Indonesia's powerful military is getting out of big business, so the newly elected democratic government can tighten control over its wealthy generals, curb corruption and reform the ranks.
With Australia's defence minister Robert Hill to travel to Jakarta next week to discuss closer defence ties with Jakarta, his Indonesian counterpart Juwono Sudarsono said the newly democratically elected government would take over military-controlled businesses with assets worth A$700,000 or more.
They include money-spinning timber and banking enterprises that have been used to finance the armed forces.
The change is part of a wider reform push to reshape Indonesia's military, known as the TNI, into a more professional and accountable force under new president Susilo Bambang Yudhoyono, himself a former general.
Business backed by the gun barrel has been lucrative for the military. During a hearing with parliament's defence commission last week, TNI chief General Endriartono Sutarto admitted businesses contributed 70 per cent of the TNI's budget.
One study estimated its business assets were worth more than $10.6 billion when the army-backed dictator Suharto fell in 1998, covering everything from legitimate enterprises to criminal operations.
The reforms, when completed, could open the way to closer military cooperation with western countries including Australia and the US, which maintains a strict arms embargo against Jakarta since the post-independence vote bloodbath in East Timor.
Australia did not follow the US lead in cutting ties completely. But Canberra is anxious to resume counter-terrorism training with Indonesia's elite Kopassus commando unit, which has been accused of flagrant human rights abuses and running a string of illegal business operations covering everything from brothels to timber smuggling.
Senator Hill is expected to discuss Kopassus cooperation among other issues when he arrives in Jakarta, a Indonesian military spokesman said. "We would expect to cover all areas of possible cooperation," Major Farid Makruf said.
From the Australian perspective, one of the crucial benchmarks to resuming ties will be how far reform efforts in the military have come, especially within Kopassus.
One company the TNI will reportedly lose in the shakeout is its $719 million stake in Bank Artha Graha, owned by the army and one of Indonesia's most powerful businessmen, banking and real estate tycoon Tommy Winata. Others include two timber companies worth more than $6 million.
During a hearing with parliament's defence commission last week, TNI chief General Endriartono Sutarto admitted businesses contributed 70 per cent of the TNI's budget. The commission also heard Indonesia's weaponry was among the worst in South East Asia, superior only to Cambodia and Laos.
In a win for the generals, defence minister Juwono said the TNI would continue to operate smaller businesses for the time being until the national defence budget could cover the gap. "The smaller ones will not be taken over. They will still be owned by the TNI to help fulfil the soldiers' needs," he said.
Laws signed by former president Megawati Sukarnoputri prior to her election dumping banned soldiers from involvement in business activities.