Indonesia Briefing -

Indonesia Briefing

June 4, 2012

Zachary Fillingham

Prime Minister David Cameron Visits Indonesia

A brief overview of the historical, political, military, and economic issues that Indonesia faces on the road to becoming a regional power by Zachary Filingham of


1670-1900- Indonesia ruled by the Netherlands as the Dutch East Indies.

1942- Japan invades Dutch East Indies.

1945- Sukarno, born Kusno Sosrodihardjo, declares independence triggering armed conflict with Dutch forces.

1949- The Netherlands gives up the fight and recognizes Indonesian independence.

1950s- Maluku wages an unsuccessful war to secede from Indonesia.

1962- The Dutch agree to transfer West Papua to Indonesian control.

1965- A failed coup is attributed to Communist factions within Indonesia, resulting in purges where thousands are killed.

1967- General Suharto becomes president after being granted emergency powers in 1966.

1975- Portugal grants independence to East Timor.

1976- Indonesia invades East Timor and incorporates it as a province.

1997- Asian currency crisis creates economic havoc in Indonesia, the rupiah is devalued.

1998- Protests and rioting topple Suharto.

1999- Free elections are held throughout Indonesia; East Timor referendum produces a pro-independence vote, resulting in widespread government-organized violence on the island.

2001- Parliament dismisses President Wahid over corruption charges, Megawati Sukarnoputri is sworn in as a replacement.

2002- Constitution is reformed to allow for direct election of president and vice president; Bali attacks kill 202 people.

2004- Parliamentary elections produce a victory for Suharto’s Golkar Party; Former general Susilo Bambang Yudhoyono of the Democratic Party is elected president; Tsunami kills more than 220,000 people.

2005- Government signs a peace deal with the Free Aceh movement.

2007- Police capture Zarkasih, the alleged head of Jemaah Islamiah (JI).

2008- Suharto dies.

2009- President Yudhoyono secures re-election in a resounding victory at the polls.

2010- Several JI training camps are raided, producing 14 high-profile arrests; Police kill Dulmatin, the final suspect in the Bali bombings; President Obama visits Indonesia, praising the country as a positive example of diversity and democracy.

2011- Two churches are burned down in central Java during Muslim anti-blasphemy protests.


Indonesia has a democratic, presidential system where the president and vice president serve five-year terms. The legislative branch, called the ‘Majelis Permusyawartan Rakyat (MPR) is a bicameral house that has the power to impeach the president. All this is overseen by a judiciary staffed with judges that have been appointed by the president.

Political Parties:

Democratic Party of Indonesia (DPI): Originally founded in 1971, the DPI was merged into five other parties in 1973 after Suharto decided that legislative elections were better served by a handful of strong parties rather than a myriad of weak ones. The PDI went on to receive active government assistance in the wake of the following legislative elections in 1977, as Suharto feared that the country’s political debate was polarizing between the secularism of the Golkar Party and the Islamic values of the United Development Party (PPP). This is the party of current Indonesian President Yudhoyono, and it controls 150 seats in the People’s Consultative Assembly.

Golkar: Founded in 1964, this is the party that came to be associated with Suharto. It has a secular and inclusive scope, having originally risen to prominence as an alternative to the Communist Party’s growing influence. It controls 107 seats in the People’s Consultative Assembly.

Indonesian Democratic Party- Struggle (PDI-P): Formed in 1998, this party is led by Sukarno’s daughter, Megawati Sukarnoputri. It controls 95 seats in the People’s Consultative Assembly.

Prosperous Justice Party (PKS): Formed in 2002, this Islamist party is somewhat analogous to the Muslim Brotherhood in Egypt. Like other Islamist political parties, the PKS promotes Muslim values and focuses much of its political campaigning on anti-corruption. It controls 57 seats in the People’s Consultative Assembly, and generally maintains a level of support that hovers around 8 percent of the electorate.

The current governing coalition consists of Golkar, DPI, and a handful of other parties (it notably includes the United Development Party, another popular Islamist party).


Indonesia is attracting ever-increasing foreign investment flows and it’s not difficult to see why. In 2011, the economy grew by 6.5%, a number that didn’t go unnoticed by major credit ratings agencies like Moody’s, who bumped Indonesia’s rating up by two notches to Baa3 (the same level as India).  These credit upgrades were no doubt helped by the fact that net government borrowing has also been reined in to well below 10% of GDP.

There is also the fact that Indonesia is particularly well insulated against the wax and wane of global consumer demand. In a noteworthy exception from some other economies in the region, Indonesian economic growth is not overly dependent on exports, as domestic consumption accounts for over 60 percent of Indonesia’s economy. This organic growth of its own internal market allowed Indonesia to weather the financial crisis of 2008 far better than some other developing economies.  

Indonesia is also rich in natural resources, making it an attractive link in the supply chain for resource-hungry countries such as China. Indonesia is home to some of the world’s largest untapped reserves of tin, nickel, copper, and gold. On the energy front, vast liquefied natural gas (LNG) reserves have made Indonesia into a global player in spite of the fact it became a net importer of oil in 2008. These lucrative untapped resources have created a flurry of foreign investment, most of it from state-owned companies in China. This has in turn has created a political backlash in Indonesia and a series of regulations to restrict foreign ownership of domestic resources, a process which detractors have labeled as ‘resource nationalism.’

If anything, Indonesian growth may come to be hampered by the limitations of its aging infrastructure networks. Government fuel subsidies have made motorbikes and cars cheaper than public transportation in many cases, resulting in a permanent state of gridlock within most of Indonesia’s major cities.


The post-Suharto period of Indonesian politics has been characterized by an emphasis on political reform over military spending; a strategy aimed at severing the ties between political and military elites that had entrenched themselves over the period of authoritarian rule. But policy attitudes towards defense spending have undergone a shift recently. Now, the Indonesian government finds itself presiding over a stable democratic system with cash reserves stacked high by a development windfall. It appears that the primary beneficiary of this new state of affairs is going to be the armed forces.  

In January 2012, Defense Minister Purnomo Yusgiantoro outlined a military procurement wish list that included: tanks, multiple launch rocket systems, a missile destroyer, South Korean submarines, and retrofits for the Air Force’s F-16s. This sudden spike in spending brought the defense budget to $7.9 billion, which is around 1 percent of GDP. More increases are to be expected over the next decade, as it has been a longstanding goal of the ruling Yudyohono administration to bring defense spending to a level of 1.5 percent of GDP by 2015.

The prevailing logic is that a rising Indonesia, at least in the military sense, won’t create many waves in Asia, as it is seen as the natural process of a large and strategically important country taking its proper place as a regional power. As such, Indonesia’s spiking military spending is not being treated by regional stakeholders as a development that threatens an arm race. Rather, countries like China, Australia, South Korea, Russia, and the United States are all treating it as a potential boon to their own exports, and have begun falling over each other to curry favor within the Indonesian procurement process.

Zachary Filingham is a contributor to

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