Friday, October 7, 2011

Lengthy, costly arms deals put Indonesian Military firepower at risk

This is the last report on the military’s (TNI) defense industry and arms procurement. Since the 1998 reform movement, policymakers have made little headway in overhauling the arms procurement process, which has been plagued with entrenched inefficiencies and a lack of transparency. The Jakarta Post’s Nani Afrida and Hasyim Widhiarto explore the issues:

Around 50 top military brass, arms vendors and officials from several ministries gathered at the Defense Ministry in mid-September to hammer out decisions on the long-planned purchase of submarines, battle tanks and howitzer cannons.

The meeting was led by Defense Ministry secretary-general Air Marshal Eris Haryanto, who said in his opening speech that the regular quarterly meeting was aimed at reducing the red tape and other obstacles in building the national defense.

However, because the procurement problems are so entrenched, the six-hour meeting resulted in no substantial conclusions.

“[There is] still a long way to go. We’re forming a working group for selecting the overseas vendors who will cooperate with us,” Eris said after the meeting.

The meeting highlighted just how lengthy and cumbersome the arms procurement process was — with deals often getting lost in a labyrinth of bureaucracy.

An expensive arms procurement order could require 30 months-worth of paperwork simply to determine which country would be the supplier, Eris said.

The process to purchase four submarines has been ongoing for more than five years, while the purchase of a Sukhoi fighter jet squadron (approximately 12 jets) is now in its seventh year.

Aside from financial constraints and bureaucracy, other factors are also at play, including political interests and deep-rooted brokerage practices involving business players and fee-seeking officials.

The latest political showdown revolved around several legislators’ opposition to the US’s recent offer to sell two squadrons of second-hand F-16 fighter jets at a steep discount.

However, the Air Force was not able to process the purchase, as it had to wait for approval from the legislators, which was not likely to come anytime soon.

“Our opposition to the F-16s deal comes from the past trauma of the US arms embargo,” said legislator T.B. Hasanuddin of the House of Representatives Commission I overseeing defense, intelligence and foreign affairs. The US applied an arms embargo from 1992 to 2005 following violence in the former Indonesian province of Timor Leste. The embargo crippled the Air Force, which was largely comprised of US-made aircraft.

While settling the political side of things is a matter of negotiation, the Defense Ministry and the TNI are confronted with a more challenging obstacle: rooting out the fee-seekers who impose staggering inefficiencies on the procurement process.

The defense budget is set at Rp 45 trillion (US$5.04 billion) this year, less than 1 percent of the gross domestic product. On top of that, Rp 99 trillion is earmarked through 2014 to pay for a primary defense system and its maintenance.

Prior to President Susilo Bambang Yudhoyono’s administration, sales commissions for top TNI officials, dealers and high-ranking civil officials could be as high as 40 percent of the total procurement budget, according to former defense minister Juwono Sudarsono, who served between 2004 and 2009.

“We can only reduce procurement markups at the Defense Ministry, the TNI and the chiefs of staff headquarters, but we cannot eliminate them entirely,” he said.

“I warned all chiefs of staff that I could tolerate “market price” fees for arms procurements — say between 8 and 10 percent commissions — but I would not tolerate 30 to 40 percent markups as in the past.”

The Defense Ministry issued a procurement regulation in 2006 that was aimed in part at squashing the fee-seeking business. However, the regulation only increased the amount of red tape while failing to curb misconduct.

“We’re planning to revise the regulation so we can streamline the procurement process in just 18 months” Eris said.

The ministry has also set up a high-level joint committee involving the Finance Ministry and the National Development Planning Agency to supervise the procurement process.

Since 2005, the ministry has explored ways of plugging loopholes vulnerable to graft and fee-seeking, but so far the results have been minimal.

Deputy Defense Minister Lt. Gen. Sjafrie Sjamsoeddin insisted there were no such fee-seeking or brokerage practices in arms procurement.

“I’ve never met any brokers. What do they look like? We have a tight supervision mechanism in place. We negotiate directly with the arms vendors or with the host governments for the purchases,” he said.

“The final decision gets approved by the procurement evaluation team.”

However, senior arms dealer Soeryo Guritno said no changes had been made to the supervision system. “Everything is still the same. Fee-seeking officials still roam around to take advantage of the arms purchases,” Soeryo said.

Aside from the top TNI brass, legislators also allegedly pursued procurement fees through their duty of approving budgets for projects in the field.

Juwono said he challenged all 10 party factions in the House in 2007 to be transparent and to identify who in each party had been assigned to collect “mark-up fees” from suppliers.

“They [party representatives] came to the ministry to protest, asking me to provide proof of their misconduct. In the end, each of the party representatives privately acknowledged that it was their job to garner markup fees from each procurement project processed through the House.”

Legislator Effendi Choirie, who has been on Commission I since 1999, strongly denied that his fellow legislators were involved in any fee-seeking or procurement markups.

But legislator Hasanuddin admitted that several legislators had found “business opportunities” from their knowledge of the defense budget. Hasanuddin refused to comment on whether he was also involved in such practices.

“The legislators usually collect fees by mediating deals between companies and the TNI for providing spare parts, maintenance or other supporting military services. But as long as it is done after the budget is finalized, I think it is a normal practice,” said Hasanuddin, who was also former president Megawati Soekarnoputri’s military secretary. Nani Afrida and Hasyim Widhiarto, The Jakarta Post

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