Australia and the Asia PacificR. James Ferguson © 2006

Lecture 3:

The Transformation of Indonesia (1997-2006)

and its Regional Significance

Topics: -

1. Indonesian 'Centrality' to Southeast Asia and Asia-Pacific Strategies

2. National Diversity Amid Democratic Transition and Decentralisation

3. Transnational, Transboundary and Regional Challenges

4. International Terrorism and Militant Islam

5. The Need for a Viable and Stable Indonesia

6. Bibliography, Resources, and Further Reading

1. Indonesian 'Centrality' to Southeast Asia and Asia-Pacific Strategies

Indonesia, with a population of over 216 million (2003), the largest population within ASEAN and one of its founding members, a strategic location straddling trade flows between the Pacific and Indian Oceans, is a modernising, developing nation with a GDP per capita of around US$1,149 in 2004 (DFAT 2005). It has sought to play a constructive role in Asian affairs generally while retaining a strong degree of relative non-alignment. Indonesia was one of the key nations in the Non-Aligned Movement, which it chaired from 1992-1995, though in effect it tilted towards the West during the last three decades (Economist Intelligence Unit 2005). In this lecture we will focus on Indonesian transition through 1997-2006, and its regional importance. (For the earlier history of Indonesia see Mackerras 1992; Koentjaraningrat 1990; Moejanto 1986; Cribb & Brown 1995; Aveling 1979; Church 1995). Not only is Indonesia sometimes viewed as a possible future Asian regional power (after China and India), but Indonesia is an important diplomatic player in key multilateral groupings (ASEAN, ARF, APEC).

Indonesia (map courtesy PCL Map Library)

Indonesia, conceptualised as a cultural grouping and region as well as a modern nation, has for centuries had a pivotal geo-political and international role in Southeast Asia and the wider corridor of Indo-Pacific interactions stretching from East Africa to Japan and the western Pacific. As early as the 7th to 8th centuries, major civilisations were linked by these routes, e.g. contact between China and the mandala system of Srivijaya, which flourished 7-13th centuries, focusing on south-east Sumatra, but with influence spread through the splendour of its court and its trading networks, as well as its control of the Malacca and Sunda straits (Simkin 1968, pp112-117; Mackerras 1992, pp94-95; Highham 1989, p342; Watson 1992, pp78-79; SarDesai 1994, pp41-43; see also, Kautilya Arthasastra 261). Arab and Persian traders likewise had contact with Srivijaya, though mainly involved in transit trade (Di Meglio 1970, p109; SarDesai 1994, p42). Srivijaya's loose control of an extended domain relied on prestige, trade and influence rather than direct territorial conquest, though for two to three centuries it had maritime control of the main trade routes (SarDesai 1994, p42). Likewise, Majapahit through the 14th to early 16th centuries[1] was part of an extended island domain, with trading networks focused on east Java, linking cultures and commodities in Southeast Asia and China. Kenneth Hall has suggested that: "Collective recognition of the fourteenth and fifteenth century east Java-centered Majapahit polity are the basis of contemporary self-definitions of 'nation' and 'region' among the Javanese, Balinese, Malays, and other island peoples" (Hall 2001, p89).

In this sense, Indonesian islands and cultures have had a deep regional engagement that precedes the territorial unity framed by Dutch colonialism. It is unwise, of course, to conceive of Indonesia as a 'New Srvijaya', in part because none of these earlier formations exactly coincide with the modern borders of Indonesia, e.g. western Sunda was probably not included in Majapahit domains (SarDesai 1994, p53). Rather the parallel here is of regional engagement rather than strict national and territorial delimitation (for the diverse conceptual usages of Majapahit by early Indonesian nationalists including Sukarno, see SarDesai 1994, p53; Hall 2001, pp104-105; Hoey 2003). Likewise, it is possible to conceptualise the cultural and regional foundations of ASEAN as going back to the trading networks and shared political structures of the 15th century (Hall 2001; Ferguson 2001).

This deep regional interaction remains a crucial component for the development of modern Indonesia in the 20th and 21st centuries. In the last forty years Indonesia has had a central role in the Non-Aligned Movement (NAM), in the creation of the Association of Southeast Asian Nations (ASEAN), and in wider dialogue process such as the ASEAN Regional Forum (ARF) and the ASEAN-Plus-Three group (ASEAN plus China, Japan and South Korea). Indonesia has positioned itself as a developing, multi-religious state with a strong claim to supporting cooperation and dialogue in the wider region. The constitutional structure Pancasila enshrined an accepted role for several religions within Indonesia, including Islam, Hinduism, Buddhism, Catholicism, and Protestantism, though religious tensions have emerged in some parts of the country over the last decade. The five principles of Pancasila included Belief in God, National Unity, Humanitarianism, People's Sovereignty, Social Justice and Prosperity, and under the Suharto government these principles had become a central commitment compulsory for all political organisations, and strongly emphasised in all formal educational settings, and from 1985 had been required for all non-Government organisations (Robinson 1993, p44). Although in theory an inclusive system, the Suharto government prior to 1998 had managed to repress or control opposition groups and marginalise civil society movements (see Rosser et al 2005).

ASEAN as a whole, and to a lesser degree Australia, Japan and the U.S., for the 1980s and the early 1990s had viewed Indonesia as a known, stabilising factor in the wider region (regardless of human rights problems and self-determination crises in East Timor, West Papua and Aceh). The potential and centrality of Indonesia has long been noted: -

. . . Indonesia is a tremendous potential market for the region and globally and, as by far the largest country in Southeast Asia, it is a regional power of importance. Moreover, the archipelago sits astride the Indian and Pacific Oceans, and the Straits if Malacca that flow between the Indonesian island of Sumatra and Malaysia carries more than 40 percent of the world's ship-borne commerce, making a stable Indonesia desirable for global commercial activity. Moreover, the outcome of how Indonesia deals with the future will almost certainly have a ripple effect in other, smaller countries in the region facing similar economic and political situations. (Snow 2003, p157)

The end of the Suharto from 1998, based on economic (see Rosenberger 1997) and governance crises that his authoritarian government could not control, has since allowed stronger democratic credentials to Indonesia, though combined centrifugal, economic problems, political pressures and natural disasters have charted a rough path for the nation in the 1998-2006 period (see below).

Table I: Timeline - General Outline of Indonesian History till 2002 (Church 1995; BBC 2004): -

6-8th centuries: Borobudur and Prambanan temples build

13th century:Islam spreads throughout islands

16th century:Portuguese first to establish trading posts

1602:Netherlands East India Company (VOC) formed, attacks Jakarta in 1619

1796:VOC bankrupt, control assumed by Dutch government

1942-45:Japanese occupation

1945:Independence unilaterally declared on 17 August

1946-49:Dutch try to resume control and guerrilla war starts

1950:President Sukarno elected

1959-65:Period of Guided Democracy

1965:Unsuccessful coup attempt by some army officers, period of crisis

1965:New Order government under President Suharto

Late 1980s:Non-oil exports exceed oil exports, Indonesian economy undergoes steady liberalisation and internationalisation.

1997-1998‘Asian’ economic crisis undermines Indonesian economy,

1997-1998 Australia supports softened IMF package for Indonesia

1998President Suharto resigns in the face of economic crisis, political opposition and demands for reform.

1998Caretaker Habibie government contains crisis and prepares for elections

Early 1999 Reversal of Australian policy on East Timor

September 1999 INTERFET military mission to East Timor to be led by Australia

199920 October: Democratic elections result in moderate Wahid government

1999: Mirage of 'Howard Doctrine' (Australia as regional sheriff) undermines relations with Indonesia

1999-2000 Human Right abuses in Indonesian control of East Timor revealed

December 2000 Ministerial Meeting to improve Australia-Indonesia relations

2000-2001 Ongoing tensions with Australia, tuning of Indonesia towards East Asia

July 2001 Parliament dismisses President Wahid over allegations of corruption and incompetence. Vice-President Megawati Sukarnoputri is sworn in as President.

Feb 2002 East Timor, Indonesia sign agreements aimed at easing relations before East Timor becomes fully independent in May.

August 2002 Top legislators pass constitutional changes seen as a key step towards democracy. For the first time, Indonesian voters able to elect their president and vice president.

At the same time, through October 2003, Indonesia has helped push forward pro-active new policies for ASEAN and the wider region, both in enhancing regional integration, and deepening 'strategic partnerships' with India and China. As a whole, though tensions continue over the South China Sea, over low Chinese labour costs affecting ASEAN's competitiveness (Suryodipuro 2002, p208), though Indonesia may now have some advantages in overall average unit costs (see Tham 2003, p34), and Chinese military modernisation, there has been a distinct opening up of relations between ASEAN and China. First, China has gradually turned towards a dialogue approach with Southeast Asia, e.g. via the Indonesia hosted South-China dialogue process and then via convergence on a Code of Conduct for the South China Sea. From early 2002 a system of sharing intelligence to fight against terrorism was set up by Indonesia, Malaysia and Philippines, and Thailand (Xinhua 2002a). Furthermore, once Vietnam withdrew from Cambodia, and once US-China relations improved, Indonesia moved to normalise and improve relations with PRC, as had all ASEAN members by 1991 (see further Ba 2003). This process was aided by some improvement in Sino-Vietnam relations, by the formation of the ASEAN-Plus-Three and its regular Summits, by the acceptance of the Declaration on the Conduct of Parties in the South China Sea, and the 2002 agreement for an ASEAN-China free trade agreement to begin by 2010 (Chin 2003, po19-20). This reduced recent historical impediments in the centuries old relationship between Indonesia and China.

In spite of successes at the diplomatic and regional level, Indonesia in recent years has had to face severe problems that have challenged its goals of national resilience, development and democratic transition. These include rapid if uneven economic reform, a new political openness that accelerates local and national political competition, coming to terms with the difficult path of independence for East Timor, renewed military crises in Aceh and political tensions in West Papua (see McGibbon 2003), and sustained ethno-religious and inter-communal violence in Maluku and Central Sulawesi, including problems in Ambon and Poso, (Crouch 2003, p27) though these were partly stabilised from late 2001 onwards, in part due to peace efforts by respective religious communities (Smith 2003, p107). Likewise, Indonesia was perceived internationally as one leg of a failed Asian capitalism, though the lessons of the 1997-1998 crises suggested that poorly regulated hot-money and lack of the reading of warning signs by investors, banks and credit-rating agencies, plus a problematic IMF program, were part of the wider economic problem. Through 2002, domestic Indonesian growth (GDP) returned to approx. 4.4% in 2003, and 5.1% in 2004, 5.6% in 2005, and projected as 5% for 2006, but this was from a 'low baseline' with uncertain sustainability both at the economic and social levels (Chin 2003, p3; ADB figures via DFAT 2006; Ikhsan 2003, p49). This will probably not be enough by itself to seriously reduce unemployment and poverty levels (though the government had hoped that poverty might decline by 4-7% through 2004, Perdana 2002). The issue to be confronted is not just reform, but the sustainability of the reform process (Ikhsan 2003, pp54-55).

Poverty and unemployment levels had seriously increased through 1998 (estimates for those living below the poverty line in 1998 varied from 50%, an International Labour Organization figure, to revised Indonesian figures of 34-39% in mid-1998, Perdana 2002, or as low as 24.2% for December 1998, Ananta 2003, p10), though by 1999 there was some rebound and gradual adaptation to the new conditions, with one source suggesting only 18.2% under the poverty line in August 1999 (Hatmadji & Mursitama 2003, p290). Though calculations vary, most show some reduction in poverty from 2001 (BPS and LPEM figures),[2] with World Bank figures revealing a longer and slower decline through 2001-2002 (see Ikhsan 2003, figure 3.8, p41; for poverty mapping from the village level up in selected provinces, see Suryahadi et al. 2003). Poverty in the developmental context, of course, needs to look at not just a 'poverty line' based on income, but also include issues such as transient verses chronic poverty, and those vulnerable to dropping below the poverty line due to 'capability deprivation' (Perdana 2002). Poverty in a developmental sense should include measures of opportunity, empowerment, security, and capability (UNFPA 2001), thereby incorporating measures sensitive to social vulnerabilities and a wider notion of privation (Ogata & Sen 2003; Kumar 1999; Ferguson 2004). Official unemployment estimates remained above 9% through 2002-2005 (DFAT 2005).

Although Indonesia has begun to stabilise, there were still major concerns about low growth in merchandise exports and some slowing of the restructuring on non-performing loans and assets through the Indonesian Bank Restructuring Agency (Tham 2003, p31; Smith 2003, pp111-112). Concerns have also been expressed about the Social Safety Net (SSN) program, and the National Movement for Poverty Alleviation. Although a number of communities have been aided by these programs, up to 10-14% of the early SNN loans may have been 'corrupted' and gone to the 'non-poor' (Ananta 2003, p20; see further Hatmadji & Mursitama 2003; for efforts in the directions of a long-term National Poverty Reduction Strategy Paper, see SMERU 2003). The SNN, targeting both the short-term impact of the 1997-1998 crisis and focusing on long term development, has programs in Health, Education, provision of rice at cheap prices, and regional empowerment to increase local incomes. Though money flows were quickly dispersed they were not always well targeted (Hatmadji & Mursitama 2003, pp278-280). This problem become an issue of sustainability when combined with wider concerns about ongoing vulnerability to renewed political shocks (though the domestic economy and investors seem to pay limited attention to 'security threats', Ababta 2003, p13). In this context, the Tsunami of December 2004 was a major blow to regional development, especially in Aceh (see below).

At the regional level, there has also been a number of intensifying transnational problems, including international terrorism, undocumented migration flows, deportation of illegal workers (as has recently soured Malaysia-Indonesia relations, with another round of tensions on this issue through early 2005), money laundering, people smuggling, and piracy across international borders (Suryodipuro 2002, pp211-212; Singh & Chin 2003, pix; see below). Transboundary environmental damage, especially the 'haze' from major fires in Sumatra and Borneo,[3] plus ongoing concerns about resource extraction from EEZ (exclusive economic zones) have also been of concern (see Tan & Boutin 2001; Glover & Jessup 1999). Tensions also emerged through early 2005 with Malaysia over sea boundaries and legal control of energy resources in disputed areas. These factors have placed a number of new pressures on Indonesia that give it a problematic prominence in the 21st century structuring of non-traditional 'global threat perceptions'. As we shall see, Indonesia, to protect its economic and democratic transitions, may need to sustain its democratic and developmental transitions.

2. National Diversity Amid Democratic Transition and Decentralisation

Within Indonesia, in spite of the relative dominance of Javanese populations, the archipelago has a diverse ethnic and religious mix that has only been partially explored in recent censuses (see Suryadinata et al. 2003). The problem of ethnicity, identity, custom and religion among diverse socio-economic groups has received renewed attention during the difficult years of transition. Survey data suggests that ethnic diversity remains the norm for most across Indonesia, with strong regional variations. Collations of data from the 2000 census show that Javanese comprise almost 42% of the population, followed by Sundanese (approximately 15%), then by another 7 major groups with over 2% of the total population (Suryadinata et al. 2003, Figure 1.2.1, p13). One sensitive issue has been the under-reporting of Chinese ethnic identity, and though there was some slightly increase in the 'absolute' number of Chinese reported between 1930-2000, this has been masked by sensitivity to inter-ethnic tensions (Suryadinata et al. 2003, p11, pp73-75). Some small migration outflows occurred during crisis periods, e.g. after May 1998, with some concerns about business safety at that time (Suryadinata et al. 2003, p79; Darwin 2003, p129; Economist Intelligence Unit 2005, p17). Past estimates of ethnic Chinese in Indonesia have thus varied from 2.4 to 5%, but a more recent calculation based on census figures put this group at approx. 1.5% of the population (Suryadinata et al. 2003, p73, p101).

Historically, dozens of different languages and culture systems exist, with the very diverse Javanese courts, Aceh and Minangkabau societies (both in Sumatra), the Buginese people (originally of the north Celebes) giving a small sample of the different cultures of Indonesia (see Kumar 1979). We can sense something of this complexity when we note, for example, that though Java is the most populous island of Indonesia, houses its capital, and is the most influential politically, the official language of Indonesia (Bahasa Indonesian) is in fact a variant of the Malay found originally in Sumatra. Malay, however, was used as a widespread trading language at least from the 17th century and therefore was effective as a shared language, which was actively promoted by the Dutch in the early 20th century (Kumar 1979, p17; Van Niel 1979, p146). It had also been preferred by some of the pro-Dutch Javanese administrators in the nineteenth century (a fact disapproved of by the 19th century Javanese rebel leader Dipanagara, see Carey 1979, p77). The choice of this language rather than Javanese as the national language was in fact a wise diplomatic move by the modern Indonesian government, since it emphasised national identity transcending that of Java alone.