TNI REFORM: MEETING THE TARGET ON TRANSFER OF

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 000084

SIPDIS

SIPDIS

DEPT FOR EAP, EAP/MTS, EAP/MLS, EAP/RSP
SECDEF FOR USP/ISA/AP P.IPSEN
NSC FOR E.PHU

E.O. 12958: DECL: 01/15/2018
TAGS: PREL PGOV MARR ECON ID
SUBJECT: TNI REFORM: MEETING THE TARGET ON TRANSFER OF
BUSINESSES

Classified By: Acting Pol/C Stanley Harsha, reasons 1.4 (b,d).


1. (SBU) SUMMARY: The Indonesian government has announced
plans to create a "national team" to transfer ownership of
military businesses to the government by 2009. The move,
which fulfills a 2004 legislative mandate and has been long
awaited, is somewhat anticlimactic in that only six to twelve
of the 1,500 commercial units with ties to the TNI will be
affected. All others are either too small or constitute
cooperatives and foundations, which are exempt. While this
is a welcome step toward a professional military compatible
with democracy, rectifying the shortfall in state budgetary
support remains central to the success of reform. END
SUMMARY.


2. (U) TEAM TO COMPLETE TRANSFER BY 2009: Indonesian
Minister of Defense, Juwono Sudarsono, announced on January 7
that a National Team for the Transformation of TNI Businesses
would be formed to finalize the transfer of TNI businesses
out of the TNI. The regulation formally creating the team
was reportedly on President Yudhoyono's desk awaiting
signature. According to Sudarsono, the decision was approved
in late 2007 by the Coordinating Minister for Political,
Legal and Security Affairs. The composition of the team is
not yet known, but Defense Department Secretary General LTG
Sjafrie Sjamsoeddin said the Transformation Team would be
headed by Erry Riyana Hardjapamekas, the credible,
reform-minded former deputy director of the Anti-Corruption
Commission (KPK). The team will be tasked with auditing and
either selling or liquidating TNI businesses by 2009.


3. (SBU) 2004 LAW MANDATES REFORM: Commercial TNI
activities, which in the Suharto era included a wide range of
activities, including productive state enterprises, are a
legacy of an authoritarian past in which lines of private and
public ownership were blurred and the military was
perennially underfunded. Many of these have since ceased,
although informal business activities, such as leasing of
land and facilities and provision of security services for
multinational companies, continue. (These legitimate
businesses are distinct from illegal activities, such as
resource extraction, toll collection, protection, smuggling,
gambling and so forth, in which military elements have
engaged in the past and may to some extent still do so
today.) The country has since rejected these practices as
incompatible with a professional military. Law No. 34/2004,
passed in September 2004, banned military commercial
activities and mandated that the government assume ownership
of "all business activities owned and operated by the
military, both directly and indirectly," within five years.


4. (SBU) ONLY A HANDFUL UP FOR SALE: Critical observers
consider the step to be long overdue. A previous team, the
TNI Business Supervision and Transformation Team, was created
in November 2005 to compile a list of formal TNI businesses
and by mid-2006 had reported the results to the DPR. Since
that time the list has been with President Yudhoyono. They
also see the step as rather anti-climactic. In June 2007,
the government announced that only six to twelve businesses
out of 1,520 previously identified met the criteria of a
business and therefore should be transferred. TNI businesses
were defined as those with assets of over 20 billion rupiah
($2.1 million). This left 324 smaller enterprises, 1,071
non-profit cooperatives and 25 foundations, whose function
was largely to serve the daily needs of soldiers and their
families.


5. (C) WHY NOT MORE? There are several reasons why the
number slated for transfer is not higher. Today, none of the
300-plus formal enterprises is formally under the ownership
of the Department of Defense, the TNI or a military command.
Rather, most of them belong to foundations, a sector of the
economy which lacks adequate legislation and therefore
remains poorly regulated. Smaller enterprises, on the other
hand, are operated by various units to supplement the
salaries of their members. Embassy contacts who have studied
the issue say that few of the TNI-related businesses in
either of these two groups are financially healthy. The

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issue is therefore not that huge profits are being made on
the side, but rather that soldiers are distracted from their
professional duties.


6. (C) WHEN REAL REFORM WILL COME: Although it comes later
than expected, the formation of this National Team keeps the
Yudhoyono administration on course to complete the mandatory
transfer of TNI enterprises by the 2009 deadline. At the
same time, the high threshold of (20 billion rupiah) will
fulfill the letter of the law while allowing much commercial
activity to continue. Real progress, fulfilling the spirit
of the reform legislation, will come only with adequate
budgetary funding for salaries and better regulation of
related areas, notably foundations.
HUME