June 2006 Volume 18, No. 5(C) Too High a Price The Human Rights Cost of the Indonesian Military’s Economic Activities Summary......................................................................................................................................... 1 I. Military Finance in Indonesia .................................................................................................. 9 Military Self-Finance and Human Rights .............................................................................. 9 A Brief History of Military Economic Activity..................................................................10 Military Business Activity and the Law................................................................................16 II. An Anatomy of Military Economic Activity .....................................................................26 Military-Owned Businesses ...................................................................................................26 Military Collaboration with Private Businesses..................................................................44 Military Involvement in Criminal Activity ..........................................................................63 Military Corruption.................................................................................................................71 III. Obstacles to Reform............................................................................................................80 Unaccountable Military Finances .........................................................................................80 Three Myths about Indonesian Military Self-Finance.....................................................100 Flawed 2004 Reform Effort................................................................................................110 IV. Recommendations..............................................................................................................122 Ensure Accountability..........................................................................................................122 Ban All Military Economic Activity and Enforce the Ban.............................................123 Divest the Military of Existing Military Business Interests ............................................124 Commit to Full Transparency.............................................................................................127 Address Financing Concerns ..............................................................................................128 Acknowledgments.....................................................................................................................135 Index of Tables Table 1: TNI Inventory of Military Businesses ......................................................................27 Table 2: Businesses Owned by Military Cooperatives...........................................................37 Table 3: Official Military Budgets and Expenditures, 2002-2005........................................85 Table 4: Trends in Indonesia’s Military Spending, 1995-2005 .............................................86 Acronyms and Abbreviations English CoW Contract of Work EIA Environmental Investigation Agency GDP Gross Domestic Product ICW Indonesia Corruption Watch IMF International Monetary Fund ITCI International Timber Corporation Indonesia MPs Members of Parliament NGO Nongovernmental Organization OECD Organization for Economic Cooperation and Development PER Public Expenditure Review ROSC Report on Standards and Observance of Code SIPRI Stockholm International Peace Research Institute Indonesian ABK Agrosilva Beta Kartika Indonesian company, BOT subsidiary ABRI Angkatan Bersenjata Republik Indonesian armed forces before 1999, Indonesia a combined military-police structure BOT Beta Omega Technologies Malaysian company BPK Badan Pemeriksa Keuangan Supreme Audit Agency Brimob Brigade Mobil Mobile Brigade, paramilitary police commandos BTPB Badan Transformasi dan TNI Business Transformation and Pengelolaan Bisnis TNI Management Body Bulog Badan Urusan Logistik Logistics agency DPR Dewan Perwakilan Rakyat House of Representatives Inkopad Induk Koperasi Angkatan Darat Army Parent Cooperative Board Kodam Komando Daerah Militer Regional Military Command Kodim Komando Distrik Militer District Military Command Kopassus Komando Pasukan Khusus Army Special Forces Command Korem Komando Resort Militer Sub-Regional Military Command Kostrad Komando Cadangan Strategis Army Strategic Reserve Command Angkatan Darat KPK Komisi Pemberantasan Korupsi Corruption Eradication Commission Linud Lintas Udara Airborne Unit MPR Majelis Permusyawaratan Rakyat People’s Consultative Assembly Primkopad Primer Koperasi Angkatan Darat Army Primary Cooperative PT Perseroan Terbatas Designation for a privately-held corporation Puskopad Pusat Koperasi Angkatan Darat Army Central Cooperative TNI Tentara Nasional Indonesia Indonesian armed forces (since 1999) TSTB Tim Supervisi Transformasi Supervisory Team for the Bisnis TNI Transformation of TNI Businesses Walhi Wahana Lingkungan Hidup Forum on the Environment in Indonesia Indonesia Yakobame Yayasan Kesejahteraan Korps Kopassus foundation Baret Merah Yamabri Yayasan Markas Besar ABRI TNI headquarters foundation Yashbhum Yayasan Bhumyamca Navy foundation Yasua Yayasan Adi Upaya Air Force foundation YDPK Yayasan Dharma Putra Kostrad Former name of YKSDP Kostrad YKBPS Yayasan Kejuangan Panglima Ministry of Defense foundation Besar Sudirman YKEP Yayasan Kartika Eka Paksi Army foundation YKPP Yayasan Kesejahteraan Ministry of Defense foundation Perumahan Prajurit YKSDP Yayasan Kesejahteraan Sosial Kostrad foundation Kostrad Dharma Putra YSBP Yayasan Satya Bhakti Pertiwi Ministry of Defense foundation Summary The [business] involvement of army officers is a fundamental trigger for conflict, abuses of power, crime, and human rights violations. —An Indonesian human rights activist, email message to Human Rights Watch, September 26, 2005 Up to now, benefits from military business are still enjoyed by the upper echelon of the military elite. —Minister of Defense Juwono Sudarsono, quoted in Tempo Interactive, February 23, 2005 Business is autonomy… It is not good for the command hierarchy. —Lt. Gen. Sjafrie Sjamsoeddin, secretary-general of the Ministry of Defense and former spokesman for the Indonesian military, in an interview with Human Rights Watch, April 12, 2006. Civilian governments can’t control the military if they don’t control the budget. It’s as simple as that. —A foreign military reform expert, speaking to Human Rights Watch, September 7, 2004 It matters how militaries get their money. Civilian control over a state’s armed forces is fundamental for the development of a professional military that respects human rights. The more a military’s revenue and spending are outside civilian government control, and the more funds it raises itself, the harder it is for civil authorities to engage in meaningful oversight of the military. The result is a government that lacks the power to demand accountability from its armed forces and to implement needed reforms. Particularly when a military has a record of exercising political power and of committing human rights abuses with impunity, financial autonomy can lead to abuse. Military self-financing is an established practice in Indonesia. From the first days of independence, Indonesia’s armed forces have found their own means. Successive governments have endorsed or chosen to ignore the military’s economic activities. In recent years, Indonesian officials have contended that the military budget is sufficient only to meet half the military’s minimum requirements. A thorough review would be needed to determine appropriate levels of government financing but it is true that 1 HUMAN RIGHTS WATCH VOL. 18, NO. 5(C) Indonesia’s official military budget is low compared to many of its neighbors in Southeast Asia. The Indonesian military deals with its budget constraints using a combination of approaches. In part it acts by deferring or reducing its spending in some areas, such as equipment purchases. At the same time, it seeks funds for that purpose from other government accounts, often acting outside approved budgeting processes and with little transparency. In addition to juggling government funds in this way, Indonesia’s military also independently raises money through a complex web of commercial ventures whose profits bypass the treasury. It is these independent revenue sources that are the focus of this report. The Indonesian military draws on off-budget (extra-budgetary and unaccountable) funds derived from military-owned enterprises, informal alliances with private entrepreneurs to whom the military often provides services, mafia-like criminal activity, and corruption. Much of the revenue from such ventures goes directly to commanders, specific units, or individual soldiers. Ostensibly the funds are to support troop welfare, but often they are destined for personal enrichment instead. Some of the funds are used for day-to-day operating expenses of the armed forces. Irrespective of the purpose to which they are put, off-budget funds are not monitored or subject to financial controls. Such are the budgetary pressures and weak controls in Indonesia that it is common for government agencies to raise funds independently to help meet expenditures, which in turn helps fuel widespread corruption. Yet the problem of self-financing and its consequences are most serious with