Key Problems

• U.S. policy has been dominated by commercial and security interests, to the detriment of concern on human rights and environmental issues.
• Indonesia is entering a period of potential instability because of concern about the future succession after President Suharto passes from the scene.
• A widening crackdown on NGOs following riots in July is ongoing, further repressing forums for dialog on the form of a post-Suharto Indonesia.

Indonesia is the world’s largest Muslim country and fourth most populous nation. Occupying key shipping lanes to the Indian Ocean and the Persian Gulf, it serves as the regional anchor of Southeast Asia. Comprised of 17,500 islands, it is the world’s richest source of biodiversity and home to ethnic groups speaking more than 200 regional languages. The economy is growing by more than 8% annually, benefiting from over $60 billion in foreign direct investment in the past 18 months. As the country in the Asian Pacific Economic Cooperation forum (APEC) that leads the effort to seek rapid tariffs reductions, Indonesia is the darling of U.S. export industries.

A favorite location of U.S. business, Indonesia was designated one of the world’s “Big Emerging Markets” by the Commerce Department. U.S.-based investors include no less than 23 oil companies, and Freeport McMoRan Mining Co., the largest foreign investor in Indonesia. Yet foreign debt is also $90 billion and the nation’s current account deficit jumped from 1.6% to 4% of GDP between 1994 and 1995—a serious concern in the age of “footloose” global capital responsive to political shocks.

A recent complication in U.S.-Indonesia relations is donations from wealthy Indonesians to the Democratic National Committee in 1996. This issue introduced Indonesia to many Americans. Starting in January 1996, Congress will hold hearings to investigate whether U.S. policy was compromised by these contributions.

Indonesia is a country holding its breath, facing possibly dramatic political and social change when 75-year old President Suharto, who has ruled the country unchallenged for over thirty years with the support of Indonesian army (ABRI), passes from the scene. Suharto rose to power in the wake of the September 30, 1965 coup against ABRI leaders. As leader of the New Order regime, he derived legitimacy from campaign against the Indonesian Communist Party during which 500,000 citizens were killed. Soon thereafter, on December 7, 1975, ABRI invaded East Timor which had just gotten out from under Portugal’s colonial thumb. This occupation has resulted in the deaths of 200,000 East Timorese and an ongoing struggle led by 1996 Nobel Peace Prize laureates Bishop Carlos Belo and Jose Ramos-Horta. The State Department’s 1996 Human Rights report found “extrajudicial killings” and other abuses increased in East Timor, as well as in Irian Jaya and Aceh, in the past year.

Significant progress in economic development has not been matched by increased political liberties or respect for human rights. In the name of stability and unity, only three political parties are allowed to operate—the ruling GOLKAR, the Indonesian Democratic Party (PDI), and the United Development Party (PPP)—and they are all largely government controlled, serving as props promoting the illusion of a pluralistic political order. All are required to swear allegiance to Pancasila, the overarching state ideology, and the 1945 Constitution. If Suharto runs for his sixth five-year term as president in 1998, there is little likelihood that opposition candidates will be allowed to oppose him.

ABRI maintains a “dual function” (dwi fungsi) in both the security and political sphere, operationalizing its influence through ABRI structures that parallel (and frequently control) the government down to the local level. Lacking external enemies, ABRI is primarily oriented to maintaining internal security. ABRI maintains numerous money-making ventures with business elites, creating vested interests that require continuing military intervention in local disputes, ranging from land and development to labor unrest. One source estimates 20-25% of ABRI’s budget comes from business ventures—a model similar to that used by the People’s Liberation Army of China.

The denial of political or impartial judicial avenues for redress mean that land disputes, workers’ demands, complaints of indigenous people displaced by widespread logging and development, and concerns about the blatant corruption of government and ABRI elites (especially Suharto’s family) have been suppressed.

Problems with Current U.S. Policy

Key Problems

• U.S. business continues to increase engagement in Indonesia, with active support from the U.S. government.
• U.S. security ties, including weapons sales, continue with ABRI.
• The U.S. has taken a self-limiting stance in promoting respect for human rights in Indonesia.

The State Department publicly acknowledges that “although elections are held, the Indonesian people continue to lack the ability to change their government” and rhetorically adds the U.S.-Indonesia relationship “cannot reach its full potential until Indonesia improves its human rights record.” Yet U.S. trade promotion and security agendas are reaching toward that full potential, relegating concerns about human rights, environment, and political openness to footnotes in the relationship.

U.S.-Indonesian trade has grown by 60% in the past five years, and the U.S. accounts for 12% of the cumulative foreign investment approvals. When U.S. auto manufacturers interests are hurt by the Indonesian “national car” (wholly built in South Korea and imported by Suharto’s son at a preferential tariff rate) the U.S. immediately leapt forward to file a tariff-discrimination case against Indonesia at the World Trade Organization (WTO).

The U.S. restored the strong security ties with Indonesia that were damaged on November 12, 1991, when ABRI troops, using M-16s, massacred hundreds of East Timorese participating in a funeral march in the capital city of Dili. While the U.S. does refuse to export some types of munitions to ABRI, such as small arms, it has sold weapons worth $102 million through the Foreign Military Sales (FMS) program between 1991-95. An additional $962 million in commercial licenses for weapons exports to Indonesia for the same period were also granted. Congress eliminated taxpayer support for International Military Education & Training (IMET) for Indonesia in 1993; but this policy was abandoned in 1996, when $600,000 worth of IMET was resumed. The administration also plans to notify Congress in January 1996 of its intent to sell nine F-16 aircraft to Indonesia, despite growing congressional opposition to the sale on human rights grounds.

With respect to Washington’s efforts to “encourage positive developments” such as human rights and worker rights, Assistant Secretary of State Winston Lord said that internal considerations will predominate since U.S. influence is limited. A more accurate description would be self-limited.

One key source of leverage is trade benefits granted by the U.S. Generalized System of Preferences (GSP) program to Indonesian imports. In 1995, 14% of Indonesia’s total exports were sent to the U.S., netting more than $6.3 billion in foreign exchange. By law, continuance of GSP is conditioned on the receiving country’s respect for worker rights. Indonesia continues to prohibit freedom of association by repeatedly denying registration to the independent Indonesian Workers Welfare Union (SBSI) of Muchtar Pakpahan. On July 30, SBSI leader Muchtar Pakpahan was detained and remains in custody under suspicion of engaging in subversion, a capital offense. The predominance of retired ABRI or GOLKAR officials ensures continued government control of the Federation of All-Indonesian Trade Unions, which often conspires with employers against workers’ interests. When that fails, ABRI intervenes to unilaterally settle labor disputes, ending efforts at collective bargaining. Yet the administration refuses even to consider a petition to deny GSP benefits to Indonesia.

The U.S. bilateral assistance program to Indonesia implemented by U.S. Agency for International Development (AID) is one of the agency’s largest development programs, totalling $59 million in 1995. While many AID programs focus on helping promote U.S. business through financial and commercial law reforms, important support is also given to Indonesian NGOs and should be encouraged. Unfortunately, the U.S. does not forcefully extend its concern for human rights and democracy to its votes at the World Bank, where Indonesia continues to receive in excess of $1 billion a year. U.S. law requires the U.S. oppose loans to countries that “engage in a pattern of gross violations of internationally recognized human rights.”

The current U.S. policy formulation is to “encourage a transition…that expresses popular will.” But with the policy bias towards commercial and security interests, how will “popular will” be measured?

U.S. policy blissfully ignores the underlying issues of military control of Indonesian society, while its practice of selling arms helps ABRI perpetuate this control. The U.S. then professes shock when ABRI acts outrageously, such as torturing and killing indigenous people in Irian Jaya who protest the loss of their land to Freeport’s mining operation.

The Freeport case is good example of the administration’s commerce first policy. Indigenous people protesting loss of their lands and the influx of Javanese were tortured by ABRI forces on Freeport property. Pollution from mine tailings dumped in rivers running through pristine rain forest also prompted complaints. Yet the U.S. provided political risk insurance to Freeport through the Overseas Private Investment Corporation (OPIC).

Only after the Indonesian Human Rights Commission investigated abuses did OPIC belatedly suspend Freeport’s coverage, and even then only on environmental grounds. OPIC coverage resumed in April 1996 after Indonesian officials intervened at high levels with U.S. policymakers and Freeport provided a fig-leaf by initiating discussions with the affected indigenous peoples. Freeport later voluntarily terminated its OPIC coverage to avoid further scrutiny of its operations.

Toward a New Foreign Policy

Key Recommendations

• The U.S. needs to develop a post-Suharto strategy to bring greater respect for human rights and political pluralism in Indonesia.
• Pressure should be brought to bear to improve treatment of workers and NGOs.
• The administration must come clean on what impact political donations from wealthy Indonesians may have had on U.S. policy.

Asia Week perceptively observed that “the biggest blemish on Suharto’s record is he has failed to build strong political institutions capable of surviving him” other than ABRI. Potential instability from a post-Suharto inter-elite struggle (with implications for foreign investors allied to them) or renewed repression of pent-up political demands from dissatisfied groups will have regional impact.

The U.S. needs to devise a clear post-Suharto strategy. It cannot simply assume that economic growth will bring democracy and that if America just concentrates on expanding business ties to Indonesia, all else will eventually fall into place. The next several years will be critical in determining the long-term direction Indonesia takes.

One path leads to greater political pluralism, increased accountability and rule of law by the government, more participatory development that reaches marginalized groups, and expanded respect for human rights. The other path is a continuation of authoritarian rule, marked by the rising influence of ABRI, freed from Suharto’s controlling grasp, and growing civil dissatisfaction. The U.S. needs to act now to ensure that Indonesia steers towards the first path, towards a more sustainable stability that benefits both the Indonesian people and foreign business.

Beyond occasionally vocalizing its displeasure, the Clinton administration has displayed little concern about the increasing repression against NGOs. Little effort has been made to work with allies, either at the United Nations or in other international arenas, to pressure Indonesia to end its crackdown. The U.S. must expand its emphasis on supporting independent NGOs, independent labor unions, and grassroots organizations. Equally important, it should be prepared to act when they are threatened, and develop further international support among democratic nations for this position. These organizations play a vital role in bringing forward issues—like land rights, corruption, environmental destruction, wages and working conditions, and equitable development—for mediation with vested interests in the government and military. The U.S. should engage Japan, Indonesia’s largest bilateral aid donor, to collaborate in this effort.

Disturbances within the labor sector are on the rise as legal paths to press worker grievances are shut off. The U.S. should insist on the recognition of independent trade unions, like the SBSI, and the immediate release of Muchtar Pakpahan. At a minimum, the U.S. should re-open consideration of petitions to deny GSP benefits until Indonesia guarantees freedom of association and right to collective bargaining. If the Indonesian government escalates repression against independent worker organizations, revocation of GSP benefits to business sectors where either ABRI or Suharto family members have major interests would be an appropriate response.

On East Timor, the U.S. must take a leadership role to convene an international contact group to provide a framework for substantive Indonesian-East Timorese negotiations. Participants would include Indonesia, participants of the Inter-Timorese Dialogue and Nobel laureates Bishop Belo and Jose Ramos-Horta, Portugal, Japan, U.S., Australia, and one or two ASEAN states. To signal its seriousness on this issue, the U.S. should indefinitely postpone the sale of the F-16s to Indonesia.

Environmental destruction and indigenous land rights should also be addressed. Given global imperatives connected with Indonesia’s biodiversity and the clear human rights mandate in World Bank policy dealing with indigenous peoples, these are two areas where the World Bank and Asian Development Bank could initiate their good governance mandate in Indonesia. The U.S. should actively encourage this work and advocate at the World Bank for expanded conditionality on lending to Indonesia.

Finally, the U.S. must practice what it preaches. The same level of transparency and accountability we expect in Indonesia must also apply to the Clinton administration’s dealings with James Riady and the multibillion dollar Lippo Group. These connections have served as important paths of access for Suharto and Indonesian diplomats in Washington. If contributions to the DNC, Clinton Inauguration Fund, or other entities affected U.S. policy towards Indonesia, the administration should come clean.