Indonesia `Mafia' Pockets World Bank Loans

A repressive military establishment keeps this Asian nation in its grip with the help of $1.6 billion in US-backed aid each year

By , respectively, at the Project on Demilitarization and Democracy in Washington.

WHAT would you say if you found out that your government was subsidizing loans to the Mafia? That your taxes were financing extortion, kickbacks, and brutality? Well, it's happening, not in Chicago or Detroit but in Indonesia, the powerful Southeast Asian country of 200 million people. The Indonesian armed forces have become a military mafia, maintaining their stronghold on the economy with $1.6 billion every year in United States-backed loans from the World Bank.

We found that out when interviewing experts on the Indonesian armed forces for our recent report, titled ``Financing Military Rule.'' It is an open secret in Indonesia that high-ranking ``financial generals'' have patiently constructed a ``shadow government'' controlling nearly every corner of civil and economic life. The army systematically shakes down the prosperous ethnic Chinese community through a massive ``protection'' racket and runs giant companies in the lucrative forestry and energy sectors, companies that can scare off the competition with a single, menacing glance. The profits fuel a military budget that may be twice as high as officially reported, and individual officers receive their share simply by joining the corporate boards.

One of the sweetest deals is found on East Timor, the island that the Army brutally invaded in 1975 in a violation of United Nations orders. Army-owned corporations have a monopoly on every major import and export and business on the island, so when the army opened fire on peaceful, unarmed demonstrators there in 1991, killing hundreds, it was simply protecting an illicit investment.

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Not only are the Indonesian armed forces running their nation as if they were one of the Mafia's infamous ``five families,'' they are doing it with Western assistance.

Indonesia's low-balling of the official military budget and the protected operations of military corporations break World Bank rules, but the bank lends on at a high level. The $1.6 billion in annual World Bank lending to Indonesia is equal to that country's entire reported military budget. Why does the bank do it, in the face of a military economy, dictatorship, human-rights abuses, and an illegal occupation?

Simple. Indonesia's a good customer. As one official puts it, Indonesia's spotless record in repaying development loans has made it ``the golden boy of the international lending community.'' We even found an economist who stated, on the record, that the World Bank recently cooked its own books, lowering its estimate of the amount of poverty in Indonesia so as not to offend the ``golden boy.'' Indonesia is lectured by US officials about its human-rights record and then takes its US-subsidized loans and runs on.

In 1957, a young Senate staffer named Robert F. Kennedy exposed no-interest loans to Mafia fronts by Jimmy Hoffa's Teamsters Union. Today, in an updated version of his father's fight to keep criminals' hands out of the taxpayer's pocket, Rep. Joseph Kennedy II (D) of Massachusetts has emerged as the pointman in attacking the Indonesian scam.

At the press conference releasing our report on the World Bank and Indonesia, Congressman Kennedy noted that the armed forces have ``tentacles extending to every aspect of the economy,'' and he rejected the World Bank's ``fiction that treats military spending by developing countries, and our economic assistance to those same countries, as separate and unrelated issues.'' Top-level officials at the World Bank and in the Clinton administration have said that they agree, in principle, that the bank's loans should be conditioned on reductions in unnecessary military spending. Now is the time for them to cut off financing for Indonesia's military mafia until it agrees to play by the World Bank's own rules.

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