Indonesia Overview

• Key facts
• Overview
• History
• Post-Suharto – the Reform Era
• Political Situation
• Economic Situation
• Foreign Relations

Relations with New Zealand

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Key facts

General

Political

Economic

New Zealand Trade

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Overview

Indonesia is the world’s third largest democracy, with the largest Muslim population in the world.  The population is estimated to be 237.5 million (the fourth most populous country in the world).  Indonesia is also the world’s largest archipelago with approximately 18,000 islands spanning the equator and three time zones.  It is ethnically diverse, with around 360 languages spoken.  There are six official state religions or belief systems: Islam, Protestantism, Catholicism, Hinduism, Confucianism and Buddhism.  Approximately 88% of the population is officially Muslim (Protestants make up 5%, Roman Catholics 3%, Hindus 2%, Buddhists and Confucians 1%). 

Mainstream Indonesian Islam is moderate, relatively tolerant and less austere than in most other parts of the world.  Since its arrival in Indonesia in the 13th century, Islam has been superimposed on a mixture of Hinduism, Buddhism and indigenous animist beliefs.  It has traditionally been dominated by Sufi mysticism and a syncretic (inclusive rather than exclusive) approach, although since the early 19th century there have been a variety of modern or orthodox reactions against this syncretic tradition.  The last two decades have seen a trend towards more visible Muslim piety, especially noticeable among some members of the urban middle classes and youth.

The main ideological strands in Indonesian politics are secular/nationalist and religious.  The former has always been in the ascendancy and is for the most part supported by the main Muslim organisations, who guardedly accept the principle of a state that does not privilege one particular religion.  Indonesia’s own version of a secular-oriented ideology is “Pancasila” (designed by the nation’s first president, Soekarno) which among other things requires belief in a single god but pointedly does not tie that belief to a specific religion.  Since independence, Pancasila has been a sore point for the Islamist minority, who seek at the very least some form of constitutional requirement for the state to enforce Islamic principles on its Muslim population.

Indonesia’s political system is a constitutional democracy.  The current system is the result of various constitutional amendments after the fall of the authoritarian President Soeharto in 1998.  The president is now elected in a direct general election every five years (until 2004 the president was elected by the MPR).  The legislature is made up of two bodies: the House of Representatives (DPR) and the Regional Representatives’ Assembly (DPD), mandated to deal with regional affairs.  The supreme constitutional body is the People’s Consultative Assembly (MPR), consisting of both the DPR and DPD sitting together.  The MPR is the final arbiter – after Parliament and the Constitutional Court – of constitutional amendments and impeachment proceedings.  It sat frequently until 2004, but is now expected to sit only once during a presidential term unless the nation is confronted by a major political crisis.

Indonesia has considerable influence in regional and international affairs, both bilaterally and through forums such as the UN, G20, APEC, ASEAN, EAS, OPEC and the Organisation of Islamic Conference (OIC).  It is currently a non-permanent member of the United Nations Security Council (2007-08).  Indonesia is important to New Zealand and other members of the Asia-Pacific region by virtue of its size, strengthening economy, strategic location and natural resources.

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History

A number of Hindu and Buddhist kingdoms, centred on Sumatra and Java, covered much of Indonesia’s modern territory before the gradual ascendancy of Islam and then the arrival of European traders and imperialists.  The last major Hindu kingdom, Majapahit, reached its height in the 14th century and covered much of the archipelago.  It was replaced by local kingdoms and sultanates, which one by one were taken under Dutch administration or conquered by Dutch forces.  The Dutch did not finally incorporate into the Netherlands East Indies all of what is now Indonesia until the early 20th century.

Indonesia declared independence from the Netherlands in August 1945, after three years of rule by a Japanese wartime administration.  The Dutch only ceded sovereignty in 1949 after four years of intermittent armed struggle with a medley of pro-independence forces fighting under national, provincial and religious banners.  However, the Dutch remained as the colonial power in Papua (Netherlands New Guinea) until 1962, when administering authority was handed over to Indonesia.  Papua’s incorporation into Indonesia became official with a much-disputed consultation of Papuan representatives in 1969, the “Act of Free Choice”.  At that point, Indonesia’s borders became identical with those of the former Netherlands East Indies.

The post-independence political landscape has been dominated by Presidents Soekarno (1949-66) and Soeharto (1967-98).  The Soekarno years were marked by political instability, economic decline and the dismantling of Indonesia's first parliamentary democracy.  Soekarno was a charismatic and aspirant revolutionary leader whose name still has widespread public appeal in Indonesia, evidenced by the popularity of his daughter, former president Megawati Soekarnoputri.  He pursued a radical foreign policy, which included military confrontation with Malaysia and the Netherlands (in Papua).

The instability of the Soekarno era culminated in an abortive armed coup in September 1965, which the military blamed on the Indonesian Communist Party.  It is estimated that 500,000 or more Indonesians were killed, mainly in Java and Bali, in the consequent violent suppression of the Communist Party and alleged communists.  Major General Soeharto rose to power during the violent upheaval and formally assumed the Presidency in March 1967.

President Soeharto's rule from 1967-98 was marked by economic development, political stability and close relations with the West.  Social indicators such as life expectancy and literacy improved rapidly during this period.  It was, however, marred by human rights abuses, centralised authoritarian rule, weakening of the non-executive branches of government, increased military involvement in politics and business, the violent annexation of East Timor in 1975, and rampant corruption and nepotism.  The final years of the Soeharto era were marked by growing public disenchantment and rising street protests, fuelled by the severe impact of the 1997 Asian financial crisis and the collapse of the rupiah.  Having lost public, military and Cabinet support, Soeharto resigned on 21 May 1998.

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Post-Suharto - the Reform Era

The sudden collapse of President Soeharto's centralised authoritarian rule was accompanied by a resurgence of communal and separatist tensions across Indonesia.  Other challenges facing Indonesia's post-Soeharto governments included the need to revitalise the economy through measures such as bank recapitalisation, commercial law reform and restoration of investor confidence; management of the devolution of political and economic powers to the regions; strengthening the non-executive branches of government; the redefinition of civil/military relations; and enhancing respect for the human rights of Indonesians.  Analysts identify corruption as a major problem despite the efforts of the last two administrations to improve governance and accountability and strengthen the legal system.

Soeharto had restricted political party activity by ensuring that the regime, the  military and the bureaucracy all actively supported the Golkar Party, and by allowing only two other parties to compete in elections against Golkar (which inevitably won with large majorities).  With the end of restrictions on forming parties in 1998, many new parties emerged and ran in the 1999 and 2004 legislative elections.  A total of 38 parties ran in April 2009, and the Democratic Party gained the largest proportion (20%) of votes.  Eight other parties surpassed the 2.5 percent popular vote threshold required to enter parliament.  As the president heads and appoints the government, he/she has been obliged to ensure majority support by forming multi-party cabinets with 5-7 parties represented, alongside a number of non-party technocrats.  In general, the parties have few clearly defined platforms or policies distinguishing them from their competitors; instead, most of them appeal to traditional loyalty groups (e.g., secular nationalists, various strands within the broad Muslim community, Christians).

The six years from Soeharto’s downfall to President Yudhoyono’s election saw three transitional presidents.  Soeharto was succeeded by his Vice-President, BJ Habibie, who responded to public expectations by introducing political reforms, the most significant being the genuinely open and pluralistic national parliamentary elections held in June 1999 and a programme of regional autonomy.  President Habibie's government also oversaw a UN-sponsored ballot in East Timor in August 1999 (which resulted in East Timor’s secession from Indonesia later that year and full independence, after a period of United Nations administration, in 2002).  The MPR elected moderate Muslim leader Abdurrahman Wahid as President in late 1999.  His government made limited progress towards addressing the longer-term problems faced by Indonesia.  In July 2001 the MPR voted overwhelmingly to revoke President Wahid's mandate and replaced him with his Vice-President, Megawati Soekarnoputri.

During President Megawati’s term, macro-economic indicators improved (although foreign direct investment (FDI) remained sluggish and unemployment very high) and there was enhanced political stability.  Her government put in place the mechanism for the first direct Presidential election.  In the run-off round of that election on 20 September 2004, Susilo Bambang Yudhoyono won the popular vote by 61% to Megawati’s 39%. 

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Political Situation

Re-elected for second five year term in 2009, President Yudhoyono faces similar challenges to those that confronted his predecessors in the post-Soeharto era.  The need to address corruption, inadequate FDI flows, unemployment/underemployment and legal reform are priorities for his Government.  A defining achievement of his presidency so far has been the peace agreement and subsequent peaceful elections in Aceh, ending years of armed conflict.  Yudhoyono has also indicated that he places importance on consolidating the Special Autonomy Law for Papua and West Papua.  The military (TNI) remains an influential player in Indonesia – principally as a consequence of its territorial command structure – although it no longer has a direct role in political affairs, having lost its reserved seats in parliament after October 2004.

International human rights organisations continue to express concern about human rights, particularly in the provinces of Papua, Papua Barat, and Maluku.  But there is recognition by many observers of a discernible improvement in respect for human rights in Indonesia generally.  In 2000, the Government agreed to approve the establishment of an ad hoc human rights tribunal to try those implicated in the crimes against humanity committed in East Timor in 1999.  Eighteen officers and Government officials, including three army generals, were tried, but higher courts have since overturned all of the six sentences handed down by the tribunals.  A Truth and Friendship Commission (CTF) between Indonesia and Timor-Leste released its final report in July 2008.  The CTF’s report found that crimes against humanity occurred in East Timor in 1999, and ascribed institutional responsibility for those crimes to civilian groups (both for and against independence) and organs of the Indonesian government.  In line with its mandate, the CTF did not recommend individual prosecutions, rather it recommended a process of institutional reforms aimed at creating a culture of accountability.  Those recommendations have yet to be implemented. 

The legislature has also passed a law on the formation of a national Truth and Reconciliation Commission; and there are provisions for equivalent province-level commissions in the peace agreement for Aceh and the Special Autonomy package for Papua.  But the Constitutional Court revoked the law in 2006, with the revocation also to apply to province-level commissions.  Work on a revised law is currently under way.

In 2004, Indonesia’s first permanent Human Rights Court (for Eastern Indonesia) had been established in Makassar, Sulawesi.  It is the first of four planned nationally.  In the same year, Indonesia’s Ministry of Justice and Human Rights launched its five-year National Action Plan on Human Rights 2004-2009, which deals with human rights dissemination, education and implementation at every level of government, including the Police and the TNI. In 2006, Indonesia ratified the International Covenant on Civil and Political Rights (ICCPR) and International Covenant for Economic, Social and Cultural Rights (ICESCR) and has indicated it will look to join the International Criminal Court (ICC). 

There have been encouraging signs with respect to combating corruption.  Many senior officials, provincial political leaders, and members of parliament have been convicted since 2004 for corruption-related offenses.  Corruption, however, is still prevalent at all levels of society and judicial corruption is an especially intractable problem.  There is a general consensus that it will likely take more than a generation if Indonesia is to make significant progress in this area. 

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Economic Situation

The Indonesian economy grew less dependent on oil and agriculture during the Suharto New Order.  The severe contraction of Indonesia's economy at the time of the 1997 Asian financial crisis, however, highlighted the shortcomings of the New Order economic model (increasingly wasteful use of foreign investment, declining international competitiveness).  Indonesia's GDP contracted by 13% in 1998.  GDP per capita in 2000 was US$671, well down on the 1996 level of US$1,150.  The economy has shown signs of recovery since then, most pointedly demonstrated during the recent global economic crisis. Indonesia was, along with India and China, one of the only countries in the region to escape recession. GDP per capita (PPP) was estimated at US$ 4,380 in 2010.  Economic growth has gradually increased from 3.3% in 2001 (led by the export sector) to 4,5 % in 2009; the figure for 2010 is estimated to be about 5,5 %.  Services (which represent 37,1% of GDP) and agriculture (15,3%) account for most of the origins of Indonesia's GDP. 

The Indonesian Government initiated a wide-ranging economic reform programme in 1998, with strong IMF advisory and financial support, to address the impact on Indonesia of the 1997 Asian financial crisis and to lay the foundations for long-term sustainable growth.  On 1 January 2004 Indonesia graduated from the IMF’s lending programme, and in early 2007 took the decision to disband the Consultative Group on Indonesia, a donor forum of which New Zealand was a member, preferring instead to focus on bilateral development assistance.  The World Bank welcomed this step as a further sign of Indonesia’s renewed economic confidence.

The impact of the recent global economic turmoil was felt in Indonesia, but much less severely than in its regional neighbours. Indeed Indonesia’s economy  continued to grow at 4.4% through 2009. This was primarily due to Indonesia’s strong domestic economy (domestic consumption equates to over 60% of GDP), the relatively low share of exports as a fraction of GDP, and strong macroeconomic conditions thanks to prudent fiscal management by successive post-Reformasi governments. As the global economic crisis has eased and demand for natural resources increased, Indonesia’s economy has grown at approximately 6%, with a resurgent stock market and strengthening rupiah further outward signs of Indonesia’s resilience.

Despite these strong macroeconomic conditions, prospects for a sustained high level of economic growth – particularly a level that enables employment to keep pace with population growth – will depend to a large extent on the rate of critical economic reforms, particularly those concerning investment, tax and labour laws, and the economic impact of decentralisation.  All of these factors are relevant to the restoration of investor confidence, which the IMF regards as central to Indonesia's long-term economic recovery. The “Negative List” on investment, released in mid-2010, opened some sectors of the economy to much needed foreign capital, but many barriers in various sectors remain. Indonesia operates a relatively open economy, but non-tariff barriers (NTBs) remain an impediment to trade. 

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Foreign Relations

Foreign policy under President Sukarno (1949-66) was radical, characterised by Sukarno's self-styled role as leader of the Non-Aligned Movement.  Under President Suharto (1967-98), Indonesian foreign policy was marked by an emphasis on stability, with Indonesia developing a leading role in ASEAN, APEC and the Non-Aligned Movement but also maintaining good relations with the West.  President Yudhoyono has maintained an emphasis on Indonesia’s traditional “free and active” foreign policy settings, and in that context has indicated Indonesia’s increasing willingness to become involved in regional and international issues, including in the Middle East.  Indonesia’s non-permanent membership of the United Nations Security Council, which expired in December 2008, saw its stance on a number of issues come to increased international notice.

Indonesia is a leading member of the Association of Southeast Asian Nations (ASEAN), and has been at the forefront of moves to renew the body, particularly in the drafting of a new ASEAN Charter (which was signed by leaders at the Singapore ASEAN Summit in November 2007 and entered into force in December 2008) and the establishment of an ASEAN Community.

Other important Indonesian initiatives include the Bali Democracy Forum, first held in 2008, and the proposed 2010 Jakarta International Defence Dialogue.  

Indonesia was vaulted into the international fight against terrorism after the Bali bombings in 2002.  These were followed by the bombings of the Marriott Hotel in 2003 and outside the Australian Embassy in Jakarta in 2004, and smaller backpack bombings in Bali in 2005 and a simultaneous attack on two Jakarta hotels in 2009.  There were terrorist attacks on domestic targets, predominantly in Maluku and Central Sulawesi during the period 1999-2005. 

Japan, ASEAN countries (especially Singapore), the United States, the EU and Australia are important export markets and sources of investment for Indonesia.  Indonesia's economy is reasonably well integrated into international markets, with exports equivalent to 25% of GDP.  Indonesia is a capital importing country.  Foreign investment declined sharply after the 1997 financial crisis, but has shown some signs of recovery since 2007.

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Relations with New Zealand