The State Department web site below is a permanent electronic archive of information released prior to January 20, 2001.  Please see www.state.gov for material released since President George W. Bush took office on that date.  This site is not updated so external links may no longer function.  Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Aurelia E. Brazeal Deputy Assistant Secretary of State for East Asian and Pacific Affairs Statement before the Senate Foreign Relations Committee, East Asian and Pacific Affairs Subcommittee Washington, DC, March 24, 1998

U.S. Policy On Indonesia

Thank you Mr. Chairman, for inviting me here today to discuss Indonesia. Developments over the past year have taken most observers by surprise. Last spring, investors and corporations worldwide had great confidence in Indonesia. They looked at the country's consistent record of growth, its growing middle class, and saw unlimited potential.

But the context in which we discuss Indonesia today is vastly changed. The economy is at a standstill, factories closed and employees idled. There are almost daily protests criticizing the government's handling of the crisis. Today, Indonesia faces a crisis of confidence, a crisis which will take determination and commitment by the government of Indonesia to overcome.

Early on in the financial crisis, when the Indonesian rupiah first came under pressure, Indonesia was generally applauded for its active response. In August, it permitted the rupiah to float before depleting its reserves. In September, it announced cutbacks in fiscal spending. In October, it called in the IMF to discuss an assistance program.

But the period from November through February saw decreasing confidence that President Soeharto and Indonesia would abide by IMF commitments. Politically connected projects which had been postponed were allowed to proceed without explanation. Monetary targets were not met. The extent of the problems in Indonesia's banking sector became clearer, and Indonesia flirted with the idea of a currency board despite widely held serious concerns. As the value of the rupiah continued to plummet, the debt problems of the private sector became more acute, exacerbating the sense of crisis.

The continuing downward turn of events in Indonesia stands in marked contrast to [South] Korea or Thailand, where the markets perceive that governments are now committed to reform. Indonesia has not convinced the global markets that it is serious about changing the status quo. Lack of transparency in decision making, cronyism, government crackdowns on dissent, and human rights abuses by the security forces are well documented. With greater media scrutiny of Indonesia, more of the world has learned about these problems.

The political and social costs of the financial crisis have been high. Indonesia has seen gains of thirty years deteriorate seemingly overnight. Where Indonesia averaged seven percent growth for nearly two decades, analysts predict negative economic growth over the next year or two. Where inflation measured a manageable 5-10%, it could potentially reach triple digits this year. And where the value of the rupiah was 2500 to the dollar, it now hovers between 9,000-10,000. Per capita income has dropped, unemployment is rising rapidly, and basic necessities including food have become more expensive.

The economic and financial crisis has produced uncertainty about Indonesia's prospects for political stability. Demonstrations against the adverse effects of the crisis have taken on a political dimension as well, with more frequent calls for the government to stem corruption and step down. Hundreds of these demonstrators have been arrested; a few opposition figures have disappeared. There has been an effort to find scapegoats, whether ethnic Chinese businessmen, currency speculators, or Western governments, to blame for Indonesia's problems. But Indonesia's press remains relatively free to express its views and criticism of the government is widespread. Indonesia's biggest looming challenge on the political front is maintaining stability and national cohesion at this time of political transition.

Why is Indonesia Important to the U.S.?

With Indonesia facing its worst economic and political crisis since the mid-sixties, one may ask just how U.S. interests are affected. Our strategic and economic interests are served by helping Indonesia restore financial stability and economic growth. Indonesia has the fourth largest population in the world. It has immense natural resources and a strategic location. Indonesia controls all or part of every major waterway between the Pacific and the Indian Ocean. The U.S. Pacific Command transits these "SLOC's" in order to support operations in the Gulf. More than half of all international shipping trade traverses these seaways.

Indonesia, and President Soeharto in particular, made ASEAN possible. ASEAN's formation was a result of Indonesia's adopting a more cooperative approach to its neighbors. Over the last thirty years, ASEAN has developed a pattern of cooperation so strong that it has altered the geopolitics of East Asia. The cohesion among ASEAN countries has added to the stability of the East Asian region by allowing smaller countries to band together to form a counterweight to larger regional powers. Though by far the largest member of ASEAN, Indonesia has been careful to ensure that ASEAN has remained an organization of equals. A blow to Indonesia would undermine the integrity of ASEAN as an institution.

The Indonesian government has strengthened its regional and global influence in international fora over the past several decades. In the Asia Pacific Economic Cooperation (APEC) forum, Indonesia has been a key supporter of a more open regional economy. It helped clinch the success of WTO financial services negotiations by submitting a strongly improved offer in a time of economic crisis. It has taken an active role in trying to resolve regional problems such as Cambodia. It joined the Korean Peninsula Energy Development Organization (KEDO). It has played a moderating role in multilateral organizations and offered support on important global issues, such as biodiversity, climate change, narcotics control and counterterrorism.

Thus, the stakes in helping Indonesia overcome its current crisis are quite high both in bilateral and regional terms.

U.S. Response to the Crisis

For all these reasons, we must respond, and we are responding. When fires flamed by drought raged out of control and caused severe environmental damage, we offered C-130's equipped with special aerial fire-fighting systems and shared satellite photos to help track the worst fires. When the IMF put together its financial support package, we committed $3 billion as a second line of defense.

In January and February, when the Indonesian rupiah continued to tumble and the there was widespread speculation that the Indonesian economy might melt down, President Clinton spoke with President Soeharto several times to urge he stay the course and demonstrate vigorous, public commitment to the IMF package to which he had agreed. He sent two envoys to the region -- Deputy Secretary of Treasury Summers in January and former Vice President Mondale earlier this month -- to reinforce that same message.

Encouraging Indonesian adherence to the IMF economic adjustment program and helping stabilize the immediate economic crisis are our immediate foreign policy objectives for Indonesia. Those are not our only goals. We continue to work toward furthering Indonesia's contribution to regional stability and security, promoting greater respect for democratization, and human and worker rights, encouraging a diplomatic resolution to the East Timor dispute, promoting the interests of U.S. companies operating in Indonesia, protecting Indonesia's globally important natural resources, and strengthening defense cooperation aimed at greater military professionalism in the Indonesian armed forces.

These all remain priorities, and a substantial part of our bilateral dialogue with the Indonesian government.

Democratization and Human Rights

What are we doing to support these goals? In the area of human rights and democracy, embassy officers have monitored trials of political dissidents and we have publicly underscored our support for the rights of free speech and free association. AID funds a number of Indonesian non-governmental organizations, many of which promote democratic principles and better governance and take active roles in defending the human rights of individuals accused of wrongdoing. We maintain an active dialogue with numerous NGOs pressing for change in Indonesia, and with opposition leaders working for a more responsive, pluralistic society. The embassy is in regular contact with all segments of public opinion, including the NGOs and opposition elements such as Megawati, Amien Rais, and Gus Dur. In a widely publicized step, Ambassador Roy attended a social event hosted by Megawati on the occasion of the Idul Fitri holiday (the only foreign ambassador to do so) and was quoted in the media, both Indonesian and abroad, as supporting efforts to promote democratization.

On labor issues, we maintain ongoing discussions with Indonesian authorities to urge implementation of internationally accepted labor standards. The Indonesians have accepted our offer to consult on implementation of the new labor law passed in 1997. At the highest levels, we have called on the Indonesian government to allow imprisoned labor leader Muchtar Pakpahan to received medical treatment abroad. Assistant Secretary of State Roth met with Pakpahan twice during the past six months.

We have urged the Government of Indonesia to reduce force levels, curb human rights abuses, and improve human rights conditions on East Timor. We continue our efforts to help bring about a resolution of the situation in East Timor and strongly support the UN-facilitated initiative, led by the Secretary General's Personal Representative Jamsheed Marker, between Indonesia and Portugal to reach a satisfactory settlement.

Over the years, we have been the largest international aid donor to East Timor. Our aid programs are designed to improve the lives of average Timorese, while helping them achieve more control over their own lives.

While many of our efforts involve quiet diplomacy, we also have not been reluctant to support public expressions of concern where appropriate. Last year we co-sponsored a resolution on East Timor at the United Nations Human Rights Commission meeting in Geneva.

Humanitarian Efforts

We recognize the impact the current crisis has had on the average Indonesian, and are taking steps to ease some of their hardships. In conjunctions with the IMF, World Bank, Asian Development Bank, and other nations, the Administration will work to provide the Indonesian public access to critical food and medical supplies.

We are fortunate that AID has a program in place in Indonesia which provided us some flexibility to support social safety net activities, such as maternal and child health care, and urban infrastructure projects which create job opportunities. AID has provided advisors to GOI to help in developing a bankruptcy law and implementing other IMF-mandated reforms. This is in addition to ongoing AID activities that aim to strengthen human rights practices, democratization, and good governance, all of which are priorities in our bilateral relationship. Finally, we are examining the food situation with great care in view of the double impact of the El Nino drought and economic crisis. We intend to provide assistance as appropriate and continue to support international efforts to do so as well.

What Next?

Following Soeharto's reappointment as President and the appointment of the new cabinet earlier this month, the new government must now act decisively to restore market confidence by undertaking needed economic reforms.

An IMF team is currently in Indonesia to discuss with the government's new economic team how best to overcome the current crisis. The situation has deteriorated markedly since the most recent reform program was announced in January. These changed circumstances will most likely require some modification in the specifics of the program. In particular, the IMF and the Indonesians are focusing their discussions on five key areas which must be addressed if Indonesia is to overcome its crisis.

But Indonesia, not the international community, has the first responsibility to reverse its economic plight, a responsibility that President Soeharto acknowledged in his recent inaugural speech. Indonesia's vigorous and sustained commitment to IMF reforms offers the best prospect for restoring financial confidence. Until that confidence is restored, a foundation for renewed growth cannot be established. To date, Indonesia's response to the IMF package has been uneven. As a result, market confidence remains weak.

We do not have the luxury of walking away from Indonesia. At the same time, we have to recognize that Indonesia's people and political leaders must shape their own future. We will continue our efforts, both bilaterally and working in conjunction with our international partners, to encourage Indonesia to undertake the economic and political reforms that the markets and the world community deem essential.

In conclusion, let me thank you, Mr. Chairman, for providing me the opportunity to speak to you and your colleagues on the Subcommittee on Indonesia. After 30 years of progress, Indonesia confronts hard choices. An economic turnaround will take time, as will the development of a more open political system. In the meantime, we should be prepared to be helpful where we can, and to continue to reach out to all segments of Indonesian society, in particular those Indonesians working for a more pluralistic and democratic society and greater respect for human rights.

[end of document]

Link to March 24, 1998 briefing by Under Secretary of State Stuart Eizenstat.
Link to March 24, 1998 fact sheet on Indonesian Humanitarian Assistance.

Back to the East Asian and Pacific Affairs Home Page. Back to the Principal Officials' Remarks, Testimonies, and Briefings Home Page. Return to the DOSFAN Home Page. Return to the Secretary's Home Page. This is an official U.S. Government source for information on the WWW. Inclusion of non-U.S. Government links does not imply endorsement of contents.