Rising to the challenge: Growth and reform have continued despite difficult global conditions

Since declaring independence from the Netherlands in 1945, Indonesia has become one of the world’s fastest developing and most economically promising nations. Transforming itself repeatedly over the years, it has also now established itself as an emerging regional giant. Indeed, while many countries felt the strong negative effects of the global financial crisis, Indonesia continued to build on its strengths, with its economy growing in spite of the global downturn and its political life continuing to be vibrantly independent and democratic.

In 2011 Indonesia also assumed the chairmanship of the Association of South-East Asian Nations (ASEAN), boosting its engagement with regional and global powers – a sign that it could play a much more internationally influential role in the future.

CHALLENGES AHEAD: However, the country also continues to face some important political and social challenges. Hopes of further and faster reform with the re-election of President Susilo Bambang Yudhoyono in 2009 have been put on hold to some extent as political battles continue, while efforts to root out graft have also proved problematic.

Yet at the same time, Indonesia has displayed a political maturity and capacity that few expected when the current period of multiparty politics began. Today, Indonesia is a stable, democratic country experiencing high growth and escalating investor interest from around the world. That this has been achieved at a time of growing international uncertainty is also no mean feat. In its 66 years of sovereignty, Indonesia has experienced tremendous growth, with a nominal GDP of $540bn and a population of 240m, and is counted among the world’s most dynamic emerging markets.

HISTORICAL BACKGROUND: With its declaration of independence on August 17, 1945, Indonesia is a relatively young country; yet its history is tied to rich ancient civilisations. The Srivijayan and Majapahit kingdoms were two of the most powerful, extending their influence throughout South-east Asia. Islam first came to Sumatra in the 13th century, gradually displacing Hinduism and Buddhism to become the dominant religion of Java and most other islands of the archipelago by the 16th century.

That time also marked the first arrival of Europeans, with trade soon followed by colonisation. The Dutch emerged as the dominant colonial power over the archipelago by around 1800, when the islands became known as the Dutch East Indies. Dutch rule continued until 1941, when the Japanese invaded and began an occupation of the country that lasted throughout the Second World War.

With Japan’s defeat and surrender in August 1945, Indonesian nationalist leaders took their chance and declared independence from Holland before Dutch colonial forces could return. Conflict then followed, but the Dutch finally recognised the sovereignty of all the current Indonesian territory, except West Papua, in 1949; Papua then joined Indonesia in 1963, completing the modern country.

FROM “GUIDED DEMOCRACY” TO REFORMASI: Post-independence, Indonesia went through a series of different political systems, with an early democratic system giving way to the period of “Guided Democracy” under the charismatic President Soekarno, who instated dictatorial rule from 1960 until 1965, when a particularly violent series of events occurred, having been triggered by an attempted coup blamed on the communists.

From that point onward, Soekarno’s power rapidly waned as that of Major General Suharto rose, with the latter becoming president in 1967. This marked the beginning of the “New Order” period, with Suharto maintaining his position of power until 1997, when the Asian Financial Crisis hit Indonesia particularly badly. The resulting chaos led to Suharto stepping down in 1998 to be succeeded by his vice-president, Bacharuddin Jusuf Habibie. This was the start of the current period, known as the “Reformasi”.

The first parliamentary elections since the early post-independence years were then held in 1999. The parliament elected Abdurrahman Wahid, commonly known as Gus Dur, to the presidency, a position he held until 2001. He was followed by Megawati Soekarnoputri, Soekarno’s daughter. She ruled as president until 2004, when Susilo Bambang Yudhoyono, commonly known as SBY, won the country’s first direct presidential elections. SBY won again in 2009, becoming the first president in the country’s history to be elected for two consecutive terms.

CONSTITUTIONAL CHALLENGES: With this decades-long history of authoritarianism and political change that has long promoted a centralised Jakarta- and Java-based system, the Reformasi period has been characterised by a determination to ensure plurality, decentralisation and democratic accountability. At the same time, the country has faced up to the legacy left by the challenge of separatism, chiefly in Aceh, northern Sumatra and Papua, but also on a lower level in several other provinces. The government has also admitted wrongdoing in the case of the Indonesian invasion of East Timor in 1975, which until that point had been a blemish on the country’s international standing.

Indeed, post-Suharto governments have worked to defuse these conflicts and establish a structure that accommodates regional, ethnic and religious differences. One of the first acts of the newly democratic Indonesia was to relinquish control of East Timor following a UN-sponsored referendum, while also working toward a solution with the rebel forces in Aceh, which is today a special region of the country, with its own elections and laws. In Papua too, the government has attempted to reach an agreement with demands for increased autonomy.

Decentralisation, a policy that transferred many powers from Jakarta to the regions, has also been widely praised for its foresight in heading off other separatist claims. Indonesia today is thus a much more peaceful and democratic place than it had been under previous – often authoritarian – rulers, even if the Reformasi has created many challenges. Elections themselves have also been largely judged free and fair by outside authorities, while Indonesia’s media culture is one of the most open in Asia.

EXECUTIVE POWERS: The head of state is the president, currently Susilo Bambang Yudhoyono, whose term is due to end in 2014. The president is directly elected for a five-year term, with a maximum of two terms, meaning that SBY cannot run again. The president is elected on a ticket that includes the vice-president, who is also elected to a five-year term. Currently Boediono – like Soekarno, he is known by only one name – holds this post.

The president is the commander-in-chief of the armed forces and has the chief executive role in the government. The president is also responsible for appointing a cabinet, thereby playing a major role in both domestic and foreign policy. The cabinet has so far been composed of ministers from a number of different political parties, as well as non-party experts and officials. A cabinet was sworn in in 2009, but the president reshuffled the cabinet and appointed some new ministers in October 2011.

A TWO-CHAMBER LEGISLATURE: The People’s Representative Council (Dewan Perwakilan Rakyatm, DPR) is one of two chambers in the Indonesian legislature, the other being the Regional Representatives Council (Dewan Perwakilan Daerah, DPD). These constitute the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR).

The president has the right to propose bills to the DPR and to debate with DPR members to secure passage or amendment. In emergencies, the president also has the right to issue government regulations instead of going through the normal process of consultation and debate with the DPR.

The president appoints chief justices, but cannot sign treaties, appoint or accept ambassadors, pardon prisoners or appoint members of the judicial committee without DPR approval – a nod to concerns about the previous sweeping powers that were afforded to presidents.

DPR: The DPR is the more powerful of the two bodies, with 560 deputies elected to it in 2009 and a total of nine different parties gaining representation. Chaired by a speaker, the DPR can draw up and pass laws of its own, as well as debate and vote on bills from the president and from the DPD. It has the right to question the president, and to draw up the budget in consultation with him or her.

DPR representatives are elected for five-year terms from multi-candidate constituencies. Indonesian citizens can vote at the age of 17. A proportional representation system is in practice, meaning that no one party has to secure an outright majority in the legislature and that coalition-building is an important part of Indonesian politics.

With the power to choose cabinet members, the president can influence the voting habits of the DPR, building coalitions in the House that reflect the composition of the cabinet. However, difficulties have arisen since the election in 2009, with many critical of political infighting over posts, which they consider to be slowing the pace of reform.

THE DPD: The DPD has 128 members, with each province electing four members on a non-partisan basis. The DPD may propose bills to the DPR, and any bill specifically concerning the regions must also be debated by the DPD. It does not have the power to revise bills on any non-regional issues, however.

Both presidential and legislative elections occurred in 2009, with the former being won by SBY and Boediono, who garnered 60.8% of the votes in the first round – enough to see them declared winners without a second ballot. In the legislative elections, SBY’s grouping, the Democratic Party (DP), also won the most seats, with 148 DP representatives having been voted to the DPR. The second-largest party was Golkar, with 107 seats, followed by Megawati Soekarnoputri’s Indonesian Democratic Party-Struggle (PDI-P) with 94 seats. Other parties included the Prosperous Justice Party (PKS) with 57 seats, the National Mandate Party (PAN) with 46, the United Development Party (PPP) with 38, the National Awakening Party (PKB) with 28, the Great Indonesia Movement Party (Gerindra) with 26, and the People’s Conscience Party (Hanura) with 17.

Coalition-building began at once after the election, with six parties represented in the 2009 cabinet. A reshuffle in October 2011 saw changes in 12 ministerial positions and the appointment of 13 deputy ministers, but the president has been widely criticised for seemingly making appointments with the aim of influencing the 2014 elections rather than for the betterment of the country.

JUDGES AND COURTS: The judicial branch is headed by the Supreme Court, which has oversight of around 20 high courts. These in turn preside over 250 district courts spread around the country. The Supreme Court is thus the final court of appeal and has the power to re-examine cases should sufficient new evidence be presented. The Supreme Court does not have oversight of constitutional cases, however, which must go to the Constitutional Court.

Candidates for the Supreme Court are shortlisted by the Judicial Commission, the members of which are appointed after agreement between the president and the DPR. Supreme Court candidates must also be approved by the DPR before taking office.

The Indonesian legal system is a blend of native customary law, known as adat, Roman-Dutch law and modern Indonesian law. There are also Islamic courts, which have powers only in civil cases of marriage, divorce, reconciliation and alimony involving Muslims. The highest court of appeal for the Islamic courts is also the Supreme Court.

The Constitutional Court, meanwhile, has the final say in any disputes over the constitution, the powers of state institutions, election results and the dissolution of political parties. It also has the power to rule in cases of impeachment of the president. It has nine members: three appointed by the president, three by the DPR and three by the Supreme Court.

LOCAL AUTHORITIES: Indonesia consists of some 33 provinces, each of which is divided into a number of regencies and cities, with all three administrative levels having their own local governments. Since the start of the Reformasi period, Indonesia has been working to establish an effective form of decentralised politics, which has meant that these local administrative units have all gained in terms of power and influence since 1998. In 2005 direct elections for provincial governors, as well as heads of regencies and cities, were held for the first time.

Up to now, decentralisation legislation has largely strengthened the political and economic responsibilities of the regencies and cities, rather than the provinces. This has had implications for investors, as local authorities have considerable power over land and resources in their areas, with the past seeing a lack of clarity in some instances between national and local jurisdictions. There are also continuing concerns of the capacity of some regencies to handle their enlarged responsibilities.

Decentralisation remains a controversial issue, with further reforms of the system likely in the period ahead. Indeed, a new draft law on regional elections was passing through the national legislature as this book was going to print.

OUTLOOK: While the first years of the government’s second term have shown that there are many challenges facing reform, they have also demonstrated the country’s commitment to democratic methods and policies. Progress may be slow, but it is being achieved in a stable and legal manner, with the involvement of many stakeholders.

This is quite an achievement for a country of such diversity that has had only just over a decade of democracy. Surely, the decade ahead should thus be another promising one for Indonesia and its people.