Clinton's Inept Indonesian Policy.

Instead of supporting democracy and economic development, the United States is abetting the nation's ruthless and corrupt armed forces.

Although Standard & Poor's is set to upgrade Indonesia's rating, the world's fourth most populous nation is a continuing source of international concern amid worries that the democratically elected government of President Abdurrahman Wahid is not in control. The September 13 car bombing under Jakarta's stock exchange, which killed fifteen people, and the killing of three United Nations (UN) relief workers in West Timor by a militia-led mob supported by Indonesian soldiers, are recent examples of the instability shaking the country. Both incidents are directly linked to Indonesia's armed forces, yet the Clinton administration, while condemning the government for not keeping order, is working to renew U.S. military engagement with the very institution that is destabilizing the country.

The National Defense University's Institute for National Security Studies in Washington recommended this year that the United States increase the number of Indonesian officers enrolled in U.S. professional military education institutions. This traditional solution to civil-military problems is unlikely to resolve Indonesia's numerous security and economic problems. It is time for a new approach.

A better solution would be to halt military-to-military training until the Indonesian armed forces are firmly under the authority of the civilian government and demonstrate that they respect both the rule of law and the free market.

Government intervention in the economy through state-owned enterprises has skewed entrepreneurial choices and stunted economic development. The Indonesian Armed Forces (TNI) now control many businesses and "foundations." Ostensibly, this was a way to augment Indonesia's tiny defense budget and improve soldiers' welfare, but coupled with rampant corruption, such involvement in the economy distorts economic incentives and impedes progress.

The military-owned enterprises date back to the 1950's, when many military units seized Dutch businesses during the de-colonization period. They justified their larceny by citing political disagreements with their former colonial masters. Generally, businesses grew rapidly because of their relationship with the TNI.

The armed forces made liberal use of its political -- and military -- clout to advance its business interests. Over time, the TNI's dependence on these enterprises has grown to the point that the government's defense budget covers only an estimated 25 percent of military expenditures. The rest of the military's funding comes from the foundations and businesses it owns, both legally and illegally.

There are about fifty military-owned businesses and eight foundations associated with each of the armed services and major commands, but it is almost impossible to measure the size of these foundations and businesses or their economic impact. The government began its first-ever audit of the TNI businesses in June 2000, and has uncovered many irregularities, especially in the areas of bookkeeping and procurement. The government's response: Under pressure from the army leadership, it relieved from duty a prominent reform-minded general who had pursued an investigation into the financial dealings of his unit's foundation too enthusiastically. It appears unlikely that the government will prosecute any officer for mismanaging or embezzling funds from these enterprises.

Legitimate business activity has often served as a front for illegal business dealings, including unlawful logging and animal poaching in West Papua, fuel smuggling across the archipelago, and marijuana production and smuggling in Indonesia's westernmost province. Army Chief of Staff General Tyasno Sudarto stands accused of coordinating a counterfeiting operation and many other officers are believed to be involved in illegal activities and innumerable questionable businesses independent of their military duties. Many observers regard this widespread corruption as a leading cause of the TNI's rampant disorder and factionalism today.

In addition to the TNI's parasitical role in the economy, the military and its activities are the greatest threat to the security in the archipelago. The TNI is widely considered responsible for the September 1999 chaos in East Timor and the armed attacks that continue in that newly independent state. About 120,000 refugees who fled last year's violence remain scattered in camps in West Timor. Militias continue to terrorize them as well as UN workers. All international aid workers were withdrawn from West Timor in September 2000 as a result of the continued presence and activities of army-sponsored militias. The TNI is also being held responsible for provoking bloody sectarian violence in the Moluccas islands and for the savage suppression of independence movements in the provinces of Aceh and Irian Jaya (West Papua).

Despite its role in causing instability and stunting economic growth, the armed forces retain important political appointments in the legislature, even after the country's transition from a dictatorship to a nascent democracy, and its officers show little respect for the law.

The United States should support Indonesia's budding democracy and bruised economy while working to isolate the errant military. It should assist the process of democratization and support Indonesia's newly elected president.

But the Clinton administration has chosen to support the military. For example, in May and July, Indonesian officers and units participated in military exercises in Thailand and Indonesia at the Pentagon's invitation. These exercises were a prelude to a much larger military-to-military engagement program that the Clinton administration hoped to send to Congress. Yet when the three UN workers, one of them an American, were killed in

West Timor, Washington criticized Mr. Wahid's government for failing to meet its obligations. Clinton also dispatched Secretary of Defense William Cohen to Jakarta to tell Indonesia's leaders that if the government did not restore order, it might lose international support, economic assistance, and military ties.

In the wake of the murder of the American, President Clinton has again frozen military-to-military engagement, but congressional restrictions on the President's ability to renew those contacts are related to East Timor and not to the larger issue of civilian control of the military. Therefore, potentially, the Indonesian military could meet the limited congressional prerequisites to renew military engagement without becoming subordinate or responsive to civilian authority.

Instead of criticizing democratically elected leaders and threatening economic sanctions, the United States should be encouraging the subordination of Indonesia's military to the legally constituted civilian government. Specifically, the United States should:

* Cut off military-to-military contact at all levels. The only way to convince officers that there is no latent sympathy for their activities and to impress upon them the importance of democratic values is to end all contact with uniformed American officers.

* Use financial assistance to train Indonesia's legislature to supervise the military properly. This would enhance civilian control, increase respect for the rule of law, and create necessary transparency in the military's activities.

* Train a cadre of civilian defense experts to staff a future Indonesian Ministry of Defense that is led by a civilian and acts as Commander in Chief of the Armed forces. Resume military-to-military training only when the armed forces are firmly under civilian control and have disengaged from political activities.

Dana R. Dillon is a Policy Analyst on Southeast Asia in the Asian Studies Center at The Heritage Foundation.