[Kabar-indonesia] 10 of 11: HRW: Indonesian Military's Economic Activities - Recommendations

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IV. Recommendations

Indonesia has paid a high price for allowing military
businesses, with their far-reaching corrosive effects,
to develop. It can ill afford to allow off-budget
military financing to continue. A starting point for
real and lasting reform must be acknowledgement of the
seriousness of the problem. Policymakers have to face
up to the many costs of military self-financing. As
argued in this report, independent fundraising
activities create conflicts of interest that threaten
human rights. Self-financing also fundamentally
challenges the authority of the government over the
military and, in that way, weakens governance and
reinforces military impunity.

Reform of military finance also should recognize the
true scope of the military's economic entanglements
and include plans to address the entire, sometimes
diffuse network of military business activity.
Moreover, the government needs to formulate a
comprehensive strategy to withdraw military
involvement in business, which will require it to
grapple with budgetary and financial management
issues. Responsibility for change lies with the
government but it cannot hope to succeed if it acts
alone. It will also be important to engage the
military, the public, and international partners in
the effort to finally bring military finance under
full and accountable civilian control.

Ensure Accountability

The absence of effective civilian control in Indonesia
has long permitted members of the armed forces to
avoid accountability for human rights violations. This
report has argued that the government must improve the
financial accountability of the military if it is to
check the TNI's power and combat impunity for human
rights abuses. The Indonesian government must move to
ensure that the military becomes a focus of efforts to
improve public financial management practices. Areas
needing particular attention include the development
and implementation of budgets, including the further
strengthening of auditing and parliamentary oversight
functions.

Accountability also requires action outside the fiscal
realm. A major weakness of past efforts to address
military business has been a failure to enforce legal
and regulatory controls barring involvement in
business activity, to investigate allegations of abuse
linked to military self-financing, and to bring those
responsible to account before the law. Additional
measures to increase the accountability of the
military to civilian rule would support reform of
military financing. Several needed measures to advance
human rights accountability, if adopted, would also
have a positive effect on the government's ability to
exercise control over military finances. Notably,
efforts to place the armed forces under the Ministry
of Defense, a key element of the military reform
agenda, would increase the prospect of holding
soldiers accountable for economic and other crimes.
The same is true of steps to improve the justice
system in Indonesia. If civilian courts were granted
authority to try military personnel for violations of
the civil criminal code, this would help combat the
persistent impunity of higher-ranking officers.
Appropriate justice mechanisms are also needed to
address abuses connected to military economic
activity, including violence, extortion, and property
seizures.

Forceful anticorruption efforts must also be part of
the solution. The government should work to root out
corruption within the military as part of a wider
anticorruption agenda. In particular, the government
should require military personnel at the more senior
ranks to declare their wealth and any business
holdings. Only a handful of military officers are
required to submit wealth declarations to the
Corruption Eradication Commission or KPK. Moreover,
the KPK must be granted authority to audit these
reports, and it should not hesitate to investigate
prominent cases of military corruption. Military
personnel found to have business interests in
violation of the 2004 TNI law or to have falsely
declared their assets should be subject to serious
penalties.

Ban All Military Economic Activity and Enforce the Ban

The military generates considerable independent
revenue from irregular and illegal activity that, as
shown in this report, facilitates many abuses,
undermines accountability, and impedes good
governance. Top military leaders have declared that
formally-established businesses are barely making
money or even are net losers. In many cases, they will
be glad to get rid of them. As military-owned
businesses shrink in value, the share of off-budget
revenue the military derives from other economic
activity—alliances with business, criminal businesses,
and corruption—is believed to be on the upswing.

Against this backdrop, the government's exclusive
focus to date on restructuring only selected
formally-established military businesses seriously
weakens the military finance reform effort. The
Indonesian government should take steps to clearly and
effectively outlaw military self-financing in all its
guises. It can do so by issuing regulations or a
presidential decree to accompany the TNI law (Law
34/2004) that define "military business" broadly to
include the full range of military economic activity
and clearly declare these to be illegal. The
government also needs to establish—and enforce—strict
penalties for violations. As a short-term measure, the
TNI leadership can issue unequivocal internal orders
barring military business activity and begin cracking
down. This would also usefully show that the military
intends to cooperate fully with civil authorities to
implement the ban on military business activity.

Divest the Military of Existing Military Business
Interests

The TNI law's requirement that the military give up
its businesses could mark a major step forward in
eliminating military conflicts of interest that
endanger civilians. Much depends, however, on whether,
when, and how it is implemented. The inter-ministerial
TSTB working group is finalizing its plan of how to
transfer certain military-owned or -controlled
businesses to the government and what to do with them.
As described above, there is a danger that the TSTB's
sluggish planning process and the many compromises it
has already made will result in a fait accompli that
will not advance the cause of reform.

Before it commits to these flawed plans, the
government should consult thoroughly with relevant
experts. Such experts include not only committed
reformers in the military but also independent
experts, members of civil society, and
parliamentarians. The Ministry of Defense has
indicated that the draft regulations or decree will be
open to public comment.588 It also said that it
intends to seek input from independent experts,
although it was unclear whether it would consult
directly with critics of military business.589

There also is a role for Indonesia's international
partners to provide input. They can share experiences
from other countries that have reduced military
economic activity and successfully fought military
corruption. They also are in a position to offer
relevant technical assistance and associated
financing. For example, Indonesia's development
partners could provide financial or business
expertise, including experience with the transfer or
privatization of military assets in other countries.

The divestment of the military will be a long-term
process that will take several years, particularly as
it has gotten off to such a late start. To help inform
the deliberations of Indonesian decision-makers, we
have highlighted below some of the challenges to be
considered. Different issues can be expected to arise
at different stages of the process.

Prepare for Military Divestment

The first stage, which had not been completed at this
writing, was the preparatory period during which the
government was meant to inventory existing military
businesses and develop a plan to assert control over
them. The initial TNI inventory submitted in 2005
identified 219 military entities (foundations,
cooperatives, and individual companies owned by
foundations) engaged in business. By March 2006, the
TNI had handed over information on 1,520 individual
business units. Government plans to undertake
considerable further verification and review before
acting to assert government control over the
inventoried companies would only lead to additional
delays.

The interim period before plans to transfer military
businesses have been approved creates a policy vacuum
in which the control of military businesses remains in
military hands and, as has already been seen, some
holdings may be sold without adequate review or
accountability. To counter this problem, the
authorities should immediately place all known
military businesses under scrutiny, require advance
approval for sales, and initiate an independent
auditing process. They also should arrange for full
forensic audits in cases where wrongdoing, such as
corruption and the misuse of state assets, is
suspected, as government officials have said they
intend to do.590 As a further deterrent, the
government should make clear from the outset that
unscrupulous behavior—such as raiding valuable assets
from military businesses or transferring ownership
interests without government oversight and
approval—will not be tolerated and will be subject to
serious penalty. The rules should apply equally to
everyone involved in business restructuring, whether
they are military or civilian, officials or private
citizens.

In planning for divestment of military businesses, the
government and those advising it should be guided by
Indonesian laws and best practices governing the
handling of state assets and the divestiture of
state-owned enterprises. Alongside efforts to address
known military businesses, they should work to
identify additional military businesses. The reform
effort should address the full scope of military
businesses covered in the TNI law—those that are owned
or controlled to some degree by the military. A full
inventory would catalog all businesses in which the
military has an economic stake, irrespective of their
legal status and ownership structure (i.e., whether
through foundations, cooperatives, associated holding
companies, hidden partnerships, or another
arrangement).591

Remove Military Control over Existing Military
Businesses

The control of military businesses has been marred by
secrecy, which has created opportunities for
mismanagement and corruption and undermined public
trust. A central challenge for the government, as it
moves to fulfill the requirement that it assume
control over these businesses, will be to break this
pattern. It must develop and implement a transparent,
accountable process by which to transfer control over
the military's business holdings. In September 2005,
civil society groups encouraged the government to name
an impartial body to monitor the transfer of military
business.592 They proposed that this body temporarily
oversee the management of these companies while they
were thoroughly audited in anticipation of being
dismantled or sold off in a transparent manner, or
perhaps retained and held in a trust. Much time has
been lost, but such a body is still needed. It should
be given the authority to review and approve bids and
should act to ensure that all proceeds are fully
accounted for in the state treasury.

The government also needs to address the question of
how it will handle businesses in which the military
has only a partial share or that are not legally
registered as companies. The government should explore
ways to identify and sell off or otherwise dispose of
such military holdings. It also must ensure that
companies that have benefited from an association with
the military, whether formalized or not, give up any
facilities to which they have had privileged access
(e.g. use of state assets) and compensate the
government for their prior use.

Some groups have endorsed the TNI's proposal that it
retain its cooperatives and use them to sell basic
goods at a discount to military personnel. That has
long been the ostensible purpose of military
cooperatives but, as this report has shown, military
cooperatives extended their reach and became involved
in business activity of different types—from
investments in forestry and palm oil interests to the
brokering of sales of illegally mined coal—that have
been associated with human rights abuses and other
problems. On this basis, Human Rights Watch remains
concerned that an exception to allow cooperatives to
take part in small business enterprises would provide
an opening for continued military engagement in the
economy beyond simple provisioning of soldiers and
their families. The same is true of suggestions that
military foundations be permitted to engage in limited
business ventures.

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