Tom McCawley, Jakarta – Indonesia's military will keep operating many of its illegal businesses because the state budget is inadequate to fund a reform programme aimed at reducing the military's extensive influence.

Juwono Sudarsono, defence minister, said the defence budget of $1.2 billion, or 2 per cent of gross domestic product, would not be enough to fund the professionalisation of the armed forces.

Ending the armed forces' 40 years of involvement in government, Mr Juwono said, would greatly depend on providing realistic salaries for junior officers.

"You can't have a professional military without proper pay for the rank and file," said Mr Juwono, Indonesia's first civilian defence minister in four decades. "If you pay peanuts, you get monkeys. And monkey business."

The Indonesian armed forces have become part of a sprawling, semi-underground business empire that spans property to mining, corporate boardrooms to rural marketplaces. Legal military interests include co-operatives, charity foundations and companies such as Bank Artha Graha. So-called "non-budget" sources of army funding include illegal logging, prostitution, gambling, narcotics and urban protection rackets.

Abdurrahman Wahid, Indonesian president, has promised to curb the influence of the powerful military by scaling back its role in public life.

Part of the reform process will be an effort to clean up the military's finances. This will begin with an audit of non-budget financing, which was part of Indonesia's May 17 agreement with the International Monetary Fund. Over the next 18 months, government accountants will audit about 320 yayasan or charity foundations linked to military businesses.

Mr Juwono, who admits the government faces immense obstacles, including a severe shortage of qualified staff, a bureaucracy prone to graft and powerful vested interests, says he expects only a "60 per cent enforcement rate". He says government funding constraints will make it impossible to stamp out all legal and illegal army business entirely but some will be restructured to become legal commercial entities.

The idea is popular with many within the armed forces, who say the spoils of businesses are unfairly divided between top brass and junior officers.

Analysts such as Hasnan Habib, a retired general and former ambassador to the US, says that formalising military businesses would allow for better regulation.