of his government. As Indonesia continues to languish in the aftermath of the economic crisis there will be no significant increase in the defence budget for the foreseeable future. The military will become more rather than less reliant on a diminishing number of extra-budgetary sources - which themselves have suffered in the economic crisis. In the past, the 'clumsy entrepreneurs' had access to such perks and privileges that many businesses were kept afloat which were not commercially viable. Those military businesses and business connections that have survived can no longer rely on the levels of patronage they previously received.

If the government pushes this, the only truly functioning government institution, offside, in other words, if it pushes reform quicker than the military can accept it, the results may bring even more chaos. Perhaps Gus Dur is wise to concentrate on consolidating his power rather on reform. But so long as this is the case, it is 'business as usual' for the military.

Ms Lesley McCulloch (lesley@bicc.de) is writing a study of Indonesian military spending for the Bonn International Center for Conversion (BICC) in Germany. BICC (www.bicc.de) is dedicated to promoting processes that shift resources away from the defence sector towards alternative civilian uses.