Indonesia's Dangerous Transition: The Politics of Recovery and Democratisation

Research Paper 18 1998-99

Dr Stephen Sherlock
Foreign Affairs, Defence and Trade Group
28 April 1999


Major Issues


The Economy-Stabilising but Fragile

The Social Effects-A Reversal but not a Catastrophe

Demokrasi, Reformasi and New Elections

Unity in Diversity?

The Implications for Australia




Map of Indonesia

Source: United States Central Intelligence Agency, Map no. (R02495)5-98

Major Issues

Indonesia is passing through a time of rapid and historic social and political change as it attempts to recover from the effects of economic crisis, achieve a peaceful transition of democratic rule and deal with conflicts amongst its diverse peoples and regions.

Indonesia's gross domestic product (GDP) fell by 14.8 per cent in 1998 and will fall by 2 per cent in 1999 before possibly returning to small growth in 2000. The recession has been greatest in the most industrialised and urbanised areas of the country, especially Java. There are signs that the worst of the crisis may be over, but further progress will depend on a successful election and reform of political and economic institutions. Remaining tasks include reform and implementation of bankruptcy laws, recapitalisation of the finance sector and attracting foreign capital. A fundamental requirement for progress is the stabilisation of the political situation and the building of both new political institutions and a new leadership.

The economic crisis has brought to a halt the progress in improving the standard of living of the mass of Indonesians that had been achieved under President Soeharto's New Order. The early estimates about a huge increase in the numbers falling back into absolute poverty have been revised downwards, although the new calculations have received relatively little attention in the international media. The first effects of the crisis were rapid increases in the price of staple commodities and a great rise in urban unemployment. The effects have flowed through to rural areas, especially in Java where many people depend on urban incomes. Some less-developed regions of Indonesia were shielded from some effects of the crisis because of their isolation from the modern economy, but the worst long-term impact on overall health and education standards may be in these areas.

Since the downfall of Soeharto in May 1998, the immediate political situation has stabilised and the framework for elections in June 1999 has been established. The student movement continues to question the legitimacy of the Habibie Government, but the movement has lost the momentum it had in 1998. Habibie has been unable to deal with questions such as pressures for accounting for the wealth of Soeharto and his family and the fundamental issue of the continuing role of the Armed Forces (ABRI) in the affairs of civil government. The mutually supportive relationship between Habibie and the ABRI Chief, Wiranto, has since been one of the key foundations of the post-Soeharto order. ABRI sees itself as the guarantor of the unity of Indonesia and the new President will have to accept this political reality or embark on a major political struggle to change it.

There is a long complicated process between the parliamentary elections in June and the selection of the president in November. It is too early to draw conclusions about the effectiveness of the new electoral laws in providing for a free and fair election. The interregnum between the parliamentary and presidential elections may cause a dangerous political vacuum and a delay in the urgent reform agenda. Many new parties have been established, but only a few are likely to win parliamentary representation. Because no party seems likely to win a majority, there will have to be some kind of accommodation amongst the three leading presidential candidates, Megawati Sukarnoputri of the Indonesian Democratic Party of Struggle, Amien Rais of the National Mandate Party and Abdulrahman Wahid of the National Awakening Party.

The New Order's approach to maintaining the unity of the diverse Indonesian archipelago was centralised government and suppression of expressions of regional identity or separatism. This exacerbated cultural and regional resentments. Transmigration from Java and other provinces to the outer eastern areas has led to conflict between local people and the new arrivals who are culturally different and are perceived as monopolising economic opportunities. However, resentment against the Sino-Indonesian community, separatism in Aceh, East Timor and Irian Jaya and confrontation in Ambon and Kalimantan need to be seen as three distinct and geographically confined causes of violence and not as a general breakdown of social relations in Indonesia. Habibie's offer of autonomy or independence to East Timor will probably lead to the territory's independence, but the actions of ABRI and the Indonesian Government may result in a traumatic transition. It appears that Indonesian unity will only be maintained if there is a shift in economic and political power towards the provinces.

Relations between Australia and Indonesia have gone from hostility and suspicion to close engagement in the last forty years. The economic crisis in Indonesia has caused regional tensions which Australia must try to minimise and it has also emphasised the key importance of bilateral relations. Australia has taken on a role of advocate for Indonesia in international forums as Indonesia seeks assistance in solving its economic problems. Australia will have to be deeply involved in resolving the problem of East Timor, but the issue should not be allowed to dominate Australia-Indonesia relations. It is in Australia's interest that Indonesia overcomes its economic problems, has a peaceful transition to democratic rule and is able to deal successfully with the tensions amongst its diverse peoples and regions.


Indonesia is passing through a time of rapid and historic social and political change. The authoritarian New Order government of former President Soeharto was toppled in May 1998, following a mass popular uprising in Jakarta and other centres and a collapse of confidence in President Soeharto amongst the Armed Forces (ABRI) and the political elite. The political collapse was triggered by massive economic problems brought about by the Asian financial crisis of 1997.

After Soeharto's resignation on 21 May, his Vice-President, B. J. Habibie, assumed office with the promise of early elections and economic and political reform. Continuing unrest meant that new and democratic elections for Indonesia's parliament and president had to be held without delay. But in order for this to occur, almost every aspect of Indonesia's political institutions had to be reformed in a very short time. Recent months have seen a hectic process of legislative and administrative reform, as well as a proliferation of new political parties as the weight of repressive government control has been lifted.

The heady drama of reform and democratisation has been played out against a background of one of the deepest economic crises Indonesia has ever experienced. The plummeting of Indonesia's currency, the rupiah, to a fraction of its pre-crisis value, the virtual collapse of the banking system under the weight of unserviceable foreign and domestic debts, together with arguably counter-productive government policy responses, caused a deep recession. This triggered mass unemployment, rapid inflation and food shortages and threw millions of Indonesians back into an economic insecurity many thought they had escaped.

The crisis also revealed what many people had been arguing for many years, that the New Order's economic achievements had come at the price of political repression which had suffocated the growth of healthy political institutions. Dominated by the personality of President Soeharto, the New Order silenced voices of opposition and reduced parliament, the judiciary and the press to the tools of the president. The Armed Forces were relied upon to prevent any expression of the deep social, cultural and regional divisions in Indonesia. ABRI has also been accused of sometimes manipulating such divisions for political and financial gain. Freed of many of the restrictions of the New Order, many social divisions have now resurfaced in a violent and unpredictable way, as the disturbances in Ambon and Kalimantan have illustrated.

This paper analyses the recent events in Indonesia, describing the course of the country's economic crisis, the social effects of the crisis and the elements of the process of political reform. It aims to provide an understanding of the problems facing Indonesia as it attempts to remake its political institutions and establish a new government with popular legitimacy, while dealing with the effects of economic recession and the emergence of potentially dangerous social conflict. It outlines the key players in the upcoming election campaign and the issues involved in the selection of a new president. The paper discusses implications for Australia in managing relations with Indonesia at a time of economic crisis and rapid political change and the emergence of difficult policy questions such as East Timor.

The Economy-Stabilising but Fragile

Background-Thirty Years of Growth

Probably the greatest achievement of the years of the New Order regime was the economic transformation of Indonesia. From one of the world's least developed countries in the early 1960s, Indonesia was, by the mid-1990s, developing ambitions to join the ranks of East Asia's newly industrialising countries. A huge part of the legitimacy of the Soeharto regime rested on the fact that it delivered material benefits to the mass of the Indonesian population, benefits which it asserted would not have been possible without strong central political control. Soeharto liked to have himself portrayed in official publicity as Bapak Pembangunan-'father of development'.

Following the 1965 downfall of Indonesia's first president, Sukarno, and the end of the foreign policy adventurism which absorbed most of his attention, Indonesia received major financial assistance and advice from foreign aid donors. By the beginning of the 1970s, President Soeharto's efforts to stabilise the country's chaotic economic situation had succeeded and a program of economic planning directed public investment into infrastructure, agriculture and manufacturing. Growth was given a major boost by the exploitation of the country's large oil reserves, which became the most important source of foreign exchange. Despite periodic problems, particularly from fluctuating oil prices and scandals associated with bad management of the oil industry, Indonesia maintained consistently good rates of economic growth. From 1965 to 1996, growth averaged six per cent per annum and even in the worst years never dropped below about two per cent.(1) In recent years the country has established a significant industrial base and moved beyond a dependence on oil exports, although this industry remains the largest single export earner.

The Crisis Hits Indonesia

Despite its impressive economic record, Indonesia was hit very hard by the Asian financial crisis from mid-1997. Indonesia was highly vulnerable because most of its long-term development investment in recent years had been based on short-term finance channelled through a poorly structured and badly regulated finance industry. Much of this capital had also been directed into a bloated construction sector. But the country's greatest weakness was its feeble political institutions, dominated by an aging president who had refused to bow to the pressures for reform that had been building for at least a decade. The government's incapacity to respond effectively to the fall of the rupiah led to a collapse of domestic and international confidence in the Indonesian economy. The ensuing political turmoil hastened the downward spiral of economic collapse.

The crisis was triggered by the fall of the Thai currency in mid-1997, which quickly flowed on to other Southeast Asian currencies such as those of Malaysia and the Philippines and which became a widespread financial crisis throughout East and Southeast Asia. After some initial resilience, the Indonesian rupiah was subjected to heavy downward pressure from August 1997. This forced Indonesia's central bank, Bank Indonesia, to abandon its policy of fixing the currency within a prescribed band and to allow the currency to float freely. But the real problems emerged when panic selling of the rupiah revealed the huge exposure to short-term foreign debt on the part of Indonesian banks and other concerns. The Government's regulatory control of the financial sector was also revealed to be very poor. In a few months the rupiah had fallen far below anyone's worst predictions. By the beginning of 1998 it had fallen from around 2500 to the US dollar to 10 000 to the dollar, a 75 per cent devaluation from mid-1997. The currency fell to its low point of 17 000 to the US dollar at the end of January 1998, recovering somewhat in the following months only to crash to similar levels following the political crisis of May 1998.

The collapse of the rupiah brought on a massive recession. Exposure to foreign debt, combined with changes in monetary policy which caused huge rises in interest rates and restrictions on credit, resulted in the technical bankruptcy of virtually every major Indonesian firm. As a first step to rebuild the financial sector, the government announced the closure of 16 private banks, a move which obliterated any remaining confidence in the banking industry.(2) The construction sector, which had fuelled much of Indonesia's recent growth, was especially highly-geared and suffered particularly badly, throwing about a million workers out of work. The crisis was worsened by the worst drought the country has experienced this century and by very low prices for oil, Indonesia's principal export. As the effects of the recession worked their way through the rest of the economy, Indonesia's growth rate tumbled from eight per cent in 1996 to 4.6 per cent in 1997 to minus 14.8 per cent in 1998.(3) Inflation accelerated rapidly, especially in imported goods affected by the falling rupiah and in food, exacerbated by the effects of the drought. In the twelve months before the third quarter of 1998, inflation exceeded 80 per cent and average inflation for the year was around 55 per cent.

The Regional and Sectoral Face of the Crisis

Although no part of Indonesia has been able to escape the effects of the economic crisis, its impact has been felt differently in different regions of the country and in the various sectors of the economy. Because Indonesia's economic crisis first manifested itself as a collapse of the currency, the sectors most exposed to foreign debt were the first to be affected and have been the most severely hit. Jakarta was already facing a building glut and the collapse of the over-exposed construction industry has left the city's skyline with a legacy of half-finished high-rise skeletons, as well as many half-occupied or even empty new buildings. The contribution to GDP from the construction sector dropped by a breathtaking 43 per cent in the twelve months before mid-1998. The effects soon flowed on to downstream industries, with machinery production falling by 72 per cent, iron and steel production by 32 per cent and cement by 24 per cent. In the same period activity in the finance sector fell by 25 per cent. Other sectors such as retailing, transport and hotels suffered major declines.(4)

In contrast, agriculture has been relatively unaffected by the overall fall in economic activity, suffering only a 2.4 per cent total decline in the twelve months to mid-1998. Food production was reduced by the drought and bushfires caused by the prolonged El Niño effect and many areas had to be supplied with emergency food aid. But with the end of the drought, the only major long term effect of the currency crisis has been to increase the price of imported inputs such as fertiliser. With the return of good rains and the end of bushfires, rice output has recovered and production by plantations, forestry and fisheries has been stimulated by improved terms of trade created by the fall in the rupiah.

The production and export of oil has continued to increase, but falling world prices have reduced total earnings. Despite the attractions of a weak rupiah, revenue from tourism has fallen. The number of arrivals dropped by around 20 per cent during 1997-98 because of adverse international publicity about violence and unrest in Indonesia.

In regional terms, the recession has been greatest in the most industrialised and urbanised areas of the country. Java, the political and demographic heartland of Indonesia, has suffered the most severe impact as the home of most of the country's industrial base. Other more industrialised areas, such as the large western island of Sumatra, have also been severely affected. Traditionally poorer provinces in the eastern part of Indonesia were less integrated into the world economy and their greater dependence on subsistence agriculture shielded some of them from the effects of the financial crisis. Particular islands in the east have also fared relatively well. This is most notably so for Bali, whose tourism industry has generally survived the current problems and which has also benefited from the increasing export of commercial crops such as fruit. The oil-producing provinces of the island of Kalimantan have also been less affected by the crisis. All provinces have, however, been affected by the deterioration in the central government's fiscal position and the consequent reduction in provincial expenditure.

Has the Economy Stabilised?

At the time of writing there are clear signs that the worst may be over for the Indonesian economy, although the recession has not yet bottomed out and growth will be very weak for some time. The rapid fall in GDP has ceased, but forecasts still expect a further fall of around two per cent in 1999, with a return to small positive growth in 2000.(5) The free fall in the rupiah has also come to end and the currency has traded within a range of 7000 to 10 000 to the US dollar since September 1998. The breaking of the drought, together with the overcoming of food distribution problems, has meant that food prices have stabilised and fallen. This contributed to an overall fall in the rate of inflation, although most forecasts still expect it to be over 12 per cent in 1999. The weak rupiah has helped to maintain a trade surplus, with exports of oil, agricultural products and some manufactures such as textiles and electrical goods performing well.(6)

Despite the apparent stabilisation, there is still some doubt about its sustainability and about when a sustained recovery might begin. The relative recovery of the rupiah has depended on external factors such as the weakness of the US dollar and on the inflow of foreign financial support. Indeed, early hopes of a return to strength in late 1998, when the rupiah moved towards 8000 to the dollar have been disappointed by continued volatility and a fall back to around 9000 to the dollar for much of the first quarter of 1999. At this level, most firms on the Jakarta stock exchange remain technically insolvent. Inflationary pressures still remain strong. Interest rates eased slightly with the apparent strengthening of the rupiah in late 1998, but they remain at unacceptably high levels, at around 40 per cent. Fiscal problems may emerge because projections for the 1999-2000 government budget were based on an exchange rate of 7500.

Basic Problems Unresolved

Whatever optimism may be drawn from recent signs, however, there are a number of fundamental structural problems in the Indonesian economy which must be overcome before healthy economic activity can resume. The principal issues include:

  • reform and implementation of bankruptcy laws to allow restructuring of the corporate sector
  • recapitalisation and restructuring of the finance sector, and
  • attracting foreign capital back to the country and assuaging the fears of the Sino-Indonesian business community.

Bankruptcy Laws

With the majority of major businesses in Indonesia being technically insolvent and unable to obtain any sort of finance, the prospects for new investment to take advantage of the competitive exchange rate are bleak. There is thus an urgent need for a regulatory environment in which the corporate sector can be restructured, with bankrupt concerns closed and viable companies or parts of companies allowed to grow.

The Government attempted to address these problems with new bankruptcy legislation leading to the establishment of commercial courts in August 1998. The courts have, however, been almost completely ineffective. Commentators have ascribed the failure of the new laws to a combination of legal and administrative shortcomings and continuing economic obstacles. Only 31 cases have been heard to date and concerns remain about the professionalism of judges. With economic conditions so bad, resort to the courts would mean debtors losing their assets and creditors recovering a mere fraction of what is owed to them. In the absence of effective bankruptcy laws, many firms who could make debt repayments avoid doing so because of the lack of real sanctions. Debt-forgiveness is made more difficult by international factors-38 per cent of all Indonesian corporate debt is to Japanese banks who are already saddled with massive domestic and foreign non-performing loans.(7)

Bank Restructuring

More progress has been made on the recapitalisation of the banking sector, but the process is far from complete. Questions remain over the success of moves so far and the issue is fraught with political sensitivity. Before the crisis there were over 200 banks operating in Indonesia, many set up only in recent years following the liberalisation of banking at the end of the 1980s. Despite the injection of about US$13 billion worth of liquidity into the banking system by the Government since late 1997, most banks have fallen into technical insolvency. Estimates of non-performing loans range from 30 to 70 per cent of total loans. All the banks are heavily indebted to the central bank, Bank Indonesia, to the extent of nearly three times their combined equity capital.(8)

In August 1998 the Government established the Indonesian Bank Restructuring Agency (IBRA) to oversee the closure of those banks beyond rescue and the consolidation of deposits and assets into a smaller number of recapitalised institutions. The process has inevitably taken longer than originally projected, not only because of the magnitude of the problems but also because of public criticism and controversy over the issue. Recapitalisation has involved a huge injection of public funds into many private as well as state-owned banks, a process which has been attacked as a subsidy to incompetent corporate players. There has been scepticism about the process and speculation that those banks with the strongest political connections will be the most likely to survive as a result of public assistance.

In March 1999, after two postponements, the IBRA announced a program for restructuring the banking industry. Under the program, 38 banks were closed as having no prospect of regaining financial viability, seven banks were taken over by the Government and the owners of nine banks were given until 21 April 1999 to inject at least 20 per cent of capital requirements and enter into an investment contract with the Government. The Government would provide the remaining capital in the form of bonds. The IBRA announced that 73 private domestic banks were considered to meet minimum capital adequacy standards and would be allowed to remain functional, subject to six-monthly reviews.(9) It remains to be seen if any action, legal or financial, will be taken against the directors of the failed banks, whose bad commercial decisions will cost so much taxpayers' money to rectify.

Following the release of the plan in March 1999, the Finance Minister, Ginandjar, likened the banks to a human heart which, if made healthy, would pump fresh blood to revive the productive sectors of the economy.(10) Bank Indonesia predicted that the rupiah would recover to as much as 7000 to the dollar within three months and that banks would be able to begin lending again by July, after the uncertainty of the June election period subsided. Many analysts remain sceptical, however, about whether the changes will begin to have such significant effects by that time. There are also doubts about the Government's capacity to find the funds necessary for restructuring the banks. Reimbursing the depositors and creditors of the 38 liquidated banks is alone estimated to cost US$5.8 billion, but is essential to prevent a recurrence of the panic which resulted from the closure of banks in 1997.(11) Some commentators have argued that the need to service the bonds issued for recapitalisation will effectively lead to the Government's printing money and thus to a restoking of inflationary fires.(12) The Government hopes of financing recapitalisation through the privatisation of state-owned firms is unlikely to be fulfilled, with sales to date realising less than half the expected US$1 billion.(13)

Investor and Business Confidence

After the onset of the crisis in late 1997, the Indonesian regulatory authorities appeared to have little control over, or even knowledge about, the state of the country's finances and the Government as a whole seemed incapable of developing a coherent policy response. This led to a complete collapse of international investor confidence in Indonesia. When the growing economic problems led to a crisis of legitimacy for the New Order, one of the groups which most suffered in the ensuing turmoil was the economically important Sino-Indonesian community. The flight of Sino-Indonesian business people created the potential for the loss of a major source of investment capital and human expertise. It also contributed to the international image of Indonesia as insecure in physical as well as economic terms.

Thus quite apart from the crucial technical issues involved, the construction of a new framework for the financial sector is essential for the restoration of investor confidence in Indonesia. Until international capital can be assured that the climate for investment in Indonesia is safe, there will be limited scope for attracting the finance necessary for the country to take advantage of the favourable exchange rates resulting from the fall in the value of the rupiah. First of all, the many foreign creditors of the Indonesian corporate sector, especially Japanese, will need to recover a reasonable proportion of the debt owed to them. Secondly, investors will demand assurances that the regulatory and policy-making environment is competent, transparent and consistent and that business is possible without having to cultivate relations with politically powerful individuals and families. Underlying all these issues is the fundamental requirement that the process of change taking place in Indonesia today succeeds in stabilising the political situation and building both new political institutions and a new leadership.

For the Sino-Indonesian business community these latter issues are of vital and immediate importance. This is not just because Sino-Indonesians, from corporate leaders to small traders, need guarantees of their personal safety from mob attacks, but because restructuring the Indonesian economy has become linked, in some people's minds, with an attack on perceived Chinese domination. One of former President Soeharto's greatest liabilities was a popular perception that he gave special favour to Sino-Indonesian friends and some Indonesians have seen Soeharto's downfall as the opportunity to end this perceived imbalance. The background to the resentment against the Chinese community is discussed in a later section of this paper.

In the populist rhetoric of some politicians attempting to exploit such sentiments, criticism of corporate 'conglomerates' has become code for attacks on the Sino-Indonesian community. Many commentators consider that ideas such as the call by the Minister for Cooperatives and Small Enterprises, Adi Sasono, for a 'people's economy' are designed as much to appeal to anti-Chinese feelings as to encourage increased economic involvement. There is anxiety that the people's economy idea, under which cooperatives and small business would be strengthened by government and the power of large companies restricted, could lead to arbitrary reallocation of assets by the state. It has also raised concerns internationally because of its overtones of economic nationalism and hostility to foreign investment.(14)

Disparities of wealth in Indonesia have been a source of discontent for some time and the new realities of post-New Order politics mean that governments will no longer be able to ignore or suppress such discontent. It would be counterproductive for all Indonesians, however, if the competing political forces emerging in the country today attempted to build themselves a support base through scapegoating of the Sino-Indonesian community or through empty economic populism. Indonesia is too economically weak to spurn the contribution of whole sections of its own community or the resources of the outside world.

The Social Effects-A Reversal but not a Catastrophe

As a result of the economic achievements of the New Order, great progress was made in the 1980s and 1990s in improving the standard of living of the majority of Indonesians. Consistently good growth rates enabled Gross National Product (GNP) per capita to increase from less than US$100 in 1970 to US$1110 in 1997.(15) The estimated number of people living in absolute poverty decreased from around 70 per cent of the population in the 1970s to 11 per cent before the 1997 crisis.(16) On social indicators such as health and education, consistent improvement was registered. For example, infant mortality declined from 118 per 1000 live births in 1970 to 47 per 1000 in 1996 and adult literacy increased from 56 per cent of the population in 1970 to 84 per cent in 1995.(17) Indonesia began to move towards a population distribution more typical of a developed country, with total population growth rates declining at the same time as urban population increased. This reflected a shift of economic opportunities away from agriculture towards services and secondary industry in the cities.

Early Fears Exaggerated

In the months immediately following the onset of Indonesia's financial and currency crisis at the end of 1997, grave fears were expressed about the effects of the economic downturn on people's well-being and living conditions. The mass lay-offs of workers in Jakarta and other cities, together with the spiralling increase in the cost of basic commodities, led to expectations of a large-scale return to poverty for millions of Indonesians. While the effects of the crisis have indeed been serious, the early calculations about the extent and intensity of impoverishment have been questioned in recent months. As trends have become clearer, observers have concluded that the absolute numbers of those thrown into poverty is not as great as first thought and that the worst effects have mainly been in urban areas.

The first attempts to calculate the social effects of the crisis were carried out by Indonesia's Central Bureau of Statistics which concluded, largely on the basis of inflation rates, that the number of people falling below the poverty line had increased to 39 per cent of the population in 1998, or about 80 million people. Another estimate arrived at the even worse figure of 48 per cent of the population.(18) Numbers of such magnitude sent shock waves throughout the international community and were highlighted in foreign media reports. The methodology of these studies was soon called into question, however, because they assumed that nominal incomes and expenditures remained unchanged with increasing inflation.(19)

More sophisticated studies carried out by Indonesian and international agencies reached vastly different conclusions and calculated that the numbers below the poverty line had increased by three per cent to about 14 per cent.(20) Other indications are that the more immediate effects of the crisis have fallen most heavily on those who were relatively well off, rather than on the very poor. These more temperate calculations have, however, received less international media coverage and common perceptions of the situation in Indonesia continue to be coloured by the earlier reports. Nevertheless, a three per cent increase represents about six million people and a significant new burden on the government.

On the other hand, some analysts have cautioned that the number of people falling below the poverty line may continue to rise even if the economy stabilises. Studies of poverty use expenditure rather than income as a measure and many people have almost certainly struggled to maintain their spending by running down their savings and selling off family assets. Since most economists do not expect a return to healthy growth for several years, many people will exhaust their reserves and begin to slip below the level regarded as absolute poverty-the level below which a reasonable subsistence cannot be sustained. The poor of Indonesia are likely to be more numerous in the coming months.

Employment and Survival in the Cities and Provinces

Any attempts to quantify the social effects of the economic crisis are, however, of limited value if they go no further than country-wide averages. To understand how the downturn is affecting people's lives, the picture must be examined on a more detailed regional basis. Not surprisingly, because the crisis began in the modern industrial sector of the economy, the people who felt the first effects were those in urban areas and in the regions most closely linked with the modern economy.

The collapse of the rupiah first hit urban industrial and service industry workers and urban consumers as a whole. An estimated one million workers in the construction industry lost their jobs in the early months of the crisis and were joined by possibly about another million from other sectors.(21) To these effects were added the rapid increase in prices for basic consumer goods such as food and transport. Many in the middle class, as well as salaried employees and workers, have lost much of the relative affluence they had come to accept as normal. Small business people have been bankrupted or confronted with a major decline in business. These groups were also the greatest consumers of imported goods and of public goods such as transport, electricity, education and health services, all of which have become much more expensive.

The earliest estimates of unemployment put the figure at 22 per cent, but a recent study by the International Labour Organisation (ILO) indicates that unemployment has risen from about five per cent pre-crisis to seven per cent in mid-1998.(22) Such a figure is misleading, however, when seen from the perspective of a developed country such as Australia because it fails to measure the level of underemployment in agriculture and the informal sector. Millions of people in developing countries such as Indonesia are employed for only a few hours a day or week or for only part of the year. In the absence of a social security system and because of the family basis of most agriculture, many of the people thrown out of work since the crisis have returned to their villages or must eke out an existence in the informal sector of the economy (hawking, scavenging, begging etc.)(23) Because of the modernisation and commercialisation of agriculture, however, rural areas are no longer able to soak up excess labour in the same way as in the past, leading to a great expansion in urban and rural informal sector semi-employment. This is especially the case in the densely populated island of Java where, for a number of years, the majority of the workforce has been employed in secondary industry and services.

One paradoxical effect of the crisis has been that total employment has actually increased. ILO and Indonesian Government figures suggest that total employment in 1998 was 4.5 million higher than the year before and that labour force participation by people aged 10 years and above had similarly increased. This has occurred because real wages have fallen in virtually all sectors of the economy-by about 30 to 40 per cent.(24) In order to maintain their incomes families have been forced to increase their participation in the workforce. More women have taken up paid employment, but the greatest effect has been to increase the number of young people in the workforce. Many young people are foregoing further education to replace incomes lost when older family members have lost their jobs. While employment in finance, industry, construction and transport has declined, more young people are seeking some sort of income in the informal sector and in agriculture.(25)

As has been noted, Indonesia's 27 provinces have felt the impact of the crisis very differently. With the relatively small effects on agriculture, people in the traditionally poor provinces in the east of the country (the region closest to Australia) have suffered little decline in their standard of living. This was not obvious in the early days of the crisis because the drought and extensive bushfires were a severe blow against production of the basic commodities such as rice and maize. With the return of good rains, however, recent harvests have been good and have sheltered eastern provinces such as Maluku and East and West Nusa Tenggara from some of the problems suffered by people in the more industrialised provinces.

It should be emphasised, however, that conditions in these regions are better only in relative terms. They remain the poorest parts of the country and social indicators such as education and health will be lower than the rest of Indonesia for the foreseeable future. Nevertheless, the improved terms of trade for export-oriented agriculture have benefited some people in predominantly rural provinces. Some workers in the more wealthy and industrialised island of Sumatra have also been able to find work in the expanding export-oriented production of palm oil, cocoa and coffee.(26)

The important exception to the relatively good picture for rural areas is the island of Java, where half of Indonesia's population lives. Although there are some places producing commodities for export, Java's agricultural output is dominated by rice for the domestic market. Since rice procurement prices have been deliberately kept low by the Government in order to protect consumers of this number one commodity, rural incomes in Java have suffered as a result. With Java's dense population, large parts of even the island's agricultural areas are semi-urban in character and the majority of employment is now non-agriculture. Many families have come to depend on the support of family members in the cities and towns. Loss of urban jobs has directly affected incomes in many villages and the capital-intensive nature of agriculture in Java has made the re-absorption of the unemployed into the village economy almost impossible. Thus the people of Java, both the urban poor and their counterparts in rural areas, have been badly hit by the industrial recession without benefiting from the shielding effect felt in many agricultural provinces.

A Reversal with Long Term Ill-Effects

While the immediate social effects of Indonesia's economic downturn, in terms of the incidence of poverty and complete joblessness, do not appear to be as bad as was first thought, many observers have become more concerned about the long-term impact of the crisis. At the very least, the last two years have represented a tragic reversal of the 30 years of almost continuous progress in human development in Indonesia. Purely in terms of growth in GDP, it will take many years to recover the lost ground and return to the pre-crisis levels of growth.

But even when the Indonesian economy does finally regain the standards of growth it enjoyed before 1997, many of the people most affected by the crisis may suffer long-term ill-effects. The most serious example of this is in standards of education. Large numbers of young people appear to have been withdrawn from school in order to reduce family expenses and strengthen faltering incomes. A World Bank report estimated that as many as 2.8 million children would drop out of primary school and junior secondary school in 1998-99.(27) Recent Government estimates have been even higher.(28)

Because of this sudden rise in the number of children leaving school a whole cohort of young Indonesians may lose the opportunities won by their seniors. The experience of other developing countries shows that once young people are withdrawn from education they rarely return. The numbers leaving school have been of serious concern in urban areas, but drop-out rates are especially high at secondary level in rural areas. Older children have more earning power and although rural areas have suffered smaller absolute falls in income, they have a larger proportion of people on the margin of poverty. Secondary enrolments in the villages are already much lower than in the cities and if they drop further behind, one of the legacies of these years of crisis will not only be a fall in country-wide standards of education but even greater urban-rural disparities.

A similar area of concern is in standards of health. The collapse of the rupiah doubled or even tripled prices for drugs, vaccines, contraceptives and other medical supplies because they more mostly imported or made with imported inputs. These price increases particularly hurt people close to the poverty line as they delay or fail to seek medical treatment. The effective cost of medical care has also increased because even the most basic drugs are not available in public hospitals. Lack of timely medical care can have serious effects on people's long-term health and a prolonged crisis could reverse much of the recent progress made in improving health standards amongst Indonesia's poor. Once again, it is likely to be in the poorer rural areas that these effects are most felt.

For millions of people drawn into the modern sector of the economy and benefiting from the overall improvement in the levels of human development in Indonesia in recent years, the crisis has cut short the promise of escaping the poverty which had ruled their families' lives for generations. The downturn has shattered what appeared to be the promise of permanent economic security. It has been a psychological blow to confidence that Indonesia had finally overcome its long history of economic and political instability and was set on a path to development and prosperity.

Demokrasi, Reformasi and New Elections

Since the dramatic events of the overthrow of President Soeharto in May 1998, Indonesia has been on a rollercoaster of political change. The shattering of the tight control wielded by the authorities under the New Order revealed what many Indonesians had felt for some time-that the development of their country's political institutions had not kept pace with the transformation of Indonesian society in the past 30 years. The months since May 1998 have seen a flowering of political consciousness and debate and the proliferation of new political organisations. The parliament and government have been forced by popular pressure to establish a range of new political institutions and procedures to accommodate the new politicisation and to facilitate the holding of Indonesia's first truly democratic elections since 1955.

This exhilarating and sometimes frightening process has not occurred without conflict, but many of the worst fears held about the potential for widespread violence have not been realised. The international media have concentrated on the serious violence in places such as Ambon and Kalimantan, violence which is indicative of the breakdown of local political structures in some areas and the weakening of national institutions such as ABRI. But this violence has not been directly related to the accelerating election campaign or to debate about political reform, all of which has taken place without violent conflict, with the important exception of the shooting of student demonstrators in November 1998. All major parties have accepted the processes and timetable for the election as developed by the parliament and government and all have an interest in seeing that the campaign is as peaceful as possible and that the result is seen as legitimate.

A Few Hurdles Cleared ...

All political institutions and processes under the New Order were dominated by President Soeharto. Presidential elections were a ritual whose results were known well before they commenced. Only three officially-designated parties were allowed to contest elections for the rubber-stamp parliament and campaigns were strictly controlled. Between the time of the five-yearly elections, no party was allowed to campaign and the press was subject to often arbitrary and inconsistent censorship, with newspapers and magazines liable to sudden closure. Alongside the personal authority of President Soeharto, the only important centres of institutionalised political power were the Armed Forces (which operated under a dual administrative and military function discussed in the following sections) and Golkar, the party which all government employees had to support and which was intertwined with the official administrative structure.

Since the downfall of President Soeharto in May 1998, however, the political situation in Indonesia has undergone a radical transformation. When then Vice-President Habibie assumed the office of President, according to the provisions of the Indonesian constitution, there were deep concerns expressed about his legitimacy, competence and willingness to bring about the necessary changes to the regime which had put him in power. The new President moved quickly, however, and promised early democratic elections and made a number of other gestures such as releasing a number of political prisoners.

Despite the uncertainties and tensions of the period since May 1998, important progress has been made in the process of transition from the New Order and towards democratisation. For a country which had only a short period of democratic rule in the early 1950s and which suffered horrendous violence during the last change of regime in 1965, the importance of such relative success should not be undervalued.

Central to this progress has been developing the reform of electoral laws and the creation of electoral apparatus to facilitate democratic elections. The framework for this apparatus was set down in a special session of the MPR or People's Consultative Assembly held in November 1998. The new Government has also made good on its promises not to interfere with the growth of free expression, with the Information Minister freely issuing licences for new publications and openly questioning whether such licences were even necessary. In a significant move designed to associate itself with reform, ABRI issued a formal apology for its excesses under the New Order and agreed to a reduction in its parliamentary representation, issues which are discussed later in this paper.

... But Many More to Go

There are nonetheless major limitations to the progress of reform to date and a wide range of significant problems and potential pitfalls to come. Whatever its professed commitment to reform, the Habibie Government is still a creature of the New Order which suffers from a major problem of legitimacy. Similarly, the MPR session of November was composed of members who won their positions under the highly undemocratic procedures of the Soeharto regime and most of them are very unlikely to be re-elected to Parliament in the coming elections.

The legitimacy of the Government has been repeatedly called into question by the pro-democracy student movement. The students mobilised in force during the special MPR session, rejecting the right of Soeharto appointees to set the agenda for reform. They have continued to call for the resignation of President Habibie and the creation of a presidium of reformist leaders to take the reins of government, for the abolition of ABRI's dual role and for Soeharto to be called to account for his abuses of power and accumulated wealth. Nevertheless, because of internecine divisions in the student movement and because of unwillingness and/or inability to mobilise wider social forces (such as organised labour or the middle class) in support of its demands, the student movement has lost most of its former momentum.

With each passing month the continued survival of the Habibie Government and apparent progress on the economic and political fronts has blunted the edge of the students' demands. The students suspended their demonstrations for the month-long festival of Ramadan in January and have not been able to regain their momentum since that time. It remains to be seen how important the students will be as the election draws closer and after the post-election manoeuvring begins.

The waning of the student movement has also allowed the Habibie Government to side-step scrutiny over other difficult issues such as accounting for the wealth amassed by Soeharto and his highly unpopular family members during the years of the New Order. This issue does, however, remain a very awkward one for Habibie. He was severely embarrassed when a newsmagazine published what it said was a telephone call between Habibie and his Attorney-General apparently colluding in an attempt to bring investigations into Soeharto's wealth to an early end.

Incidents like this rekindle suspicions that Soeharto continues to wield influence from his government-provided residence in central Jakarta, the same house where he lived as President. They also remind people that Habibie was Soeharto's protégé and contribute to the impression of the current Government as an interim one of questionable legitimacy. The fact that Habibie's Golkar party has yet to decide if he will be its candidate for President underscores that even his own people fear his associations are an electoral liability.

Where to for ABRI?

A critical and potentially dangerous flaw of the Habibie Government is that it is unable to come to terms with its political antecedents and thus to help in the process of allowing the country as a whole to deal with some of the dark legacies of the immediate past. This is especially the case with the debate over the continuing involvement of ABRI in the institutions of civil government and its often covert influence over daily decision making. One well-known critic of the Soeharto regime, Dr George Aditjondro, who was forced to leave Indonesia in the mid-1990s, went as far as to argue that under Habibie 'it is still (ABRI Chief) General Wiranto who really calls the shots'.(29)

ABRI has been one of the few national institutions that has sustained a leading role in the 50 years since independence. Under its dwifungsi (dual function) role, ABRI has played a part in promoting economic and social development as well as maintaining internal and external security. Many ABRI officers fill key positions in civil administration and others have used their positions to establish lucrative business enterprises.(30) Despite its bloody role in the events of 1965 (and for some Indonesians, because of it), and the corruption of many officers, ABRI remained a respected institution and its role as a parallel governmental structure was relatively unquestioned by many Indonesians.

Part of the respect enjoyed by ABRI was, of course, generated by fear of its capacity to suppress political dissent. As an armed force whose main rationale was internal rather than external security and which was a constant visible reminder of the foundations of the New Order, ABRI had used force on many occasions to maintain order during the 1970s and 1980s. But particularly in the last decade, many Indonesians, besides the marginalised East Timorese, Irian Jayans and Acehnese, came to resent the repressive hand of ABRI, the silencing of dissidents and the privileged lifestyle of ABRI leaders. These issues became a central part of a generalised sense of disaffection with a rigid regime based on a leader who it seemed would never step down and who thought that prosperity could buy legitimacy indefinitely.

The problem for ABRI today is that the gradual erosion of its legitimacy in recent years has accelerated rapidly since the downfall of Soeharto. When soldiers shot four student demonstrators dead outside the elite Trisakti University on 12 May 1998 and outside Atma Jaya University during the special session of the MPR in November 1998, it turned its guns on middle class people who had never before felt the direct hand of ABRI repression. Many Indonesians respected the student movement as a non-partisan voice which contrasted starkly to the venal manoeuvring of established political figures. Contributing to ABRI's rapid loss of popularity was its kidnapping and torture of political activists in the lead-up to the March 1998 election and its failure to stop, or even its complicity in, attacks on Sino-Indonesians and their property during and after May 1998, including the rape of ethnic Chinese women.

Accompanying ABRI's loss of popularity has been a loss of people's fear of the capacity of the armed forces. One pernicious result is that rioters in places such as Ambon and Kalimantan are now more prepared to kill and burn in defiance of ABRI's attempts to control them.

Despite ABRI's strong backing of Soeharto until almost the last moment in May 1998, the Commander of ABRI, General Wiranto, did not delay in declaring the Armed Forces' support for Habibie after his accession to the presidency. The mutually supportive relationship between Wiranto and Habibie has since been one of the key foundations of the post-Soeharto order. Wiranto's response to the changing political situation has been publicly to accept the need for change while attempting to limit investigations into the past actions of leading ABRI officers and to insist on a continuing, if reduced, formal role for ABRI in civil politics. A small number of ABRI officers, including members of the elite special services Kopassus force, have been tried and jailed for their role in human rights abuses.(31) On the other hand, Habibie has continued to deny that ABRI was responsible for the shooting of demonstrators in November 1998.(32) Commentators have questioned Wiranto's or Habibie's capacity to extend investigations without creating divisions in the military and further undermining ABRI's legitimacy.(33)

The continuing central role of ABRI in Indonesian politics is symbolised by the fact that, even after the June elections, it will still retain 38 appointed members in Parliament. Although a reduction from the 75 members in the present Parliament, this provision has come under heavy criticism, from both inside and outside Indonesia, because it is seen as incompatible with democratic government.(34) Similarly, the significance of the separation of the police force from ABRI is limited by the fact that it will still be under the authority of the Defence and Security Minister, who is General Wiranto.

The role of ABRI remains one of the biggest questions hanging over post-Soeharto affairs. For observers of Indonesian politics, ABRI has always been a central part of their assessment of any major development. And despite ABRI's loss of legitimacy and its official agreement to a partial withdrawal from political affairs, there is little doubt that ABRI would intervene if political conditions were to deteriorate and lead to serious violence, although there is little immediate prospects of that occurring. In particular, ABRI leaders would not stand by if they considered that separatist movements in Indonesia were threatening the integrity of the unitary republic.

Within ABRI itself, there is an intensifying debate about the proper place for the military in a modern democracy. Some leaders are inclined towards maintaining dwifungsi and a focus on internal security, with others favouring various degrees of withdrawal from civil affairs and a restructuring of ABRI along the lines of a more conventional external defence force. ABRI is a highly factionalised organisation and the control of officers in the provinces by the Commander of the Armed Forces is often weak, as the events in East Timor have indicated. Establishing a reliable chain of centralised discipline is one of the principal tasks facing General Wiranto.

But even as ABRI military organisation and doctrine changes, it will remain a key part of the politics of the Indonesian state for many years to come. The objections of pro-democracy leaders and activists to the military's intrusion on the will of the people will be just one factor in the equation. As one commentator has observed:

When the new president is elected in late 1999 ... one of the first measures must be to establish executive government authority over defence policy and senior appointments within ABRI.(35)

ABRI sees itself as the ultimate guarantor of the unity of the culturally and geographically diverse Indonesian archipelago and the new president will have to accept this fundamental political reality or else embark on a major political struggle to change it.

Electing a New Parliament and President

Elections for the Dewan Perwakilan Rakyat (DPR) or House of Representatives are to be held on 7 June 1998. These parliamentary elections will not, however, immediately determine who will be President of Indonesia for the next five years. There is a long and quite complicated process before the President is selected in November 1999.

After the June election, the DPR will be composed of 500 members, 462 of whom will be elected and 38 of whom will be representatives of ABRI. Members will be elected by proportional representation, with each of Indonesia's 27 provinces forming multi-member electoral constituencies, along the lines of the Australian Senate. Unlike the Senate, however, the number of representatives for each province will be determined by its population. Parties must receive a minimum of five per cent of the vote in a province to win representation in the DPR. Electors will vote on a party-list system, punching a hole in the ballot paper over the symbol of the party for which they wish to vote. Electoral procedures are still being finalised by a General Elections Commission (KPU) appointed under an Act of the DPR.

Unlike in the Westminster system, the executive (the President and his Cabinet) will not be drawn from the legislature, but will be elected by the MPR, which will convened sometime before November 1999. The MPR will be composed of the 500 members of the DPR, together with 135 regional delegates and 65 social group representatives. The regional delegates will be elected by their respective provincial assemblies, elections for which are being held at the same time as the DPR elections. At the time of writing, it has not yet been determined how the social group representatives will be selected.

The main function of the MPR is to elect the President who may be, but does not have to be, a member of the DPR. Special supra-legislative sessions of the MPR (such as the one held in November 1998) can also be convened to pass decrees which form a framework to which legislation passed by the DPR must conform. For example the November 1998 special session of the MPR decreed that ABRI would retain representatives in the new DPR, but it was the current DPR which decided the exact number.

At the time of writing it is too early to draw conclusions about the workability of the election procedures and the effectiveness of the KPU in ensuring a free and fair election. First reports by non-government monitoring bodies have not indicated serious administrative problems or attempts to interfere with the process, although there have been reports of Golkar candidates attempting to manipulate the registration process through continuing connections in the civil service.(36) Public perceptions that the poll was fair will, of course, be critical to the legitimacy of the post-election government.

The broad outlines of the complex election procedures are laid down in Indonesia's constitution and presented few complications when the composition of parliament was almost largely pre-determined and the election of the President was a foregone conclusion. In current circumstances, however, there will be a long interregnum when the composition of the DPR and the provincial assemblies is finalised and when the parties negotiate arrangements within the parliaments and develop alliances and coalitions amongst there various presidential candidates.

In the current political climate in Indonesia this interregnum could become a major flaw in the process. The current President will have even less legitimacy than now (especially if Golkar performs badly), but his replacement will not yet be in office. In something like a political vacuum it will be very difficult to attend to the multiplicity of extremely urgent problems facing the country. Even with the possibly turbulent election period out of the way, international investment will continue its reluctance to return if it perceives that the Government is politically unable to resolve issues in reforming Indonesia's economy. If there is an upsurge of violence in secessionist areas or in places such as Ambon, some ABRI officers may be tempted to act unilaterally if they consider that the Government is unable to act resolutely.

Many New Parties-Few are Strong

Over 200 new political parties sprang up in the months after Soeharto's downfall and 48 were ruled as eligible to stand candidates in the forthcoming election, under the guidelines administered by the KPU. These guidelines were largely aimed at ensuring that only parties with a spread of support across a number of provinces would be able to contest. Of the 48 parties, only about six or seven are thought likely to win significant representation in the DPR. The major parties are as follows:

  • PDI-Perjuangan-Indonesian Democratic Party of Struggle (Partai Demokrasi Indonesia Perjuangan). The PDI-Perjuangan, formally established at a rally of 120 000 people in Jakarta on 14 February 1999, is led by the daughter of the leader of Indonesia's independence movement and first President, Sukarno. The party originated from a split in the official PDI (see below) brought about when President Soeharto ordered ABRI to intervene in the party's affairs in July 1996 to prevent Megawati from assuming leadership of the PDI. Since the forcible takeover of the PDI by pro-Soeharto forces in 1996, Megawati has been a symbol of opposition to the status quo under both Soeharto and Habibie. Nevertheless, her own political position is unclear and many observers have raised doubts about her personal political capability. The PDI Perjaungan claims to stand in the secular nationalist tradition championed by Soeharto, but the party has not clarified its position on a large number of issues, especially on the economy. The party has been strengthened by the defection to it of a number of leading Golkar figures. PDI-Perjuangan is widely expected to receive the highest number of votes, but far short of a majority.
  • PAN-National Mandate Party (Partai Amanat Nasional). PAN was formed in 1998 and is led by Amien Rais, the popular Islamic leader who was a major figure in the mass movement which led to the fall of President Soeharto. Rais has been the principal leader of the mass Islamic modernist organisation, Muhammadhiya, although he has now resigned from the position to contest the presidential election. Rais had a reputation of association with 'fundamentalist' Islamic politics, but has been keen to remake his image, arguing for religious tolerance and secularism in the face of growing religious-based tension. PAN has attempted to woo the support of the economically important but socially-marginalised Sino-Indonesian community. PAN is generally held to be the closet rival of PDI-Perjuangan in electoral support.
  • PKB-National Awakening Party (Partai Kebangkitan Bangsa). The PKB is closely associated with Indonesia's other important popular Islamic leader, Abdulrahman Wahid (popularly known as Gus Dur), although Gus Dur is not the party's official leader. Gus Dur is the leader of the mass Islamic organisation, Nahdlatul Ulama (NU), which was previously closely involved in politics but which withdrew into cultural and social service activities during the 1980s under Gus Dur's leadership. NU has been associated with the less strict and more tolerant traditions of Indonesian Islam. The PKB has not yet announced its candidate for the presidency, but it may not be Gus Dur because he is in poor health and almost blind.
  • Golkar-Development Functional Groups (Golongan Karya). Golkar was the political organisation established by President Soeharto and which was the quasi-official party of the New Order. All civil servants were expected to be members of Golkar and to actively support its candidates in parliamentary elections. Membership of Golkar was an important route to political influence as the party had unofficial control over many government resources, including development funds. Following the fall of Soeharto, Golkar was taken over by supporters of President Habibie at a party congress in 1998, an event which led to the departure of a number of party leaders. It remains unclear how much popular support and grass roots influence Golkar retains from the days of the New Order and how much these associations are a political burden. A rally organised by the party in Jakarta in March attracted about 200 000, but there were press reports of people being paid to attend.(37) Whether these reports are true or not, it is a fact that Golkar has huge financial resources at its disposal, accumulated as a result of its status under the New Order. Most commentators consider the party will still remain a major player after the election. Golkar has announced that it has five possible candidates for president, one of whom is Habibie.(38)
  • PPP-United Development Party (Partai Pembangunan Persatuan). The PPP was one of the three organisations officially permitted to contest parliamentary elections under the New Order. It was originally formed as a union of a number of Islamic parties reluctantly brought together under the compulsion of government decree in the 1970s. Despite being a creature of the Soeharto regime, the PPP became an outlet for limited political dissent in the final years of the New Order. It increased its vote in the 1998 parliamentary elections when the PDI, under its pro-Soeharto leadership, lost much of its popular support. The party is projecting itself as an Islamic party and is expected to retain at least some of its previous vote.
  • PBB-Crescent and Star Party (Partai Bulan Bilang). The PKB is an Islamic party claiming descent from Masyumi, an important party during the time of President Sukarno. It does not have a strong national leader, but may win some support in former Masyumi strongholds in Java and Sumatra.
  • PDI-Indonesian Democratic Party (Partai Demokrasi Indonesia). The PDI was the third of the organisations allowed to contest parliamentary elections under the New Order and, like the PPP, was formed as the forced union of a number of parties-in this case parties of a secular nationalist complexion. The party lost much of its credibility when it was forcibly taken over by pro-Soeharto elements with the support of ABRI in July 1996. The formalisation of the split in the party, with the formation of Megawati's PDI-Perjuangan, probably ensures that the PDI will be the weakest of the main parties in the election.

All the parties, including the many smaller one not listed here, can be characterised as falling into three broad political streams, similar to those which characterised Indonesian politics before 1965. The first stream is composed of Islamic parties, themselves roughly divided between those which are largely secular in outlook (the strongest representation of which are PAN and PKB) and those which espouse more doctrinal politics, including the creation of an Islamic state. The second stream is made up of secular nationalist parties and is now dominated by Megawati's PDI-Perjuangan. The third stream, which shades over into the nationalist stream, is composed of various left wing, labour and minority parties. This stream was dominated by the Communist Party of Indonesia before 1965, but is now overshadowed by PDI-Perjuangan.

Forecasting the Election Result

The art and science of polling and election forecasting is highly developed in Western democracies, but is still often only able to provide a general guide to election results. The scope for useful comments on the possible results of the Indonesian election is therefore extremely limited when so little data is available about patterns of electoral support and when the intricacies of coalition building between the election of the DPR and the election of the President will be so complex.

Most analyses of possible election scenarios are based on a combination of limited polling (mainly in urban areas), and projections based on the voting patterns revealed in Indonesia's last democratic election in 1955.(39) Such analyses usually see PDI-Perjuangan as capturing the majority of votes from the nationalist and left wing streams, and PAN and PKB predominating amongst Islamicist voters. Golkar will probably draw most of its support from the Islamicist vote. Most forecasts see both PDI-Perjuangan and PAN winning between 20 to 30 per cent of the vote, with PKB receiving between 10 and 20 per cent. Support for the other major parties is usually put at between five and 10 per cent, with Golkar the least amenable to prediction.

Choosing the President

After the results of the election are known, there will be a reversion, for a few months at least, to something very similar to the back room manoeuvrings that have dominated Indonesian politics since the late 1950s. The major difference is that there will be no single figure like Sukarno or Soeharto as the ultimate arbiter. Since it is almost certain that no party will win a majority, the successful presidential candidate will inevitably be supported by a coalition or loose agreement of a number of parties.

The most likely contenders are, of course, the national leaders of the three main parties, Megawati, Amien Rais and Gus Dur, but no commentator has been willing to make a confident assessment of what alliances may be formed by these or other national figures. As one leading analyst, Harold Crouch, has observed:

You could construct 20 scenarios about what will happen, each one equally plausible and each totally different from any of the others.(40)

Any one of the three main leaders will need the support of at least one of the other two to marshal enough support in the DPR. But relations amongst them are exceedingly complex and not always cordial. Personal relations between Gus Dur and Amien Rais, for example, are said to be very frosty. Gus Dur is reportedly unwilling to support Megawati because of her gender, even though they have cooperated quite closely in recent months.

If one of the three main figures does not emerge as the dominant player, it is quite likely that some form of joint executive arrangement will be created. For example, there could be an agreement between Megawati and Amien Rais where Megawati (with her great popularity as Sukarno's daughter) is elected President, with Amien Rais Vice-President or First Minister. This latter scenario is exactly the compromise which was reached after independence in the 1940s, when the two principal leaders of Indonesia's independence movement, Sukarno and Hatta, became President and First Minister respectively.

If the three big leaders are unable to work out an arrangement amongst them, it has been suggested that less prominent contenders might be the only acceptable President for both the major and minor parties. Major figures who have been talked about as possibly filling this role include the Sultan of Yogyakarta (a respected figure who, although a Golkar leader, played a role in persuading Soeharto to resign,) and the Cooperatives Minister, Adi Sasono, (a populist leader who has established some support calling for a greater economic role for non-Chinese).(41) Golkar leaders have expressed support for General Wiranto as a compromise candidate, but this is partly because Golkar has been unable to put forward a candidate of its own that is not burdened with New Order associations.(42) However, all these latter individuals, as well as Habibie, are closely associated in the public mind with the New Order and may lack popular legitimacy.

Unity in Diversity?

This paper has emphasised that the various regions of the vast archipelago of Indonesia were very differently affected by the economic crisis and that the long-term and short-term impact on the living standards of people in each region will be also not be uniform. The geographical, economic and cultural diversity of Indonesia of this country of 205 million people and 17 000 islands has become especially obvious in recent years, but has always been a fundamental political reality for Indonesia's leaders. The Dutch flirted with the idea of establishing a federal state in the final years of their rule and there were a number of revolts against central authority in the early years of the independent Republic of Indonesia, the most important of which occurred in the Aceh region of Sumatra.

Under the New Order, the approach to the issue of regional interests or to ideas of autonomy or separation was suppression by ABRI or token gestures such as the designation of Aceh as a daerah istimewa (special region), a status that gave no autonomy in reality. Government was heavily centralised in Jakarta and the deployment of ABRI forces was regarded as the only consistently workable response to separatism. The easing of overcrowding on Java by the transmigration of people to the less populated outer islands was seen as a way of cementing national unity and minimising cultural differences. Conflicts between local people and the transmigrants or between already existing local groups were forced underground by ABRI suppression. Expression of Sino-Indonesian cultural identity as well as anti-Chinese sentiment were generally suppressed under President Soeharto's rule.

While the policies of the New Order were mostly successful in suppressing expressions of regional separatism and of conflicts between Indonesia's ethnic and religious groups, they had no success in dealing with the roots of these differences. With the general freeing up of political expression since May 1998 and with the decline of ABRI authority and control, long-standing resentments and tensions in certain areas have exploded into violent confrontation.

There are three main potential sources of conflict in Indonesia today that might be seen as originating from the diversity of the country: anti-Chinese feeling, tension between social groups in some eastern islands and the separatist movements in Aceh, Irian Jaya and East Timor. It is important to distinguish these quite distinct elements because some reports give an inaccurate impression of generalised, indiscriminate violence across the country. In the words of a distinguished Australian observer of Indonesia, Jamie Mackie:

The violence ... lends itself readily to television reporting, providing images which seize attention but rarely are accompanied by deeper analysis. This can easily create a misleading impression that Indonesia is a seething cauldron of racial hatreds. The prospect of an independent East Timor and secessionist demands in Irian Jaya, Aceh and elsewhere also conjure up alarming parallels with Bosnia or the breakup of the Soviet Union. But the reality is different.(43)

Attacks on Sino-Indonesians

Anti-Chinese feeling has been a long standing feature of Indonesian society. Sino-Indonesians have lived in the country for centuries, speaking local languages as their first language and often retaining few distinctly Chinese cultural connections. But because many Chinese migrants took up opportunities in small-scale trading created by Dutch colonialism, many local people resented what they saw as the wealth and privilege of the Chinese community. Attacks on Chinese people and businesses (most of which were very small) became a feature of times of economic and political stress. It was often convenient for authorities in both pre- and post-independence times to allow such violence to act as a scapegoat and an outlet for resentments about broader issues. Sino-Indonesians are now estimated to make up from two to three per cent of the population, or about four to six million people. The growing wealth of a few Sino-Indonesian families under the New Order heightened stereotyped images of the Chinese community. In the words of the Indonesian Ambassador to Australia, Wiryono:

The rapacity of the small coterie has rankled so much in the public mind that it gave currency to the impression that all Chinese Indonesians were similarly privileged.(44)

The Sino-Indonesian community again became a target for rioters during the events of May 1998. This violence has subsided for now, but most Sino-Indonesians remain anxious about their future and some have left on an indefinite basis or for the duration of the election campaign.

Violence in Ambon and Kalimantan

Tensions in the eastern provinces of Maluku and West Kalimantan have caused the most bloody confrontations of recent months. In Maluku, especially in the provincial capital of Ambon, indigenous people have clashed with transmigrant Bugis and Makassar people from South Sulawesi. The Christian Maluku people and the Muslim transmigrants had lived together in reasonable harmony for many decades, but recent years have seen an acceleration of migration into the province. The transmigrants began to predominate in sectors such as petty trading as well as in peddy cab driving and labouring, traditionally important sources of employment. Growing resentment was worsened when the appointment of a Muslim governor in the early 1990s led to a perception that Muslims were being favoured in government jobs and that Islamic practices were being enforced inside the administrative service.(45) There was a serious outbreak of violence in 1997 when the onset of the crisis sharpened competition over economic opportunities. The upsurge was suppressed, only to break out again during the Islamic fasting month of Ramadan in January 1998. While the situation was soon brought under control there has been several serious outbursts of violence and loss of life since then.

The picture has been similar in the eastern province of West Kalimantan, where indigenous Christian Dayaks have clashed with Muslim transmigrants from the island of Madura in east Java. Here the picture has been complicated by the fact that local Muslim Malay people have often sided with the Dayaks. The background to the conflict has also involved competition over jobs and other economic opportunities which the local Dayak and Malay people perceived were being monopolised by more aggressive recent arrivals.


The secessionist movements in Aceh, Irian Jaya and East Timor can be discussed together but each needs to be understood for its own unique features. The region of Aceh in western Sumatra was one of the first areas to be converted to Islam from the sixteenth century. It has long had a sense of distinct identity and was the site of repeated rebellions against Dutch rule. Since the time of Indonesia's independence there has been sporadic support for the region's independence, peaking in an uprising in 1953 which was crushed by the army. The movement revived in the 1980s and 1990s, with growing resentment that local people were not benefiting from the exploitation of the region's rich oil and gas reserves. The deployment of ABRI forces against the secessionists fuelled popular resentment against rule from Jakarta. Since May 1998 the separatist movement has been able to operate more openly and the revelation of ABRI human rights abuses forced General Wiranto to visit Aceh in August 1998. He announced the ending of Aceh's status as a Military Operations Region and issued a formal apology for past military excesses. Both President Habibie and Wiranto paid another visit in March 1999.

Irian Jaya/West Papua

Irian Jaya (or West Papua, as it is known by the separatists), the other half of the island of New Guinea, only became part of Indonesia in 1962, until when it was still administered by the Netherlands. Indonesia's claim to West New Guinea (as it was called then) was based on the fact that the territory was formerly part of Netherlands East Indies, to which Indonesia was the heir and successor state. An independence movement has its genesis in Dutch plans for West New Guinea independence and even, for a time, independence in union with Australian-administered Papua and New Guinea.

Much of the local Melanesian population considered that the UN-supervised 'Act of Free Choice' was fraudulent and unrepresentative. While the consequent seccessionist movement grew and survived, it has never been able to mount a significant challenge to Indonesian rule from amongst the small, scattered population of the vast region. But the mountainous terrain has prevented ABRI from completely defeating the rebels of the Free Papua Organisation (Organisasi Papua Merdeka or OPM). Resentment amongst the indigenous population has grown with the arrival of large numbers of transmigrants from Java and South Sulawesi. The transmigrants are not only culturally foreign to the indigenous Melanesian people (who are animist or Christian), but are seen as monopolising economic opportunities in the territory. The province's population of two million is now half composed of newcomers. The exploitation of Irian Jaya's mineral resources is seen as bringing little benefit to local people, while damaging the environment and the basis of traditional fishing and gardening.

East Timor

East Timor is a particularly special case because it was never part of the Netherlands East Indies and did not formally become the twenty-seventh province of Indonesia until 1976, after the invasion of 1975 which crushed the newly declared independence of the territory. The war against the Fretilin-led independence movement and the disruption of the local economy caused by the forced relocation of much of the population is widely believed to have resulted in 200 000 deaths, about a third of the then total population. The guerrilla movement remained weak militarily through the 1980s, but continued to inspire an expanding movement of urban civil resistance which led to the Dili massacre of 1991. Like Irian Jaya, resentment against rule from Jakarta has been fuelled by transmigration and the ensuing economic competition and cultural and religious friction. Unlike Irian Jaya, the East Timorese cause has been able to capture attention and support in the international community.

Since the Dili massacre the issue of East Timor has been an ever increasing foreign relations problem for the Indonesian Government. A powerful motivation behind President Habibie's sudden offer of autonomy or independence to East Timor was to be rid of a problem which seemed an unnecessarily troublesome irritant when his Government was trying to cope with a myriad of other more serious economic and political issues. Many commentators have observed, however, that Habibie's offer was implicitly a threat to withdraw precipitously from the territory if the Timorese did not agree to autonomy within Indonesia. An abrupt departure would strip the territory of capital and human resources. The prospect played on fears of a repetition of the internal conflict which broke out in the territory after the sudden departure of the Portuguese in 1975.

This unexpected move by the Indonesian Government appears to have come largely at Habibie's personal initiative, without the support of Foreign Minister Ali Alatas or other ministers. It recalls the fears expressed by many observers at the time of Habibie's accession to the Presidency about his idiosyncratic approach to government. Together with the actions by ABRI officers in East Timor in providing arms to anti-independence elements in the territory, it raises serious concerns about the processes of policy making and coordination in Indonesia and about Jakarta's control over ABRI. Moreover, the refusal to allow a referendum on autonomy or independence created an atmosphere of confrontation. Possibly 25 independence supporters were killed by anti-independence militias in early April 1999 and later full-scale mobilisation of the militias in the streets of Dili led to the further deaths and the systematic terrorisation of supporters of independence. It is still unclear at what level in ABRI the decision to arm the militias was made, but as commentators have pointed out, as the Commander in Chief of the Armed Forces, the ultimate responsibility rests with President Habibie.(46)

Whatever the perils in the current situation, Habibie's offer has probably created a process that will eventually lead to East Timorese independence. Whether this occurs as part of a gradual transition, as the Timorese independence movement has advocated for many years, or takes place in a storm of death and destruction is an open question. A great deal will depend upon the successful involvement of foreign parties such as the governments of Australia and Portugal and the United Nations. At the time of writing, UN-sponsored discussions between Indonesia and Portugal had reached agreement for a vote on autonomy for East Timor to be held in July 1999, although the details of the proposal were still unclear. A key adviser to Habibie, Dewi Fortuna Anwar, had earlier suggested that East Timor might be given a status similar to that of Hong Kong, but the idea was quickly dismissed by Foreign Affairs Minister, Ali Alatas.(47)

Decentralisation and Regional Autonomy

The number one issue preoccupying political practitioners in Indonesia is the reform of the institutions of central government and seeing the country through the potentially dangerous election period. But no government will be able to delay addressing itself to the question of rebalancing the relationship between Jakarta and the provinces. It is clear that the New Order's approach to maintaining the unity of the diverse Indonesian state only aggravated potential problems or, at best, delayed their resolution. In any case, what was possible under an authoritarian regime is unviable under the democratising politics of Indonesia today.

The most pressing concerns are obviously those of Aceh, Irian Jaya and East Timor, but as one commentator has said:

It will be impossible to find solutions to such urgent issues ... until the broader question of regional decentralisation has again been thoroughly debated and satisfactorily resolved.(48)

The Habibie Government has promised to reallocate more central government money in favour of provinces, with expenditure transfers to the regions being increased in the last budget from US$1.6 billion to US$1.9 billion. More importantly, it has suggested a wide-ranging reform of provincial government to increase local administrative autonomy and to allow an increased proportion of locally raised taxes to be made available for local expenditure. In April 1999 the DPR passed a law providing for reforms which would pass a range of powers to the provinces, including control over land use in industry, mining, forestry, ports and tourism.(49) The Government has proposed that further reforms be put to the DPR for consideration after the June elections.(50)

The fate of reforms will, of course, depend on the composition of the new DPR and on the identity of the President. But since the major parties all say they are committed to some form of decentralisation, the debate will probably be over implementation rather than principle. This issue will, however, be a major test for managing the relationship between the new DPR and Government and ABRI. As has been emphasised, ABRI has seen itself as the guardian of unity and has traditionally been very hostile towards any suggestion of the diminution of central authority. Moreover, redistribution of power within the Indonesian state also inevitably bears on the question of ABRI's dual function role. An increase in the power of provincial governments would very likely undermine the exercise of influence by ABRI officers at the local level. A successful resolution of this key question will involve a delicate compromise between the pressure of newly empowered elements of Indonesian society and the resistance of long-established and powerful vested interests.

The Implications for Australia

From Weakness to Strength: Indonesia-Australia Relations

Relations between Australia and Indonesia since the declaration of an independent Indonesian state in 1945 have been rocky, with periods of good relations broken by sometimes open animosity. Until the late 1980s, relations were dominated by political and security issues in Southeast Asia played out against the background of the Cold War. During the rule of Indonesia's first President, Sukarno, the relationship was often tense and sometimes hostile. This was most notably the case during the early 1960s over the issues of Indonesia's integration of Irian Jaya(51) and during the time of Sukarno's 'konfrontasi' campaign against the newly formed state of Malaysia.

Such major differences disappeared with Soeharto's rise to power from 1965-66, but relations were still marked by a series of problems. The most prominent of these were associated with the invasion of East Timor in 1975 (including the killing of five Australia-based journalists) and the negative Indonesian response to a Sydney Morning Herald article in 1986 detailing the business affairs of President Soeharto and his family. Popular perceptions reflected the mutual ignorance of two neighbouring but very different societies, with most Indonesians hardly aware of Australia's existence and many Australians regarding Indonesia with fear and suspicion.(52)

Since the late 1980s, however, the efforts of the Australian Government, accompanied by Australia's generally increasing economic involvement in the region have facilitated the broadening and deepening of the Indonesia-Australia relationship. These efforts coincided well with the Indonesian Government's desire to move its foreign relations beyond a predominant focus on ASEAN. The predominance of politico-strategic issues has been replaced by a broader range of trade and investment relations and greater people-to-people links in the form of two-way tourism, Indonesian students in Australia and the slow development of non-official as well as government-sponsored cultural exchange. Australia and Indonesia are now also part of a network of regional relationships through their common membership of organisations such as APEC and the ASEAN Regional Forum.(53)

Until the mid-1980s trade between Australia and Indonesia was insignificant, but from 1985 bilateral trade grew at an average rate of 19 per cent per year. Indonesia is now Australia's tenth most important partner, with bilateral trade exceeding $5 billion in 1997-98.(54) Accumulated Australian investment in Indonesia was calculated to be in the vicinity of US$6 billion in 1997.(55) The strengthening of the official bilateral relationship was affirmed by the signing of the Timor Gap Treaty in 1995 and the Maritime Boundary Treaty in 1997, a relationship underpinned by regular meetings at ministerial and official level between the two governments. The signing of the Indonesia-Australia Agreement on Security at the end of 1995 formalised the already well developed defence and security ties between the two countries, although the mixed public reaction to the Agreement symbolised continued popular uneasiness in Australia about Indonesia.(56)

Australia and the Region

There is little doubt that the Australian Government needs to be concerned about the potential dangers of the continuing political crisis in Indonesia. Australia has an interest in minimising any regional tensions resulting from Indonesia's current problems both because of Australia's general interest in stability in the Asia-Pacific region and because of its bilateral relationship with Indonesia. As the largest country in ASEAN, Indonesia is a key strategic player in the region and has been important in developing positions to manage issues amongst the ASEAN countries and in developing a common ASEAN position on relations with China, including reducing tensions over regional territorial disputes involving China. Resolving such issues has been a crucial element in the evolution of security arrangements in the Asia-Pacific since the end of the Cold War.

Political uncertainty in Indonesia has cast a shadow over many of these achievements. The Chinese Government has, on a number of occasions, made public its concerns about the treatment of the ethnic Chinese minority in Indonesia. Tensions emerged between Malaysia and Indonesia over the issue of Indonesian migrant labourers in Malaysia who have come under pressure to leave because of Malaysia's economic problems. The frictions were exacerbated by the exchange of accusations between Habibie and Singapore's Prime Minister, Goh Chok Tong, in February 1999, during which each alleged discrimination against ethnic minorities in their respective countries.

There have also been hints of concern from other members of ASEAN over perceptions that Indonesia has been unwilling to take difficult decisions to reform its economy and thus find a solution to economic problems which threaten to damage the whole region.(57) Invidious comparisons have been made with Malaysia and Thailand's ability to deal with its problems more effectively. There have already been disagreements between the US and Indonesian Governments in recent years over issues of human rights and labour rights and issues such as the shooting of demonstrators and attacks on religious and ethnic minorities under the Habibie government have focused further critical US attention on Indonesia.

Bilateral Relations and the Indonesian Crisis

As one of Australia's closest neighbours, the political and economic fate of Indonesia was always going to be of direct relevance for Australia.(58) This underlying reality became more obvious during the expansion of links between Australia and Indonesia over the last decade and has become particularly evident since the crisis in Indonesia. The annual Australia-Indonesia Ministerial Forum, in which key ministers from each country discuss issues in the bilateral relationship, is a symbol of the closeness of relations. Efforts to increase ecomomic connections include the Australia Indonesia Development Area (AIDA), established in 1996, which links Australia with the 14 eastern provinces of Indonesia, including Bali.

The Australian Government's response to the crisis has been to provide direct emergency assistance to Indonesia and to contribute, both financially and at a policy level, to the IMF program of assistance. Bilateral assistance includes A$60 million over three years for humanitarian assistance and A$70 million over three years for economic governance programs to assist the development of Indonesia's economic institutions. Australia will contribute A$10 million to United Nations Development Program (UNDP) for its election monitoring program. Of the US$1 billion in loans Australia pledged in 1997 as stand-by finance to support Indonesia's currency, US$300 million has so far been disbursed. The Australian Government has also signalled that it would increase aid to East Timor if there was a need to respond to new circumstances created by autonomy or independence in the territory.

The increasing importance of relations with Indonesia in Australia's foreign policy has been emphasised by the role of advocate for Indonesia that Australia has increasingly begun to play in international forums. This was first evident when the Australian Government argued for less onerous conditions to be attached to financial assistance to Indonesia during discussions with the US, Japanese and EU Governments and officials of the IMF and World Bank. Since that time many governments and agencies have come to look to Australia to take the initiative in developing programs of assistance for Indonesia. Australia hosted a meeting of 11 Asia Pacific countries, 15 donor countries and eight international institutions in March 1999 to consider responses to the Asian economic crisis.

Because of long standing popular interest in Australia about East Timor, and because of the territory's proximity to Australia, recent developments have placed a particularly important responsibility on the Australian Government. Any change in the status of the territory, particularly if it is accompanied by violent conflict and economic dislocation, will have major implications for Australia's foreign policy, including aid and refugee policy. There will international expectations that Australia will be directly involved in managing the political, security and humanitarian implications. This was the background to the talks on the issue of East Timor between Prime Minister Howard and President Habibie in Bali taking place at the time of writing. In the event of an independent East Timor, fundamental issues such as territorial boundaries and the East Timor Gap Treaty would have to be negotiated.

It would be unfortunate, however, if the East Timor issue were allowed to assume predominant importance in Australia's relations with Indonesia and in Australian perceptions of events in Indonesia. The special features of the East Timor case make it more important than the territory's size would suggest, but in the context of the historic changes occurring in Indonesia today the East Timor issue should be kept in perspective. It should not divert attention from the fact that the rest of Indonesia, Australia's largest and most important neighbour, is undergoing fundamental change and that Australia's greatest regional interest is in seeing that Indonesia recovers economically and regains political stability. An independent East Timor will, like most of the small countries of the Pacific, be a continuing responsibility (and perhaps burden) for Australia, but it is in relations with Indonesia that Australia's fundamental political, economic and security interests lie.


Indonesia is passing through a time of rapid and potentially dangerous transition. From an historical point of view, this period will be as significant as the country's struggle for independence in the late 1940s and the violent upheavals of the mid-1960s which brought President Soeharto's regime to power. The depths of the economic crisis into which Indonesia fell in 1997 was largely due to the fact that political institutions in the country were already coming under pressure and were unable to cope with the sudden onrush of unforeseen economic difficulties. Other countries in the region which faced similar problems were able to deal with them, albeit with great stress, without the onset of the fundamental crisis of the state which Indonesia encountered.

In the second year of economic downturn and the first year of political reform, Indonesia appears to have made progress towards recovery and reconstruction, but is facing many more complex and hazardous hurdles. There are signs that the economic recession may have bottomed out, with the apparent stabilisation of the currency and an end to falling rates of GDP. The social effects of the crisis, particularly in terms of absolute poverty, do not appear to have been as uniformly bad as early fears suggested, but are concentrated in particular areas of the diverse Indonesian archipelago. Progress towards full recovery, however, depends crucially on a successful election and on the development of political and governmental institutions which can both maintain stability and reassure potential investors.

The early indications are good that the election campaign may pass off without serious violence. The most serious concern is that the likely absence of a clear winner will magnify uncertainty in the post-election period. After over a year of a presidency which many Indonesians consider is of dubious legitimacy, Indonesia urgently needs a Government with the confidence to tackle the country's severe internal problems and to restore its economic and political profile in the international community. Unfortunately, the complex and lengthy process of selecting the President after the election of the DPR appears almost deliberately structured to maximise uncertainty and weaken policy-making.

A great deal of media attention has been focused on violence in areas such as Ambon and Kalimantan and associated with the possibility of independence for East Timor. The suffering of the people who are caught up in these confrontations should never be minimised, nor should the potential for violence to spread beyond these places. Nevertheless, it is important to keep the scale of events in perspective. Violence has remained confined to a quite specific number of places and relations between different groups in other regions with very similar problems have not broken down. It would be surprising if the economic problems which Indonesia has faced in recent times did not lead to confrontation, especially when the authority of many governmental institutions has been called into question. Indonesia is not in chaos, social relations between the vast majority of Indonesians remain reasonably intact and civic institutions and services generally continue to function.

At the same time the immensity of the problems facing Indonesia today and which will confront the new Government after the elections are daunting. For a country whose last change of regime was accompanying by a bloodbath and which has not had a free election for over forty years, a successful election and a peaceful transfer of power will be an important achievement. The new Government will be faced with the immediate job of ameliorating the effects of the worst economic crisis in the country's history, but will have to make rapid progress in reforming the country's economic structures before real recovery can begin. At the same time it will have to cope with serious outbreaks of violence which, ultimately, will not be eased unless there is a real prospect of a major realignment of decision making within the Indonesian state.

Geopolitical realities made it inevitable that Australia and Indonesia would become closely engaged and the actions of both Governments have ensured that this has come to productive fruition in recent years. Indonesia's economic and political crisis has served to emphasise the commonalities of the two countries' situation in the region and that Australia must be directly involved in assisting a successful outcome to developments in Indonesia. It is in Australia's interest that Indonesia overcomes its economic problems, successfully develops democratic institutions and rebalances the power relations between Jakarta and the regions.


  1. Kevin Evans, 'Survey of Recent Developments', Bulletin of Indonesian Economic Studies, vol. 34, no. 3, December 1998, p. 5.

  2. For a summary of events in the Indonesian economic crisis, including a critique of the role of the Indonesian Government and the IMF, see the contribution by Ross McLeod in R. McLeod and R. Garnaut, East Asia in Crisis: From being a miracle to needing one?, London, 1988, pp. 31-48.

  3. Economist Intelligence Unit, Indonesia Country Report, 4th Quarter 1998, p. 8.

  4. Evans, Bulletin of Indonesian Economic Studies, op.cit., p. 22.

  5. ibid.

  6. Economist Intelligence Unit, Indonesia Country Report, 4th Quarter 1998, p. 36.

  7. BIS Shrapnel, Asia Pacific Economic Outlook 1999 to 2009, February 1999, p. 84; Economist Intelligence Unit, Indonesia Country Report, 4th Quarter 1998, p. 23; Oxford Analytica Daily Brief, 10 November 1998.

  8. Oxford Analytica Daily Briefs, 28 September 1998, 18 February 1999.

  9. IBRA Press Release, 13 March 1999.

  10. Indonesian Observer, 23 March 1999.

  11. Jakarta Post, 24 March 1999.

  12. Reuters, 15 March 1999; Indonesian Observer, 19 March 1999.

  13. Jakarta Post, 19 March 1999.

  14. Asian Wall Street Journal, 14 January 1999.

  15. World Development Report 1998/99, p. 190.

  16. World Development Report 1998/99; The Economist, 3 August 1996, pp.19-20. It is important to note that these figures have been questioned as underestimating the number in poverty. They are based on a level of under US$0.50 per day, when the usual international figure is US$1 per day.

  17. World Development Report 1995, pp. 214 and 216; Human Development Report 1998, p. 148.

  18. International Labour Organisation, Employment Effects of the Indonesian Economic Crisis, Jakarta, 1998; Sudarno Sumarto, Anna Weinberg and Lanat Pritchett, The Social Impact of the Crisis in Indonesia: Results from a Nationwide Kacamatan Survey, World Bank, Jakarta, 1998.

  19. Australian Agency for International Development, The Effects of the East Asian Crisis on Agricultural and Rural Development in Indonesia, 1999.

  20. Sudarno Sumarto, Anna Weinberg and Lanat Pritchett, The Social Impact of the Crisis in Indonesia: Results from a Nationwide Kacamatan Survey, World Bank, Jakarta, 1998.

  21. Oxford Analytica Daily Brief, 14 January 1998.

  22. International Labour Organisation, Employment Effects of the Indonesian Economic Crisis, Jakarta, 1998.

  23. The streets of Jakarta and other cities have seen a huge increase in the number of people trying to earn enough money for subsistence. Apart from hawkers, tiny street-stall owners and beggars, every major intersection has a range of buskers, youths 'directing' traffic through U-turns for coins and 'jockeys'-young boys who, for a small payment, ride in cars to make up the minimum number of passengers required by traffic regulations to enter the main thoroughfares of Jakarta's city centre.

  24. Tubagus Feridhanusetyawan, 'Social Impact of the Indonesian Economic Crisis', Indonesian Quarterly, vol. XXVI, no. 6, p. 351.

  25. Australian Agency for International Development, The Effects of the East Asian Crisis on Agricultural and Rural Development in Indonesia, 1999, p. 5-7.

  26. Feridhanusetyawan, 'Social Impact of the Indonesian Economic Crisis', op. cit., p. 348.

  27. ibid., p. 355.

  28. Indonesian Observer, 23 March 1999.

  29. George Aditjondro, 'A New Regime, A More Consolidated Oligarchy, and a Deeply Divided Anti-Soeharto Movement', in G. Forrester and R. J. May (eds.), The Fall of Soeharto, Bathurst, 1998, p. 211.

  30. Asiaweek, 5 February 1999, pp. 60-1.

  31. Jakarta Post, 7 April 1999, p. 1.

  32. Newsweek, Interview with President Habibie, 25 January 1999, p. 41.

  33. Bob Lowry, 'Indonesia - Political Futures and Regional Security', Australian Defence Studies Centre Working Paper No. 53, Canberra, 1999, p. 10.

  34. One the principal demands of the student-led reform movement has been for an end to ABRI's parliamentary representation.

  35. Bob Lowry, 'Indonesia - Political Futures and Regional Security', op. cit., p. 12.

  36. Jakarta Post, 10 April 1999, p. 2.

  37. Jakarta Post, 10 March 1999, p. 1.

  38. Jakarta Post, 16 February 1999, p. 1.

  39. Amongst the deluge of election speculation in the Indonesian press, two sets of articles could be cited as representative: by Australian academic resident in Indonesia, Lance Castles, in Jakarta Post, 29 and 30 March 1999 and by Mohammad A. S. Hikam of the Indonesia Institute of Sciences, Jakarta Post, 24 and 25 March 1999.

  40. Harold Crouch, ANU, quoted in Canberra Times, 2 April 1999.

  41. Australian Financial Review, 19 March 1999.

  42. Sydney Morning Herald, 26 April 1999, p.6.

  43. Jamie Mackie, 'Understanding Indonesia's Violence', Asian Wall Street Journal, 22 March 1999.

  44. Wiryono, 'Chinese Indonesians: The Way Ahead', Address to seminar on Chinese-Indonesians at the Australian National University, 15-16 February 1999. Wiryono also debunked the oft-repeated myth that Sino-Indonesians control over 70 per cent of the Indonesian economy, arguing that a reasonable calculation would estimate Chinese-run businesses as making up no more than 10 per cent of Indonesia's national wealth.

  45. Far Eastern Economic Review, 8 April 1999.

  46. Hamish McDonald and David Jenkins, Sydney Morning Herald, 20 April 1999, p. 9.

  47. Jakarta Post, 12 April 1999, 13 April 1999.

  48. Jamie Mackie, 'What Will the Post-Soeharto Regime Be Like?' in G. Forrester and R. J. May, op. cit., p. 206.

  49. Australian Financial Review, 23 April 1999, p.31.

  50. Far Eastern Economic Review, 21 February 1999, pp. 10-4.

  51. Australia supported Dutch retention of West New Guinea for both defence and agricultural trade reasons (protection against possible introduction of agricultural diseases across the land border with Papua and New Guinea) until a visit from Robert Kennedy in 1962 led to an abrupt change of policy.

  52. For a survey of some Australians' views about Indonesia, see Rob Goodfellow, 'Ignorant and Hostile: Australian Perceptions of Indonesia', Inside Indonesia, September 1993, pp. 4-6.

  53. For a survey of Australia-Indonesia relations see B. Bishop and D. McNamara (eds.), The Australia-Asia Survey 1997-98, Melbourne, 1997, pp. 183-211 and Dept of Foreign Affairs and Trade, Country Economic Brief: Indonesia, Canberra, 1997.

  54. Department of Foreign Affairs and Trade, Composition of Trade Australia 1997-98.

  55. Department of Foreign Affairs and Trade, Country Economic Brief: Indonesia, Canberra, 1997.

  56. For a discussion of issues surrounding the Security Agreement see Gary Brown, Frank Frost and Stephen Sherlock, The Australia-Indonesia Security Agreement: Issues and Implications, Research Paper no. 25, Department of the Parliamentary Library, 1995-96.

  57. Asian Wall Street Journal, 27 February 1998.

  58. For a discussion of the debate about policy options open to the Australian Government when responding to political conflict and change in Indonesia see Stephen Sherlock, The Politics of Change in Indonesia: Challenges for Australia, Current Issues Brief no. 3, Department of the Parliamentary Library, 1996-97, pp. 6-10.