By Jon Land
A controversial report released in the US has exposed funding of the Indonesian military through World Bank loans. These loans have the full backing of the US government, which has the controlling vote over World Bank projects. Titled Financing Military Rule: The Clinton Administration, the World Bank, and Indonesia, it shows in detail how the Clinton administration and World Bank have chosen to ignore the issue of the military economy in Indonesia.
Researched by the Project on Demilitarization and Democracy, a Washington-based NGO, the report looks at the dominating role of the Indonesian military in economic and political affairs.
Hundreds of firms and national companies are controlled by the military. They are concentrated into four major business groupings, one for each of the military branches: Inkopad (army); Inkopal (navy); Inkopau (air force); and Inkopak (police). The Ministry of Defence also has an umbrella body called the Tri Usaha Bhakti, which links other military business holdings.
Powerful military commands such as KOSTRAD (Strategic Reserve) control their own companies and monopolies. The report gives the example of P.T. Denok as a "classic military firm, run by the armed forces to increase its own budget and provide officers with personal profits".
Denok was established and run by General Benny Murdani, who as head of the military command that administered East Timor after the 1975 invasion, controlled the lucrative coffee trade of East Timor. From 1977 to 1983, Denok netted at least $30 million in profits for Murdani.
The report contrasts this situation with the guidelines supposedly used by Congress and the World Bank in assessing loans to developing countries. Such loans and aid are, according to these guidelines, intended to promote democracy, economic efficiency and the reduction of military involvement in civilian affairs.
The Project on Demilitarization and Democracy argues in the report that World Bank loans directly benefit the military business monopolies which exist in all strata of the Indonesian economy. Loans "intended" to improve infrastructure and the livelihood of all Indonesians are used to maintain the corrupt military regime.
The report points out that the repressive attitude of the military to labour, environment and land rights disputes is due to the fact that so many serving and retired generals are at the head or on the board of state-run or private firms: "... the armed forces' vigorous promotion of anti-strike and anti-labour regulations is not simply a reflection of a conservative political and social ideology, but also reflects their corporate interests as a major institutional owner of capital".
It is estimated that the official military budget reported to international agencies is 25-50% below the actual budget. Over the last 10 years, the annual World Bank loans to Indonesia of US$1.6 billion have been roughly equivalent to Indonesia's stated military budget. The Project on Demilitarization and Democracy cites an International Monetary Fund econometric study, which shows that military dictatorships use foreign aid to cover budget expenses, which in turn allows them to increase spending on their armed forces.
The report criticises the World Bank and US government for turning a blind eye to this practice. "Despite ringing endorsements by top international and US officials of the concept of reducing the world's $US1 trillion in annual military expenditures by conditioning World Bank loans on countries' willingness to demilitarize, operational personnel working on Indonesia and other countries have been given no concrete guidance on how to implement this concept and thus have not done so.
"The Clinton administration has not taken concrete steps to make US approval of World Bank and International Monetary Fund loans contingent on reduced military spending. There is a reluctance among US, as well as Bank and Fund, personnel to challenge borrowers' claims that any discussion of military spending is an infringement on national sovereignty."
It is standard World Bank practice for any loan to be accompanied by a formal agreement known as a Letter of Conditionality. Indonesia is the one country that does not have to sign Letters of Conditionality. One expert quoted in the report says Indonesia is "the golden boy of the international lending community", partly because of its timely repayments. The World Bank chooses to overlook the absence of the letters.
While the Clinton administration has called for Indonesia to improve its labour code and human rights record, it is not out of pure humanitarian concern that these issues have been raised. There are other forces at play pressuring Congress on relations with Indonesia.
There are the US manufacturing and textile industries competing with cheap imports from Indonesia. Under the Generalised System of Preferences (GSP), Indonesian textile imports enjoy millions of dollars in tax exemptions each year and flood the US textile market. There is growing opposition to this from the domestic textile industry.
Then there is the activity of human rights and social justice groups around issues such as freedom for East Timor. They have grown in size and become more vocal and better organised.
Indonesia was the largest recipient of US military aid at the time it invaded East Timor in 1975. This funding actually increased under Carter (1977-81).
Indonesia is in the process of modernising and expanding its air force. Apart from British supplied Hawk jets, all of Indonesia's fighter and ground attack jets are US made, consisting of 12 F-16s, 14 F-5s and 28 A-4s.
The US has also supplied 12 OV-10 "Bronco" observation aircraft, which have been modified to carry bombs and rockets. They have been used extensively in saturation bombing campaigns throughout East Timor.
The Indonesian state-owned aviation company, IPTN, has also signed a $117 million contract with Boeing for surveillance and radar technology. A joint venture between Bell helicopters and IPTN has been finalised, with much of the work to take place at IPTN's own facilities.
Following the massacre in Dili in November 1991, demonstrations and lobbying from solidarity and human rights groups forced the Bush administration to reconsider its direct military aid to Indonesia. Military aid was suspended in the wake of worldwide condemnation.
The Indonesian government carried out investigations in order to appease international scrutiny. Several minor officers and soldiers involved were "reprimanded". (The charges against them were very minor. One officer served his sentence while on holiday in Bali.) Military aid was gradually renewed.
While on the campaign trail for the US presidential election, Clinton harangued Bush for his "coddling of dictators". His administration was to take a more humane stance in the crumbling New World Order. US foreign policy, however, has not dramatically changed for the better. Clinton remains committed to supporting repressive regimes, especially those of strategic importance or with large amounts of investment from US corporations.
Indonesia is sure to remain an important strategic and economic ally for the US. Telecommunications, mining and engineering corporations based in the US are watching the developments in Indonesia closely. There are billions of dollars of investment at stake.
Despite the posturing by Clinton on human rights in the region, the military regime in Indonesia will continue to be bankrolled by the World Bank and US.