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Indonesia Participation in the Economy
The military has never been as dominant in the economic
sphere as it has been in the political. Total military
expenditures as a percentage of gross national product
(GNP--see Glossary)
declined steadily since the 1960s, with the
military
share of the budget declining from 29 percent in 1970 to
less
than 4 percent in 1990. Nevertheless, because of
historical
circumstances, economic necessity, and some doctrinal
predisposition, the armed forces retained considerable
influence
in the workings of the national economy, an influence that
some
critics charged was too pervasive and sometimes
detrimental. By
the early 1990s, however, the military had withdrawn from
much of
the economic policy decision-making arena, leaving that
role to
an ever-expanding core of Western-trained economists and
managers
who, the military recognized, were far better educated and
able
to function in this vital sector.
The armed forces' economic role had its beginnings
early on
in the National Revolution period (1945-49). That role was
stepped up in 1957 when military personnel were assigned
managerial or advisory positions in Dutch enterprises and
agricultural estates nationalized by the government. This
involvement in commercial enterprises projected the
military,
especially the army, into a new sphere of activity through
which
it acquired entrepreneurial expertise, a vast patronage,
and a
source of personal enrichment for many. The military's
role in
national economic life greatly expanded under conditions
of a
rapidly deteriorating economy during the Sukarno era in
the
1960s, when the services, like many other government
departments,
were caught in a tightening fiscal squeeze between
inflationary
costs and depreciating budgets. Nominal military pay, for
example, depreciated to a point well below subsistence
level for
privates and generals alike; commodities and other
tangible
emoluments were what counted. Left largely to their own
devices
to find support, local military units secured their needs
by
operating business enterprises, levying unofficial
"taxes,"
smuggling, and other methods suggested by their own
resourcefulness and available opportunities. At the
central
command level, the preferred procedure was to divert to
military
use funds from state corporations in which military
officers held
controlling positions. As military officers were withdrawn
from
the economic policy and management sector, however, their
ability
to directly siphon unbudgeted funds to support military
requirements diminished. Nonetheless, this extrabudgetary
funding
process remained in place, particularly for capital
expenditures,
even though the transfer of funds from state enterprises
was
largely a civilian policy arena. In the early 1990s, such
extrabudgetary resources apparently still accounted for
substantial portions of the annual fiscal needs of the
armed
forces
(see Defense Spending and Defense Industry
, this
ch.).
The armed forces also influenced the economic policies
of the
Suharto regime through their ties with its most important
economic technocrats. In late 1962, the curriculum at the
Army
Command and Staff School was broadened to include lectures
on a
wide range of nonmilitary subjects. In 1965 some of these
lectures were presented by a group of economists trained
at the
University of California at Berkeley
(see Role of Government
, ch.
3). It was to these technocrats that Suharto turned when
seeking
economic guidelines for the New Order and when setting up
and
running his government. The armed forces strongly
supported their
programs over the years, and these economists continued to
play
an important educational role at the service staff
colleges and
the National Defense Institute (Lemhanas). Many believe
the
military-technocrat alliance provided one foundation of
the
Suharto regime. By the early 1990s, in fact, the so-called
"Berkeley Mafia," continuously augmented as successive
generations of bright youths sought training in the United
States, had directed Indonesia's economy for more than
thirty
years.
Although not the only state institution to engage in
commercial enterprise in order to generate extrabudgetary
income,
the armed forces certainly were the most energetic and
successful. Commercial activities under the various
territorial
commands commonly included the use of military trucks to
transport passengers and freight for hire. Military-owned
companies operated in the open market, much as any private
company. For example, the Dharma Putra Foundation, a
holding
company connected with the Army Strategic Reserve Command
(Kostrad), included a film company, an airline, and the
Volkswagen assembly franchise. Another company operating
under
the sponsorship of the Department of Defense and Security
(Hankam) controlled affiliates involved in logging, trade,
industry, and textiles. In late 1980, a report issued by
the
provincial assembly in Timor Timur, whose members were
appointed
by the central government, charged that an enterprise
controlled
by the local army command had developed a forced monopoly
on the
province's main export commodities, coffee and sandalwood,
and
was reaping profits at the expense of local producers. The
army's
umbrella organization, Kartika Eka Bhakti Foundation
(YKEB),
continued to manage army cooperatives and business
concerns into
the 1990s.
Another kind of military enterprise was the
service-owned
factory, which had as its primary purpose the production
of
ordnance and equipment for the armed forces. By the
mid-1980s,
however, such major concerns as the navy's P.T. PAL
shipyard in
Surabaya (Jawa Timur Province), and the army's munitions
factories had been turned over to the civilian government
and
were being managed as state enterprises. In a category by
itself
was the state-owned National Oil and Natural Gas Mining
Company
(Pertamina) established in 1968 with the union of several
state
enterprises. Under the managing directorship of army
General Ibnu
Sutowo from the late 1950s until 1976, when he was eased
out of
office following the spectacular near-collapse of the
company,
Pertamina became a commercial colossus and Sutowo himself
one of
Indonesia's richest and most powerful men. Since Sutowo
departed
in 1976, Pertamina has been directed by more professional
management and has divested itself of many of its
non-petroleum
sector enterprises. It still retained its dominant
position in
the nation's oil and gas sector in the early 1990s
(see
Petroleum, Liquefied Natural Gas, and Coal
, ch. 3).
Although they could not be singled out from other
actors in
the national economy, the armed forces of the 1990s
continued to
face the problem of coping with a legacy of corruption.
The
government recognized the special military aspect of this
national problem and made repeated calls for military
officers to
act with special care in their business dealings and to
avoid the
appearance of nepotism when engaged in civilian duties.
The
military condemned excessive corruption and retired a
number of
senior officers for unacceptably blatant corruption. The
military
in the early 1990s was viewed by Indonesian society as
being
generally less corrupt than other sectors of the
government.
Nonetheless, the low salaries of military personnel
required
"constructive employment" to make ends meet, and there
continued
to be an acceptance of what Western societies consider
corruption, as long as it was within "acceptable limits."
Data as of November 1992
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