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Diplomacy in Action

Indonesia (10/03)


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For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of Indonesia

Geography
Area: 2 million sq. km. (736,000 sq. mi.), about three times the size of Texas; maritime area: 7,900,000 sq. km.
Cities: Capital--Jakarta (est. 8.8 million). Other cities--Surabaya 3.0 million, Medan 2.5 million, Bandung 2.5 million, plus an additional 3 million in the surrounding area.
Terrain: More than 17,000 islands; 6,000 are inhabited, 1,000 of which are permanently settled. Large islands consist of coastal plains with mountainous interiors.
Climate: Equatorial but cooler in the highlands.

People
Nationality: Noun and adjective--Indonesian(s).
Population: (2001) 210 million.
Annual growth rate: (2001) 1.6%.
Ethnic groups: Javanese 45%, Sundanese 14%, Madurese 7.5%, coastal Malays 7.5%, others 26%.
Religions: Islam 87%, Protestant 6%, Catholic 3%, Hindu 2%, Buddhist and other 1%.
Languages: Indonesian (official), local languages, the most important of which is Javanese.
Education: Years compulsory--9. Enrollment--92% of eligible primary school-age children. Literacy--85%.
Health: Infant mortality rate--63/1,000 live births. Life expectancy at birth--men 60 years, women 64 years.
Work force (90 million): Agriculture--41.2%; trade and restaurants--19.8%, public services--13.7%; manufacturing--12.9% (1997 data).

Government
Type: Independent republic.
Independence: August 17, 1945 proclaimed.
Constitution: 1945. Embodies five principles of the state philosophy, called Pancasila, namely monotheism, humanitarianism, national unity, representative democracy by consensus, and social justice.
Branches: Executive--president (head of government and chief of state) chosen for a 5-year term by the 700-member People's Consultative Assembly (MPR). Legislative--500-member House of Representatives (DPR) elected for a 5-year term. Judicial--Supreme Court.
Suffrage: 17 years of age universal and married persons regardless of age.

Economy
GDP (2001): $144.8 billion.
Annual growth rate (2001): 3.3%.
Per capita income (2001): $683.
Natural resources (13.6% of GDP): Oil and gas, bauxite, silver, tin, copper, gold, coal.
Agriculture (16.4% of GDP): Products--timber, rubber, rice, palm oil, coffee. Land--17% cultivated.
Manufacturing (26.1% of GDP): Garments, footwear, electronic goods, furniture, paper products.
Trade: Exports (2001)--$56.3 billion including oil, natural gas, plywood, manufactured goods. Major markets--Japan, Singapore, Taiwan, Korea, EU, and U.S. Imports (2001)--$31.0 billion, including food, chemicals, capital goods, consumer goods. Major suppliers--Japan, U.S., Thailand.

PEOPLE
Indonesia's 210 million people make it the world's fourth-most populous nation. The island of Java is one of the most densely populated areas in the world, with more than 107 million people living in an area the size of New York State. Indonesia includes numerous related but distinct cultural and linguistic groups, many of which are ethnically Malay. Since independence, Bahasa Indonesia (the national language, a form of Malay) has spread throughout the archipelago and has become the language of most written communication, education, government, and business. Many local languages are still important in many areas, however. English is the most widely spoken foreign language. Education is free and compulsory for children through grade 9. Although about 92% of eligible children are enrolled in primary school, a much smaller percentage attend full time. About 44% of secondary school-age children attend junior high school, and some others of this age group attend vocational schools.

Constitutional guarantees of religious freedom apply to the five religions recognized by the state, namely Islam (87%), Protestantism (6%), Catholicism (3%), Buddhism (2%), and Hinduism (1%). In some remote areas, animism is still practiced.

HISTORY
By the time of the Renaissance, the islands of Java and Sumatra had already enjoyed a 1,000-year heritage of advanced civilization spanning two major empires. During the 7th-14th centuries, the Buddhist kingdom of Srivijaya flourished on Sumatra. At its peak, the Srivijaya Empire reached as far as West Java and the Malay Peninsula. Also by the 14th century, the Hindu Kingdom of Majapahit had risen in eastern Java. Gadjah Mada, the empire's chief minister from 1331 to 1364, succeeded in gaining allegiance from most of what is now modern Indonesia and much of the Malay archipelago as well. Legacies from Gadjah Mada's time include a codification of law and an epic poem. Islam arrived in Indonesia sometime during the 12th century and, through assimilation, supplanted Hinduism by the end of the 16th century in Java and Sumatra. Bali, however, remains overwhelmingly Hindu. In the eastern archipelago, both Christian and Islamic proselytizing took place in the 16th and 17th centuries, and, currently, there are large communities of both religions on these islands.

Beginning in 1602, the Dutch slowly established themselves as rulers of present-day Indonesia, exploiting the weakness of the small kingdoms that had replaced that of Majapahit. The only exception was East Timor, which remained under Portugal until 1975. During 300 years of Dutch rule, the Dutch developed the Netherlands East Indies into one of the world's richest colonial possessions.

During the first decade of the 20th century, an Indonesian independence movement began and expanded rapidly, particularly between the two World Wars. Its leaders came from a small group of young professionals and students, some of whom had been educated in the Netherlands. Many, including Indonesia's first president, Soekarno (1945-67), were imprisoned for political activities.

The Japanese occupied Indonesia for 3 years during World War II. On August 17, 1945, 3 days after the Japanese surrender to the Allies a small group of Indonesians, led by Soekarno and Mohammad Hatta, proclaimed independence and established the Republic of Indonesia. They set up a provisional government and adopted a constitution to govern the republic until elections could be held and a new constitution written. Dutch efforts to reestablish complete control met strong resistance. After 4 years of warfare and negotiations, the Dutch transferred sovereignty to a federal Indonesian Government. In 1950, Indonesia became the 60th member of the United Nations.

Shortly after hostilities with the Dutch ended in 1949, Indonesia adopted a new constitution providing for a parliamentary system of government in which the executive was chosen by and made responsible to parliament. Parliament was divided among many political parties before and after the country's first nationwide election in 1955, and stable governmental coalitions were difficult to achieve. The role of Islam in Indonesia became a divisive issue. Soekarno defended a secular state based on Pancasila while some Muslim groups preferred either an Islamic state or a constitution which included preambular provision requiring adherents of Islam to be subject to Islamic law. At the time of independence, the Dutch retained control over the western half of New Guinea, and permitted steps toward self-government and independence.

Negotiations with the Dutch on the incorporation of the territory into Indonesia failed, and armed clashes broke out between Indonesian and Dutch troops in 1961. In August 1962, the two sides reached an agreement, and Indonesia assumed administrative responsibility for Irian Jaya on May 1, 1963. The Indonesian Government conducted an "Act of Free Choice" in Irian Jaya under UN supervision in 1969, in which 1,025 Irianese representatives of local councils agreed by consensus to remain a part of Indonesia. A subsequent UN General Assembly resolution confirmed the transfer of sovereignty to Indonesia. Opposition to Indonesian administration of Irian Jaya, also known as Papua or West Papua, gave rise to smallscale guerrilla activity in the years following Jakarta's assumption of control. In the more open atmosphere since 1998, there have been more explicit expressions within Irian Jaya of a desire for independence from Indonesia.

From 1524 to 1975, East Timor was a Portuguese colony on the island of Timor, separated from Australia's north coast by the Timor Sea. As a result of political events in Portugal, Portuguese authorities abruptly withdrew from Timor in 1975, exacerbating power struggles among several Timorese political factions. An avowedly Marxist faction called "Fretilin" achieved military superiority. Fretilin's ascent in an area contiguous to Indonesian territory alarmed the Indonesian Government, which regarded it as a threatening movement. Following appeals from some of Fretilin's Timorese opponents, Indonesian military forces intervened in East Timor and overcame Fretilin's regular forces in 1975-76. Smallscale guerrilla activity persisted after Indonesia declared East Timor its 27th province in 1976, following a petition by a provisional government for incorporation into Indonesia. The UN never recognized Indonesia's incorporation of East Timor and later brokered negotiations between Indonesia and Portugal on the territory's status. In January 1999, the Indonesian Government agreed to a process, with UN involvement, under which the people of East Timor would be allowed to choose between autonomy and independence through a direct ballot.

The direct ballot was held on August 30, 1999. Some 98% of registered voters cast their ballots, and 78.5% of the voters chose independence over continued integration with Indonesia. Many persons were killed in a wave of violence and destruction after the announcement of the pro-independence vote. In October 1999, the People's Consultative Assembly (MPR) revoked the 1978 decree that annexed East Timor, and the UN Transitional Authority in East Timor (UNTAET) assumed responsibility for administering East Timor until it became independent on May 20, 2002.

Unsuccessful rebellions on Sumatra, Sulawesi, West Java, and other islands beginning in 1958, plus a failure by the constituent assembly to develop a new constitution, weakened the parliamentary system. Consequently, in 1959, when President Soekarno unilaterally revived the provisional 1945 constitution, which gave broad presidential powers, he met little resistance. From 1959 to 1965, President Soekarno imposed an authoritarian regime under the label of "Guided Democracy." He also moved Indonesia's foreign policy toward nonalignment, a foreign policy stance supported by other prominent leaders of former colonies who rejected formal alliances with either the Western or Soviet blocs. Under Soekarno's auspices, these leaders gathered in Bandung, West Java, 1955, to lay the groundwork for what became known as the Non-Aligned Movement. In the late 1950s and early 1960s, President Soekarno moved closer to Asian communist states and toward the Indonesian Communist Party (PKI) in domestic affairs. Though the PKI represented the largest communist party outside the Soviet Union and China, its mass support base never demonstrated an ideological adherence typical of communist parties in other countries.

By 1965, the PKI controlled many of the mass civic and cultural organizations that Soekarno had established to mobilize support for his regime and, with Soekarno's acquiescence, embarked on a campaign to establish a "Fifth Column" by arming its supporters. Army leaders resisted this campaign. Under circumstances that have never been fully explained, on October 1, 1965, PKI sympathizers within the military, including elements from Soekarno's palace guard, occupied key locations in Jakarta and kidnapped and murdered six senior generals. Major General Soeharto, the commander of the Army Strategic Reserve, rallied army troops opposed to the PKI to reestablish control over the city. Violence swept throughout Indonesia in the aftermath of the October 1 events, and unsettled conditions persisted through 1966. Rightist gangs killed tens of thousands of alleged communists in rural areas. Estimates of the number of deaths range between 160,000 and 500,000. The violence was especially brutal in Java and Bali. During this period, PKI members by the tens of thousands turned in their membership cards. The emotions and fears of instability created by this crisis persisted for many years; the communist party remains banned from Indonesia.

Throughout the 1965-66 period, President Soekarno vainly attempted to restore his political position and shift the country back to its pre-October 1965 position. Although he remained president, in March 1966, Soekarno had to transfer key political and military powers to General Soeharto, who by that time had become head of the armed forces. In March 1967, the Provisional People's Consultative Assembly (MPRS) named General Soeharto acting president. Soekarno ceased to be a political force and lived under virtual house arrest until his death in 1970.

President Soeharto proclaimed a "New Order" in Indonesian politics and dramatically shifted foreign and domestic policies away from the course set in Soekarno's final years. The New Order established economic rehabilitation and development as its primary goals and pursued its policies through an administrative structure dominated by the military but with advice from Western-educated economic experts.

In 1968, the People's Consultative Assembly (MPR) formally selected Soeharto to a full 5-year term as president, and he was re-elected to successive 5-year terms in 1973, 1978, 1983, 1988, 1993, and 1998. In mid-1997, Indonesia was afflicted by the Asian financial and economic crisis, accompanied by the worst drought in 50 years and falling prices for oil, gas, and other commodity exports. The rupiah plummeted, inflation soared, and capital flight accelerated. Demonstrators, initially led by students, called for Soeharto's resignation. Amidst widespread civil unrest, Soeharto resigned on May 21, 1998, 3 months after the MPR had selected him for a seventh term. Soeharto's hand-picked Vice President, B. J. Habibie, became Indonesia's third president.

President Habibie reestablished International Monetary Fund (IMF) and donor community support for an economic stabilization program. He released several prominent political and labor prisoners, initated investigations into the unrest and lifted controls on the press, political parties, and labor unions. A special session of the MPR held in November 1998 advanced the date of parliamentary elections to June 1999 and the lower house of parliament (DPR) rewrote the laws governing the elections.

Elections for the national, provincial, and subprovincial parliaments were held on June 7, 1999, in which 48 parties competed. International and domestic observers and monitors declared that the elections, while not problem-free, had been free and fair. In early August, President Habibie ratified the poll count. For the national parliament, Parti Demokrasi Indonesia Perjuangan (PDI-P, Indonesian Democratic Party of Struggle led by Megawati Soekarnoputri) won 34% of the vote; Golkar ("functional groups" party of the government) 22%; Partai Persatuan Pembangunan (PPP, United Development Party led by Hamzah Haz) 12%; and Partai Kebangkitan Bangsa (PKB, National Awakening Party led by Nadhlatul Ulama, headed by Abdurrachman Wahid) 10%. Parliamentary seats were to be allocated according to new regulations and the 200 additional members of the MPR chosen. As described below, the MPR selected Abdurrahman Wahid as Indonesia's fourth President in November 1999 and replaced him with Megawati Soekarnoputri in July 2001.

GOVERNMENT AND POLITICAL CONDITIONS  
Indonesia is a republic based on the 1945 constitution providing for a limited separation of executive, legislative, and judicial power. Substantial restructuring has occurred since President Soeharto's resignation and the short, transitional Habibie administration which followed. The Habibie government fashioned political reform legislation that- without changing the 1945 Indonesian constitution--formally set up new rules for the electoral system, the House of Representatives (DPR), the People's Consultative Assembly (MPR), and political parties. An MPR decree adopted in November 1998 limits the president to two terms in office.

The president, elected for a 5-year term, is the dominant government and political figure. The president and the vice president are selected by the MPR, although legislation is being considered to provide for direct election of the president in the next election in 2004. The election in June 1999 produced no majority, and the MPR selected Abdurrahman Wahid, also known as Gus Dur, as the fourth president. Wahid proved unable to govern effectivel, and the MPR impeached him in July 2001, immediately appointing then-Vice President Megawati Soekarnoputri as the fifth, and current, president. Although Megawati is the daughter of Indonesia's first president, Soekarno, and owes her early political prominence to him, she has achieved her own political power base and operates independently of her father. The President, assisted by a cabinet that she appoints, has the authority to conduct the administration of the government and is accountable only to the MPR. Although President Megawati's PDI-P party is the largest in parliament, she does not have a majority. She has formed a coalition government; her Vice President, Hamzah Haz, for instance, represents an Islamic party.

Under the political laws enacted in January 1999, the House of Representatives (DPR) has 500 members, of which 462 are elected and 38 appointed seats are reserved for the armed forces (TNI). The TNI seats are to be phased out. The People's Consultative Assembly (MPR), which elects the president and vice president, has 700 members, consisting of the 500 members of the DPR, 135 provincial representatives selected by provincial assemblies, and 65 representatives appointed by social and community groups. The armed forces shaped and provided leadership for Soeharto's New Order from the time it came to power in the wake of the abortive 1965 uprising. Military officers, especially from the army, were key advisers to Soeharto and Habibie and had considerable influence on policy. Under the dual function concept ("dwifungsi"), the military asserted a continuing role in sociopolitical affairs. This concept was used to justify placement of officers to serve in the civilian bureaucracy at all government levels. Although the military still has great influence and is perhaps the only truly national institution, dwifungsi has largely disappeared. Military officers must now resign from the armed forces before taking a civilian government position. The police have been separated from the military, further reducing the military's direct role in governmental matters.

Principal Government Officials
President--Megawati Soekarnoputri
Vice President--Hamzah Haz
Minister of Foreign Affairs--Noer Hassan Wirajuda
Ambassador to the United States--Soemadi Djoko Moerdjono Brotodiningrat
Ambassador to the United Nations--Makmur Widodo

The Embassy of Indonesia is at 2020 Massachusetts Avenue NW., Washington, DC 20036 (tel. 202-775-5200-5207; FAX: 202-775-5365). Consulates General are in New York (5 East 68th Street, New York, NY 10021, tel. 212-879-0600/0615; FAX: 212-570-6206); Los Angeles (3457 Wilshire Blvd., Los Angeles, CA 90010; tel. 213-383-5126; FAX: 213-487-3971); Houston (10900 Richmond Ave., Houston, TX 77042; tel. 713-785-1691; FAX: 713-780-9644). Consulates are in San Francisco (1111 Columbus Avenue, San Francisco, CA 94133; tel. 415-474-9571; FAX: 415-441-4320); and Chicago (2 Illinois Center, Suite 1422233 N. Michigan Avenue, Chicago, IL 60601; tel. 312-938-0101/4; 312-938-0311/0312; FAX: 312-938-3148).

ECONOMY
Indonesia has a market-based economy in which the government plays a significant role. It owns more than 164 state-owned enterprises and administers prices on several basic goods, including fuel, rice, and electricity. In the aftermath of the 1997-98 financial crisis, the government took custody of significant portion of private sector assets through acquisition of non-performing bank loans and corporate assets through the debt restructuring process.

In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. The steps were aimed primarily at the external and financial sectors and were designed to stimulate employment and growth in the non-oil export sector. Annual real GDP growth averaged nearly 7% from 1987-97, and most analysts recognized Indonesia as a newly industrializing economy and emerging major market. The Asian financial crisis of 1997 altered Indonesia's political and economic landscape. Since 1997, Indonesia has had three presidents, and as of mid-2002, its economy is only just recovering to pre-1997 levels. Seven percent GDP growth is the level most economists consider necessary just to absorb new job seekers, but the Indonesian Government estimates growth in 2002 of 4% and in 2003 of less than 5%. The number of unemployed and underemployed (working less than 15 hrs/week) is currently estimated at 40 million.

President Megawati Soekarnoputri has made important strides in her first year in reducing political instability, strengthening Indonesia's relationship with the International Monetary Fund (IMF), and reinvigorating the country's economic reform program. The government has completed four quarterly IMF reviews since September 2001. However, a sharp rise in anti-IMF sentiment among Jakarta politicians and commentators in mid-2002 has called into question the degree of political support for further reforms. Megawati's administration spawned a sustained increase in market sentiment during the first half of 2002, with both the rupiah and Jakarta Stock Exchange performing strongly. Consumer confidence and exports have begun to rise from their very low levels of late 2001.

The rupiah has stabilized significantly from trading at the Rp 11,440/USD level in July 2001 when President Megawati took office. After an initial surge following Megawati's election, the rupiah weakened again in the last half of 2001. Since then it has strengthened slowly to the Rp 8,800/USD level, an increase of 23%. Previously, the value of the Rupiah was very volatile ranging from Rp 2,500/USD prior to the Asian Financial Crisis to a low of Rp 17,000/USD after President Soeharto resigned in June 1998. Although the stability of the rupiah has returned, the approach of elections in 2004 and slower economic growth combined with high levels of debt have made exchange rate risk a major concern of investors.

The Megawati administration has made much less progress in improving Indonesia's troubled investment climate, and several adverse court rulings against foreign companies brought investment issues to the forefront of government policymaking in 2002. Besides the lack of legal certainty, existing and potential investors cite a number of concerns with respect to Indonesia's investment climate, including security, confusion over regional autonomy policies and fiscal decentralization, uneven implementation of economic reform commitments, and tax and labor issues.

Indonesia's public sector external debt rose from $54.2 billion in March 1998 to about $76 billion by the end of 2001. Private sector external debt stood at approximately $60 billion. The large amount of non-performing corporate debt, estimated in late 2000 at U.S. $65 billion, is a major factor limiting capital markets growth in Indonesia. Although debtors and creditors have reached agreement on a substantial number of restructuring terms sheets through IBRA and the Jakarta Initiative Task Force, most of these agreements have yet to reach legal closing. As a result, few of Indonesia's largest corporations are creditworthy.

Oil and Minerals Sector
Indonesia, the only Asian member of the Organization of Petroleum Exporting Countries (OPEC), ranks 17th among world oil producers, with about 1.9% of world production. Crude and condensate output averaged 1.4 million barrels per day (b/d) in 2001. In the 2001 calendar year the oil and gas sector, including refining, contributed approximately 13.7% to GDP and provided 35% to domestic revenues. The sector's share of export earnings was 22.4% in 2001, a greater percentage than recent years due to high world oil prices. U.S. companies have invested heavily in the petroleum sector. With domestic demand for petroleum fuels expanding, Indonesia will become a net importer of oil by the next decade unless new reserves are found. In 2001, Indonesian imports of crude oil and petroleum products totaled $5.4 billion while Indonesian exports of crude oil and oil products and LNG totaled $12.7 billion.

The state owns all oil and mineral rights. Foreign firms participate through production sharing and work contracts. The Indonesian Government passed a new petroleum law in October 2001 that deregulates the upstream and downstream sectors in 2 years. The law removes Pertamina's monopoly over downstream oil distribution and marketing of fuel products and makes no procedural distinction between foreign and domestic oil and gas companies. Pertamina's responsibility to manage Production Sharing Contracts (PSCs), which authorize investors to produce oil and gas, will shift to the central government. Oil and gas contractors are required to finance all exploration, production, and development costs in their contract areas; they are entitled to recover operating, exploration, and development costs out of the oil and gas produced.

Although minerals production traditionally centered on bauxite, silver, and tin production, Indonesia is expanding its copper, nickel, gold, and coal output for export markets. In mid-1993, the Department of Mines and Energy reopened the coal sector to foreign investment, with the result that the leading Indonesian coal producer now is a joint venture between U.K. firms BP and Rio Tinto. Total coal production reached 92.5 million metric tons in 2001, including exports of 66.5 million tons. The Indonesian Government hopes to surpass 120 million metric tons of coal production in 2005. Two U.S. firms operate three copper/gold mines in Indonesia, with a Canadian and U.K. firm holding significant other investments in nickel and gold, respectively. In 2001, the value of Indonesian mining exports generated $3.6 billion, with receipts from copper and coal accounting for 89.7% of the total.

Investment
Since the late 1980s, Indonesia has made significant changes to its regulatory framework to encourage economic growth. This growth was financed largely from private investment, both foreign and domestic. U.S. investors dominated the oil and gas sector and undertook some of Indonesia's largest mining projects. In addition, the presence of U.S. banks, manufacturers, and service providers expanded, especially after the industrial and financial sector reforms of the 1980s. Other major foreign investors included Japan, the United Kingdom, Singapore, the Netherlands, Hong Kong, Taiwan, and South Korea.

Despite improvements in political stability, incomplete reform in other sectors has slowed foreign investment growth. New foreign investment approvals for the first 5 months of 2002 fell by 58% to U.S.$1.67 billion from U.S.$3.97 billion over the same period in 2001. From a record high of U.S. $33.8 billion in 1997, approvals fell 73% to roughly $9 billion in 2001. (Note: The data does not include investments in oil and gas, finance, banking, non-bank finance, insurance, and leasing. Government approval reports should be treated cautiously, and used as no more than an indicator of possible trends because they represent applications to invest and not actual projects or money.) The recent commercial court Manulife bankruptcy ruling brought to light serious weaknesses in the judicial system. Foreign businessmen have expressed reluctance to increase investments prior to the establishment of a better functioning legal and judicial system, greater adherence to transparent and competitive processes, and improvements in security. With the passage of a new copyright law in July 2002, Indonesia's intellectual property rights regime was strengthened; however, the lack of effective enforcement remains a major concern. Investors in the manufacturing sector also are concerned by rapidly rising wages, which threaten Indonesia's competitiveness in labor-intensive industries.

FOREIGN RELATIONS
Since independence, Indonesia has espoused a "free and active" foreign policy, seeking to play a role in regional affairs commensurate with its size and location but avoiding involvement in conflicts among major powers. Indonesian foreign policy under the "New Order" government of President Soeharto moved away from the stridently anti-Western, anti-American posturing that characterized the latter part of the Soekarno era. Following Soeharto's ouster in 1998, Presidents Habibie and Wahid have preserved the broad outlines of Soeharto's independent, moderate foreign policy. Preoccupation with domestic problems has not prevented President Wahid from frequently traveling abroad and continuing to participate vigorously, though peripatetically, in many international fora. The traumatic separation of East Timor from Indonesia after an August 1999 East Timor referendum, and subsequent events in East and West Timor, strained Indonesia's relations with the international community.

A cornerstone of Indonesia's contemporary foreign policy is its participation in the Association of Southeast Asian Nations (ASEAN), of which it was a founding member in 1967 with Thailand, Malaysia, Singapore, and the Philippines. Since then, Brunei, Vietnam, Laos, Burma, and Cambodia also have joined ASEAN. While organized to promote common economic, social, and cultural goals, ASEAN acquired a security dimension after Vietnam's invasion of Cambodia in 1979; this aspect of ASEAN expanded with the establishment of the ASEAN Regional Forum in 1994, which comprises 22 countries, including the United States. Indonesia's continued domestic troubles have distracted it from ASEAN matters and consequently lessened its influence within the organization.

Indonesia also was one of the founders of the Non-Aligned Movement (NAM) and has taken moderate positions in its councils. As NAM Chairman in 1992-95, it led NAM positions away from the rhetoric of North-South confrontation, advocating instead the broadening of North-South cooperation in the area of development. Indonesia continues to be a prominent, and generally helpful, leader of the Non-Aligned Movement.

Indonesia has the world's largest Muslim population, though it is a secular state, and is a member of the Organization of the Islamic Conference (OIC). It carefully considers the interests of Islamic solidarity in its foreign policy decisions but generally has been an influence for moderation in the OIC. President Wahid has pursued better relations with Israel, and in August 2000 he met with former Israeli Prime Minister Peres.

After 1966, Indonesia welcomed and maintained close relations with the donor community, particularly the United States, western Europe, Australia, and Japan, through the Intergovernmental Group on Indonesia (IGGI) and its successor, the Consultative Group on Indonesia (CGI), which have provided substantial foreign economic assistance. Problems in Timor and Indonesia's reluctance to implement economic reform, have complicated Indonesia's relationship with donors.

Indonesia has been a strong supporter of the Asia-Pacific Economic Cooperation (APEC) forum. Largely through the efforts of President Soeharto at the 1994 meeting in Bogor, Indonesia, APEC members agreed to implement free trade in the region by 2010 for industrialized economies and 2020 for developing economies.

NATIONAL SECURITY
Indonesia's Armed Forces (Tentara Nasional Indonesia, or TNI, formerly ABRI) total about 250,000 members, including the army, navy, marines, and air force. The army is by far the largest, with about 196,000 active-duty personnel. Defense spending in the national budget is only 1.8% of GDP but is supplemented by revenue from many military businesses and foundations.

The Indonesian National Police were for many years a branch of the armed forces. The police were formally separated from the military in April 1999, a process that was formally completed in July 2000. With 150,000 personnel, the police form a much smaller portion of the population than in most nations.

Indonesia is at a relative peace with its neighbors, although competing South China Sea claims, where Indonesia has large natural gas reserves, concern the Indonesian Government. Without a credible external threat in the region, the military historically viewed its prime mission as assuring internal security. Military leaders now say they wish to transform the military to a professional, external security force but acknowledge that the armed forces will continue to play an internal security role for some time.

Throughout Indonesian history the military maintained a prominent role in the nation's political and social affairs. Traditionally a significant number of cabinet members had military backgrounds, while active duty and retired military personnel occupied a large number of seats in the parliament. Commanders of the various territorial commands played influential roles in the affairs of their respective regions. In the post-Soeharto period, civilian and military leaders have advocated removing the military from politics (for example, the military's representatives in parliament have been much reduced), but the military's political influence remains extensive.

U.S.-INDONESIAN RELATIONS
The United States has important economic, commercial, and security interests in Indonesia. Indonesia remains a linchpin of regional security due to its strategic location astride a number of key international maritime straits. Relations between Indonesia and the United States are good. The United States played an important role in Indonesian independence in the late 1940s and appreciated Indonesia's role as a staunch anti-communist bulwark during the Cold War. Cordial and cooperative relations are maintained today, although any formal security treaties do not bind the two countries. The United States and Indonesia share the common goal of maintaining peace, security, and stability in the region and engaging in a dialogue on threats to regional security. The United States has welcomed Indonesia's contributions to regional security, especially its leading role in helping restore democracy in Cambodia and in mediating among the many territorial claimants in the South China Sea.

The United States is committed to assisting Indonesia's democratic transition and supports the territorial integrity of the country. There are, nonetheless, friction points in the bilateral political relationship. These have centered primarily on East Timor and human rights, as well as on differences in our respective foreign policy orientations. The U.S. Congress cut off grant military training assistance (IMET) to Indonesia in 1992 in response to a November 12, 1991, incident in East Timor in which Indonesian security forces shot and killed East Timorese demonstrators. This restriction was partially lifted in 1995. Military assistance programs were again suspended, however, in the aftermath of the violence and destruction in East Timor following the August 30, 1999 referendum favoring separation from Indonesia. Indonesia continues to align itself with Non-Aligned Movement and G-77 foreign policy views, often taking unhelpful positions on issues of international human rights concern.

On worker rights, Indonesia was the target of several petitions filed under the Generalized System of Preferences (GSP) legislation arguing that Indonesia did not meet internationally recognized labor standards. A formal GSP review was suspended in February 1994 without terminating GSP benefits for Indonesia. Since 1998, Indonesia has ratified all eight International Labor Organization core conventions on protecting internationally recognized worker rights and allowed trade unions to organize. However, enforcement of labor laws and protection of workers rights remains inconsistent and weak in some areas. Continuing economic malaise has increased difficulties for workers and caused an increase in child labor (10-14 years old).

Economic Relations With the United States
U.S. exports to Indonesia in 1999 totaled $2.0 billion, down significantly from $4.5 billion in 1997. The main exports were construction equipment, machinery, aviation parts, chemicals, and agricultural products. U.S. imports from Indonesia in 1999 totaled $9.5 billion and consisted primarily of clothing, machinery and transportation equipment, petroleum, natural rubber, and footwear. Economic assistance to Indonesia is coordinated through the Consultative Group on Indonesia (CGI), formed in 1989. It includes 19 donor countries and 13 international organizations that meet annually to coordinate donor assistance. The 2000 CGI meeting is to be held October 17-18 in Tokyo.

The U.S. Agency for International Development (USAID) has provided development assistance to Indonesia since 1950. Initial assistance focused on the most urgent needs of the new republic, including food aid, infrastructure rehabilitation, health care, and training. Through the 1970s, a time of great economic growth in Indonesia, USAID played a major role in helping the country achieve self-sufficiency in rice production and in reducing the birth rate.

USAID's current program aims to support Indonesia as it recovers from the financial crisis by providing food aid, employment generating activities, and maintaining critical public health services. USAID also is providing technical advisers to help the Indonesian Government implement economic reforms and fiscal decentralization and is supporting democratization and civil society development activities through non-governmental organizations.

Principal U.S. Embassy Officials
Ambassador--Ralph L. Boyce
Deputy Chief of Mission--Lewis Amselem
Political Counselor--Brian A. Nichols
Economic Counselor--Shari Villarosa
Administrative Counselor--J. Patrick Truhn
USAID Director--William Frej
Defense Attache--Col. Joseph Judge III
Consul General--Mary E. Grandfield
Public Affairs Officer--Charles N. Silver
Department of Agriculture Office: Anita Katial Zemany
Commercial Counselor--Margaret Keshishian

The U.S. Embassy in Indonesia is located at Jalan Medan Merdeka Selatan 3-5, Jakarta (tel. (62-021) 3435-9000). U.S. mail to the embassy may be addressed to FPO AP 96520.

The U.S. Consulate General in Surabaya is located at Jalan Dr. Sutomo 33, Surabaya East Java (tel. (62-31) 568-2287).

Principal Officer
Phillip L. Antweiler

The U.S. Consular Agency in Bali is located at Jalan Hayam Wuruk 188, Bali (tel. (62-361) 233-605.

For information on economic trends, commercial development, production, trade regulations, and tariff rates, contact the International Trade Administration, U.S. Department of Commerce, Washington, DC 20230.

For the most current version of this Note, see Background Notes A-Z.



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