Indonesia. Country Profile 2007

Transcription

1 Country Profile 2007 Indonesia This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2007 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 MYANMAR LAOS Main railway Main road THAILAND International boundary Main airport Andaman Sea CAMBODIA VIETNAM PHILIPPINES Capital Major town Other town June 2007 South China Sea Banda Aceh Sulu Sea Simeulue Aceh Medan Nias Padang Siberut Sipura Pagai Utara Pagai Selatan Tebigtinggi Pematangsiantar Bengkulu Pekanbaru Tanjungpinang Singkawang Sumatra Pontianak Jambi Sungaipenuh Palembang Kotabumi Bangka Pangkalpinang Tanjungkarang Telukbetung JAKARTA Serang Cirebon Bandung INDIAN OCEAN MALAYSIA SINGAPORE Natuna Besar Belitung Sukabumi Pekalongan Java Sea Cilacap Yogyakarta Surakarta Madiun Malang Kediri BRUNEI MALAYSIA Borneo Kalimantan Banjarmasin Semarang Turban Kudus Java Amuntai Samarinda Balikpapan Madura Surabaya Banyuwangi Bali Sangkulirang Denpasar Jember Lumajang Martapura Tarakan Tanjungredeb Majene Lombok Mataram Sumbawa Palu Parepare Watampone Makassar Wotu Raba Kolaka Bulukumba Kupang Manado Gorontalo Kendari Ternate Molucca Sea Seram Sea Seram Ambon Fakfak I N D O N E S I A Flores Sea Sumba Sulawesi Celebes Sea Flores Savu Sea Peleng Buton Sangir Taliabu Alor Timor Buru Wetar Kepulauan Talaud Obi TIMOR-LESTE Palau Morotai Palau Halmahera Banda Sea Manokwari Sorong Kepulauan Tanimbar Biak Arafura Sea PACIFIC OCEAN Strait of Malacca Kepulauan Aru Biak Jayapura Papua (Irian Jaya) PAPUA NEW GUINEA Amamapare Merauke 0 km ,000 Timor Sea 0 miles The Economist Intelligence Unit Limited 2007 AUSTRALIA

4 Comparative economic indicators, 2006 Gross domestic product (US$ bn) Gross domestic product per head (US$ '000) South Korea Singapore Indonesia Hong Kong Taiwan South Korea Thailand Taiwan Hong Kong Malaysia Malaysia Thailand Singapore Indonesia Philippines Philippines Vietnam Vietnam ,000 Sources: Economist Intelligence Unit estimates; national sources Sources: Economist Intelligence Unit estimates; national sources. Vietnam Gross domestic product (% change, year on year) Indonesia Consumer prices (% change, year on year) Singapore Vietnam Hong Kong Philippines Malaysia Thailand Indonesia Malaysia Philippines South Korea Thailand Hong Kong South Korea Singapore Taiwan Sources: Economist Intelligence Unit estimates; national sources. Taiwan Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2007

5 Indonesia 1 Contents Indonesia 3 Basic data 4 Politics 4 Political background 6 Recent political developments 7 Constitution, institutions and administration 9 Political forces 12 International relations and defence 17 Resources and infrastructure 17 Population 18 Education 19 Health 20 Natural resources and the environment 21 Transport, communications and the Internet 24 Energy provision 27 The economy 27 Economic structure 28 Economic policy 32 Economic performance 35 Regional trends 36 Economic sectors 36 Agriculture 39 Mining and semi-processing 40 Manufacturing 42 Construction 42 Financial services 44 Other services 45 The external sector 45 Trade in goods 47 Invisibles and the current account 48 Capital flows and foreign debt 50 Foreign reserves and the exchange rate 51 Regional overview 51 Membership of organisations 54 Appendices 54 Sources of information 55 Reference tables 55 Population 55 Geographical distribution of population by province, Labour force 56 Transport statistics The Economist Intelligence Unit Limited Country Profile 2007

6 2 Indonesia 57 National energy statistics 57 Central government budget summary 57 Money supply 57 Interest rates 58 Gross domestic product 58 Nominal gross domestic product by expenditure 59 Real gross domestic product by expenditure 59 Prices and earnings 60 Agricultural production 60 Minerals production 61 Manufacturing production 61 Main composition of trade 61 Main trading partners 62 Balance of payments, IMF series 63 External debt, World Bank series 63 Foreign reserves 63 Exchange rates Country Profile The Economist Intelligence Unit Limited 2007

7 Indonesia 3 Indonesia Basic data Land area Sea area (exclusive economic zone) Total area Population Main towns Climate 1,904,443 sq km 3,166,163 sq km (before deductions for sea area now under the control of Timor- Leste) 5,070,606 sq km 232m (2006 estimate) Population in 000 (2000 census) Jakarta (capital) 8,385 Medan 1,792 Surabaya 2,589 Semarang 1,345 Bandung 2,142 Palembang 1,442 Tropical Weather in Jakarta (altitude 8 metres) Hottest months, April-May, C (average daily minimum and maximum); coldest months, January-February, C; wettest months, January-February, 300 mm average rainfall Languages Measures Currency Time Fiscal year Public holidays Indonesian (Bahasa Indonesia), as well as some 250 other regional languages and dialects. English has replaced Dutch as the main second language, and is widely spoken in government and business circles. Metric system Rupiah (Rp). Average exchange rate in 2006: Rp9,159:US$1. Exchange rate on June 19th 2007: Rp8935:US$1 Western Zone seven hours ahead of GMT, Central Zone eight hours ahead, Eastern Zone nine hours ahead January 1st-December 31st (beginning in 2001) New Year, January 1st; Independence Day, August 17th; Christmas, December 25th. Other moveable holidays: Nyepi, Easter, Miraj, Ascension Day, Waisak, Eid al-fitr, Eid al-adha, Islamic New Year, Maulud The Economist Intelligence Unit Limited Country Profile 2007

8 4 Indonesia Politics Indonesia is a multi-party presidential democracy. In 2004 the president and the vice-president were elected by direct popular vote for the first time, and the automatic right of the security forces to have direct representation in the legislature came to an end. There are two large secular-nationalist parties, Golkar and the Indonesian Democratic Party-Struggle (PDI-P), and a smaller party, the Democrat Party (PD), which together account for nearly 50% of seats in the legislature. Parties with an Islamic orientation account for about 25% of seats. The president, Susilo Bambang Yudhoyono, currently presides over a loose, and sometimes fractious, coalition of parties, which includes Golkar. The PDI-P is the largest party in opposition. Political background The territorial extent of the Republic of Indonesia is defined principally by the boundaries of the former Dutch colonial empire in South-east Asia. The territories now making up the country had never constituted a single political entity before the establishment of Dutch colonial rule, and their pre-colonial history was marked by the rise and fall of a number of important empires and kingdoms. Close commercial links with the Arabian Peninsula from the 13th century led to the gradual Islamisation of the archipelago, replacing much of the prevailing Hindu and Buddhist culture, although Hinduism remains strong in Bali. In 1511 the Portuguese arrived in Indonesia, in the quest for spices, followed by the Spanish, resulting in the introduction of Christianity to the region. Dutch spice traders first arrived in Indonesia in 1596, beginning a process that led ultimately to the establishment of colonial rule in Indonesia from the mid- 1800s. Expansion of the Dutch East Indies continued into the early years of the 20th century in an extended period of territorial conquest. In the early 1900s a pan-indonesian nationalism began to emerge. The Japanese conquest of the Dutch East Indies in 1942 and Japan!s subsequent defeat enabled the nationalists to proclaim Indonesia!s independence on August 17th This was followed by an armed struggle against returning Dutch forces. It was not until late 1949 that the Dutch formally transferred sovereignty over the archipelago, excluding Dutch New Guinea (Papua), to Indonesia. The Portuguese remained in control of East Timor. The leader of the Indonesian Nationalist Party (PNI), Soekarno, became president. In 1950 a unitary political structure was established, and in 1955 the first general election was held. Soekarno won, but the Indonesian Communist Party (PKI) gained a substantial 16% of the vote. Soekarno!s nationalism subsequently led to the Indonesian invasion of Papua in 1962 and to a conflict with Malaysia over parts of northern Borneo. The period was characterised by revolutionary zeal, but also by political instability, a lack of economic prudence and eventually economic decline. In 1965 an abortive coup, led by a group of middle-ranking army officers but blamed on the PKI, heralded the end of the Old Order, as the Soekarno era came to be known. The coup was crushed by the army and as many as 750,000 alleged members of the PKI were killed. In Country Profile The Economist Intelligence Unit Limited 2007

9 Indonesia 5 March 1966 the New Order was established, when the executive power of government was transferred to General Soeharto. The New Order Soeharto became acting president in March 1967 and was subsequently elected president for six further five-year terms in elections that were neither free nor fair. Supported by the military, Soeharto imposed a repressive regime; there was no freedom of the press or of expression. A small number of Soeharto!s family and friends amassed vast wealth, primarily through the exploitation of Indonesia!s abundant natural resources. The period was nevertheless characterised by rapid economic expansion, particularly after 1970, and this probably helped to legitimise the regime in the eyes of the people. However, opposition to the regime started to become more vocal in the mid-1990s"the parliamentary election campaign in May 1997 was exceptionally violent"and was given added momentum by the severe economic crisis that gripped Indonesia in late From early 1998 protests by the reformasi (reform) movement added to the pressure on Soeharto!s government, and after four days of rioting in the capital, Jakarta, in May of that year even the president!s most loyal supporters became convinced that a change was needed. Having lost the backing of the military high command and most of his cabinet, Soeharto resigned on May 21st His downfall ushered in a period of political instability, as Indonesia embarked on a rapid transition to democracy. Soeharto was succeeded by his vicepresident, Bacharuddin Jusuf Habibie, who lasted 18 months in office before the People!s Consultative Assembly (MPR) voted in October 1999 to reject his account of his time in office, which precipitated his resignation. Although he did not wield power for long, Mr Habibie introduced important legislation providing for Indonesia!s first democratic election in 34 years, which duly took place on June 7th No single party won an outright majority, but the secular-nationalist Indonesian Democratic Party-Struggle (PDI-P), led by Soekarno!s daughter, Megawati Soekarnoputri, emerged as the leading party. This proved insufficient to secure the presidency, however, and the MPR instead appointed Abdurrahman Wahid, a moderate Muslim cleric and leader of the National Awakening Party, with Ms Megawati appointed to the vice-presidency. The administration quickly ran into problems under the leadership of the ailing and erratic Mr Wahid. A feud with parliament led to his impeachment in July 2001 after only 21 months as president, and his subsequent removal from office. Ms Megawati was then appointed to the presidency, while Hamzah Haz, the leader of the United Development Party (PPP), an Islamic party, became vicepresident. Ms Megawati led an uninspiring and conservative administration, which benefited from a consensus among all political parties on the need to restore stability. Despite her huge popular following, Ms Megawati proved to be an aloof and ineffectual president. During her tenure, political and economic stability was restored, but she alienated the electorate by failing to act against Indonesia!s endemic corruption. As her presidency advanced, she also leaned increasingly on a resurgent military for support in the face of her uneasy relationship with the Islamist parties in her coalition government. The Economist Intelligence Unit Limited Country Profile 2007

10 6 Indonesia Recent political developments New parties emerge in the 2004 elections The first democratically elected president takes office In April 2004 the second parliamentary election since the downfall of Soeharto, and the first under a new constitutional framework, took place. In an orderly and relatively transparent poll the electorate voted for members of the 550-seat House of People!s Representatives (DPR) and for 128 members of the new Regional Representative!s Assembly (DPD). Golkar, the political vehicle of Soeharto, won the largest number of seats in the election, with 21.8% of the vote; the PDI-P saw a sharp drop in its support, garnering only 18.7% of the vote, while the mainstream Islamist parties failed to increase their share of the vote. The election was noteworthy for the rise in support (primarily in urban areas) for two smaller parties, the secular-nationalist Democratic Party (PD) and the Islamist Prosperous Justice Party (PKS). Both parties campaigned primarily on an anti-corruption platform. The April general election was followed in July 2004 by the country!s first ever direct presidential election. With no outright winner emerging, the two leading candidates"the incumbent, Ms Megawati, and a retired army officer, Susilo Bambang Yudhoyono from the PD"went forward to a run-off in September Mr Yudhoyono won a landslide victory, gaining 61% of the vote, as a result of a campaign focusing on job creation, economic growth and fighting corruption, and he was inaugurated on October 20th. Since then he has performed well in office, appointing a cross-party cabinet, consolidating steadily from his initially weak parliamentary standing, and installing allies in influential posts. A major breakthrough was achieved in December 2004 with the election of his vice-president, Jusuf Kalla, to the chairmanship of Golkar. Thereafter Golkar, which had been in opposition to the president, reversed this position and began offering its support to Mr Yudhoyono. Important recent events April 2004 The second parliamentary election since the downfall of the former president, Soeharto, sees Golkar emerge as the largest party in the House of Representatives (DPR). The election is also notable for the emergence of two new parties, the nationalist-secular Democratic Party (PD) and the Islamist Prosperous Justice Party (PKS). October 2004 Susilo Bambang Yudhoyono is sworn into the presidential office, becoming the nation!s first democratically elected president, after victory in a run-off vote against the incumbent president, Megawati Soekarnoputri. December 2004 An earthquake measuring 9 on the Richter scale triggers a series of tsunami (tidal waves), devastating coastal areas of Aceh and killing over 130,000 people in the province. Towns and cities are razed, the fishing industry is destroyed, and agricultural land is caked in salty sludge. Reconstruction costs are estimated at US$4bn-5bn. Country Profile The Economist Intelligence Unit Limited 2007

11 Indonesia 7 June 2005 Staggered local elections begin in Indonesia!s 33 provinces, 354 districts and 91 cities. Direct elections for the offices of provincial governor, bupati (district head), and mayor are seen as a means to increase the accountability of local executive offices, and the final step in cementing democracy in Indonesia. August 2005 The government and the Free Aceh Movement (GAM) sign a peace agreement in Helsinki, Finland, after the horror of the tsunami served to reinvigorate attempts to bring an end to the separatist conflict in the province. December 2005 A cabinet reshuffle, focused primarily on strengthening economic policymaking, is announced. The choice of new ministers demonstrates the president!s strengthening hand vis-à-vis his coalition partners. February 2006 The DPR begins to debate a controversial draft anti-pornography law that proposes draconian curbs on individual freedoms. Critics allege that the bill is an attempt to introduce sharia (Islamic) law by stealth. Seen in a wider context, the clash is part of a wider debate on the role of religion in the state, pitting those who cherish Indonesia s secular traditions against a vocal minority of hardline Islamists. October 2006 Indonesia is elected to the UN Security Council, securing the non-permanent seat reserved for Asian countries for The appointment confirms Indonesia s growing presence on the international stage during Mr Yudhoyono s presidency. December 2006 The peace process in Aceh moves onto firmer ground after free and fair elections are held to appoint a provincial governor and 21 district heads. The provincial election is won by a former member of GAM, Irwandi Yusuf. May 2007 Mr Yudhoyono carries out a second reshuffle of his cabinet, with a strong focus on distancing his government from a string of corruption scandals and transport disasters. Constitution, institutions and administration Indonesia is governed by a constitution drawn up in 1945 and based on five principles: monotheism, humanitarianism, national unity, representative democracy by consensus, and social justice. These principles are embodied in the state ideology, Pancasila (a Sanskrit term originally referring to a Buddhist code of ethics). The constitution has undergone four revisions since 1999 and now provides for six principal organs of state: the People!s Consultative Assembly (MPR), the presidency, the House of People!s Representatives (DPR) and the Regional Representative!s Council (DPD), the Supreme Court, and the State Audit Board (BPK). These constitutional revisions and other reforms have brought about substantial changes to governance and the balance of institutional power in Indonesia. The Economist Intelligence Unit Limited Country Profile 2007

12 8 Indonesia Parliament is strengthened Indonesia follows a presidential system of government, in which the president leads the executive arm of government. The presidency remains Indonesia s dominant political office, although post-1999 constitutional reforms have greatly increased the checks and balances on the use of executive power. The president s term in office is now limited to two five-year terms and all legislation issued by the executive arm of government must now be approved by the DPR. Since 2004 the president and vice-president have been directly elected by popular vote. The MPR is the highest organ of state and is formed through a joint sitting of the DPR and the DPD. It is now responsible for supporting and amending the constitution and inaugurating the president, and has powers to dismiss the president. Under normal circumstances it is convened at least once every five years. Elections to the DPR and the DPD are held every five years, with seats contested under a complicated system of indirect proportional representation that gives a disproportionately large number of seats to Indonesia!s outer islands. The DPR, which has 550 members, is Indonesia s main legislative chamber. Its powers have been substantially enhanced by the post-1999 constitutional reforms, and it now forms a strong counterweight to the presidency. It debates, revises and adopts legislation proposed by the government and has the right to initiate legislation of its own accord. However, its reputation and standing have been laid low by its slow pace of working, the frequent adoption of poorly drafted and inconsistent legislation, and the perceived corruption of its members. As the electorate votes for political parties rather than candidates, members are chosen by the parties in proportion to their share of the vote and are not accountable to a local constituency. As a result, members tend to represent the interests of their respective political parties rather than those of the electorate. The DPD consists of 128 directly elected representatives from Indonesia!s 33 provinces. Its formal powers are limited. It cannot pass or veto legislation, but can only propose bills to the DPR, discuss the bills and then monitor their implementation if they are passed. Furthermore, these roles are limited to legislation on specific topics related to the regions. The DPD is currently lobbying to have its powers extended. Further major changes to the way Indonesia is governed have resulted from a rapid and sweeping programme of regional autonomy that began in Under this programme, decision-making and spending authority over all areas of government except foreign policy, defence, justice, fiscal affairs and religion was devolved to local districts (kabupaten) and cities. Democratic reforms implemented at a national level have been replicated at a local level, and district and provincial legislatures are now appointed through direct elections. In 2005 a programme of staggered elections for local executive offices was initiated in all of Indonesia s 33 provinces, 354 districts and 91 cities. This decentralised and democratic system of government contrasts greatly with the situation during Soeharto s rule, during which Indonesia was a highly Country Profile The Economist Intelligence Unit Limited 2007

13 Indonesia 9 centralised state and the country s legislative chambers were subservient to the presidency. Political forces Political parties were subject to severe restrictions under Soeharto!s New Order government. The main New Order political grouping was Golkar, a coalition of professional and functional groups, civil servants and retired military officers set up in the early 1960s to counter the growing appeal of the Indonesian Communist Party (PKI). As a self-proclaimed "political group" rather than a party, Golkar was not bound by the campaigning restrictions that applied to political parties, allowing it to develop a formidable electoral infrastructure, particularly in rural areas. From 1973 only two state-sanctioned opposition parties were permitted, the Indonesian Democratic Party (PDI), a coalition of Christian and nationalist parties, and the United Development Party (PPP), a coalition of Muslim parties. These parties stood little chance against the privileged Golkar and typically mustered only 30% of the vote in parliamentary elections, leaving Golkar with an unassailable majority. Secular-nationalist parties remain dominant Golkar is now registered as a political party and maintains a secular-nationalist outlook. Despite being tainted by its association with Soeharto!s autocratic regime, the party!s robust electoral infrastructure helped it to first place in the 2004 general election. However, the party!s win was less than convincing, and it suffered embarrassment in the presidential election when its candidate, Wiranto, failed to make it through to the second round. The vice-president, Jusuf Kalla, exploited discontent at this humiliation to replace Akbar Tandjung as party leader in December Following Mr Kalla!s victory, Golkar left an opposition coalition that it had formed with the Indonesian Democratic Party- Struggle (PDI-P) and offered its support to the government of the president, Mr Yudhoyono. The secular-nationalist PDI-P, led by Megawati Soekarnoputri, remains the secondlargest party in the DPR. However, it lost its reformist image after failing to take measures against corruption during Ms Megawati!s presidency. The party is deeply divided following its poor electoral performance in 2004, and is isolated in opposition to the current president. Its isolation is in part attributable to the personal grudge borne by Ms Megawati against Mr Yudhoyono, who left her cabinet to run against her for the presidency. The Democratic Party (PD) is a new secular-nationalist party that was co-founded by Mr Yudhoyono and launched officially in It has been vocal in its calls for reform and measures to tackle corruption. It did well in the 2004 election, winning 7.5% of the national vote, but has since failed to make a noticeable impact on the national political scene, in part because of internal divisions. Political Islam has largely failed to gain ground Politicised Islam was strongly discouraged by Soeharto, but his successor, Mr Habibie, handed important cabinet portfolios to a number of modernist, nationalist Muslims from the Association of Islamic Intellectuals. His successor as president, Mr Wahid, was a leader of Nahdlatul Ulama, an Islamic The Economist Intelligence Unit Limited Country Profile 2007

14 10 Indonesia organisation with 37m members that draws much of its support from traditionalist Muslims in rural areas in East and Central Java, but his political views were explicitly secular. The Islamic political parties failed to make gains in the 2004 election. The established Islamic parties, particularly the United Development Party (PPP) and the National Mandate Party (PAN), performed poorly, losing votes to the secular parties and to new and more vigorous Islamic parties, such as the fundamentalist Prosperous Justice Party (PKS), which campaigned on the strength of its corruption-free image and reformist policy stance. Although voting in the 2004 election suggested that the electorate wishes to maintain a divide between politics and religion, in recent years a vocal and aggressive minority of Islamic extremists has come to exercise increasing influence over the national political agenda, with secular and moderate Islamic politicians, and the security forces, apparently afraid to challenge them. The military's official political role has ended The Indonesian military (TNI) has faced intense pressure to end its political role since the fall of Soeharto. Constitutional reforms adopted in 2002 withdrew the military s 38 unelected seats in the DPR from Although the military no longer has parliamentary representation, it retains a powerful influence over the government, and former members of the military hold four important posts in the current cabinet (not including the president, who is also a retired army general). Calls for tighter security in the wake of terrorist attacks have also increased the military!s political leverage. Main political figures Susilo Bambang Yudhoyono Mr Yudhoyono was born in East Java in He rose to the rank of lieutenant-general and was the army chief of territorial affairs before being appointed to the cabinet in October 1999 as minister of mines and energy. His political star rose with his appointment to the influential post of co-ordinating minister for political, social and security affairs in August The then president, Abdurrahman Wahid, sacked him in July 2001, but he was restored to his former post when Megawati Soekarnoputri became president later in the same month. While in the post, Mr Yudhoyono won international acclaim for his strong stance against terrorism, and domestically he gained a reputation for honesty. He completed a degree in agricultural economics in Mr Yudhoyono was elected president with a huge popular mandate in the second round of the presidential election in September He remains broadly popular with the electorate, but is coming under increasing criticism for his apparent indecisiveness and reluctance to enact unpopular reforms. Jusuf Kalla Mr Kalla has a degree in economics and was active in both business and government during Soeharto!s rule. He was particularly involved in the work of the South Sulawesi Chamber of Commerce and Industry (KADIN), and served in the House of People!s Representatives (DPR) for four consecutive periods before becoming a member of the cabinet under Mr Wahid!s presidency in October He was not close to Mr Wahid and was sacked from his position as trade and industry minister by the president in April Mr Kalla held the position of Country Profile The Economist Intelligence Unit Limited 2007

15 Indonesia 11 co-ordinating minister for people!s welfare in the Megawati administration. He has considerable investments in the agribusiness, retail and construction sectors, and there have been allegations in the past that he has abused his position to benefit his companies. He also has a reputation for hardline Muslim views. His election to the chairmanship of Golkar in December 2004 and his high-profile performance in the vice-presidency puts him in a strong position to run for the presidency in Megawati Soekarnoputri Daughter of Soekarno, the first president of Indonesia, Ms Megawati has been active in politics since 1987 and assumed the leadership of the Indonesian Democratic Party (PDI) in December She founded the Indonesian Democratic Party-Struggle (PDI-P) in 1996 and led it to victory in the 1999 parliamentary election, before being outmanoeuvred in the presidential election in October of that year. However, in July 2001 she assumed the presidency following the impeachment of Mr Wahid. In office Ms Megawati proved an enigmatic and ultimately ineffectual president, but she managed to oversee the return of relative political and economic stability. She lost to Mr Yudhoyono in the 2004 presidential election largely because she had failed to act against Indonesia!s endemic corruption. In her last month in office she damaged her reputation by failing to acknowledge defeat and by rushing through controversial legislation. Despite her diminished reputation, she was re-elected as chair of the PDI-P in an election held in April Agung Laksono Mr Laksono was a protégé of a former Golkar chairman, Akbar Tandjung, who helped him to secure the position of speaker of the House of People!s Representatives (DPR) in October The subsequent ousting of his mentor has left Mr Laksono weakened within the Golkar structure, but his influential post means that he still plays a pivotal role in the smooth functioning of the legislative process. Mr Laksono is a former minister of youth affairs under Soeharto. He is known as an opportunist and long-time bureaucrat with links to the military, business and the old political elite. Hidayat Nur Wahid Mr Nur Wahid was born in Klaten, Central Java, in He is an Islamic theologian, who studied at the National Islamic Institute in Yogyakarta in 1979 before going on to pursue further religious studies in Saudi Arabia. He was chairman of the up-andcoming Prosperous Justice Party (PKS) until he resigned his party post to become speaker of the People!s Consultative Assembly (MPR) in Under Mr Nur Wahid!s leadership the PKS fought a well-organised campaign in the 2004 election on an anticorruption platform, winning a 7.3% share of the vote. Mr Nur Wahid was then quick to align the PKS behind Mr Yudhoyono, so winning influence in the new government. He and the PKS support the introduction of sharia (Islamic) law through gradual change, rather than radical means. Regional autonomy changes the balance of power The country!s provincial and district-level governments have grown as a political force since the introduction of regional autonomy on January 1st At times this has placed Indonesia!s regions at odds with the central government, which is fighting to retain its authority. Regional autonomy was introduced to ease resentment of the central government!s control of naturalresource revenue and its insensitivity to regional differences. However, the The Economist Intelligence Unit Limited Country Profile 2007

16 12 Indonesia legislation was rushed through and contradicted many existing laws, creating considerable legal and administrative uncertainty. These problems are slowly being addressed, and a new balance of power is emerging, in which district and provincial governments are a real political force. International relations and defence The New Order brought greater pragmatism Relations with neighbours are turbulent Indonesia!s first president, Soekarno, sought recognition as a revolutionary leader of the developing world. The Asia-Africa Conference, held in Bandung in West Java in 1955, provided a basis for the later establishment of the Non- Aligned Movement, a group of countries that sought to remain outside the struggles of the cold war. Soekarno also ordered the military infiltration of Dutch New Guinea (now Papua) in 1962 and followed a policy of konfrontasi (confrontation) with Malaysia after it secured independence in Foreign policy was transformed under Soeharto, with a pragmatic and low-key approach allowing Indonesia to concentrate on domestic economic development. Despite theoretically adhering to the principle of non-alignment, Indonesia drew increasingly close to the West, and since then it has generally enjoyed good relations with most Western countries. Until the mid-1980s foreign policy was focused mainly on the Association of South-East Asian Nations (ASEAN). From the mid-1980s the government began to seek a more prominent international role, chairing the Non-Aligned Movement from 1992 to 1995 and playing a leading part in developing the Asia-Pacific Economic Co-operation (APEC) forum. Financial constraints and domestic instability forced a period of greater introspection from 1998, but in recent years the government has again played a more active role on the international stage. It has taken a prominent role in major policy shifts within ASEAN, took part in the East Asia Summits in 2005 and 2006, and was appointed to sit on the UN Security Council from This rising profile reflects Indonesia s unique status as both the world s largest Muslim country and a secular democracy, and its potential to mediate between the West and Islamic countries that this proffers. Indonesia has tempestuous relations with its immediate neighbours, Australia, Singapore and Malaysia. Relations with Australia deteriorated badly as the result of Australia!s leadership of the international military intervention in East Timor in Although relations have since recovered from this nadir, issues including the transit through Indonesia of refugees seeking entry into Australia, illegal fishing in Australian territorial waters, Australia!s staunch support for US foreign policy and perceived Australian support for Papuan independence have caused periodic disputes. However, relations should improve following the signing of a new bilateral security treaty in November 2006, supporting closer co-operation on defence, law enforcement, counter-terrorism, maritime security and disaster emergency response. Relations with Singapore have been strained by disputes over investment, the export of natural resources and delays in the eventual signing of an extradition treaty, which Indonesia wanted in order to pursue corruption suspects who have fled to the island state. Despite cultural Country Profile The Economist Intelligence Unit Limited 2007

17 Indonesia 13 similarities and close ties through ASEAN, relations with Malaysia have also been strained in recent years by disputes over migrant workers, contested islands and territorial waters that hold oil and gas reserves. Indonesia nevertheless manages to co-operate effectively with its neighbouring countries and influence regional processes within South-east and East Asia. At the annual ASEAN summit meeting in December 2005 Indonesia was among the countries that expressed open criticism of Myanmar!s human rights record and called for the release of Aung San Suu Kyi, a jailed opposition leader. This prompted a reprimand from ASEAN, the first in the 38-year history of the organisation, which normally follows a strict rule of non-interference in member states! domestic affairs. At the inaugural East Asia Summit, also in December 2005, the ten ASEAN nations were joined by China, Japan, South Korea, India, Australia and New Zealand in what was intended as the first step towards a wider East Asian Community. The outcome was successful for Indonesia. The ASEAN Secretariat, which is based in Jakarta, was given a mandate to formulate co-operative programmes for the grouping, giving Southeast Asia and Indonesia a central political role in steering the project. Prior to the summit South-east Asian nations also succeeded in widening membership of the forum to include India and Australia and New Zealand, preventing domination by China. Timor-Leste Timor-Leste (formerly East Timor) has cast a shadow over Indonesian foreign policy since the intervention of Indonesian troops in the former Portuguese colony in Timor-Leste separated from Indonesia in 1999 and became formally independent in Since then the two governments have followed an active policy of reconciliation, working through a joint Commission of Truth and Friendship (CTF). However, the failure of the Indonesian government to prosecute those responsible for violence following a 1999 referendum on independence in Timor-Leste means that closure has yet to be brought to this issue. A review conducted by a UN expert panel in 2005 described the Timor- Leste human rights tribunal as deficient, and recommended establishing an international tribunal to prosecute those responsible for the 1999 rampage. A separate report by the UN-sanctioned Commission for Reception, Truth and Reconciliation (CAVR) in Timor-Leste, also released in 2005, concluded that up to 183,000 people"approximately one-third of the territory!s population"were killed, "disappeared", starved or died of illnesses linked to the conflict during the 24 years of Indonesian occupation. However, international pressure over human rights abuses in Timor-Leste and elsewhere has diminished in recent years, with Indonesia!s strategic role in the "war on terrorism" taking precedence over other matters. The form of Islam practised in Indonesia has traditionally been moderate, but a more radical fundamentalist movement has emerged in recent years. Initially, fundamentalist groups focused their attacks on the sizeable Christian communities in parts of Indonesia, but more recently groups with links to international Islamist terrorism, notably the al-qaeda network, have emerged. The bombings in Bali in October 2002 and October 2005, the JW Marriott hotel in Jakarta in 2003 and the Australian embassy in 2004 have all been attributed to Jemaah The Economist Intelligence Unit Limited Country Profile 2007

18 14 Indonesia Islamiah (JI), a terrorist organisation linked to international extremists that aims to create a pan-regional South-east Asian Islamic state. Military relations with the US improve Off-budget finance supports the military The perceived opening of a new front in the war against terrorism in Indonesia has prompted the US, Australia and other Western nations to restore defence and security ties with Indonesia after all such co-operation was suspended in reaction to the invasion of Timor-Leste by Indonesia in (Military ties between the Indonesia and the US had been reduced after the 1991 Santa Cruz massacre in Timor-Leste.) The US announced the restoration of full military ties in late Moves to restore military relations with the US were welcomed by the Indonesian military (TNI), which has faced serious difficulties in maintaining and upgrading equipment as a result of US sanctions. Restrictions on the sale of US military hardware to Indonesia also forced the TNI to look elsewhere to replace its worn-out equipment. In November 2006 Indonesia signed a US$1bn deal with Russia to purchase six Sukhoi jet fighters (adding to four purchased in 2003), submarines, helicopters and other military hardware. The government has also been seeking support from China to revive a short- and medium-range missile programme and has stated that it is not going to let these initiatives elapse because of the restoration of ties with the US. The end of the cold war (which led to a reduction of the US presence in Southeast Asia) and the militarisation of China and India prompted a drive to improve Indonesia!s defence capacity. The economic crisis resulted in cuts to the military budget, with spending falling from nearly 5% of development spending in to only 1.9% of development spending in Concerns over separatism in the nationalist-leaning government of Megawati Soekarnoputri ( ) gave the military more leverage over the state budget, with defence spending rising by 15.5% to Rp22trn (US$2.5bn) in Armed forces, 2006 Indonesia Australia South Korea Thailand Army 233,000 25, , ,000 Strategic reserve 30,000 Regional commands 150,000 Special forces 5,300 Navy 45,000 12,681 63,000 70,600 Marines 15,000 11,691 28,000 23,000 Naval air 1, ,940 Air force 24,000 13,670 64,000 46,000 Paramilitary Police 280,000 4, ,700 Marine police 4,500 2,200 People s securitya 40,000 3,500,000 45,000 Total armed forces 702,000 70,583 5,187, ,600 Active 302,000 51, , ,600 Reserves 400,000 18,973 4,500, ,000 a Part-time auxiliary force receiving three weeks basic training each year in Indonesia, civilian defence corps in Thailand and South Korea. Source: International Institute for Strategic Studies, The Military Balance, Country Profile The Economist Intelligence Unit Limited 2007

19 Indonesia 15 Spending on defence has continued to rise during the Yudhoyono presidency, reaching Rp27trn (0.9% of GDP) in 2006 and Rp31.3trn (0.9% of GDP) in These increases have been driven by a realisation that a larger official budget is needed to end the military s reliance on unofficial sources of finance. The state budget accounts for an estimated 30% of military expenditure, with the remaining 70% funded by the military itself through off-budget sources, including a sizeable legitimate business empire and numerous illegal activities, such as protection racketeering, gambling, prostitution, and illegal logging and fishing. A bill passed in September 2004 requires the TNI to cease its involvement in business activity within five years, with military assets either to be sold off by the government or incorporated into the state sector. Removing the military from business, and funding it wholly through the state budget, is a crucial step towards holding the TNI accountable to the civilian institutions of government. However, there are worrying signs of back-sliding in this vital set of reforms, with strong indications that the military will be allowed to retain its co-operatives and foundations. These latter entities make up the bulk of military assets, owing to less stringent tax and accounting requirements. Security risk in Indonesia Indonesia!s vast size and diversity mean that the country is subject to internal tensions that need to be constantly and carefully managed. A release from tyranny and coercion at the end of the Soeharto era, as well as the manipulation of discontent for political ends, served to exacerbate these innate tensions, leading to a surge in separatist violence, clashes between the military and civilian protestors, and ethnic and religious violence in many parts of the country during Indonesia!s transition to democracy. A degree of equilibrium was restored under the presidency of Megawati Soekarnoputri, although her support for the military exacerbated separatist conflicts and human rights abuses in the provinces of Aceh and Papua. The government of Susilo Bambang Yudhoyono has shown itself to be highly competent on peace and security issues, overseeing the negotiation and implementation of a peace process that has brought an end to a 29-year conflict in Aceh. However, a careful hand will be needed to manage tensions in the separatistminded province of Papua. Armed conflict Communal violence claimed thousands of lives in the unstable years that followed the end of the Soeharto era. The violence was confined to areas with delicate religious and ethnic balances, such as the Moluccas, Central Sulawesi and Central Kalimantan. Peace accords signed in all of these areas in have succeeded in restoring relative calm, although the Poso region of Central Sulawesi remains volatile and highly tense. Solving the conflict in Aceh proved more of a challenge. The collapse of the December 2002 peace accord led to the imposition of martial law in the province in May A military assault was simultaneously launched on the Free Aceh Movement (GAM) guerrillas. Martial law was replaced by "civil emergency status" in May 2004, but this had little impact on security policy in the province. However, the tsunami disaster at the end of 2004 cast a new perspective over the conflict, and the government and GAM began negotiations under foreign mediation. A peace The Economist Intelligence Unit Limited Country Profile 2007

20 16 Indonesia agreement signed in Helsinki, Finland, in August 2005, has led to disarmament and a scaling back of the military presence in the province. Legislation translating the peace accord into Indonesian law has passed through the House of Representatives (DPR). GAM has disbanded, renounced its goal of independence in exchange for concessions on autonomy, and its former members participated in democratic local politics in the province. In the extreme east of the country, a broad cross-section of native Papuans support independence by peaceful means, but the Free Papua Organisation (OPM), which is fighting for independence, is poorly armed and badly organised. Discontent with Indonesian rule has been inflamed by alleged human rights abuses by the military, and by the plunder of the province!s natural resources. The partition of Papua into two provinces"papua and West Papua (formerly West Irian Jaya)"has also caused resentment. A perceived disregard for the terms of special autonomy granted to the province in 2001, and continued anger at the exploitation of Papua!s natural wealth, led to heightened tensions in early 2006, with several members of the security forces killed in clashes with demonstrators. Terrorism Hardline Islamist terrorist groups resurfaced in Indonesia after the fall of Soeharto. These groups initially targeted Indonesia!s Christian communities, but in recent years they have turned their attention to Western targets. Jemaah Islamiah (JI), a terrorist organisation seeking to establish a South-east Asian Islamic state, was responsible for the October 2002 and 2005 Bali bombings, as well as for attacks on the JW Marriott hotel in the capital, Jakarta, in 2003, and on the Australian embassy in After a slow start the Indonesian government has conducted an effective campaign against JI, arresting close to 300 operatives since the 2002 Bali attack, including most of the organisation!s top leadership. Close co-operation with other South-east Asian security forces and the US and Australian counter-terrorist services, together with tough new anti-terrorism legislation and better intelligence, has also served to impair JI!s operational capacity. The organisation nevertheless remains present in Indonesia, and the release of many militants and sympathisers jailed in the immediate aftermath of the 2002 Bali bombings, as well as continued evidence that the group is actively plotting further attacks, has led to fears of a resurgence in its activities. Civil unrest Mass demonstrations became a feature of the early years of Indonesian democracy, but have waned with the return of political stability. The student movement"which drove the reformasi, or reform, movement of the late 1990s"has lost its ideological focus. The government!s success in raising fuel prices in March and October 2005 demonstrates just how far mass protests have slipped from the political landscape in recent years. Rioting sparked by fuel price increases led to the fall of Soeharto in 1998, and the government of Megawati Soekarnoputri backed away from an attempt to raise fuel prices in the face of widespread public opposition in In contrast, protests following the much larger 2005 price increases did not come close to reaching critical mass. Country Profile The Economist Intelligence Unit Limited 2007