Indonesia
Send the Military to Business School
by Stanley A. Weiss

JAKARTA--If money is the root of all evil, then the root of much of what ails this strategically significant nation - with more Muslims than all the Arab nations combined - is the billions of dollars the Indonesian military and police pocket from their web of legal and illegal businesses.

Like governments in China, Vietnam, Pakistan, Russia, Honduras, Nicaragua and elsewhere, Jakarta has long encouraged its armed forces to supplement their official budget - a paltry $1 billion annually for a 700,000-man active duty and reserve force protecting 17,000 islands -with profits from legal business.

Of military expenses, 75 percent are covered by profits from the hundreds of ventures - hotels, banks, an airline, shipping, insurance, real estate, logging - run by yayasans, charitable foundations intended for the "welfare and education" of the armed forces and their families. Only 25 percent of military spending comes from the defense budget.

But as Juwono Sudarsono, a former defense minister, tells me, "If you pay them peanuts, you get monkeys. You have monkey business in both military- and police-controlled enterprises." Recent audits have exposed gross mismanagement and top officers siphoning off millions from the yayasans. Poorly paid enlisted soldiers start their own illegal rackets - gambling, smuggling, prostitution, illegal logging, extortion and protection.

Because the military's territorial structure allows it to reach down to the remotest village, this combination of need and greed infects virtually every corner of Indonesian society. Democracy and development suffer.

Corporate commanders enriched by business operations at times instigate violence to justify their presence. Human rights are trampled; separatist sentiments grow. But how to get the military to give up its business empire when the central government cannot make up the financial difference? How to professionalize the one institution that glues together this multiethnic nation of 225 million - or rips it apart?

Spending $50 million on training the Indonesian military and police to track terrorists and teaching them to salute civilian bosses and respect human rights, as the United States is about to do, is a good first step. A more important one would be to use renewed International Military Education and Training funds to enroll promising junior Indonesian officers in America's best business schools. As Juwono puts it, "These officers already know how to kill. They need to know how to manage the defense budget."

Together with a new strategic vision of the future and greater civilian control, business smarts could give the armed forces the skills to ease them out of the boardrooms and back into the barracks.

First, train civilian and military officials in corporate management. Today's aberration of corporate criminals aside, the United States can help the Indonesia military clean up its books and make its companies more profitable by training the next generation of leaders in financial management, accounting, auditing, transparent reporting, oversight, administration, and procurement - the skills also necessary to run a modern military.

Second, convert military companies to state-owned enterprises. Free from the distractions of defending its economic interests, the military can focus on defending the nation.

Finally, privatize these state-run entities and use the tax revenues to properly finance the military entirely through the defense budget.

Impossible? The People's Liberation Army ran one of the largest business empires in China until a series of smuggling scandals prompted President Jiang Zemin to order the military out of business in 1998. Thousands of firms have been closed or transferred to local governments, smuggling is down and customs revenues have surged 81 percent, up $19 billion. Military spending increased by a third.

So long as a military uniform is the ticket to wealth and power in Indonesia, foreign efforts to create a kinder, gentler military under civilian control will fall short. But start dismantling the financial pillars of that power by sending young officers to Ivy League campuses and the whole incentive structure of today's Indonesian military-industrial complex will begin to crumble. It may take years, but it's hard to imagine a smarter investment in Indonesia's future.

The writer is founder and chairman of Business Executives for National Security. The views he expresses are his own.