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WASHINGTON (USA) - On behalf of The United States-Indonesia Society and the National Commission on United States-Indonesia Relations, I thank you for this opportunity to present my perspectives on some of the major trends and challenges shaping priorities for U.S. policy in Southeast Asia. I returned yesterday from two weeks in Indonesia and also look forward to sharing my views on developments in that important nation.

This year nearly 148 million registered voters in Indonesia will take part in a critical test of their still-fragile democracy. For the first time ever, they will directly elect the president and vice-resident of their country. This will provide an opportunity for the United States to help Indonesians build a better future - and thereby help make the world safer for Americans too.

The importance of Indonesia is well known but sometimes this is lost in the single-focused Washington policy environment. Only China, India and the United States have larger populations. Indonesia has vast natural resources. Half the world's shipping fleet passes through straits with Indonesian territory on one or both sides. U.S. investment in the country totals some $25 billion, and more than 300 major American firms are represented. These factors matter, but there is one overarching issue that could affect the future not only of the region, but of the world: The longer-term future of Islam could be strongly influenced by success or failure of Indonesia's democracy.
Six years after the resignation of President Soeharto, Indonesia's democratization process is making clear gains, but there are also areas where reforms have stalled. Today most Indonesians enjoy far greater political freedom than they did during the Soeharto era. The parliament is stronger and the electoral process is becoming firmly set. A massive decentralization process - one of the largest in the world - is giving new political and economic opportunities to groups largely excluded from the political process under the former regime. Separation of powers is beginning with creation of a new elected regional representative body and strengthening of the judiciary through a new Judiciary Commission. Political parties now operate freely, and restrictions on the press, free expression and civil governance have been lifted. Official corruption admittedly is a serious problem but the United States, the international donor community and many NGOs are working hard with responsible and respected Indonesians on issues of judicial reform and transparency.
The National Commission on United States-Indonesian Relations issued a report last fall noting that Indonesia's shift to democracy, its economy's significant but fragile recovery, and its government's commitment to confront the terrorists have opened a unique but temporary window of opportunity to help build a stable democracy in a lawful society with a market economy in a large and largely moderate Muslim country important to the United States. The membership of the Commission, co-chaired by George Shultz, Lee Hamilton, and George Russell, is appended to this report.
In short, the Commission thinks Indonesia is moving in a direction which is consistent with our own interests and that it merits significantly more attention and support. Specifically the Commission recommended creation of a new partnership between Indonesia and he United States which would continue present programs focusing on democracy, reform, and economic development but would also initiate new programs to help improve that nation's inadequate educational system on the basis that an educated and informed electorate is essential to the success of democracy and other reforms.
Rather than try to cover all of the many developments in Indonesia, I want to focus on six areas which I think are of particular importance for this committee: Indonesia's elections; the critical role of education; the economy; governance, the military, and police; counter-terrorism and regional cooperation; and the role of China in Southeast Asia. I will conclude with some specific policy recommendations.

Elections 2004: The year of voting frequently

On April 5 this year Indonesians will select 550 representatives in the national Parliament from among 7,765 candidates standing for election as well as 128 members (four per province) out of 940 aspirants for the new Regional Representative Council and some 50,000 standing for election to 1,838 seats in regional representative bodies. Campaigning began on March 11. On July 5 the president and vice president will for the first time be elected in a direct election. If no slate receives a majority, a run-off election will be held on September 20. These elections will require over 585,000 polling places, almost a billion ballots, 2.3 million ballot boxes, and over five million workers. So, 2004 is going to be a highly politicized year.
The ballots will be complicated, with 24 parties certified to field candidates for many of the thousands of national and regional offices. Some observers with whom I spoke in Indonesia are concerned that voters will become confused and that an inordinate number of ballots may be invalid. This could bring the results into question. Interest in the elections is high - although many voters still claim not to be aware of their candidates - and participation is expected to run well above 90 percent of the 148 million eligible voters. This is a large number, but it is just half of those who contested the 1999 elections. While localized clashes are possible, people I talked with in Indonesia expect the polling to be peaceful, fair, and successful. Thousands of foreign and local election monitors will observe the balloting.

The critical role of education

Most informed observers with whom I have talked in Indonesia and the United States over the past year and a half agree that Indonesia's woefully inadequate education system lies at the heart of many of its problems. There is an urgent need in virtually every sector of Indonesian government and society for trained administrators, better knowledge of the English language, and people equipped to operate a modern democratic system and perform effectively in an increasingly interdependent world economy.
Schooling is available to all Indonesians in principle, but large numbers of children are nonetheless unable to attend school. As recently as 1990, 16 percent of Indonesians had had no schooling. Only 22 percent had completed secondary education, and a scant 2.1 percent of males and 1 percent of females were enrolled in academies or colleges. Although primary and secondary education is supposed to be free, there are formal and informal fees. Primary education enrollment declined by a further 25 percent over the last four years because of poverty and reduced government spending on education. Indonesia was falling behind its neighbors even before the Asian financial crisis, and the pace of decline has since accelerated. In 1985 the central government allocated 17.6 percent of the budget to education. By 2003 this had fallen to 4 percent. A recent Indonesian study identified four weaknesses in the nation's educational system: 1) low academic standards; 2) low quality of teachers, librarians and staff; 3) unequal access to education; and 4) poor quality of educational infrastructure. Decentralization has resulted in the transfer of 1.5 million teachers from central to local control, a move that has put additional pressure on the management of education.
Recently a great deal of attention has focused on Islamic schools in Indonesia called pesantren or madrassahs (I have used the latter term to refer to all such schools). According to various sources, 13 to 15 percent of all primary and secondary students in Indonesia attend madrassahs.
Madrassahs operate at all levels - primary, junior secondary (junior high school), and senior secondary (senior high school). They are now an integral part of the National Education System under Law No. 20 of 2003. The governance of madrassahs, like public schools, is being transferred to the districts (kabupaten) under the decentralization program. The study cited above notes that "madrassahs provide Islamic-based general education for a significant and growing proportion of the country's total enrollment in primary and secondary education…" It concludes that madrassahs in Indonesia are different from those in other countries because "they provide Islamic general education rather than just religious education." They provide basic education in poor communities at very low cost. An estimated 45 percent of the parents of madrassah students are farmers and another 14 percent are laborers. The above report notes also that madrassahs provide education to a greater proportion of girls than public schools at all levels. But the report also cites weaknesses in the madrassahs: financial, physical and human resources in madrassahs are far lower than in typical public schools. The report nonetheless concludes that madrassah students have "attained higher average scores than general school pupils."

The economy: progress but joblessness and lack of investment

On the positive side, Indonesia's macroeconomic performance has been encouraging. The rupiah is fairly stable, interest rates are down to manageable levels, the banking system has gained strength, asset recovery has proceeded, monetary policy is sound and inflation has fallen from 80 percent to less than 10 percent. Indonesia's recent one billion dollar bond issue was greatly oversubscribed.
On the other hand, problems remain. An estimated 40 million Indonesians are unemployed or significantly underemployed. Half a million of these are college graduates, a particularly volatile group. The current 3.5 to 4.2 percent GDP growth rate cannot accommodate the 2.5 million new entrants into the workforce annually, let alone the backlog. Although the number of Indonesians living in absolute poverty has declined since the peak of the 1997-98 financial crisis, the World Bank reports that 50 percent of the population is barely above the line and "very vulnerable."
A few foreign firms already represented in Indonesia are adding to their investments, but by and large, few new foreign direct investments have been made, particularly from the United States. Cited as discouraging investment are the security situation, an unfavorable financial climate (this seems to be improving), and lack of competitiveness in some areas. The result is that Indonesia is the only one of the five countries worst hit by the financial crisis that still has a net negative capital flow.
We believe foreign direct investment from responsible firms, including technology transfer and job creation, is critical to economic growth. The aid consortium, the Consultative Group on Indonesia (CGI), meeting in Bali in January 2003, called on "Indonesia to redouble its efforts to improve the climate for investment as a means to stimulate growth and poverty reduction." Similarly, the Executive Board of the IMF asserted in March 2003 that "weaknesses in the investment climate continue to hold back a more robust economic recovery." Significant additional progress is unlikely in this election year.

Strengthening governance, the military and the police

The United States has provided substantial support for the development of civil society since the end of Soeharto's authoritarian rule, and encouraging progress has been made. There are now more than 5,000 non-governmental organizations in Indonesia. Watchdog organizations have been established to combat corruption, abuse of power, and other issues.
Nonetheless, weak and corrupt leadership impedes progress in reform in many areas. The judicial system is particularly weak as is the general administration. A Government of Indonesia publication noted that "a major concern of the government has been creation of an efficient, clean and respectable administration on national and regional level(s)." The report sets as goals the elimination of "abuse of authority and malpractice on the part of the state apparatus" but adds that achieving "ideal results is a long and painstaking effort." We believe the long-term solution to this problem lies in improving Indonesia's educational system, but for more immediate impact we believe it would also be useful to concentrate on civil service reform, including measures to link compensation to productivity and performance and formation of a national Civil Service Commission to set and administer future civil service policy.
The Indonesian military (Tentara Nasional Indonesia - TNI) number about 280,000, with some 200,000 in the army. The size is by no means excessive. They rank 22nd in size among the world's armed forces, just behind Thailand. There are 1.3 military personnel in Indonesia for every 1,000 people. Comparable figures for Thailand are 48 and for Malaysia 54.
From the early days of the revolution against the Dutch, the military have been involved in politics. This was strengthened by the "dual function" concept devised during the Sukarno presidency under which military officers served throughout the government in positions that would normally be considered civilian. Soeharto further refined the politicization of the armed forces. During his presidency, the TNI worked to ensure the success of the ruling Golkar Party in elections, served in virtually all departments of the government at virtually all levels.
Measurable progress has been made in reforming the military since the fall of Soeharto, including: · The "dual function" has ended. Officers serving in civilian positions now must retire from the military. · The TNI no longer plays a dominant role in party politics or elections. It stood aside during the moves to oust Soeharto in 1998 and in the 1999 elections. · Military representation in elected legislative bodies will end with the 2004 elections. · Military personnel will not vote in forthcoming elections, as undemocratic as that may seem, out of concern that senior commanders will influence their troops on how to vote. · The police, formerly subsumed within the TNI, have been given independent status directly under the president. · Since 1999 the TNI has for the first time since the 1950s had a civilian Minister of Defense. Unfortunately he has very limited authority thus far.
Problems remain in several areas. First, the TNI receives only about 30 percent of its funding from the central government. This weakens the effectiveness of civilian control. Secondly, the TNI's Territorial Command System, which parallels and rivals the civilian structure down to the district level, strengthens the military's internal role and also provides additional money-making opportunities. Continued efforts are needed to build on the reforms already achieved. (For a discussion of the U.S. role, see "Recommendations.")
It was only three years ago that the police separated from the military chain of command in a move aimed at reforming and redirecting the focus of the 285,000-member force which itself has been tainted in the past by corruption and human rights abuses. Like the TNI, the problem with the police has not been excessive numbers. The target is to raise the strength to 350,000 which would mean one officer for each 620 inhabitants (still a small ratio; the international standard is one policeman per 350 to 400 inhabitants). Since the Agency for International Development is unable by law to assist police, the U.S. Department of Justice is spending $40 million on a project to make the police more responsive to Indonesia's new democratic environment through funding, training and arming specially screened Indonesian policemen in a new pilot program. The creation of a self-contained, 400-strong counter-terrorism unit will be able to respond to incidents throughout the archipelago. Dubbed Detachment 88, the new unit is expected to strengthen the police's ability to shoulder much of the burden of the war against terrorism in Indonesia.

Counter-terrorism and regional cooperation

Eighty-seven percent of Indonesia's people are Muslim, but Indonesia is not a Muslim state. There is no established religion. Efforts over the years to impose Islam as the state religion have failed, most recently in August 2003 when efforts by a small group to pass a resolution in the People's Consultative Assembly (MPR) requiring Muslims to abide by syariah law threatened to go down to embarrassing defeat and the resolution was withdrawn.
Muslims in Indonesia have long been among the most tolerant and moderate in the world. Indonesian Muslim thinkers have made it even more so by reformulating Muslims' obligations to the state in a positive way. A younger generation of Muslim thinkers is carrying that legacy forward. This suggests that Indonesia can become a model of a modern democratic society that is responsible to the aspirations of its Muslim majority.
Indonesia was sympathetic to the United States after the September 2001 terrorist attacks but did not see this as an Indonesian problem and did little to counter the distorted views of a small group of Muslim radicals. The October 2002 attack in Bali provided the necessary wake up call, and the August 2003 bombing at the JW Marriott Hotel in the heart of the capital city of Jakarta brought home to most Indonesians that terrorism in Southeast Asia was no longer a phenomenon that could be ignored or denied.
However, the problem of radicalism continues. The U.S. ambassador has said publicly that al Qaeda is present in Indonesia. There are indications that it operates with and through a Southeast Asian organization called Jemaah Islamiyah (Islamic Community - JI) whose goal is establishment of a large Islamic state embracing Muslim areas throughout Southeast Asia. An Indonesian Muslim cleric, Abu Bakir Bashir, who is believed to be the spiritual and may also be a temporal leader of JI, was arrested in 2003 and sentenced to four years in prison for his activities. The sentence was later shortened to three years by the Indonesian Supreme Court, and that court last week cut the sentence still further. Bashir is now likely to be released in early April.
A leading Islamic scholar, Azyumardi Azra, a Columbia University PhD and now president of the State Islamic University, has called on the United States to "empower" Islamic universities to help them produce good scholars. Many Muslims, he noted, have only limited knowledge of Islam, and they know even less about democracy.
Following the Bali and Marriott Hotel attacks the Indonesian government accepted foreign police assistance from Australia, the United States and other countries and moved aggressively against local terrorist groups. Indonesia's Internal Security Law was tightened, strong efforts were made to eliminate loopholes for money laundering, and more than 100 suspected terrorists and Muslim radicals were arrested. A number have already been tried and several have received death sentences.
These actions have crippled JI but have by no means eliminated it as a threat. There are good indications that new recruits are falling in behind those who have been picked up, and the organization remains dangerous.
An encouraging development in the counter-terrorism field is the strengthening of regional cooperation between Indonesia and its neighbors. Before the Bali bombings Indonesia's ASEAN neighbors complained of a lack of interest in combating terrorism on the part of Indonesia. Now there are extensive military and intelligence exchanges. Indonesia has now gone so far as to recommend that ASEAN, founded as an organization for economic cooperation, should have a regional military force. This is more than some of its neighbors wanted, and they have suggested a go-slow approach. Nevertheless, the United States and allies such as Australia and Japan should welcome this move and provide enabling training and other assistance.

Indonesia, the Asia-Pacific and relations with china

China's policy toward Indonesia - indeed, toward all of Southeast Asia - has become much more nuanced in recent years. China's diplomats in the region are sophisticated and moderate, and they are according to some U.S. observers "eating our lunch." I am not prepared at this point to go that far or to assume that this is a zero-sum game.
Indonesia has done little to exploit its improved relations with China to launch new foreign policy initiatives. It is China that has been able to capitalize on its improved relations with Indonesia and with ASEAN as a whole. It has launched the initiative for a Free Trade Agreement with ASEAN and has laid the foundation for a strategic partnership with ASEAN as well.
Trade between Indonesia and the PRC continues to grow and reached $8 billion in 2002, up from about $2 billion a decade earlier. China's cumulative investments in Indonesia have also boomed from $282 million (on an approval basis) at the end of 1999 to about $6.8 billion by the end of July 2003. This represents a 25-fold increase in four years. China's investments have concentrated particularly in the energy sector.
A study by Deutsche Bank in 2003 illustrates how other Asian countries view China's economic emergence: Relatively better governed countries like Korea, Thailand and Malaysia have moved to long-term policy measures aimed at strengthening competitiveness and sustainability; countries less affected are also responding with resolve. Only a third group, saddled with a "heavy burden of political dislocation and structural weakness," has been unable to respond effectively. According to Deutsche Bank, this latter group includes Indonesia.
In a recent paper entitled "ASEAN and Its Neighbors," Marvin Ott from the National Defense University clearly posed the dilemma faced by international observers: "A benign interpretation would see China as simply cultivating the sort of stable, peaceful, and prosperous regional environment that China requires for its own successful modernization. A more skeptical analysis sees China playing a long-term game designed to curtain American influence and weave a close-knit economic and security community with China at the center."
I lean toward the latter analysis, but there is no reason as yet to resort to Cold War rhetoric. The most that can be said at present is that these developments require careful watching and that our interests would be best served, in case the latter analysis is correct, by more active and aggressive U.S. investment policies and stronger U.S. and Indonesian moves to strengthen government-to-government relations.

Conclusions and recommendations

Those of us who are members of the National Commission on U.S-Indonesian Relations believe the next five years will be critical for Indonesia. The 2004 elections and the next five year term for executive branch and legislative officials will determine whether Indonesia's democracy succeeds or whether the nation slips back under some form of authoritarian rule or multiple power centers; whether its economy picks up sufficiently to provide jobs for the 40 million Indonesians now unemployed or underemployed as well as the two and a half million annual entrants to the workforce; and whether moderate Muslims prevail.
We have looked carefully at our present assistance programs and believe they are on the right track. We especially support continued support for democratization, civil governance, legal and judicial reform, and decentralization. These programs are vital to Indonesia's success. We also urge additional assistance in six areas where we believe important U.S. and Indonesian interests are at stake.

1. Education.

The deficiencies of Indonesia's education system are discussed earlier in this report. First and foremost, the National Commission recommends a major new assistance program to work with Indonesia and other aid donors to improve education at all levels and in all sectors. This, we believe, is critical to Indonesia's success as a moderate, democratic, Muslim-majority nation. We leave the details to the experts but strongly recommend that our assistance cover public and private primary and secondary schools as well as public and private universities. We place a high priority on English-language training, teacher training and the establishment of cooperative arrangements between American and Indonesian colleges and universities similar to those which existed until the 1980s when U.S. funding was discontinued. We recommend also major increases in the Fulbright Program, International Visitor exchanges, and American Field Service and similar programs. What we can do directly in Indonesia is limited, but one of our best contributions is to train Indonesians who can continue reform from within Indonesian society.
We support and commend President Bush's initiative during his Bali visit in October 2003 in pledging $157 million over six years to support educational improvement. Our concern, however, is that the amount (about $26 million per year) is far too small and that this is not new money. The funds must come out of existing programs. We recommend a new program of support for education of an additional $50 million per year to start, expanding to double that amount as Indonesia's absorptive capacity increases. We urge that the Millennium Challenge Account (MCA) be considered as a future source of funds. Until that can happen, Congress should appropriate additional funding, above requested levels, to be directed at the vital educational sector.
The reaction to President Bush's commitment in Bali in October 2003 to support education in Indonesia was negative in Islamic and nationalist quarters owing to concern that the United States was going to interfere with sensitive matters affecting education, particularly in the madrassahs. This shows that U.S. support for education and in other sensitive areas must be handled carefully and with full awareness of local concerns. For this reason, we recommend that support for education and other sensitive areas be handled through a bi-national partnership of officials and interested private citizens from both sides (the Commission has suggested it be called the Partnership for Human Resource Development). Under this arrangement, both sides would "buy into" the new programs and be prepared to support and defend them in a cohesive and non-political way.

2. Strengthen Parliament.
The Indonesian Parliament, an ineffective rubber stamp under Soeharto, has developed significantly during the past five years. It now initiates legislation and questions senior government officials - both unheard of in earlier years. But it understandably still has a long way to go. Staffing is weak, research resources are extremely limited and contact with constituents is almost nonexistent since until the 2004 elections candidates were selected by and responsible to their parties. We ask the U.S. Congress to consider ways in which it can help through direct contact with the still new Parliament in what is now the third largest democracy. Exchanges at the staff level and technical support would be most welcome. It is also hoped that more members of Congress will visit Indonesia to see developments firsthand.

3. Police Support.
We believe it is essential that the Indonesian police be trained and expanded as quickly as professionally possible. This is critical in order to get the military out of the field of internal security. AID is prohibited from engaging in police support with the result that temporary arrangements have been made through other U.S. agencies and police programs are not developed and administered as a part of our overall development effort. The Indonesian police have been removed from control by the military and now operate directly under the president of Indonesia. The police have made significant progress in reform and we urge the Congress to consider removing restrictions on U.S. assistance through our regular AID program.

4. Military-to-Military Relations.
We believe the U.S. International Military Education and Training program (IMET) is the most effective long-term assistance the United States can provide to build professional and accountable Indonesian armed forces. Participation in the program is not a guarantee of good behavior, but the Indonesian military is not likely to continue reform unless it has officers trained in international military standards of conduct and modern management. These programs were terminated by Congress in 1992 following the Indonesian army's killing of unarmed civilian demonstrators in Dili, East Timor. The result is that for 12 years we have had only very limited contact with the Indonesian military.
We would like to see selected programs resumed but we recognize that political support for resumption of a military-to-military relationship will be lacking until there is a satisfactory resolution to the killing of two Americans and an Indonesian employee of a U.S. company in Papua in August 2002.

5. Emphasis on public diplomacy.
The number of Indonesians with negative attitudes toward the United States has increased significantly during the past several years. The 2003 Global Attitudes Survey conducted by the Pew Research Center for the People and the Press showed that the percentage of Indonesians with a favorable attitude toward the United States had dropped from more than 60 several years ago to 15 percent. I do not consider this anti-Americanism per se. Rather it is opposition to U.S. policies and often uncoordinated and misplaced rhetoric from Washington opinion makers. However, it can become more deeply ingrained if not countered. We believe more attention needs to be paid to the public reaction to U.S. policies and actions and that more resources must be made available to explain our policies and actions, strengthen relations with opinion leaders overseas, and significantly expand exchange programs between the two nations.

6. Economic and private investment support.
We suggest two initiatives in this area. First, the United States Export-Import Bank (EXIM) is not active in Indonesia because the bank requires a sovereign guarantee which the Government of Indonesia refuses to give. The result is that U.S. exporters and businessmen are placed at a disadvantage compared with those from other industrialized nations. We recommend that this situation be reviewed.
Secondly, the Multi-Fiber Agreement (MFA), under which a number of nations are given quotas to export garments to the United States will expire on January 1, 2005. Because China is a more efficient producer than many other suppliers, it has been predicted that China may end up supplying 75 percent or so of U.S. imports at the expense of Indonesia and other producers. An estimated two million Indonesian workers (mostly women) are employed in garment factories in Indonesia. Not only would elimination of the quota create serious hardship for these workers but adding another two million more unemployed workers to Indonesia's already large unemployment rolls could have political as well as social repercussions.
Other poor countries, such as Bangladesh, could also be adversely affected. Elimination of the MFA is being done under the WTO. It is not likely that this can be reversed. But we believe consideration should be given to finding ways to lessen the burden on countries like Indonesia. Possibilities could include helping Indonesia move upscale to higher quality garments where they could find a niche, making special arrangements for garments from particularly vulnerable countries, and programs to retrain workers to move to assembly of electronic components or other products.

This is the full transcript of his testimony. Via the website of the US House Committee on International Relations.

Posted in Corruption @ 22 March 2004 by Jeroen · 'Blog' RSS feed · permalink

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