Background Notes: Indonesia

Contributed By RealAdventures

Indonesia's 201 million people make it the world's fourth-most populous nation. The island of Java is one of the most densely populated areas in the world, with more than 107 million people living in an area the size of New York State. Indonesia includes numerous related but distinct cultural and linguistic groups, many of which are ethnically Malay. Since independence, Bahasa Indonesia (the national language, a form of Malay) has spread throughout the archipelago and has become the language of most written communication, education, government, and business. Many local languages are still important in many areas, however. English is the most widely spoken foreign language.

Education is free and compulsory for children through grade 9. Although about 92% of eligible children are enrolled in primary school, a much smaller percentage attend full time. About 44% of secondary school-age children attend junior high school, and some others of this age group attend vocational schools.

Constitutional guarantees of religious freedom apply to the five religions recognized by the state, namely Islam (87%), Protestantism (6%), Catholicism (3%), Buddhism (2%), and Hinduism (1%). In some remote areas, animism is still practiced.

By the time of the Renaissance, the islands of Java and Sumatra had already enjoyed a 1,000-year heritage of advanced civilization spanning two major empires. During the 7th-14th centuries, the Buddhist kingdom of Srivijaya flourished on Sumatra. At its peak, the Srivijaya Empire reached as far as West Java and the Malay Peninsula. Also by the 14th century, the Hindu Kingdom of Majapahit had risen in eastern Java. Gadjah Mada, the empire's chief minister from 1331 to 1364, succeeded in gaining allegiance from most of what is now modern Indonesia and much of the Malay archipelago as well. Legacies from Gadjah Mada's time include a codification of law and an epic poem.

Islam arrived in Indonesia sometime during the 12th century and, through assimilation, supplanted Hinduism by the end of the 16th century in Java and Sumatra. Bali, however, remains overwhelmingly Hindu. In the eastern archipelago, both Christian and Islamic proselytizing took place in the 16th and 17th centuries and, currently, there are large communities of both religions on these islands.

Beginning in 1602, the Dutch slowly established themselves as rulers of present-day Indonesia, exploiting the weakness of the small kingdoms that had replaced that of Majapahit. The only exception was East Timor which remained under Portugal until 1975. During 300 years of Dutch rule, the Dutch developed the Netherlands East Indies into one of the world's richest colonial possessions.

During the first decade of this century, an Indonesian independence movement began and expanded rapidly, particularly between the two World Wars. Its leaders came from a small group of young professionals and students, some of whom had been educated in the Netherlands. Many, including Indonesia's first president, Sukarno (1945-67), were imprisoned for political activities.

The Japanese occupied Indonesia for 3 years during World War II. On August 17, 1945, 3 days after the Japanese surrender to the Allies, a small group of Indonesians, led by Sukarno and Mohammad Hatta proclaimed independence and established the Republic of Indonesia. They set up a provisional government and adopted a constitution to govern the republic until elections could be held and a new constitution written. Dutch efforts to reestablish complete control met strong resistance. After 4 years of warfare and negotiations, the Dutch transferred sovereignty to a federal Indonesian Government. In 1950, Indonesia became the 60th member of the United Nations.

Shortly after hostilities with the Dutch ended in 1949, Indonesia adopted a new constitution providing for a parliamentary system of government in which the executive was chosen by and made responsible to parliament. Parliament was divided among many political parties before and after the country's first nationwide election in 1955, and stable governmental coalitions were difficult to achieve. The role of Islam in Indonesia became a divisive issue. Sukarno defended a secular state based on Pancasila while some Muslim groups preferred either an Islamic state or a constitution which included preambular provision requiring adherents of Islam to be subject to Islamic law.

At the time of independence, the Dutch retained control over the western half of New Guinea, and permitted steps toward self-government and independence. Negotiations with the Dutch on the incorporation of the territory into Indonesia failed, and armed clashes broke out between Indonesian and Dutch troops in 1961. In August 1962, the two sides reached an agreement, and Indonesia assumed administrative responsibility for Irian Jaya on May 1, 1963. The Indonesian government conducted an "Act of Free Choice" in Irian Jaya under UN supervision in 1969, in which 1025 Irianese representatives of local councils agreed by consensus to remain a part of Indonesia. A subsequent UN General Assembly resolution confirmed the transfer of sovereignty to Indonesia. Opposition to Indonesian administration of Irian Jaya gave rise to small-scale guerrilla activity in the years following Jakarta's assumption of control. In the more open atmosphere since President Habibie took office, there have been more explicit expressions within Irian Jaya of a desire for independence from Indonesia.

From 1524 to 1975, East Timor was a Portuguese colony on the island of Timor, separated from Australia's north coast by the Timor Sea. As a result of political events in Portugal, Portuguese authorities abruptly withdrew from Timor in 1975, exacerbating power struggles among several Timorese political factions. An avowedly Marxist faction called "Fretilin" achieved military superiority. Fretilin's ascent in an area contiguous to Indonesian territory alarmed the Indonesian Government, which regarded it as a threatening movement. Following appeals from some of Fretilin's Timorese opponents, Indonesian military forces intervened in East Timor and overcame Fretilin's regular forces in 1975-1976. Small-scale guerrilla activity persisted after Indonesia declared East Timor its 27th province in 1976, following a petition by a provisional government for incorporation into Indonesia.

The UN never recognized Indonesia's incorporation of East Timor, and later brokered negotiations between Indonesia and Portugal on the territory's status. In January 1999, the Indonesian government agreed to a process, with UN involvement, under which the people of East Timor would be allowed to choose between autonomy and independence through a direct ballot. The direct ballot was to be held in late August 1999.

Unsuccessful rebellions on Sumatra, Sulawesi, West Java, and other islands beginning in 1958, plus a failure by the constituent assembly to develop a new constitution, weakened the parliamentary system. Consequently, in 1959, when President Sukarno unilaterally revived the provisional 1945 constitution, which gave broad presidential powers, he met little resistance.

From 1959 to 1965, President Sukarno imposed an authoritarian regime under the label of "Guided Democracy." He also moved Indonesia's foreign policy toward nonalignment, a foreign policy stance supported by other prominent leaders of former colonies who rejected formal alliances with either the Western or Soviet blocs. Under Sukarno's auspices, these leaders gathered in Bandung, West Java, 1955, to lay the groundwork for what became known as the Non-Aligned Movement. In the late 1950's and early 1960's, President Sukarno moved closer to Asian communist states and toward the Indonesian Communist Party (PKI) in domestic affairs. Though the PKI represented the largest Communist party outside the Soviet Union and China, its mass support base never demonstrated an ideological adherence typical of communist parties in other countries.

By 1965, the PKI controlled many of the mass civic and cultural organizations that Sukarno had established to mobilize support for his regime and, with Sukarno's acquiescence, embarked on a campaign to establish a "Fifth Column" by arming its supporters. Army leaders resisted this campaign. Under circumstances that have never been fully explained, on October 1, 1965, PKI sympathizers within the military, including elements from Sukarno's palace guard, occupied key locations in Jakarta and kidnapped and murdered six senior generals. Major General Soeharto, the commander of the Army Strategic Reserve, rallied army troops opposed to the PKI to re-establish control over the city.

Violence swept throughout Indonesia in the aftermath of the October 1 events, and unsettled conditions persisted through 1966. Rightist gangs killed tens of thousands of alleged communists in rural areas. Estimates of the number of deaths range between 160,000 and 500,000. The violence was especially brutal in Java and Bali. During this period, PKI members by the tens of thousands turned in their membership cards. The emotions and fears of instability created by this crisis persisted for many years; the Communist Party remains banned from Indonesia.

Throughout the 1965-66 period, President Sukarno vainly attempted to restore his political position and shift the country back to its pre-October 1965 position. Although he remained president, in March 1966, Sukarno had to transfer key political and military powers to General Soeharto, who by that time had become head of the armed forces. In March 1967, the Provisional People's Consultative Assembly (MPRS) named General Soeharto acting president. Sukarno ceased to be a political force and lived under virtual house arrest until his death in 1970.

President Soeharto proclaimed a "New Order" in Indonesian politics and dramatically shifted foreign and domestic policies away from the course set in Sukarno's final years. The New Order established economic rehabilitation and development as its primary goals and pursued its policies through an administrative structure dominated by the military but with advice from Western-educated economic experts.

In 1968, the People's Consultative Assembly (MPR) formally selected Soeharto to a full 5-year term as President, and he was re-elected to successive 5-year terms in 1973, 1978, 1983, 1988, 1993, and 1998. In mid-1997, Indonesia was afflicted by the Asian financial and economic crisis, accompanied by the worst drought in fifty years and falling prices for oil, gas, and other commodity exports. The rupiah plummeted, inflation soared, and capital flight accelerated. Demonstrators, initially led by students, called for Soeharto's resignation. Amidst widespread civil unrest, Soeharto resigned on May 21, 1998, three months after the MPR had selected him for a seventh term. Soeharto's hand-picked Vice President, B. J. Habibie, became Indonesia's third president.

President Habibie quickly assembled a cabinet. One of its main tasks was to re-establish IMF and donor community support for an economic stabilization program. President Habibie moved quickly to release several prominent political and labor prisoners, to initiate investigations into the unrest, and to lift controls on the press, political parties, and labor unions. He pledged to hold new elections; a special session of the MPR held in November 1998 advanced the date of parliamentary elections to June 1999. The parliament (DPR) rewrote the laws governing the elections.

Elections for the national, provincial, and sub-provincial parliaments were held on June 7, 1999 in which 48 parties competed. International and domestic observers and monitors declared that the elections, while not problem-free, had been free and fair. In early August, President Habibie ratified the poll count. For the national parliament, Parti Demokrasi Indonesia Perjuangan (PDI-P, Indonesian Democratic Party of Struggle led by Sukarno's daughter Megawati Sukarnoputri) won 34 percent of the vote; Golkar ("functional groups" party of the government) 22 percent; Partai Persatuan Pembangunan (PPP, United Development Party led by Hamzah Haz) 12 percent, and Partai Kebangkitan Bangsa (PKB, National Awakening Party led by Nadhlatul Ulama headed Abdurrachman Wahid), 10 percent. Parliamentary seats were be to allocated according to new regulations and the 200 additional members of the MPR chosen. The MPR was to select Indonesia's next President and Vice President in November 1999.

Indonesia is a republic based on the 1945 constitution providing for a limited separation of executive, legislative, and judicial power. The Habibie government has fashioned political reform legislation that -- without changing the 1945 Indonesian Constitution -- have formally set up new rules for the electoral system, the House of Representatives (DPR), the People's Consultative Assembly (MPR), and political parties. An MPR decree adopted in November 1998 limits the president to two terms in office. Substantial restructuring has occurred since President Soeharto's resignation.

The president, elected for a 5-year term, is still the dominant government and political figure. He is selected along with the vice president (a position left vacant by the ascension of Habibie to the presidency) by the MPR. The president, assisted by a cabinet that he appoints, has the authority to conduct the administration of the government and is accountable only to the MPR.

A new mixed district/proportional system is expected to result in a more representative House of Representatives (DPR), which might more effectively counter-balance the powers of the presidency. Under the new political laws enacted in January 1999, the House of Representatives (DPR) has 500 members, of which 462 are elected and 38 appointed seats reserved for for the armed forces (TNI). The People's Consultative Assembly (MPR), which elects the president and vice president, has 700 members, consisting of the 500 members of the DPR, 135 provincial representatives selected by provincial assemblies, and 65 representatives appointed by social and community groups.

Under the Soeharto regime, the ruling "functional group" GOLKAR dominated, and the United Development Party (PPP), and the Indonesian Democratic Party (PDI) were the only legal opposition parties. In the new political system there is theoretically no limit on competitive political parties, though they must fulfill organizational requirements demonstrating a presence in various provinces. Forty-eight parties fulfilled these criteria and participated in the June polling.

The armed forces shaped and provided leadership for Soeharto's New Order from the time it came to power in the wake of the abortive 1965 uprising. Military officers, especially from the army, have been key advisers to Soeharto and Habibie and have considerable influence on policy. Under the dual function concept ("dwifungsi"), the military asserts a continuing role in socio-political affairs. This concept has been used to justify placement of officers serve in the civilian bureaucracy at all government levels, although there has been a recent tendency to somewhat reduce the military's direct involvement in the civilian bureaucracies. Public calls for an end to the military's dual role have increased since Soeharto's resignation.

President--Bacharuddin Jusef Habibie Vice President--vacant Minister of Foreign Affairs--Ali Alatas Ambassador to the United States--Dorodjatun Kuntoro-Jakti Ambassador to the United Nations--Makarim Wibisono

The embassy of Indonesia is at 2020 Massachusetts Avenue NW., Washington, DC 20036 (tel. 202-775-5200-5207; FAX: 202-775-5365). Consulates General are in New York (5 East 68th Street, New York, NY 10021, tel. 212-879-0600/0615; FAX: 212-570-6206); Los Angeles(3457 Wilshire Blvd., Los Angeles, CA 90010; tel. 213-383-5126; FAX: 213-487-3971); Houston (10900 Richmond Ave., Houston, TX 77042; tel. 713-785-1691; FAX: 713-780-9644). Consulates are in San Francisco (1111 Columbus Avenue, San Francisco, CA 94133; tel. 415-474-9571; FAX: 415-441-4320); and Chicago (2 Illinois Center, Suite 1422233 N. Michigan Avenue, Chicago, IL 60601; tel. 312-938-0101/4; 312-938-0311/0312; FAX: 312-938-3148).

Indonesia has a market-based economy that was increasingly dominated by the private sector. The government still plays a significant role in the economy, however, through state-owned enterprises and administered prices on some basic goods, including fuel and electricity. In the aftermath of the financial and economic crisis that began in mid-1997, the government took custody of a significant portion of private sector assets.

In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. The steps were aimed primarily at the external and financial sectors and were designed to stimulate employment and growth in non-oil exports and revenues. During the thirty years of Soeharto's "New Order" government, Indonesia's economy grew from a per capital GDP of $70 to a per capita GDP of over $1,000 by 1996. Annual real GDP growth averaged close to 7 percent from 1987-97. Indonesia was recognized as a newly industrializing economy and emerging major market. By employing a restrictive monetary policy and a conservative fiscal stance, inflation was held in the 5 to 10 percent range, the rupiah was stable and predictable, and the government avoided domestic financing of budget deficits. Much of the development budget was financed by concessional foreign aid.

By the onset of the financial and economic crisis in mid-1997, unfinished deregulation steps included elimination of non-tariff barriers, privatization of state-owned enterprises, and removal of domestic subsidies, barriers to domestic trade, and export restrictions. In addition, development of institutions that would guarantee predictable regulatory behavior and discourage corruption, collusion, and nepotism had been sorely neglected.

In response to the regional financial problems that emerged in July 1997, Indonesia floated the rupiah, raised key domestic interest rates, and tightened fiscal policy. In October 1997, Indonesia and the IMF reached agreement on an economic reform program aimed at macroeconomic stabilization and elimination of some of the most egregious economic policy deviations such as the National Car Program and the clove monopoly, both controlled by Soeharto's youngest son. The economic reform program was strengthened in January 1998, with additional structural reform measures the centerpiece of the new measures. Continued uncertainty about President Soeharto's commitment to the program undercut its effectiveness. Although Government implementation of the program's monetary policy element improved after March 1998, confidence in Indonesia's willingness and ability to pursue necessary reforms began to recover only after Soeharto resigned.

As of mid-1999, the economic program had shown encouraging signs of exchange rate and interest rate stabilization. There were some indicators of renewed growth, especially as weather patterns returned to normal. Indonesia eliminated the National Car Program, removed important import monopolies, liberalized financial market access, and announced an expanded privatization program. As the worst of the crisis past, the government in tandem with major donors began to reform the social safety net programs that had been hastily implemented with an eye to improving targeting of the poor and reducing leakages. The government had taken major steps on banking sector restructuring, closing some banks, taking over others, and assisting with the recapitalization of state-owned banks and the strongest private sector banks. The "Jakarta Initiative" was launched to promote voluntary corporate debt restructuring, but the process was in its early stages as of mid-1999. The Bankruptcy Law was amended, but early cases provoked controversy. Some steps were taken toward investigating accusations of corruption by former President Soeharto and family members and associates.

The effects of the financial and economic crisis were severe. Real GDP contracted by an estimated 13.7 percent in 1998. Inflation reached 77 percent for the year. The rupiah, which had been in the Rp 2,400/USD1 range in 1997 reached Rp 17,000/USD1 at the height of the 1998 violence, returning to the Rp 6,500-8,000/USD1 range in late 1998. Export earnings languished for a variety of reasons, including flagging demand in major Asian markets, low commodity prices, lack of trade finance, and uncertainty about Indonesia's reliability as a supplier. Although the drought forced Indonesia to import record amounts of rice, overall imports dropped precipitously in response to the unfavorable exchange rate, reduced domestic demand, and absence of new investment. Although reliable unemployment data are not available, formal sector employment contracted significantly. The outlook for 1999 indicated that the bottom may have been reached. Prices rose by less than 2 percent in the first six months of the year, with inflation widely predicted to be less than 10 percent for the year. The rupiah's stabilization brought relief to the business community and the government budget.

Indonesia's public sector external debt rose from $54.2 billion in March 1998 to $67.2 billion by mid-1999. This figure was expected to increase further as funding from the international financial institutions and other donors helped finance the balance of payments and enabled the government to maintain an expansionary fiscal stance. Private sector external debt stood at approximately $81.5 billion.

Since independence, Indonesia has espoused a "free and active" foreign policy, seeking to play a role in regional affairs commensurate with its size and location but avoiding involvement in conflicts among major powers.

Indonesian foreign policy under the "New Order" government of President Soeharto moved away from the stridently anti-Western, anti-American posturing which characterized latter part of the Sukarno era. Under President Habibie, Indonesia has preserved its non-aligned position while seeking constructive, responsible relations with many nations.

A cornerstone of Indonesia's contemporary foreign policy is its participation in the Association of Southeast Asian Nations (ASEAN), of which it was a founding member in 1967 with Thailand, Malaysia, Singapore, and the Philippines. Since then, Brunei, Vietnam, Laos, Burma and Cambodia also have joined ASEAN. While organized to promote common economic, social, and cultural goals, ASEAN acquired a security dimension after Vietnam's invasion of Cambodia in 1979; this aspect of ASEAN expanded with the establishment of the ASEAN Regional Forum in 1994, which comprises 18 countries, including the U.S.

Indonesia was also one of the founders of the Non-Aligned Movement (NAM) and has taken moderate positions in its councils. As NAM Chairman in 1992-95, it led NAM positions away from the rhetoric of North-South confrontation, advocating instead the broadening of North-South cooperation in the area of development.

Indonesia has the world's largest Muslim population, but it is a secular state. Its Muslim population is by no means a homogenous community, rather its members range from strict to nominal adherents of Islam. It is a member of the Organization of the Islamic Conference (OIC), and while it carefully considers the interests of Islamic solidarity in its foreign policy decisions, it has been an influence for moderation in the OIC.

Since 1966, Indonesia has welcomed and maintained close relations with the donor community, particularly the United States, Western Europe, Australia, and Japan, through the Intergovernmental Group on Indonesia (IGGI) and its successor, the Consultative Group on Indonesia (CGI), which have provided substantial foreign economic assistance. Until recently, Indonesia had no diplomatic presence in Portugal, due to Indonesia's unilateral incorporation of the former Portuguese colony of East Timor. Under the auspices of the United Nations, Indonesia and Portugal have met regularly to discuss the future of the province. In August 1998, Indonesia and Portugal agreed to open reciprocal interest sections.

Indonesia restored diplomatic relations with China in 1990 and, with the end of the Cold War, has supported efforts to gradually expand a regional security dialogue, under the aegis of the ASEAN Regional Forum, to all Asia-Pacific nations. Indonesia has also been a strong supporter of the Asia-Pacific Economic Cooperation (APEC) forum. Largely through the efforts of President Soeharto at the 1994 meeting in Bogor, Indonesia, APEC members agreed to implement free trade in the region by 2010 for industrialized economies and 2020 for developing economies.

The United States has important economic, commercial, and security interests in Indonesia. Indonesia remains a linchpin of regional security due to its strategic location astride a number of key international maritime straits. Relations between Indonesia and the U.S. are good. The U.S. played an important role in Indonesian independence in the late 1940s, and appreciated Indonesia's role as a staunch anti-Communist bulwark during the Cold War. Cordial and cooperative relations are maintained today, although the two countries are not bound by any formal security treaties.

The United States and Indonesia share the common goal of maintaining peace, security, and stability in the region and engaging in a dialogue on threats to regional security. The United States has welcomed Indonesia's contributions to regional security, especially its leading role in helping restore democracy in Cambodia and in mediating among the many territorial claimants in the South China Sea. The United States and Indonesia maintain a modest, fruitful program of military cooperation that in the past has included military training, ship and aircraft visits, joint exercises, and mutual visits of ranking military officers.

Friction points in the bilateral political relationship in recent years have centered on human rights, including labor rights. The U.S. Congress cut off grant military training assistance (IMET) to Indonesia in 1992 in response to a November 12, 1991, incident in East Timor in which Indonesian security forces shot and killed East Timorese demonstrators. This restriction was partially lifted in 1995. The US has supported the dialogue between Indonesia and Portugal under UN auspices and the process leading to the East Timorese direct ballot on autonomy or independence. The U.S. continues to encourage the Habibie government to move ahead on economic and political liberalization and reform.

On worker rights, Indonesia was the target of two 1992 petitions filed under the Generalized System of Preferences (GSP) legislation. The petitions argued that Indonesia did not meet recognized labor standards, of military intervention in legitimate labor activity, and severe restraints on the rights of workers to associate and organize. A formal GSP review was suspended in February 1994 without terminating GSP benefits for Indonesia. Indonesia has taken some positive steps to improve worker rights under President Habibie, including ratifying seven International Labor Organization core conventions on protecting internationally recognized worker rights. However, as a result of the current financial crisis, the government acknowledges an increase in child labor (10-14 years old) from 2 million to 2.5 million, though non-governmental organizations argue the number may be much higher.

Ambassador--J. Stapleton Roy Deputy Chief of Mission--Michael Owens Political Counselor--Pamela Slutz Economic Counselor--Judith Fergin Administrative Counselor--John Salazar USAID Director--Desaix Myers, III Defense Attache--Col. Joseph Daves Consul General--Stephen Edson Public Affairs Officer--Richard Gong Agricultural Counselor--Robin Tilsworth-Rude Commercial Counselor--Alice Davenport

The U.S. Embassy in Indonesia is located at Jalan Medan Merdeka Selatan 3-5, Jakarta (tel. (62-021) 344-2211). U.S. mail to the embassy may be addressed to APO AP 96520.

The U.S. Consulate General in Surabaya is located at Jalan Dr. Sutomo 33, Surabaya East Java (tel. (62-31) 568-2287). Principal Officer--Robert Pollard.

The U.S. Consular Agency in Bali is located at Jalan Hayam Wuruk 188, Bali (tel. (62-361) 233-605. Consular Agent--Andrew Toth.

For information on economic trends, commercial development, production, trade regulations, and tariff rates, contact the International Trade Administration, U.S. Department of Commerce, Washington, DC 20230.

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