Day 2: On the Road to Democracy

Reinventing IndonesiaReinventing IndonesiaReinventing IndonesiaReinventing Indonesia

Day 2Day 2

On the Road to DemocracyOn the Road to Democracy

Day 2Day 2

On the Road to DemocracyOn the Road to Democracy

Graduate School of Asia-Pacific StudiesWaseda University, 14 February 2007

The Habibie AdministrationThe Habibie AdministrationThe Habibie AdministrationThe Habibie Administration

The objectives:as the country was deep in crisis, a continuation ofas the country was deep in crisis, a continuation of policies, especially in the economy, should be maintained; it had to be rid of the characters whom people saw asit had to be rid of the characters whom people saw as the personification of nepotism; it should reflect the spirit of reform, and be broadly representative of Indonesia’s various shades of interests and political aspirations.

GSAPS-2007-Day2 www.ginandjar.com 2

The Habibie AdministrationThe Habibie AdministrationThe Habibie Administration . . .The Habibie Administration . . .

The agenda:The agenda:Foremost in the political agenda was the repeal of th h il d liti l l th t ththe much-reviled political laws that were the foundation of the New Order political system—the laws on political parties elections and thelaws on political parties, elections, and the representative assemblies. On the economy, the priority was to alleviate theOn the economy, the priority was to alleviate the impact of the crisis on the populace, especially those who were economically weak, and to get the economy on its feet and moving again.


Inauspicious beginningInauspicious beginningInauspicious beginningInauspicious beginningHabibie started his presidency amidst widespread misgivings. Th t i d liti l t ilThe country was in deep political turmoil. His claim to presidency was questioned. Th i ti f S h t h d t h lt d thThe resignation of Suharto had not halted the demonstrations and protests. Many opponents of the New Order shifted their attacksMany opponents of the New Order shifted their attacks to target Habibie.


Inauspicious beginningInauspicious beginningInauspicious beginning . . .Inauspicious beginning . . .

His biographer, Bilveer Singh (2000), acknowledges that Habibie brought with him many negative images of a negative record “including his penchant for ’wastefulnegative record, including his penchant for wasteful mega-projects’, his poor or lack of understanding about the workings of the economy, his lack of acceptance by g y, p yABRI (the Indonesian military), of being a front or tool for Islamic fundamentalism, and probably worst of all, of b i hi h d f S h ”being nothing more than a pawn and puppet of Suharto.”


The legitimacy dilemmaThe legitimacy dilemmaThe legitimacy dilemmaThe legitimacy dilemma

H bibi ’ id f th b i i l d bHabibie’s presidency from the beginning was plagued by doubters of its legitimacy.One argument against Habibie’s legitimacy was basedOne argument against Habibie s legitimacy was based on a technicality: the way by which the transfer of the presidency was performed.Other more serious arguments against Habibie taking over the presidency were based on legal and constitutional groundsconstitutional grounds.


The legitimacy dilemmaThe legitimacy dilemmaThe legitimacy dilemma . . .The legitimacy dilemma . . .

In line with the message of the constitution the PresidentIn line with the message of the constitution the President received his mandate from the MPR, and therefore if he resigned, he had to return the mandate to the same i tit ti th MPR hi h ld th ithd thinstitution—the MPR, which would then withdraw the mandate and gave it to a new president. Others argued that Suharto and Habibie was a g“package” elected by the MPR—and Habibie was Suharto’s choice for vice president— when Suharto resigned, Habibie should also go, and the MPR should es g ed, ab b e s ou d a so go, a d e s ou dappoint a new president (and vice president).



On the other hand Habibies’ suporters argued that the constitution stipulated that should the president die or resign be removed or disabled from executing the dutyresign, be removed or disabled from executing the duty of the presidency, the Vice President should replace him until the expiry of his term. p yThat should mean that Habibie had the constitutional right to hold the presidency until 2003.


The legitimacy dilemmaThe legitimacy dilemmaThe legitimacy dilemma . . .The legitimacy dilemma . . .Within the government, among the cabinet ministers, there were also some doubts as to whether the government should continue until the former president’s term ended. They were of the opinion that the present government was only “transitional” and a fresh general election should be undertaken to establish a new mandate fromshould be undertaken to establish a new mandate from the people. It was based not on the question of constitutional legitimacy because the message of the constitution waslegitimacy because the message of the constitution was very clear, but more on political and moral grounds.



T f hi iti it diffi lt t t thTo many of his critics it was difficult to separate the figure of Habibie and Suharto, and the ascension of Habibie to presidency could only happen because of that p y y ppparticular relationship. For Habibie to be able to claim political and moral l iti h h d t t th d t f hi lflegitimacy, he had to get the mandate for himself. Many saw the existing MPR as lacking the legitimacy to decide on who should be the next President as it wasdecide on who should be the next President, as it was the same MPR that elected Suharto unanimously less then three months before. Therefore, they argued, a new election should be held as early as possible.



After an intensive behind the screen politicalAfter an intensive behind-the-screen political consultation, a consensus within the government emerged that an early general election should be called. The decision to call for an early election however had to overcome a legal hurdle. The MPR had decreed in the March 1998 generalThe MPR had decreed in the March 1998 general session that in accordance with the five-year presidential term, a general election should be held in 2002 to elect a new president in 2003new president in 2003.And only the MPR could revoke and amend an MPR decree.


MPR SessionMPR SessionMPR SessionMPR Session

According to the constitution the MPR meets in:According to the constitution, the MPR meets in:General sessionSpecial sessionSpecial session

During the New Order, MPR met only once in five year in general session to elect the Presidentgeneral session to elect the President.With reform, MPR meets every year in annual session to receive reports from the executive, the parliament, the Supreme Court the Supreme Audit Board and theSupreme Court, the Supreme Audit Board, and the Supreme Advisory Board.


People’s Consultative Assembly (MPR)

MPR is manifestation of the people sovereignty has the authority to:

Parliament (DPR)

Regional Representatives

Functional Group

Amend the Constitution. Elect the President and/or Vice President. Impeach the President(DPR) Representatives Group Impeach the President and/or Vice-President.Determine the State Policy Guidelines.

Elected directly by the people

Elected by Regional Assembly

Appointed: Representative of mass organization and CivilAssembly organization and Civil

Society


MPR Special SessionMPR Special SessionMPR Special SessionMPR Special SessionThe MPR convened a special session on November 10 13 199810-13, 1998The MPR issued decrees on:1. The rescheduling of the elections2. To revoke the 1983 MPR decree, requiring a national

referendum to amend the constitution.3. Withdrawing the extraordinary powers given to the President,4. On human rights, on corruption, collusion and nepotism —in

which the former President was singled out—which the former President was singled out5. Revoking the guidance for the propagation and

implementation of Pancasila or P4.6 Limiting the Presidential terms of office in the unamended6. Limiting the Presidential terms of office—in the unamended

constitution there was no limitation—to a maximum of two terms.


MPR Special SessionMPR Special SessionMPR Special Session . . .MPR Special Session . . .

7. On the economy, the MPR issued a new guideline on economic democracy.

8. An important decree that would have significant and long-p g gterm effect on the country’s governance was a guideline on regional autonomy and decentralization, including fiscal decentralization.

9 O th l f th ilit t h d l ithd l f th9. On the role of the military, to have gradual withdrawal of the military from politics.

The MPR decisions serve as constitutional basis that would constitute the foundation for democratization, improvement of governance, and protection of human i ht i iti t d t d b th H bibi trights, initiated or enacted by the Habibie government.


Opposition against HabibieOpposition against HabibieOpposition against HabibieOpposition against Habibie

The special session of the MPR met amidst a tenseThe special session of the MPR met amidst a tense political atmosphere, as students, encouraged by die-hard opponents of Habibie among the political elite, were d di th t H bibi h ld b b ht ddemanding that Habibie should be brought down.In the days leading to the special session the capital was transformed into a military complex, with security y p , yapparatus manning strategic sections of the city. To support the military efforts the Commander of the Armed Force Wiranto decided to recruit civilians asArmed Force, Wiranto decided to recruit civilians as volunteers (Pamswakarsa). Unavoidably these groups of vigilantes would clash with t d t i i t f th it ki th it tistudents in various parts of the city, making the situation

even tenser.


Opposition against HabibieOpposition against HabibieOpposition against Habibie . . .Opposition against Habibie . . .

On the final day of the MPR session things came to aOn the final day of the MPR session things came to a head. The carnage occurred in the Semanggi area, in front of g ggAtmajaya University, a private Catholic institution, which had been a hotbed of anti-Habibie students.In the confrontations that took place in the afternoon ofIn the confrontations that took place in the afternoon of November 13, shots were fired and at the end of the day 13 had died, among them were four students and one military personnelmilitary personnel. Hundreds were injured, many needing hospitalization.


Opposition against HabibieOpposition against HabibieOpposition against Habibie . . .Opposition against Habibie . . .

The incident which came to be known as the SemanggiThe incident, which came to be known as the Semanggi tragedy, left another scar on the national psyche alongside the Trisaksti tragedy. Elsewhere a number of members of Pamswakrsa were lynched by angry mobs, many in a gruesome manner.After the MPR session ended the opposition againstAfter the MPR session ended the opposition against Habibie had redirected its focus to the election the following year. The unseating of Habibie had become the agenda ofThe unseating of Habibie had become the agenda of many politicians from various political spectra.


Habibie’s Political PillarsHabibie’s Political PillarsHabibie s Political PillarsHabibie s Political Pillars

Habibie relied on the support of three political forces: the military, Golkar, and political Islam.Th ili d G Wi ( f ADCThe military under Gen. Wiranto (a former ADC to President Suharto) was supportive of Habibie. Both of them being very close to the former presidentBoth of them, being very close to the former president, needed and supported each other in the ensuing political game. At the onset of his presidency Habibie had vetoed the opposition from his advisers and senior military figures to having Wiranto continued in the top military positionhaving Wiranto continued in the top military position.


Habibie’s Political PillarsHabibie’s Political PillarsHabibie s Political Pillars . . .Habibie s Political Pillars . . .

Political Islam was basically sympathetic to Habibie, regarded as a person who had been able to turn the tide of long-time prejudice against Islam in Indonesianof long time prejudice against Islam in Indonesian politics. His position as the Chairman of ICMI had helped improve the stature of many professionals and politiciansimprove the stature of many professionals and politicians with Islamic credentials. As ICMI gathered Muslim intellectuals from various backgrounds, Habibie’s support among political Islam had become more widespread.


Habibie’s Political PillarsHabibie’s Political PillarsHabibie s Political Pillars . . .Habibie s Political Pillars . . .

The opposition to Habibie mounted by students based in the campus of a Christian university also had driven many Muslim students to support Habibie or at leastmany Muslim students to support Habibie, or at least choose not participate in the movement directed against Habibie. Unlike the united front against Suharto shown by the students in May 1998, the students were no longer as united with regard to Habibieunited with regard to Habibie.


Communal StrifeCommunal StrifeCommunal StrifeCommunal Strife

In the meantime the security apparatus had to deal withIn the meantime, the security apparatus had to deal with communal strife in several regions of the country: In East Java (Banyuwangi), Maluku (Ambon), South Sulawesi, ( y g ) ( )and West Kalimantan.


AcehAceh

A th t bl t fl d i A h th t t

AcehAceh

Another trouble spot flared up in Aceh, the westernmost province of Indonesia. Aceh had been long simmering in conflicts betweenAceh had been long simmering in conflicts between separatist elements of the population and the government forces. During the New Order the separatist movement was harshly dealt with through military action. At the end of the New Order the situation had been putAt the end of the New Order, the situation had been put under control and the rebel movement had become more or less dormant, although there were still remnants of grebels under the name of Free Aceh Movement (Gerakan Aceh Merdeka or GAM).


AcehAcehAceh. . .Aceh. . .

In early 1999 however the situation began to heat upIn early 1999, however, the situation began to heat up again.The immediate cause of the upsurge of hostilities was a p gseries of kidnappings and killings of soldiers, some of whom were on leave. The military mounted an operation to respond to theThe military mounted an operation to respond to the attacks and the situation further escalated. In the process many civilians became victims of the ensuing violence provoking outcries of brutality andensuing violence, provoking outcries of brutality and human rights abuses by the military.



In September a law was passed that gave Aceh aIn September a law was passed that gave Aceh a special status (Law No 44/1999).The new law on fiscal decentralization (Law No 25/1999)The new law on fiscal decentralization (Law No 25/1999) provided the province with a certain degree of authority over, and substantial returns from, their natural wealth, particularly from the gas fields in Arun.



Thus two of the main grievances, the demand for syariah law and equitable distribution of resources, had been basically addressedbasically addressed. However the relaxation of the security situation was exploited by GAM as a way to expand their control of theexploited by GAM as a way to expand their control of the territory and population. At the time Habibie left office in October 1999, the e e ab b e e o ce Oc obe 999, econflict in Aceh had been not resolved.(The Aceh conflict would only be resolved after the Government was ready to negotiate and reach an agreement with GAM; The Helsinki agreement signed on August 15, 2005 in Helsinki, Finland)


PapuaPapua

Irian Jaya (Papua) was another hot spot. The province had been plagued by separatist movements demanding independence for years. yAs in Aceh, this separatist movement was triggered by feelings of injustice suffered by the people of West Irian (Papuans), which, though was one of the naturally richest provinces of Indonesia,

i d th t b k d i th h l tiremained the most backward in the whole nation.A Law was later passed to allow for a special status for the Province of Papua, including economic privileges (Law No. 21/2001).On J l 17 2006 Pap a as di ided into 2 pro inces Pap a andOn July 17, 2006 Papua was divided into 2 provinces: Papua and Western Irian Jaya.


The economic quagmireThe economic quagmireThe economic quagmireThe economic quagmire

The economic situation at the time Habibie came toThe economic situation at the time Habibie came to power had grown much worse less than a year after the financial crisis hit the economy.Due to the upheavals in May, the distribution networks had been seriously damaged. Basic supplies were disrupted Rice cooking oil sugarBasic supplies were disrupted. Rice, cooking oil, sugar and other essential items became scarce and prices were rising. Rice imports had to be increased because of theRice imports had to be increased because of the prolonged drought. Due to the sudden surge of imports—amounting to 4.1 g p gmillion tons for fiscal year 1998/99—prices in the international markets soared.


The economic quagmireThe economic quagmireThe economic quagmire . . .The economic quagmire . . .

The increased cost for import meant more pressure onThe increased cost for import meant more pressure on the country’s depleted foreign exchange reserve. To make matters worse, overseas banks continued to refuse to honor Indonesia’s letters of credit, meaning that all imports had to be paid for by cash. Public transportation was also disrupted because of thePublic transportation was also disrupted because of the lack of spare parts, a substantial number of which had to be imported.As a result exportation of manufactured goods wasAs a result, exportation of manufactured goods was disrupted at the time when Indonesia’s exports should have actually enjoyed an advantage because of the h d i ti f thhuge depreciation of the currency.



The heat generated from political tension did not help the economy. F i i t t d d i t d f i iForeign investors stayed away, and instead of incoming capital, rampant capital flight took place.By the time Habibie’s government took office theBy the time Habibie s government took office the economy was out of foreign currency.



Domestic companies were struggling for survival ManyDomestic companies were struggling for survival. Many had simply stopped paying their debt, domestic as well foreign. The default made the condition of the already battered banking sector even worse as the volume of their non-performing loans suddenly jumped. p g y j pThe Indonesian banking and corporate sectors were both in a downward tailspin, each pulling the other further downfurther down. The amount of foreign debt owed by Indonesian companies was staggering. By March 1998 the total amount of private foreign debt had reached $84 billion, around $30 billion due in 1998.



Without a way out of the debt burden IndonesianWithout a way out of the debt burden Indonesian domestic companies would remain paralysed.With the steep depreciation of the rupiah, the rise in food, p p pfuel and other commodities, inflation surged. Between January and May 1998 inflation had reached 40%. During the same period the year before it had been lessDuring the same period the year before it had been less than 3%. By the end of August inflation had reached 70%. B f h ll f i d i dBecause of the collapse of many industries and businesses, unemployment increased, and with the high level of inflation, the number of poor families also pincreased substantially.



The progressive reduction of poverty one of the mostThe progressive reduction of poverty, one of the most significant achievements of the New Order, had been set back. Poverty levels went from 11% in 1996 poverty to 24.2% of the population or 49.5 million by the end of 1998.In year 1997-1998 the number of wage earners declineIn year 1997 1998 the number of wage earners decline by 5.1%, while at the same time real wages declined sharply by 35%. Illustrating the resulting re migration from the city back toIllustrating the resulting re-migration from the city back to the rural areas is the drop in the employment of the manufacturing sector by 9.8%, while in the agricultural

t l t t ll i d b 13 3%sector, employment actually increased by 13.3%.



I di ti th t d thIndicating the pressure exerted on the meager economy in the rural areas as urban employment was shrinking. The impact on social and health sectors was devastatingThe impact on social and health sectors was devastating.There were medicines shortages because of the difficulty of importing the raw materials. Those medications that p gwere available had gone up in price. Infant mortality was rising. According to a report of the Minister of Health in March 1999 two million childrenMinister of Health, in March 1999, two million children under five years old suffered from severe malnutrition. There were reports from various regions that childrenThere were reports from various regions that children were dying from malnutrition.



There were talks about a lost generation as a result ofThere were talks about a lost generation as a result of millions of children growing up undernourished, thus retarding their mental and physical development for

tyears to come. Many school children had to leave school because their families could not afford the cost. Many were forced to find work or other ways to help their families, including fleeing to the cities to become street urchinsurchins.The increasing unemployment and poverty caused a steep rise in crime.



Especially disturbing—not least from the environmental protection point of view—was illegal logging, including in protected forestsprotected forests. The crisis had by now become countywide. This created an environmental and health hazard thatThis created an environmental and health hazard that added another dimension to the problems already faced by the country.by e cou y


Laying the groundwork Laying the groundwork y g gy g gfor economic recoveryfor economic recovery

Undaunted by the surrounding political controversy theUndaunted by the surrounding political controversy, the new government’s economic team immediately embarked on a series of measures to halt the deterioration and restart the recovery of the economy.


Laying the groundwork for economic Laying the groundwork for economic recovery . . .recovery . . .

The economic recovery agenda consisted of five main programs:1) restoring macroeconomic stability; 2) restructuring of the banking system; 3) l ti f t d bt3) resolution of corporate debt;4) continuing with structural reform; 5) stimulating demand and reducing the impact of the5) stimulating demand and reducing the impact of the

crisis on the poor through the social safety net.



International cooperation supporting Indonesia’s effortsInternational cooperation supporting Indonesia’s efforts at recovery was channeled through multilateral venues: IMF, CGI, and the Paris Club.The first IMF LOI under the Habibie’s government was agreed on June 24, 1998. Due to the severity of the crisis the agreement wasDue to the severity of the crisis, the agreement was reviewed almost every month during 1998, resulting in renewed LOI.



Th CGI ti h t d b th I d iThe CGI meeting was co-hosted by the Indonesian government and the World Bank.During Habibie's presidency the consortium met twice inDuring Habibie s presidency the consortium met twice in Paris, on 29-30 July 1998 and 27-28 July1999. Members of the CGI were Indonesia’s donor countries and international organizations such as the World Bank, the Asian Development Bank, the Islamic Development and the European Unionand the European Union. Two of the biggest donors were Japan and the World Bank. Japan usually provided one third of the pledge coming out of the CGI meeting.



Another meeting also held in Paris was to rescheduleAnother meeting also held in Paris was to reschedule Indonesia’s sovereign debt under the aegis of the “Paris Club.”The rescheduling of debts was essential in view of the fiscal burden that Indonesia was facing. There is but one caveat for a Paris Club debtThere is but one caveat for a Paris Club debt rescheduling: The country concerned needs to be under an IMF program. On September 23 Indonesia successfully negotiated theOn September 23, Indonesia successfully negotiated the rescheduling of its debt due to fall in the 1998-99 and 1999-2000 to the amount of $4.2 billion. It was a much-needed relief to the severe fiscal situation.


Restructuring of the banking sectorRestructuring of the banking sectorRestructuring of the banking sectorRestructuring of the banking sectorThe economic team recognized that implementing aThe economic team recognized that implementing a comprehensive solution for the banking system should be given a high priority. It was an essential condition for the recovery of the corporate sector and to get the economy moving again.The objective was to resolve the financial difficulties ofThe objective was to resolve the financial difficulties of the weakened banks and establish a sound functioning banking system as quickly as possible. Key elements in the strategy involved:Key elements in the strategy involved: a. measures to strengthen relatively sound banks, b. with regard to weak banks to swiftly recapitalize, merge or b t ega d to ea ba s to s t y ecap ta e, e ge o

effectively close them, while at the same time c. maintaining the commitment to safeguard the interest of

depositors and creditors.


Restructuring of the banking sectorRestructuring of the banking sectorRestructuring of the banking sector . . .Restructuring of the banking sector . . .

Th i t t bli h d th t d i i diThe economic team established that decisions regarding individual banks had to be based on uniform, transparent and publicly known criteria, drawing from the results of p y , gportfolio reviews done by international accounting firms.The remaining 211 banks were subjected to audit, of

hi h ll th 67 b k th t li d t d twhich all the 67 banks that were licensed to conduct foreign exchange trading were audited by the “big six” international auditing firms, and the rest were audited by e a o a aud g s, a d e es e e aud ed byBank Indonesia.



Owners and management of the bank also had to goOwners and management of the bank also had to go through a certain fit and proper test.In March 1999 the government announced that seventy-g ythree banks, comprising 5% of banking sector assets, were strong enough to continue without government support.ppNine banks comprising 10% of banking sector assets were eligible for joint recapitalization scheme with the governmentgovernment.



Seven banks comprising 3% of banking sector assetsSeven banks comprising 3% of banking sector assets had failed the criteria for joint recapitalization, but due to their size —having more than 80.000 depositors —they

t k b IBRA dwere taken over by IBRA; and Thirty eight banks comprising 5% of the banking sector with below the minimum capital adequacy ratio (CAR), p q y ( ),were closed.



The efforts to establish a healthy banking system wasThe efforts to establish a healthy banking system was not only limited to bank restructuring. A strong foundation was needed to prevent similar crisis g pin the future and to provide for sound governance in the banking sector.


Restructuring of the banking sector . . .Restructuring of the banking sector . . .

Strengthening regulatory and prudential framework for a sound banking system constituted another importantsound banking system constituted another important element of the strategy to reform the banking sector. In October 1998, the parliament passed the amendment to the banking la allo ing for major impro ements into the banking law, allowing for major improvements in areas of bank licensing and ownership, openness to foreign direct investment, bank secrecy and

t f IBRAempowerment of IBRA. The most far reaching was the new law on Central Bank providing for independence of Bank Indonesia passed in p g p pMay 1999.



The new law on the Central Bank was intended toThe new law on the Central Bank was intended to reduce the danger of moral hazard and prohibit government interference in the banking and monetary

li ipolicies. Accompanying the law on the independence of the Central Bank another law was passed to augment the p gauthority of the Central bank to monitor the traffic of foreign currency and corporate external debt.


Restructuring of the corporate sectorRestructuring of the corporate sectorRestructuring of the corporate sectorRestructuring of the corporate sector

The financial restructuring of the private sector wasThe financial restructuring of the private sector was crucial to the economy, and an essential counterpart to the banking system restructuring, as a sound corporate

t i f d b ki t d isector is necessary for a sound banking system and vice versa. The economic team pressed ahead with a pcomprehensive program of measures to address the pervasive debt problems of the private sector. The private external debt team supported by theThe private external debt team, supported by the government had collected data from corporations on their external obligations, and had taken the initiatives to hold talks with representatives of the creditorshold talks with representatives of the creditors. One of the major policy measures was to empower of Indonesian Banking Restructuring Agency (IBRA).


Restructuring of the corporate sectorRestructuring of the corporate sectorRestructuring of the corporate sector . . .Restructuring of the corporate sector . . .

The law on IBRA gives the authority to the agency toThe law on IBRA gives the authority to the agency to clear the corporate debts that had become public debts due to the blanket guarantee provided the banking

t i th l ff t t th fi i lsystem in the early efforts to overcome the financial crisis.The objectives was to revitalize the private sector to get j p gthe real sector moving again.



One important aspect of the scheme was to resolve theOne important aspect of the scheme was to resolve the problem in the provision of trade financing which had been severely disrupted. Another essential part of the corporate debt restructuring strategy was to the establishment of an effective bankruptcy system (exit mechanism)bankruptcy system (exit mechanism). The existing law on bankruptcy was century old having been inherited from the colonial era, and could no longer cope with the complexity of modern commerce. In July the parliament ratified the revised bankruptcy law.



I f th ff t t i i l 1999In further efforts to improve governance, in early 1999 the parliament passed the law on the prohibition of monopoly practices and unfair competition.p y p pThe law provides legal guidelines for the prevention of corrupt practices through the granting of licenses,

i l t t t d li t t i fspecial treatment and monopolies to certain group of people. A law on consumer protection was also promulgatedA law on consumer protection was also promulgated. The role of civil society in consumer protection was constituted in the law.



The parliament also passed a new law on environment protection providing for a stronger role of the community and civil society on matters related to environmentand civil society on matters related to environment. The 1967 law on forestry was revised establishing the principles of environmental protection equity justice andprinciples of environmental protection, equity, justice and transparency in the forestry management and exploitation.


Restructuring of the public corporationRestructuring of the public corporationRestructuring of the public corporation Restructuring of the public corporation

The economic team gave particular attention to publicThe economic team gave particular attention to public enterprises that still played an important role in the economy. To improve their efficiency and governance international auditors subjected key public companies to special audit. International auditing companies were assigned to auditInternational auditing companies were assigned to audit the financial account of Pertamina (state oil company), PLN (the state electricity company), Bulog (the logistics agency) and the Reforestation Fundagency) and the Reforestation Fund.


Restructuring of the public corporationRestructuring of the public corporationRestructuring of the public corporation . . .Restructuring of the public corporation . . .

The second round of special audit included the principalThe second round of special audit included the principal national airline, the port corporations, the domestic telecommunication company, and the toll road operators. A master plan on the reform of state enterprises had been devised including the restructuring and privatization of state enterprises to improve efficiency, profitability, p p y, p y,and service-delivery and therefore lay the foundation for future growth.


Improving governanceImproving governanceImproving governance Improving governance

T id f t l l b i t d fi dTo provide for a stronger legal basis to define and criminalize corrupt practices, in May 1999, the parliament passed the law on Clean Government. p pThis law includes provisions requiring fair and equal treatment from government officials for all people, as

ll th i ht f th bli t k i f ti b twell as the right of the public to seek information about policy-related matters and to express views on those issues in a responsible manner. ssues a espo s b e a eAnother provision of this law requires that public officials —elected as well appointed— should report their wealth b f d ft t ki ffi bj t t i ti ti bbefore and after taking office, subject to investigation by a special commission to ensure that government officials do not enrich themselves improperly.


do not enrich themselves improperly.

Improving governanceImproving governanceImproving governanceImproving governance . . .. . .

It was followed by another law on the Eradication ofIt was followed by another law on the Eradication of Corrupt Practices. This law provides stronger guidelines on investigation p g g gand prosecution of corrupt practices. The new law also provides for the establishment of an independent committee to eradicate corruptionindependent committee to eradicate corruption.


Helping the poorHelping the poorHelping the poor Helping the poor

High priority was given on measures to protect the poorHigh priority was given on measures to protect the poor from the worst impact of the crisis. The strategy consisted of two elements: a) general economic policies that would have impact on the poor,

and b) targeted policies for the benefit of the poor. Foremost in the first prong of the strategy was restoring macroeconomic stability. Improvement of the value of the currency and arrestingImprovement of the value of the currency and arresting inflation would substantially improve the economic condition of the poor, directly and indirectly as the economy began to recovereconomy began to recover. Adequate supply of food and other basic necessities would reduce the cost of those items.


Helping the poorHelping the poorHelping the poorHelping the poor . . .. . .

T th it d l it f th i i th lTo the severity and complexity of the crisis the general economic policies alone were not enough to protect the poor from the worst impact of the crisis without a p pspecifically targeted policy for the poor.The targeted policies for the poor, or the social safety net encompassed three broad areas of actionnet encompassed three broad areas of action: 1. maintaining the availability and affordability of key

commodities important to the poor; co od es po a o e poo ;2. generating employment and maintaining incomes; 3. preserving key social services.



Th t i t t b i dit iThe most important basic commodity was rice. A program was initiated in July 1998 to provide 10 kg (later increased to 20) of rice at about one-half of the(later increased to 20) of rice at about one-half of the market price to low-income families, covering 17 million poor families.



To improve purchasing power in rural and urban areas, the government had set up public works projects throughout the country to boost incomes of the poor thethroughout the country to boost incomes of the poor, the unemployed and the underemployed. To supplement these efforts food-for-work programs areTo supplement these efforts, food for work programs are being implemented in drought-stricken areas of the country.



Preserving access to critical social services for the poorPreserving access to critical social services for the poor constituted an important aspect of the social safety net.In what was considered by the World Bank as the most ysuccessful intervention, among the social safety nets had been the scholarship and grant program designed to maintain enrolments and quality of schooling at pre-crisis q y g plevel.The program extended to the poorest 6% of students enrolled in primary schools 17% in junior secondary andenrolled in primary schools, 17% in junior secondary and 10% in senior secondary schools. It also provided grants to the 60% of the poorest in each

t ( W ld B k 1999)category (see World Bank, 1999). The program had reached 4 million students.


Helping the poorHelping the poorHelping the poorHelping the poor . . .. . .In health services, the priority was given to the poor to have access to basic health services and essential medicines, and prevented malnutrition and micronutrient deficiencies. The government made available supplementary food for young children through the school system and pregnant and lactating women in poor villagesand lactating women in poor villages. This program had reached 8.1 million pupils in 52.5 thousand schools nationwide.


On the cusp of recoveryOn the cusp of recoveryOn the cusp of recovery On the cusp of recovery

By the end of Habibie’s presidency, Indonesia was emerging from the crisis.Th h t i fl ti d i t t t h dThe exchange rate, inflation and interest rate had responded well to the governments economic recovery policiespolicies.The gradual return of market and investor confidence, revitalizing the stock market and restarted exports.e a g e s oc a e a d es a ed e po s


On the cusp of recoveryOn the cusp of recoveryOn the cusp of recovery. . .On the cusp of recovery. . .

Special attention was given to empower the small business.Th b i t h d l t d i iThe numbers in poverty had also stopped rising.The progress toward recovery had reached the stage where in fiscal policy the government had shifted itswhere in fiscal policy the government had shifted its focus from fiscal stimulus to fiscal sustainability.


Monthly Rate of InflationMonthly Rate of Inflationyy(in percent)(in percent)

Year Month1 2 3 4 5 6 7 8 9 10 11 121 2 3 4 5 6 7 8 9 10 11 12

1998 7.2 12.7 5.3 4.7 5.2 4.6 8.6 6.3 3.8 -0.3 0.1 1.4

1999 3 1.3 -0.2 -0.7 -0.3 -0.3 -1.1 -0.9 -0.71999 3 1.3 0.2 0.7 0.3 0.3 1.1 0.9 0.7Source: President’s Accountability Speech to the People’s Consultative Assembly of the

Republic of Indonesia in October 1999.


Inflation has been smothered . . .Inflation has been smothered . . .(12 month percentage change in consumer & food price index)(12 month percentage change in consumer & food price index)


……and the Rupiah has been relatively stable in recent and the Rupiah has been relatively stable in recent months despite political ups and downsmonths despite political ups and downsmonths despite political ups and downs months despite political ups and downs

(Rupiah per US$, spot rate daily)(Rupiah per US$, spot rate daily)


Interest rates have declined . . .Interest rates have declined . . .( th B k I d i tifi t d R i h d it f( th B k I d i tifi t d R i h d it f(one month Bank Indonesia certificates and Rupiah deposit of (one month Bank Indonesia certificates and Rupiah deposit of

domestic bank rate)domestic bank rate)


......as has the risk premium on the Indonesia as has the risk premium on the Indonesia Yankee bondYankee bondYankee bondYankee bond

(Spread of Indonesia Yankee bond, in relation to the 10 year US (Spread of Indonesia Yankee bond, in relation to the 10 year US Treasury Bill)Treasury Bill)


GDP has stabilized and is starting to recover...GDP has stabilized and is starting to recover...gg(Index of GDP; 1995 Q1 (Index of GDP; 1995 Q1 –– 100)100)


……helped, in part, by industrial outputhelped, in part, by industrial outputp , p , y pp , p , y p(production index in selected real sectors)(production index in selected real sectors)


Poverty Rate TrendsPoverty Rate Trends(F b 1996(F b 1996 F b 2001)F b 2001)(February 1996(February 1996--February 2001)February 2001)


Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy

The recognition of the basic principle of the separation of powers of the executive, legislative and judicial branches of government.gRevoking the much hated New Order political laws, and establish new law on multiparty political system, and free general electionsfree general elections.Freeing the press from government control and censorship.


Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy. . .Laying the foundation for democracy. . .

The dual function of the military was revoked.The police were separated from the military.Basic human rights were given strong legal protectionBasic human rights were given strong legal protection.“Political prisoners” were released from detention.East Timorese were granted a referendum to determine gtheir own destiny.


Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy . . .Laying the foundation for democracy . . .

I J l 1999 lti t l ti h ld Th l tiIn July 1999 a multiparty election was held. The election was supervised by an electoral committee of the participating political parties and watched by thousands p p g p p yof foreign observers. It was universally agreed that the election was open, fair

d l Th lt fl t d th ill f th l dand clean. The result reflected the will of the people and thus heralded the re-birth of democracy in Indonesia.


Political Parties and General Election 1999Political Parties and General Election 1999Political Parties and General Election 1999Political Parties and General Election 1999

No Parties Seats Vote (%)o a t es Seats ote (%)1 PDIP 153 342 GOLKAR 120 223 PPP 58 134 PKB 51 115 PAN 34 76 PBB 13 27 PK 7 18 Others 26 109 ABRI 389 ABRI 38

Total 462Note: From 48 political parties participating 21 parties represented


Note: From 48 political parties participating, 21 parties represented

Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy . . .Laying the foundation for democracy . . .During Habibie’s presidency the government worked

6together with parliament to produce 67 laws that formed the legal foundation for the establishment of the strong political and economic institutions that are g pessential to the development of a democratic nation with a market economy. Of the 67 laws 16 are on the economy 32 are politicalOf the 67 laws 16 are on the economy, 32 are political laws and 19 concern human rights. Five of the laws originated from the parliament, in itself a significant departure from political practices undera significant departure from political practices under the New Order, when the parliament played second fiddle and was regarded as mere rubber-stamp to the governmentgovernment. It showed that the parliament has begun to establish itself as the legislative authority in the country.


g y y

Some of the important political lawsSome of the important political lawsp pp pLaw No 2/1999 on political parties Law No 3/1999 on general election Law No 4/1999 on the composition and status of the

P l ’ C lt ti A bl MPRPeople’s Consultative Assembly MPR, the parliament DPR, and the regional representative councilsrepresentative councils

Law No 5/1998 the convention against torture and crueltycruelty

Law No 9/1999 the right to freely speak, demonstrate or strikest e

Law No 22/1999 on the decentralization of government down to the district level


Some of the important political lawsSome of the important political lawsSome of the important political laws . . .Some of the important political laws . . .

Law No 25/1999 on fiscal decentralization Law No 26/1999 to revoke the 1963 anti-subversive

activities law Law No 28/1999 on Clean GovernmentLaw No 29/1999 the convention on abolition of all forms

of racial discriminations Law No 35/1999 put the administration of the whole legal

system under the Supreme Court Law No 39/1998 on Human Rights Law No 40/1999 freedom of the press


Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy . . .Laying the foundation for democracy . . .It was apparent and increasingly acknowledged that it

’was during Habibie’s era that the country had rapidly moved towards democracy. Such a rapid burst of liberalization would have beenSuch a rapid burst of liberalization would have been highly unlikely were there was no crisis and Suharto still was president. These reforms have come from the top which is not toThese reforms have come from the top, which is not to say that there has been no yearning from the bottom. Yet many would agree that Indonesians civil society

d i d d h i ht ti i hengaged in democracy and human rights activism have only very recently become sufficiently organized enough to have significant influence at the level of policy.


Laying the foundation for democracyLaying the foundation for democracyLaying the foundation for democracy . . .Laying the foundation for democracy . . .

It d i H bibi ’ d i i t ti th t t f thIt was during Habibie’s administration that most of the initiatives that significantly accelerated Indonesia’s democratization were initiated. The process of democratization had been in conjunction with the process of economic recovery, one reinforcing th th th i t t ith th it tithe other on the way up, in contrast with the situation when the confluence of economic and political crises had brought the country down deeper into the abyss.ad b oug e cou y do deepe o e abyss


IronicallyIronicallyIronically…Ironically…

Habibie, who initiated most of the basic economic and political reforms, failed to get reelected in the presidential election


The pitfallsThe pitfallsThe pitfallsThe pitfalls

The East Timor issue.The Bank Bali affair.The IMF decided that further review of its program should only be done after the presidential election.


The end of the beginningThe end of the beginningThe end of the beginningThe end of the beginning

October 1, 1999 the democratically elected MPR started its session.B th ti th MPR b it fi t i th t tBy the time the MPR began its first session the contest for presidency was between Habibie and Megawati, who represented the two parties with the biggest electoralrepresented the two parties with the biggest electoral vote.Habibie had been nominated by Golkar to be its ab b e ad bee o a ed by Go a o be spresidential candidate. However, as the election time drew closer, a different political configuration emerged.


The end of the beginningThe end of the beginningThe end of the beginning . . .The end of the beginning . . .

F ti l d f i M liFor some time leaders from various Muslim organizations had been waging campaigns against Megawati and her party. g p yBut the campaign against Megawati herself was particularly fierce. It focused on the fact that she was a

d i th i i I l did t ll twoman, and in their view Islam did not allow a woman to lead a nation.



Another issue was her religiosity. Pictures were distributed showing her “praying” in a Hindu temple. S f M ti’ l t d t d h tSome of Megawati’s early supporters deserted her, most notably Abdurrahman Wahid, the head of the powerful Muslim organization Nahdathul Ulama (NU) and founderMuslim organization Nahdathul Ulama (NU) and founder of the party PKB, who saw an opportunity become a candidate himself. Amidst the controversy surrounding Megawati and the widespread opposition to Habibie among the populace as well as among the original reform movement, leaders of the Muslim parties joined forces in an Islamic coalition.



Th liti ll d P T h C t l A iThe coalition was called Poros Tengah or Central Axis.Their main objective was preventing Megawati from becoming president as at that time most of the leadersbecoming president, as at that time most of the leaders of the Central Axis were sympathetic to Habibie.However they also considered the possibility of a third y p yAlternative.



On 14 October Habibie delivered his accountability speech. He reported on the challenges that he had to face when he took over the government and theface when he took over the government and the progress that the country had made during his stewardship. pHe also reported his decision to allow a referendum in East Timor and its results, and recommended that the MPR revoke the 1968 decision on the integration of East Timor and Indonesia.



H l t d th t th i ti ti f fHe also reported that the investigations of former President Suharto by the attorney general about alleged abuses of power did not find any indication of criminal p ywrong doing, and hence were stopped.On the 19th the MPR voted on Habibie’s accountability

treport. With a vote of 355, more than half of the members of MPR Habibie’s accountability report was rejectedMPR, Habibie s accountability report was rejected (against 322 who accepted it).Habibie effectively was excluded from the presidential y prace.



O th 20th th MPR t k th t f id tOn the 20th the MPR took the vote for president between two candidates: Megawati and Abdurrahman Wahid. The result of the vote: Wahid received 373 votes against Megawati’s 313 votes. Although many doubted Wahid’s ability to lead the country because of his physical condition, the vote was a reflection of a number of factorsreflection of a number of factors.



The joined forces of the Islamic parties and the Islamic factions within Golkar and the supporters of Habibie had defeated the nationalist coalition of PDI P and nationalistdefeated the nationalist coalition of PDI-P and nationalist faction within Golkar.The reaction among PDI-P rank and file to the defeat ofThe reaction among PDI P rank and file to the defeat of Megawati was ferocious. Riots broke out in various strongholds of PDI-P, especially in Jakarta, Solo, Bali and Batam. The worst riots were in Bali and Solo.



After the presidential election the MPR was to decidedAfter the presidential election the MPR was to decided who would be the vice president.Because of her disappointment at result of the pppresidential election, Megawati at first declined to be nominated as vice president. She was furious about her defeat and suspected that theShe was furious about her defeat and suspected that the same coalition would defeat her again, as by the morning of the day of the vice presidential election the Central Axis had come out with their candidate HamzahCentral Axis had come out with their candidate, Hamzah Haz from PPP. After intensive persuasion Megawati finally agreed to run. M ti th l ti i 396 t i tMegawati won the election, garnering 396 votes against Hamzah Haz’s 284 votes.



When the MPR sessions ended the country new leaders had been elected democratically. The first time in Indonesia’s history Democracy had taken its holdIndonesia s history. Democracy had taken its hold. The next challenge was to consolidate the gain, to make it endure and bring tangible benefit to the lives of theit endure and bring tangible benefit to the lives of the people.


Reinventing IndonesiaReinventing IndonesiaReinventing IndonesiaReinventing Indonesia

Democratic ReversalDemocratic Reversal

IntroductionIntroductionIntroductionIntroductionTh l ti f Abd h W hid t th idThe election of Abdurrahman Wahid to the presidency itself created another legitimacy problem because of his party’s lack of support shown in the number of electoral p y ppvotes won and the fragility of the coalition that put him in the presidency. Th liti t b d “ iti ” fThe coalition was not based on a “positive” consensus of having launched the best candidate for the job, but on a “negative” common platform to stop Megawati from ega e co o p a o o s op ega a obecoming president. Different elements of the coalition acted this way for diff t It f il liti th t lddifferent reasons. It was a fragile coalition that could easily break when the common interest was no longer maintained.


maintained.

IntroductionIntroductionIntroduction . . .Introduction . . .

M ti’ l ti t th i id ti llMegawati’s election to the vice presidency partially solved the problem of legitimacy. Having Megawati whose party had the largest vote inHaving Megawati, whose party had the largest vote in the parliament, as his vice president provided Abdurrahman Wahid’s presidency with the needed

liti l l itipolitical legitimacy. From the very beginning it was clear that Wahid owed and would depend a lot on Megawati’s support to beand would depend a lot on Megawati s support to be able to effectively rule in a democratic political setting.


On democratic On democratic transition and consolidationtransition and consolidation

The end of the Habibie government and the election of the new government by democratic means completed the transition to democracy.During his presidency the process of dismantling the authoritarian system and the establishment of rules andauthoritarian system and the establishment of rules and procedures for the installation of a democratic government was completed. It met with Linz and Stepan’s standard definition of when a democratic transition is complete.


On democratic transition and consolidationOn democratic transition and consolidationOn democratic transition and consolidation…On democratic transition and consolidation…

Democracy is consolidated if it becomes the only game in townsLinz and Stepan believe that for a democracy to beLinz and Stepan believe that for a democracy to be consolidated there are five interconnected and mutually reinforcing conditions (“arenas”) that must exist or be crafted; thatcrafted; that 1) allow and support the development of a free and lively civil

society, t d l d liti l i t2) an autonomous and valued political society,

3) a rule of law, 4) an effective state bureaucracy, and 5) an institutionalized economic society.



In earlier writing Dahl advances the idea that “theIn earlier writing Dahl advances the idea that, “the consolidation of democracy requires a strong democratic culture that provides adequate emotional and cognitive

t f dh i t d ti d ”support for adhering to democratic procedures.”The implication is that a democratizing country without a democratic culture rooted in its polity is fragile and could p y gwhither or even collapse in the face of severe crisis such as economic downturns, regional or communal conflicts or political crises caused by inept or corrupt or fractious o po ca c ses caused by ep o co up o ac ousleaders.



Huntington: Democratic culture means that the polity understands that democracy is not a panacea. H d i b lid t d h lHence, democracies become consolidated when people learn that democracy is a solution to the problem of tyranny but not necessarily to anything elsetyranny but not necessarily to anything else.



Systemic problems would most probably be confrontedSystemic problems would most probably be confronted by the new democracy as it became more consolidated and achieved a certain stability, and might include

liti l t l t i bilit t h d i ipolitical stalemate, inability to reach decisions, susceptibility to demagoguery and domination of vested interests.


On democratic transition and On democratic transition and consolidation…consolidation…

The years after the first democratic government hasThe years after the first democratic government has come to power are usually characterized by the fragmentation of the democratic coalition that had

d d th t iti th d li i th ff tiproduced the transition, the decline in the effectiveness of the initial leaders of the democratic governments and the realizations that democracy in itself would not and

ld t ff l ti t j i l d icould not offer solutions to major social and economic problems facing the country. The challenge to democratic consolidation is how to e c a e ge o de oc a c co so da o s o oovercome and not to be subdued by those problems.


The EuphoriaThe EuphoriaThe EuphoriaThe Euphoria

The emergence of the Wahid Megawati government wasThe emergence of the Wahid-Megawati government was well received domestically as well as internationally. Even those who at the outset were opposed to ppAbdurrahman Wahid’s election accepted the result of the election as the best as it could be under the circumstances.The country came back to normal, demonstrations stopped, students returned to schools, the warring factions lay down their armsfactions lay down their arms. There was high hope for democracy and confidence in the course that the country was taking. In contrast to H bibi W hid d d ith i ifi t liti lHabibie, Wahid was endowed with significant political capital at the onset of his presidency.


The EuphoriaThe EuphoriaThe Euphoria…The Euphoria…

Abdurrahman Wahid had marginal political support inAbdurrahman Wahid had marginal political support in parliament and with the polity as the election results showed. He needed the support of the larger parties that had larger political constituents than he had. This recognition was reflected in the way he formed hisThis recognition was reflected in the way he formed his first cabinet. Some commentators were critical of the cabinet composition claiming that it didn’t reflect professionalcomposition, claiming that it didn t reflect professional competence.



Although he himself had been the chairman of the NUAlthough he himself had been the chairman of the NU, the largest Muslim organization, his support was particularly strong among secular and non-Islamic civil society that had long been his political habitatsociety that had long been his political habitat. He was also revered by international NGOs for his unorthodox political views, such as his moderate (for

hi ) i I lsome his pro) view on Israel.



His effort to put the military under civilian control alsoHis effort to put the military under civilian control also won him accolades, especially among international observers. He appointed a civilian to become the minister of defense, the first after so many years.It l fi t h h i t d th N Chi fIt was also a first when he appointed the Navy Chief as the Commander of the Armed Forces, the top military post that traditionally had been reserved for the army.p y y



His idea for a solution to the Aceh problem was to agreeHis idea for a solution to the Aceh problem was to agree to the referendum that was demanded by the GAM (Independent Aceh Movement). Although it was not followed up by actual measures due to strong opposition from the military and most of Indonesia’s public as well many Acehnese themselves, p y ,his statement on the referendum strengthened his image, especially among the international media and observers.


The EuphoriaThe EuphoriaThe Euphoria…The Euphoria…He also made a statement allowing the raising of theHe also made a statement allowing the raising of the rebel’s flag on the anniversary of the founding of GAM on 4 December as part of the freedom of expression. F th h i iti t d th ti ti ith GAMFurthermore he initiated the negotiation with GAM brokered by an international NGO with a base in Geneva.He had shown lenience toward the independenceHe had shown lenience toward the independence movement in Irian Jaya by agreeing to the use of name Papua instead of Irian Jaya and, as in Aceh, allowing the fl i f th P fl th Bi t K j (th M iflying of the Papuan flag the Bintang Kejora (the Morning Star).



Wahid also allowed the ethnic Chinese to celebrate theirWahid also allowed the ethnic Chinese to celebrate their holidays openly, as part of the country’s holidays. In a daring move he stated that the ban on the gCommunist Party and communist teachings should be lifted. This endeared him even more to his admirers especiallyThis endeared him even more to his admirers, especially among western observers and NGO’s.



Although he was the head of the largest MuslimAlthough he was the head of the largest Muslim organization and was an established and knowledgeable Muslim scholar, he set an example of tolerance in

li i ti d b h i i l di th b ireligious practice and behavior, including the basic ones such as the five-time daily praying and fidelity, and religious syncretism.


Political limboPolitical limboPolitical limboPolitical limbo

However good his intentions, Wahid’s unorthodox approach to governance would bring him and the country a lot of troublea lot of trouble. His daring departure from accepted political norms endeared him to some elites and foreign admirers but itendeared him to some elites and foreign admirers, but it also eroded his political support, which, without Megawati, was on thin ice any way.


Political limboPolitical limboPolitical limbo . . .Political limbo . . .

One of the first public rows was over the issue ofOne of the first public rows was over the issue of opening trade and cultural relations with Israel. Although the rationale given was appeasing the Jewish g g pp globby that was dominant in Wall Street to get them to help the Indonesian economy, it encountered strong reaction from among political Islam and the Muslim g pcommunity in general. Students from various organizations staged demonstration all over the countrydemonstration all over the country. They were joined by ulama and political leaders from the Central Axis who were his allies in the presidential l tielection.

There were other issues concerning his conduct that had damaged his credibility among many Muslims.


g y g y


If the above issues had disillusioned the political Islam and the Muslim community outside his own close circle, his statements on the referendum in Aceh and allowinghis statements on the referendum in Aceh, and allowing the raising of the rebel flag had eroded his credibility among the nationalists. gHis views in regard to similar issues in Irian Jaya had further distanced him from the mainstream nationalists who regarded keeping the country together as the utmost priority.



B t h h di l d th t h t d t lift th bBut when he disclosed that he wanted to lift the ban on the communist party and the propagation of communist teaching he made enemies out of both Muslims and gnationalists. His relationship with the military had also been d t i ti Hi bli t A h d I i Jdeteriorating. His public stance on Aceh and Irian Jaya had hurt his standing with the military. His constant accusations of impending coups ofHis constant accusations of impending coups, of generals conspiring to bring his government down and his habit of blaming the military for the disturbances that h d d i hi id h d di t d hi fhappened during his presidency had distanced him from the armed forces.



His hands-off attitude on matters of importance to the state exasperated many people. Th l k f l d hi h d l ft th t d thThe lack of leadership had left the government and the political situation in limbo.



There was a widespread feeling that he was thrilled byThere was a widespread feeling that he was thrilled by the trappings of the presidency, and seemed to be more interested in enjoying it than in discharging the

ibilit th t ith itresponsibility that came with it. Wahid was seen by many as more concerned about his image abroad than about addressing the problems at g g phome.His penchant for conspiracy theory and creating scapegoats based on heresy and the absence ofscapegoats based on heresy and the absence of sufficient proof created confusion not only in the public but also among his ministers.



H d hi i i t f ti ith t i iHe accused his ministers of corruption without giving any proof. He eventually fired them from his cabinet but did notHe eventually fired them from his cabinet, but did not follow it up with prosecution, as he should have if indeed he had proof of their corruption.He also spoke derogatorily of his vice president. He completely ignored Megawati in her capacity as his vice president and disregarded her suggestionsvice president and disregarded her suggestions.



His treatment toward people who were supposed to work with him and support him —his vice president, his ministers his political allies and the military wouldministers, his political allies and the military— would soon throw his government into disarray. Cracks in the government soon appearedCracks in the government soon appeared.



The random firing of ministers without clear explanationThe random firing of ministers without clear explanation, many of them political leaders, antagonized the polity. It triggered a summons from parliament, which asked the gg ppresident to explain his actions. The parliament did not question his right to change his cabinet What they demanded the president answer forcabinet. What they demanded the president answer for was why he publicly said that they were involved in corruption. The parliament demanded proof of this accusationaccusation.



As expected, Wahid could not substantiate his accusation against them. Alth h th li t did t t k ti i tAlthough the parliament did not take any action against him on this matter, by the end of December the relationship between Wahid and the parliament sufferedrelationship between Wahid and the parliament suffered because of it.



It became worse when he made a comment that would be taken as an insult to the intellectual integrity of the members of parliament comparing them tomembers of parliament, comparing them to “kindergarten.”The government was accused of disunity of beingThe government was accused of disunity, of being riddled with internal strife, and according to some observers, “of having too many unprofessional ministers who were incapable of performing their tasks properly and who lacked leadership”.



The confusion uncertainty and inconsistency wereThe confusion, uncertainty and inconsistency were notable not only because of the lack or absence of decisions when decisions had to be made, but also b th l d ith t ti dbecause they were coupled with retractions and revocations of decisions when they were made.By the end of December 2000, barely six months into his y , ypresidency, Wahid was losing political ground. There were voices in the public demanding that the next MPR annual session should decide on the president’sMPR annual session should decide on the president s political future.



Th MPR t ll i th th f A t d thThe MPR met annually in the month of August and the 2000 session was scheduled to meet on 7 August.Prior to the session the PDI-P Golkar and the partiesPrior to the session the PDI-P, Golkar and the parties belonging to the Central Axis were maneuvering to have Wahid replaced by Megawati. By this time, the opposition from the Islamic parties to Megawati as a presidential candidate had subsided. However Megawati was reluctant to take the final stepHowever Megawati was reluctant to take the final step, agreeing instead on a compromise solution that would allow Wahid to continue to be president but for the day-p yto-day affairs of the government to be handed over to the vice president.



Understanding that it was the only way from being ousted by the MPR, Wahid in his statement indicated his acceptance of the compromiseacceptance of the compromise.


Dishonoring the dealDishonoring the dealDishonoring the dealDishonoring the deal

H ithi d W hid i di t d th t h h dHowever, within days Wahid indicated that he had no intention of carrying out his part of the deal. He announced that he would give Megawati additionalHe announced that he would give Megawati additional tasks and not additional power. He did give the vice president some minor tasks with g plimited freedom of action.He dismissed PDI-P, Golkar and Central Axis ministers, some of whom held important portfolios and replacedsome of whom held important portfolios, and replaced them with people of questionable competence and background except for the fact that they had close g p ypersonal relationships with Abdurrahman.


Economic slippageEconomic slippageEconomic slippageEconomic slippageIt was expected that the economy would further improve under Wahid government. According to a World Bank report instead of improving the economy was deteriorating.the economy was deteriorating. Early slippages in reforms and an increasingly uncertain political climate raised risk premiums and contributed to renewed downward pressure on the rupiah (World Bankrenewed downward pressure on the rupiah (World Bank, November, 2001).The rupiah continued to weaken passing the 10,000 line t d llto a dollar. Conflicting statements from the president and his ministers had created confusion and uncertainty,ministers had created confusion and uncertainty, mirroring the economic limbo during the last months of Suharto's government.


Economic slippageEconomic slippageEconomic slippage . . .Economic slippage . . .

Wahid’s forays into economic policies were ill advisedWahid’s forays into economic policies were ill-advised and irresponsible. They were not based on careful consideration and yconsultation with the experts, but were intended mainly to advance his political popularity at the cost of the economy. yHis statement that the government would increase substantially the salary of civil servants, admittedly necessary was not supported by the financial capacitynecessary, was not supported by the financial capacity of the government at the time. His encouragement for people living around the l t ti t t t j t t k 40% f th l d dplantation-estates to just take 40% of the land scared

investors away, as the respect for law and of property had been violated.


Deja vu?Deja vu?Deja vu?Deja vu?The political and economic limbo took a toll on theThe political and economic limbo took a toll on the everyday life of the people. The economic, political and security conditions were p ydeteriorating. There were demonstrations against Wahid everywhere. He responded by mobilizing his supporters and hisHe responded by mobilizing his supporters, and his followers attacked a newspaper office in Surabaya, when it criticized him. T h h i W hid' hi f llTo show their anger at Wahid's opponents his followers in East Java had cut trees all over East Java, bringing a comment from Wahid that it was better to cut threes than heads.


Deja vu?Deja vu?Deja vu? . . .Deja vu? . . .Wahid had also shown a preponderance towardWahid had also shown a preponderance toward nepotism. As discussed above he had dismissed ministers who were not readily willing to accept his wishes or represented parties that were critical to him, replacing them with sycophant ministers some previously involvedthem with sycophant ministers, some previously involved in scandals or questionable activities. Wahid also had his brother appointed to a top position in IBRA/BPPPN although he had no background in finance or banking.A pattern of nepotism re emerged causing many to beA pattern of nepotism re-emerged, causing many to be reminded of the nepotism charges against Suharto.


Deja vu?Deja vu?Deja vu? . . .Deja vu? . . .

The feeling of deja vu was not only confined to theThe feeling of deja vu was not only confined to the political confusion and the resulting stagnation of the economy. Rumors flew about corruption in high places, some finding way into the media. Abuse of power for personal gains re-emerged into theAbuse of power for personal gains re emerged into the spotlight: appointment to high position in government was reportedly traded for money. In particular the high level jobs in the public enterprisesIn particular, the high level jobs in the public enterprises were subject to negotiation.



A lucrative business had developed in dealing with businessmen who had to account to the authorities their bad loans and other past business misconductbad loans and other past business misconduct.Kwik Kian Gie, after his dismissal as the Coordinating Minister for the Economy revealed that during a cabinetMinister for the Economy, revealed that during a cabinet meeting Wahid, insisted that certain “black conglomerates” should be allowed to continue undisturbed as entrepreneurs.



The final blow to the credibility of the Abdurrahman Wahid government and its avowed agenda to fight corruption were two scandals involving the presidentcorruption were two scandals involving the president himself known as Buloggate and Bruneigate.


Democratic reversalDemocratic reversalDemocratic reversalDemocratic reversal

The indirectly related scandals created such public furorThe indirectly related scandals created such public furor that the parliament was drawn to act. The parliament created a special commission to p pinvestigate both cases. On 28 January 2001, the special commission reported its findings to the plenary session of the parliamentfindings to the plenary session of the parliament. On Buloggate, the commission found that there was strong indication that President Abdurrahman Wahid “had a role in the release and the use of funds belonginghad a role in the release and the use of funds belonging to the welfare foundation of Bulog employees.”


Democratic reversalDemocratic reversalDemocratic reversal . . .Democratic reversal . . .

On the contribution from the Sultan of Brunei theOn the contribution from the Sultan of Brunei, the commission found, “there was inconsistency in President Abdurrahman Wahid statement pertaining to the

ti f th t ib ti f th S lt f B iquestion of the contribution of the Sultan of Brunei indicating that the president has given false statement to the public".


Democratic reversalDemocratic reversalDemocratic reversal . . .Democratic reversal . . .The conclusion of the special commission was a serious matter because if the parliament adopted it thematter, because if the parliament adopted it, the parliament could issue a memorandum to the president warning him and asking him to answer to the findings of th i l i ithe special commission.If the president did not provide satisfactory answers to the memorandum after three months, the parliament , pcould issue a second memorandum. If the president again failed to respond to the second memorandum than the parliament could propose to thememorandum, than the parliament could propose to the MPR to convene a special session to ask the president to account for his conduct. If the MPR could not accept the accountability inIf the MPR could not accept the accountability, in accordance with the constitution, the MPR could impeach the president.



Instead of following the constitutional procedure toInstead of following the constitutional procedure to defend his presidency, Wahid chose to be belligerent. One day after the special commission submitted its report to the plenary session of the parliamentreport to the plenary session of the parliament, Abdurrahman made a statement in a meeting with Indonesia's Islamic university presidents threatening to issue a presidential decree to declare a state ofissue a presidential decree to declare a state of emergency and dissolve the parliament if parliament persisted with the memoranda process.Si th tit ti h d l l ti l t d th t thSince the constitution had clearly stipulated that the president could not dissolve the parliament in any situation and for any reason, it was seen as an yunconstitutional and dictatorial response to a democratic process.



On 20 May Wahid summoned the military leadershipOn 20 May, Wahid summoned the military leadership and served them an ultimatum: If they still did not support the decree by the end (midnight) of the day, they

ld b l dwould be replaced. The military brass refused to accede to Wahid's demand to support the decree. ppThey also rejected any change in the military leadership for the moment. Those who had been offered the job of Commander ofThose who had been offered the job of Commander of the Armed Forces and chief of the military services by Wahid refused the offer of promotion.



With the military solidly refusing to give in to his demandWith the military solidly refusing to give in to his demand, Wahid turned to the police. As the chief of police had also made clear his position p popposing the decree, Abdurrahman maneuvered to replace him with somebody who would support him in his plan to dissolve the parliament. p p



As in the case of the army the majority of high rankingAs in the case of the army, the majority of high-ranking police officers jointly issued a statement supporting the chief of police and urging him not to resign. They insisted that the police was a state institution and should not be politicized. All former chiefs of police also made statementsAll former chiefs of police also made statements supporting the position of the serving officers.



To prevent further deterioration of the political and security situation, on that same day, 20 July 2000, the leadership of MPR decided to accelerate the specialleadership of MPR decided to accelerate the special session that was scheduled to begin on 1 August 2001 to deliberate on the memorandum sent by the parliament y pto 21 July.



W hid d t i f t f th MPRWahid was summoned to appear in front of the MPR on 23 July to answer to the charges of the parliament against him.gAt 01:10, Monday 23 July 2001 with Wahid at his side, a President’s spokesman appeared in front of a televised

f t d id ti l d i hi hpress conference to read a presidential decree in which the president decreed the dissolution of the MPR, the parliament, and the Golkar party and called for the pa a e , a d e Go a pa y a d ca ed o eholding of a new election within one year.It was the ultimate of the reverse-democratization

th t h d b i f th tprocess that had been going on for the past year.



F th th ti l ti Di d (1999) hFrom the theoretical perspective, as Diamond (1999) has argued, defending the constitution entails more than defense against blatant overthrow; it means defending g ; gconstitutional norms, limits and procedures against subversion or encroachment. D ti lid ti i l t l tDemocratic consolidation involves not only agreement on the rules for competing for power but also fundamental and self-enforcing restraints on the exercise u da e a a d se e o c g es a s o e e e c seof power. For democracy to be consolidated there most be a broad

ti d b h i l th l iti fnormative and behavioral consensus on the legitimacy of the constitutional system, however poor or unsatisfying its performance may be at any point of time.


its performance may be at any point of time.

ImpeachmentImpeachmentImpeachmentImpeachment

O th d ft f i ith th l d hi fOn the same day after conferring with the leadership of the MPR, the Speaker of the Parliament sent a letter to the Chief Justice of the Supreme Court asking for a legal p g gguidance on the constitutionality of the president’s decree.Th t it i i th t th id ti lThe supreme court gave its opinion that the presidential decree was unconstitutional; that the constitution explicitly stipulated that the president could not dissolve e p c y s pu a ed a e p es de cou d o d sso ethe parliament; and that according to the constitution the president was elected by and accountable to the MPR. A f h ldi l ti th t d f l tiAs for holding a new election, the next round of election had already been decided by the MPR and only the MPR could change its decision.


could change its decision.

ImpeachmentImpeachmentImpeachment . . .Impeachment . . .

On the question of the Golkar Party, according to the new political law, only the Supreme Court had the authority to dissolve a political party and only if it wasauthority to dissolve a political party and only if it was found guilty to be violating the electoral law. Thus, the supreme court opined, the president had no authority to p p , p ydissolve a political party.After hearing the opinion of the supreme court, the vote was taken, and the MPR unanimously rejected the decree and declared it as illegal.



The next agenda was the presidential accountabilityThe next agenda was the presidential accountability report scheduled for that day. Since Wahid was not present at the pre-determined p ptime, a vote was taken to decide:

1) that the president had violated the state guideline by his absence and refusal to give an accountability report in theabsence and refusal to give an accountability report in the special session of the MPR as determined by the constitution, and

2) to remove Abdurrahman Wahid as president. ) p

To be sure that there would not be a vacuum in government, at the same time the MPR also decided th t Vi P id t M ti b th id tthat Vice President Megawati become the president succeeding Abdurrahman Wahid.



The next order of business was to elect the viceThe next order of business was to elect the vice president. The election for vice president was held on 25 August. There were five declared candidates who were running in the first ballot. Hamzah Haz the chairman of a Moslem Party (PPP)Hamzah Haz, the chairman of a Moslem Party (PPP), who was supported by the coalition of the Central Axis and PDIP, after a third ballot won the election.The proceeding was widely covered by both domesticThe proceeding was widely covered by both domestic and foreign media.



The nation once again watched democracy in function asThe nation once again watched democracy in function as their national leaders were chosen by democratic means. The young democracy had passed a severe test and y g y pproven its resilience by protecting the interest of the country and the people from a floundering and incompetent leader. p



Th Abd h W hid i d i I d i ’ liti lThe Abdurrahman Wahid episode in Indonesia’s political history had demonstrated Huntington’s foresight that new leaders of democracy might emerge as, “arrogant, y g g , g ,incompetent, or corrupt, or some combination of all three.” I th t th ld t b i dIn that sense they would come to be viewed as no different than their authoritarian predecessors, and may even be considered as worse, as they have not e e be co s de ed as o se, as ey a e oproduced tangible performance in comparison with authoritarian regimes whose legitimacy were based on performance on successes in producing political stabilityperformance, on successes in producing political stability or economic benefit or both.



H ti t l th tHuntington also argues that, “democracy does not mean that problem will be solved; it does mean that rulers can be removed; and the essence of democratic behavior is doing the latter because it is impossible to do the former.”

After backtracking one or two steps Indonesia wasAfter backtracking one or two steps, Indonesia was moving forward again in consolidating its new democracy.


Renewed hopeRenewed hopeRenewed hopeRenewed hope

With Megawati Sukarnoputri becoming its fourth president, the political cycle had also come full circle, because as the winner of the election it was expectedbecause as the winner of the election, it was expected that she be given the first chance to govern and that she had been cheated of her right. gHer ascendancy to the presidency was received with a sigh of relief. For many it had also strengthened faith in democracy.


Renewed hopeRenewed hopeRenewed hope . . .Renewed hope . . .Megawati formed her cabinet by taking into consideration the political equationconsideration the political equation. Although her party was the biggest in the parliament, it was far short of the majority, which meant that she j yneeded to forge a coalition. But, as she also learned from the experience of Wahid government political alliance alone would not suffice togovernment, political alliance alone would not suffice to lift the country out of its crisis. She needed professionals unbound by party politics. Therefore in forming her cabinet she included theTherefore, in forming her cabinet she included the representatives from the political parties but reserved some of the major economic posts for non-partisan professionalsprofessionals. Many of the ministers who were fired by Abdurrahman were reappointed by Megawati.


pp y g

Renewed hopeRenewed hopeRenewed hope . . .Renewed hope . . .

With the return of political stability after the change of government on the macro level the economy had begun improvingimproving. The World Bank report in the January 2003, cited that political stability macroeconomic policies and continuedpolitical stability, macroeconomic policies and continued fiscal consolidation supported the market and macro-economic stability.


Renewed hopeRenewed hopeRenewed hope . . .Renewed hope . . .There was a temporary disruption to the economic

fimprovement caused by the first Bali bombing, but since then the economy has continued to improve. Banks are continuing to recover and corporate debtBanks are continuing to recover and corporate debt restructuring is progressing, albeit at a slow pace. Political stability has calmed the market, supported the financial market sentiments and restored confidence tofinancial market sentiments and restored confidence to consumers. Inflation has been controlled and the exchange rate of th i h h b l t bl b t 8 000the rupiah has been more or less stable, between 8,000 and 9,000 per dollar.



There were encouraging signs that the new government has renewed the commitment to reforms. O th tt f t t l f th W ld B kOn the matter of structural reforms, the World Bank report writes,

“the IMF supported program, which had slipped during the last year of the Gus Dur Government, was quickly brought back on track and has by and large remainedbrought back on track, and has, by and large, remained that way.”



Another challenge to the government was how to dealAnother challenge to the government was how to deal with the political decision to end the dependence on IMF. In its 2003 annual session the MPR decided to terminate the IMF program. Megawati’s government, with the assistance from the IMF and the World Bank has designed an exit strategyIMF and the World Bank, has designed an exit strategy to cope with the post-IMF challenges. It has opted to enter into a Post-Program Monitoring scheme with the IMF that allows Indonesia to maintain ascheme with the IMF that allows Indonesia to maintain a close dialogue with the international community, thereby keeping the market’s confidence on the Indonesian

ith t h i t k f f th fi i leconomy without having to ask for further financial assistance.



M ti’ t h l d d i d f iMegawati’s government has also succeeded in defusing the communal strife in Maluku and South Sulawesi by bringing all the conflicting parties together and exacting g g g p g gcommitments to cease the violence. The volunteers who were aiding the Muslim sides in both

h b t dareas have been returned.



M ti h l h h l t i d liMegawati has also shown her resoluteness in dealing with the terrorism. She responded decisively on Bali bombingShe responded decisively on Bali bombing. Within a relatively short period of time the authorities have been able to catch the perpetrators of the bombing p p gand brought them to the court.


The downsideThe downsideUnfortunately, the picture is not all rosy. In the first months the new government displayed inertia in makingmonths the new government displayed inertia in making policy.The ministers soon showed themselves to be fragmented The conflicting opinions came into the openfragmented. The conflicting opinions came into the open. The economic ministers especially had not been able to act as a team; coordination was very weak.Predictably, the rift in the cabinet influenced the perception of the market on the cabinet. This too had its toll on the investment climate. Despite the optimism described above, the World Bank in the same report also pointed out that, “Indonesia’s investment climate is seen to be deteriorating, and now ranks among the worse in the world.”


The downsideThe downsideThe downside . . .The downside . . .

It continued to report that Indonesia is facing fundamental problems in its investment climate,

“ranging from increased violence and crime, to corruption and bureaucratic delay and inefficiency, ncertaint in labor relations and e cessi e ta ation buncertainty in labor relations, and excessive taxation by

some local governments.”

Th l h h h d d hThe economy although has posted a modest growth at a rate of around 3.5%, it is still consumer driven.



The dissatisfaction of the public with the performance ofThe dissatisfaction of the public with the performance of the democratic government has been manifested in many polls. One of the recent polls, done by the Lembaga Survey Indonesia (Indonesian Survey Institute), with financial support from the Japanese government through JICA, pp p g g ,found that around 51.6% of respondents were dissatisfied with the democratic process in the country.56% expressed their preference for the New Order56% expressed their preference for the New Order because they felt it was better than the current democratic government.



Alth h di t th M ti till thAlthough according to the survey Megawati was still the front runner among the candidates for the next presidential election, if the election were held p ,immediately, Golkar would have won the parliamentary election with 25.9% of the vote, trailed by PDIP with 17 6% a significant decline from the number one17.6% —a significant decline from the number one position in the 1999 election, with 33% of the votes.


Unfinished businessUnfinished businessUnfinished businessUnfinished business

The reversal in public opinion actually had been foretold by Huntington, based on empirical evidence from the third wave of democratizationthird wave of democratization. He observes that the intractability of problems and the disillusionment of the public were pervasivedisillusionment of the public were pervasive characteristics of the new democracies. What he calls “authoritarian nostalgia” was an expected a e ca s au o a a os a g a as a e pec edresponse to democracy at that stage.


Unfinished business . . .Unfinished business . . .

Diamond argues that there is a reciprocal relationship between legitimacy and performancebetween legitimacy and performance. He maintains that the better the performance of a democratic regime in producing and broadly distributing g p g y gimprovements in living standards, the more likely it is to endure. At the same time he also admits that there are countriesAt the same time, he also admits that there are countries that achieve consolidation even if their performance cannot be regarded as satisfactory. Having said that he maintains that most of the thirdHaving said that, he maintains that most of the third wave democracies are still far from consolidation and are unlikely to achieve it unless they generate the kind of sustainable economic growth that broadly improvessustainable economic growth that broadly improves incomes and reduces high rates of poverty and unemployment.


Unfinished businessUnfinished businessUnfinished business . . .Unfinished business . . .

Haggard and Kaufman make a compelling argument thatHaggard and Kaufman make a compelling argument that economic failure can have devastating consequences for the consolidation of democracy. Sustained poor performance or economic deterioration leads to an increase in crime, strikes, riots and civil violence, while rapid social changes and downward , p gmobility for members of the middle and working classes increase the appeal of political movements on the extreme left and right. e e e e a d gTherefore, although the role of various non-economic factors is important for democratic consolidation, such as ethnicity gender and political institutions economicethnicity, gender and political institutions, economic performance is important for long-term democratic stability and consolidation.



H d d K f l th t th i fHaggard and Kaufman also warn that the erosion of support for democratic institutions could lead to the election of leaders or parties with authoritarian ambitions. pMore seriously, the deterioration of social order and increasing social polarization might provide the j tifi ti f ilit i t tijustification for military intervention.The above discussions draw us to conclude that although the transition has been completedalthough the transition has been completed, consolidation is still unfinished in Indonesia’s democracy.



In the discussions above, it is highlighted that electoral processes and procedures are basic elements in a democracy and the institutionalization of democraticdemocracy and the institutionalization of democratic norms is an important task of democratic consolidation. In a constitutional democracy the constitution is how theIn a constitutional democracy, the constitution is how the democratic norms, processes and procedures are to be instituted.



Although a democratic constitution by itself does not guarantee the survival of a democracy, the mere existence of the constitution may inhibit any attempt toexistence of the constitution may inhibit any attempt to reverse the democratization process, to impose an alternative system of government or to stray from y g ydemocratic norms of governance. In that light, we will discuss the amendments to the constitution that have just been completed in Indonesia.


News & Politics

Day 2: On the Road to Democracy