The installation this week of Marshal Djoko Suyanto, previously chief of the air force, as head of Indonesia's armed forces made front-page news. The armed forces formally withdrew from politics only in 2004, when they gave up their reserved seats in parliament, bringing to an end dwi fungsi, their dual political and military function. In parliament or out, their commander remains one of the most powerful people in the country.

But the marshal faces tough challenges. Blighted by prolonged western arms embargoes and poor financial management, the 380,000-strong armed forces have "no deterrent capability", in the opinion of the country's own defence minister, Juwono Sudarsono. Only 65 of the navy's 121 ships and half of the air force's 114 aircraft are operational, while most of the army's 100-odd battalions are under-strength, under-equipped and under-trained.

The good news is that the military's workload is decreasing. Indonesia's two main security threats, terrorism and crime, are steadily becoming the police's domain, and now that Aceh is on the road to peace the only separatist movement, in Papua, poses no significant challenge. Communal conflict in Sulawesi is still a problem, but does not tie up sizeable resources.

One consequence of the armed forces' weakness, say government ministers, is that the state loses some $22 billion a year through smuggling, illegal logging, piracy and other crimes. President Susilo Bambang Yudhoyono has said that he wants to reduce these losses by strengthening the navy and air force. But Marshal Suyanto will have to tread carefully. The army is unlikely to be happy at an air-force man plundering its resources.

Other sensitive missions lie ahead. Widespread doubts about civilian competence mean there will probably be strong opposition to plans to bring the armed forces wholly under the control of the defence ministry's politicians. For the present, the generals still enjoy independence over operational matters.

Then there is the armed forces' penchant for extra-curricular activity. Driven by a combination of tempting opportunities and dire pay – even a major-general's monthly salary is just $260 – some servicemen engage in crime, moonlight in business or demand payment from companies in return for protecting their assets. This latter practice is currently under scrutiny following allegations that an American firm, Freeport-McMoRan, paid millions of dollars to individual officers to protect its copper and gold mine in separatist-ravaged Papua. Freeport denies the claims.

Regulating the businesses that provide a sizeable chunk of the armed forces' budget will be another headache for Marshal Suyanto. Of the 219 companies, foundations and co-operatives the armed forces admit to owning, only six have been assessed as commercially viable. By law, the military must cede control of all of them by 2009. But what is a business?

Marshal Suyanto, for instance, is opposed to dissolving the co-operatives, which he claims do much for troop welfare. There are no clear procedures for selling the businesses, or about who keeps the proceeds. Hard pounding indeed for the marshal.