Indonesia: Military Business Reforms 'Totally Inadequate'

The Indonesian government's new regulations on military-owned or controlled businesses fail to dismantle the armed forces' damaging and dangerous business empire, Human Rights Watch said in a report released today. These businesses have long been implicated in human rights abuses, crime and corruption, and also hinder military accountability and undermine civilian rule.

The 20-page report, "Unkept Promise: Failure to End Military Business Activity in Indonesia," provides a detailed critique of a presidential decree and Defense Ministry regulations addressing military involvement in businesses that were issued in October 2009. It finds that these measures do not satisfy the requirement in a 2004 law that the government fully divest the armed forces of its business interests as a means to promote military professionalism and civilian control.

"The Indonesian government's planned reforms are totally inadequate," said Lisa Misol, senior business and human rights researcher at Human Rights Watch and author of the report. "The law says the government needs to get the military out of these businesses, but instead they will be allowed to remain in military hands. Promising to monitor them more closely simply isn't good enough."

Law 34/2004 imposed a five-year deadline for the Indonesian government to "take over all business activities that are owned and operated by the military, both directly and indirectly."

As documented by Human Rights Watch in a 2006 report, "Too High a Price: The Human Rights Cost of the Indonesian Military's Economic Activities," the military's businesses ventures have been a platform for extortion, violence, property seizures, and other crimes against civilians. Profit-making by the military creates a conflict of interest and also gives the armed forces an independent source of income outside the approved budget process.

While sell-offs and business failures have reduced the scale of the military's business empire, the Indonesian armed forces, Tentara Nasional Indonesia (TNI) still retain significant holdings. Official data from 2007 - the most recent available - show that the military had 23 foundations and over 1,000 cooperatives, including ownership of 55 companies, as well as leases on thousands of government properties and buildings. The foundations and cooperatives, through which the military holds ownership in the 55 companies, had gross assets of Rp3.2 trillion (US$350 million) and earned a profit of Rp268 billion ($28.5 million) that year.

As detailed in "Unkept Promise," the Indonesian government does not intend to end military ownership of the armed forces' businesses. Instead, a decree signed by President Susilo Bambang Yudhoyono in October and accompanying regulations created an inter-ministerial oversight team, formed in November, to review military cooperatives and foundations for compliance with long-ignored laws that that limit their business activities somewhat.

This oversight team has no clear authority over the Indonesia armed forces or its businesses, lacks independence, is not required to report publicly on its progress, and faces no deadline to complete its work, Human Rights Watch said. In addition, the government's reform plans do not ensure accountability for military misbehavior in connection with business activity and they ignore many other forms of money-making by the military, including individually owned businesses, protection payments from private companies, and illegal businesses.

"Indonesia's parliament gave the government five years to take over all military businesses," Misol said. "It's outrageous that despite the parliamentary directive, the government has no plan to take over ownership or management of a single military business."

The 2004 law mandating the government to shut down all military businesses did not specify how the reform should be implemented, but an official advisory group in 2008 proposed that they be liquidated.

Human Rights Watch called on Yudhoyono and his new defense minister, Purnomo Yusgiantoro, to revise the plans so that, at a minimum, they cover a wider set of businesses, incorporate adequate civilian oversight, and provide for needed transparency and accountability.

"The goal of military business reform should be increasing civilian control and military accountability," said Misol. "That won't happen unless the government revises its plans."