New Political
Parties.
The complexity of the parliamentary elections will be compounded
by the tremendous proliferation of political parties since
Suharto's fall. During the Suharto era, only two
government-sanctioned opposition parties
were permitted to challenge the ruling GOLKAR party, which always
managed to win handily and thus maintained an iron grip on the
presidency and the Parliament. Under B. J. Habibie, Suharto's
successor as president, political parties have been allowed to form
freely; 48 parties are contesting the June elections, although only
five are major parties.
One
of the five major political parties is GOLKAR, which maintains some
of its former power because of its wealth and continued
organizational presence throughout the country. It is attempting to
overcome deep and lingering resentment over Suharto-era corruption,
repression, and abuse by projecting a vague new image of reform.
GOLKAR is led by Habibie, who will be its candidate for president
later this year.
In a
significant development, on May 17, two days before the official
beginning of the campaign season, leaders of three of the remaining
major political parties announced the formation of a "united front"
in support of GOLKAR's ouster from power. The fourth party joined
the coalition shortly thereafter, considerably reducing the
likelihood of GOLKAR's continued control of Parliament.
Finally, the military's role in
determining control of the next Parliament cannot be ignored.
Putting aside its ability to inject itself into politics by force
of arms, the Indonesian military will control 38 seats in the new
500-member Parliament. With this unified bloc, it could play an
important part in determining control of the Parliament, and the
parties will have to be careful about how forcefully they call for
any reduction of the military's role in politics.
The Islamic
Equation.
Some 88 percent of Indonesia's 210 million people call themselves
Muslims, and there is some concern, especially among members of
minority religions as well as the more secular-minded, that the
country is headed for a closer integration of church and
state. These fears are
compounded by the fact that three of Indonesia's five major
political parties are Islamic-based, and there has been a
noticeable resurgence of Islam in recent decades, especially in
more urban areas. Perhaps most worrisome
has been the spate of religious violence, mostly between Muslims
and Christians, that has tormented Indonesia in recent months. The
most violent Muslim-Christian clashes have occurred in the city of
Ambon and may have claimed over 1,000 lives, although an exact
death toll is unknown.
Balanced against these alarming facts are
some that are more comforting. The Indonesian brand of Islam
traditionally has been moderate in nature, and none of Indonesia's
major Islamic leaders has come out in favor of creating an Islamic
state. In fact, all political
parties are required officially to adhere to the state ideology of
"Pancasila," which formally recognizes five religions and downplays
religious belief as a basis for public action in favor of "God,
humanity, national unity, democracy, and social justice."
East Timor's Future
The
next crucial ballot is an August 8 referendum to determine the
future of the province of East Timor, which was invaded by
Indonesia in 1975 and forcibly annexed the following year after the
pullout of Portugal, East Timor's former colonial ruler. The United
Nations has never recognized Indonesia's dominion over East Timor,
and Portugal has led a long international campaign against
Indonesian rule. Likewise, a large segment of East Timor's
population has never accepted Indonesian rule.
Between 200,000 and 250,000 East Timorese
died from fighting or famine in the aftermath of the Indonesian
invasion, and Jakarta has paid a high price in terms of
international credibility for its continued subjugation of the
people of East Timor. Jakarta's harsh rule, however, also was
accompanied by substantial government investment in developing East
Timor's economy. President Habibie surprised the world in January
of this year with his announcement that East Timor would be allowed
to choose between outright independence and greater autonomy within
Indonesia.
Prospects for Violence.
After struggling for independence for so long, however,
East Timor may not be ready to go it alone. An
independent East Timor would have little or no industry to call its
own and meager exports on which to rely.
Fully half of its modest gross domestic product (GDP) of $113
million in 1998 came from Indonesian government spending, prompting
fears that a liberated East Timor would become a perennial
recipient of international aid to survive.
Even
more serious is the threat that an independent East Timor would
descend quickly into civil war, much as it did upon the Portuguese
withdrawal in 1975. The possibility of violence is all too real.
Although popular sentiment in East Timor broadly favors
independence from Indonesia, it is badly divided over the timing of
that independence. Many East Timorese, including even detained
pro-independence resistance leader Xanana Gusmao, favor a period of
autonomy before any potential independence, most likely owing to
genuine fears over the viability of an independent East Timor.
Unfortunately, the Indonesian military
also is contributing to the possibility of violence by heightening
tensions in advance of the referendum. Some important generals
appear to be challenging President Habibie's decision to allow the
people of East Timor to determine their own political fate, perhaps
fearing that pro-independence sentiment there would embolden
similar separatist movements in the provinces of Aceh and Irian
Jaya. The military tacitly admits supporting "pro-integration"
militias in East Timor,
which for weeks have been terrorizing and intimidating
"pro-independence" supporters, shooting and hacking to death 57 in
one particularly gruesome incident in the city of Liquica. In
addition to the killing and death threats against pro-independence
leaders and organizations, the pro-integration militias reportedly
are holding entire villages captive in an effort to intimidate the
villagers into voting to remain part of Indonesia.
In a
small measure of hope against the campaign of violence and terror
being waged by the pro-integration militias backed by the military,
Australia spearheaded an effort in April to create a United
Nations-led police force of 300 officers from Australia, Britain,
Germany, Japan, the Philippines, and the United States to help
maintain peace in the run-up to the August referendum. Although it would be
better if this police force were regionally led rather than
U.N.-led, it may be able to serve a useful purpose if it is not
allowed to hinder the eventual settlement of underlying divisions
between the parties by becoming a permanent fixture of the East
Timorese political landscape.
Selection of the President
The
final vote, which will take place in November, is perhaps the most
important of the three. At that time, the People's Consultative
Assembly, or MPR, will convene in a
special session to select Indonesia's president, who will serve a
full five-year term.
From
the time of Suharto's resignation, President Habibie's role has
been to serve as an interim president until new elections could be
held. Although Habibie has indicated that he will seek election on
his own, his interim status and tenuous grip on power have meant
slow going on badly needed economic reforms and a wait-and-see
attitude on the part of foreign investors before once again sinking
their money into Indonesia. Thus, it is hoped that a peaceful and
legitimate presidential selection process will restore
international confidence in Indonesia and allow it to get on with
the business of reforming and retooling its economy. But the
presidential selection process is marred by the fact that the
Indonesian people play only an indirect role, through a mix of
elected and appointed officials, in the determination of their own
president.
NEED FOR CONTINUED POLITICAL REFORM
At
stake in the three major votes of 1999 is nothing less than
Indonesia's commitment to peaceful democratic reform. Although much
remains to be done, Indonesia's political reform under President
Habibie has been rapid and impressive. For instance, soon after
coming to power, President Habibie freed some political prisoners,
relaxed restrictions on the press, and permitted the free formation
of opposition political parties. In a move that would have been
unheard of during the Suharto presidency, he acceded to the
restriction of the president's tenure to two five-year terms.
Another break from the Suharto era was the ban on political
participation by civil servants, a force previously used to great
advantage by the ruling party.
Habibie also exceeded expectations by
deciding to allow East Timorese to choose between independence and
greater autonomy within Indonesia. Moreover, a measure was passed
in April 1999 that granted extensive authority to the provinces in
a variety of matters. The creation of a more competent and
independent system of local governance in the provinces will be a
key test for the next administration. This is needed to help
prevent further violent disintegration in Indonesia.
Despite this progress, however, there is
still much room for improvement, particularly in regard to the
military and its role in Indonesian society. In one positive move,
the military's representation will be cut from 75 to 38 seats in
the next Parliament with the general understanding that the number
of seats will fall to zero after the election in 2004. So that
there will be no confusion about the military's diminishing role in
Indonesian politics, this general understanding should be codified
into law.
Moreover, the investigations into serious
allegations of the active or passive involvement of the military in
the violent rioting that led to Suharto's resignation should
continue, and those who are implicated should be dishonorably
discharged and punished for their actions. Investigations also
should continue on the military's involvement in human rights
abuses in East Timor, as well as its arming and support of
"pro-integration" militias in advance of the August 1998 referendum
there. Finally, Indonesia should indicate its intention to move
toward direct election of the president.
THE ECONOMIC CRISIS AND THE NEED FOR
REFORM
Indonesia's next president will face
tremendous challenges in trying to revive an economy devastated by
years of misguided policies and the effects of the Asian economic
crisis, which hit Indonesia harder than any other country. The
Indonesian economy shrank by 13.7 percent in 1998 after having
averaged 7 percent growth for the previous 25 years; and after Indonesia's
currency, the rupiah, crashed in August of 1997, the economy
essentially came to a standstill. The depressed value of the rupiah
meant that businesses were unable to repay their debts and banks
were unable to lend. Millions of Indonesians suddenly were thrust
into poverty and rendered unable to afford the necessities of daily
life.
In
addition, the effects of the crisis were magnified by years of
Suharto-era cronyism and corruption, such as imprudent lending to
friends and relatives of the president. It was against this
backdrop that Indonesians took to the streets to protest the
Suharto regime's ineffective response to the crisis, leading to
Suharto's resignation in May 1998.
Indonesia's economy has remained largely
moribund despite an IMF assistance package that has grown to $50
billion. Indonesia's leaders
have relied on IMF largess instead of taking the bold steps
necessary to overhaul and retool the economy. President Habibie's
interest in economic reform, for instance, frequently has seemed
geared to meeting the minimum requirements for the continuation of
international financial aid.
Continued large-scale foreign assistance
cannot provide a lasting solution to Indonesia's economic crisis.
Suharto's government repeatedly hedged or refused to advance needed
economic reforms while the IMF and other aid agencies continued to
provide assistance. Indeed, organizations like the World Bank
reportedly knew their loans to Indonesia were being funneled to
Suharto family businesses. The World Bank also turned a blind eye
toward corruption in projects it funded and accepted false
government economic statistics to allow Indonesia to get better
credit ratings.
The
real answers to Indonesia's economic crisis are to be found in
responding to the economy's need for broad reform in its financial,
legal, trade, and agricultural sectors. These reforms are needed to
end the effects of the stifling policies of the Suharto years that
allowed selected cronies to act above the law, maintain
market-distorting monopolies, and sustain unsound banks.
Recently, however, some encouraging signs
have begun to emerge. The World Bank is predicting that the economy
already may have struck bottom and may be poised to resume growth
of 1 percent in fiscal year 1999. While this assessment is clearly
a minority view, nearly all independent analysts predict resumed
growth in 2000.
Several economic fundamentals buttress
these claims. The rupiah is now trading at around 8,000 to the
dollar, still a far cry from the pre-crisis level of around 2,450
but a dramatic improvement over the 17,000 mark to which it fell
during the darkest days of the economic crisis. This strengthening
of the rupiah demonstrates increased confidence in the Indonesian
economy. Interest rates are down from over 50 percent last year to
around 35 percent. Inflation has moderated and is on track to land
in the 15 percent-20 percent range after reaching 77.6 percent in
1998.
Moreover, the rebound in world oil prices
has been a boon to oil-rich Indonesia, and 1998 saw a good harvest
after an El Niño-induced drought the year before brought the
threat of widespread food shortages. Thus, it is perhaps not
surprising that in the first quarter of 1999, Indonesia experienced
its first quarterly increase in GDP growth since the onset of the
crisis in August 1997, a gain of 1.3 percent over the previous
quarter.
Although Indonesia has made halting
progress toward reforming its economy in the wake of the Asian
economic crisis, crucial reforms await the next government.
Especially important is breathing new life into the crippled and
bloated banking industry, which must function efficiently if it is
to serve as an engine of growth for the overall economy. Since the
onset of the crisis, the government has closed 66 insolvent banks
and taken control of 12 others, while an additional four have been
merged into one.
Although thinning the ranks of the banking
sector is a good and necessary first step, however, it does not
address the fundamental problem of recapitalizing the surviving
banks. For this, the government is turning to a plan to pay for 80
percent of the recapitalization of eight banks, a bailout that it
is estimated will cost at least $35 billion over the coming decade.
Unfortunately, it is by no means certain that cash-poor Indonesia
will be able to afford this, and the country could thus be forced
back into the arms of the IMF.
Meaningful bankruptcy reform is also
necessary to get the economy moving again. An integral part of a
healthy banking system, an orderly and efficient bankruptcy
procedure is imperative both to clear old debt and to attract new
investors. A new bankruptcy law and commercial court were
established in September 1998, but the court has been plagued by
corruption, inefficiency, and a lack of understanding of modern
business practices. As a result, debtors and creditors alike have
been reluctant to turn to the court for relief, and the new
bankruptcy law has failed to provide the anticipated jump-start for
the economy.
Another vital economic reform that
Indonesia needs to undertake is a reduction in barriers to trade.
Attempts to develop domestic industries and concerns about food
security have resulted in a jumble of restrictions on trade and
foreign investment, such as a 60 percent tax on palm oil exports
introduced in July 1988. These restrictions have severely undercut
Indonesia's ability to take advantage of the Asian economic
crisis-inspired reduction in the value of the rupiah to reap badly
needed export earnings. Thus, Indonesia is denied foreign exchange
earnings at the very time they are most needed.
INDONESIA'S ECONOMIC AND STRATEGIC
IMPORTANCE TO THE U.S.
Indonesia is economically and
strategically important to the United States. Despite severe
economic hardship, Indonesia was still America's 27th-largest
trading partner in 1998 (and 23rd-largest the year before). It
purchased more than $2 billion in U.S. exports, in the process
supporting more than 32,600 American jobs.
Strategically, too, Indonesia is important
to Southeast Asia and to U.S. interests in the region. For
instance, it sits astride vital sea-lanes connecting the Pacific
and Indian Oceans, through which passes 40 percent of the world's
shipping, including 80 percent of Japan's oil supply and 70 percent
of South Korea's. As the world's largest Muslim country, Indonesia
offers an example of moderation in the Islamic world. Moreover,
Indonesia has been wary of China's intentions in the region and has
worked within the Association of Southeast Asian Nations (ASEAN) to
convince China to modify its claims to most of the South China Sea.
Indonesia also has demonstrated its willingness to work with the
U.S. to maintain peace and stability in the region by engaging in
joint military exercises with American forces and providing access
to repair yards in Surabaya to U.S. Navy ships.
Thus, it is clearly in the U.S. interest
that Indonesia continue its evolution toward greater political and
economic freedom so that it can serve as an even closer partner to
help instill peace and prosperity in the region. But Indonesians
have just begun their new political journey. The June 7 elections
could be an important step forward, but they also could further
empower forces dividing Indonesia along ethnic, religious, or
provincial lines.
Since the peaceful and credible conduct of
Indonesia's three momentous votes of 1999 is such an important
prerequisite for Jakarta's continued political and economic growth,
the United States should take several actions to support
Indonesia's progress toward these goals:
- Offer assistance to help assure that
Indonesia's three major votes during 1999 are peaceful and
credible, and contribute to the strengthening and consolidation of
democracy.
Non-governmental organizations such as the International
Foundation for Election Systems (IFES), the International
Republican Institute (IRI), and the National Democratic Institute
(NDI) already are playing an instrumental role in helping to ensure
that the June parliamentary elections are free, fair, and conducted
peacefully. Funding for these organizations' programs in Indonesia,
however, is set to dwindle markedly after the June 7 elections. Few
provisions have been made for follow-on programs that could assist
in the potentially difficult August referendum on East Timor and
the November selection of the president. If the June elections are
successful, Congress should continue funding these organizations to
remain on the scene, thereby increasing the likelihood that the
other two elections will be successful.
These organizations also could implement
badly needed educational programs to build on rudimentary
Indonesian democratic skills, teaching fundamental principles of
democracy such as coalition- and consensus-building skills, the
appropriate role of a parliament, how constituents can hold their
representatives accountable, and how representatives can be
accountable to their constituents. They also can work toward more
advanced skills like the constitutional amendment process to
provide a basis for addressing weighty issues, such as the creation
of a direct-election presidential selection system and the eventual
elimination of the military's role in politics.
-
Declare that the United States
and the world will be watching the process and outcome of
Indonesia's votes in 1999.
President Clinton and the Congress should publicly
encourage Indonesian voters to value their newfound authority and
exercise it with deliberation and restraint. To help decrease the
possibility of destabilizing post-election violence, the
Administration and Congress should explain that tolerance is a key
democratic value. They should also warn the Indonesian military and
police to conduct themselves honorably and with restraint.
-
Avoid peacekeeping commitments
in East Timor.
While the Australian initiative for a United Nations-led
international police force for East Timor's August referendum may
help deter election-related violence, the U.S. should not support
the creation of a U.N.-led peacekeeping force for East Timor if
violence erupts after the August referendum. Such a peacekeeping
force, which was considered briefly by Australia, would not have
the full support of Jakarta and other regional capitals and should
not be considered in the absence of a credible and enforceable
peace agreement between the parties. Given the U.N.'s abysmal
peacekeeping record, diplomatic efforts toward East Timor should
focus instead on dispute resolution and reconciliation between the
parties. Finally, if a peacekeeping force is inserted into East
Timor, under no circumstances should it include American troops,
who could be viewed by Indonesians as an unwelcome or inflammatory
intrusion into their domestic political process.
-
Press Indonesia to implement
badly needed economic reforms and not rely on International
Monetary Fund assistance to solve its economic
problems.
Despite an IMF bailout plan that has ballooned to $50 billion,
Indonesia remains mired in recession. The Clinton Administration
and Congress should stress at every opportunity that Indonesia's
best hope for returning to prosperity lies in the adoption of
free-market economic reforms and rooting out all vestiges of
corruption and inefficiency from the Suharto era. At a minimum,
these reforms should include restructuring of the banking industry,
amendment of the bankruptcy process to create a functioning and
effective means of dealing with bad debt, and reduction of barriers
to trade and international investment. Although these reforms will
be painful at times, they also will reduce the likelihood of future
economic catastrophe. And they will have the added benefit of
placing the economic future in Indonesia's own hands and ending
once and for all the need to rely on international assistance for
survival.
-
Promote reforms in Indonesia's
military and consider rebuilding ties with the military if it acts
honorably and responsibly in all three of Indonesia's 1999
polls.
If the Indonesian military behaves positively--including
the cessation of cooperation with pro-integration militias in East
Timor--the United States should reinstate the International
Military Education and Training (IMET) program with Indonesia. This
program allows foreign military officers to study in the United
States and witness firsthand the relationship between the U.S.
military and civil society. Former President Suharto suspended
Indonesian participation in this program in June 1997 because of
U.S. congressional criticisms of human rights abuses in East Timor.
After a series of peaceful and successful votes in 1999, a renewed
IMET relationship with the United States could represent for the
military a break with its troubled past and the beginning of a new
era focused on greater professionalism, civilian control, and
respect for human rights.