Indonesian military’s role in economy ‘set to be phased out’; The role of the powerful Indonesian military (TNI) in the country’s economy has shrunk by 80 per cent since reforms were taken to unshackle its grip

Indonesian military’s role in economy ‘set to be phased out’

Li Xueying, The Straits Times/ANN, Manila | Business | Fri, May 23 2014, 5:36 PM

The role of the powerful Indonesian military (TNI) in the country’s economy has shrunk by 80 per cent since reforms were taken to unshackle its grip – and expectations are that it will be phased out eventually, Indonesian Finance Minister Muhamad Chatib Basri said at the World Economic Forum yesterday.

Touching on a sensitive subject that critics say has been shrouded in opacity, Chatib Basri insisted that progress has been made in the right direction although, he conceded, the military continues to have “some involvement” in the economy.

The TNI was a dominant player in the economy during the strongman era of president Soeharto, a former general, gaining favoured access to contracts and controlling nationalised companies.

After Soeharto was forced from power in 1998, the government began to divest the military of its business interests by liquidating its companies or turning them over to the state.

But many senior military officers are believed to continue holding side businesses. And while the TNI is not supposed to own businesses directly, it holds indirect stakes through foundations and cooperatives.

Speaking to The Straits Times on the forum’s sidelines, Chatib also touched on the presidential campaigning heating up in his country.

The next Indonesian leader, he said, will need to be open and friendly to foreign investors.

The two presidential candidates, Joko Widodo and Prabowo Subianto, have struck nationalistic tones in their manifestos, calling for, among other things, self-sufficiency in food and energy.

Chatib said that being closed off to foreign investments is untenable.

“For Indonesia to grow 1 per cent, you need 5.3 per cent of investments over the GDP (gross domestic product). So, for 7 per cent growth, you need 37, 38 per cent in investments.”

He noted that Indonesia’s domestic savings hover at only 32 per cent, meaning a shortfall of about 6 per cent.

But the minister is sanguine that post-election, the rhetoric will adjust. “At the end of the day, they will be constrained by economic reality,” he said.

The next leader will also have to persevere in completing the painful process of fuel subsidy reforms, he added. Fuel prices were raised last year but results were limited.

Looking ahead, Chatib observed that the United States’ days as a spender in trade may come to an end. The question then is which country can take over as a “locomotive” of growth.

On whether Indonesia, Asean’s largest economy with a GDP of almost US$1 trillion, can play this role, the minister said that the key to resource-rich Indonesia’s future competitive edge no longer lies in the physical but in “intangible assets, namely governance”.

“We still have problems in governance. Jokingly, I said many Indonesians become religious because they have to deal with the government because there is a lot of uncertainty,” he said.

“We need to improve governance, the ease of doing things.” (***)

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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