Adianto P. Simamora, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono on Monday ordered the Indonesian Military (TNI) to ground its aging warfare equipment and procure new arms through local financing.

"We have decided to ground aging defense equipment. I will hand down sanctions on TNI leaders who ignore the order," Yudhoyono told reporters after a limited cabinet meeting on defense.

The president's statement came after a 46-year-old amphibious tank sunk during a military drill in waters off the East Java town of Situbondo on Saturday, killing seven marines.

The accident came just over one month after an old Nomad plane belonging to the Navy crashed in waters off Sabang in Aceh, leaving four crew members dead and another missing.

The meeting, held at the Defense Ministry, was attended by Vice President Jusuf Kalla, Defense Minister Juwono Sudarsono, Coordinating Minister for the Economy Boediono, Finance Minister Sri Mulyani Indrawati and TNI Chief Gen. Djoko Santoso, among others.

The President said he had issued an order to military leaders to phase out aging defense equipment long before Saturday's accident.

He said much of the country's defense equipment, including Hercules C-130 and amphibious tanks, were produced in 1960s, making them too old to help defend national sovereignty.

Director General of Defense Facilities Slamet Prihatino earlier said the TNI was still operating tanks and artillery canons produced in the late 1950s, and using aircraft that had exceeded flying hours, due to a small budget allocated to modernizing defense equipment.

The President said the government would buy replacements for the old equipment using local financing rather than credit export.

The Defense Ministry's shopping list this year includes four Russian-made Sukhoi jet fighters.

The ill-fated amphibious tank that sank Saturday was among dozens of Russian-made amphibious tanks, submarines and warships taking part in the naval exercise. A Search and Rescue team found Monday the body of chief Sgt. Suryanto, who went missing after the accident.

Yudhoyono also expressed his optimism the government would meet the deadline to resolve the long-debated military business problems next year.

He said the team set up to examine military businesses was still formulating criteria for the businesses that could be kept by and taken away from the military.

"We, of course, have to determine businesses suitable for the military. A cooperative is one of the businesses that fits the military," he said.

The government has said only military business institutions with assets amounting to US$50,000 or higher will be handed over to the government.

Home Minister Juwono earlier said only six businesses could be classified as profit-oriented military business from among the 1,500 firms which had previously been identified as military businesses.

The minister said the Defense Ministry and the TNI would still be allowed to maintain some cooperatives and foundations, as long as they were not profit-making entities.

The TNI has been involved in business since the late 1940s, but the practice expanded at the beginning of the New Order era in the early 1970s under former dictator Soeharto.

Almost 70 percent of the TNI's annual budget is derived from its diversified business activities.