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The National Interest [Washington DC] No. 65 The Fall 2001 issue
Another Year of Living Dangerously?
-Part 1/2-
Indonesia's crisis could cause the strategic upending of Southeast Asia. American policymakers may need to act quickly and wisely to prevent a security nightmare.
By Rajan Menon
Indonesia is staggering like a heavyweight boxer who has absorbed too many blows in too many places. A faltering economy, a fractious and feeble central government, communal war and secessionism could culminate in the state's collapse and the country's fragmentation. The result would be more than a local disturbance, for Indonesia is no ordinary place.
With 224 million people Indonesia is the world's fourth most populous state, a sprawling archipelago of 13,600 islands (3,000 of them inhabited) nearly three times the size of Texas. While 87 percent of its citizens are Islamic (no country has more Muslims), Indonesia is a kaleidoscope of nationalities, tribes, languages and dialects. The sea lanes that cut through this island constellation-the straits of Malacca, Sunda and Lombok-connect the Asia-Pacific to Europe and the Persian Gulf, bringing the lifeblood of energy and rawmaterials and providing an outlet for its manufactured exports. Now that globalization has diminished the distinction between "there" and "here", the disruptions that East Asia's largest economies would suffer if shipments are blocked or delayed will reverberate worldwide. Indonesia is also a fragile democracy in trouble and a humanitarian disaster-in-waiting that threatens to upend the strategic circumstances of Southeast Asia. Obviously, then, the U.S. stake in Indonesia's future is enormous.
The Political Economy of Chaos
The 1997 East Asian economic crisis illustrated globalization's power as both opportunity and vulnerability-this everyone by now understands. What remains unclear is why Indonesia alone has been rocked to its foundations when every other Asian country hurt by the 1997-98 crisis has recovered its balance to one degree or another. The basics of its economy were sound, and for nearly three decades Indonesia experienced an economic and social transformation that bettered the lives of most of its people. Between 1970 and 1997 the percentage of those in poverty fell from 60 percent to 15 percent, life expectancy and literacy increased significantly, and an urban middle class arose. Revenue from oil exports enabled the expansion of infrastructure and social services, and the share of GDP accounted for by the production of natural resources then shrank as industrialization advanced. Non-Javanese peoples in outlying areas and students, workers, and democrats chafed, the disparities in wealth and power among classes and regions were wide, and cronyism, nepotism, and corruption were rife. But "New Order" (the authoritarian edifice Suharto built after taking power in 1965) promoted growth and kept order.
The 1997 economic crisis was its death knell. Indonesia's GDP plummeted from $250 billion to below $100 billion at the end of 1998, and inflation rocketed to 60 percent. Capital fled abroad, millions were pushed deeper into poverty, and the dreams of others whose lives had improved during the decades of rapid growth were dashed. The absence of democratic institutions led simmering dissatisfaction to boil over onto the streets.
Political consequences soon followed. Suharto was forced out in May 1998, and his successor, B.J. Habibie-ineffectual and compromised by his lng association with Suharto-proved a political hiccup. In October 1999, following parliamentary elections, Indonesia's highest legislative body, the People's Consultative Assembly (MPR, the Mejelis Permusyawaratan Rakyat, comprising the 500-member parliament plus representatives from the military, the provinces, and civic organizations) elected Abdurrahman Wahid president, and, after Wahid nominated her, chose Megawati Sukarnoputri as vice president.
Something like a democracy emerged. But the change accelerated instability. Indonesia's non-Javanese minority peoples saw an opening to assert their rights. East Timor broke free, but not before being brutalized by the Indonesian armed forces and its paramilitary acolytes. Long-established separatist movements in Aceh and West Papua (Irian Jaya) have gained confidence and new converts. Maluku and Sulawesi are now venues for horrific violence between Muslims and Christians. Kalimantan's Dayaks and Malays have set upon settlers from Java and Bali, forcing survivors to flee. Lombok and Riau have also experienced unrest. These upheavals have saddled Indonesia with a million internal refugees that local governments struggle to house and feed as the hospitality of permanent residents gives way to resentment. Indonesia's descent into communal violence included anti-Chinese riots (pogroms would not be too strong a term to describe them), which accelerated the flight of capital, for ethnic Chinese, while only three percent of the population, control almost three-quarters of Indonesia's wealth.
Indonesia's odds for survival would be increased by a broad economic recovery that attracts capital back into the country and that gives people in rebellious regions a stake in national unity. There are some encouraging signs. The economy, which contracted by 15 percent in 1998, stabilized in 1999 and grew by five percent in 2000. Inflation, which stood at 60 percent in 1998, dropped to just below seven percent in 2000. The flight of capital fell sharply, foreign exchange reserves amounted to $22 billion in 2001, domestic investment has picked up, and exports have grown. And the International Monetary Fund is on hand with advice and $5 billion in loans, though not a few Indonesians are leery of its standard cures-and who can blame them?
But this sliver of a silver lining frames a large dark cloud. Indonesia's banks and companies bear an external debt of $65 billion, but corporate restructuring and reform proceed at a snail's pace. The tepidity of reform explains why Indonesia ranks second worst in the Asia-Pacific in the quality of corporate governance and third worst in transparency. These dubious honors have hardly increased business confidence: ING Barings has warned investors away from Indonesia (as well as Malaysia and Thailand); Standard and Poor's revised Indonesia's creditworthiness downward sharply.
Meanwhile, the steps that the Wahid government took to devolve power to the provinces, essential to keep Indonesia whole, may heighten investors' concerns. As of January 2001, provinces and districts keep 80 percent of mining, forestry and fishing revenues and 15 percent and 30 percent respectively of natural gas and oil income and also have rights to borrow independently. Western mining and energy companies, already facing demands from provincial authorities for a share of equity, worry about a profusion of power and corruption unmatched by competence, conflicting lines of authority, increased taxation by local authorities, and additional twists in an already labyrinthine legal system. Mining companies are particularly loath to make new investments, and their mood could influence other corporations. For their part, the IMF and the World Bank fret that provinces will be profligate with their newfound freedom to borrow.
Nor is Indonesia's outlook positive when gauged by the standard economic indicators. The projected GDP growth rate for 2001 has been revised down to 3.5 percent from 5 percent. Actual growth could be even lower if political ferment continues. The national debt is about as large as the size of the economy. The budget deficit is 6.5 percent of GDP, and the IMF wants it cut to 3.5 percent. The government announced deep cuts in subsidies for electricity and oil in 2001 to achieve the goal, but the frailty of the central government may make further stringency infeasible. Without a smaller budget deficit, inflation, 6.8 percent in 2000, is expected to reach 8.5 percent or worse by the end of 2001. The rupiah, which stood at 6,800 to the dollar in 1999 (about a third of its value in 1996), fell to 11,000 in early 2001 and reached 12,000 in May, the lowest level in almost three years. Its descent makes deficit reduction harder still and could also stoke inflation. Indonesia's reserves of $22 billion look impressive, but that sum is insufficient to defend the faltering currency. Interest rates could be raised to support the rupiah, but that would increase the government's interest payment on the debt. These discouraging signs have not escaped investors. Capital outflows, while far smaller than in 1998, were still $4 billion in 2000. New foreign direct investment, $10 billion in 1996, has essentially ceased, as has portfolio investment.
Nor do global economic conditions augur well for Indonesia's recovery. Economic growth in America, a major market for Indonesia's exports, is slowing. Japan, another important customer and the key source of direct and portfolio investment, is in far deeper trouble; its corporations have canceled new investments in Southeast Asia and laid off workers in Indonesian subsidiaries. Europe cannot take up the slack, while China is a major competitor to Southeast Asia for foreign investment and exports. If the global economic slowdown reduces oil prices, Indonesia's treasury will lose $50 million for every one-dollar drop; deficit reduction will then be harder still and inflation could rise. Indonesia's convulsions cannot be reduced to economic causes, but they will prove impossible to manage, let alone cure, if the economy deteriorates further-and despite the brave front of Indonesian officials, the economic outlook is bad.
Family Feud
In Indonesia, as elsewhere, communal conflict accompanied the state's attempt to create national unity from ethno-linguistic diversity. Heterogeneity typifies Indonesia, even when it comes to Islam. Indonesian Islam has many doctrinal and regional variations, so it both unites and divides. Buddhists, Christians, Hindus and animists-and a mosaic of languages and dialects, tribes and nationalities-add to the multiformity, which sharpens its political edge on the stones of geography. The separation imposed by a scattered multitude of islands has fostered separateness and has been the ally of exterior areas to whom the central government in Jakarta is the distant symbol of Javanese dominance. This is well illustrated by the case of Aceh, on the northern tip of Sumatra, which now presents the biggest challenge to Indonesia's territorial integrity.
The Dutch gained Aceh under the 1824 Treaty of London by agreeing to abandon their imperial dreams in India and to vacate Singapore in exchange for Britain's acceptance of Dutch control of regions to the south. Under the accord, Aceh, with its long history as a maritime sultanate, was to remain independent. When the Dutch decided to put an end to its rising power in 1873, war broke out. The Dutch did not prevail until 1903, and resistance lingered for years thereafter. Nor were Acehnese disposed to join Indonesia (molded into its current shape by the conquests and cunning of Dutch colonialism) when it became independent in 1949. For Javanese elites at the helm of post-colonial Indonesia, territorial consolidation was part of national liberation; to the Acehnese it was another hostile takeover. Nor did Aceh share the secular aspirations of the Javanese elite; the support it lent to the Dar ul-Islam ("House of Islam") rebellion (which originated in western Java and sought an Islamic state in Indonesia) was proof of that.
Ironically, Islam, Indonesia's greatest common denominator, contributes to the estrangement between Aceh and Jakarta. The Acehnese embraced Islam in the 13th century, long before the populations in the rest of what is now Indonesia did so. Acehnese Islam lacks the Hindu, Buddhist and animist strains of Islam elsewhere in Indonesia; it is distinct and more central to community and identity, and secularism's mark in Aceh is fainter. Aceh's distinctive language and literary tradition reinforce feelings of separateness. Although diversity can in principle be managed by devolution, the central government did not honor a 1959 agreement making Aceh a "special territory" with extensive cultural autonomy. State-sponsored migration by Javanese and others into Aceh and the belief of the Acehnese, now four million in number, that their energy revenues are diverted to benefit outsiders, helped turned alienation into nationalism. Independence has become a panacea of mythic proportions for these grievances.
Gerakan Aceh Merdeka (gam or Free Aceh Movement), formed in 1976, arose against this background and was quick to declare Aceh independent. Yet proclamations require power to become reality; by the late 1970s, Indonesian military offensives and mass arrests of suspected members and sympathizers decimated gam. Yet Suharto's New Order never addressed the sources of Acehnese disaffection and, by the late 1980s, gam was back. Jakarta launched "Operation Red Net" to destroy it; the armed forces received carte blanche and two thousand people had been killed by 1992. Others disappeared or were tortured. Red Net only increased gam's popularity, however, and became another milestone in the consolidation of Acehnese nationalism. Memories of the depredation, and the conviction that the military must be held accountable for it, remain strong.
The fall of Suharto and the subsequent independence of East Timor boosted gam's spirits. Many of its leaders returned from abroad and started recruiting fighters. The number of gam's forces is uncertain (estimates range between 850 and 5,000) as is the source of its weapons and training. Its arms appear to come from Cambodia through Thai and Malay ports to Sumatra's coast, and from the Islamist Pattani Liberation Organization (PULO) in southern Thailand. Some gam guerrillas were apparently trained in Libya in the 1980s.
What is clear is that gam now controls much of Aceh. At night, Banda Aceh, the capital, is desolate: civilians fear getting caught in the crossfire between gam and the security forces and interrogation and abuse by the latter. With gam omnipresent in the countryside, Jakarta's government bureaucrats have joined the many non-Acehnese escaping the region. gam's influence has grown in southern Aceh as well, where its roots have been weaker. Some 70,000 Acehnese have moved north and now live in makeshift refugee shelters, their migration prompted by a combination of loyalty to gam, worry that disobedience could bring retribution, and fear of Indonesian security forces.
gam has demonstrated its power in dramatic ways. In March it forced Exxon-Mobil to close three gas fields in Aceh following kidnappings of a senior employee, grenade attacks on pumping stations, sabotage of pipelines, bombings, and gunfire directed at its buses and at a company aircraft. The closure cut supplies to the nearby Arun liquefied natural gas plant and halted shipments from there to Japan and South Korea that net Indonesia over $1.2 billion a year. Exxon-Mobil prepared to resume production in July, and Indonesia supplied Japan and South Korea with gas from sources in Kalimantan. But gam had made its point.
The prospects for a settlement in Aceh are poor for several reasons. Talks in Geneva between Indonesian and gam representatives since June 2000 have produced only ineffectual ceasefires. War rages; 2,000 people have died since 1998. Sensing victory, gam insists on independence. From his Stockholm exile, its leader, Hasan di Toro, condemns the Javanese as "barbarians", while Abdullah Syafie, its military commander, sniffs that Indonesia "no longer exists."4 Each side accuses the other of manipulating ceasefires to infiltrate forces into Aceh. gam is divided among militant fight-to-the-finish nationalists, those who see war as a means to a negotiated agreement, and others who use it for extortion and protection rackets. Nor can its political leaders count on field commanders accepting an agreement that falls short of total independence.
Separatism has also advanced in West Papua, a vast expanse with two millioninhabitants, 2,000 miles east of Jakarta. West Papua's indigenous people, Melanesian and predominantly Christian or animist, have been reduced to 50 percent of the population by the influx of mainly Muslim immigrants from elsewhere in Indonesia, with 700,000 arriving from Java and Sulawesi during the first 25 years of the New Order alone. West Papua has stronger ethnic and cultural ties with neighboring Papua New Guinea (where there is much support for West Papuan independence) and the other Melanesian islands of the South Pacific than with other Indonesians. The demographic transformation, therefore, has fed Papuan nationalism, the more so because of the Javanese elite's tendency to regard Papuans as an inferior lot to be governed from afar. Like the Acehnese, Papuans want control over their resources: gold, copper, oil, land and forests. These resources, they believe, are exploited by American, British, Australian, European and South African companies and their Javanese partners in ways that provide little employment but disrupt Papua's tribal societies and despoil its landscape. As in Aceh, these grievances have generated a robust nationalism, albeit one that is less cohesive and organized. Its symbol is the Organisasi Papua Merdeka (opm or Free Papua Organization), which has fought for a West Papuan state since 1965.
Like many Papuans, opm regards the 1963 Dutch transfer of West Papua to Indonesia as invalid, insisting that Papua declared independence in 1961 while under Dutch rule. It also deems illegitimate West Papua's formal incorporation into Indonesia in 1969, following a referendum whose terms-local leaders were handpicked by the central government to cast the vote-produced the outcome sought by the Suharto regime. This path to incorporation and Jakarta's heavy-handed rule in West Papua ensured opm a ready supply of recruits. During the military's counterinsurgency campaigns (which involved forays into Papua New Guinea) suspected opm sympathizers were arrested, with some dying in custody, and civilians suffered various forms of abuse. As in Aceh, the political disarray in Indonesia after 1997 enabled opm and other groups, such as Satgas Papua, to intensify the struggle, and battle lines are being drawn. A Papuan nationalist conclave declared the territory independent in June 2000. Jakarta then increased the number of military and police personnel in West Papua from 8,000 to 12,000, and hard-liners among them set about organizing militias opposed to independence. East Timor's past could be West Papua's prologue.
Other sites of instability in Indonesia often differ from Aceh and West Papua in that they display communal violence born of a more inchoate nationalism. Maluku, the archipelago comprising the fabled Spice Islands, is an example. Unlike Indonesia as a whole, Maluku, with a population of two million, has a roughly equal proportion of Christians and Muslims. (This, as in West Papua, reflects colonial-era missionary zeal, but also the prior legacy of Arab, Portuguese, British, and Dutch traders.) The demographic balance is the result of immigration, which has taken on deadly consequences. Maluku's Christians resent Muslims who have streamed in from elsewhere in Indonesia under the state-directed resettlement policy. An economic and social divide has emerged and increased discontent: the Muslims, more prosperous, worked in commerce and favored the north; Christians, farmers and fishermen, tended to concentrate in the south.
Unrest erupted in early 1999 and Maluku is now awash in clashes and bombings. Christians have attacked Muslims, local Muslim militias have formed, and others, such as the Laskar Jihad, have arrived from Java to defend their co-religionists, adding to the mayhem. The military and local police are unable to suppress the paramilitary groups; worse, the army appears partial to Muslims, the police sympathetic to Christians. Consequently, no neutral force exists to bring order. The mele e of sectarian carnage has been particularly gruesome in Ambon (the capital) and on Halmahera and Seram islands. As many as 10,000 have died, and some 500,000 others have been chased from their homes, many becoming refugees in north Sulawesi (where the local population is growing resentful). Maluku's Muslims and Christians now conduct life's quotidian routines in segregation; those from one faith who venture into areas inhabited by the other risk death. Mundane arguments spark rampages in which confessional affiliation becomes the sole distinction between friend and foe.
Indonesia's now-familiar piles of corpses and streams of refugees are also visible in Kalimantan. Encouraged as in other instances by government programs to relieve Indonesia's most crowded islands and to provide labor for foreign investment projects, Madurese migrants poured in, some 100,000 in the 1980s alone. Kalimantan's Dayaks and Malays saw the arrivistes make economic gains and take government jobs. Jakarta's efforts to develop Kalimantan might have gained Dayak and Malay support, but insensitivity to property rights, the environment, and established social arrangements focused local attention on the unequal distribution of gains and the loss of control to outsiders. When the New Order began to teeter, spasms of violence gripped central and west Kalimantan. The latest episode of bloodletting occurred in the town of Sampit in February and March. Dayaks decapitated Madurese, displayed their heads on staves, and burned their homes and businesses to the ground. Tens of thousands of Madurese fled to other parts of Kalimantan; 60,000 others escaped the island aboard Indonesian navy vessels.
Kalimantan's orgy of bloodletting is not a simple product of religious and ethnic hatred, although that emotion is certainly present. As in Aceh and West Papua, social transformations with internal and external origins and the fall of Suharto's regime provided the context. Moreover, Christian and Muslim Dayaks joined Muslim Malays to attack Muslim Madurese. Although the unrest in Kalimantan and in Lombok and Sulawesi (also scenes of clashes between Muslims and Christians) highlights the central government's feebleness and could speed Indonesia's collapse, secessionism is not the main motif in these areas. But the nascent nationalism in Riau province, Indonesia's Malay heartland, is more worrisome in that regard.
Riau is Indonesia's largest oil producing area and a major site of Singaporean investment, yet it is one of Indonesia's poorest regions, with 40 percent of its four million people living in poverty. The familiar combination of cultural distinctiveness and the feeling that local wealth does not benefit local people is incubating an angry nationalism in Riau. The implications of secession spreading to Riau are enormous-and not just for Indonesia. Unrest in Riau has already led to a sharp reduction in oil production by Caltex Pacifica Indonesia, owned by Chevron and Texaco. Furthermore, Riau covers a large swath of Sumatra's littoral that overlooks the Malacca Strait, the world's most important shipping channel, which is made narrower by thousands of Riau's islands that clutter its southern end.
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