Subject: Tempo: TNI Businesses: Constricted State Funds Stalls Takeover

Tempo Magazine No. 13/VIII Nov 26-Dec 03, 2007

National

TNI Businesses

The Crawling Offensive

Due to constricted state funds, the takeover of military businesses has proceeded haltingly.

IN July last year, at the end of an interview with Tempo, Indonesian Minister of Defense Juwono Sudarsono said that he was preparing a special present for commemorating the birth of the Republic. This gift was the completion of a draft of a presidential regulation regarding the takeover of commercial business units in the Indonesian Military (TNI). "It has already been approved by the drafting team and is waiting for the final word from the Palace," he said, elated.

It was fitting for Juwono to be delighted. The approval of this presidential regulation would become the operational basis for forming a special team assigned to divest the TNI from the businesses which it had built up. This was a historical step, keeping in mind that shady dealings between military officers and financiers has been a well-established practice for decades. "Just wait," said Juwono at that time.

However, August 2006 passed uneventfully. The public waited and waited, until finally two weeks ago Lt. Gen. Sjafrie Sjamsoeddin, Secretary-General of the Department of Defense, came out with the latest news. He emphasized that the draft to form a national team for the divestment of TNI businesses has been submitted to the President. "It just needs to be approved," he said to reporters. The rest is easy to guess: over the past year there have been no significant developments.

Not only has there been an extended delay, but the names of those likely to become candidates for the position of Chairperson of the National Team for the Transformation of TNI Businesses continue to change. At first, the name of Sudirman Said, the former Deputy of Communication and Institutional Relations of the Aceh-Nias Rehabilitation & Reconstruction Body (BRR), was often mentioned.

Two weeks ago, Erry Riyana Hardjapamekas, Deputy Chairman of the Corruption Eradication Commission (KPK)-who is to step down from his position in the KPK in December-rose to prominence. The reason is, Sudirman already had an assignment elsewhere after resigning from the BRR. He is currently an expert staff member for Arie Sumarno, CEO of Pertamina. "This is in accordance with the decision made in a meeting at the office of the Coordinating Minister for Political, Legal, & Security Affairs before the last Lebaran holiday," said Sjafrie.

* * *

This commotion all began with Law No. 34/2004 on the TNI. Article 76 of the regulation emphasizes that the military must part with all of its business units before 2009. Responding to the regulation, the government formed a team in November 2005 to supervise the transformation of TNI businesses-a working unit which deals with several government departments. Muhammad Said Didu, Secretary of the State Minister for State-Owned Enterprises, became the team's coordinator, accompanied by Sjafrie Sjamsoeddin.

The duty of this team is to gather data regarding all military-owned businesses, whether they be cooperatives, foundations, or limited liability companies. Six months after its formation, Said Didu made a report to the Defense Commission of the House of Representatives (DPR), saying that they had found 1,520 business units, 1,071 cooperatives, and 25 foundations with a total value of assets of about Rp1 trillion. However, of this total, those truly worthy of being divested number no more than 12 business units, whose assets are worth Rp50 billion or more, respectively. The cooperatives and foundations are not going to be affected, as they are carrying out their function as stated by law.

The duties of Said Didu's team end there. Audits, sales and liquidation, and the formation of a holding company which will become an umbrella for all of TNI's businesses, is the work of the implementing team, which is formed based on presidential regulations. It is this latter team which has still not been formed since the middle of last year.

"It is not late. Everything is running according to plan," said presidential spokesman Andi Mallarangeng, at the end of last week. He confirmed that the President still wants to clear up the matter of businesses in the military before the five-year period set by law expires. "However, of course not everything can be completed overnight. There are stages to go through."

Another Tempo source confirmed that the draft copy of the presidential regulation was indeed submitted to the Palace in July last year. "However, it was returned by the Cabinet Secretary," said the source. The reason was, the draft was made without consulting with Coordinating Minister for Political, Legal & Security Affairs, Widodo A.S.

For that reason, deliberations on the final draft of this presidential regulation took place during the last coordination meeting held at the office of the Coordinating Minister for Political, Legal & Security Affairs, at the end of last September. It is mentioned in the draft that the National Team for the Transformation of TNI Businesses will begin working at the end of 2008 at the latest and report on its work in October 2009. This team will be directly responsible to the President. The names of the team members were finally approved as well. "This draft must be reported to the Palace immediately," said Widodo.

Human Rights Watch, an international non-governmental organization based in New York, USA, regretted the delays in the transformation of TNI businesses. Last year this body released a complete report regarding the impact of military-run businesses on the professionalism of the TNI.

The setbacks in the divestment of TNI business has led many to question the resolve of the Indonesian government to reform the military. "The Department of Defense has repeatedly broken the commitment and schedule which they set themselves," said Human Rights Watch researcher Lisa Misol, in her e-mail to Tempo, last week. Misol was one of the main writers in the Human Rights Watch report on businesses in the Indonesian military.

She pointed out the increased number of TNI businesses sold without any significant auditing being done. "This is dangerous, because there is no accountability," she added. In addition to PT Mandala Airlines and Bank Artha Graha which were sold last year, the Kartika Eka Paksi Foundation-which was formed by the army-the sale of PT ITCI Kartika Utama is being readied, a company which operates in the timber sector.

Although all sales have been approved by the Defense Department, the question is why these major sales must be done now, before the presidential regulation on TNI business transformation is enacted. The answer is easy. At this time, some of the funds from the sale of these companies come back to the military foundations to be used for perpetual funds.

Major-General (ret) Joko Subroto, former CEO of PT Tri Usaha Bhakti, the holding company under the Kartika Eka Paksi Foundation, verified this matter. He denied that sales were intentionally being pushed through to beat out the enactment of the presidential regulation. Moreover, "The funds from those sales are not enough to guarantee the fulfillment of the needs of the soldiers," said Joko, who is now a member of the national legislature from the Golkar faction. He pointed out that there is now no clear source of funds for education and health care costs for the families of soldiers. "In the past, we could give scholarships for the children of soldiers who did well in school. Now that is no longer true," he said.

* * *

The opinion that all of the TNI businesses are doing well is untrue. Seven years ago, the office of the independent auditor Ernst & Young looked into 43 companies under the Kartika Eka Paksi Foundation. They found that only two companies were making a profit. The losses to all of those business units in 2000 alone reached Rp8.21 billion. A high-ranking official at the Special Forces Command (Kopassus) even told how the monthly income for the Red Beret Corps (Kobame) from the Cijantung Mall was only enough to purchase shoe polish, toothpaste, and metal polish for the soldiers. The reason for these losses is unclear: it could be because the TNI is indeed not adept at business, or many of the profits are taken by senior officers before the money reaches company accounts.

This situation is exacerbated by the fact that just 30 percent of the TNI's minimum needs are met by the State Budget. This year, the budget approved for the TNI is only Rp33.67 trillion of their request for Rp100.5 trillion. "If all of the military businesses are taken, how will we make up the difference?" said Joko Subroto.

Presidential spokesman Andi Mallarangeng confirmed that President Yudhoyono will think about this matter before signing the regulation on cleaning up TNI businesses. The executive branch, said Andi, will continue to fight to increase the portion of the State Budget allocated to the TNI. "However, this of course will be adjusted with our economic capacity," he added quickly.

Wahyu Dhyatmika, Raden Rachmadi


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