POLITICS OF INDONESIA

Indonesia is a constitutional democracy. After the fall of Suharto's prolonged authoritarian New
Order regime in 1998 various constitutional amendments were made in order to reduce effective
power of the executive branch, thereby making a new dictatorship almost impossible. Indonesia
is now characterized by popular sovereignty manifested in parliamentary and presidential
elections every five years. Starting from the fall of Suharto's New Order, which marked the
beginning of the Reformation period, every election in Indonesia is regarded to be free and fair
(although corruption and money-politics through which power or political positions can be
bought, are still persistent).
GENERAL POLITICAL OUTLINE OF INDONESIA
Indonesia is a secular country in the sense that its political policies are not necessarily derived
from religious teachings and that it does not have a single state religion. Religion, however, does
play a very important role in Indonesian society. Indonesian nationals are obliged to adhere to
one of the religions that have been selected by the government (Islam, Christianity, Catholicism,
Hinduism, Buddhism and Confucianism), while atheism is not an option. Being the country that
contains the largest Muslim population in the world, Islamic principles do play an important role
in the nation's political decision making, but Indonesia is not a Muslim or Islamic state. Political
decentralization in the post-Suharto era has brought more power to the regional governments and
this development implied that regional decision-making has been more affected by the regional
religious context. In strict Muslim areas, implemented policies can include the regional banning
of pork business or the obligation for women to wear the headscarf, while in Christian regions
(located mostly in eastern Indonesia) such policies seem impossible to be implemented.
However, given the nation's clear Muslim majority and the dominance of (Muslim) Java in
national politics, Indonesia - as a whole - is far more Islam oriented. To have a president that is
non-Muslim, therefore, seems impossible. On the other hand, Indonesian Islam can generally be
labelled 'moderate' as the majority of Indonesian Muslims consist of nominal Muslims. For
example, when Megawati Soekarnoputri became the first female Indonesian president in 2001,
only a small minority rejected her based on certain Islamic doctrine that women cannot take
leading positions.
The Indonesian political system consists of three branches:
Executive branch
Legislative branch
Judicial branch
The executive branch consists of the president, the vice president and the cabinet. Both the
president and vice president are chosen by the Indonesian electorate through presidential
elections. They serve for a term of five years that can be extended once by another term of five
years when re-elected by the people. During these elections the president and vice president run

as a fixed, inseparable pair, which implies that the composition of this pair is of great political
strategic importance. Important matters that are of influence include ethnic (and religious)
background and (previous) social position in Indonesian society. In terms ofethnicity and
religion, a Javanese Muslim will enjoy more popular support as the majority of the Indonesian
people consist of Javanese Muslims. In lower political positions (and depending on the regional
religious context) political leaders that are non-Muslim are possible (for example, the current
vice governor of Jakarta is Chinese-Christian Basuki Cahaya Purnama). With regard to
(previous) social position in society there are a few categories that all enjoy popular support from
part of the people. These categories include (retired) army generals, businessmen, technocrats
and leading Muslim scholars. Therefore, to optimize chances of winning the election the
president and vice president usually come from different social categories in order to grasp a
larger share of the popular vote. For example, current president Yudhoyono (himself a retired
army general) chose Boediono (a Javanese Muslim technocrat) as vice president in his
presidential campaign of 2009. As Boediono is an experienced economist, it raised people's trust
in the pair. Despite Indonesia's authoritarian past under Suharto, army generals who run for
president can still count on much popular support in present Indonesia as they are considered
being strong leaders.
After election, the new president appoints a cabinet that usually consists of members from his
own party, the coalition partners and non-partisan technocrats.
The legislative branch is the Peoples Consultative Assembly (Majelis Permusyawaratan Rakyat,
abbreviated MPR). It has the power to set or change the Constitution and appoints (or
impeaches) the president. The MPR is a bicameral parliament that consists of the Peoples
Representative Council (Dewan Perwakilan Rakyat, abbreviated DPR) and the Regional
Representative Council (Dewan Perwakilan Daerah, abbreviated DPD). The DPR, consisting of
560 members, draws up and passes laws, produces the annual budget in cooperation with the
president and oversees the general performance of political affairs. It is elected for a five-year
term through proportional representation based on general elections. Remarkably, this DPR is
notorious due to the frequent occurrences of corruption scandals among its members. The DPD
deals with bills, laws and matters that are related to the regions, thus increasing regional
representation at the national level. Every Indonesian province elects four members to the DPD
(who serve for a five-year term) on non-partisan basis. As Indonesia contains 33 provinces, the
DPD consists of a total of 132 members.
The
highest
court
in Indonesia's
judiciary system is the
independent
Supreme
Court (Mahkamah Agung). It is the final court of appeal and also deals with disputes between
lower
courts. A
new
court,
established
in
2003,
is
the
Constitutional Court (Mahkamah Konstitusi), which monitors whether decisions made by the
cabinet and parliament (MPR) are in line with the Indonesian Constitution. Most of the legal
cases, however, are dealt with by the public courts, administrative courts, religious courts and
military courts. A Judicial Commission (Komisi Yudisial) oversees the maintenance of honour,
dignity and behaviour of Indonesian judges. There are frequent reports that Indonesia's judiciary

institutions are not free from corruption and are not fully independent from the other political
branches.
PRE-COLONIAL HISTORY OF INDONESIA
In the period before western European powers were able to control Southeast Asian soil and
waters, there was no Indonesia. The archipelago we now know as Indonesia consisted of islands
and estates ruled by various kingdoms and empires, sometimes living in
peaceful coexistence while at other times being at state of war with each other. This vast
archipelago lacked the sense of social and political unity that Indonesia has today. Integrated
trade networks, however, were developing in this area starting from the early dawn of Asian
history. Being connected to trade networks was an important asset for an empire to acquire
wealth and commodities, necessary to become a powerful force. But the more global these trade
networks in the archipelago became, the more foreign influences managed to enter; a
development that would eventually lead to the colonial state.
The existence of written sources is what separates history from prehistory. As few written
sources dating from before 500 AD have been preserved, the history of present Indonesia starts
rather late. It is assumed that most writings were done on perishable material and - in
combination with the tropical humid climate and low-quality conservation technique standards at
the time - this means that historians have to rely on inscriptions on stone and the study of
remnants of ancient temples to trace the archipelago's earliest history. These two approaches
provide information regarding the old political structures as both literature and the construction
of temples were samples of high culture reserved for the ruling elites.
A remarkable feature of Indonesian history is that it generally centers on the western part of the
archipelago (in particular on the islands of Sumatra and Java). As most of the eastern part of the
archipelago has been on the fringes of economic activity throughout history (located further
away from main trade routes), it consequently has been on the fringes of politics as well; a
situation that continues up to the present day.

THE IMPACT OF HINDUISM AND BUDDHISM IN INDONESIA

The earliest inscriptions found in the archipelago are known as the Kutai-inscriptions and
originate from East Kalimantan, dated around 375 AD when the Kutai Martadipura kingdom
ruled. These inscriptions were written in Sanskrit (the liturgical language of Hinduism) using the
Pallava script, a script developed in Southern India around the third century AD. In these
inscriptions three rulers of Kutai Martadipura are mentioned and they describe a ritual that is
characteristic of archaic Hinduism. Approximately one century later, the first (known) stone is
inscripted on Java. This inscription, also in Sanskrit, states king Purnavarman of the
Tarumanagara kingdom (fourth to seventh century) in West Java and associates him with a
Hindu deity (Vishnu). Together, these inscriptions show evidence of major influences from
Indian Hinduism within the ruling elites of the first known indigenous ancient kingdoms in the
archipelago.

However, trade contacts between present-day India and the archipelago are known to have been
established centuries prior to the Kutai inscriptions. The Strait of Malacca, a sea lane linking the
Indian Ocean with the Pacific Ocean, has been the main shipping channel for seaborne trade
between China, India and the Middle East since human memory. A large part of Sumatra's
coastline is conveniently located next to this sea lane causing merchants between India and
China to stop over here or on the other side of the Strait (present-day Malaysia) to wait for the
right monsoon winds that would carry them further. But it is assumed that Hinduism and
Buddhism were not spread to the archipelago by these Indian traders. More likely, kings and
emperors in the archipelago were drawn to the prestige of the Brahmans (the Hindu priestly class
which forms the highest ranking of the four social classes). These Brahmans, supposedly,
introduced a new religion to the archipelago which enabled the indigenous kings to identify
themselves with a Hindu deity or a Buddhist Bodhisattva (an enlightened mystical being),
thereby replacing the ancestor worship that was adhered to previously. This new religious
doctrine, therefore, implied more prestige for the kings. Empires in the archipelago that copied
such Indian concepts were found on the islands of Kalimantan, Java, Sumatra and Bali.
Due to the strategic position of Sumatra's and Malaysia's coastline next to the Strait of Malacca it
is hardly surprising that we find the first major influential state in Indonesian history on the
coastal area of Sumatra, and stretching a wide geographical area around the strait. This state was
called Srivijaya and ruled the trade routes connecting the Indian Ocean, the South Chinese Sea
and the Spice Islands of the Moluccas between the 7th and the 13th century. Srivijaya will also
be remembered as Southeast Asia's center for Buddhist studies with a major emphasis on the
study of the Sanskrit language. From Chinese sources it is known that many Chinese Buddhist
monks stayed in Srivijaya for more than a decade to pursue their study.
Hindu and Buddhist temple remnants dating from between the 8th and the 10th century indicate
the ruling of two dynasties in Central Java. These were the Sailendra-dynasty (adherents of
Mahayana Buddhism and most likely the dynasty that built the famous Borobudur temple nearby
present-day Yogyakarta around 800 AD) and the Sanjaya-dynasty (adherents of Hinduism that
built the temple complex of Prambanan around 850 AD not far from - and as a reaction to - the
Borobudur temple). The slow demise of Srivijaya and the rise of these new powerful kingdoms
on Java meant that political power was gradually turning away from Sumatra towards Java. But
in the 10th century the lives of inhabitants in Central Java suddenly went unrecorded because of
a lack of sources. It is assumed that a major volcano eruption shifted political power from
Central to East Java where a number of new kingdoms developed. Two of these deserve special
attention due to their legacy, namely Kediri (around 1042 to 1222) for its inscriptions and literary
legacy, and its successor Singasari (between 1222 and 1292) for introducing a new chapter in
Indonesian history, namely the syncretism of Hinduism and Buddhism. This new chapter found
its peak in the East Javanese kingdom of Majapahit (1293 to around 1500), perhaps the greatest
kingdom in the history of the archipelago which had a geographical area resembling the presentday boundaries of Indonesia (although it is still debated among scholars how much sovereignty
this kingdom actually enjoyed outside of Java and Bali). Majapahit with its flourishing arts and
literature is still an important concept and cause of national pride for Indonesians today as it is

regarded as the basis of the modern state of Indonesia. The nationalist movement in the 20th
century used this concept to justify both independence and the validity of territorial borders.
Indonesia's national motto Bhinneka Tunggal Ika, meaning 'Unity in Diversity', originates from
an Old Javanese poem written during the rule of Majapahit.
The Arrival of Islam in Indonesia
Although constituting a Hindu-Buddhist kingdom, Islamic influences were present as high up as
the ruling elite of Majapahit. There probably has been an Islamic presence in maritime Southeast
Asia from early on in the Islamic era when Muslim traders came to the archipelago, made
settlements on the coastal areas, married local women and enjoyed respect due to their wealth
acquired through trade. Some local rulers were probably drawn to this new faith and considered
it to be advantageous to adopt the same faith as the majority of the traders. The establishment of
Islamic kingdoms was the next logical step. It is assumed that subjects of these kings followed
suit by converting to Islam.
Inscriptions on gravestones suggest that early on in the 13th century there existed an Islamic
kingdom in the northern part of Sumatra called Pasai or Samudera. This kingdom is regarded to
be the first Islamic kingdom in the archipelago. From northern Sumatra, Muslim influences
subsequently spread eastwards through trade. On the northern coastline of Java multiple Islamic
cities arose during the course of the 14th century. However, it is unlikely that some of the
Javanese courtiers of Majapahit in East Java adopted the Islamic faith because of trade. They
probably felt far more superior to the social class of traders. More likely this Javanese nobility
was influenced by learned Muslim mystics (Sufis) and holy men claiming to possess
supernatural powers.
In the late 14th and early 15th century the influence of Majapahit in the archipelago began to
decline due to conflicts of succession and the rising powers of Islamic empires. A new trading
state, Malacca, was one of these new powers. It rose on the coastal area in present-day Malaysia
and was conveniently located on the narrowest part of the Strait of Malacca. This state became
an enormously successful port with advantageous facilities in a wide trade network stretching
from China and the Moluccas in the far east to Africa and the Mediterranean in the far west.
Although initially Malacca was a Hindu-Buddhist state, it quickly transformed into a Muslim
sultanate (probably due to trade-related reasons).
The historical link between trade and Islam is also visible in the developments on the island of
Ternate in the present-day province of Maluku in eastern Indonesia. Ternate (similar to nearby
located Tidore) became a wealthy region due to the production of cloves. From Java - and
through trade - Islam spread to this region, resulting in the establishment of a sultanate in the late
15th century. This sultanate managed to rule a large part of eastern Indonesia but its position
would be undermined by the Dutch in the 17th century.

The Arrival of Europeans in Indonesia

Stories about Malacca's wealth reached Europe and tempted the Portuguese, who were making
technological advances in navigation, to sail to this part of the world in order to have more
influence on the global spice trade network (and would make their yields higher). In 1511
Malacca was conquered by a Portuguese fleet under the leadership of Afonso de Albuquerque.
This conquest, however, had far-reaching consequences for the trade routes. Malacca, once a
wealthy port, quickly perished under the rule of the Portuguese who never succeeded in
monopolizing Asian trade. After the conquest, traders immediately began to avoid Malacca and
went to take their business to several other ports instead. Johor (Malaysia), Aceh (Sumatra) and
Banten (Java) were states that began to dominate spice trade due to the shift in trade routes.
The Dutch were also keen on establishing a firm grip on the spice trade network in Southeast
Asia. Their first expedition reached Banten in 1596 but was accompanied by hostilities between
the Dutch and the indigenous population. After arriving back in the Netherlands, the expedition
still showed a good profit which demonstrated that expeditions to the Southeast Asian region
were in fact money-makers. Multiple expeditions organized by several Dutch companies went to
the archipelago causing a negative impact on profits. Competition for spices was driving prices
up in the archipelago while supply-increase was driving prices down in Europe. This made the
Dutch government decide to merge the competing companies into one entity called the United
East India Company (Vereenigde Oost-Indische Compagnie, abbreviated VOC). It received farreaching sovereign powers to monopolize the Asian spice trade as well as to exclude other
European competitors. It decided to have its headquarters not in the Moluccas (the heart of the
spice-producing islands) but more strategically nearby the Strait of Malacca and the Strait of
Sunda. Its choice fell on present-day Jakarta. In 1619 Governor-General Jan Pieterszoon Coen
established Batavia on the ashes of the town Jayakerta which was demolished because of its
hostile attitude towards the Dutch. Batavia offered good commercial prospects evoking the
immigration of many people (especially Chinese) to this expanding city.
Towards Colonial Rule of Indonesia
Meanwhile, Islamic states continued to develop in the archipelago. In Aceh (Sumatra) Sultan
Iskandar Muda established a major power early in the 17th century, controlling the pepper and
tin reserves. However, he never succeeded in establishing hegemony around the Strait of
Malacca as Johor and the Portuguese were strong competitors. After Iskandar Muda's reign,
Aceh experienced a long period of internal disunity ceasing it to be a significant force outside the
northern tip of Sumatra. In Central Java two new strong Islamic powers emerged in the second
half of the 16th century. These were the districts of Pajang and Mataram that, after a long
struggle, managed to stop the political dominance of the coastal areas in northern Java. Mataram
would become the most powerful and the longest lasting of the modern Javanese dynasties, with
the reign of Sultan Agung as political pinnacle. Agung ruled from 1613 to 1646 and managed to
conquer almost the entire surface of Java, except for the kingdom of Banten in West Java and the
city of Batavia. Dutch control of Batavia was a thorn in the eye of Agung who wanted to control

the whole surface of the island. On two occasions he sent his army to conquer this Dutch city but
failed both times.
The VOC quickly extended its power in the archipelago and obtained control over the production
of cloves and nutmeg on the Banda Islands (Moluccas) by using extreme measures such as
genocide. It kept on expanding its network of trading posts throughout the archipelago. Cities
and ports that played central roles in this Dutch trade network were Surabaya (East Java),
Malacca (West Malaysia) and Banten (West Java). Even though the statutes of the VOC initially
did not allow it to interfere with the internal politics of indigenous states, it became deeply
entrenched in the politics of Mataram in Central Java. After Sultan Agung's death Mataram had
quickly deteriorated and succession disputes emerged around the end of the 17th century and
early 18th century. The Dutch played a divide and conquer game which eventually resulted in the
division of the kingdom of Mataram in four parts with its rulers becoming subservient to the
Dutch. Although the position of the Dutch was still rather weak outside the island of Java, these
political developments on Java can be considered as the initial stages of Dutch colonialism in the
archipelago.
Colonial Period of Indonesia
The colonial period of Indonesia did not immediately start when the Dutch first arrived in the
archipelago at the end of the 16th century. Instead, it was a slow process of political expansion
that took centuries to reach the territorial boundaries of present-day Indonesia.
During the course of the 18th century the United East India Company (Vereenigde Oost-Indische
Compagnie, abbreviated VOC) had established itself as the dominating economic and political
power on Java after the crumbling and collapse of the Mataram empire. This Dutch trading
company had been a major power in Asian trade since the early 1600s, but started to develop an
interest to interfere in indigenous politics on the island of Java in the 18th century as that would
improve their hold on the local economy. Mismanagement, corruption and fierce competition
from the English East India Company, however, resulted in the slow demise of the VOC towards
the end of the 18th century. In 1796 the VOC went bankrupt and was nationalized by the Dutch
state. As a consequence its possessions in the archipelago passed into the hands of the Dutch
crown in 1800. However, when the French occupied Holland between 1806 and 1815 these
possessions were transferred to the British. After Napoleon's defeat at Waterloo it was decided
that most parts of the archipelago would return to the Dutch.
Architects of the Dutch Colonial State in Indonesia
Two names stand out as being architects of the new Dutch colonial state in Indonesia. Firstly,
Herman Willem Daendels, Governor-General from 1808 to 1811 during the French occupation
of Holland and, secondly, British Lieutenant Sir Stamford Raffles, Governor-General from 1811
to 1816 during the British occupation of Java. Daendels reorganized the central and regional
colonial administration by dividing Java into districts (also known as residencies), each one
headed by an European civil servant - called the resident - who was directly subordinate - and

had to report - to the Governor-General in Batavia. These residents were responsible for a wide
range of matters in their residency, varying from legal matters to the organization of agriculture.
Raffles continued the reorganizations of his predecessor by reforming the judicial, police and
administrative system of Java. He introduced the land-tax which meant that Javanese peasants
had to pay tax, approximately the value of two-fifths of their annual harvests, to the
authorities. Raffles also had a sincere interest in the cultures and languages of Java. In 1817 he
published his The History of Java, one of the first academic works on the topic of Java.
However, his administrative reorganizations meant an increasing intervention in Java's society
and economy by foreigners, which is reflected by the growing number of middle ranked
European officials working in the residencies. Between 1825 and 1890 this number increased
from 73 to 190.
The Dutch system of rule in colonial Java was both direct and dualistic. Alongside the Dutch
hierarchy, there existed an indigenous one which functioned as an intermediary between the
Javanese peasants and the European civil service. The top of this indigenous structure consisted
of the Javanese aristocracy, previously the officials that ran the Mataram administration. Now,
however, they had to execute the will of the Dutch center.
The increasing Dutch dominance over Java did not come without resistance. When the colonial
authorities decided to build a road on the land of prince Diponegoro (who was appointed as
guardian of the throne of Yogyakarta after the sudden death of his half-brother), he rebelled,
supported by a majority of the Javanese population in Central Java and turned it into a jihad war.
This war lasted from 1825 to 1830 and resulted in the deaths of approximately 215,000 people,
mostly on Javanese side. However, when the Java War was over - and prince Diponegoro
captured - the Dutch were more dominant on Java than ever before.
The Cultivation System in Java
Competing British traders, the Napoleonic wars in Europe and the Java War implied a big
financial burden on the Dutch kingdom's budget. It was decided that Java should become a major
source of revenue for the Dutch and therefore Governor-General Van den Bosch ushered in the
era of the Cultivation System in 1830. This system meant a Dutch monopoly on the cultivation
of export crops on Java. Moreover, it were the Dutch who decided what kind of crops (and in
what quantity) had to be delivered by the Javanese peasants. Generally it meant that Javanese
peasants had to hand over one-fifth of their harvests to the Dutch. In return the peasants received
an arbitrarily fixed compensation in cash which basically had no relation to the value of the crop
on the world market. The Dutch and Javanese officials received a bonus when their residency
delivered more crops than on previous occasions, therefore stimulating top-down intervention
and oppression. On top of this compulsory cultivation of crops and traditional corvee-labor
services, Raffles' land tax still applied as well. The Cultivation System turned out to be a
financial success. Between 1832 and 1852 around 19 percent of total Dutch state income was
generated from the Javanese colony. Between 1860 and 1866 this number reached around 33
percent.

Initially, the Cultivation System was not dominated by the Dutch authorities only. Javanese
power holders and private European as well as Chinese entrepreneurs joined in as well.
However, after 1850 - when the Cultivation System was reorganized - the Dutch colonial state
became the dominant player. But these reorganizations also opened doors for private parties to
start exploiting Java. A process of privatization commenced in which the colonial state gradually
transferred export production to Western entrepreneurs.
The Liberal Period of Colonial Indonesia
More and more voices were heard in the Netherlands that rejected the Cultivation System and
supported a more liberal approach for foreign enterprises. This rejection of the Cultivation
System was both for humane and for economic motives. Around 1870 Dutch liberals had won
their battle in Dutch parliament and successfully eliminated some characteristic features of the
Cultivation System, such as the cultivation percentages and the compulsory use of land and
labour for export crops. These liberals paved the way for the introduction of a new period in
Indonesian history, known as the Liberal Period (circa 1870 to 1900). This period is marked by a
huge influence of private capitalism on colonial policy in the Dutch Indies. The colonial state
now more or less played the role of supervisor in relations between Western enterprises and the
rural Javanese population. But - although liberals claimed that the benefits of economic growth
would trickle down to the local level - Javanese farmers suffering from hunger, famine and
epidemics were just as common as under the Cultivation System.
The 19th century is also known as the century in which the Dutch made substantial geographical
expansion in the archipelago. Driven by the New Imperialism-mentality, European countries
were competing for colonies outside the European continent for both economic motives and
status. One important motive for the Dutch to expand its territory in the archipelago - apart from
financial benefit - was to prevent other European countries from taking parts of this region. The
most famous and prolonged battle during this period of Dutch expansion was the Aceh War that
started in 1873 and lasted until 1913, resulting in the deaths of more than 100,000 people. The
Dutch would, however, never have full control over Aceh. But the political integration of Java
and the Outer Islands into a single colonial polity had largely been achieved by the start of the
20th century.
The Ethical Policy and Indonesian Nationalism
When the borderlines of the Dutch Indies began to take the shape of present Indonesia, Queen
Wilhelmina made an announcement in her annual speech in 1901 informing that a new policy,
the Ethical Policy, would be installed. The Ethical Policy (acknowledging that the Dutch had a
debt of honour towards the Indonesians) was aimed at raising the living standards of the native
population. The means to accomplish this was direct state intervention in (economic) life,
promoted under the slogan irrigation, education and emigration. This new approach would,
however, not prove to be a significant success in raising the living standards of Indonesians.
This Ethical Policy implied a profound side effect. Its educational component contributed
significantly to the awakening of Indonesian nationalism by providing Indonesians the

intellectual tools to organize and articulate their objections to colonial rule. The Policy provided
a small Indonesian elite with Western political ideas of freedom and democracy. For the first
time people began to develop a national consciousness as 'Indonesians'.
In 1908 students in Batavia founded the association Budi Utomo, the first native political society.
This event is often regarded as the birth of Indonesian nationalism. It established a political
tradition in which cooperation between the young Indonesian elite and the Dutch authorities was
expected to lead to acquiring some degree of independence. The next chapter in the emergence
of Indonesian nationalism was the founding of the first mass-based political party, the Sarekat
Islam (Islamic Union) in 1911. Initially, it was formed to support the indigenous entrepreneurs
against the dominating Chinese in the local economy but expanded its scope and developed a
popular political consciousness with subversive tendencies. Other important movements that led
to the unfolding of indigenous political thinking were the Muhammadiyah, an Islamic reformist
socio-religious movement founded in 1912 and the Indonesian Association of Social Democrats,
a communist movement founded in 1914 that spread Marxist ideas through the Dutch Indies.
Internal disunity in this latter movement led to the formation of the Indonesian Communist Party
(PKI) in 1920.
Initially, the Dutch colonial authorities permitted the establishment of indigenous political
movements but when Indonesian ideologies radicalized in the 1920s (as seen in the communist
uprisings in West Java and West Sumatra in 1926 and 1927) the Dutch authorities changed
course. A relative tolerant regime was replaced by a repressive one in which every suspected act
of subversive behaviour was suppressed. This repressive regime in fact only worsened the
situation by radicalizing the entire Indonesian nationalist movement. Part of these nationalists
established the Indonesian Nationalist Party (Partai Nasional Indonesia, abbreviated PNI) in
1927 as a reaction to the repressive regime. Its goal was full independence for Indonesia.
Another important occasion for Indonesian nationalism was the declaration of the Youth Pledge
in 1928. At this congress of youth organizations three ideals were proclaimed, to wit one
motherland, one nation and one language. The main aim of this congress was to stimulate the
feeling of unity between the young Indonesians. On this congress the future national anthem
(Indonesia Raya) was played and the future national flag (merah-putih) was shown for the first
time. The colonial authorities reacted with another act of suppression. Young national leaders,
such as Soekarno (who would become Indonesia's first president in 1945) and Mohammad Hatta
(Indonesia's first vice president) were arrested and exiled.
Japanese Invasion of the Dutch Indies
The Dutch were powerful enough to curb Indonesian nationalism by arresting its leaders and
suppressing the nationalist organizations but never were they able to eliminate nationalist
sentiment. The Indonesians, on the other hand, did not have the power to compete with the
colonial rulers and therefore needed outside help to eliminate the colonial system. In March 1942
the Japanese, fueled by the desire for oil, provided such help by occupying the Dutch Indies.
Although initially welcomed as liberators by the Indonesian population, soon they would
experience the hardship of the Japanese rule: scarcity of food, clothing and medicines as well as

forced labour under harsh conditions. The scarcity of food was mainly brought on by
administrative incompetence, turning Java into an island of hunger. Indonesians working as
forced labourers (calledromusha) were stationed to work on labour-intensive construction
projects on Java.
When the Japanese took over, Dutch officials were put in internment camps and were replaced
by Indonesians to administer government tasks. The Japanese educated, trained and armed many
young Indonesians and gave their nationalist leaders a political voice. This enabled the
nationalists to prepare for a future independent Indonesian nation. In the final months before
Japan's surrender, effectively ending World War II, the Japanese gave full support to the
Indonesian nationalist movement. Political, economic and social dismantling of the Dutch
colonial state meant that a new era was about to emerge. On 17 August 1945 Soekarno and Hatta
proclaimed the independence of Indonesia, two days after the Nagasaki atomic bombing.
Soekarno's Old Order: the Birth of Indonesia
Soekarno (1901-1970), born in the East Javanese city of Surabaya during the colonial rule of the
Dutch, was a leading nationalist who devoted his life to the struggle for independence of
Indonesia. Although growing up in a traditional Javanese cultural environment (in combination
with Balinese influences from his mother's side of the family), Soekarno was educated in the
modern Dutch colonial schools. From a young age his major interest lay in reading books on the
topic of philosophy, politics and socialism. When studying in Surabaya, Soekarno lived in the
house of Oemar Said Tjokroaminoto, the first leader of the Sarekat Islam (which would become
an important movement for the nationalist awakening of Indonesia). Tjokroaminoto became
Soekarno's political mentor and inspiration.
In 1927 Soekarno established and became leader of a political vehicle called the Indonesian
Nationalist Party (Partai Nasional Indonesia, abbreviated PNI) which aimed for full
independence of Indonesia. However, these subversive political activities resulted in his arrest
and imprisonment by the repressive Dutch colonial regime in 1929. For Indonesians at that time
Soekarno's imprisonment only strengthened his image as a national hero and freedom fighter.
After his release Soekarno was in continuous conflict with the colonial authorities during the
1930s, resulting in multiple imprisonments. When the Japanese invaded the Dutch Indies in
March 1942, Soekarno considered collaboration with the Japanese as the only means to reach
independence successfully. A tactic which proved to be effective.
Today, the people of Indonesia highly respect and admire Soekarno, exponent of Indonesian
nationalism, for devoting his life to Indonesian independence and for bringing a new political
identity to the country.
The Difficult Birth of the Indonesian Nation
When Soekarno (Indonesia's first president) and Mohammed Hatta (first vice-president), two of
the country's most prominent nationalists, pronounced the proclamation of Indonesian
independence on 17 August 1945, together with the publication of a short and provisional
constitution, troubles were far from over. In fact, it would take four more years of Revolution

against the Dutch who - after being freed from the Germans in Europe - returned to reclaim their
colony. The Dutch were stubborn to relinquish their lucrative Southeast Asian colony but
eventually had to face reality. Under international pressure they acknowledged Indonesian
independence in 1949 (except for the western half of the island of New Guinea). However,
negotiations with the Dutch resulted in the 'Republic of the United States of Indonesia'
containing a Federal Constitution that was considered to be too much influenced by the Dutch.
Therefore, it was quickly replaced by a new constitution in 1950 which stipulated a
parliamentary system of government, provided guarantees for individual freedoms and made the
military subordinate to the nation's civilian leadership. The president mainly had a ceremonial
role only in this system.
Debates between several influential sides regarding the ideological basis of Indonesia and the
organization of relations between organs of the state had begun even before the proclamation in
1945. The army, heroes of the Revolution, had always harboured political aspirations of their
own. The 1950 Constitution, however, provided no political role for the army. Muslim
representatives at the constitutional talks -although on other subjects not representing a
homogeneous group- wanted Indonesia to become an Islamic state ruled by shariah law. But
other sides felt that the establishment of an Islamic state would endanger the unity of Indonesia
and might trigger revolts or calls for separatism as the country contains millions of non-Muslims.
Much to the dismay of both Muslim groups and the army, the communist party PKI (Partai
Komunis Indonesia) made an impressive comeback. Being outlawed by the colonial authorities
in 1927 for the organizing of revolts in West Java and West Sumatra, it gained much support in
Central and East Java, becoming one of the most popular parties on a national scale. And lastly,
there were the nationalists who stressed the need for individual rights against the state. Their
party was the PNI (the political party version of the previously mentioned PNI movement, set up
by Soekarno in 1927 that targeted for independence). This PNI party gained much popularity in
the country.
Soekarno had to find a way to unite these diverse viewpoints. In June 1945 he revealed his view
on Indonesian nationhood by proclaiming his Pancasila philosophy. Pancasila are the five
principles that would become the foundation of the Indonesian state:
1. Belief in one supreme God
2. Justice and civility among peoples
3. Unity of Indonesia
4. Democracy through deliberation and consensus among representatives
5. Social justice for all the people of Indonesia
One lasting problem with uniting a highly pluralistic Indonesian society through the Pancasila,
however, was the demand for an Islamic state by the Muslim parties. Initially a constitutional
committee agreed to add a short addition to the first principle: 'Belief in one supreme God, with
the obligation for adherents of Islam to implement the Islamic shariah law.' However, just before
publishing the 1945 Constitution this addition (known as the Jakarta Charter) was dropped due to

fears that it might provoke resentment in nominal and non-Muslim circles. Its omission would
cause deep distrust towards the secular nationalists in stricter parts of the Islamic community.
Parliamentary Democracy
Indonesia's parliamentary democracy of the 1950s was characterized by instability. The
underlying reason being the differences in viewpoints on the ideological basis of the country.
This situation was to be reflected in Indonesia's first general elections. These elections took place
in 1955 and are considered to be free and fair (and it would take more than 40 years before
Indonesia witnessed another example of fair and free elections). The two big Muslim parties
Masyumi and Nahdlatul Ulama (of which the latter had split off from the Masyumi in 1952)
received 20.9 and 18.4 percent respectively. The nationalist PNI received 20.3 percent of the
votes, while the communist PKI obtained 16.4 percent. This meant there was no workable
majority for any party but instead governments had to be created by forming coalitions between
various ideological streams. From 1950 to 1959 seven cabinets would take turns in rapid
succession, each failing to make significant progress for the country.
Besides disagreement within the political elite in Jakarta, there were other problems that
endangered the unity of Indonesia in the 1950s. The militant Darul Islam movement, which
aimed to establish an Islamic state and used guerrilla-techniques to reach its goal, was winning
territory in West Java, South Sulawesi and Aceh. This movement had already started during the
colonial period but quickly redirected its focus towards the Soekarno government until it
surrendered in 1962. Other subversive movements that made impact were the Universal Struggle
Charter (Permesta) in North Sulawesi and the Revolutionary Government of the Republic of
Indonesia (PRRI) in West Sumatra. Both started in the late 1950s and confronted the central
government with demands for political, economic and regional reform. These movements were
led by regional military officers, supported by members of the Masyumi and the American
Intelligence Agency (CIA) which regarded the popularity of the communist PKI party as a major
threat. By using military force the central government managed to silence these movements in
the early 1960s. Lastly, former members of the Royal Dutch East Indies Army (KNIL)
proclaimed the Republic of the South Moluccas in 1950. Although being largely defeated by
Indonesian forces in the same year, armed struggles continued until 1963.
Soekarno's Guided Democracy
Soekarno was aware that the period of liberal democracy was hampering Indonesia's
development due to the ideological differences within the cabinets. The solution Soekarno
proposed was named "Guided Democracy", meaning a return to the 1945 Constitution which
foresaw a strong presidency with authoritarian tendencies. This way he had more power to
realize his ideals. The army, which was unhappy with its insignificant influence in political
matters up to that point, supported this reorientation. By 1958 Soekarno had already recognized
the army as a 'functional group' meaning that they became agents in the political process but with
the period of Guided Democracy its role in politics was about to increase.

In 1959 Soekarno ushered in the period of Guided Democracy. He disbanded parliament and
replaced it with a new one in which half of the members were appointed by himself. Soekarno
was also aware of the danger for his position if the army would become too strong. Therefore, he
relied on the support of the communist PKI to counter-balance the army's power. Both the army
and the PKI were members of his 'Nasakom' philosophy, an acronym referring to the union
between the three most important ideological strands in Indonesian society in the 1950s and early
1960s to wit nationalism (nasionalisme), religion (agama), and communism (komunisme). These
three components had little in common, in fact they harboured deep resentment towards each
other. It was up to Soekarno's political skills, charisma and status to keep these components
together.
Another feature of Soekarno's Guided Democracy was the anti-Western tone of his policies. He
intensified efforts to take control over the western part of New Guinea. After some armed
conflicts the Dutch gave the territory to the United Nations that subsequently gave it to Indonesia
the following year. From 1962 to 1966 Soekarno masterminded the confrontation policy against
Malaysia. He considered the establishment of the Federation of Malaysia, including Malaya,
Singapore, and former British Borneo (Sarawak and Sabah), as a continuation of colonial rule
and launched an unsuccessful military campaign to crush Malaysia. Part of this confrontation
policy was the withdrawal of Indonesia from the United Nations (UN) due to the UN's approval
of Malaysia as a member state. In 1965 Soekarno continued cutting links with the capitalist
Western world by withdrawing Indonesia from the International Monetary Fund (IMF) and the
Word Bank, meaning that much needed foreign aid would cease to flow to Indonesia. This
worsened Indonesia's economic situation which had already reached extreme precarious levels
by then.

The Mysterious Coup by the 30 September Movement

Tensions between the three components of Nasakom heightened. On 30 September 1965 it
became clear just how dangerous the political cocktail was that Soekarno had created. On that
evening six army generals and one lieutenant were kidnapped and killed by a group of leftist
officers who called themselves the 30 September Movement. Allegedly, these murdered officers
were planning a coup to topple Soekarno. However, there is no evidence that there would be a
military coup against Soekarno. There is also no evidence that the communist PKI party was
behind the pre-emptive strike to prevent the military coup. Yet, Suharto, head of the Strategic
Reserve Command (Kostrad) who seized control over the army being the highest army
commander after the killings of his superiors, immediately put the blame on the PKI. Soon
communists and suspected communists were slaughtered, especially in the provinces of Central
Java, East Java, Bali and North Sumatra. Estimates of victims vary between 400,000 and one
million people. It is suspected that the killers of these communists were army units, civilian
gangs (who received weaponry from army units) and the militant Ansor youth wing of the
Nahdlatul Ulama. These Indonesian killings continued through 1965 and 1966. However, many
issues surrounding the coup and subsequent anti-communist purges remain unclear until the
present day and will probably never be known. After Suharto's New Order ended in 1998,
Indonesians started to doubt the official explanation of the government which put the blame on

the communists but this chapter in its history has not received profound attention in the public
discourse of the country yet, except for a report made by the National Commission on Human
Rights (Komnas HAM) in 2012 that labeled the communist purges as a gross human rights
violation.
The coup and its aftermath also entailed dramatic political consequences for Soekarno. Indonesia
was in a state of martial law which had put effective authority in the hands of General Suharto.
During the next two years Suharto would slowly but decisively extend his powers and put
Soekarno on the sideline. This marked the beginning of Suharto's New Order. Soekarno was put
under house arrest in Bogor (West Java) where his health deteriorated until his death in 1970.
Suharto's New Order: Development of Indonesia under Authoritarian Rule
Suharto (1921-2008), Indonesia's second president, came to power amid a period of exceptional
crisis and bloodshed. His predecessor, Soekarno, had created a highly dangerous
antagonistic government composition consisting of nationalists, communists and religious
fractions. Another side eager to retain political power, the army, managed to become more
influential in politics during the 1950s when it had to break down a number of revolts that
threatened to disintegrate Indonesia. Together these four sides were highly distrustful towards
each other, culminating in the tragedies of the mid 1960s when a group of leftist officers,
allegedly influenced by the communist PKI party, committed a pre-emptive coup against seven
top army officers who, allegedly, wanted to topple president Soekarno. Suharto, a high officer
who took control over the army during these chaotic days, blamed the coup on the PKI and
during the subsequent months hundreds of thousands of communists were slaughtered on
Sumatra, Java and Bali. Although much of the facts will remain unknown, it became clear that
General Suharto emerged as the strong power out of the chaos in the mid-1960s.
The Transfer of Power; the Old Order Becomes the New Order
On 11 March 1966 Indonesia was still in a state of total shock and chaos. On that particular day
president Soekarno was pressured into signing a decree in which army officer Suharto received
full power to guarantee security, calm and stability in the country. This decree became known as
the Supersemardocument and meant the effective transfer of executive power from Soekarno to
Suharto. Suharto then quickly banned the communist PKI party, started cleansing the army from
leftist elements and began to expand the political role of the army in Indonesian society.
Although still president, Soekarno's powers were reduced more and more until Suharto was
formally named acting president in 1967 and inducted as Indonesia's second president in 1968.
This marked the emergence of a new era which was called the 'New Order'. Policies quickly
changed a rather rigorous course from the start of this New Order. Emphasis of the new
government was put on economic development. Ties with the West, broken by Soekarno, were
restored which enabled the flow of much needed foreign aid to reach Indonesia. Prudent fiscal
management was introduced by the economic technocrats and the hostile and costly
confrontation politics towards Malaysia were stopped.

Suharto's next step was the depoliticization of Indonesia. Cabinet ministers were not allowed to
make their own policies but instead had to implement the policies that were formulated higher
up. Golkar (acronym forGolongan Karya, or functional groups) was used as Suharto's powerful
parliamentary vehicle. It contained several hundreds of smaller functional groups (such as labour
unions, peasants and businesses) which made sure that the Indonesian people were no longer to
be mobilized by political parties. Golkar was developed into an electoral machinery to produce a
majority for the government. It had a network up to the village districts and was financially
sponsored to promote the central government. Civil servants were obliged to support Golkar
while village heads received quotas of Golkar votes to fill. These policies resulted in a big
victory for Golkar during the 1971 elections. To extend his grip on politics even further, Suharto
'encouraged' the nine political parties that existed to merge into two. Firstly, the United
Development Party (Partai Persatuan Pembangunan, abbreviated PPP) consisting of the Muslim
parties and, secondly, the Indonesian Democratic Party (Partai Demokrasi Indonesia,
abbreviated PDI) consisting of the nationalist and Christian parties. Political activities, however,
were very much restricted to short campaign periods prior to national elections.
Intensifying Authoritarianism
From the early beginnings of the New Order, macroeconomic figures were impressive (a detailed
account can be found in the New Order Miracle section). However, these economic policies also
led to resentment by the Indonesian people as the government was considered to be too focused
on attracting foreign investors. When big investment opportunities were given to Indonesians it
were usually military officers or the small group of ethnic Chinese Indonesians who, although
forming a small portion of the total population, were dominating the economy. Fed up with
corruption, collusion and nepotism, thousands of people went to demonstrate in 1974 when the
Japanese prime minister paid a visit to Jakarta. This demonstration turned into massive violent
riots which became known as the 'Malari-riots'. It was a frightening experience for the
government because it proved unable to control the people. Concerned that one day there might
be an uprising among the millions of urban and rural poor, new (more repressive) policies were
implemented by the government. Twelve newspapers were closed and journalists detained
without trial, thus stimulating self-censorship. Any dissent expressed by the public (such as
demonstrations) were now quickly act upon. The economic side of this policy shift - much to the
approval of the Indonesians - was the introduction of more restrictive measures on foreign
investment and preferential policies favouring indigenous businessmen.
In national politics Suharto managed to tighten his position in the 1970s. The oil booms made
sure that money was abundant, which was used for financing progress with the development of
the country's infrastructure and poverty alleviation programs. Internationally, however,
Indonesia's standing was weakened by its invasion of East Timor. After decolonization from
Portugal - and East Timor's subsequent declaration of independence in 1975 - the Indonesian
army quickly invaded the country; an invasion marked by violence.
In 1984 all social-political organizations were decreed to declare the Pancasila (the five
principles that form the foundation of the Indonesian state, introduced by Soekarno in the 1940s)

as their sole ideology. Suharto could now use the Pancasila as a tool for repression because all
organizations were under continuous threat of being accused of anti-Pancasila activities.
It can be stated that during the 1980s Suharto was on the pinnacle of his power. Each election
implied an easy victory. Moreover, he had succeeded in making the army powerless. Similar to
the political parties and civil service, the army was there only to implement Suharto's policy. But
this depoliticization of Indonesian society had one important side effect. It caused the revival of
an Islamic consciousness, especially among the youth. As the political arena was closed territory,
the Muslims saw Islam as a safe alternative. Complaints regarding the government were
discussed in mosques and filled the sermons as it was too risky to speak out at demonstrations
(which were curbed anyway). This Muslim revival would cause another policy shift in the early
1990s.
Shifting Focus to Islam
As Islamic forces have always been strong throughout Indonesia's history, Muslim leaders of
organizations such as the Muhammadiyah and Nahdlatul Ulama (NU) have had more room than
others to criticize Suharto. When Islam became a political alternative to express resentment,
Suharto (himself a nominal Muslim) began to take a new approach towards the Islam in the early
1990s. This included his pilgrimage to Mecca in 1991, more 'Islam-friendly' officers in the top
ranks of the army and the establishment of the Indonesian Association of Muslim Intellectuals
(ICMI) in 1990. ICMI was set up as a sounding board for Muslim input into public policy rather
than being a mass-based political vehicle. Among its membership were critical non-government
Muslim leaders and cabinet members. All these measures combined did somewhat dilute
criticism from the Muslim community.

Rising Opposition
During the course of the 1990s Suharto's New Order government began to run out of sync with
an increasing assertive Indonesian society. This was partly due to its own success: impressive
economic development had resulted in more Indonesians being educated and this group was
frustrated at not having any influence on the political course of the country, while indigenous
businessmen were frustrated at being empty-handed when large investment opportunities went to
family members or close friends of Suharto. Starting from 1993 street demonstrations and
protests started to become more frequent and not without success: a state-sponsored lottery was
forced to withdraw after demonstrations by students and certain Muslim groups. Moreover, some
government-backed officials were defeated during provincial elections. This showed the public
that Suharto's regime was not invincible.
Another issue that had a negative impact on the position of the government was its meddling
with the internal party politics of the Indonesian Democratic Party (PDI). Megawati
Soekarnoputri (daughter of Soekarno) was elected as the chairperson of the PDI in 1993 to
replace Suryadi. The government, however, did not recognize this decision and ordered a new
election. Again, Megawati was elected and this time it was ratified at the PDI congress.

Megawati, increasingly critical of Suharto's regime, was seen as a real threat by the government
due to the status of her father. The government therefore backed Suryadi in yet another congress
in which Megawati was not invited to participate. It then resulted in Suryadi's re-election as
chairman but Megawati, obviously, refused to acknowledge the result of this congress. It
subsequently led to a schism in the PDI as well as violent clashes at its headquarters in Jakarta.
Society at large was frustrated that Suharto meddled with the internal affairs of the PDI,
especially because it involved a daughter of Soekarno.

The Collapse of Suharto's New Order

The legitimacy of Suharto's authoritarian rule lay primarily in the economic development that
took place during its reign. From despair in the mid-1960s, rapid industrialization had turned
Indonesia into a promising country. Influential international institutions (such as the World
Bank) labelled Indonesia as an 'East Asian Miracle' in the early 1990s. Other phrases that were
used by international institutions to describe Indonesia's economic performance were 'Asian
Tiger' and 'High Performing Asian Economy' (HPAE). Of course, the international community
was also aware about the fact that human rights were not always respected by the authorities in
the country. But, ironically, its suppressive nature was also key in alleviating millions of people
out of poverty because there was little room for dissent in policy-making and policy
implementation. In the mid-1960s more than 50 percent of the population was classified as poor,
while in 1993 this number had been reduced to 13.5 percent of the population. Other social
indicators (such as school enrollment, infant mortality, life expectancy) showed similar positive
results.
Suharto's style of rule was that of a political patronage system. In exchange for electoral (or
financial) support, he would often buy off critics by providing them with good government
positions or investment opportunities. But this preferential treatment was not confined to his
critics only. During the last decade of Suharto's rule his children and close friends were able to
set up huge business empires purely because of their closeness to Suharto. Although many
Indonesians were frustrated at this high level of corruption, nepotism and collusion in
government circles, the government could always point to its impressive economic progress
while at the same time paying lip service to the people by claiming to take efforts to reduce
corruption in the country. But this economic pillar of legitimacy vanished when the Asian
Financial Crisis erupted in 1997-1998 (for a detailed account visit the Asian Financial
Crisis section). Indonesia was the country that would be hit hardest by this crisis, snowballing
from an economic crisis to a social as well as a political one. Much of its economic and social
achievements were undone and the Indonesian people became determined to keep pushing for a
new (Suharto-less) government. Jakarta was turned into a battlefield in which violent riots
destroyed thousands of buildings, while more than one thousand people were killed. Suharto was
soon politically isolated and had no other option than to resign from the presidency. On 21 May
1998 vice president Bacharuddin Jusuf Habibie, a close ally of Suharto, became Indonesia's third
president. He had no other option than to comply with the Indonesian people's wishes and to
usher in the era of Reformation.

Reformation; New Challenges and Changes for Indonesia

When president Suharto left office in May 1998 it marked the beginning of a new period in
Indonesian history. After being under the rule of Suharto's authoritarian New Order regime for
more than three decades, Indonesia embarked for a new phase called Reformation (Reformasi in
Indonesian). It was envisaged to be the starting period of a democracy with open and liberal
politics in which extensive autonomy would be transferred to the regions, away from the center
(decentralization). The basis of this transition was formulated in a law which passed parliament
in 1999 and called for the transfer of administrative powersfrom the central government to the
regional districts. The role of the central government was to be confined to matters connected to
defence, foreign policy, fiscal-monetary and macroeconomic policy, justice and religion. Not
less important was that the regions would receive a larger share of revenues from the regional
production of natural resources. However, as not every region is blessed with abundant natural
resources, it increased the gap between richer and poorer regions. Along with power, corruption
was also decentralized to the regional level where so-called shadow states emerged in which the
regional elite is in control of power, business and money flows. One of the victims is the
environment. In exchange for large sums of money, logging permits were granted on a large
scale.
The process of decentralization was also accompanied by regional violence entrenched with
ethnic or religious aspects because of the emergence of competition for local political positions
in conjunction with a revival of regional identities.
The Bacharuddin Habibie Administration (1998-1999)
Bacharuddin Jusuf Habibie, vice president during Suharto's last presidential term, replaced
Suharto in 1998 when the latter stepped down from the presidency. But this did not mean an end
to the political system that had been applied during the New Order. Many Indonesians were
highly suspicious of Habibie because of his closeness to Suharto (who had been a father figure to
Habibie) and the fact that he had been an important player in Suharto's political patronage
system. Habibie's refusal to order a thorough investigation into Suharto's accumulated wealth
only strengthened this distrust.
Habibie had no other option than to launch the reform program. It would have been political
suicide if he did not comply with demands of the Indonesian public. During Habibie's presidency
thirty new laws were approved by the parliament (MPR), some of which characterized by
fundamental breaks with the political past. A number of noteworthy reforms were:
Introduction of freedom of the press
Allowing the establishment of new political parties and unions
Release of political prisoners
Limiting the presidency to two terms of five years
Decentralization of power to the regions

Another important decision was to schedule new general elections, to be held in June 1999.
Parliament had no intention yet, however, to reduce political influence of the army and to order
an investigation into Suharto's wealth.
Indonesia entered a period of increasing violence in the regions. East Java was plagued by
mysterious killings (perhaps led by army units) while religious violence flared up in Jakarta,
Ambon (Moluccas), Kupang (West Timor) and West Kalimantan. Moreover, three regions
rebelled against the central authorities: Aceh (Sumatra), Irian Jaya (Papua) and East Timor. It
caused an environment in which foreign investors were hesitant to invest, thus holding back
economic recovery for the country. Not less important was the sanitation of the Indonesian
financial sector, which had been the heart of the Asian Financial Crisis in the late 1990s. The
Indonesian Bank Restructuring Agency (IBRA), set up in January 1998, became a powerful
agency that undertook an integrated and comprehensive series of activities consisting of matters
such as bank liability programs, the recovery of state funds, bank restructuring, bank loan
restructuring, and shareholders settlements.
The East Timor case was one that caused much conflict, both nationally and internationally. East
Timor had declared independence in 1975 but was invaded by Indonesia the following year. This
did not end its desire for independence. Habibie had an open-minded stance towards East
Timor's independence. He stated that if East Timor rejects the special status of autonomous
province within Indonesia, it can become independent. This statement of Habibie was not agreed
upon by the Indonesian army that fiercely wanted to prevent separation from Indonesia.
According to the army East Timor's separation was dangerous for Indonesian unity as it could
lead to a domino effect in the other provinces. It was decided that the people of East Timor could
express themselves on this matter through a referendum. The outcome of this referendum was
that 78 percent of the voters chose for independence. The Indonesian army subsequently reacted
by ravaging much of East Timor, killing more than one thousand people.
Habibie's reputation was severely damaged by losing control over the situation in East Timor.
Although it were army units and civilian militias that committed the extreme violence, Habibie
was personally held responsible being acting president. Moreover, Habibie himself became
linked to a big corruption scandal involving Bank Bali. This bank received funds from the IBRA
for its recapitalization but -allegedly- almost half of these funds were used for Habibie's
campaign team.

Elections of 1999
After 1955 the Indonesian people were forced to wait for 44 years to witness another example of
free and fair parliamentary elections. In this election people voted for a political party, not for an
individual. Since there were no limitations on the establishment of political parties as part of the
reform program, Indonesia had witnessed the mushrooming of many such parties. No less than
48 parties were allowed to participate in the elections of 1999, although most of these parties
would play an insignificant role. In modern Indonesian politics a political party can be regarded

as a political vehicle for its leader instead of an institution that expresses a shared ideology or
vision; and only a few people could count on public support during the 1999 elections.
One of these people was Megawati Soekarnoputri, daughter of Indonesia's first president
Soekarno. She had established a new party PDI-P (Partai Demokrasi Indonesia Perjuangan) in
1998 after being outcasted from the PDI in 1996. Due to her father's legacy and her opposition to
the New Order towards the end of Suharto's rule, she enjoyed widespread popularity (especially
on the islands of Java and Bali). Similar to her father, she stressed national unity and propagated
secular nationalism. Another popular national figure was Abdurrahman Wahid who had founded
the PKB (Partai Kebangkitan Bangsa) in 1998. Previously, he worked as chairman of the biggest
Muslim organization in Indonesia, Nahdlatul Ulama (NU), but now set his eyes on the
presidency. Wahid propagated a sort of tolerant nationalism and could rely on popular support
from the traditional Muslim community (mostly on Java). Habibie, acting president, fostered
ambitions to maintain his position. Although not enjoying much popularity, he could rightfully
claim that he launched the reform program and could benefit from Golkar's powerful political
machine which stretched up to the village level. Lastly, Amien Rais, exponent of opposition
against Suharto's New Order, joined the race with his PAN (Partai Amanat Nasional).
An important matter during these elections was that seats in parliament would be divided in half.
The island of Java received half of the seats while the other half would go to all other islands.
This was done as a measure to lessen Java's dominant position in politics. But as Java is much
more densely populated than Outer Java, it basically implied that a non-Javanese vote was more
powerful than a Javanese one. This situation would have far reaching consequences for the
results in this election.
1999
PDI-P

34%

Golkar

22%

PKB

13%

PPP

11%

PAN

7%

Parliamentary Election
1999

Around 90 percent of the Indonesian electorate came to cast their vote on 7 June 1999. As could
be expected, the PDI-P received most of the votes (34 percent) with Golkar coming in second
(22 percent). However, these two parties were allocated almost a similar amount of seats in the
parliament as the PDI-P received most of the votes from Java, while Golkar enjoyed most votes
from the Outer Islands.
In October Habibie had to deliver an accountability speech in front of the parliament. This
speech was a report regarding his performance as president and the performance of policies
during his presidency. His speech was rejected by a majority of the members of parliament. After
this rejection Habibie decided to renounce his bid for the presidency in 1999. This meant that
there were now just two persons who enjoyed significant political support to become the next
president of Indonesia: Megawati and Wahid. In another session the Indonesian parliament
eventually chose Wahid as the new president. Megawati became the new vice president and Rais
was elected as chairman of the parliament.

The Abdurrahman Wahid Presidency (1999-2001)

In order to establish a broad based coalition Wahid appointed members from many political
parties as well as army officers as ministers to his cabinet. But this diverse composition also
implied a lack of cohesion within the cabinet and, moreover, it contained few reformers. Wahid
did put effort in reducing the political role of the army but this led to conflict and the subsequent
loss of support from the army. Without army support there were few means to survive for the
president as Indonesia was plagued by conflicts and violence in the regions. These regional
outbursts needed army intervention but due to the conflict with Wahid the army did not seem to
have any interest in settling or interfering, resulting in the undermining of Wahid's
presidency.
Corruption cases still seemed to be the rule rather than the exception. In his first year as
president, Wahid sacked seven ministers who were all involved in alleged corruption cases. Four
of these ministers belonged to the four most important coalition partners: PDI-P, Golkar, PPP
and PAN. This meant that Wahid became even more isolated. And - even more serious - Wahid
himself also became linked to two corruption scandals which eventually led to his impeachment.
These two scandals were called 'Buloggate' and 'Bruneigate', each involving the abstraction of
public funds. Indonesian parliament saw this as a great opportunity to impeach Wahid and
Megawati was subsequently appointed as the new president, while Hamzah Haz (leader of the
PPP) became the new vice president.

The Megawati Soekarnoputri Presidency (2001-2004)

Towards the end of Suharto's New Order rule, the late Soekarno (Indonesia's first president)
became a symbol of opposition to the government. Soekarno was the national hero who had
devoted his life to - and succeeded in - reaching independence. Most of the anti-Suharto
protesters were born during the New Order regime which lasted for more than three decades and

therefore probably had rudimentary knowledge only of the pre-Suharto era. But for them
Soekarno represented freedom, an independence from Suharto. Therefore it was only logical that
his daughter, Megawati, could count on much support among the people. But this support was
based on her status as daughter of Soekarno only and not based on her political vision nor skills.
Her cabinet did not differ markedly from Wahid's initial cabinet: it contained a broad
parliamentary basis and army officers were well represented. Megawati herself did not do a lot of
decision making, which she left to her ministers. There were no signs that corruption was dealt
with while the status quo in the government remained.
But although Megawati herself did not seem highly supportive of political reforms, the reform
process had in fact already been initiated in 1999 when parliament commenced designing new
laws (including constitutional amendments) which would become effective during Megawati's
presidency. These reform measures implied a significant increase in democratic checks and
balances which put an end to the possibility of an authoritarian regime. It placed power in the
hands of the people instead of the government. Moreover, the executive and legislative branches
were separated more strictly.
Megawati's predecessor made strong efforts to reduce the influence of the army (which actually
undermined his position) but Megawati herself had no intention to mingle with army affairs. As a
consequence the army would regain some influence in politics. International developments also
enlarged the role of the Indonesian army. After the 9/11 attacks on the Twin Towers in New
York, the American government resumed cooperation with the Indonesian army (which had been
halted since the army's participation in violence in East Timor in 1999) to combat international
terrorism. Although parliament had been careful in reducing the political role of the army, it was
the commander-in-chief of the army himself who stated that by 2004 army fractions in the
parliament should be eliminated; a military officer who wanted to become active in politics
would have to resign from his military position first. These reforms were realized but did not
mean an end to political influence of the army in Indonesian society. To this day the army is a
strong force as former generals who are active in politics can still rely on a network within the
army and, moreover, the army is still entangled in business activities in the regions.

Elections of 2004
Parliamentary election
In April 2004 approximately 84 percent of the Indonesian electorate (constituting around 113,5
million people) casted their vote for national parliament. Contrary to the election in 1999, this
time Indonesians could vote for specific candidates of a party which brought forward a more
personal element in the election. In this election the two biggest parties of the previous election,
to wit Golkar and PDI-P, lost their absolute majority. The PDI-P tumbled, as could be expected,
from 34 percent to 19 percent as the Indonesian people were not satisfied with Megawati's
presidential performance that seemed to lack vision and leadership while corruption within her
party was growing. Golkar, that had proved to be able to survive without the support of Suharto

and the army, maintained their share of the votes (22 percent), although they had expected to do
better.
But two newcomers, both not having participated in the 1999 elections, drew attention. The first
one being the Prosperous Justice Party (Partai Keadilan Sejahtera, abbreviated PKS), a party
which places great emphasis on the role of Islam in public life. It received seven percent of the
votes in the 2004 election. The second one being the Democratic Party (Partai Demokrat,
abbreviated PD). This party was the political vehicle of Susilo Bambang Yudhoyono (often
referred to as SBY), the Coordinating Minister of Political and Security Affairs in
Megawati's cabinet. Yudhoyono had hoped to become vice president in 2001 but lost out to
Hamzah Haz. Having high political aspirations of his own and the support of a small group of
intellectuals around him (who set up the PD especially for him), Yudhoyono seemed to be a
potential prospective president candidate for the 2004 elections. This bothered president
Megawati and caused a riff between the two. In early 2004 Yudhoyono left the Megawati
cabinet, a decision which gave him great public sympathy. The PD received just over seven
percent of the votes, enabling Yudhoyono to participate in the upcoming presidential elections of
2004 (a party needed a minimum of five percent to be authorized to nominate a candidate for the
presidency).
2004

1999

PDI-P

19%

34%

Golkar

22%

22%

PKB

11%

13%

PPP

8%

11%

PD

7%

PKS

7%

Parliamentary Election 2004

Presidential election
In July 2004 the Indonesian people went to the ballot boxes for the presidential elections. The
winner of this election would require an absolute majority, therefore it seemed likely that a
second round would be needed in which the top two of the first round compete each other. Due
to the fact that the president and vice president participate in this election as an inseparable

couple, its composition is of strategic importance. Yudhoyono (PD), leading in the speculative
polls, teamed up with Jusuf Kalla (a businessman from Eastern Indonesia). Megawati (PDI-P)
paired with Hasyim Muzadi (chairman of the Nahdlatul Ulama). Another pair that seemed to
have a chance, although slight, was Wiranto (a former army general, nominated by Golkar) who
was joined by Sallahudin Wahid (vice chairman of the National Human Rights Commission).
With 33.5 percent of the votes, less than expected, Yudhoyono and Kalla became the winners of
the first round. On second place, thus entitled to contest in the second round, was the MegawatiMuzadi pair who received 26.5 percent of the votes. As expected, the second round was easily
won by Yudhoyono with 60.5 percent and he was consequently inaugurated as Indonesia's new
president on 20 October 2004.
2004
(1st
round)

2004
(2nd
round)

Yudhoyono,
Kalla

33.5%

60.5%

Megawati,
Muzadi

26.5%

39.5%

Wiranto,
Wahid

22.0%

Rais,
Yudho
Husodo

14.5%

3.0%

Haz,
Gumelar

Presidential Election 2004

The Susilo Bambang Yudhoyono Government I (2004-2009)

The Democratic Party (PD) was primarily established to function as Yudhoyono's political
vehicle on his path towards the Indonesian presidency. It propagated democracy, pluralism and
the professionalization of the army (Yudhoyono himself being a retired army general). But
politics was not something new to Yudhoyono who was appointed chief of staff for social-

political affairs (an army department) in 1997. At this position he showed his reformist nature
when he presented the 'New Paradigm' which called for an end to direct military involvement in
politics (through a gradual withdrawal from the national and regional parliaments) and called for
a split between the army and police (this split was decided upon during Habibie's presidency and
became effective during the Wahid administration). Later, Yudhoyono became minister of Mines
and Energy during the Wahid presidency and coordinating minister for Legal, Political, and
Security Affairs during Megawati's presidency. In both cases a fallout with the president led to
his early departure. But he enjoyed popularity among the Indonesians due to his reformist ideas,
his successful mediating in a number of regional violent conflicts, and his clean record of
corruption (fighting corruption was in fact an important element in his campaigns prior to the
elections).
From the start expectations were very high. Yudhoyono, being regarded as a strong and balanced
character, took office with ambitious reformist ideals such as the toppling of corruption and
terrorism, the strengthening of democracy and human rights, and the fostering of accelerated
economic growth. Surely his ambitions were - realistically speaking - too high as Indonesia is a
difficult country to reform within a timespan of a few years. A slow and inefficient bureaucracy,
opposing forces throughout society and widespread corruption (especially on the regional level)
make it difficult to implement policies effectively. As promised during his campaign period,
around half of Yudhoyono's cabinet ministers consisted of non-partisan professionals, especially
on positions concerning the economy, in order to encourage professionalization.
Yudhoyono's presidency is also characterized by disasters causing some people to label him the
'disaster president'. Most famous natural disaster is the horrific tsunami in Aceh which killed
more than 200,000 people in Aceh in 2004. Other disasters were the earthquake in Bantul
(Central Java) in 2006 killing 6,000 people, the Sidoarjo mud flow ruining hundreds of hectares
in East Java as well as causing the evacuation of thousands of people, multiple floods in Jakarta
triggering the evacuation of about half a million people in 2007 and, lastly, the Merapi volcano
eruptions in 2010 which killed 353 people and caused the evacuating of 350,000 people.
A good achievement of the Yudhoyono administration is the fostering of strong macroeconomic
fundamentals: foreign debt has declined impressively, foreign exchange reserves have improved
and annual GDP growth has been satisfying. These strong fundamentals are what made
Indonesia successfully sail through the global crisis of 2008-2009.
Elections of 2009
Parliamentary election
The parliamentary elections for the DPR (Peoples Representative Council) and DPD (Regional
Representative Council), held on 9 April 2009, proved a clear victory for Yudhoyono's PD party
(20.8 percent), while Golkar came in second (14.4 percent) and the PDI-P third (14.0 percent).
Factors that contributed to this victory of the PD were massive cash programs to support the poor
and declining food and fuel prices which contributed to the notion that the national economy was

performing well. The public also considered Yudhoyono to be sincere in toppling corruption; the
PD was known as the least corrupted political party.
A party (or a coalition of parties) winning more than 112 seats (twenty percent) in the 560member DPR or winning at least 25 percent of the national vote was allowed to nominate a
candidate for the presidency. This put Yudhoyono in a strong position for the upcoming
presidential election. But controversy arose on the new parliamentary threshold which stipulated
that only parties receiving more than 2.5 percent of the popular vote would be seated in the DPR.
This was a big disadvantage for the smaller parties.
An interesting outcome in this election was an increasing preference for secular-nationalist
parties over Islamic or Islamist parties. The total of Islamic parties combined received 27.8
percent of the votes only, indicating a continuing declining trend compared to previous elections
(38.1 percent in 2004).
2009

2004

1999

PD

20.8%

7.5%

Golkar

14.5%

21.6%

22.4%

PDI-P

14.0%

18.5%

33.7%

PKS

7.9%

7.3%

1.4%

PAN

6.0%

6.4%

7.1%

Parliamentary Election 2009

Presidential election
There were three pairs that ran for presidency and vice presidency in the presidential election of
2009. First of all acting president Yudhoyono whose PD party had won the parliamentary
election and who was entitled for one more term as president. He chose Boediono as his running
mate for the vice presidency. Boediono, an economist, was not affiliated to any political party
and had been Governor of Bank Indonesia (the central bank) and coordinating minister for
Economic Affairs during Yudhoyono's first cabinet. The second pair that run for office consisted
of Golkar's Jusuf Kalla (Yudhoyono's former vice president) who partnered with former army
general Wiranto (who had been accused of human rights abuses in East Timor). And lastly,
Megawati joined the race again. This time she chose Prabowo as her running mate. Prabowo,

also a former army general was son-in-law to Suharto and is believed to have been responsible
for violence against anti-Suharto intellectuals and students, as well as against the ethnic Chinese
community in Jakarta, during the riots in 1998.
Without having to need a second round this time, Yudhoyono and Boediono won the presidential
election with an absolute majority (60.8 percent). The international community regarded this as
an important element for maintaining political stability in Indonesia. The Megawati-Prabowo
pair received 26.8 percent of the votes, while Kalla-Wiranto came in third with 12.1 percent.
2009
Yudhoyono,
Boediono

60.8%

Megawati,
Prabowo

26.8%

Kalla,
Wiranto

12.1%

Presidential Election
2009
The Susilo Bambang Yudhoyono Government II (2009-2014)
On 22 October 2009 the inauguration of the Second United Indonesia Cabinet took place. This
cabinet was a coalition between the PD, Golkar and the four Islamic parties PKS, PAN, PKB and
PPP. Besides appointing ministers from all these six parties, Yudhoyono also placed quite some
professionals (non-partisan figures) on key ministry posts such as the ministries of Home Affairs,
Foreign Affairs, Finance, Trade, National Education and Health. Only two former army generals
were appointed.
But despite strong macroeconomic indicators, popular support for Yudhoyono has begun to
erode. Yudhoyono did not meet expectations in toppling corruption, an important campaign
slogan of his party. High corruption cases involving government staff made frequent headlines.
More severely, the PD itself became deeply involved in corruption scandals when several of its
members, including party treasurer Muhammad Nazaruddin, were accused and trialled for
the 2011 Southeast Asian Games graft case in which - allegedly - bribes were paid connected to
the construction of the athletes village. These scandals severely harmed both Yudhoyono's and
his party's popularity.
According to many Indonesians the emergence of graft cases within the PD is a sign of
Yudhoyono's weak leadership. On other subjects Yudhoyono is regarded to act weak as well.

Many reform-minded Indonesians were disappointed when he did not back reformist Finance
minister Sri Mulyani Indrawati when she - together with vice president Boediono - were
criticized for mishandling a bank bailout case in 2008. Sri Mulyani moved to the World Bank
Group where she started working as a managing director. Most people assume, however, that her
early departure was connected to pressures from certain political forces with major business
interests as her reform policies had led to conflicts with these interests. Another supposed
weakness in Yudhoyono's leadership concerns his slow and unconvincing condemnation of
violent attacks on minority religions, such as the Ahmadiyya killings in February 2011 when an
Islamist mob killed members of the small local Ahmadiyya Islamic sect in the province of
Banten.
The future of the PD remains uncertain. Popular support is declining fast and as Yudhoyono is
not allowed to participate in the 2014 elections, a new candidate(s) for the party's leadership is
needed but is yet to be found.
GOVERNMENT
United Indonesia Cabinet II (2009-2014)
Susilo Bambang Yudhoyono's second United Indonesia Cabinet (2009-2014) consisted of 34
ministries and three ministerial-level officials. This cabinet constituted a broad-based coalition
between six political parties:
Democrat Party (PD)
Golkar
National Mandate Party (PAN)
United Development Party (PPP)
Prosperous Justice Party (PKS)
National Awakening Party (PKB)
Each of these parties delivered a number of ministers but approximately half of all ministers
were 'professionals' (technocrats) with an academic background, and who are not affiliated to
any political party. Technocrats usually enjoy more popular support in Indonesia as politicians
from political parties are often associated with political corruption.

United Indonesia Cabinet II

President

Susilo Bambang Yudhoyono

Vice President

Boediono

Ministries
Political, Legal and Security Affairs

Djoko Suyanto

Economy

Hatta Rajasa

Peoples Welfare

Agung Laksono

State Secretary

Sudi Silalahi

Home Affairs

Gamawan Fauzi

Foreign Affairs

Marty Natalegawa

Defense

Purnomo Yusgiantoro

Justice and Human Rights

Amir Syamsuddin

Finance

Chatib Basri

Energy and Mineral Resources

Jero Wacik

Industry

Muhammad Sulaeman
Hidayat

Trade

Gita Wirjawan

Agriculture

Suswono

Forestry

Zulkifli Hasan

Transportation

Evert Ernest Mangindaan

Fishery and Maritime

Syarif Cicip Sutarjo

Manpower and Transmigration

Muhaimin Iskandar

Public Works

Djoko Kirmanto

Health

Nafsiah Mboi

Education and Culture

Muhammad Nuh

Social Affairs

Salim Segaf Al-jufri

Religious Affairs

Agung Laksono

Tourism and Creative Economy

Mari Elka Pangestu

Communication and Information

Tifatul Sembiring

Research and Technology

Gusti Muhammad Hatta

Cooperatives and Small and Medium

Enterprises

Syarifuddin Hasan

Environment

Balthasar Kambuaya

Woman Empowerment and Children

Protection

Linda Amalia Sari Gumelar

State Administrative Reform

Azwar Abubakar

Development of Disadvantaged Regions

Ahmad Helmy Faishal

Zaini

National Development Planning

Armida Alisjahbana

State-Owned Enterprises

Dahlan Iskan

Public Housing

Djan Faridz

Youth and Sports Affairs

Roy Suryo

Non-Cabinet Key Positions

State Intelligence Agency (BIN)

Marciano Norman

National Investment Coordinating Board (BKPM)

Mahendra Siregar

Presidential Working Unit for Development,

Supervision and Oversight

Kuntoro
Mangkusubroto

Governor of Bank Indonesia

Agus Martowardojo

Chamber of Commerce & Industry

Suryo Bambang
Sulisto

Working Cabinet (2014-present)

After Joko Widodo had been inaugurated as Indonesia's seventh president on Monday 20
October 2014, his cabinet - consisting of 34 ministries - was sworn in on 27 October 2014. This
cabinet, which is expected to govern until 2019, is called the 'Working Cabinet' (Kabinet
Kerja in Indonesian).
Widodo (often referred to as Jokowi) is backed by the following coalition (a minority in
parliament):
Indonesian Democratic Party-Struggle (PDI-P)
National Awakening Party (PKB)
NasDem Party
People's Conscience Party (Hanura)
Cabinet of Indonesia (2014-2019)
President

Joko Widodo

Vice President

Jusuf Kalla

Ministries
Political, Legal and Security Affairs

Tedjo Edy Purdjianto

Economy

Sofyan Djalil

Human Development and Culture

Puan Maharani

State Secretary

Pratikno

Home Affairs

Tjahjo Kumolo

Foreign Affairs

Retno Lestari Priansari Marsudi

Defense

Ryamizard Ryacudu

Justice and Human Rights

Yasonna H. Laoly

Finance

Bambang Brodjonegoro

Energy and Mineral Resources

Sudirman Said

Industry

Saleh Husin

Trade

Rahmat Gobel

Agriculture

Amran Sulaiman

Forestry and Environment

Siti Nurbaya

Transportation

Ignatius Jonan

Fishery and Maritime

Susi Pudjiastuti

Manpower and Transmigration

Hanif Dhakiri

Maritime Affairs

Indroyono Soesilo

Health

Nila F. Moeloek

Education and Culture

Anies Baswedan

Social Affairs

Khofifah Indar Parawansa

Religious Affairs

Lukman Hakim Saifuddin

Tourism

Arief Yahya

Communication and Information

Rudiantara

Research and Technology

M. Nasir

Cooperatives and Small & Medium

Enterprises

Anak Agung Gede Ngurah

Puspayoga

Land & Spacial Planning

Ferry Mursyidan Baldan

Woman Empowerment & Children

Protection

Yohana S. Yambise

State Administrative Reform

Yuddy Chrisnandi

Development of Disadvantaged Regions

Marwan Jafar

National Development Planning

Andrinof Chaniago

State-Owned Enterprises

Rini M. Soemarno

Public Works & Housing

Basuki Hadimuljono

Youth and Sports Affairs

Imam Nahrawi

ECONOMY OF INDONESIA
Indonesia is a country that contains great economic potential; a potential that has not gone
unnoticed to part of the international community. Indonesia - Southeast Asia's largest economy is increasingly mentioned as an appropriate candidate to be included in the BRIC countries
(Brazil, Russia, India and China) as the country is rapidly showing signs of similar newly
advanced economic development. Recently, a new set of emerging economies has gained public
attention. Members of this set are countries that contain promising markets with diverse
economies, reasonably sophisticated financial systems and fast-growing populations. These
countries are grouped under the acronym CIVETS (Colombia, Indonesia, Vietnam, Egypt,
Turkey and South Africa), and its combined Gross Domestic Product is predicted to account for
half the global economy by 2020.
Another important example of international recognition regarding Indonesia's economy is the
recent upgrades in the country's credit ratings by international financial services companies such
as Standard & Poor's, Fitch Ratings and Moody's. Resilient economic growth, low government
debt and prudent fiscal management have been cited as reasons for the upgrades and are key in
attracting financial inflows into Indonesia: both portfolio flows and (significant increasing)
foreign direct investments (FDI). These FDI inflows, which had been relatively weak for
Indonesia during the decade after the Asian Financial Crisis had seriously shaken up the
foundations of the country, showed a steep increase after the global financial crisis of 2008-2009.
What are Indonesia's strong points that explain increasing foreign investments and the recent
macroeconomic growth?
Abundant and diverse natural resources
Young, large and burgeoning population
Political stability (relatively)
Prudent fiscal management since the late 1990s
Strategic location in relation to the giant economies of China and India
Low labour costs
Indonesia, a market economy in which the state-owned enterprises (SOE) and large private
business groups (conglomerates) play a significant role, thus shows a number of highly positive
features at the beginning of - what can become - a period of substantial economic development.
However, it should also be pointed out that Indonesia is a complex country that contains certain
risks for investments and experiences difficulties within the framework of its unique dynamics
and context. In order to be aware of the risks involved we advise you to read our Risks of
Investing in Indonesia section and to keep track of Indonesia's latest economic, political and
social developments through our News section, Business section and Finance section.
This Economics section provides an outline of the current state of the Indonesian economy and
discusses a number of important chapters in the economic history of Indonesia:
General Economic Outline of Indonesia

Indonesia, currently the 18th-largest economy in the world, is experiencing remarkable economic
growth. After the Asian Financial Crisis of the late 1990s halted a booming economy fostered by
the Suharto government, Indonesian macroeconomic indicators started to come back on track in
the mid 2000s. Although the Asian Financial Crisis had disastrous consequences (especially on
the poorer urban segments of society), important lessons have been learned too. The financial
system for example, which to a large extent lacked supervision and transparency, was replaced
by a system entailing more prudent fiscal policies in line with international economic standards,
thus fostering integration with global markets. Moreover, the Asian Financial Crisis has been the
catalyst for a process of political democratization and liberalization that continues up to the
present.
Prudent financial macroeconomic policy is one reason why Indonesia was resilient to the global
financial crisis of 2008-2009. Both public and private debt have fallen sharply (as a percentage
of GDP), international reserves have grown fast and inflation has been under control. In
combination with relative political stability and certain favorable demographic trends it provides
opportunities for strong economic performance over the medium term. Regarding the longer
term, the Indonesian government aims to be in the top six of largest global economies by the year
2030.
Another key element that accounts for Indonesia's recent economic growth is domestic
consumption. In line with rising per capita GDP and low borrowing costs, Indonesia's private
consumption is robust. It accounted for 56 percent of the country's economic activity in 2011 and
future projections indicate that it is to grow further.
Despite such positive conditions Indonesia remains a complex country from a business, social
and political perspective. We advise those that intend to invest in Indonesia to read our Risks of
Investing in Indonesiapage as one should be aware of matters that can negatively influence
Indonesia's investment climate.
The table below shows recent results and future forecasts of important macroeconomic
indicators.
Last Update: 10 August 2014

2009

2010

2011

2012

2013

2014

2015

Gross Domestic Product

(annual percent change)

4.6

6.1

6.5

6.2

5.8

5.2

5.6

Consumer Price Index

(annual percent change)

4.8

5.1

5.4

4.3

8.4

5.8

4.9

 Public Debt
(percent of GDP)

28.6

27.4

26.6

27.3

28.7

Exchange Rate
(IDR/USD)

10,389

9,074

8,773

9,419

11,563

11,800

11,800

Current Account Balance

(percent of GDP)

0.7

0.2

-2.8

-3.3

-2.9

-2.4

Export Goods and Services

(annual percent change)

14.9

13.6

2.0

5.6

5.7

Import Goods and Services

(annual percent change)

17.3

13.3

6.6

2.4

4.5

Population
(in millions)

241

244

247

250

253

Poverty
(percent of population)

14.2

13.3

12.5

11.7

11.5

11.3

Unemployment
(percent of work force)

7.9

7.1

6.6

6.1

6.3

5.7

Foreign Exchange Reserves

(in billion USD)

66.1

96.2

110.1

112.8

99.4

110.5

255

indicates a forecast
at end-July 2014

Sources: World Bank, Statistics Indonesia, Bank Indonesia and International Monetary
Fund (IMF)
Composition of Indonesia's Economy: the three main sectors
The table below indicates a remarkable development during the last five decades in the
percentage shares of the three main economic sectors (to wit agriculture, industry and services)
with regard to Indonesia's Gross Domestic Product (GDP). Indonesia changed from being an
economy that was highly dependent on agriculture into a more balanced economy in which the
percentage share of manufacturing in the country's GDP quickly exceeded that of the agriculture
sector. This also indicates that Indonesia lessened its traditional dependency on primary exports,

although it still remains relatively high today. It should also be underlined that all of these
sectors underwent rapid expansion, despite the fact that its contribution to Indonesia's GDP fell
(agriculture) or remained at a similar level throughout the indicated period (the services sector).
For a more detailed account please click on one of the sectors in the table below.
1965

1980

1996

2010

Agriculture
(percent of GDP)

51

24

16

15

Industry
(percent of GDP)

13

42

43

47

Services
(percent of GDP)

36

34

41

37

Source: World Bank

Indonesia's Economic Fact Sheet

Indonesia was an USD $850 billion economy in 2012
In 2012 private consumption accounted for about 55 percent of economic activity in Indonesia,
partly due to low borrowing costs and rising GDP per capita
Per Capita GDP rose from USD $780 in 2000 to USD $3,540 in 2011
Exports account for around 20 percent of GDP. China, Japan, USA and India are Indonesia's
largest export destinations
Around half of Indonesia's exports consist of commodities (in particular palm
oil, coal and rubber)
In 2012 Foreign Direct Investment (FDI) in Indonesia jumped around 26 percent (to USD
$29.5 billion) compared to 2011

 Mining accounted for around 12 percent of gross domestic product in 2011

Agricultural Sector of Indonesia

With its vast and abundant fertile soils Indonesia is a major global key producer of a wide variety
of agricultural tropical products, and although agriculture's share of the country's gross domestic
product (GDP)has declined markedly during the last five decades, it still provides income for the
majority of Indonesian households today. In 2012 this sector employed around 49 million
Indonesian individuals, which represents 41 percent of the total Indonesian labour force. But
although in absolute numbers the agricultural workforce keeps growing, its relative share of the
total Indonesian workforce has declined significantly from 55 percent in the 1980s to 45 percent
in the 1990s and currently to 41 percent. Only during the Asian Financial Crisis in the late 1990s
this share grew significantly because unemployment in both the industry and services sectors
was absorbed by the agriculture sector (mostly informally).
Between the mid-1960s and mid-1980s the percentage of Indonesian land area that was used for
agriculture stayed constant at around 21 percent of Indonesia's total land area. However, in the
mid-1980s this number rose to almost 25 percent until the late 1990s. Starting from 1998 another
upsurge (due to the establishment of large scale plantations - in particular palm oil) made this
number reach the current level of 30 percent.
Indonesia's agriculture sector is forecast to continue growing, albeit at a lower pace compared to
the industryand services sectors.

Agricultural growth
(annual percent change)

2010

2011

2012

2013

2014

2.9

3.0

4.0

3.4

2.4

indicates a forecast
Source: World Bank
The agricultural sector of Indonesia comprises large plantations (both state-owned and private)
and smallholder production modes. The large plantations tend to focus on commodities which
are important export products (palm oil and rubber), while the smallhold farmers focus on rice,
soybeans, corn, fruits and vegetables.
The most important agricultural products of Indonesia are:
Palm Oil
Rubber
Cocoa
Coffee

 Tea
Cassava
Rice
Tropical spices
This account includes Indonesia's national production and export (in global perspective), future
projections and profiles of Indonesian companies that are involved in the production and export
of the particular commodity.
The Indonesian government has placed self sufficiency in certain agricultural products high on
the agenda. In particular this applies to rice which by far is the main staple food for the majority
of the population; Indonesia has the highest per capita rice consumption in the world
(approximately 139 kilo per capita per year). However, the country is still dependent on imports
from Vietnam and Thailand to secure the domestic rice supply. Other food crops that have
become target of self sufficiency programs are soy beans, corn and sugar. Government sponsored
programs are currently being executed and 2014-2015 have been mentioned as the years in
which self sufficiency in these food items should be reached. However, it remains doubtful
whether these programs can really make significant progress. Since 2007 the government has
also started revitalization programs for smallholding farmers in order to raise production.
Industrial Sector of Indonesia
The industrial sector is the sector that currently contributes most to Indonesia's annual GDP
growth. The two most important sub-sectors of industry are mining and manufacturing, both
being major pillars of the nation's economy since the 1970s, thus being engines of economic
change and development during Suharto's New Order regime. Although the manufacturing subsector has lost its momentum after the Asian Crisis of the late 1990s, it still constitutes the most
popular sub-sector of Indonesia in terms of foreign direct investment (FDI), followed by the
mining sub-sector.

Industrial growth
(annual percent change)

2010

2011

2012

2013

2014

4.7

5.3

5.2

4.3

4.1

indicates a forecast
Source: World Bank
Throughout the first decade after the Asian Crisis, the industry sector underwent a period of
recession in which foreign investors lacked appetite to invest. After 2008, however, foreign
companies and investors have regained confidence in this sector due to robust domestic demand
brought on by a growing middle-class, low wages and the promising perspectives of the mining

sub-sector (discussed in more detail below). One indicator that shows investors' appetite for
Indonesia's industry sector is the significant rise in hectares of industrial land that was taken up
in the Greater Jakarta area from 2010 onwards.
Indonesia's main mining and manufacturing products are:
Coal

Footwear

Oil

Textile Products

Gold

Paper Products

Automobiles

Furniture

Electronics
However, there is plenty of room for improvement to make this industry sector more efficient
and attractive. An important matter is the need for improvement in Indonesia's infrastructure to
make
industries
more
productive
and
cost-efficient.
Moreover,
complicated bureaucracy, corruption and legal uncertainty jeopardize investors' confidence in the
Indonesian market.
Recent free trade agreements (such as the China ASEAN free trade agreement in 2010) are
regarded by some economists as having a negative impact on Indonesia's industrial sector as
Indonesian products are unable to compete with Chinese ones, resulting in a massive influx of
cheaper Chinese products onto the Indonesian market and thus disrupting local Indonesian
economies. It will be important for the Indonesian industry sector to become both more effective
and efficient in the production process as well as logistics (which includes more investments
in infrastructure as mentioned above).
Mining in Indonesia
Although mining has always been an important sub-sector of industry in Indonesia, it gained
renewed attention - both nationally and internationally - in the mid- and late 2000s when
commodity prices rose significantly and when the country had more-or-less recovered from the
Asian Crisis. Indonesia is currently a major producer of coal, copper, gold, tin and nickel. The
country remains the leading global exporter of thermal coal. But apart from coal mining,
investments in the mining sector have been limited in recent years mainly due to regulatory
uncertainty which hurts the investment climate. In January 2009 a new law "Mining Law No. 4
2009" came into force with the aim of providing a conducive mining investment climate which is

more environmentally friendly, foresees a larger role for domestic stakeholders and aims for
more value-added processing within the country. As it also led to an increase in exports of raw
minerals the government is making legal incentives to stimulate value-added processing
industries, including a possible ban on the export of raw minerals from 2014 onwards.
The mining industry provides substantial export earnings, employment opportunities and other
economic activities. In 2011 the mining sector contributed around 12 percent to Indonesia's
GDP.
Services Sector of Indonesia
The services sector has shown rapid expansion in 2010-2011, contributing about two thirds of
total economic growth.

Services growth
(annual percent change)

2010

2011

2012

2013

2014

8.4

8.5

7.7

7.3

7.0

indicates a forecast
Source: World Bank

New Order Miracle of Suharto's Indonesia

Around the mid-1960s Indonesia's economic situation had reached an alarmingly bad condition.
The economy suffered from the chaotic political course set out by president Soekarno,
Indonesia's first president. Economic matters took a back seat for Soekarno who had spent a
lifetime fighting in the political arena. Some examples of his policies that negatively affected the
economy were the cutting off of links with the West (thus isolating Indonesia from the world
economy and barring the country from receiving much needed foreign aid money) and deficit
spending through the printing of money, resulting in an out-of-hand hyperinflation. But after
Suharto took over from Soekarno in the mid-1960s economic policies underwent a radical
change of course.
Indonesia's economic development during Suharto's New Order government can be divided into
three periods, each characterized by specific policies aimed at specific economic contexts. These
periods are:
Economic recovery (1966-1973)
Rapid economic growth and increasing government intervention (1974-1982)
Export-led growth and deregulation (1983-1996)

Economic Recovery (1966-1973)

The essential mission of Suharto's New Order government was economic development; the first
step being the reintegration of Indonesia back into the world economy by rejoining the
International Monetary Fund (IMF), the United Nations (UN) and the World Bank in the second
half of the 1960s. This started up the flow of badly needed financial assistance and foreign aid
from the Western countries and Japan into Indonesia. Hostilities with Malaysia (Soekarno's
confrontation politics) were stopped as well. The second step was curtailing the hyperinflation.
Suharto turned to a group of economic technocrats (most of whom were educated in the USA) to
come up with a plan for economic recovery. In the late 1960s price stability had been established
through a policy which prohibited domestic financing in the form of domestic debt or money
creation. Subsequently a free market mechanism was restored by decontrol measures, followed
by the implementation of the Foreign Investment Law (1967) and Domestic Investment Law
(1968). These laws contained attractive incentives for investors to invest in the country resulting
in double-digit economic growth in 1968.
Rapid Economic Growth and Increasing Government Intervention (1974-1982)
Until 1982 rapid annual economic growth of at least five percent was maintained. Not
unimportant, Indonesia benefited significantly from two oil booms that emerged in the 1970s.
The first one began in 1973/1974 when the Organization of Petroleum-Exporting Countries
(OPEC), of which Indonesia was a member, cut its exports drastically, causing a major rise in oil
prices. The second oil boom took place in 1978/1979 when the Iranian revolution disrupted oil
production causing another massive price increase. Due to these oil booms the New Order's
export earnings as well as government revenues rose steeply. This enabled the public sector to
play a greater role in the economy by undertaking substantial public investments in regional
development, social development, infrastructure and through the establishment of large-scale
(basic) industries, among which were the import-substitution industries. Capital goods and raw
materials could be imported due to increased foreign exchange earnings, giving rise to a
developing manufacturing sector. However, major riots broke out during a visit of Japan's prime
minister in 1974 because of the perceived over-presence of foreign investment projects in the
country. Indonesians were frustrated that the indigenous people seemed to be excluded from the
fruits of the economy. The government was shocked because of this violent event (that became
known as the Malari affair) and introduced more restrictive measures on foreign investment and
replacing it with preferential policies favouring the indigenous businessmen. Increased
government revenue brought on by the first oil boom meant that the government was no longer
dependent on foreign investments, therefore an interventionist approach could be started.
Export-Led Growth and Deregulation (1983-1996)
In the early 1980s the price of oil began to fall again and currency realignments in 1985
aggravated Indonesia's foreign debt. The government had to take new measures to restore
macroeconomic stability. The rupiah was devalued in 1983 to ease the rising current account
deficit, a new tax law was introduced to increase revenue from non-oil taxes and bank
deregulation measures were taken (credit ceilings on interest rates were lifted and banks were
allowed to set these rates freely). Moreover, the economy had to be redirected from an economy

dependent on oil to an economy containing a competitive private sector oriented towards export
markets. This implied new deregulation measures to improve the investment climate for private
investors. When the oil price fell again in the mid-1980s, the government increased measures to
accompany export-led growth (such as the exemption of import duties and another devaluation
of the rupiah). These policy changes (in combination with deregulation packages in the 1990s)
also affected foreign investments in Indonesia. Especially export-oriented foreign investments
were welcomed.
Another sector that was affected by far-reaching deregulation measures was the Indonesian
financial sector. New private banks were allowed to be established, existing banks could open up
branches across the country and foreign banks were free to operate outside Jakarta. These
financial reforms would later turn out to be a problem that intensified the crisis in Indonesia in
the late 1990s. But in the meantime, however, these rigorous measures had a positive impact on
Indonesia's economy. Manufactured exports began to become the engine of the Indonesian
economy. Between 1988 and 1991 Indonesia's Gross Domestic Product grew by an average of
nine percent per year, slowing down to an average of 'just' 7.3 percent during the period of 1991
to 1994 and rising again in the following two years.
Problems at the Horizon
The text above paints a rather positive picture of the economy during the New Order. Indeed the
economy grew rapidly and with it came improvements in its social development (although at a
slower pace). In particular the reduction in absolute poverty was a remarkable achievement of
the government. In the mid-1960s over half of the Indonesian population lived below the poverty
line but by 1996 this number had been reduced to 11 percent of the total Indonesian population.
However, the style of rule of the New Order government entailed a couple of dangerous
consequences that would come to a climax during the Asian Financial Crisis in the late 1990s.
First of all the essence of the New Order's government's nature. It was a military-backed
authoritarian regime that did not respect human rights. During its course for over three decades
the government seemed to become more and more out of tune with its citizens. Politics and
economics were basically taken away from the public and kept within a small elite around
Suharto. But as Indonesians became more educated due to increasing social developments, its
educated circles naturally wanted to let their voices heard and participate in politics as well as the
economy. Suharto, however, was not in favour of this and reacted by placing more restrictions on
Indonesian society (for example the confinement of student demonstrations to university
campuses only). This political standstill caused a lot of frustration in a large part of Indonesia's
population.
Secondly - and related to the previous paragraph - the New Order was based on a system of
nepotism and corruption in which a small group around Suharto benefited tremendously from the
economic fruits of the country. This group consisted mainly of ethnic Chinese business partners
(fueling ethnic sentiments) and was later joined by Suharto's children. Promises of openness and
transparency of government policy were never complied with. Moreover, corruption prevents an
economy from functioning effectively. This would be exposed during the Asian Crisis that
emerged in 1997.

Thirdly - again related to the previous paragraphs - the financial system had begun to run out of
control after the deregulation measures in the banking sector in the late 1980s. With little
restrictions to open banks and branches it became more and more difficult to monitor the money
flows within the Indonesian banking system. A serious lack of financial data, a weak regulatory
and legal framework and illegal money flows all contributed to the fact that Indonesia would be
hit hardest during the Asian Financial Crisis.

Asian Financial Crisis in Indonesia

The Asian Financial Crisis started on 2 July 1997 when the Thai government, burdened with a
huge foreign debt, decided to float its baht after currency speculators had been attacking the
country's foreign exchange reserves. This monetary shift was aimed at stimulating export
revenues but proved to be in vain. It soon led to a contagion effect in other Asian countries as
foreign investors - who had been pouring money into the 'Asian Economic Miracle countries'
since a decade prior to 1997 - lost confidence in Asian markets and dumped Asian currencies and
assets as quickly as possible.

The Indonesian Crisis Begins

Although the Asian region showed worrying signs, foreign investors initially kept confidence in
theIndonesian technocrats' ability to weather the financial storm (as they had done before in the
1970s and 1980s). But this time, however, Indonesia would not get off scot-free. It became the
hardest-hit country because the crisis not only had economic but also significant and far-reaching
political and social implications.
When pressures on the Indonesian rupiah became too strong, the currency was set to float freely
starting from August 1997. Soon it began depreciating significantly. By 1 January 1998, the
rupiah's nominal value was only 30 percent of what it had been in June 1997. In the years prior
to 1997 many private Indonesian companies had obtained unhedged, short-term offshore loans in
dollars, and this enormous private-sector debt turned out to be a time bomb waiting to explode.
The continuing depreciation of the rupiah only worsened the situation drastically. Indonesian
companies rushed to buy dollars, thus putting more downward pressure on the rupiah and
exacerbating the companies' debt situation. It was certain that Indonesian companies (including
banks; some of which were known to be very weak) would suffer huge losses. New foreign
exchange supplies were scarce as new loans for Indonesian companies were not granted by
foreign creditors. As the government of Indonesia was unable to cope with this crisis it decided
to seek financial assistance from the International Monetary Fund (IMF) in October 1997.

The IMF Arrives and Chaos Continues

The IMF arrived in Indonesia with a bailout package totaling USD $43 billion to restore market
confidence in the Indonesian rupiah. In return it demanded some fundamental financial reform
measures: the closure of 16 privately-owned banks, the winding down of food and energy

subsidies, and it advised the Indonesian Central Bank (Bank Indonesia) to raise interest rates. But
this reform package turned out to be a failure. The closure of the 16 banks (some controlled
by Suharto's cronies) triggered a run on other banks. Billions of rupiah were withdrawn from
saving accounts, restricting the banks' ability to lend and forcing the Central Bank to provide
large credits to the remaining banks to avert a complete banking crisis. Moreover, the IMF did
not try to curb Suharto's system of patronage that was damaging the country's economy and
undermining the IMF accord. This patronage system was Suharto's tool to maintain power; in
exchange for political and financial support, he gave powerful positions to his family, friends and
enemies (thus becoming cronies). Other developments that were negatively impacting on
Indonesia towards the end of 1997 were a serious El-Nino drought (causing forest fires and bad
harvests) and increased speculation about Suharto's deteriorating health (causing political
uncertainties). Gradually, Indonesia was heading towards a political crisis.
A second agreement with the IMF was needed as the economy was continuing its downward
spiral. In January 1998 the rupiah lost half of its value within the time-span of five days only,
causing Indonesians to hoard food. This second IMF agreement contained a detailed 50-point
reform program, including provisions for a social safety net, a gradual phasing out of certain
public subsidies and the tackling of Suharto's patronage system by ending monopolies of a
number of his cronies. However, reluctance of Suharto to implement this structural reform
program faithfully, meant that the situation did not improve. Critics of the IMF, however, point
out that the institution pushed for too much reform within too little time, thereby worsening the
Indonesian economy. The IMF indeed made errors in its initial approach to the Indonesian crisis
but it did come to realize that the key in overcoming this crisis was to restart private capital flows
to Indonesia. In order for this to happen the patronage system had to be broken down.

Indonesian GDP and Inflation 1996-1998:

1996

1997

1998

GDP growth
(annual percent change)

8.0

4.7

-13.6

Inflation growth
(annual percent change)

6.5

11.6

65.0

Source: Hill, H. (2000). The Indonesian Economy, p. 264

A third agreement with the IMF was signed in April 1998. The Indonesian economy and social
indicators were still showing worrying signs. But this time, however, the IMF was more flexible
in its demands than on previous occasions. For instance, large food subsidies for low-income
households were granted and the budget deficit was allowed to widen. But the IMF also called
for the privatization of state-owned companies, faster action on bank restructuring, a new

bankruptcy law and a new court to handle bankruptcy cases. It also insisted on a closer
monitoring of its implementation as recent experiences had shown that the Indonesian
government was not fully committed to the reform agenda.

The Crisis Hits its Climax

In the meantime, major social forces were at work as well. Demonstrations and criticism directed
towards the government of Suharto intensified severely after he was re-elected and formed a new
cabinet in March 1998. This provocative new cabinet contained a number of members from his
crony-group and therefore did little to restore confidence in the Indonesian market. After the
government decided to reduce the subsidies on fuel in early May, large-scale riots broke out in
Medan, Jakarta and Solo. Although the IMF had given Suharto time until October to reduce
these subsidies gradually, he decided to do it all at once, probably underestimating its impact or
overestimating his own position. The tense atmosphere came to a climax when four Indonesian
students were killed during a protest at a local university in Jakarta. It is suspected that an army
unit of the special forces was behind these shootings ('Trisakti shootings'). The next couple of
days Jakarta was plagued by the worst riots ever. As had happened before, the ethnic Chinese disliked for their assumed wealth - were often target during these violent riots. Chinese stores
and houses were burned to the ground and Chinese women brutally raped. When the riots calmed
down, over one thousand people had lost their lives and thousands of buildings were destroyed.
On 14 May 1998 Suharto stepped down from the presidency when all politicians refused to join a
new reorganized cabinet. The financial crisis had fully grown into a social and political one.

A New Political System and the Start of Recovery

Bacharuddin Jusuf Habibie, vice-president in Suharto's last cabinet and thus - by law - replacing
Suharto as Indonesia's next president, turned to the economic technocrats to deal with the
ongoing financial crisis. This resulted in a fourth agreement with the IMF. It was signed in June
1998 and allowed the budget deficit to widen further while new funds were pumped into the
economy. Within the timespan of a couple of months there were some signs of recovery. The
rupiah began to strengthen from mid-June 1998 (when it had fallen to 16,000 rupiah per dollar)
to 8,000 rupiah per dollar in October 1998, inflation eased drastically, the Jakarta stock exchange
started to rise and non-oil exports started to revive towards the end of the year. The banking
sector (center of the crisis) remained fragile as the number of non-performing loans were high
and banks were very hesitant to loan money. Moreover, the banking sector had caused a sharp
increase in government debt as this debt was primarily due to the issuance of bank restructuring
bonds. But, albeit fragile, the country's economy improved gradually through 1999, partly due to
an improving international environment which caused a rise in export revenues.
Lessons Learned from the Asian Financial Crisis
It is interesting to question what chances are of such a crisis occurring again in Indonesia in the
foreseeable future. Most likely chances are small. First of all it needs to be stressed that the

Asian Financial Crisis hit Indonesia hardest of all involved countries because it was not just an
economic crisis. It started out as an economic crisis but became severely aggravated because it
was accompanied by a deep political and social crisis in which the government was not willing to
implement much needed economic reforms but instead was trying to cling on to their hold of
power. As an orderly and conducive political climate is of vital importance for investor
confidence, the uncertainties and tensions in Indonesian politics made many investors turn their
back to the country. Also after Suharto's fall, political uncertainties put off many investors
(foreign and domestic) to (re)enter the Indonesian market. Today, however, Indonesia is well on
its way towards full democracy, albeit its a process that is accompanied by growing pains.
Decades of authoritarian rule have depoliticized the people and political institutions to a
considerable extent. It will take time before the country can leave behind the rank of 'flawed
democracy' as measured by Economist Intelligence Unit for its Democracy Index. But fair and
free elections make sure that there has been more popular support for the governments during the
Reformation period than ever before. The decision to have the president directly elected by the
people is an important one, psychologically. Nonetheless, it should be underlined that the
Indonesian political climate is more volatile than long-established democracies due to many
dissenting forces looking to establish their position in the young democracy. For a detailed
account on this topic please visit our Reformation section.
Another important factor that seriously aggravated the financial crisis in Indonesia was the
terrible state of the Indonesian financial sector. This was caused by a culture of patronage
and corruption which lacked a decent supervision model. Even the Central Bank had no idea
about the flows of money (and resulting huge short-term private debt) which entered Indonesia
and caused a 'bubble economy'. The culture of patronage and corruption (and lack of legal
certainty) seriously hampered the functioning of an efficient economy and was a time bomb
waiting to explode. Since the end of the crisis, however, Indonesian governments have made
prudent financial measures to make sure a similar crisis cannot happen. Supervision on liquidity
of the banking sector is strict and transparent, 'hot money' is more carefully handled (for example
by halting short-term debts), and the government's debt-to-GDP is lower (around 25 percent and
showing a decreasing trend) than most economic advanced countries. When the 2008 crisis hit,
Indonesia saw a large outflow of money again but was able to guarantee a stable economy due to
good economic fundamentals. Even during this 2008-2009 crisis Indonesia showed robust
growth with 4.6 percent GDP growth, mainly due to domestic consumption.
Graft scandals, however, still fill the pages of Indonesian newspapers almost on a daily basis.
Corruption and the clustering of capital in a small elite are still serious problems in the country
and hamper the economy from being efficient and righteous. In particular political corruption is
widespread and often used for benefit in the nation's business sector.

RISKS OF INVESTING IN INDONESIA

Investing always encompasses risks. Generally speaking: the higher the risks are, the higher the
yields can become. In recent years Indonesia has shown the world that investing in this country
can be highly lucrative business (such as investing in its stock market, real estate or
commodities). But investing in Indonesia also entails more risks than investing in a developed
country because Indonesia contains a number of country-specific dynamics and characteristics
that can frustrate investments and harm the investment climate.
Demonstrations, one feature of an open democratic society, take place almost on a daily basis in
Indonesia, albeit usually small-scale. Matters that are protested against range from political
issues (such as perceived weak government performance) and economic issues (such as low
wages) to social issues (such as religious matters). These demonstrations are directed - vertically
- towards the government or - horizontally - towards other groups in Indonesian society. The
important point here is that these demonstrations indicate that part of the people is not satisfied
with the current state of the country. Indonesian history has shown that in some extreme cases
(such as the ouster of Suharto in 1998) pressure from the people has succeeded in toppling the
political power which consequently had disastrous effects on the economy. Although it is highly
unlikely that such extreme events re-emerge (because of the current different political context),
one should be aware that there is repressed frustration in part of Indonesian society.
Solid preparation and thorough information-collection are key ingredients for investing in any
country. Below present a list with potential risks or issues that (can) disturb the investment
climate in Indonesia.
1. Corruption in Indonesia
The abbreviation 'KKN' is a familiar one to Indonesians. Whenever there are anti-government
protests thisabbreviation can be heard shouted by the protesters or seen written on banners.
The abbreviation stands for corruption (korupsi), collusion (kolusi) and nepotism (nepotisme)
and - much to the dismay of the majority of the Indonesian population - has been an intrinsic part
of Indonesian governments, probably culminating during president Suharto's New Order
regime (1965-1998). The issue of political corruption in Indonesia continues to make daily
headlines in the Indonesian media and generates much heated debate and fierce discussion. In
academic circles scholars have continuously searched for answers to the question whether this
corruption has its roots in traditional precolonial societies, the Dutch colonial era, the relatively
short Japanese occupation (1942-1945) or the subsequent independent Indonesian governments.
However, an unequivocal answer is yet to be found. For the foreseeable future it just has to be
accepted that corruption in Indonesia's political, judicial and corporate domains s (although
there are some signs - which are discussed below - that point towards an improvement of the
situation).

Historical Framework of corruption in Indonesia

Although there are great examples of corruption in Indonesia's earlier history, we take as our
starting point president Suharto's authoritarian New Order regime (1965-1998) that was
characterized by impressive rapid and sustained economic growth (with Gross National Product
averaging 6.7 percent annually between 1965 and 1996) but also well-known for its corrupt
nature. Suharto utilized a system of patronage to ensure loyalty of his subordinates, leading
members of the national elite and critics. In exchange for business opportunities or political
positions Suharto could count on their support. With the Armed Forces (including its intelligence
apparatus) and huge resources (stemming from the oil booms in the 1970s) at his disposal, he
became the apex of the national political and economic system, resembling the patrimonial
power of traditional rulers in the pre-colonial past.
Regarding economic policy-making Suharto relied on the advice and support from a narrow
group of confidants around him. This group consisted of three categories: USA-trained
technocrats, economic nationalist (who supported the idea of a large role for the government in
the economy) and capitalist cronies (consisting of his family members and some rich ethnic
Chinese conglomerates). At times all these categories were accused of being corrupt but most
emphasis went to the small circle of capitalist cronies (particularly Suharto's children) who were
- much to the dislike of national businesses and society at large - the major beneficiaries of state
privatization schemes and often ran large business monopolies that operated with little oversight
or monitoring.
One important characteristic of corruption during Suharto's New Order was that is was rather
centralized and predictable. Investors and businessmen could more-or-less predict the amount of
money they had to put aside for these 'extra' costs and knew which people they were expected to
bribe. But there was also the tactic of including a Suharto crony in business activities in order to
reduce uncertainties caused by bureaucratic red tape. This same pattern existed on a local level
where governors and local army commanders enjoyed the same privileges but were always
aware of repercussions from higher up if they would push it too far. With the new era
of Reformasi, that started after the fall of Suharto in 1998, this situation was about to change.
Decentralization of Indonesian Corruption
The situation changed drastically when after the fall of Suharto in 1998 an ambitious regional
decentralization program was started in 2001 which foresaw the transfer of administrative
autonomy away from Jakarta to the districts (not to the provinces). This new course was in line
with demand of the people but had negative side effects on the distributional pattern of
corruption. Bribe-taking was no longer 'coordinated' as it had been in the past but became
fragmented and unclear. Decentralization meant that local governments started to produce new
local regulations (often not tightly designed) which made it possible for more officials from
multiple levels of the government and other agencies to mingle and request for financial extras.
Realizing the urgent need to tackle corruption (as it harms investments and generally fosters the
existence of continued injustice in society), a new government agency was established in 2003.

This government agency, the Corruption Eradication Commission (Komisi Pemberantasan

Korupsi, abbreviated KPK), is envisaged to free Indonesia from corruption by investigating and
prosecuting cases of corruption as well as monitoring the governance of the state (for which it
received extensive powers). However, opinions regarding its achievements are divided. Critics
point out that the KPK is more focused on tackling lower profile figures, although recently some
high profile cases such as high-ranked police officials, judges and the party treasurer of president
Susilo Bambang Yudhoyono's Democratic Party have been covered. This partial success and
courage of the KPK has triggered counteracts - mostly from persons that have been prosecuted or
interrogated - claiming that the KPK itself is a corrupt agency. In recent years a number of
scandals have emerged in which members of the KPK were - reputedly - framed by senior police
officers and arrested in order to undermine the KPK's authority.
During the past two elections president Yudhoyono has profiled himself as being devoted and
determined to tackle corruption in Indonesia, in particular regarding corruption within
government circles. This made him very popular around the time of the elections of 2009.
However, the ongoing persistence of political corruption and several high-profile graft cases
within the government have caused his approval ratings to free fall after 2010. Another blow to
Yudhoyono's prestige was the departure of Sri Mulyani Indrawati, Indonesia's Finance Minister
from 2005 to 2010. Sri Mulyani, who enjoys a reputation of integrity (although slightly sullied
by the Bank Century scandal), was tasked to reform Indonesia's corrupt tax and customs office.
She had considerable success and could count on the support of many Indonesians. But her
performance also created enemies. In May 2010 she left Indonesian politics to become a
managing director at the World Bank Group. Widespread speculation, however, was that her
resignation was due to political pressure from businesses with high political connections. In
particular, the Bakrie Group was often mentioned in Indonesian media in connection herewith
(Aburizal Bakrie being chairman of the Golkar party; a coalition member of Yudhoyono's
government). Critics say that Yudhoyono should have supported her.
Moreover, several corruption cases - involving members of Yudhoyono's party - have emerged
in recent years and have seriously damaged the allure of both his Democratic Party and
Yudhoyono himself (who is regarded by some as being a weak leader because of the emergence
of these corruption scandals in his party).

Positive Developments in Indonesia's Fight against Corruption

Despite this mostly negative overview, there are some positive signs. First of all it needs to be
mentioned that there is a big urge from the Indonesian people to eradicate corruption in
Indonesia and the free media provide ample room to deliver their voices on a national scale
(although some media institutions - owned by politicians or businessmen - have their own
agenda for doing this). But the popular urge to tackle corruption means that being anti-corrupt is
actually an important vote-gainer for aspiring politicians. Being involved or mentioned in a graft
case can seriously damage a career as popular support declines. A negative side effect (for the
country's economy) of this public scrutiny is that government officials are currently very prudent
and hesitant to disburse their government budget allocation, being afraid to become a victim in a

graft scandal. This careful behaviour can be called the success of the influence of the KPK that is
watching the money flow, but also causes slow government spending.
Berlin based politically non-partisan Transparency International publishes an annual Corruption
Perceptions Index (based on polls) which assesses "the degree to which corruption is perceived
to exist among public officials and politicians" in all countries around the world. It uses a scale
from one up to ten. The higher the outcome, the less (perceived) corruption there is. In their
latest list (2013) Indonesia occupied the 114th place (out of a total of 177 countries). However, it
needs to be stressed that there is not a 100 percent accurate method to measure corruption
because of the nature of corruption (often hidden to the public). The numbers below, therefore,
only show the perceived degree of corruption by the participating voters in the poll of that
particular country. But because a population usually has a good sense of what is happening in the
country, these numbers do indicate something interesting.

Corruption Perceptions Index 2013:

1.

Denmark

9.1

New Zealand

9.1

Finland

8.9

4.

Sweden

8.9

5.

Norway

8.6

Singapore

8.6

114.

Indonesia

3.2

Source: Transparency International

These numbers indicate that - in accordance with the text above - there is a rather negative public
view of the degree of political corruption in Indonesia. However, when we take previous results
in account the index shows a more positive trend:
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Indonesia

2.0

2.2

2.4

2.3

2.6

2.8

2.8

3.0

3.2

3.2

Source: Transparency International

Indonesia is actually one of the few countries in the Corruption Perceptions Index that shows a
steady and marked improvement, coinciding with the Yudhoyono administration which started in
2004. But it needs to be stressed that - although representing an actual development - these
numbers should be handled carefully as the methodology used in the polls changes from year to
year.
Regarding corruption there is still a long reform road ahead for Indonesia. Corruption hinders the
country from realizing its economic potential and causes significant injustice in Indonesia's
society as some people are disproportionally benefiting from a corrupt society. But credit have to
be given to Indonesia's free media and the KPK as both play a vital role in the reduction of
corruption.
2. Infrastructure in Indonesia
One particular subject of the Indonesian economy that has been hampering Indonesia's economic
and social development is the lack of quality and quantity of its infrastructure. Whether it is
'hard' infrastructure (such as roads, airports and electricity supply) or 'soft' infrastructure (such as
social welfare and health care) Indonesia seems to have a hard time pushing for efficient
development. In the most recent edition of the World Economic Forum global competitiveness
index (GCI, 2013-2014), Indonesia ranks 61st out of 148 economies with regard to the state of
the country's infrastructure. Expansion of Indonesia's infrastructure has not been able to keep up
with robust macroeconomic expansion since recovery from the Asian Financial Crisis in the late
1990s and as a consequence its economic growth cannot yet reach its full potential. It is
estimated that when Indonesia would possess over adequate infrastructure its gross domestic
product (GDP) could grow between seven and nine percent annually, instead of the current rate
of 6.0 - 6.5 percent.
How is Infrastructure Hampering Indonesia's Economic Development?
Lack of adequate infrastructure causes Indonesia's logistics costs to rise steeply, thus reducing
the country's competitiveness and attractiveness of the investment climate. According to data
published by the Indonesian Chamber of Commerce and Industry (Kadin Indonesia) around 17
percent of a company's total expenditure in Indonesia is absorbed by logistics costs. In peer
regional economies this number lies below ten percent. In particular transport costs are high; for
land as well as sea. Despite Indonesia's archipelagic geography, the country's sea transport is yet
to be developed substantially. Currently, sea transport is even more expensive compared to land
transport. The weak circumstances for fostering a conducive inter- and intra-island trading
network result in inflationary pressures on domestic produced products. This partly explains the
paradoxical situation that sometimes domestic produced fruit is more expensive compared to
imported fruit. It also leads to substantial regional price differences. Rice or cement, for example,

are much more expensive in eastern Indonesia than in Java or Sumatra due to extra costs that
arise from point of production to end user. It also means that Indonesian entrepreneurs are losing
out on lucrative opportunities as logistic problems (which includes transport, warehousing, cargo
consolidation, border clearance, distribution and payment systems) kills or prevents certain
businesses from expanding. One might assume that Indonesia - being the world's largest
archipelago and, as such, having large quantities of waters as well as seas at its disposal contains a flourishing seafood business. However, it is far from flourishing, largely due to a lack
of cold storage transport. This same matter is hampering Indonesia's horticulture businesses.
Indonesia is often plagued by blackouts because of shortages in the country's electricity supply.
Despite the abundance of energy resources, Indonesia has a structural problem regarding the
public energy supply. Part of the problem is that state-owned electricity distributor Perusahaan
Listrik Negara (PLN), which has a monopoly on electricity distribution in Indonesia, is heavily
dependent on government subsidies as the cost of production is higher compared to the fixed
selling price. This means that PLN loses money with each kilowatt-hour (kWh) of electricity that
is sold, if it was not supported by huge government subsidies. Thus, having had few financial
resources for large-scale investments, energy demand has outpaced energy supply in recent
years. Currently, the government is shifting its focus from (expensive) oil-fired power plants to
the establishment of new coal and gas fired plants. But it will still take some time to ensure
decent electricity supply throughout the country and, therefore, will continue to hamper
Indonesian businesses in the near future.
It should also be mentioned that the lack of good-quality physical infrastructure in combination
with weather phenomenons (such as heavy tropical rainfall) or forces of nature (earthquakes) can
cause disruptions to the flow of goods and services. Indonesia is located on the Pacific Ring of
Fire and therefore has to absorb many earthquakes. But even a relatively minor one can seriously
damage the infrastructure.
Regarding (soft) social infrastructure (such as the education system, healthcare and social
welfare) Indonesia also still has a long way to catch up. In order to provide a healthy and skilled
workforce, necessary to grow into an innovation-driven society, these matters need to be
resolved. The government has made new efforts in these fields in recent years. A new healthcare
system is about to be introduced covering all Indonesians and spending on education has
increased markedly. However, as with physical infrastructure, there is usually more planning
than action as well as a gap between desired targets and accomplished results.
Why are Investments in Infrastructure a Problem?
The main problem for the Indonesian government to invest in the country's infrastructure is the
lack of financial resources. Therefore, private sector participation - both foreign and domestic - is
needed. However, in order for the private sector to join in, a conducive investment climate is
required and - although improving - Indonesia is struggling to provide such an environment.
Apart from other factors mentioned in our Risks section, the legal framework involving land
acquisition has been a serious obstacle for infrastructure projects to materialize and makes
investors hesitant to invest. Due to land disputes infrastructure projects have been idle for years
or canceled altogether. But there have recently been taken steps to improve the land situation. At
end 2011 the government and parliament approved the new Land Acquisition Law (UU No.

2/2012) that is regarded to speed up the land acquisition process notably as it deals with the
revocation of land rights to serve public interest, puts time limits on each procedural phase and
ensures safeguards for land-right holders. The bill, confirmed by the signing of a presidential
regulation by president Susilo Bambang Yudhoyono in August 2012, is expected to be
implemented in 2012. Both government projects and public-private partnerships (PPPs) on stateowned land are protected by this bill.
In recent years the government has given infrastructure spending a relative small allocation of
public spending. In 2011 only 2.1 percent of the country's GDP was reserved for infrastructure
(and mismanagement as well as bureaucracy reduces effectiveness of spent funds). In
comparison, countries such as China and India spend almost 10 percent of their GDP on
infrastructure. The government has, however, put infrastructure as a top priority on its agenda in
order to accelerate economic growth. Regarding funding for infrastructure projects, the
government has set targets in both the National MediumTerm Development Plan 20102014 (RPJMN) and the Masterplan for the Acceleration and Expansion of Indonesia's Economic
Development Plan (MP3EI 2011-2025) which - to a large extent - will be financed by the private
sector. It is projected that more than 70 percent of both the USD $150 billion investment needs in
the RPJMN and the USD $468 billion investment needs in the MP3EI will be contributed by the
private sector through public-private partnerships. Approximately 45 percent of the MP3EI is
reserved for infrastructure development.
However, up to date these public-private partnerships have not yet showed satisfying results. To
provide more assurance for private investors, the government has established the Indonesia
Infrastructure Guarantee Fund (IIGF). This institution gives certain guarantees against
infrastructure risks for projects under the PPP scheme.
The paragraphs above explain why Indonesia suffers from a lack of quantity of its infrastructure,
but it also faces a lack of quality: damaged roads, collapsed bridges, aging ports are just a few
examples. Besides the common lack of financial resources to be used for maintenance purposes
after infrastructure has been built, mismanagement, corruption and incompetence are frequent
causes of inadequate infrastructure.
3. Governance in Indonesia
The emergence of Indonesias Reformation Period (Reformasi in Indonesian) after Suharto
stepped down from the presidency in 1998 implied a significant break with the past. Indonesian
politics changed profoundly from a centralized authoritarian regime to a decentralized
democracy, and with this change came important economic implications. Around half of total
public spending became under sub-national government control. This ongoing journey towards a
full effective democracy has been accompanied by both successes and difficulties, while major
challenges remain ahead: improving the countrys infrastructure, education, healthcare, and
employment opportunities.
However, while spending has increased in the regions, many regions show no improvements in
their education system and infrastructure. As such, Indonesia keeps lagging behind its regional
peers regarding infrastructure and enrollment rates beyond basic education. In some districts the
situation has in fact deteriorated since the Reformasi.

Indonesian authorities are in the process of moving to accrual accounting. Full implementation of
government accounting in the IMF Statistics Department's Government Finance Statistics
Manual 2001 (GFSM 2001) compatible format is planned by 2015. Although budget reporting
by local governments is starting to improve it is still subject to long lags, does not follow
international reporting standards yet, and lacks a homogeneous classification of expenditures.
According to an IMF report, Indonesia's ministry of Finance does not obtain comprehensive and
timely information on borrowing and debt, resulting in difficulties to monitor general trends in
government debt. The government has put these issues on the agenda but a target date has not
been set.
Below, Indonesia Investments presents a number of issues - related to governance - that disturb
the country's economy and investment climate:

Land Acquisition
One of the main obstacles to infrastructure development in Indonesia has been the issue of land
acquisition. The underlying reason for this situation is legal impediments to agree on fair
compensation for land-owners and, as a result, endless legal disputes over valuation (on various
occasions, business expansion has led to tensions with local communities). A new land
acquisition law has been accepted by Indonesian government in 2010 but its results are yet to be
seen.

Infrastructure
The quality and quantity of Indonesia's infrastructure is in a poorer condition than in its regional
peers. This applies to both hard infrastructure (roads, railways, bridges) and soft infrastructure
(education, social welfare and health). Since the fall of the New Order regime in 1998, there has
been a serious shortage of investments in this field. For that matter, the Indonesian government
has put investments in infrastructure as a top priority of its Medium Term Development
Plan (RPJMN 20102014), most of which is envisaged to be financed through private capital in
the form of public-private partnerships (PPPs). However, as Indonesia's current regulatory
framework and business environment are not optimally conducive, it might be a too ambitious
strategy of the government at this point (until further reforms are initiated). Conflicting law and
regulation are currently hurdles for Indonesia's infrastructure development.
According to research conducted by Morgan Stanley, the ratio of Indonesias infrastructure
spending to its gross domestic product (GDP) is only about 2.3 percent. In comparison, India
spends 6.5 percent, Thailand spends 3.4 percent, and Malaysia spends 4.3 percent of GDP on
infrastructure development.

Energy Subsidies
A major concern of international institutions is Indonesia's ever increasing amount of energy
subsidies, which entail significant budgetary costs. Initially, these energy subsidies were

introduced to support basic needs of the poor. However, by keeping these energy prices
artificially low, price signals are blurred, consumption and investment decisions are distorted,
and the vulnerability of public finances to international oil-price volatility is increased. It is also
assumed that richer households benefit more of these subsidies than poorer households do. These
subsidies have become a huge burden on the government budget and therefore the government is
aiming to slash them. However, cutting energy subsidies is a politically-sensitive issue in
Indonesia and will bring about serious criticism and demonstrations. It will also put great
pressure on the achievement ofinflation targets. Knowing that in 2014 new elections are held, the
government will not be too supportive of reducing the subsidies as it will come at the price of
popular support.
Bureaucracy
Indonesia's bureaucracy is known to be long and complicated and seems to have become a
'power centre' in its own right, thus effectively resisting efforts toward reforms: bribery remains
rife and there is no sustained progress in building institutions that enhance the business climate,
such as credible courts. As such, the country contains various business uncertainties that harm
the investment climate.

Informal Sector
Indonesia is characterized by a dual labor market: a small formal market and a large informal
one. The formal-sector workers are protected through severance payments and relative high
minimal wages. The letter is an incentive for employers to hire workers from the informal sector
where there is a lack of social insurance. Extensive informality is detrimental to long-term
growth and undermines the collection of tax revenues (needed for investments in the country's
infrastructure, healthcare and education).
4. Natural Disasters in Indonesia
Being located on the Pacific Ring of Fire (an area with a lot of tectonic activity), Indonesia has to
cope with the constant risk of volcanic eruptions, earthquakes, floods and tsunamis. On several
occasions during the last 15 years, Indonesia has made global headlines due to devastating
natural disasters that resulted in the deaths of hundreds of thousands of human and animal lives,
plus having a destructive effect on the land area (including infrastructure, and thus resulting in
economic costs). Extreme wet or dry seasons can ruin food crop harvests, trigger inflation and
put severe financial pressure on the poorer segments of the Indonesian population. Lastly, manmade natural disasters (such as forest fires brought on by slash-and-burn culture) can have farreaching environmental consequences.
One important note is that Indonesia's notorious weak infrastructure - brought on by
mismanagement, lack of skills or corruption - in fact aggravates the resulting situation after a
natural disaster has made its impact felt, meaning that natural disasters in Indonesia can cause
more casualties and more damage than it should.

Volcano Eruptions in Indonesia

Indonesia is the country that contains the most active volcanoes of all countries in the world. The
Eurasian Plate, Pacific Plate and Indo-Australian Plate are three active tectonic plates that cause
the subduction zones that form these volcanoes. Indonesia is estimated to have 129 volcanoes, all
carefully observed by the Centre of Volcanology and Geological Hazard Mitigation (Pusat
Vulkanologi dan Mitigasi Bencana Geologi), because a number of Indonesian volcanoes show
continuous activity.
There is at least one significant volcano eruption in Indonesia every year. However, usually it
does not cause great damage to the environment or cause casualties as most of the active
volcanoes are located in isolated regions.
Some notable volcano eruptions in Indonesia's history are listed below:
Volcano

Location

Date of Eruption

Casualties

Merapi

Central Java

03 November 2010

138

Kelut

East Java

26 April 1966

212

Agung

Bali

17 March 1963

1,148

Merapi

Central Java

25 November 1930

1,369

Kelut

East Java

19 May 1919

5,110

Awu

North Sulawesi

07 June 1892

1,532

Krakatau

Sunda Strait

26 August 1883

36,600

Galunggung

West Java

08 October 1822

4,011

Tambora

Sumbawa

10 April 1815

71,000+

Apart from taking human lives, a volcanic eruption can result in considerable damage to the local
economies by hurting small and medium enterprises that are involved in tourism, culinary,
commercial accommodation, agriculture, plantation, and livestock. A positive development is
that volcano eruptions take less human lives today due to better volcano observation methods in
combination with better organized emergency evacuations.

Earthquakes in Indonesia
Earthquakes are probably the biggest threat regarding natural disasters in Indonesia as they come
sudden and can strike in populous areas, such as the bigger cities. Earthquakes with a magnitude
of around five or six on the scale of Richter happen almost on a daily basis in Indonesia but
usually cause no or little damage. When the magnitude becomes over seven on the scale of
Richter, an earthquake can potentially do a lot of damage. Yearly, two or three earthquakes with
a magnitude of seven or higher occur in Indonesia and cause casualties and damage the
infrastructure or environment. Below is a selected list with recent earthquakes that caused severe
damage:
Location

Date

Magnitude

Casualties

Sumatra

25 October 2010

7.7

435

Sumatra

30 September 2009

7.6

1,117

Java

17 July 2006

7.7

730

Java

26 May 2006

6.3

5,780

Sumatra

28 March 2005

8.6

1,313

Sumatra

26 December 2004

9.2

283,106

The high number of Indonesian casualties is partly inflicted by the bad state of some housing
facilities and infrastructure. This is why a moderate earthquake can in fact result in many
casualties, the collapse of many buildings and the displacement of many people. A World Bank
publication (in October 2010) expressed its concern about the devastating effects an 8.5
magnitude earthquake can have if it happens in a mega-city such as Jakarta.

Tsunamis in Indonesia
A submarine earthquake or volcanic eruption in the ocean can cause a tsunami water wave which
can have devastating effects on the people and objects near the sea. In 2004 a large part of the
world was rocked by the Indian Ocean earthquake and subsequent tsunami, killing over 167,000
people in Indonesia (mainly Aceh) alone. Although a massive tsunami such as the 2004 tsunami
is rare, the Sumatra region is often startled by offshore earthquakes that can potentially trigger a
tsunami. With the 2004 tsunami still fresh in mind, the level of fear is high. Often Indonesians
who live in villages or cities close to the coast, flee to the hills (located more inland) after an

earthquake has taken place. On average, once every five years a large tsunami happens in
Indonesia, usually on the islands of Sumatra and Java. Generally, damage to the infrastructure
exceeds the loss of lives. There are warning systems installed on many coastal areas but there
have been reports that not all are functioning properly.

Floods in Indonesia
Indonesia's rainy season (which runs from December to March) can bring plenty of rainfall. In
combination with deforestation and waterways clogged with debris, it can cause rivers to
overflow and result in floods. Floods and landslides occur in most parts of Indonesia and can
cause hundreds of casualties, destroy houses and other infrastructure, and ruin local businesses.
Even in a mega-city as Jakarta, floods occur regularly due to weak water management. In
January 2013, a large part of Jakarta was flooded, affecting more than 100.000 households and
resulting in the loss of lives of more than 20 people.
5. Ethnic and Religious Violence in Indonesia
Outbursts of violence (whether it is labeled religious, ethnic, state or communal violence) have a
long history in Indonesia. It can be argued that (the danger of) state violence - committed by the
Indonesian army - is what succeeded in curtailing other forms of violence during Suharto's New
Order. Ethnic and religious violence flared up when the New Order showed signs of weaknesses
around the time that Suharto stepped down from office in 1998. The early Reformation period
was a period of many uncertainties for Indonesians. Political power was decentralized to the
regions which meant that struggles for local power emerged. TheAsian Financial Crisis had
caused poverty, unemployment and uncertainty about the future in many households. Ethnic and
religious sentiments, previously suppressed by Suharto's 'SARA-policy' (meaning a ban on the
public discussion on the topic of ethnic group, religion, race and group-based interest as these
might endanger public order), flared up.
Ethnic violence has more or less seized to be since 2002 after regional violence in Jakarta,
Medan (Sumatra), Kalimantan, Poso (Sulawesi) and the Moluccas caused many casualties
between the years 1996 and 2002. It is, however, not correct to mark the above cases as 'ethnic
violence' only. Violence purely because of ethnic differences seems highly unlikely as in each
case other aspects play an influential role. For example, violence against the Chinese
Indonesians, which emerged around the time of Suharto's resignation, has a lot to do with the
country's economic circumstances. The Chinese Indonesians had always been resented because
they own a relative big portion of Indonesia's business cake, despite forming just a tiny minority
in Indonesia's population (and in fact rich Chinese Indonesians are only a small proportion of the
total number of Chinese Indonesians in Indonesia). In times of political and economic turmoil it
is not hard to instigate anti-Chinese feelings that results in violence.
The regional violence that has happened in Kalimantan, Sulawesi and the Moluccas between
1996 and 2002 are more likely examples of local power struggles within a power vacuum around

the fall of Suharto. Religious and ethnic sentiments were incited by certain sides that thought
could benefit their position.
Religious intolerance in Indonesia (sometimes culminating in violence) is on the rise. The Setara
Institute, an Indonesian research and advocacy group, counted 216 cases of violent attacks on
religious minorities in 2010, 244 cases in 2011 and 264 cases in 2012. Target of these attacks are
often Christians and their churches or followers of the Ahmadiyah (a stream within Islam) and
their places of worship. Usually it involves the demolition of holy places, sometimes the beating
up of people, but rarely does it involve the killing of people. Perpetrators behind these attacks are
usually members of radical Muslim groups such as Front Pembela Islam. The most recent
horrific act of ethnic violence was the slaughtering of three Ahmadis by a mob of hundreds of
people in February 2011 in Cikeusik, West Java. It received much international attention and
human right watchers have stressed the Indonesian government to respect religious freedom and
to protect its people. The reaction of Indonesia's government towards this rising religious
intolerance has been weak. After the Ahmadiyah slaughtering, there was a slow reaction of
condemnation by the government which caused much criticism, especially from within
Indonesia. More criticism followed as the killers of the Ahmadis were given short prison
sentences by the Indonesian court, even though the killers were clearly filmed while killing the
victims. Although most Indonesians are highly supportive of a religious pluralist society,
Indonesians tend to be very apathetic towards these forms of violence, as if it is better not to
make a fuzz about it, but instead forget that it ever happened.
6. Radical Islam in Indonesia
On several occasions Indonesia has made global headlines due to vicious terrorist attacks and the
presence of terrorist networks (and training camps) that may be connected to the militant AlQaeda group. It indicates the existence of a radical Muslim community that not only believes
Islam should be the sole guidance in life but is also willing to use extreme measures to reform
and uproot established conditions.
With more than 200 million Muslim inhabitants, Indonesia contains the largest Muslim
population in the world. This number is roughly equal to 13 percent of the total number of
Muslims in the world. However, this group of 200 million people does not represent a
homogeneous group. Much variety can be found in Indonesian Islam as well as in their
perceptions regarding the role that Islam should play within Indonesian politics and society.
Although around 88 percent of the Indonesian population is Muslim, Indonesia is not an Islamic
state ruled by Islamic law. As most Indonesians can be labelled moderate Muslims, the majority
thus approves of a secular democracy and a pluralist society. This attitude is visible in the results
of the 2009 legislative election when Islamic political parties that stress the importance of a
dominating, stricter Islamic stream in the government received few votes. The secular political
parties that support a moderate and tolerant Islamic democracy and society, on the other hand,
proved to be very popular. But this does not withstand the fact that Indonesia has been
experiencing a continuing process of Islamization since thisreligion first arrived in the

archipelago many centuries ago. However, this process should not be confused with Islamism or
radicalism. Radical Muslims in Indonesia only constitute a small minority.
Indonesia's Radical Link to the Middle East
Radical Islamic movements in Indonesia are not a new phenomenon but have been present since
the colonial era. The underlying reasons for a Muslim to radicalize can be (a mixture of) political
exclusion, feelings that great injustice has been done towards the Muslim community or feelings
of western domination (which results in resentment of the West). It is also important to note that
Indonesian radical movements have their origin in reform movements in the Middle East.
Wahhabism, a very strict interpretation that aims for a return to the true nature of the Islam as it
was practiced during the days of prophet Muhammad, was founded by Muhammad ibn Abd alWahhab in Saudi Arabia in the mid-18th century. The purification of Islam would strengthen the
position of Islam vis-a-vis the growing western powers. Around 1800, Indonesian hajji's arriving
back in the archipelago after the pilgrimage to Mecca, brought with them this Wahhabi ideology
and aimed for reviving Indonesian Islam. Not coincidentally Wahhabism was spread through the
archipelago when the Dutch began to expand their political role. Another radical movement that
would gain much influence in Indonesia was the Salafi-movement that stems from Egypt at the
end of the 19th century. Its ideology is essentially very similar to Wahhabism.
Contact with the Middle East was key in spreading stricter forms of Islam to Indonesia. When
the Suez Canal opened in 1869, which significantly quickened journeys to the Middle East,
contacts with religious centers in the Middle East were intensified. Not only an increase in
numbers of Indonesian hajji's emerged, but also more Indonesians went to study in Egypt or
Saudi Arabia. Vice versa migrants from Arabia founded Salafi-influenced organizations in the
archipelago, for example Al-Irsyad (Union for Reformation and Guidance) and Persatuan Islam
(Islamic Union) in West Java, both promoting the purification of Islam.
Today, these links to the Middle East are still very important for present radical Indonesian
movements , both for ideological support and for financial funding.

Continued Suppression in Independent Indonesia

When Indonesia became an independent country, the stricter Muslim groups were to become
disappointed. In Soekarno's secular government there was no room for an Islamic state. Part of
the radical Indonesian Muslim community joined the Darul Islam rebellion which aimed for the
establishment of an Islamic state in Indonesia. This movement started in the 1940s but was
eventually crushed by the Indonesian military in 1962. However, segments of the Darul Islam
went underground and would produce and inspire other radical movements.
During Suharto's New Order government radical Muslim voices and organizations were pushed
underground even more severely as Muslim activists were imprisoned, often without trial. They
were considered a threat to Suharto's political power. Some, such as Abdullah Sungkar and Abu
Bakar Ba'asyir (leaders of the Jema'ah Islamiyah), fled the country to seek a living in Malaysia.

The radical religious groups that stayed in Indonesia kept underground and were mostly
concentrated around the university campuses in the bigger cities.
Indonesian Radicalism Comes to the Surface
When Suharto was forced to leave office in 1998 and the Reformation period commenced, it
implied no more political restrictions to the establishment of (radical-inspired) Muslim
organizations. Many Muslim activists were released from prison and radicals that had fled the
country returned. Another reason that explains the rise of terror acts since Suharto's fall is that
the Islamic political parties that wanted to turn Indonesia into an Islamic nation suffered a big
defeat during the 1999 elections, only receiving a relative small amount of the votes. Similar to
the New Order, the Reformation period does not seem to be fertile soil for political Islam, thus
forcing radicals to use extreme tactics to try to make a difference.
Some contemporary radical organizations that have been in the spotlight since the Reformation
period are the Majelis Mujahidin Indonesia (Council of Indonesian Jihad Fighters), the Front
Pembela Islam (Front of Islam Defenders), the Jema'ah Islamiyah (Islamic Congregation) and the
(already disbanded) Laskar Jihad (Warriors of Jihad). Each of these organizations share the aim
for the implementation of shariah law, are anti-western and its members do not refrain from
using violence. Another feature these radical organizations share is the Arab background of its
founders.
The Jema'ah Islamiyah is behind some of the most vicious attacks in the last 15 years and is
regarded as being responsible for introducing a new phenomenon to Indonesia: the bomb attack.
On 25 December 2000 bombs exploded at 11 churches across Indonesia, killing 19 people. Most
notorious is probably the 2002 Bali bombings when two bombs exploded almost simultaneously
in a night club, killing 202 people, most of whom were foreign tourists. In 2005 another bombing
occurred in Bali, killing twenty people. In 2003 the JW Marriott Hotel in Jakarta was bombed
killing 12 people and in 2009 another bombing in the JW Marriott Hotel together with a bomb in
the Ritz Carlton Hotel in Jakarta killed nine people in total. This list makes Jema'ah Islamiyah
one of the most violent terrorist groups in the world.

Recent Developments in Indonesia's Radical Islam

According to the Indonesian police, 55 terror suspects have been killed and 583 have been
arrested during the period 2000-2010. The Indonesian government stresses the importance of
combating terrorist cells within the country and finds itself in close cooperation with the United
States and the Australian Federal Police to topple terrorists. In 2003 a special counter-terrorism
squad, called Densus 88, was established (and is part of the Indonesian National Police). Densus
88 is funded by the American government and is trained by the CIA, FBI and US Secret Service.
This unit has had considerable success in weakening the Jema'ah Islamiyah network.
The current various terrorist cells in Indonesia seem to operate independently from each other
forming splinter groups. This is a change from the past; radical Muslims now prefer to operate in
smaller networks instead of bigger ones (on a national scale) as it is much more difficult for the

authorities to trace such smaller networks. Another difference with the past is that all these
terrorist cells seem to have changed tactics regarding the target of their attacks. Previously,
targets consisted mainly of western or foreign people and symbols of the western world, such as
embassies and certain nightclubs or hotels that are frequently visited or owned by westerners.
Since 2010, however, more and more attacks are directed towards symbols of the Indonesian
state. In 2011 multiple attacks on Indonesian police officers happened throughout Indonesia,
probably in reaction to the many arrests made by Densus 88.
Another new extremist organization in Indonesia is the Jemaah Anshorut Tauhid (JAT). It was
founded by Abu Bakar Baasyir (co-founder of Jemaah Islamiyah) in 2008 and has been added to
the US terror list in 2012 for multiple coordinated attacks against Indonesian civilians, police and
military personnel. In September 2011 a suicide bomber of the JAT detonated explosives in a
church in Central Java, wounding several people. The Indonesian police have also uncovered
additional suicide plots (across Indonesia) by this group.

Aceh Training Camp

In 2010, the Indonesian government has had reasonable success in combating terrorist networks.
Densus 88 killed the country's most wanted terrorist, Dulmatin, in March 2010. This Dulmatin is
suspected to be the mastermind behind the 2002 Bali bombings. Barely one month earlier,
Densus 88 discovered a paramilitary training camp in the jungle of Aceh where - allegedly attacks were prepared against the Indonesian president and against foreigners and other 'infidels'.
Dulmatin had been one of the leaders of this Aceh training camp. In June 2010, another
mastermind of the Aceh training camp was arrested and sentenced to ten years in prison in 2011.
During the course of 2010, 51 members of this Aceh training camp were arrested and charged. In
August 2010, Densus 88 arrested Abu Bakar Ba'asyir who allegedly helped funding the Aceh
training camp. He was sentenced to 15 years in prison. Lastly, in December 2010, Abu Tholut
was arrested by Densus 88 due to his involvement in organizing this training camp.
Below is a list of recent violent incidents involving radical Muslim groups:
In April 2011, a suicide bomber wounded 30 people (mostly policemen) in a mosque on a
police compound in Cirebon (West Java).
In September 2011, a suicide bomber wounded 22 Indonesian churchgoers in Solo (Central
Java).
In March 2012, Densus 88 killed 5 Muslim radicals (in Bali) who were planning robberies to
finance future terror attacks.
In September 2012, Densus 88 arrested a group of 11 Muslim radicals in Solo and confiscated
homemade bombs that are assumed to be used for attacks against the Indonesian police and the
parliament building.
In early January 2013, Densus 88 killed five suspected Muslim terrorists in Bima and Dompu
on the island of Sumbawa (West Nusa Tenggara). Allegedly, these killed suspects were
preparing terrorist attacks on targets on Sumbawa.

 In May 2013, Densus 88 killed seven and arrested 20 suspected terrorists in raids throughout
Java. One week earlier a plot to bomb the embassy of Myanmar was uncovered.

RELIGION IN INDONESIA
Indonesia is a secular democratic country that has a Muslim-majority population. The Indonesian
constitution guarantees all people in Indonesia the freedom of worship, each according to his or
her own religion or belief. It also stipulates that the state shall be based upon the belief in "the
one and only God" (a condition which also forms the first principle of the Pancasila, the
Indonesian state philosophy introduced by Soekarnoin 1945). At first sight these two conditions
seem to be somewhat contradictory but Soekarno, Indonesia's first president, resolved this issue
by hypothesizing that every religion (including 'soft polytheistic' Hinduism) essentially has one
highest Supreme Being to which one subjects oneself. Although Indonesia is not an Islamic state,
Islamic principles do influence political decision making. Moreover, certain hardcore Muslim
groups have shown to be able to influence political and judicial decision making through (the
threat of) violence.
One peculiarity of the Indonesian government's stance on (freedom of) religion is that it
recognizes six official religions only (which are Islam, Protestantism, Catholicism, Hinduism,
Buddhism and Confucianism). Every Indonesian is required to embrace one of these religions as
it is mandatory personal data which is mentioned in official documents such as passports and
other identification cards. Atheism is not an option and - in fact - constitutes a socially
unacceptable ideology in the country. In recent years it has happened that Indonesians who
published atheist worldviews on social networks were threatened by their local community and
arrested by the police on charges of blasphemy; charges that can lead to imprisonment.
Composition of Indonesia's Six Official Religions
Percentage share
(of total population)

Absolute numbers
(in millions)

Muslim

87.2

207.2

Protestant

6.9

16.5

Catholic

2.9

6.9

Hindu

1.7

4.0

Buddhist

0.7

1.7

Confucian

0.05

0.1

Source: Statistics Indonesia (Badan Pusat Statistik),

Population Census 2010

Unfortunately, religion has also been the cause of much violence throughout Indonesian history.
Regarding its recent history, one important turning point can be discerned. After the fall of
president Suharto's New Order regime (which was marked by a strong central government and a
weak civil society) radical Islamic voices and violent (terrorist) acts - previously largely
suppressed by the government - found their way to the surface in the form of bomb attacks and
other threats. Recently, Indonesian media have reported frequently about attacks by radical
Muslims on minority communities, such as the Ahmadiyya community (a movement within
Islam) and Christians. Moreover, the perpetrators or instigators of such violent acts usually
receive short prison sentences only. These issues have received international attention as several
governments, organizations and media have expressed concern over the ensuring of freedom of
religion in Indonesia. However - as appalling as it may be - such religious violence is the
exception rather than the rule and it should be stressed that, by far, the majority of the Indonesian
Muslim community is highly supportive of a religious pluralist and peaceful society. For a
detailed account regarding violent Islamism in Indonesia please visit our Radical Islam page.
Lastly, it should be mentioned that religious intolerance or discrimination in Indonesia also takes
non-violent forms such as the difficulty of building places of worship that are non-Muslim in
areas that are mainly occupied by Muslims (and vise versa). However, any minority in any
country will, most likely, have to deal with discriminatory actions, and Indonesia is no exception
to this 'rule'.
1. Islam in Indonesia
Indonesia contains the largest Muslim population of all countries in the world. Its current number
of Muslim inhabitants is estimated to be around 207 million individuals, most of whom adhere to
Sunni Islam. This large number implies that approximately 13 percent of the total number of
Muslims in the world live in Indonesia, thus indicating that Indonesia contains a clear Muslim
majority population. But despite this Muslim majority, the country does not constitute a Muslim
or Islamic country based on Islamic law. Instead, Indonesia is a secular democratic country with
strong Islamic influences. Since the early political debates on the topic of the ideological
foundations of the Indonesian nation, certain strict Islamic groups (including some political
parties) have spoken out for favouring the establishment of a Muslim country. However, as
Indonesia contains dozens of millions of non-Muslims as well as a majority of nominal Muslims,
the establishment of an Islamic country (together with implementation of shariah law) has
always been regarded as being a trigger for disunity and calls for separatism. Political parties
favouring the Islamic nation have never been able to gain the majority of the popular vote
throughout the political history of Indonesia. Based on the elections results during the

current Reformation period, the stricter Islamic parties are actually losing ground to the secular
parties and therefore it seems unlikely that Indonesia will become a Muslim state in the
foreseeable future.
The process of Islamization in Indonesia (or more precise, in the area we now know as
Indonesia) has been underway for many centuries and is still continuing today. Islam became an
influential force through a series of waves (international trade, the establishment of various
influential Muslim Sultanates, and social movements) that are described in more detail below.
However, present Indonesian Islam is also characterized by variety as each region experienced
its own unique history, tainted by unique and separate influences. From the later 19th century
onwards, Indonesia - as a whole - experienced a more general shared history because colonizers
(and continued by the Indonesian nationalists) put a national framework on the various regions.
This process of unification has also had its impact on Indonesian Islam which - in a slow pace is losing its variety. But this should be regarded as a logical development within the process of
Islamization in the country.
In recent years, media - both national and international - have often reported on attacks on
minority religions in Indonesia (such as the Ahmadiyya and Christians). Some radical Muslim
groups such as the Front Pembela Islam (Islamic Defenders Front) use violence (or the threat of
violence) to achieve their ideals; also against the Muslim community itself, for example by
attacking Muslims that sell food at daytime during the holy fasting month Ramadan. It is
worrying that the Indonesian government and the Indonesian judiciary do not stand firm against
such radical groups, indicating that the government has a weak monopoly on violence. But it
should also be stressed, however, that - by far - the majority of the Indonesian Muslim
community is highly supportive of a religious pluralist and harmonious society.
Indonesian islands with a Muslim majority population:
1. Sumatra
2. Java
3. Kalimantan (coastal areas)
4. Sulawesi
5. Lombok
6. Sumbawa
7. North Moluccas

The populous western part of Indonesia contains a relatively much larger Muslim community
than the eastern part. As trade played a significant role in the process of Islamization in
Indonesia, islands closer to the main trade routes received more Islamic influences. Western
Indonesia, part of a global trade network from the dawn of human history, was much more
exposed to such trade-related Islamic influences, hence experiencing the rise and fall of Islamic
Sultanates from the 13th century. In particular the Strait of Malacca (between present- day
Malaysia and Indonesia) was - and still is - one of the busiest sea-lanes regarding trade.
Indonesia is experiencing robust macroeconomic growth: the country's middle class is expanding
rapidly as is shown in its steadily rising per capita gross domestic product (meaning people can
consume more products and services), and Indonesia's society - as is today's world - is becoming
increasingly urbanized (a process that is closely linked to modernization and industrialization).
Given that almost 90 percent of Indonesia's total population is Muslim, this community is highly
affected by these developments. In the country's bigger cities (in particular on Java, Indonesia's
most populous island) this community is showing increasing consumptive lifestyles. This
especially applies to the large moderate Muslim component within this community. They are
increasingly living a 'modern' urban lifestyle, equipped with the latest electronic devices and
fashion. Important indicators such as car sales and internet or mobile phone penetration have
risen fast in recent years, while the young adults of the middle class and elite can frequently be
found relaxing in places such as Starbucks in one of the many luxury malls in the bigger cities.
Arrival of Islam to Indonesia
Although it is difficult to reconstruct the exact development of early Islamization in the
archipelago (due to a lack of sources), it seems certain that international trade played a crucial
factor. There probably were foreign Muslim traders in maritime Southeast Asia from early on in
the Islamic era. The first sources that inform us about indigenous people adhering to Islam
originate from the early 13th century; gravestones indicate the existence of a Muslim kingdom in
North Sumatra around 1211. Perhaps indigenous kingdoms adopted the new faith because it
entailed certain advantages in trade as the majority of traders were Muslim. It remains unclear,
however, why indigenous conversion to Islam seems to have taken place centuries after the
region became acquainted with this religion. Only from the 15th century onwards Islamic

kingdoms and sultanates became dominant political powers in the archipelago, although these
powers were to be undermined by the European newcomers (Portuguese and Dutch) starting
from the 16th and 17th century.
Varieties of Indonesian Islam
The arrival of Islam to the archipelago had different impacts on local communities depending on
the historical and social context of the area where it arrived. In some parts of the archipelago
towns emerged as a result of foreign Muslim traders settling there. In other parts Islam never
became the majority-religion, probably due to the distance from the important trade routes (such
as eastern Indonesia). In parts where there was a strong presence of animism or Hindu-Buddhist
culture, Islam met profound cultural barriers (such as on the island of Bali which is still
dominated by Hindu culture today) or it became blended with the pre-existing (animist) beliefsystems (examples of which can still be found in Central Java).
Since the publication of Clifford Geertz's authoritative book 'The Religion of Java' (published in
1960) scholars tend to divide Indonesia's Javanese Muslim community (the largest Muslim
community of Indonesia) in two groups:
Abangan; these are traditional Muslims in the sense that they still apply traditional Javanese
dogmatic; blending Islam with Hinduism, Buddhism and animist traditions. Members of this
group generally have rural backgrounds.
Santri; these can be labeled as orthodox Muslims. They are mainly from urban backgrounds
and are more oriented towards the mosque and the Quran.
Geertz actually also recognized a third class, the priyayi (the traditional bureaucracy), but as it
constitutes a social class rather than a religious one, it is not included above.
The spread of Islam in Indonesia should not be seen as a quick process stemming from one
origin or source but rather as multiple waves of Islamization in coherence with international
developments in the Islamic world, a process that is still continuing until today (as described
above, Muslim traders coming to the archipelago in the first centuries of the Islamic era can be
regarded as the first wave). Two important reform waves aiming for the return to the pure Islam as it was during the days of prophet Mohammed - were the Wahhabist and the Salafi movements.
Wahhabism originates from Arabia and arrived in the archipelago early in the 19th century. The
Salafi movement came from Egypt at the end of the 19th century. Both these waves had a big
impact on the spread of orthodox Islam in the archipelago. Another important development for
Islamization in Indonesia was the opening of the Suez-Canal in 1869 because it - as it made
traveling to Mecca easier - implied a larger amount of pilgrims between Indonesia and Mecca.
This consequently intensified contacts with the religious centers in the Middle East.
However, these waves of Islamization have also been cause of tensions and disunity within the
Indonesian Islamic community as not everyone agreed with the arrival of an orthodox stream of
Islam. For instance, the distinction between modernist (santri) and traditional (abangan)
communities on Java are actually the result of the traditionalists' reaction against the reform

movement in the 19th century. This division is still visible in the two most influential Islamic
organizations in the country today. The Muhammadiyah, a social organization founded in 1912
on Java, represents the modernist Muslim stream that disapproves of the mystical (traditional)
Javanese Islam. Currently this organization has around 20 million members. As reaction to the
establishment of the Muhammadiyah, traditional Javanese leaders founded the Nahdlatul Ulama
(NU) in 1926. Members of the NU are influenced by mystical streams or pre-Islamic elements.
Its leadership is also characterized by being more tolerant towards other religions. Its number of
members is currently around 35 million.
Radical Islam in Indonesia
During the last two decades Islam has become more visible on the streets in Indonesia and has
begun to play a more important role in the daily affairs of the Muslims. For example, the number
of Indonesian women that wear the headscarf (jilbab) has increased significantly, and it has
become more common to visit the mosque. However, it is important to underline that this
development of Islamization should not be mistaken for Islamic radicalism. By far most
Indonesian Muslims are tolerant towards other religions or other streams within the Islam. Only
a very small fraction of Indonesian society agrees with and/or participates in radical or terrorist
activities. Although Muslim radicalism in Indonesia has been given much attention since the
9/11 attacks in New York, it is not a new phenomenon to the country. Incidences which involved
Islamic radicalism have been witnessed before, such as the Darul Islam rebellions in the 1950s,
regional rebellions in the late 1950s, the massacres of communists in 1965-1966, an airplane
hijacking in 1981, multiple attacks on Christian churches and Buddhist monuments, and multiple
actions against brothels, bars and casino's in recent decades.
2. Christianity in Indonesia
Although Christianity is the second-largest religion in Indonesia, it only forms a minority in the
country. Around ten percent of the Indonesian population is currently counted as Christian; a
percentage which - in absolute terms - constitutes approximately 23.5 million people.
Indonesians have the custom to separate Catholicism from Christianity. For Indonesians the term
Christian or Christianity actually refers to Protestantism, whereas Catholicism is treated as a
separate religion. In line with Western tradition we will apply the term Christianity (or Christian,
Christians) as the denominator for both Protestantism and Catholicism because the essence of
both streams is the same: the belief in Jesus Christ as the son of God.
The majority of the Indonesian Christians are Protestant. Out of the 23.5 million of total
Indonesian Christians, approximately 16.5 million adhere to the Protestant stream, while the
remaining seven million are Catholic. These Christian communities are spread unevenly
throughout the country. But, as can be seen on the map below, most of these communities are
located in the less populous eastern part of Indonesia.
Locations with substantial Christian communities are:

1. North Sumatra
2. Kalimantan
3. North Sulawesi
4. West Sulawesi
5. Moluccas
6. Papua
7. Flores
8. Sumba
9. West Timor

Arrival of Christianity in the Indonesian Archipelago

The first known source of Christian presence in the archipelago can be found in the encyclopedic
work of Abu Salih Al-Armini, an Egyptian Christian who lived in the 12th century. According to
his writings there were a number of Nestorian churches in West Sumatra around that time,
located close to a place where camphor wood was produced. However, later scholars have
argued that Al-Armini might have confused this location with a town in present-day India.
After the Portuguese conquered Malacca (in present-day Malaysia) in 1511, they sailed further
eastwards to find the desired spice-heartland of the Moluccas where the Sultanate of Ternate
ruled. Here, the Portuguese established a small settlement. At first relations between the Catholic
Portuguese and the Muslim people of Ternate were harmonious because both sides were aware
of the advantages of good cooperation in trade. From 1534 onwards Portuguese priests began to
become active in converting locals to Catholicism and by the end of the 16th century
approximately 20 percent of the inhabitants of the Southern Moluccas were classified as
Catholic. Two other locations, both in eastern Indonesia, where the Portuguese established small
Catholic settlements were in Larantuka (on the island of Flores) and Dili (on the island of
Timor). However, a fall out between the Portuguese (who wanted to establish a monopoly on the
spice trade) and the people of Ternate seriously undermined the former's position in the
Moluccas.

The Calvinist-Protestant Dutch established their first settlement in Ternate in 1607. They also
were eager to monopolize the spice trade but would become far more successful than the
Portuguese in accomplishing their ambition. During the next two centuries the Sultanate of
Ternate gradually lost its authority, while the absence of Portuguese influence entailed
consequences for the spread of Christianity in the area. Initially the Dutch had little interest in
spreading their word of God. In some parts of its territory the Dutch United East India
Company (Vereenigde Oost-Indische Compagnie, abbreviated VOC) did support missionary
activities but in most of these cases it restricted itself to pastoral care for the (already) Christian
communities which mostly contained Europeans. No large-scale indigenous conversions were
supported in areas under Dutch control. However, one policy was rather clear: when it came to
Christianity, only Dutch Calvinist Protestantism was allowed. Catholic priests previously
converting locals to Catholicism were dismissed, thus one can conclude that the process of
Christianization, which was started by the Portuguese, had come to a (near) complete standstill
when the Dutch were in control during the VOC period (1602-1798).
Spread of Christianity during the Colonial Period
During the 19th century when the Dutch crown received control over the area previously under
the rule of the VOC, missionary activities were still not stimulated by the colonial authorities.
The Netherlands Reformed Church was a government agency focused on serving the religious
needs of the (already) Protestant subjects only. However, a small part of its members took an
interest in propagating the Protestant faith and established churches and schools in the Dutch
Indies. But the real large-scale incentives for indigenous conversion came from a number of
newly arrived organizations from Europe in the second half of the 18th century and the 19th
century. Institutions such as the Netherlands Missionary Society (Nederlandsch Zendeling
Genootschap) and the Rhenish Missionary Society (Rheinische Missionsgesellschaft) from
Germany were allowed to spread their message through the Dutch Indies. And as the Dutch state
in Europe had begun to become secular, it could not prevent Catholic missions from activities in
the Indies too. The separation of church and state meant that the latter took a neutral stance in
religious matters, thus missionary activities were left to the private sector.
Although by 1900 missionary activities had been established throughout the colony (except for
Muslim regions such as Aceh and West Sumatra), the number of Christians had hardly increased
compared to one hundred years before. Only two regions showed a major increase in the number
of indigenous Protestants, to wit the Minahasa (North Sulawesi) and Tapanuli (North Sumatra).
The general 'failure' to convert locals to Christianity on a large-scale basis was mainly due to the
lack of financial means, limited manpower and the inadequacy of the methods used. After 1900
this situation changed due to a new political approach of the Dutch government. Not long after
1900 territorial expansion had largely been achieved and the ethical policy(aimed at raising the
living standards of the indigenous people) was introduced. This new policy implied a more direct
impact on indigenous society which - among other things - resulted in the arrival of (especially)
many Catholics from the Netherlands. With more manpower and financial means at hand the
Catholic missionary activities moved into new territories and the number of indigenous Catholics
rose accordingly. The Protestants were supported by a number of North American organizations
that came to the Dutch Indies in the first half of the 20th century. Generally, the missionary

approach in the Dutch colony was quite fragmented, however. In 1938 steps were taken to set up
a National Christian Council but World War II and Indonesia's subsequent independence put an
end to that attempt.
Christians in Modern Indonesia
Although there are a number of regions in Indonesia that contain a clear Christian-majority
community (see map above), taken as a whole, Christianity only forms a minority religion in
Indonesia. As such, Christians - thus - have a rather weak political and social position in the
country, with the exception of those few regions with a Christian majority (in these regions
Muslims sometimes actually have to face discriminatory actions). This general weak position
makes most Indonesian Christians conscious of their minority-position and thus eager to
maintain good relations with the Muslim community. Nonetheless, with regard to the Indonesian
nation, Christians have just as genuine nationalist pride as the majority of Indonesian Muslims
and are highly supportive of maintaining the unified Indonesian state.
In recent decades there have been many known cases of radical Muslims attacking churches and
Christians, thereby instilling fear into Indonesia's Christian community. These incidents mainly
occur on the island of Java where Christians form the minority. Sadly, this situation is likely to
continue. However, these attacks should be explained as acts of fear and frustration on behalf of
the perpetrators as Indonesia has experienced a process of (perceived) 'Christianization' after
Independence. And - in fact - the roots of the problem go deeper in history as a relatively large
Christian elite (equipped with better education and economic means) was nurtured by the Dutch
during the colonial days. After Indonesia reached Independence, the Christian elite kept
constituting an influential force in the country's politics (including the army) and economy
during both Soekarno's and (the first half of) Suharto's reign. The main reason for this
paradoxical situation was that Christians - being a minority only - did not form a major threat to
society. The 1950s and 1960s witnessed the struggles for power between the nationalists,
communists and Islamicists, while after Suharto came to power in 1966 (and the communists
eliminated), it still took great effort for the government to successfully curb the role of Islam
within Indonesian society. In these chaotic and distrustful decades, Christians were regarded as
ally's, having no hidden agenda, against the opposing forces in society. This situation changed in
the late 1980s and 1990s when not only the stricter segments of Islam rejected the government
but also the moderate Islamic streams began to criticize the government and started demanding
democracy. To gain more popular support, Suharto (a nominal Muslim) decided to implement
more pro-Muslim policies, which included more Muslims in top government positions (including
the army). This implied a declining influence of Christians on national politics.
In Indonesian society, most Muslim and Christian communities live in social harmony. Between
1997 and 2004 (around and after the fall of Suharto) a number of regions in Indonesia saw
horrifying incidences of violence that were labelled as 'religious conflicts'. However, it is wrong
to regard these conflicts as being religious only. The fall of Suharto's New Order had opened up
fierce competition for political, economic and social power within the regions; and also among
groups sharing the same religion. In combination with a disorganized and weak central
government (including the national army) due to the Asian Crisis, these conflicts were able to

intensify and linger on. There are also reports that claim the Indonesian army actually stimulated
the continuation of these conflicts in order to create chaos in the country as that would give them
more political power.
3. Hinduism in Indonesia
Hinduism is the third-largest religion in Indonesia. Currently, around 1.7 percent of the
Indonesian population adheres to Hinduism, which in absolute terms constitutes approximately
four million individuals out a total of almost 240 million Indonesians. Today, the majority of the
Indonesian Hindu community lives on the island of Bali, famous for its Hindu culture (and
natural scenery). Contrary to other parts of Indonesia - and for reasons not really known - Islamic
forces were not powerful enough to break through the high Balinese cultural barriers, causing
this island to have a majority Hindu population up to the present day.
Locations in Indonesia where relatively large Hindu communities reside are:
1. Bali
2. Sulawesi (Central, South and Southeast)
3. Central Kalimantan
4. South Sumatra (Lampung)

Arrival of Hinduism in the Archipelago

Prior to the arrival of Hinduism and Buddhism, the indigenous population of the archipelago
practiced forms of animism. But when Hinduism arrived in the western part of the archipelago
through a trade network stretching from China to India in the first century of the Common Era,
local rulers regarded this new religion as an asset to their power as they could start to represent
themselves as Hindu deities, thereby increasing their status. The pre-existing animistic beliefs are
thought to have become blended with Hinduism, resulting in the forming of new hybrid-types of
Hinduism which contained specific features of its own, thus making it rather different from

Indian Hinduism. The caste system, for example, was never rigidly applied throughout the
history of the archipelago.
A number of important Hindu empires were established in Kalimantan, Sumatra and Java
between the 5th and the 13th century; some of which had also absorbed Buddhist influences. The
archipelago's last major empire, Majapahit ( 1293-1500), showed an interesting blend between
Hinduism, Buddhism and animist beliefs. But after Islam had established itself in the archipelago
as a socio-political force starting from the 13th century, Hinduism gradually lost ground to this
quickly expanding religion. The only exception being Bali, where the ruler of Majapahit
(originating from East Java) sought refuge from the conquest of Islamic forces.
Varieties of Indonesian Hinduism
As indicated in the map above, relatively large Indonesian Hindu communities are located on the
islands of Bali, Kalimantan, Sulawesi and Sumatra (and smaller pockets of Hindu villages can be
found in East Java). Hinduism was placed as a layer on top of pre-existing variational animist
traditions and therefore the resulting outcome of Hinduism differs in the various regions. In fact,
on the small island of Bali one can discern an interesting level of variety across the different
regions on the island. And in some cases, particularly in East and Central Java, Hinduism
became blended with Islamic traditions.
However, not every Indonesian citizen that is categorized as a Hindu today actually s a Hindu.
According to government law only six major world religions are recognized as being official
religions in the country. These are Islam, Christianity, Catholicism, Hinduism, Buddhism and
Confucianism. Moreover, all Indonesian citizens are obliged to choose one of these six religions
as their sole religion (mandatory data that is documented in identification papers). For the group
of Indonesians that still practice animist beliefs this constitutes a serious problem because
animism is not an option provided by the Indonesian government. These communities thus tend
to select Hinduism as their religion because Hinduism is more flexible compared to other
religions to include animist elements. Several animist communities such as the Tana Toraja of
Sulawesi, the Dayak of Kalimantan and the Karo-Batak of Sumatra are such examples.
Javanese art and culture is highly influenced by its historic Hindu-Buddhist chapter. Today, these
influences are still visible and preserved through the famous wayang performances, the survival
of many beautiful temples (of which the Borobudur and Prambanan are best known), the large
amount of Sanskrit loanwords in regional languages (as well as in standard Indonesian), and folk
traditions that uphold both Hindu and pre-Hindu beliefs among part of the Javanese
communities, in particular in Central and East Java. These Javanese traditions are known
as Kejawen.
Balinese Hinduism
Bali, one of Indonesia's major tourist attractions, is not only famous for its beautiful beaches,
landscape and rice fields but also for its unique cultural tradition: a Balinese Hindu tradition that
mainly consists of art and ritual. This religion is rather different from Hinduism as practiced in
India because - before Hinduism arrived in Bali - it underwent some radical changes on the
island of Java. One important feature of this change being the union between Hinduism (or more

specific Shivaism) and Buddhism. This feature is still visible today as, for example, some
Buddhist religious writings still play an important role in Balinese Hinduism and the island has a
priesthood which contains both Hindus and Buddhists.
The theological basis for Balinese Hinduism stems from Indian philosophy while indigenous
beliefs form the backbone of the rituals. An important belief of the Balinese Hindus is that
elements of nature are influenced by spirit. Therefore, offerings (sesajen) made from agriculture
products are offered to this spirit. It is believed that Mount Agung (the highest mountain on Bali)
is the house of the gods and ancestors. As such, this mountain is referred to as the 'mother
mountain' and is highly sacred to the Balinese. The main symbol of Balinese Hinduism is the
Swastika or 'wheel of the sun', an equilateral cross with its arms bent at right angles. This
Swastika symbol is also widely used in Indian religions and is believed to evoke 'shakti' or the
sacred force of empowerment.

Population of Indonesia
With a population totaling around 250 million individuals, Indonesia is the fourth largest country
with regard to population size. Its ethnic composition is characterized by a wide variety as the
country contains hundreds of different ethnic groups and cultures. However, more than half of
the population can be classified as belonging to the two main ethnic groups: Javanese (41 percent
of the total population) and Sundanese (15 percent of the total population). Both these groups
originate from the island of Java, Indonesia's most populous island, which contains almost sixty
percent of the country's total population. When the island of Sumatra is included, this figure rises
to approximately eighty percent of Indonesia's total population, indicating a significant
population concentration in the western part of the country. The most populous province is West
Java (with more than 43 million people), while the least populous province is that of West Papua
in the far eastern region of Indonesia (having around 761,000 people).

Map of Indonesia

Five Most Populous Provinces (in millions)

Province

Population

1. West Java

43.1

2. East Java

37.5

3. Central Java

32.4

4. North Sumatra

13.0

5. Banten (Java)

10.6

Source: Statistics Indonesia Population Census 2010