The Involvement of Defence Personnel and Assets in Economic Activities

In transition democracies, the military remains influential in the country’s political and economic system. The dark past of political and security situations in some transition democracies successfully established the military as the core actor in these countries. The military created the social and political basis for their supremacy over civilian oversight through their domination of the effective legal control of violence. Thus, it is not surprising if the military still has strong power within the society. Ironically, sometimes civilian politicians also took advantage from this situation by creating mutual relationships with the military through the politics of violence to maintain their power and create uncertainty in the democratization process.

One of the most significant impacts of military intervention in the political and economic system is the transformation of the military as an economic actor. In this sense, the military uses its resources (personnel and assets) to get involved in economic activities. From this short explanation, it can be understood that these economic activities cover both personal and institutional aspects of the military. Later, these economic activities violate the essential role of the military within the state system and also threaten human rights.

This chapter is specifically intended to analyze the involvement of defence (military) personnel and assets in economic activities through the conceptual discussion of the military as an economic actor and the perverse impact of military economic activity using the case study of the Indonesian Military’s (TNI: Tentara Nasional Indonesia) business activities.

The Transformation of the Military as an Economic Actor

Defence is the most expensive and complex feature of the state. It is widely recognized that to develop an ideal defence capability the state should spend a huge amount of funds from its national budget. On the other hand, the state should also prioritize spending on other areas such as education, public welfare and health, which are increasingly costly. This dilemma does not automatically stipulate the transformation of the military into economic actors in order to create sustainable financing for the defence budget. In short, the military is not trained to be profit-oriented but to be a professional security actor even with the minimum budget. However, the trend of military economic activity has not decreased yet. In fact, in countries such as Bangladesh, the Philippines, Pakistan, China and Russia, the military is still actively involved in profit-oriented activities, whether legal or illegal. Such a trend shows that there is still growing discourse on the logic behind the transformation of the military as an economic actor.

According to Brömmelhörster and Paes, there are several common reasons for the involvement of the military in economic activity. First, the military has access to material and human resources that are less accessible to civilians and that enable them to carry out other tasks. Secondly, the military often turns to private enterprise to make up shortfalls in defence budgets. Thirdly, weak states and poor civilian control of the military create an added incentive for military elites to undertake commercial enterprises. Fourth, the roots of some military businesses can be traced back to measures taken in order for insurgent forces to be self-sufficient. Finally, even when security threats have subsided, downsizing of the armed forces is difficult to achieve and militaries are therefore used in secondary roles. Based on these explanations, we could generalize more specific situations for military involvement in economic activities.

There are two types of situations that stimulate militaries to transform into economic actors; namely, the politico-economy nexus and the lack of state budget fulfilment. Politics and economy are like two sides of a coin. Hence, it is widely accepted that if military actors have the political power then they will also play a significant role within the economic sphere in the state and vice versa. In this case, the economic activity of the military substantially contributes to the political power of their civilian ally or their military leaders. Such a relationship between the military and the politico-economy power frequently happens under oppressive governments; for example, in Indonesia during General Suharto’s regime.

However, military economic activities do not always exclusively stand for their political power. In non-authoritarian countries or transition democracies, after the removal of their political power, the military is being pushed to be professional. Unfortunately, the pressure to professionalize the military is not backed by proper financial support from the government. As a consequence, the military obtains the justification to perform economic activities as their budget is not fully supported by the government. Such off-budget funds are claimed to finance the deficit of military budgets, even though in reality such economic activities tend to accumulate profit for high-ranking military officers. Ball and Hendrickson argue that there are several factors that may encourage off-budget military spending: a strong executive decision-making culture; the role played by the military in the social and economic sectors; security problems; institutional fragility; and military involvement in protecting or selling natural resources.

Both types of military involvement in economic activities are not independent. In fact, such situations are supportive in their nature, as can be seen in the case of Indonesian military business.

The Structure of Indonesian Military Business Activities

Historically, the TNI’s business activity was established under General Suharto’s oppressive regime from 1967–1998. During Suharto’s leadership, the TNI was given the privilege of managing their budget and operations without any critical oversight from the parliament or civil society organizations. Through ABRI’s (former name of the TNI) dwifungsi doctrine, the TNI was granted extensive social and political roles. According to the doctrine, the Indonesian Military were both defenders of the nation and a social-political force in national development. As a consequence, the doctrine justified TNI participation in the development agenda, especially regarding economic development in the country.

Following the expansive role of the TNI, in the 1970s the TNI built their business empire, which was set up via the establishment of foundations and cooperatives. Based on the Human Rights Watch Report on the Indonesian Military’s business activity in 2006, there are certain types of military personnel and assets that have been involved in economic activity since the Suharto era:

a. Military-owned Business

  • Foundations (yayasan)
    The military foundations were established in the 1960s to provide social services such as housing and education for troops and their families. In the process, such foundations were expanded into business units presumably to finance the soldiers’ welfare. In addition, these tax-exempt foundations supervise many important military business units. The army, through the Kartika Eka Paksi Foundation (YKEP), owns a total of 26 firms and seven joint ventures. YKEP’s business activities are managed by a holding company, PT Tri Usaha Bhakti. The various army interests include the Sudirman Central Business District, which owns 44 hectares in what is known as Jakarta’s “Golden Triangle,” the Artha Graha Bank, Cigna Indonesia Assurance, Danayasa Artatama (the Hotel Borobudur), other real estate, timber, golf courses and manufacturing.
         Meanwhile, the navy, through the Bhumyamca Foundation, controls five firms with total assets of Rp 200 billion or $25 million. The foundation’s business interests include Admiral Lines (shipping), resorts, an oil refinery, property rental, import-export, cocoa plantations, maritime electronics and telecommunications, a taxi company and diving services.
         Finally, the air force and the Adi Upaya Foundation manage 17 firms, including a bank. The foundation owns the Bank Angkasa, together with the National Electricity Company Pension Fund and private investors. The foundation’s other interests include golf courses, container services, hotels, logging, aviation and aerial photography enterprises. Despite this institutional business, the TNI personnel, from high-ranking officer to low-ranking soldier were actively involved in businesses like forestry, mining, oil and security guards.
  • Cooperatives (Koperasi)
    The military cooperatives were established to improve the welfare of soldiers by providing subsidized commodities, such as rice, to soldiers and families.

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