[Senate Hearing 106-76]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 106-76


 
                    INDONESIA: COUNTDOWN TO ELECTIONS

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON EAST ASIAN
                          AND PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 1999

                               __________

       Printed for the use of the Committee on Foreign Relations


                                


 Available via the World Wide Web: http://www.access.gpo.gov/congress/senate


                      U.S. GOVERNMENT PRINTING OFFICE
 56-856 CC                   WASHINGTON : 1999



                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                PAUL D. WELLSTONE, Minnesota
CRAIG THOMAS, Wyoming                BARBARA BOXER, California
JOHN ASHCROFT, Missouri              ROBERT G. TORRICELLI, New Jersey
BILL FRIST, Tennessee
                     James W. Nance, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                    CRAIG THOMAS, Wyoming, Chairman
JESSE HELMS, North Carolina          JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia              RUSSELL D. FEINGOLD, Wisconsin
CHUCK HAGEL, Nebraska                PAUL D. WELLSTONE, Minnesota
GORDON H. SMITH, Oregon              ROBERT G. TORRICELLI, New Jersey

                                  (ii)



                            C O N T E N T S

                              ----------                              
                                                                   Page

Gadbaw, R. Michael, Chairman, U.S.-Indonesia Business Committee, 
  Washington, DC.................................................    22
Jones, Sidney, Executive Director, Human Rights Watch, Asia 
  Division, Washington, DC.......................................    19
Masters, Hon. Edward E., President, United States-Indonesia 
  Society, Washington, DC........................................    17
Roth, Hon. Stanley O., Assistant Secretary of State for East 
  Asian and Pacific Affairs......................................     2

                                Appendix

Responses of Assistant Secretary Roth to Questions Submitted by 
  Senator Feingold...............................................    29
Prepared statements of:
    R. Michael Gadbaw............................................    31
    Sidney Jones.................................................    34
    Hon. Edward E. Masters.......................................    37
    Hon. Stanley O. Roth.........................................    41
  

                                 (iii)


                   INDONESIA: COUNTDOWN TO ELECTIONS

                              ----------                              


                        THURSDAY, MARCH 18, 1999

                           U.S. Senate,    
                 Subcommittee on East Asian
                               and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-419, Dirksen 
Senate Office Building, Hon. Craig Thomas (chairman of the 
subcommittee) presiding.
    Present: Senators Thomas, Hagel, Kerry, and Torricelli.
    Senator Thomas. I will call the subcommittee to order.
    I am glad to have the opportunity today to have another 
informational hearing on Indonesia. Our last hearing was in 
1998. It will give us a chance to gauge the present political 
and economic climate leading up to this June's elections.
    I am going to keep my statement brief so we can get on with 
the witnesses.
    Despite growing economic problems and some regional 
outbreaks of religious and ethnic violence, it is encouraging 
that Indonesia's Government has stayed the course on its 
promise of political reform and democratic elections, a 
development for which I think we should commend the government 
strongly.
    I met last week with Amien Rais, one of a number of the 
opposition party candidates in the upcoming election, and was 
pleased that while he had some concerns, he was generally 
optimistic about the direction things are going and hopes that 
there will be an open, honest election and that that will set 
the course in a different direction. I hope he had reason and 
continues to, as June grows closer, to feel optimistic.
    I also hope our Government will underscore to Jakarta the 
importance of continuing down the path without interruption or 
deviation and will lend assistance that we can toward that end.
    That is not to say, of course, that everything is fine. I 
continue to be concerned about the sectarian violence in the 
east, continuing threats to the ethnic Chinese population, and 
East Timor. While I support settlement of that situation which 
would give East Timor at least autonomy, we probably need to 
temper the proposed solution with reality. East Timor is not 
presently capable of functioning as an independent entity, and 
to urge its immediate independence from Indonesia, as some do, 
probably ignores some of the reality. I hope we will continue 
to urge a solution there.
    Finally, the economy, while showing some signs of 
stabilization, is still certainly in a shambles. I am 
interested in hearing from the witnesses as to what their view 
of the economy is at present and whether adequate measures are 
being taken by the government to rectify things.
    So, I think our purpose here is to try and get some updated 
information so that we can have a notion of what is going on, 
maybe more importantly what our role will be in terms of the 
election and what it is currently in terms of the economy, how 
Indonesia fits into the whole Asian question.
    So, Secretary Roth, so nice to see you. I know you have 
been on the road and we are glad to have you and appreciate 
your taking time to come. So, if you will begin, sir.

STATEMENT OF HON. STANLEY O. ROTH, ASSISTANT SECRETARY OF STATE 
               FOR EAST ASIAN AND PACIFIC AFFAIRS

    Mr. Roth. Thank you very much, Mr. Chairman, and let me 
begin by commending you and the subcommittee. All too often 
these days, Asian policy seems to be defined as China and Korea 
and nothing else, and the fact that the subcommittee, under 
your leadership, has regularly focused attention on Indonesia, 
one of our most important countries I believe in Southeast 
Asia, is important, and I think it demonstrates not just to the 
American people, but to the Indonesian people where these 
hearings get a lot of coverage, that Indonesia is indeed a high 
foreign policy priority for the United States and that we do 
care about what happens there.
    Given your desire for information, I have prepared a rather 
lengthy statement covering many of the topics that you 
mentioned in your opening remarks, and I do not intend to read 
it. I will submit it for the record and instead just try to 
concentrate on a few key points so we can move on to the 
questions.
    Senator Thomas. We will include it in the record.
    Mr. Roth. Thank you very much.
    First, I would like to start with a theme that I have 
discussed with your before both in hearings and privately which 
is the complexity of the situation in Indonesia. It really 
defies a simple up or down, good or bad characterization. I 
think that what I have tried to emphasize is that there have 
been a very large number of positive developments in the less 
than 1 year since President Suharto left office last May, and 
at the same time, there are a number of very serious, troubling 
developments that we cannot ignore simply because there have 
been so many good ones. In my testimony, I try to review them, 
but you have highlighted a lot of it already in your opening 
remarks.
    I think probably the most positive development has been the 
openness of the political process. If you go back a year ago 
and read what was being said at the time of the transition in 
May, there was enormous skepticism about whether the country 
would wait for elections, whether the government could keep 
charge, whether there would not be revolution in the streets, 
whether there had to be a triumvirate or a snap election or 
something dramatic like that.
    One of the major successes of the Habibie government has 
been to come up with a credible political process, one that has 
been accepted by all the major opposition leaders. We have had 
a proliferation of political parties including, as you 
mentioned, some of the major figures. They are all running. 
There is access to the media. And most importantly, this is 
going to be the first election in Indonesia since 1955 where we 
will not know the outcome the day before the election. That is 
a major development.
    So, I think that on the political side we have seen 
dramatic progress. We have seen, you mentioned, dramatic change 
with respect to East Timor. The government has come out with 
two major proposals, one for autonomy, or second, if autonomy 
is not accepted by the people of East Timor, independence. 
While this is subject to negotiation, I feel that this is the 
first time there has been a serious desire by an Indonesian 
Government to resolve this issue politically, and that is a 
major step forward.
    There has been some progress--and I am being more cautious 
here--on the military side. We have seen decisions by ABRI, for 
example, to disassociate itself as a policy tool of the ruling 
party, to stay neutral during the election. We have seen some 
efforts--not enough and not fully successful--to account for 
the past and some of the abuses that took place in Aceh or in 
Timor or Irian Jaya. General Proboa is in self-imposed exile in 
Jordan, not committing some of the abuses that his forces were 
known for before. So, change, not necessarily enough, but 
change is starting on the military side.
    On the economic side, while it would be difficult to 
express too much optimism, we have to look at where we were a 
year ago again. Last year we were talking about the Indonesian 
economy plunging downwards, possibly collapsing. We were 
talking about estimates of negative 13 to 15 percent growth, 
concern about the rupiah possibly deteriorating to 20,000. We 
worried about the possibility of famine. In that sense--and I 
am defining it in a limited sense--the Government in Indonesia 
have done better than expected.
    In fact, that they avoided a famine, there was some good 
policy, as well as some food aid to make sure that rice was 
distributed and subsidies used effectively. The rupiah has at 
least temporarily stabilized in the 8,000 to 9,000 range, which 
is not terrific, but better than many had expected. We have 
found that some of the nightmare scenarios about the growth of 
poverty and the extent of unemployment were exaggerated and 
that some of the provinces in particular were doing far better 
than we had imagined, and that the problems are mostly 
concentrated on Java and urban areas and probably worse in 
Jakarta, but not some of the nightmare scenarios we had 
envisioned.
    So, in all these areas, I think there is some good news.
    At the same time, your statement again highlighted some of 
the bad news, and I think I would have to put at the very top 
of the list the question of the violence that has broken out in 
so many places in Indonesia. What we are seeing now in Ambon, 
what we saw earlier in East Java, some of the problems that 
have happened all around the country are really horrifying 
reminders that there is a large potential for violence and 
possibility for escalation. So, I think that is one of the 
crucial problems that the government still has to deal with 
more effectively.
    Even in some of the areas which I referred to positively, 
there is a flip side to them. For example, East Timor. If the 
situation is not handled carefully and if Indonesia simply 
walks away from the island, if in fact autonomy is rejected in 
the U.N. process, there is the prospect that what should be a 
positive could become a negative and that East Timor could 
descend into violence. So, we have to watch that situation 
closely.
    I think I have already pointed out the economic challenges. 
There is a tremendous amount of work that remains to be done in 
terms of corporate restructuring, debt restructuring, getting 
the banks up and running again, which they are basically not, 
and just scrambling back to positive growth. I would say that 
here most of us have operated on the assumption that no 
fundamental turnaround in the economy was really going to take 
place until after they had elections, until after there was a 
measure of political stability, until after there was a 
perception of political legitimacy, and only then could the 
private sector make a judgment about whether it should come 
back into Indonesia. So, the elections have a crucial impact on 
the economy as well.
    Let me leave this general overview and instead just try to 
highlight what are the priorities for the administration now on 
Indonesian policy.
    Let me be very clear. Right now my No. 1 priority, the 
State Department's priority, is the elections. We see the June 
7 elections and then the followup period between June and when 
the constituent assembly meets possibly in November to select 
the President as being crucial to the fate and future of 
Indonesia. From our perspective, free and fair elections are a 
necessary, if not sufficient condition for recovery. If they go 
well, I think there is a greater chance that the government 
will be able to deal with the enormous range of problems that 
Indonesia still faces, ranging from controlling violence to 
getting the economy started, to playing out the end game on 
East Timor, and all the other challenges. But if the election 
is not perceived as legitimate, if it is not perceived as free 
and fair, then of course there is a possibility that the 
situation will deteriorate rather than improve.
    So, we are putting tremendous priority on the elections 
themselves. We have highlighted to the Indonesian Government, 
most recently during Secretary Albright's trip there, the 
importance of carrying through on the elections, the importance 
of making sure that there is not violence that would intimidate 
candidates from running, that would intimidate the campaign, 
limit access to the media. We highlighted the warning about 
what is called money politics in Indonesian terms, meaning 
whether funds would be spent to try to influence the outcome. 
This is a particular concern in the period after the June 7 
election up until when the constituent assembly, or MPR, meets 
when you are really talking about 700 people selecting the next 
President and Vice President. This is a period when money 
politics, as they say, corruption as we would say, could be 
crucial, and so we are focusing attention on the need for 
transparency and not allowing money politics to dominate.
    Finally, we are trying to help the Indonesians mount an 
election. There is almost no one alive and in government in 
Indonesia who participated in organizing a free and fair 
election before, since the last one was really 1955. Sure, they 
have had elections in terms of electoral lists and ballot 
boxes, but they have not had competition. They have not had to 
worry about problems of access to the media, good counts, 
securing the ballots, because they always knew the results in 
advance. Now they have to worry about these things.
    The Indonesian Government, to its credit, has signed an 
agreement with the UNDP, United Nations Development Program, to 
oversee international assistance for the electoral program. 
They have been very clear--and I think correct--that this is 
not a situation of the international community coming in to run 
the elections. These are international elections, but Indonesia 
will allow international help, particularly in the technical 
assistance side, and it will permit international observers, 
which I think is a major step forward and very necessary. I 
expect there will be quite a few observers at this election.
    For our part, we are trying to put up what I would call 
real money to assist on the technical side with the election 
and we have so far put up approximately $30 million from the 
Agency for International Development, and we have been going 
around the world urging other countries to contribute 
generously as well. I have been dealing with the Japanese, with 
the Australians, with the EU, some of the individual European 
countries to try to make sure that there is a generous 
contribution because these elections are so important for the 
future of Indonesia.
    So, at this point I would say that we are working hard. We 
are hopeful. The initial signs of good, as you said in your 
meeting with Amien Rais, the opposition is giving high marks, 
but we are not home free yet. We have to make sure that the 
conduct of the election is good, the count is good, and then 
what happens between the election and the selection of the 
President and the Vice President later in the year.
    Let me turn to the more difficult topic even of violence 
and what can be done about that. I think it is important to 
recognize that in one sense there is a profound change in the 
human rights situation. When we dealt with this in past years, 
we were generally talking about government-inspired abuses and 
how do you stop the government from doing these things. Now we 
are dealing with a more complex situation, but frequently you 
are seeing trouble break out not inspired by the government or 
not initiated by the government, but then the military or the 
police are both called in to try to do something about it.
    So, the military is walking a fine line between not wanting 
to recommit the abuses of the past, which was brutal 
suppression of dissent, but at the same time needing to 
maintain law and order to prevent chaos, particularly in the 
countryside. And they are having difficulty doing it as you 
have seen now in Ambon where even the deployment of 3,000 or 
4,000 troops has not yet been sufficient to end the violence.
    But I think for us, one of the priorities that we have been 
emphasizing is that the government has to make this the highest 
priority because the violence has the potential to disrupt the 
elections. It has the potential to disrupt the very social 
fabric of the Nation after the elections. It has a terrible 
impact on the economy and foreign investor willingness to come 
back in. Of course, it is a huge humanitarian problem in its 
own right and prevents Indonesia from changing its image as a 
problem country on the human rights spectrum.
    In particular, we have been focusing on the growing 
perception in Indonesia that a lot the violence is provoked, 
and that interestingly, now government officials, when you meet 
with Wiranto, when you meet with Alatas, are telling you that 
they believe that there is provoked violence and they have to 
get at the provocations if they are going to get these problems 
under control. The Secretary stressed to General Wiranto and to 
Minister Alatas last week the need to go after whomever it is 
necessary to go after, whomever they believe is provoking this 
violence. And I should emphasize there is no hard evidence that 
I can give to you naming individuals. It is in the realm of 
suspicions, but the growing sense that there is provocation is 
something that the Indonesian Government has to deal with.
    On the economy, I think what we have to see first of all is 
staying the course between now and the election. As you know, 
adhering to IMF programs, meeting the conditionality from the 
World Bank, the ADB, the IMF can sometimes be onerous, and 
doing these things in the pressure of an election campaign is 
hard. But, nevertheless, Indonesia cannot go backward in the 
crucial period between now and the election.
    We saw a semi-encouraging development last week with the 
closing down of 38 banks which badly needed to be done and the 
restructuring of some other ones, one step in dealing with the 
banking problem. I say it is semi-encouraging because the 
decision was delayed and implemented in a fashion which raised 
some doubts about the government's commitment to it, and it 
felt that foreign pressure was necessary to ensure that it 
happened. But, nevertheless, a dramatic step was taken, and it 
is an indication I think of the type of challenges that will 
have to be met between now and the election.
    Finally, let me just say something about East Timor. Our 
basic policy position, Mr. Chairman, which I have expressed to 
you before, is that the administration will accept any outcome 
that is acceptable to the parties themselves. The reason I 
emphasize that formula is it is not necessarily as stark a 
picture as take the autonomy or take independence on January 1, 
as President Habibie has said, that there is still a 
negotiation.
    There is a possibility that you might have an arrangement 
either if autonomy is accepted, which most people do not think 
will happen, but is still possible, or if it is independence, 
what the Indonesian Government has been proposing is that the 
East Timor would revert to the old situation that existed prior 
to its incorporation into Indonesia as the 27th province. It 
would mean it would revert to U.N. status. The U.N. would have 
control. Portugal would be the administering country, and then 
one could negotiate between the U.N. and the Timorese the 
transition that you referred to, how do you get to independence 
so that you do not get a desperately poor East Timor incapable 
of economic self-sufficiency suddenly thrown to the wolves on 
January 1.
    So, we are still in a negotiating phase. It is supposed to 
resume next month at New York. The Portuguese and Indonesian 
foreign ministers are due back to meet with Ambassador Marker 
in New York hopefully to finalize the text of an autonomy 
agreement and to finalize the mechanism by which this agreement 
will be put to the East Timorese people.
    In the meantime--and let me stress this point--we have 
given a tremendous amount of attention both publicly and 
privately to breaking the cycle of violence on East Timor in 
the short term. Secretary Albright, in her speech in Jakarta, 
laid out four points that we think are crucial.
    First, we think the need for a political mechanism. There 
has been lots of talk about reconciliation councils or 
commissions, proposals from different people, the Human Rights 
Commission from Shanana Gusmau, from other Timorese leaders, 
but the need to have a broad-based council or commission in 
place in the island to bring all the parties together to try to 
diffuse tensions is important.
    Second, the disarming of militias. There has been too much 
distribution of weapons on East Timor itself, and the fact is 
that this threatens the ability to implement any agreement. If 
the fighting gets out of control, it is unlikely that a 
diplomatic settlement can be implemented. We have stressed to 
ABRI the need to disarm the militias.
    Third, we have called for implementation of a previous 
Indonesian offer to draw down some of its forces as a 
confidence-building measure. This is not a total withdrawal, 
but rather to start withdrawing some of the ABRI units to give 
confidence to the people on East Timor.
    Finally, we have strongly supported an international 
presence on East Timor as soon as possible as another 
confidence-building measure to try to reduce the violence.
    So, we have been very public in our short-term proposal, 
even as we await the outcome of the negotiations.
    Why do I not stop at that point, Mr. Chairman?
    [The prepared statement of Mr. Roth is in the appendix on 
page 41.]

    Senator Thomas. Thank you, Mr. Secretary.
    We have been joined by other members of the committee. 
Senator Hagel, do you have any comments?
    Senator Hagel. No; I am just here to ask some questions.
    Senator Thomas. Senator Kerry. Thank you, sir.
    Senator Kerry. Mr. Chairman, I do have a statement that I 
would like to share and then turn to the questions. I welcome 
Secretary Roth here.
    This is a major turning point for Indonesia because for the 
first time in 45 years, the Indonesian people are going to have 
an opportunity to vote in a national election where the outcome 
is not preordained, and it is really vital that they have the 
ability to create credibility in the government. That will be 
the only way they can achieve order in the economy and make the 
reforms necessary that are essential to creating that order 
ultimately and to providing the international community with 
the confidence it wants and needs in order to proceed forward 
in terms of the economic support.
    I was there a few months ago and was struck by the 
breakdown that has occurred and the civil disorder that was 
occurring daily. But at the same time, notwithstanding the 
skepticism of a lot of people in Indonesia and many in the 
international community, it strikes me that President Habibie 
has responded fundamentally to the call for political change 
and has adopted a number of reforms that will help open the 
political process and set the stage for democratic elections.
    Anyone now can start a political party, as opposed to the 
Suharto era when only three parties were allowed to function. 
More than 100 political parties have registered to compete in 
the June elections. Civil servants no longer have to vote for 
the ruling Golkar party. The military's representation in the 
House of Representatives has been reduced significantly 
although, I might add, not reduced or eliminated entirely. 
Seats in the House will be allocated according to the vote 
percentage won by each party in each province, rather than a 
winner take all strategy which favored the ruling Golkar party.
    So, these are important reforms, but they do not in and of 
themselves guarantee that the elections are going to produce a 
legitimate government. That is really, I think, where our task, 
the international community's task, lies in the next months.
    The government, however, has two major responsibilities: to 
ensure that the problem of violence is dealt with effectively 
and sensitively, particularly in the light of the way that the 
military handled protests in the past; and second, to establish 
the modalities for a free, fair, and open electoral process on 
the ground. We need to, obviously, respect that this is an 
election by Indonesians for Indonesians. Neither we nor anyone 
should assert ourselves in a way that interferes with that 
concept, but nevertheless, we should also, in my judgment, play 
an extraordinarily important, constructive role in providing 
election assistance, expertise, and critical monitoring.
    Mr. Chairman, in 1986 I had the privilege on this committee 
of sharing responsibilities with Senator Lugar to help create 
an observer mission for the election in the Philippines. 
President Reagan appointed Senator Lugar and myself and others 
to that official observer group. I might say that it was our 
involvement with NAMFREL, the National Movement for Free 
Elections in the Philippines, that helped create the capacity 
to make judgments about that election which ultimately resulted 
in the legitimacy of the transition, let alone the legitimacy 
that flowed to the Aquino Government.
    There was some violence. There was some vote buying, and 
there was cheating in the election in the Philippines. These 
could be factors in the Indonesian elections. And so, the 
presence of domestic and international observers is critical to 
the establishment of credibility, which we are all seeking, and 
the outcome in the end.
    When I was in Asia, I met with Jose Concepcion of NAMFREL 
who is involved now, I am gratified to say, in the Indonesian 
effort. But he warned me that because of the size of Indonesia, 
the task ahead of them with respect to the monitoring is 
obviously four or five times larger. So, it is critical for us 
to guarantee the adequate training and adequate funding and 
capacity of that monitoring process.
    The stakes in Indonesia, I just want to emphasize, are not 
only high for the Indonesian people, but also for the region. 
In conversations with Lee Kuan Yew in Singapore and others in 
the region, it was very clear that there is the potential for a 
regional impact if this election is not successful, and that 
regional impact has many different nuances and overtones, 
including the capacity for extremism, a fundamentalism of a 
religious kind, that could have a profound impact on the long-
term stability of the region.
    So, I thank Secretary Roth for his involvement in this and 
the administration's awareness of much of what I have just 
said, which I really wanted to underscore because Indonesia is 
not automatically on everybody's map except when the IMF and 
Larry Summers and others are there visiting trying to institute 
reforms. But what we are engaged in now, in these non-focused 
days by the media, are just as important as all of those 
efforts, and we need to understand that as we go forward.
    So, I thank you, Mr. Chairman, and I look forward to 
talking a bit about the election modalities and assistance with 
the Secretary.
    Senator Thomas. Thank you, Senator Kerry.
    I certainly agree with what you have said about the 
importance of Indonesia in the economic field particularly and 
in the whole of Asia.
    You mentioned one of the high priorities and difficulties 
was violence. What is the solution? What is the remedy? How do 
you limit violence?
    Mr. Roth. Well, I think there are several keys. I think one 
is that they have to find somebody responsible for some of the 
incidents, whether it is on the government side, people who 
have shot into crowds in the past, whether it is on the 
provocation side, someone instigated violence, but people have 
to be brought to justice. Until there are consequences for 
engaging in violence in Indonesia, it is going to be very 
difficult to have a disincentive for people to continue to 
engage in violence.
    Second, the Indonesians--the government in this case needs 
I think to more aggressively embrace the responsibility for 
intervening in situations like Ambon where there is violence 
and trying to put it to a stop. They cannot just sit it out 
which all too often has been the tendency until it gets out of 
control. We did not see the government really go in in East 
Java until almost 200 people had gotten killed. We did not seen 
the government send in troops in Ambon until almost 200 or at 
least 200 people had been killed, and I think the government 
needs to deal with these situations better.
    Part of the long-term answer--and I emphasize this is not a 
short-term solution, but part of the long-term answer is the 
Indonesian Government has to get much better at dealing with 
violence and with crowd control. As you have probably heard, 
the police has been a neglected institution in Indonesia. They 
are part of the military until next year when they will be 
separated. They have been underfunded, undersized, and 
basically no training in crowd control. One of the results is 
that when difficulties break out, you are frequently seeing 
people shooting into crowds, whether it is at point blank even 
with rubber bullets, like happened in Atmajaya last November or 
whether it is with lethal force, as has happened elsewhere. So, 
there is going to have to be a lot of work I would hope with 
the support of the international community and the United 
States to start training Indonesian police how to deal better--
--
    Senator Thomas. That is sort of a shift away from the 
military to a civil peacekeeping----
    Mr. Roth. I emphasize in the short term it is simply not 
going to happen. You cannot buildup and double the police force 
between now and the election. So, both the military has to do 
better with crowd control, and as a long-term objective, we 
have to try to get the police force to be more effective.
    Senator Thomas. What is your impression? Let us assume that 
there is a relatively fair and transparent election. When I was 
there, there were people who were very much interested in human 
rights. They had a human rights commission. I suppose they 
still do. But there was no rule of law. There was no apparatus. 
There was no institutional apparatus to carry it out. What 
makes us think there will be now, for instance, to avoid a 
Cambodian kind of a thing after this election is over?
    Mr. Roth. Well, I think you have raised a profound problem, 
and remind me that I did not make a key point, which is that 
even if we have a good election, which we are all going to work 
hard for, for the reasons you and Senator Kerry have expressed, 
this does not mean that on June 8, we check the box and say, 
Indonesia is done. In fact, what we are doing is hopefully 
setting the stage for improvement over time, but there still is 
a staggering range of problems and the one you have flagged is 
what I would call institution building.
    Essentially Indonesia has been left from the Suharto period 
with very few functional institutions. The national assembly 
has not been a real parliament. The local parliaments have not 
been real parliaments. The court system has been completely 
politicized by Suharto appointments. The military has been 
placed at over 100,000 people in local governments, retired, 
and at an abnormal controlling say in the government of the 
country as a whole. So, you are going to have to really start 
working on all of these institutions to try to buildup a 
foundation of what we call civil society----
    Senator Thomas. Is that happening now, or is this all set 
aside awaiting the election to happen?
    Mr. Roth. I think it would be unfair to say that nothing is 
happening, but I would not want to mislead you to tell you that 
we are surging ahead with progress. So much of the attention 
now is focused, first, on the elections and, second, on the 
economy. In terms of dealing with some of the institutional 
problems, it is slower.
    But, for example, you now find the debates in the 
parliament are real. The National Assembly is considering 
legislation that will have a huge impact on the future of 
Indonesia. For example, the balance of power between the 
center, Jakarta, and the provinces, the flow of resources, Java 
being resource poor, the outer islands being resource rich. In 
the past the money flowed from the outer islands to Java. Now, 
the question is, will there be a better distribution of 
resources?
    Will the local governments be given more autonomy?
    Will there be mechanisms to correct abuses if the military 
commits the kind of violations it committed in the past at Aceh 
and Irian and East Timor?
    So, some of this work is starting, but we are at the early 
stages.
    Senator Thomas. What about the economic hold of the Suharto 
family? Has that begun to change?
    Mr. Roth. I think that if you look at what happened with 
the banks last week--your phrase is a good one, begin to 
change. If you ask me has there been a wholesale dismantlement 
in what in Indonesia is called KKN and we might call in 
Philippine terms crony capitalism, the answer is no. At the 
same time, several of the banks that were shut down were ones 
that had major Suharto family interests. There has been a 
statement by the justice minister that they have taken away the 
passport of one of Suharto's sons and that he is under 
investigation and they may go after him for corruption. So, 
some steps have been taken but the issue is far from resolved.
    Senator Thomas. My information is that there are roughly 8 
million unemployed early last year and it rose to 20 million. 
That is pretty marked. You said that is stabilized, would you 
say, not reduced?
    Mr. Roth. Let me say, first of all, that one should be very 
careful in using statistics even from the World Bank and the 
IMF because they have now acknowledged that some of the 
statistics they were using were overstated. Now the estimate is 
far lower than the 20 million unemployed.
    But there is no doubt that there has been a major increase 
in unemployment and under-employment, and that it has been 
worse in the cities. When I travel to Jakarta now, which I do 
regularly, you see street children out there begging and 
hustling on the corners in ways that I have not seen since the 
early 1980's. The impact has been very real.
    I would like to tell you that it is stabilized, but with 
the projection of continued negative growth of 3 percent, which 
is the estimate of the World Bank or the ADB, I forget, this 
year, that is not stabilization. That is still on the downward 
path. I tried to distinguish it from the plunge last year, the 
13 or 15 percent, but it is still not positive growth. So, we 
cannot say it is stabilized yet.
    Senator Thomas. Senator Kerry.
    Senator Kerry. Thank you, Mr. Chairman.
    Mr. Secretary, would it be your judgment, based on what you 
have just been saying to the chairman, that you are comfortable 
that we and the institutions which we support are doing enough?
    Mr. Roth. I do not think there is cause for complacency. I 
am not personally satisfied that we have checked the box yet in 
terms of providing enough resources for the election. I would 
actually hope that the two of you might help me in your 
contacts with Europeans and the Japanese in particular. It is 
absolutely baffling that the Europeans spent more on Cambodian 
election assistance than they are willing to spend in Indonesia 
when you consider not just the relative importance of the 
countries, but the relative size of European investments, 
particularly German and British, in Indonesia. Yet, their 
contributions have been de minimis. So, we are working very 
hard with UNDP, which is the coordinating role, to try to 
regularly assess the election needs and see if we can raise 
contributions. I am not saying we are there yet.
    Senator Kerry. One of the things that I have been 
questioning is whether we are raising the stakes high enough. 
Are we pushing this at a level that sufficiently creates the 
urgency and gets the decisions that you need?
    Mr. Roth. I would say yes. I think that had it not been for 
the United States' leadership, we would not have seen the major 
Japanese contribution that was just announced. We have seen a 
more than doubling of the Australian contribution. We have 
seen, although it is inadequate, almost a tripling of the EU 
contribution. More importantly, we have seen Indonesia accept 
the concept of international assistance, accept election 
observers, which is a crucial concept.
    All I am trying to suggest is we are not done. This is 
going to be down to the wire. Every step of the way we are 
going to have to be on top of this situation. As I said in my 
statement, this is our No. 1 priority in the administration 
between now and the selection of the new President.
    Senator Kerry. Well, we are a little less than 3 months 
away from the election. How many polling places are going to be 
set up?
    Mr. Roth. Well, they will have over 125,000 polling places. 
What this means, referring to some of the comments you made, is 
obviously you are not going to have an international observer 
at anything like the majority of the polling places. So, it is 
absolutely crucial that two things happen.
    First, that the Indonesians themselves train the poll 
workers as opposed to monitors, the people who run the polling 
places know what to do, get the counting procedures right. They 
have just established an election commission last week. So, we 
have to get those technical procedures down as well as make 
sure they train these workers.
    Then there is the question of observers. Once again, 1,000 
observers might swamp Cambodia, but it gets lost in the 
vastness of Indonesia. So, even if you add the media as de 
facto observers, we are not going to have observers at most of 
the polling places. This is why there is a lot of work being 
done in Indonesia to get Indonesian observers at these polling 
places, and there is a major effort to organize the students to 
serve as election observers, and they are talking about 
mobilizing hundreds of thousands of students. We are trying to 
support this.
    In addition, the parties will have their own observers, and 
as you probably know from your Philippine experience, that can 
be a crucial player when the parties report abuses. So, that is 
another check on the process.
    Senator Kerry. The problem is, as you can well understand, 
that if the parties do not have greater capacity to have 
observers from neutral and independent entities, you will be 
flooded with claims that are absolutely unverifiable and you 
will have an election that is prima facie lacking credibility.
    This is why my concern--and I want to state it as clearly 
as I can today--I do not believe the international community is 
doing enough to make clear what has to be done in 2+ months to 
even prepare, let alone monitor. You could have chaos on 
election day if you have polling places that are only now being 
established with no modalities for the election by the election 
commission fundamentally in place.
    Mr. Roth. Yes. I think you are perhaps underestimating the 
degree of work that has been done in Jakarta by the UNDP 
working with the Indonesians and with the foreign community. It 
is not a zero base the way one might think. One can build on 
the election lists from before, the polling places from before. 
Even though the polls were bogus because candidates were not 
allowed to run, the physical infrastructure for elections has 
happened before, so there is something to build on within 
Indonesia.
    But we cannot be complacent. I could not agree with you 
more on that.
    Senator Kerry. But is the structure sufficient in your 
judgment for us to be able--again being sensitive about not 
interfering, but at the same time maximizing the capacity to 
make the judgment that the staff will be there or to be able to 
provide assistance and training, for instance?
    Certainly the two institutes, the Center for Policy, et 
cetera, could perhaps take greater roles and so forth.
    Mr. Roth. I am not prepared to tell you that all our 
concerns have been addressed and that everything is ready for 
the elections. For example, they have not yet finalized what 
the counting procedures are and how they secure the ballots, 
how that proceeds up, which is a crucial step in every 
electoral process and one where the observers can play a role. 
All of the decisions are not done and we have a lot of work 
left. I do not how to be more transparent than that.
    Senator Kerry. Well, let us just look at the money for a 
moment. The Indonesian Government, I understand, has allocated 
about $180 million. Correct?
    Mr. Roth. Right.
    Senator Kerry. And we are going to provide about $30 
million?
    Mr. Roth. Yes.
    Senator Kerry. And if you add the other countries, there 
may be another $60 million coming from other places, somewhere 
in the vicinity.
    Now, will that funding in our judgment be sufficient to 
cover the needs?
    Mr. Roth. I think we would rather see more, based on 
experience in other countries, I think I have testified before 
that there has been an estimate in the Third World that 
basically $3 to $4 per registered voter would be a better 
outcome, and if you take over 125 million voters, it looks like 
there are underfunded.
    This is one of the reasons why we are still working on 
trying to get more funding. I have been trying to organize an 
international pledging conference because I think that could 
increase the pressure for countries to contribute more 
generously and focus the attention on the elections.
    Senator Kerry. Well, I really want to just underscore--I 
know the red light is on and I will not abuse it, but I just 
want to underscore that there was a huge concern in this Nation 
when the economic implosion took place. There are large 
economic stakes in this. Japan has enormous investments there. 
We have been raising a hue and cry about Japanese recovery 
being essential to America's sustained economic growth. If 
Indonesia implodes politically, then the values that Japan's 
banks, many of which we know are fundamentally bankrupt, are 
relying on to be sustained and to revalue, which is the way 
they are trying to work out of this, is going to tumble. That 
can have serious implications on larger world economic 
interests.
    The only way Indonesia will be able to make the economic 
recovery sufficient to meet the standards of the IMF, World 
Bank, and others is to have a credible government, and the only 
way they will have a credible government is to have a credible 
election. So, this is larger than just an election, and I think 
it is critical for our allies and for us to really understand 
that and push the envelope on this a little bit.
    I must say, Mr. Chairman, I am glad you had the hearing 
today. I raised this subject with staff several weeks ago and 
began a process of trying to examine what we might be able to 
do to leverage this. We will work with you, Mr. Secretary, as 
much as we can, but I think it has got to be put on the front 
burner more than it is now. I am not criticizing. I am just 
saying I think that you need some help and lift from others in 
the administration and that we need to be there too.
    Mr. Roth. Well, I share your sentiments. We have 
established an elections working group within the State 
Department, pulling in some of the other agencies, precisely to 
give it the kind of priority that you are talking about and to 
look at these issues on a regular basis. You have virtually 
used the talking points that I have used with the Japanese 
about what the stakes are in this election. In fairness to 
Japan, I should indicate that they have been extremely generous 
on the economic side in terms of the assistance they are 
providing under the Miazawa initiative.
    They turn around and say, it is nice, United States, that 
you are spending $30 million on elections, but we have put 
forward billions of dollars on the economic side, to which I 
say that is great, keep doing it. But the elections matter and 
all this economic assistance will not be well utilized or have 
the conditions to succeed if the elections do not turn out 
right. So, do not be penny wise and pound foolish. But the more 
you can reinforce that message in your own contacts with Japan 
and other members of the international community, the better.
    Senator Thomas. How about Australia? They are right handy 
and very much involved. Do they participate?
    Mr. Roth. They are extremely involved. They are also 
extremely modest on the economic side. They have talked about 
something roughly in the nature of $10 million U.S. They have a 
little flexibility and that represents almost a doubling. I 
have personally spoken to the Foreign Minister, Mr. Downer, 
several times about their contribution.
    Senator Thomas. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you.
    Mr. Secretary, welcome.
    Mr. Roth. Thank you.
    Senator Hagel. I wanted to ask first a question regarding 
progress on negotiations between the Indonesian Government and 
independent American power companies. You know. You have been 
involved in this, and I appreciate very much the good work you 
have done and your staff. What can you tell us about those 
negotiations? Are we making progress?
    As you know, many are perilously close to default, and I, 
like all of us, am somewhat disappointed that we have not 
gotten the Indonesian Government to respond more effectively 
and positively on dealing with these issues.
    Mr. Roth. I will provide you a more detailed answer for the 
record so that you can fully get at the issues you are talking 
about. But let me first set the framework.
    Obviously, there is a massive problem based on the fact 
that certain contracts were made, decisions were made based on 
projections of a growing Indonesia with surging power demands. 
With the onset of the financial crisis and the setbacks to the 
Indonesian economy, obviously the power demands plummeted and 
they were left with economic projects that had their 
underpinnings pulled out from them so that it became necessary 
to figure out how to deal with the problem that they did not 
need this capacity that had been agreed upon.
    Having said that, the Indonesian Government--my 
impression--and the companies have not met the time tables for 
negotiations to try to work out the agreements. The American 
power companies have been--my impression--quite reasonable in 
recognizing that there is a problem and that changes have to be 
made, but they need to work out the debt and they need to work 
out the contracts. And the deadlines have not been met.
    So, we continue to press the Indonesian Government. I have. 
I have been meeting with Mission Energy and other companies to 
try to deal with some of the more critical contracts. But I do 
not have an up-to-the-minute update for you, so let me get that 
for the record on where we are this week.
    Senator Hagel. Is this an issue that has been raised with 
the various political candidates?
    Mr. Roth. I do not know. I would have to inquire. I doubt 
it. I think it is more likely to have been with the ongoing 
government because there is some time urgency to it. We do not 
want this to wait until the new President is selected in 
November.
    Senator Hagel. Well, that is right, but at the same time, 
Senator Kerry's point is a good one. The fact is markets 
respond to confidence, and what Senator Kerry and Senator 
Thomas said is exactly right. Whoever inherits the mantle there 
in Indonesia next to govern in the lead is still going to be 
dealing with these problems, and I think it would be in the 
best interest of all of us to, on a parallel track, bring these 
issues up with the candidates, realizing that the current 
government has to deal with them. But at the same time, I doubt 
if there is going to be any scenario that we could envision now 
that would have all these issues resolved before the elections. 
I think it is smart for us to be dealing with all candidates 
and all leaders on all tracks on this issue.
    Mr. Roth. I will pass that suggestion on to Ambassador Roy.
    Senator Hagel. Thank you.
    You mentioned IMF in your statement. You mentioned that all 
the political candidates, others, are helping develop some kind 
of a structure dealing with the economic challenges. You talk 
about the political figures have indicated their intention to 
continue with the IMF program in a new government.
    Give us a little more detail on where we are with IMF 
programs in Indonesia.
    Mr. Roth. Well, I think what one would have to say is it 
has been an uneven course, rather than perfect trajectory. 
There has been difficulty implementing various parts of the IMF 
program.
    For example, because of the economic retraction that took 
place, the Indonesian Government was having difficulty spending 
money, developing projects, and so there was some sense that 
the IMF traunches were perhaps overly generous in light of the 
actual budget needs of Indonesia. So, there had to be some 
discussion of what Indonesia could realistically spend, its 
absorptive capacity.
    Second, there has been a huge issue of what is called 
transparency, but obviously relates to the corruption of the 
past regime. The international banks, for very obvious reasons, 
given some of the mistakes made in the past, have been anxious 
and they want to be sure that whatever assistance they give 
does not end up in projects that do not meet common sense 
standards on corruption. So, there have been problems not just 
with the IMF but with the World Bank and with the ADB about how 
do you ensure that these transparency standards are met.
    Third, a lot of this has gotten caught up in election 
politics. There is, unfortunately, from my perspective a raging 
debate in Indonesia, particularly in the now-free press, as to 
whether any assistance from the international community between 
now and the elections is de facto tilting toward the 
government. I personally view that as ridiculous. The notion 
that we should not be helping the poor with social safety net 
programs or the people who are unemployed as a result of the 
crisis because someone might see this as a plug for the 
government strikes me as almost immoral. But, nevertheless, 
there is this political debate that we have to be sensitive 
that the international community is not seen as intervening.
    Then, finally, there has been uneven implementation of 
policy. You could get more on this from Treasury, and I will 
submit to you a more detailed answer for the record. But just 
look at the way the recent bank issue was handled. They missed 
the initial deadline, raised concerns that there was favoritism 
toward the one bank, one crony in particular. Even though they 
ultimately came up with a fairly ambitious program, the way it 
was done was a mixed picture rather than an unclarified 
success. So, this is going to still be a struggle to insist on 
the implementation of the conditionality between now and the 
election.
    Senator Hagel. Is it your opinion that Indonesia is making 
progress regarding such things as transparency, dealing with 
crony capitalism? Are they not just moving in the right 
direction, but in fact is there progress being made under the 
Habibie Government?
    Mr. Roth. I think one would have to say some but not 
enough. We need more. But one cannot give them a perfect report 
card at this point. I tried to indicate earlier, for example, 
three of the banks that were closed had Suharto family ties and 
children associated with them. That is a plus, but there has 
not been a full accounting for all the corruption of the past 
or prosecution of past cases. The IMF, the ADB, and the World 
Bank still spend a lot of time negotiating transparency and 
controls and conditionality in their agreements. We are not 
over the hump on this yet.
    Senator Hagel. Mr. Secretary, thank you.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you, sir.
    We are getting a little jammed up on time. Let me ask you 
one question which I suspect will have a simple answer.
    You mentioned something about oversight in Timor. Are we 
susceptible to sending troops into East Timor?
    Mr. Roth. I think it is way premature to talk about troops 
in East Timor. When the Secretary was in Indonesia, for 
example, she met, amongst her many meetings, with Shanana 
Gusmau, one of the leading Timorese leaders, and he said he saw 
no need for PKO, or peacekeeping troops, that he thought an 
unarmed Timorese police force with a little assistance from 
international police forces could handle this. We are dealing 
with a very small place with a population of under 800,000 
people. We are not talking about a country with millions of 
people spread out over vast distances.
    But a lot of this is going to relate to what I mentioned to 
you before. If ABRI, the Indonesian military, take steps to 
disarm some of these militia, if you have a reconciliation 
council on the ground, if you had a partial withdrawal of 
troops to diffuse some of the current tension, if you have 
international presence--and it can be things like the Red 
Cross, the Human Rights Commission, as well as Ambassador 
Marker who will have to have a presence there in terms of the 
U.N. implementing the plan for autonomy or elections--all of 
this could reduce the need for any type of international 
presence. So, a lot is going to depend on what happens now, and 
that is why we are pushing so aggressively to try to break this 
cycle of violence so that we will not have to end up with the 
hard choices about PKO.
    Senator Thomas. I hope so. That is beginning to be sort of 
a heavy burden to be having peacekeeping operations everywhere 
in the world.
    In any event, thank you, Mr. Secretary. We appreciate it 
very much.
    Mr. Roth. Thank you, Mr. Chairman.
    Senator Thomas. So, gentlemen on panel two, if you will 
come forward, we will try and move quickly here. Mr. Edward 
Masters, President, United States-Indonesia Society; Ms. Sidney 
Jones, Director, Human Rights Watch, Asia Division; and Mike 
Gadbaw, Chairman, U.S.-Indonesia Business Committee.
    Mr. Masters, if you would care to go ahead, sir, we will 
put your full statement in the record, each of you. Whatever 
you would like to say would be fine.

 STATEMENT OF HON. EDWARD E. MASTERS, PRESIDENT, UNITED STATES-
               INDONESIA SOCIETY, WASHINGTON, DC

    Mr. Masters. Thank you very much, Mr. Chairman. I first 
want to say I am delighted to be back again. It was just a year 
ago this week that I had the opportunity to meet with this 
committee previously.
    At that time things were much worse in Indonesia than they 
are now. It was an economic basket case. There were major 
questions at that point about the survivability of the country 
and certainly of the government. The Suharto Government since 
did fall, and has been replaced, and we have seen significant 
progress since then. I want to associate myself with Assistant 
Secretary Stanley Roth's comments on that progress, but I will 
not repeat much of what he said.
    I particularly want to associate myself with his comments 
on the economic progress. While there are still problems and 
there have been missteps and while the bank restructuring and 
the rescheduling of the private sector debt have been unduly 
delayed, there has been progress on other aspects of the 
economic sector.
    What I want to focus on today, if I may, is the political 
side, and particularly the way the government has set itself up 
for these very important June elections.
    As you know, Mr. Chairman, there were three critical laws 
that were put before the parliament, first on the conduct of 
elections, second on the formation of parties, and finally on 
the composition of the parliament and the People's Consultative 
Assembly, the latter being the body that elects the President 
and the Vice President. There was concern that this was too 
much to put on the plate at one time for a country that had no 
recent experience with an open political system.
    But to everyone's great surprise and delight, the 
Indonesian parliament on January 28 did pass laws that were 
very constructive in these three areas despite some lingering 
problems, and I will talk about those problems.
    Three critical issues threatened to derail these laws 
governing the elections. One was the role of civil servants. In 
the past civil servants joined a party, largely the government 
party, Golkar. There are 4.1 million civil servants. They and 
their friends and families were a significant element right 
down to the grass roots level. The new legislation provides 
that civil servants could not and would not be members of a 
party or officials of a party, and if they did so, they would 
be dismissed from the civil service. That is a major step 
forward, and contrary to earlier expectations was not a 
solution that Golkar wanted.
    The second controversial issue was the number of seats for 
the military. The pressures on that ranged from 0 to 50 or 60 
reserved seats. The compromise solution was that the military 
will have 38. The good news is this is less than the 75 they 
used to have, but the bad news is that there are any at all. I 
will come back to that in a minute.
    The final issue was the size of the electoral districts, a 
rather complicated, technical issue, but I think one that was 
resolved quite satisfactorily.
    The result has been a set of laws and principles which 
serve as a viable basis for free elections, starting on 7 June. 
These laws have been accepted by all of the major players and 
all of the major political parties, and I think this is a very 
constructive development.
    A further sign of the moderation of the parties is the fact 
that the major parties accept panchasila. Panchasila is 
important because that is the buzzword to avoid mention of an 
Islamic state. Adherence to panchasila means that, in effect, 
you favor a non-Islamic, a non-religious based state, and all 
of the major parties have accepted that.
    There have been a number of other good developments so far. 
Let me tick them off briefly.
    First, universal suffrage. All Indonesians over 17 and 
those who are married under 17 have the right to vote. No 
discrimination.
    Second, the composition of the electoral commission has 
been a surprise and a joy to many observers. There was concern 
that this group would be dominated by the government. That is 
not the case. The government representatives who have been 
appointed include a number of figures who have credibility, 
including Buyung Nasution, a well-known human rights advocate.
    Third, I think is the matter that I mentioned before, civil 
servants are banned from participation.
    Fourth, limits on financial contributions. Now, that may be 
observed in the breech, but at least there is a regulation now 
which restricts financial contributions. This will certainly be 
helpful.
    There are several continued problem areas. I mentioned one 
earlier, the fact that the military still have seats. They have 
38 seats. That is 7.5 percent of the total membership, and that 
puts them in an important swing position.
    There are other problems that I think have been identified 
before, but basically the legislation is good. I think it 
provides the basis, with adequate monitoring and with adequate 
outside support--and I want to strongly endorse the previous 
comments about the need for further U.S. support--for a 
credible election, which will set the basis for further steps 
in both the political and economic fields.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Masters is in the appendix 
on page 37.]

    Senator Thomas. Thank you very much.
    Ms. Jones.

  STATEMENT OF SIDNEY JONES, EXECUTIVE DIRECTOR, HUMAN RIGHTS 
              WATCH, ASIA DIVISION, WASHINGTON, DC

    Ms. Jones. Thank you very much.
    I guess I take a somewhat bleaker perspective because I 
have just come back from Indonesia, and I spent most of my time 
outside Jakarta. I was in Ambon in eastern Indonesia where the 
communal violence is virtually a civil war. I was in Aceh in 
the northern tip of Sumatra, which is also the target of major 
military operations, and I was in south Sumatra briefly where 
there are major problems between farmers and commercial 
agriculture there.
    My impression was that, yes, while the election is 
important, it would be a real mistake to place so much emphasis 
on the election that it somehow seems as though this is going 
to be the key to solving all of Indonesia's problems because 
when you get outside of Jakarta, the other kinds of problems 
and the grievances are so deep and so pronounced that the 
elections--they are not irrelevant, but they are clearly not 
going to make a major difference in the outcome or the 
resolution of those problems. I would like to list a couple of 
the issues that are a major issue.
    One of them is and continues to be the dominance of the 
military. It is not so much a question of whether there are 38 
seats left or how long it is going to take to remove the 
military from power, but there are some very immediate issues 
that in the short term are making things worse.
    One is that the military has decided that, in an effort to 
provide security for the elections, it has created this 
civilian militia called wanra, which is being set up all over 
the country. The United States, quite rightly, has opposed 
these militias. But in a place where you have got communal 
violence and sectarian violence breaking out all over the 
country, what is happening is that the people who are 
volunteering for this civilian militia are people who are 
either ethnically distinct from the population more generally 
so that in Aceh where you have these major operations taking 
place, the people volunteering for the civilian militia are 
transmigrants from outside from Aceh against whom there is 
already resentment.
    In East Timor, the people who were volunteering for the 
civil militias are people who are pro-integration, therefore 
building in immediate tension with the pro-independence people 
in East Timor.
    In Jakarta, last November when there was a civilian 
militia, the people who joined the civilian militia were people 
who were a priori opposed to the students so that you built in 
a clash.
    This notion that a civilian militia is going to provide 
peace or security during the elections is not only wrong, it is 
completely counterproductive, and what we may see is more 
violence with these people on the streets who have been armed 
with sticks and trained by the military.
    Second, there are a couple of other problems that the 
military continues to almost promote. One of them is it 
continues to see all social unrest and civil unrest as being 
almost tantamount to insurgency. This is not an army that has 
been trained in any kind of ordinary law and order functions. 
It has been trained in counter-insurgency, seeing the people as 
the enemy. So, I wholeheartedly agree with the need to place 
more emphasis on the police rather than the military, but that 
is not going to happen for a while even though the army has 
agreed that the police should be separated from the army in 
terms of the overall armed forces.
    At a time when Indonesia should be moving away from 
reliance on the military, in fact what this civil unrest is 
doing is creating pressure to create more regional military 
commands. Right now there are 10 KODAM's, which are the largest 
division of the army, each of which has about 700 personnel. 
Now what we are seeing is that there has been a creation of a 
new KODAM in Aceh where there has been this trouble since 
December. You are seeing a demand for a new KODAM in Ambon as a 
way of dealing with the unrest, and it is as though at a time 
when more than ever Indonesia should be relying on civilian 
institutions, the pressure is for expanding the role of the 
armed forces.
    Also, it is the case that you have got a real problem 
within the military of all of these officers who have no place 
to go. One of the rationales for creating more of these 
divisional military commands is that you create slots for 
officers to get promoted to, and there has got to be some way 
of addressing this structural problem within the military.
    A fourth issue is that the military itself and some senior 
officers have very deep suspicions about political reform. So, 
you get these comments by the military--and I put some in the 
testimony--where they are asked why they did not take any 
action when this communal violence broke out in Ambon, and 
their response was, well, this is the reform era. We cannot 
just arrest people the way we used to. So, it is almost a way 
of using reform as the pretext for inaction or saying, see, 
things were better and you were safer under the old system.
    Let me just say very quickly on East Timor I would strongly 
endorse much of what Assistant Secretary Roth said, but there 
is going to be a ballot mechanism and there is going to be a 
real problem with different factions in East Timor. You have 
these militias that have been equipped and armed by the 
Indonesian military, pro-integration militias, but you also 
have violence that has come from the other side, from the pro-
independence side to the point where large numbers of refugees 
are fleeing East Timor, people who are non-Timorese or people 
who have somehow been collaborating with or working with the 
Indonesian Government. So, in order to avoid a major outbreak 
of civil unrest immediately, what you need to have is some kind 
of international police presence there as soon as possible and 
anything the United States can do to facilitate that would be 
great.
    I would like to just mention the fact that you do have 
other centrifugal tendencies in Indonesia, and the fact that 
East Timor is moving toward independence has given a new life 
to independence movements in other parts of Indonesia, which is 
not to say that there is not a dynamic of its own in places 
like Aceh and Irian Jaya. But for the first time, their demands 
for a referendum now in Aceh, which there never were before--
and that is not going to go away with a credible election and a 
free and fair election and so on. That demand for some kind of 
separate status I think is going to continue.
    We are also seeing a hundred leaders from Irian Jaya go to 
President Habibie and present local aspirations for 
independence just last February 27. We are seeing perhaps 
growing support in the South Maluccas in Ambon for a separate 
state from the Christians who feel threatened now in Ambon. We 
are even beginning to hear hints about a free Borneo republic 
in Kalimantan. This is not to suggest that Indonesia is going 
to disintegrate overnight, but unless those regional grievances 
are addressed and addressed very soon, there is going to be a 
major problem for any new government and it is going to last 
well beyond the elections.
    I would just like to say finally the ethnic Chinese 
question has not been resolved at all. The government has made 
no progress toward revoking or repealing legislation which 
discriminates against the ethnic Chinese. It has not 
implemented any of the recommendations of the joint fact 
finding mission that was set up to investigate the riots in May 
1998, and unless and until the ethnic Chinese feel as though 
they can be secure and safe in Indonesia, not only are you 
going to have real problems restoring the economy, but you are 
also going to have many, many more political asylum 
applications in the United States.
    Thank you very much.
    [The prepared statement of Ms. Jones is in the appendix on 
page 34.]

    Senator Hagel [presiding]. Ms. Jones, thank you.
    Mr. Gadbaw.

   STATEMENT OF R. MICHAEL GADBAW, CHAIRMAN, U.S.-INDONESIA 
               BUSINESS COMMITTEE, WASHINGTON, DC

    Mr. Gadbaw. Thank you very much, Mr. Chairman and Senators. 
I am pleased to be here on behalf of the U.S.-Indonesia 
Business Committee of the U.S.-ASEAN Business Council. The 
U.S.-ASEAN Business Council is a private, nonprofit 
organization. It is made up of some 400 U.S. companies. We are 
all dedicated to expanding trade and investment between the 
United States and the member countries of the Association of 
Southeast Asian Nations.
    I was in Indonesia just 3 weeks ago leading a delegation of 
U.S. business representatives committed to standing by 
Indonesia during these difficult times. Ours was a confidence-
building and information-gathering mission. In the week we 
spent there, our group met with a broad cross section of 
government officials and private sector representatives. We met 
with representatives of the political parties, members of the 
Indonesian press, representatives of the Indonesian NGO 
community, World Bank officials, and the Japanese business 
community in Jakarta.
    While I have been to Indonesia a number of times, I came 
away from the visit with a strong sense that Indonesia is a 
large, complicated country that is undergoing profound social, 
political, and economic change. One cannot escape a sense of 
historical moment in recognizing that the world's fourth most 
populous country is undergoing a political transition to a more 
open, democratic political system. At the same time, business 
practices and instruments of governance that have been in place 
for decades are now under persistent, largely constructive 
assault.
    On our visit to Indonesia, we encountered reform in every 
discussion, from President Habibie and the Minister of Mines 
and Energy to our meetings with those unconnected with the 
current government.
    The committee's message to our friends in Indonesia has 
been consistent: A commitment to free, transparent, and 
efficient markets must be a part of any viable reform agenda. 
It is essential to draw the political leadership and other 
influential sectors of the body politic out on these issues. If 
left isolated, we are concerned that they will develop 
positions that are not only less amenable to international 
business, but untenable in the long run.
    To this end, we have institutionalized a similar engagement 
of the Indonesian private sector. Long before the onset of the 
economic crisis, we worked with our Indonesian counterparts to 
improve the business environment in areas as varied as tax 
reform, customs reform, and distribution liberalization. The 
crisis has encouraged us to redouble our efforts to engage them 
even more broadly.
    Indonesia has made an impressive number of commitments over 
the past 2 years to reform its economy and has had most of its 
promises, albeit in a somewhat halting and incomplete manner, 
fulfilled. Its progress on economic reform has been 
periodically approved by the IMF following extensive reviews. 
In their totality, these reforms promise to transform the way 
business is done in Indonesia. However, consistent engagement 
is required of international financial institutions, foreign 
donors, and the international business community to see that 
they are implemented faithfully.
    Beyond reinforcing my impressions about the overwhelming 
needs of the reform process, our discussions in Indonesia gave 
us a better perspective on the current economic climate. The 
impression one has from the U.S. media coverage is that the 
country is devastated, an economic basket case with as much as 
100 million people descending into poverty. It is a very 
difficult time there, no doubt. However, there is much more 
resiliency in the Indonesian economy than has been generally 
portrayed.
    In a report prepared for the World Bank, surveys of 
conditions in the country indicate that poverty is not as 
severe as some have assumed. Before the crisis, the incidence 
of poverty was approximately 11 percent, down, I should note, 
from 70 percent 30 years ago. It is now at around 14 percent 
according to this report. The crisis has hit hardest urban 
areas, Java, and those whose income is in the upper half of the 
nation's earners. The effects elsewhere have been less severe. 
In fact, in some areas such as Sulawesi, the economy has 
actually benefited from drops in the value of the rupiah.
    Prior to the crisis, Indonesia's economy averaged 7 percent 
growth for 25 years. It had created a middle class 
conservatively estimated at 20 million, a larger population 
than that of all Australia. To be certain, some of this 
remarkable growth was unsound. But a great deal of it was 
attributable and is attributable to Indonesia's integration 
into the global economy, conscious diversification, the 
strengths of the Indonesian people, and Indonesia's other 
natural resources. Structural economic reform carried out to 
its designated end and political stability will once again 
permit Indonesia to make the most of its national assets. 
Speaking on behalf of the U.S.-Indonesia Business Committee of 
the ASEAN Business Council, I am confident of this.
    Let me close by thanking you, Mr. Chairman, for the 
timeliness of this hearing and for your own long-term 
commitment to the region. This next several months are crucial 
in Indonesia. They may very well determine its future for 
decades to come. I am honored to be part of this subcommittee's 
assessment. Thank you.
    [The prepared statement of Mr. Gadbaw is in the appendix on 
page 31.]

    Senator Hagel. Mr. Gadbaw, thank you, and to all our 
witnesses, thank you very much.
    As you know, we have a rollcall vote on and the chairman 
will be back momentarily. Let me ask my colleagues if they 
would like to get a question in before they go vote. Senator 
Kerry.
    Senator Kerry. I would like to get a quick question in.
    Ms. Jones, I appreciate the problems that you have laid 
out, but I am a little perplexed to be honest with you. The 
things you call for and the things you would like to achieve, 
which we are well aware of, need a government to be able to 
achieve them. I assume you do not believe that the Habibie 
Government is in a position to do any of these things pre-
election.
    Ms. Jones. No. As I say, I do think the election is 
critical, but I think one of the things that is striking about 
going outside Jakarta is how low the expectations are about 
this election. They almost see it as a dry run for the year 
2004. I think if you realize that there are now 48 approved 
parties and that none of those parties have any skilled or 
experienced personnel, you do realize that a lot is not going 
to change after the votes are counted. I think that it is just 
important to be realistic about what the elections are going to 
achieve.
    Senator Kerry. Well, a lot less is going to happen if they 
do not have a good election.
    Ms. Jones. Absolutely. I agree totally.
    Senator Kerry. So, it is the precondition.
    Ms. Jones. It is a precondition.
    Senator Kerry. The precondition.
    Ms. Jones. A precondition.
    Senator Kerry. Well, when you say a precondition, tell me 
what you think can happen if you have a failed election.
    Ms. Jones. Well, I do not think anything can happen if you 
have a failed election, but I think that it is not as simple--
--
    Senator Kerry. If nothing can happen if you do not have a 
good election, it is the precondition.
    Ms. Jones. OK, sir.
    Senator Kerry. Well, I am simply saying that because you 
seem to want to try to minimize the impact of the election or 
the importance of it.
    Ms. Jones. It is not that I want to minimize, but what I 
want to say is that it is not a guarantee of----
    Senator Kerry. Well, I agree with that.
    Ms. Jones. OK.
    Senator Kerry. I could not agree with you more. Whoever 
gets elected has an enormous set of challenges, as do we, to 
try to pull things together beyond that, but there is no prayer 
of doing any of that. All of the things you have cited, the 
unrest in the countryside, the disintegration, the increased 
movements for independence, et cetera, et cetera, will only be 
exacerbated if you have a continued economic down slide and a 
government without legitimacy.
    Ms. Jones. That is true. I was trying to convey almost the 
mood of places like Ambon now where it really is a situation 
where they do not feel the elections matter. We do and I think 
it is important, but it is important to realize that the buzz 
about the elections in Jakarta does not filter down.
    Senator Kerry. Fair enough. That is a very good point, and 
I think it is a very important point for the committee because 
in many ways you are underscoring the alarm bells that I am 
trying to ring, that we need to make sure it does filter down 
and to find ways to give some--what am I saying--the gravitas, 
some tentacles to the election so that the results can be 
stronger.
    Ms. Jones. Can I just say there is one other issue, though, 
which is that part of the dangers of this communal unrest is 
that the election campaign itself is going to be marred I think 
by communal issues. That is another thing just to keep in mind, 
that the election campaign itself can be a divisive procedure 
as much as a unifying one.
    Senator Kerry. It can be. I do not disagree with that, and 
that is the risk that the international community needs to 
probably try to face up to now and squarely, but the 
alternatives are even bleaker.
    Ms. Jones. That is true.
    Senator Kerry. So, I think we need to keep our eye focused 
on what we can achieve, and it is a difficult road. These are 
difficult roads in a lot of countries. Managing democracy and 
beginning to move into changed governments is not without its 
growing pains. But the key here is for us to maximize their 
capacity to begin at a good beginning and to make it happen. I 
think that is what is so key.
    Mr. Chairman, thank you.
    Senator Thomas [resumes Chair]. Thank you, sir.
    Senator, welcome, nice to have you here.
    Senator Torricelli. Thank you very much. I am very pleased 
to be on the subcommittee, and look forward very much to 
working with the members.
    I regret, Mr. Masters and Ms. Jones, that I missed your 
testimony, but I have or will read both.
    I wanted to ask, given the enormous economic dislocations 
and political pressures and now the precedent of East Timor, 
are there any other fissures, multiple fissures, that threaten 
national unity in Indonesia of which we should be aware, that 
there are internal tensions arising that we should anticipate 
future problems?
    Ms. Jones. I mentioned in my testimony that there are very 
strong independence movements both in Irian Jaya and in Aceh, 
and while they each have their own dynamic, I think that the 
progress toward East Timorese independence has affected both 
places.
    Senator Torricelli. How has it affected it?
    Ms. Jones. For example, where there never used to be a call 
for a referendum on the political status of Aceh, there is now 
a very strong movement building, and it started with students 
and it has now moved into the political parties in Aceh itself.
    People told me that the one thing that could counteract 
that move toward a referendum was the prosecution of even a 
single officer for abuses that took place during the major 
military operations there in the early 1990's. There is a 
direct correlation between the frustrations over nothing 
happening to address those abuses and the move toward political 
independence. I think it is important to recognize that.
    Mr. Masters. Could I make a comment, Senator?
    Senator Torricelli. Yes.
    Mr. Masters. Thank you very much.
    These fissures have appeared very dramatically, and they 
have surprised many of us who have followed Indonesia for a 
number of years. We used to say that Indonesia had a remarkable 
record of religious tolerance, of integrating several of the 
world's major religions. That seems not to be the case. There 
are now serious Christian/Muslim problems and also there are 
problems on the ethnic side, not only the Chinese, which is a 
longstanding problem, but also among other ethnic groups as 
well.
    I attribute this to the serious economic pressures on the 
country. The breakdown of the economy, the rise in 
unemployment, and more importantly probably underemployment, 
have released built-up tensions within the society that were 
dormant during the days of 7 or 8 percent annual economic 
growth.
    I would take as an example Ambon, a quiet, idyllic, area. I 
was there 3 years ago, and a number of young men came up to us 
in the bazaar and wanted to walk along with us talk. They were 
nice young fellows. So, we asked them, what are you doing? 
Well, they said, we are not doing anything. We found out they 
graduated from high school 3 or 4 years before. They have never 
had a job. That is what we might call a floating mass in Ambon, 
further aggravated by economic stringency, that is contributing 
to the violence and to the disruption in society.
    I do not buy the idea that there is some third force or 
hidden hand or Suharto family or whatever orchestrating this 
violence. I think it comes much more from local circumstances.
    Senator Torricelli. I only have 6 minutes left, so I am 
going to have to run in a minute here on this vote.
    But would you predict, without having to identify areas, 
that if the economic and political strains continue, are we 
likely to see other problems of national unity in the decade 
ahead? Are there other natural fissures there?
    Mr. Masters. I would certainly expect that, Senator, yes. 
It is incumbent on the Indonesian Government to move much more 
directly and more effectively in redressing the center-regional 
relationship, both on the financial and the power-sharing 
sides. They need to get on with that very quickly, or they are 
going to have more difficulty.
    I do not share the view expressed earlier that there is a 
major problem in either Irian Jaya or Aceh, but there could be 
if they do not move quickly to cope with it.
    Senator Torricelli. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you.
    Just a couple more questions, if you do not mind.
    What would you say, maybe each of you, what do you think 
are the most serious threats to the credibility of the 
election?
    Mr. Masters. Well, I guess I have to kick off on that, Mr. 
Chairman.
    I would say maybe it is money politics. The mechanisms that 
have been set up are reasonably good. There are still some of 
the implementing regulations that have to be made, but the 
system looks reasonable. As I say, it has been accepted by all 
of the major players and all of the major parties.
    But in carrying out the elections, although there are 
restrictions--and that is one of the good things in the 
election legislation--on individual and corporate campaign 
contributions, there are probably also ways around those 
limits. As we have said before, there are several hundred 
thousand polling places. It is a huge number. They are not all 
going to be monitored effectively. So, I think that there is 
real danger that money will talk and that that will in some 
areas perhaps discredit the outcome of the elections.
    Senator Thomas. They have campaign finance, though.
    Mr. Masters. They have campaign finance, yes, sir.
    Senator Thomas. Ms. Jones?
    Ms. Jones. I think there are two questions. One is that the 
election law itself is so incredibly complex that it will be 
difficult to explain even in the most sophisticated voter 
education program what exactly the mechanism is for selecting 
people. Right now the voter education tends to be you have a 
right to vote, which is important.
    But I commend to you this report by NDI on the new legal 
framework for elections in Indonesia, and I could not 
understand what the process was. All the more difficult is 
going to be to explain this on a nationwide basis, and the 
chances for people being elected with the majority of the votes 
not getting a seat is quite high. So, that is one issue.
    The second issue is what happens between the parliamentary 
elections and the selection of the President afterwards because 
you could get a vote which was legal and fair but not accepted 
as credible by the Indonesian population.
    Senator Thomas. Mr. Gadbaw.
    Mr. Gadbaw. I think there are two things. There is the 
process of the election and the result of the election.
    I think on the process side, it is impressive to me that so 
many of the key opposition figures agree that the process that 
is being followed does provide the basis for a free and fair 
election. The government appears to be committed to that, and 
so I think on that score it is critical that that be followed 
through on, but notwithstanding the obvious difficulties of an 
election in a big, complicated country like this, anyone who 
has watched the elections in other countries like India know 
these are difficult, often very messy affairs.
    Second, the results. I think in the end the credibility of 
the process will, in fact, be judged by whether it produces a 
government that can effectively govern this country in a very, 
very difficult time, and it is clear that there will be some 
kind of significant change that takes place. There may very 
well be a new form of coalition politics. That would be a 
profound change for Indonesia and how those forces will 
converge, choose a single leader, and how that leader will be 
able to pull together all of the competing interests in the end 
I think will be the real key to people's perception of whether 
this was a credible process.
    Senator Thomas. What is the basic difference between the 
system--how was Suharto selected? Is it the difference in the 
composition on the House of Representatives?
    Mr. Masters. Suharto was rubber-stamped, let us say, by the 
People's Consultative Assembly which under the constitution has 
the responsibility every 5 years to elect the President and the 
Vice President.
    Senator Thomas. What keeps that from happening this time?
    Mr. Masters. Now there is a much more open political 
system. One problem is that the MPR, the People's Consultative 
Assembly, is not scheduled to meet until November. I hope the 
timetable is moved up because there is too much of a time lag 
there after the June 7 parliamentary elections before the MPR 
will meet and elect the President and Vice President.
    Ms. Jones. But the difference is that Suharto was sort of 
reselected every time by the lackey parliament, the DPR, plus 
500 other appointed people that he put in place. Now you will 
have an elected parliament, plus these other appointed seats 
have not only been reduced, but they are going to be drawn from 
elected officials at the local level. So, it is a more 
representative body.
    Senator Thomas. What about U.S. investment, mining and oil 
production and so on? Has it gone on pretty much unimpeded?
    Mr. Gadbaw. I would not say it has gone on completely 
unimpeded. I think much of the natural resource investments are 
being maintained, and it is clear that that is critical to 
sustaining the economy to the degree that it is being 
sustained. But I think looked at more broadly, there are an 
awful lot of companies that are in a wait-and-see mode that 
view this as an important transition period and that are, in 
fact, waiting to see the results of this----
    Senator Thomas. The present one like Freeport and so on 
have continued on?
    Mr. Gadbaw. That is right. Yes, that is correct.
    Senator Thomas. Ms. Jones, I have the impression--I should 
not get impressions--that you sort of lean toward independence 
of Timor. Did you say that?
    Ms. Jones. I did not say I think it is going to happen.
    Senator Thomas. Do you think that is a reasonable thing to 
happen?
    Ms. Jones. I think it is beyond the point of no return now.
    Senator Thomas. Do you? You cannot help but be a little 
worried about the fact that around the world there are lots of 
countries wanting independence that perhaps do not have the 
basis for remaining independent and sustaining themselves in an 
economic world.
    Ms. Jones. Yes. I think, though, if you look at the very 
small states of the South Pacific and some of the states of the 
Caribbean, there are certainly some states that started out 
with the same disadvantages that East Timor will start out 
with. But I do think there is going to be an enormous----
    Senator Thomas. That is why we have a supplementary budget 
going on.
    Ms. Jones. May you add to it.
    Senator Thomas. Well, I appreciate it very much. It is an 
interesting thing certainly. As we have said earlier and all of 
you have said, it is important to our overall future in Asia 
besides trying to help stabilize democracies around the world. 
So, we appreciate very much your being here and look forward to 
continuing to talk with you.
    Mr. Masters. Thank you, Mr. Chairman.
    Senator Thomas. Thank you very much.
    The committee is adjourned.
    [Whereupon, at 11:38 a.m., the subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


Responses of Assistant Secretary Roth to Questions Submitted by Senator 
                                Feingold

    Question 1. The current situation is highly complex and the process 
to determine East Timor's future status is fraught with potential 
problems. What is your assessment of Jakarta's agreement to a direct 
ballot? Do you believe that this will adequately represent the desires 
of the East Timorese people?
    Answer. We welcome Jakarta's agreement May 5 to allow a direct 
ballot consultation of the East Timorese people on autonomy. The UN has 
begun to establish a presence in East Timor to prepare for and conduct 
the consultation vote on August 8. We remain deeply concerned about the 
security situation and continuing unrestrained violent activities by 
armed civilian militias. It will be critical for the Indonesian 
Government to take adequate security measures to ensure that the UN, 
backed by the international community, can assess the desires of the 
people of East Timor on autonomy in a vote that will not be biased by 
fear and intimidation.

    Question 2. Even if the principle of a direct ballot is a laudable 
one, there remain many questions about the mechanics of the process. Do 
you believe that it is possible to carry out a vote that will be 
internationally recognized as fair and broadly accepted by the people 
of East Timor as credible? How would you address the difficult issue of 
determining voter eligibility?
    Answer. As noted, the UN has begun to move personnel to East Timor 
to prepare for the consultation to determine the views of the people of 
East Timor. The UN is considering the issue of voter eligibility, 
including eligibility of East Timorese in exile. We have encouraged the 
parties to the UN proposal to ensure that the process of resolving the 
issue of voter eligibility is transparent so that we and other 
interested observers can judge the fairness of the arrangements.

    Question 3. The possibility of violence in conjunction with a 
ballot is of considerable concern for both the wellbeing of the people 
of East Timor and for the viability of the process. What information do 
you have on the reports that the Indonesian Government may have armed 
from 7,000 to 10,000 supporters of continued integration with 
Indonesia? What can be done to limit the prospects for violence during, 
and after, the balloting?
    Answer. We are concerned about possible violence in connection with 
the ballot and have called on all parties to adopt measures to reduce 
tensions and promote a climate conducive to a peaceful vote. Indonesia 
has overall responsibility for security for the UN mission and for 
protection of all East Timorese and others in the territory. We are not 
satisfied with steps taken to date and have strongly urged the 
Indonesian Government and military to reverse its policy of providing 
arms to civilian militias and to collect weapons already distributed. 
We have supported initiatives for dialogue between East Timorese 
factions, for cease-fire arrangements, and for Indonesian Government 
confidence-building measures, including reduction of troop levels.

    Question 4. One way to help ensure an environment conducive to a 
fair balloting process would be for the Government of Indonesia to 
release East Timorese who have been arrested for their political 
beliefs. What can the United States, or the international community, do 
to encourage Indonesia to continue on this path?
    Answer. We have frequently raised the issue of releasing East 
Timorese and other political prisoners with Indonesian Government 
officials. Secretary Albright did so during her March 4-5 visit to 
Indonesia; other U.S. officials and representatives of other concerned 
nations have frequently reinforced the message. We welcomed as a 
positive step the move by the Indonesian Government to arrange a 
``house arrest'' status for Xanana Gusmao that enabled him to play a 
more active role in East Timor's transition. We will continue to urge 
the Indonesian Government to release him fully and allow his return to 
East Timor before the August 8 consultation vote.

    Question 5. In her testimony last month, Secretary Albright stated 
that she was supportive of UN action on East Timor and that she would 
be speaking with UN Secretary General Annan to determine what would be 
the most helpful things the U.S. could do. She indicated at that time 
that discussions on the nature of an international presence had not 
``gelled'' yet. In that context, I would be interested in your views on 
what the likely United Nations role might be, either during a ballot 
process or in the follow-on transition period? Have plans started to 
take form yet at the UN? Has the Secretary spoken to Secretary General 
Annan about this issue?
    Answer. The UN has begun to establish a presence in East Timor, a 
goal we support. The UN will continue to play an important role at 
every stage in East Timor's transition to autonomy or separation. These 
include: conducting the ``direct ballot'' consultation with the East 
Timorese on August 8, ensuring monitoring of measures to reduce the 
potential for violence, and responding to humanitarian needs. If East 
Timor transitions to separation from Indonesia, the UN role will be 
especially important in focusing international support for the long-
term viability and stability of the territory.

    Question 6. More specifically, can you assess the prospects for the 
UN establishing a human rights monitoring presence in Dili? Was this 
discussed during Secretary Albright's visit to Jakarta?
    Answer. There is a growing international consensus for a UN 
presence established in Dili to monitor the human rights situation, 
among other tasks. Secretary Albright raised the issue with all her key 
Indonesian Government and military interlocutors while in Jakarta in 
early March, stressing that we support such a monitoring presence and 
believe that it would strengthen the GOI's credibility as well.

    Question 7. During her testimony in March, Secretary Albright 
mentioned that the Administration would be focussing particular 
attention on selected countries that were on the verge of crossing the 
line to democracy and would be helping them get there. The Secretary 
included Indonesia in that group, and I understand the Administration 
is contributing $3O million to help conduct and monitor its elections. 
Could you outline for me in more detail what the Administration 
envisions for U.S. involvement in the election process?
    Answer. The Administration strongly believes that free and fair 
elections in June are essential if Indonesia is to emerge as quickly as 
possible from its current political and economic crisis. The 
international community is marshalling considerable technical 
assistance under UNDP coordination to help Indonesia prepare for these 
elections.
    Bilaterally, the U.S. has been working since August 1998 to support 
elections as part of a broader program to develop civic and community 
institutions. The U.S. has committed $30 million in development 
assistance to election support in the form of voter education, 
technical assistance to the interim National Election Commission, 
programs to train election monitors, and election administration. USAID 
is implementing these programs through grants to U.S. and Indonesian 
NGOs. The U.S. will also support a joint effort by NDI and the Carter 
Center to field an 80-member team to observe the election.

    Question 8. Do you know what specific arrangements are being 
prepared either by domestic Indonesian groups or international 
observers to monitor these elections?
    Answer. The Indonesian General Election Commission (KPU) is in 
charge of organizing Indonesia's preparations for all aspects of the 
June 7 elections, including monitoring. Monitoring refers not only to 
observing the polls on the day of the election but an evaluation of the 
entire election process, from selection of political parties to voter 
registration to evaluating the results of the election.
    There are over 100 Indonesian organizations planning to monitor the 
election. The three largest groups, UNFREL, the Rector's Forum, and 
KIPP, are coordinating their efforts to avoid overlaps and to establish 
common approaches. Between half and three-quarters of the monitors will 
be students, with NGOs and trade unions also playing significant roles.
    KIPP (The Independent Commission for Election Monitoring) has 
branches in 23 of Indonesia's 27 provinces, and has recruited 40,000 of 
the 60,000 volunteers it expects to serve as monitors. UNFREL (the 
University Network for a Free and Fair Election) includes students and 
faculty from more than 100 universities and claims to have more than 
150,000 volunteers. The Rector's Forum is organized by senior lecturers 
from 120 universities and expects to train 40,000 monitors by the 
election. The three groups hope to monitor 60-70 percent of the 
country's 200,000 polling stations. The international community is 
helping to train monitors.
    The Indonesian Government has welcomed the presence of 
international observers for the elections. Australia, the EU, and Japan 
have all signaled their intention to send official observer missions. 
USAID is funding an 80-member observer team led jointly by the National 
Democratic Institute (NDI) and the Carter Center. The team will include 
both Republican and Democratic members.

    Question 9. In addition to separatist violence in East Timor, Aceh, 
and Irian Jaya, Indonesia has seen an increase in sectarian violence 
between Christians and Muslims in Ambon. How can the Indonesian 
Government stem the tide of violence and create an atmosphere conducive 
to free, fair elections without resorting to the practices of its 
authoritarian past?
    Answer. This is one of the key questions facing the Indonesian 
Government as the country prepares for the June elections. Security 
forces must act to prevent violence before it occurs and to respond 
quickly and decisively to stop violence from spreading once it has 
begun. At the same time, security forces must carry out their duties 
responsibly and with due respect for the human rights of the Indonesian 
people. In addition, when human rights abuses are committed, the 
perpetrators must be apprehended and brought to justice.

    Question 10. Could you provide us with your assessment of the 
electoral field? Do any of the opposition candidates appear to be 
viable options?
    Answer. The Indonesian parliament enacted a new election law at the 
end of January that provides the basis for the June 7 parliamentary 
elections. All major political parties seem prepared to participate in 
the June elections under these rules.
    This election will be significantly different than past elections. 
This will be the first election in over 40 years for which the outcome 
will not be known beforehand. In the past, only the government party 
GOLKAR and two government-sanctioned opposition parties were allowed to 
participate. In contrast, forty-eight parties have met the requirements 
to participate in the June elections. All of these parties are free to 
campaign, and will have access to the broadcast media. Five to seven of 
these parties are expected to attract significant national support.
    A credible parliamentary election will probably not result in any 
one party having a majority. A coalition-building process will then 
begin which will determine the relative strengths of various players in 
the new legislature.

    Question 11. The Indonesian armed forces have been cited for 
numerous abuses of civil and political rights under the Suharto and 
Habibie regimes. What is the Administration's position on proposals to 
grant immunity to certain officers for abuses committed during either 
the Habibie or Suharto eras? Do you see this as integral to restoring 
the credibility of the armed forces prior to, and following, the 
elections?
    Answer. While we are unaware of any formal proposals to grant 
immunity to certain officers for abuses, we are deeply concerned about 
the continuing problem of impunity and lack of accountability of 
Indonesian security forces responsible for abuses during both the 
Soeharto and the Habibie eras. We have repeatedly urged the Government 
of Indonesia to investigate past abuses, identify the perpetrators, and 
move swiftly to bring them to justice. This would be the most effective 
way to restore the credibility of the armed forces.

    Question 12. What joint training of the army is the Pentagon 
currently engaged in? Does it involve KOPASSUS units? What is the 
process for considering the involvement of particular army units in 
joint training, and how is the embassy assessing whether or not they 
have engaged in serious human rights abuses?
    Answer. U.S. military training with the Indonesian military in 
Indonesia is currently restricted to humanitarian, engineering, and 
medical activities. A mobile team also recently provided training in 
human rights awareness and civil military relations. There currently is 
no training in lethal military skills available to the Indonesian 
military from U.S. sources. We have also had a small E-IMET program for 
Indonesia in recent years. E-IMET training is restricted to human 
rights awareness, civil-military relations, justice, and defense 
resource management topics. This does not involve KOPASSUS units. We 
carefully monitor all training pfograms to ensure that they comply with 
all legislative restrictions on security assistance and training, and 
that such programs are in full accord with our human rights objectives 
in Indonesia.
                                 ______
                                 

                Prepared Statement of R. Michael Gadbaw

    I am pleased to be here on behalf of the US-Indonesia Business 
Committee of the US-ASEAN Business Council. The US-ASEAN Business 
Council is a private, non-profit organization which works to expand 
trade and investment between the US and the member countries of the 
Association of South East Asian Nations (ASEAN). It is made up of more 
than 400 US companies. The US-Indonesia Committee, of which I am the 
chairman, is comprised of Council member companies specifically 
interested in Indonesia. The companies represent sectors as diverse as 
oil, mining, energy, manufacturing, agriculture, apparel, high 
technology and financial services.
    I was in Indonesia just three weeks ago leading a delegation of US 
business representatives committed to standing by Indonesia during 
these difficult times. Our delegation was made up of 10 members of our 
committee. Among the companies represented were General Electric 
Company, Pennzoil-Quaker State, Enron International, New York Life 
International, J. Ray McDermott, ARCO, Raytheon, Eli Lilly, Cigna 
International, and Cargill.
    Ours was a confidence-building and information gathering mission. 
We wanted to demonstrate with our presence that American companies are 
engaged and not running from the economic distress. Any of you who are 
familiar with the charge that American companies lack long-term vision, 
and the contrasting image of our competitors in Japan, know how 
important this message is. We also wanted to get a firsthand feel for 
some of the questions that have brought us here today. In the week we 
spent there, our group met with a broad cross section of public 
officials and private sector representatives.
    We met President Habibie, the Minister of Mines and Energy, the 
State Minister for the Empowerment of State-Owned Enterprises, the 
Minister for Small Business and Cooperatives, and the Finance Minister. 
We also met with many Indonesians from the private sector, including 
individuals representing small and medium sized enterprises. We met 
with representatives of the political parties, members of the 
Indonesian press and representatives of the Indonesian NGO community. 
We had an extensive discussion with World Bank officials and compared 
notes with representatives of the Japanese business community in 
Jakarta. The Committee has since supplemented this effort by meeting 
with prominent opposition leader and Chairman of the National Mandate 
Party (PAN) Amien Rais during his recent visit to Washington.
    While I have been to Indonesia a number of times, I came away from 
this visit with a strong sense that Indonesia is a large, complicated 
country that is undergoing profound social, political and economic 
change. One cannot escape a sense of historical moment in recognizing 
that the world's most populous country is undergoing a political 
transition to a more open, democratic political system. At the same 
time, business practices and instruments of governance that have been 
in place for decades are now under persistent, largely constructive 
assault. Economic reforms are being implemented which challenge 
fundamental social relationships in a country where national unity is 
in constant tension with ethnic and linguistic pluralm.
    On our visit to Indonesia, we encountered reform in every 
discussion.
    President Habibie, himself the target of quite a few reformers, 
from students in the streets to his major political opponents, stressed 
to us unsolicited the importance of reform. In a 90-minute meeting with 
our group, he emphasized the importance of ``clean, fair, and open'' 
elections. Commenting indirectly on the cultural change in governance, 
he drew fine distinctions between the conduct of government in the 
Suharto-era and the operation of his own government during this new 
democratic age. He expressed to us his belief that foreign companies 
are ``national assets,'' and he underscored the government's commitment 
to creating effective antitrust and bankruptcy regimes. He also 
volunteered that Indonesian laws should be based on the UN Convention 
on Human Rights.
    In the course of a brief conversation, the President touched on the 
sweep of massive reforms currently underway, and even then he could not 
address them all.
    Minister of State for the Empowerment of State Enterprises Tanri 
Abeng discussed with us his efforts to carry out his assignment to 
divest state-owned businesses. This has been considerably more 
difficult than some anticipated when Tanri Abeng first assumed his 
position last Summer. Ultimately, he is responsible for privatizing 159 
state-owned companies. But despite setbacks, political resistance, and 
interim measures, the Minister remains firmly committed to carrying out 
his ultimate responsibility.
    Minister of Mines and Energy Kuntoro discussed with us the several 
reforms underway in his jurisdiction, including a reduction in the 
government's share of oil & gas revenues, the ultimate removal of 
subsidies, fair market pricing, and transparency.
    The Finance Minister we met in the midst of final discussions with 
the World Bank and IMF on Bank recapitalization and closures. He missed 
his deadline, which expired two days after our meeting. But I am 
pleased to note that this past weekend, the Indonesian government 
followed through by closing 38 insolvent banks.
    Even Minister Adi Sasono, an admittedly controversial and certainly 
very complex figure, expressed to us the importance of the market 
economy and the need to reduce the government's role in it. In this 
vein, the Minister went so far as to quote Thomas Jefferson's 
preference for the ``government that governs least.'' Minister Sasono 
praised the U.S. for its commitment to good business ethics and 
identified it as an example for Indonesia's reform movement.
    There is no more clear sign of reform than in the Indonesian press. 
Our business delegation met with representatives of the Indonesian 
press in Jakarta for an off-the-record discussion of the current 
economic/political atmosphere. Their critical views of the Habibie 
government and frank assessments of the political process was in marked 
contrast to the more circumspect attitude we faced in Indonesia on a 
similar mission just ten months ago. The second day of our visit, in 
fact, the Jakarta Post carried a front page editorial calling on 
President Habibi's impeachment for his alleged obstruction of 
investigations into President Suharto. The controversy over an 
intercepted conversation between the President and his Attorney General 
continued throughout our four-day visit. We are quickly becoming use to 
the barbs of Indonesia's free press, but this sort of dissent was 
unheard of only a year ago.
    Meetings with political party representatives both in Jakarta--and 
here in the U.S.--also underscore the centrality of the reform process. 
Amien Rais, Chairman of the National Mandate Party was just in 
Washington, DC, where, I, as I know several of those present today, had 
the opportunity to talk with him at some length about the reform 
process. During our meeting with him, Dr. Rais publicly voiced support 
for the IMF's involvement in Indonesia's ratification of the OECD anti-
bribery convention. He was also supportive of foreign investment, the 
sanctity of contracts and the importance of the international trading 
system of rules.
    The Committee's message to our friends in Indonesia has been 
consistent: A commitment to free, transparent, and efficient markets 
must be a part of any viable reform agenda. It is essential to draw the 
political leadership and other influential sectors of the body politic 
out on these issues. If left isolated, I am concerned that they will 
develop positions that are not only less than amenable to international 
business, but untenable in the long run. To this end, we have 
institutionalized a similar engagement of the Indonesian private 
sector. Long before the onset of the economic crisis, we worked with 
our Indonesian counterparts to improve the business environment in 
areas as varied as tax reform, customs reform and distribution 
liberalization. The crisis has encouraged to redouble our efforts to 
engage them even more broadly.
    Indonesia has made an astounding number of commitments over the 
past two years to reform its economy, and has held to most of its 
promises, albeit in a sometimes halting and incomplete manner. It's 
progress on economic reform has been periodically approved by the IMF, 
following extensive reviews. Among the actions it has taken are the 
following:

          Announced closure of 38 insolvent banks.
          Initiation of the restructuring of $80 billion in corporate 
        debt.
          Initiation of the privatization of 12 state-owned 
        enterprises.
          Establishment of a Bankruptcy Court.
          Cancellation of 12 major infrastructure projects.
          Cancellation of its government run airplane projects.
          Cancellation of the National Car Policy.
          Abolition of government agricultural monopolies.
          Abolition of all restrictions on investment on wholesale and 
        retail trade.
          Elimination of restrictions on foreign investment in listed 
        banks.
          Reduction of export taxes on certain agricultural goods.
          Tariff reductions on foodstuffs.
          Dismantlement of marketing restrictions in the forestry 
        sector.

    In their totality and with the critical proviso that they are 
implemented faithfully, these reforms promise to transform the way 
business is done in Indonesia.
    While we must recognize the full extent of these efforts to 
modernize the Indonesian economy, constant engagement is required of 
international financial institutions, foreign donors, and the 
international business community. In some cases, the necessary laws 
have been passed and regulations rewritten, but changes in the field 
have come slowly.
    The most notable recent example in this regard is the establishment 
of the Indonesian bankruptcy court. The Government appears to 
understand how essential an efficient, effective bankruptcy regime is 
to its recovery and future development. Simply put, creditors must have 
a system whereby effectively insolvent companies can be made liable for 
their debts. A new bankruptcy law went into effect in Indonesia in 
September to do just this. Out of 38 cases filed since then, 12 
bankruptcies have been declared. The problem is that in the most 
prominent cases involving foreign creditors including the IFC 
(International Finance Corporation), the commercial court has found in 
favor of the debtors--despite what many think have been solid cases 
against them.
    Beyond reinforcing my impressions about the overwhelming needs of 
the reform process, our discussions in Indonesia gave me a better 
perspective on the current economic climate. The impression one has 
from much of the US media coverage is that the country is devastated, 
an economic basket-case with as much as 100 million people descending 
into poverty. It is a very difficult time there. No doubt. However, 
there is much more resiliency in the Indonesian economy than has been 
generally portrayed.
    In a report prepared for the World Bank, surveys of conditions in 
the country indicate that poverty is not as severe as some have 
assumed. Before the crisis, the incidence of poverty was approximately 
11%--down I should note from 70% thirty years ago. It is now at 14%. 
The crisis has hit hardest urban areas, Java, and those with incomes in 
the upper half of the nation's earners. The effects elsewhere have been 
less severe. In fact, in some areas such as Sulawesi, the economy has 
actually benefited from drop in the value of the Rupiah.
    The World Bank is now predicting that Indonesia's economy will grow 
by 1 % during FY 1999/2000 and achieve 3% growth next year, if it 
adheres to its reform program. This is an optimistic scenario, but most 
forecasts, if they do not show as high a growth rate as 1% in the 
current fiscal year, at the very least, foresee a positive growth 
returning in 2000. Given Indonesia's potential as an engine for growth 
in the region, I am inclined to be optimistic.
    Prior to the crisis, Indonesia's economy averaged 7% growth per 
year for 25 years. It had created a middle-class conservatively 
estimated at 20 million--a larger population than all of Australia. To 
be certain, some of this remarkable growth was unsound. But a great 
deal of it is attributable to Indonesia's integration into the global 
economy, conscious diversification, the strengths of the Indonesian 
people and Indonesia's other natural resources. Structural economic 
reform carried out to its designated end and political stability will 
once again permit Indonesia to make the most of its national assets. 
Speaking on behalf of the US-Indonesia Business Committee of the ASEAN 
Business Council, I am confident of this.
    Let me close by thanking you, Mr. Chairman, for the timeliness of 
this hearing and for your own long-term commitment to the region. The 
next several months are crucial in Indonesia. They very well may 
determine its future for decades to come. I am honored to be a part of 
the Subcommittee's assessment. Thank you.
                                 ______
                                 

                   Prepared Statement of Sidney Jones

    Indonesia may be at a more dangerous crossroad now than at any time 
in the last thirty years. When I was there last month, it was exploding 
in violence from one end of the country to the other. A virtual civil 
war was taking place in Ambon, in eastern Indonesia, with Christian and 
Muslim neighbors hacking each other with machetes and burning down each 
other's neighborhoods. In Aceh, on the northern tip of Sumatra, major 
military operations were taking place to hunt down suspected 
independence agitators, with villagers, as always, the major victims. 
In West Kalimantan, communal violence between two ethnic groups, Malays 
and Bugis, was set off when a passenger refused to pay his bus fare. In 
East Timor, the unexpected moves towards independence have triggered an 
upsurge of clashes between pro-independence forces and pro-Indonesia 
civilian militias, armed and equipped by the Indonesian army.
    Unrest is erupting as villagers confront corrupt officials, debtors 
go after creditors, indigenous people clash with migrants, and farmers 
confront commercial plantation personnel. Some of it reflects power 
struggles at a local or national level. Some of it reflects nationalist 
aspirations that the Soeharto government tried to smother. Some of it 
is spontaneous, and some of it appears to be provoked, but provocation 
only works where the basic kindling is there to begin with.
    It is in this context that forty-eight parties, none with skilled 
or experienced leadership, have been approved to contest parliamentary 
elections in June. U.S. support for the electoral process is important, 
and it is critical that the elections take place on schedule, but it 
would be a huge mistake to see the elections as the key to solving 
Indonesia's problems.
1. The army
    The dominance of the army continues to be a major obstacle to a 
democratic transition. Too often the army is portrayed as the only 
force capable of holding Indonesia together. But from Aceh to Irian 
Jaya, it is the army and its past and present abuses that are pulling 
it apart. How many seats the military retains in the parliament or how 
long it will take to gradually eliminate the army's role in social and 
political affairs is not the key question. In the short run, the 
question is how to prevent the army from making existing problems 
worse.
    I can give you four examples. The army quite rightly identified 
widespread civil unrest as a serious security threat and one likely to 
intensify during the election campaign. Its solution, however, was to 
create a civilian militia, armed with the equivalent of nightsticks and 
given rudimentary training. The dangers of such a force should have 
been apparent last November when the army sought volunteers for a 
militia to protect the special session of the country's highest 
legislative body against threats from student protestors. Those who 
volunteered were overwhelmingly from conservative Muslim youth groups 
who saw any call for Habibie's ouster as tantamount to being anti-
Islam. Militia members were almost by definition hostile toward the 
students, making a confrontation inevitable. For the elections, the 
civilian militia is to be called wanra, an acronym for ``People's 
Defense.'' In Aceh, an area that was the target of counterinsurgency 
operations from 1990-98 and where the army is loathed for its abusive 
practices, the wanra volunteers are reported to be largely composed of 
transmigrants, or immigrants from outside Aceh, who are already 
resented by the local populace. In East Timor, the wanra members are 
very clearly pro-integration and anti-independence. Putting them on the 
streets to safeguard the peace during elections is only inviting more 
trouble.
    A second problem is that the army tends to see all unrest through a 
counterinsurgency lens. The Indonesian army has no capacity to take on 
ordinary law and order functions. It was trained throughout the New 
Order to respond to internal security threats: the people as the enemy. 
In a situation of widespread civil unrest, this approach does not help. 
Sending soldiers to confront students in the streets of Jakarta last 
November proved to be a lethal error.
    Even when insurgents are in fact involved, the army's response is 
still disproportionate to the nature of the threat faced. In Aceh last 
December, seven soldiers were dragged off a bus and brutally murdered 
by people suspected of working with Aceh Merdeka or the Free Aceh 
Movement, a political organization with a small armed wing. The 
incident was not treated as a multiple murder and given to the police 
to prosecute. It was treated as an act of war and triggered the sending 
of thousands of fresh combat troops to the region, including from units 
that already had a reputation for brutality in Aceh. The new military 
operations in turn gave rise not only to new abuses, including the 
murder of five detainees, but to a growing demand for a referendum on 
Aceh's future political status.
    A third problem is that just at a time when Indonesia should be 
moving away from reliance on the military, some in the largely 
unchanged bureaucracy are advocating the expansion of a military 
presence. Officers are using mounting social unrest as a pretext for 
recommending the creation of new military area commands (KODAMs) in 
affected areas. Under the current military structure, there are ten 
KODAMs, each with about 700 personnel headed by a major general. In 
February, one new KODAM was approved for Aceh, and the violence in 
Maluku province has led to a demand for a new KODAM there. Just this 
week, officials in Nusa Tenggara Barat, the province that includes 
Bali, decided to request a new KODAM ostensibly as a preventive 
measure. The establishment of new KODAMs would not only mean a greater 
troop presence on the ground, but it would open up slots for officers 
seeking promotions at a time when available positions are shrinking, 
and the economic crisis has dried up opportunities in the private 
sector. A democratic Indonesia doesn't need more troops, it needs 
fewer.
    A fourth problem is the deep suspicion that some officers have of 
political reform, however much they may see it as inevitable. When I 
was in Ambon in February, the spokesman for the armed forces was asked 
why local troops made no move to stop an outbreak of violence between 
Christians and Muslims. He said that in the old days internal security 
agents, (Bakorstanas) would just have arrested people, but now it was 
the reform era, and they had to obey the rule of law. In this case, the 
army was using reform to justify inaction. In Aceh, the regional 
commander was questioned as to why his forces did not arrest an alleged 
insurgent leader in January whom the army held responsible for a series 
of violent raids. When troops surrounded his house, the man came out, 
surrounded by his family, and calmly walked away, leading many Acehnese 
to conclude that the army had no intention of arresting him in the 
first place. The commander said that before, the army would have just 
opened fire; now it had to be careful about shooting civilians. It's a 
good thing if soldiers feel constrained by legal norms, but both 
responses are disingenuous. They also imply that violence is a 
necessary consequence of reform, and that people might be safer with 
the old system back.
    Many in Indonesia believe that the worst violence in Indonesia in 
recent months, especially communal outbreaks involving Christians and 
Muslims, has been provoked by elements close to the Soeharto family, 
attempting to reassert their power. There is clear evidence of 
provocation in some cases, although none I know of that conclusively 
links it back to Soeharto. But when even General Wiranto is quoted 
repeatedly as saying that provocateurs were responsible for the Ambon 
violence and other incidents, one begins to wonder what evidence he 
has, why that evidence has not been made public, and why no 
provocateurs have been arrested.
    There is no question that the image of the army has been badly 
tarnished as more and more revelations emerge about its past and 
present, but in terms of U.S. policy, it is an opportunity for the 
administration to put all emphasis on strengthening civilian 
institutions. There should be no joint training exercises with 
Indonesian military units until the issue of provocation of major 
outbreaks of violence, such as the Jakarta riots in May 1998 and the 
civil war in Ambon, has been fully resolved, and any perpetrators 
punished. The U.S. should oppose the creation of any new KODAMs. It 
should support efforts, particularly in Aceh, to hold military officers 
accountable for past abuses, even when those same officers are 
currently holding senior positions in the government. It should 
continue to use every opportunity to oppose the civilian militia. And 
it should continue to support, as it has, the separation of the police 
from the armed forces, a move that is likely to take place in April.
2. East Timor
    I don't think any of us could have predicted at the last hearing on 
Indonesia how far East Timor would have moved toward independence. On 
the one hand, the progress is a tribute to the persistence of the East 
Timorese, the quality of their leadership, and the work of the United 
Nations. On the other, it indicates the depth of the pique Habibie and 
other top Indonesian officials felt that their offer of ``wide-ranging 
autonomy'' last August was met with ingratitude and cynicism. One gets 
the impression now that they just want to get rid of the place as soon 
as possible.
    But Indonesia's policies over the last twenty-three years have 
caused unimaginable damage, particularly in dividing the population to 
the point that prolonged civil unrest, particularly in the western part 
of East Timor, is not out of the question. There are some old political 
wounds remaining from the civil war in East Timor in 1975, before the 
Indonesian invasion. But most of the potential violence can be traced 
to the Indonesian army's policy of creating paramilitary, pro-
integration groups to help the armed forces in counterinsurgency 
operations. They were also used to terrorize pro-independence 
supporters, mount counterdemonstrations to pro-independence rallies, 
and engage in other political activities. Most were given arms and 
military training. In January, shortly after Habibie suggested that 
independence was a second option, many of these groups acquired new 
weapons. In recent weeks, pro-Indonesia militias, working together with 
local territorial troops, have attacked civilians suspected of 
supporting independence in Liquica, Ainaro, and Dili.
    Supporters of independence have also been responsible for violence. 
Any future East Timorese leadership will have to be able to guarantee 
the protection of the rights of all those who worked with the 
Indonesian administration. It will have to guarantee the rights of non-
Timorese as well, many of whom came to East Timor as traders, teachers, 
or transmigrant farmers. The signs there are not good. In the last few 
weeks, almost 1,000 Indonesians have fled to West Timor, many of them 
families headed by teachers and civil servants who have faced 
harassment and intimidation since prospects for independence improved. 
Ethnic Chinese and ethnic Bugis, who dominate retail trading networks, 
have both been targets of attacks in the past and both need to be 
reassured of their safety. Now the question is how to avert major 
violence if, as is now planned, the U.N. conducts some kind of ballot 
to determine the preference of the East Timorese: independence or 
autonomy.
    Before that ballot can be conducted, the militias have to be 
disarmed, and some kind of security provided. The Indonesian army 
cannot provide that security; it is hardly perceived as impartial. It 
is therefore critical that the international community support, and 
press Indonesia to accept, some kind of international police presence 
that can also train East Timor's future police force. East Timor will 
also need massive assistance, given its current dependence on Indonesia 
for both budgetary support and for basic human resources.
3. Independence Elsewhere?
    The moves toward independence for East Timor have not gone 
unnoticed in other areas, although it would be a mistake to see East 
Timor as the domino that will cause other regions to break away. There 
are independence movements elsewhere, but they need to be understood as 
having their own dynamic, rooted in grievances which need to be 
addressed--and which will not necessarily be addressed by a free and 
fair election. Aceh and Irian Jaya are two provinces with well-
developed pro-independence movements. On February 26, 100 political, 
tribal, and community leaders from Irian Jaya presented a statement to 
President Habibie expressing a desire for independence of the country 
they call West Papua. In Aceh, as noted, demands for a referendum have 
increased, first among student groups, now echoed by many political 
leaders. Both places are rich in natural resources but have seen little 
of that wealth reinvested at home. Both, because of the presence of 
armed rebels, became the focus of military operations that resulted in 
widespread human rights abuses and alienation of the local populace. In 
both places, failure to address the abuses of the past has resulted in 
greater support for independence from Indonesia. (When I was in Aceh in 
February, the deputy head of the local parliament stressed to me that 
the rising demands for a referendum and the ongoing violence both could 
be halted by one act: the prosecution of a single officer responsible 
for any of the killings and disappearances that took place in the early 
1990s.)
    The violence in Ambon may push more of Ambon's Christians toward a 
separatist movement, even though support there for the largely 
expatriate political movement of the Republic of the South Moluccas has 
never been high. Muslims and Christians have been equally the 
perpetrators and victims of the violence there, but it is an area where 
the once-dominant Christians have become a slight minority through 
demographic change, and they need to be made to feel as though there is 
still a place for them in a Muslim majority country.
    Indonesia is not going to disintegrate overnight, but neither 
should the ferment in some of the outer islands be dismissed as 
inimical to the well-being of the nation. That ferment could in the 
long run produce a healthier political structure, perhaps based on a 
federal system as Amien Rais and the PAN party have advocated. The U.S. 
Embassy, which by and large has done a terrific job on human rights 
issues throughout this crisis, should do more to get its embassy 
personnel out of Jakarta and off of Java. Congress could assist this 
process in allocating funds for the reopening of the U.S. Consulate in 
Medan, North Sumatra. A Jakarta-centric myopia misses the point of much 
of what is happening in Indonesia today, from the causes of violence to 
the prospects for democracy.
4. The Ethnic Chinese
    Indonesia's Chinese remain traumatized by what happened to them 
then, when many were killed, some of their women were raped, and their 
homes and shops destroyed. The Indonesian government is about to ratify 
the Convention on Elimination of Racial Discrimination, but it has made 
few other efforts to ensure the Chinese that they are valued members of 
society. None of the discriminatory laws and regulations, such as those 
banning distribution of Chinese publications or celebration of Chinese 
New Year, have been repealed or revoked despite government promises to 
review them. None of the recommendations of the government-appointed 
joint fact-finding team that investigated the May violence has been 
implemented. Attacks on Chinese shops continue to be a regular feature 
of social unrest. The U.S. should continue to press the Indonesian 
government, publicly and privately, to investigate the origins of the 
May violence, if necessary offering FBI assistance the way it did 
following a grenade explosion in Phnom Penh, Cambodia, in 1995.
    In short, Indonesia has so many critical problems facing it at once 
that it would be a mistake for the U.S. to place too much emphasis on 
the elections as a way of getting the country back on track. Elections 
will help move Indonesia toward a more legitimate government, although 
many of the people I talked to regarded the June elections as a kind of 
dry run just to see how the process worked, with the meaningful poll 
taking place in 2004. The very low expectations about the upcoming 
elections is probably advantageous, because there is a lower risk of 
disillusionment. But regardless of the outcome, the role of the army, 
the ongoing violence, the issue of East Timor, the threat of 
disintegration, and the issue of the ethnic Chinese are all going to be 
around long after the votes are counted.
                                 ______
                                 

              Prepared Statement of Hon. Edward E. Masters

    Thank you, Mr. Chairman. I am pleased to be here today to discuss 
recent developments in the world's fourth largest country--Indonesia.
    A year ago this week I testified before your committee describing a 
country at a critical point in its relatively short history, faced with 
an economy in paralysis undergoing massive IMF-prescribed austerity 
measures and supported by emergency stand-by credits; a humanitarian 
crisis due to the effects of El Nino; soaring prices for food; 
shortages of food and medicine; and mounting unemployment. All of these 
factors came to a head in May 1998 when massive demonstrations and 
rioting led to the resignation of President Soeharto with his then vice 
president B.J. Habibie assuming the presidency.
    Today I will share my impression of the democratization process in 
Indonesia.
    I have been following events in Indonesia for nearly thirty-five 
years. My first assignment, as political counselor in the American 
Embassy in Jakarta, commenced on September 30, 1964, one year to the 
day before the attempted communist coup that was launched on September 
30, 1965. That traumatic event set in motion the eventual transfer of 
power that took place officially on March 11, 1967. I witnessed the 
first years of Suharto's New Order, when all efforts were mobilized to 
stabilize the massive debt incurred by the Sukarno regime and to assure 
a reliable food and fuel supply to the people.
    I returned to Indonesia in 1977 as Ambassador, and served another 
four years. By this time, the remarkable achievements of economic 
development were well underway. Although corruption and cronyism have 
been well known in Indonesia for a generation--as indeed in just about 
all rapidly developing countries--the benefits of development were not 
limited to the few at the top. The World Bank estimates that the 
distribution of wealth, measured by the Gini coefficient, was slightly 
more equitable in Indonesia in the early 1990s than in the United 
States.
    After four years as Ambassador I followed events in Indonesia off 
and on until circumstances permitted a closer look five years ago. I 
realized that this huge, rich, fascinating and important country--one 
of the key nations in the world today is virtually unknown to the 
American people. There are perhaps understandable historic reasons for 
this, but nonetheless, this giant of Southeast Asia has been almost 
totally ignored except for the occasions when it has been sharply 
criticized for its shortcomings.
    For this reason I, along with other Americans and Indonesians with 
long experience in each other's countries, founded the United States-
Indonesia Society five years ago. Our purpose is to offer a variety of 
programs in the United States to permit a more thorough understanding 
than is commonly available. That understanding is essential today if we 
wish to determine the best approach for the U.S. toward Indonesia's 
problems.
    From an historical perspective, the tremendous changes that took 
place in 1998 will be viewed by most Indonesians as painful medicine 
necessary for the nation to endure in order to achieve sweeping 
reforms. It is ironic that demonstrating students last May welcomed 
former President Soeharto's resignation with jubilation and euphoria at 
first, but it was not long thereafter that the general mood turned to 
one of fear and uncertainty about the future of the country.
    A 15% contraction of the economy, high inflation, a much devalued 
rupiah, domestic social unrest and a change of government all make it 
difficult to chart a path toward economic recovery let alone the 
restoration of political stability and social harmony. Most of us see 
these processes as inseparable: Progress on both fronts must be made 
simultaneously.
    The nation passed the first litmus test of its ability to reach 
political compromise when the Parliament adopted three laws to replace 
the five political laws promulgated in 1985. The laws are about the 
elections, political parties and the composition of the parliament, the 
people's consultative assembly and the regional assemblies.
    The date for elections to the national Parliament (DPR) as well as 
to provincial and sub-provincial (district) legislatures has been set 
for June 7, 1999, after a three week-campaign period from May 18-June 
6. The district-level results will be announced first (over June 20-26) 
with members installed on July 20; provincial results will be announced 
between June 27 and July 2 with members installed on July 25. National 
results will be announced over July 3-12 and members inaugurated on 
August 29. A new 700-member Majelis Permusyawaratan Rakyat-MPR 
(People's Consultative Assembly) is then scheduled to convene on 
November 11 to elect a new president and vice president. For many of us 
who have been monitoring developments in Indonesia, the period between 
the parliamentary election scheduled for June 7 and the November 
presidential election is critical and I will return to this point a bit 
later.
    Under Indonesia's political structure, eligible political parties 
will contest for seats in the Dewan Perwakilan Rakyat--DPR (Parliament) 
while members of the DPR will automatically become members of the MPR. 
The DPR will consist of 462 elected members and 38 appointed armed 
forces (ABRI) members. The size of the MPR was reduced from 1000 to 700 
members. The MPR will consist of 500 DPR members plus 135 
representatives appointed by provincial legislatures (5 from each 
province) and 65 representatives of social organizations. The MPR will 
elect the president and vice president and decide on the Broad 
Guidelines of State Policy. There will also be elections for the 
provincial and district assemblies.
    The election will be based on a multiparty system. The election 
will be held under a system of proportional representation at the 
provincial level. According to the law on the election, to be eligible 
to take part in the elections, a party must have branches in at least 
nine provinces, and in half the districts in each of these nine 
provinces. On March 4 a list of 48 parties that qualified was 
announced.
    Political parties will compete in the 27 provinces with their own 
candidate lists for national seats (DPR), provincial seats (DPRD-I) and 
district level seats (DPRD-II). Voters will elect by piercing the 
symbol of their party.
    An Election Committee or KPU, composed of government officials and 
representatives of the parties which are eligible to take part, is 
responsible for the conduct of the election. The KPU is in charge of 
voter registration, the nomination of candidates, campaign 
arrangements, polling and tabulation of votes at the polling stations.
    The government will allow independent observers and monitors. The 
KPU will coordinate election monitors which will play a crucial role to 
ensure the elections are conducted in a free, fair and transparent 
manner.
    All Indonesian citizens above 17 will have the right to vote 
(married people under 17 will also be allowed to vote). According to 
the latest figures (based on the 1997 election) 124.7 million out of a 
population of more than 210 million people will be entitled to vote.
    In addition to conducting the June elections, the KPU will allocate 
the number of parliamentary seats assigned to each province; tabulate 
and announce results of the contest.
    The Election Law stipulates that the government will provide five 
representatives to the KPU, and that each political party taking part 
in the elections will provide one representative. If and when the KPU 
votes on decisions, the government and political party representatives 
will each have a 50% weight in the voting rights. This makes the 
government representatives particularly influential: together their 
five votes carry the same weight as the 48 votes from the political 
party representatives. If these five are credible figures with strong 
integrity, it will boost the chances for fair elections. The five 
individuals named to be government representatives to the KPU turned 
out to be responsible private (non-government) figures who have been 
critical of government in the past. The names of appointees were 
greeted with relief and surprise by skeptical observers and opposition 
parties.
The election schedule:
   Feb. 1-March 1: Registration and selection of political 
        parties eligible to contest the elections.
   March 16-April 20: Registration of voters.
   March 15-April 15: Nomination of legislators for the House 
        of Representatives, and for provincial and regency 
        legislatures.
   May 18-June 6: Election campaign season.
   June 7: Balloting and vote counting.
   July 3-12: Announcement of election results for House 
        legislators. Those winning seats in provincial legislatures 
        will be announced from June 27 until July 2 while election 
        results for regency legislative councils will be announced 
        between June 20 and June 26.
   Aug. 29: Inauguration of new legislators in the lower House. 
        Legislators in regency and provincial legislatures will be 
        installed on July 20 and July 25 respectively.
   Presidential Election tentatively set for late October 
        though there is some talk of advancing the date to as early as 
        August 29.

    Under the new laws, civil servants are barred from joining 
political parties. Civil servants who join a political party must take 
leave of absence, while being entitled to draw his or her basic pay for 
at least one year, and this can be extended to five years. Civil 
servants who fail to report membership in a political party will be 
fired. I view this as a very positive development and a clear break 
from past practices--a leveling of the playing field whereby no single 
political power can corner the civil servant constituency.
    Progress is being made in Indonesia's electoral reform process in 
other ways that are worth noting. New election laws stipulate monetary 
limits on political donations (15 million rupiah for individuals, and 
150 million rupiah for corporate contributions). This is a welcome 
development and another example of a leveling of the playing field.
                             problem areas
    There was great debate over whether the new election law would 
designate seats in the DPR for ABRI, the armed forces. As it turns out, 
the army retained seats and for the time being preserved the social and 
political role it plays--the dwi-fungsi--in addition to providing for 
the country's defense. The dual-function is one of the main obstacles 
to democracy in Indonesia. Under the new laws, the armed forces, whose 
members will not be entitled to vote in the elections, will occupy 38 
DPR seats (down from 75) with full voting rights, leaving 462 seats for 
the political parties which contest seats. The 38 ABRI seats in the 
national parliament will represent the equivalent of 9 to 10 million 
votes, a possible swing vote of 7.5%.
    In the provincial and district-level parliaments, the armed forces 
will occupy 10% of the seats without contesting in the elections. At 
present, the armed forces occupy half of the nation's governor 
positions, while 40% of district heads are from ABRI. By retaining 
seats in the regional assemblies they will be able to influence 
appointments of governors and district heads.
    A component of the new law on the composition of parliament is the 
appointment of two hundred members to the MPR by the provincial 
legislatures and social groups. There will be 135 seats for regional 
appointees (five representatives per province appointed by new 
provincial legislatures) and 65 for community and social groups 
nominated by the KPU. Thus the voting outcome for the provincial 
elections will be critical for the selection of their representatives 
to the MPR, which in turn selects the next president.
    A problem area of the new political laws is the exclusion of local 
parties from participating in the election of national and regional 
parliaments. The stipulation that parties must have branches in at 
least one third of all provinces means that local or ethnic groups will 
not have their own representative parties in parliament. For instance, 
Acehnese or Papuan political parties will not be able to participate in 
the elections simply because they do not have branches in at least nine 
of Indonesia's 27 provinces. Clearly, the new laws are skewed in favor 
of Java-based, nationwide parties. In a country of such ethnic 
diversity as Indonesia, this is a major drawback. The same rules will 
also apply to the provincial and district assemblies that will be 
rendered incapable of representing the local communities. On the other 
hand it reduces the chances of separatist political parties.
    It is too soon to draw assumptions or make predictions about the 
upcoming parliamentary elections and whether the electoral process will 
be free and fair for all political parties. The government will allow 
independent observers to monitor the elections. As the world's largest 
archipelago, it will be difficult for independent monitors to cover an 
election estimated to cost $400 million and spread over 300,000 polling 
stations, especially in the more remote parts of the country where 
wholesale election malpractice typically occurs.
    Disproportionate government control over the administration of the 
election process such as voter registration, nomination of candidates, 
voting and tabulation of votes in the polling stations from top to 
bottom also raises the prospect of manipulation and fraud. Also, the 
gap between the June elections and the November presidential election 
offers a window in which violence might escalate. Flare-ups and 
sustained inter-ethnic clashes as we have witnessed in Ambon in the 
first few months of 1999 are testament to the susceptibility of 
Indonesia's fragile social fabric. The eruption of violent incidents as 
the elections draw near could derail Indonesia's first post-Suharto 
general election.
    Indonesia's Election Law may also be deficient in terms of how it 
deals with the appeals process. Fair and transparent handling of 
complaints will be crucial for this election, but the law fails to 
grant the KPU control over processing appeals. Instead, the KPU must 
``coordinate'' with the judicial system. The judicial committees with 
which the KPU must coordinate will be made up of government appointees. 
Indonesia's court system has been plagued by corruption. Even if the 
KPU and the Ministry of Home Affairs manage to conduct the elections in 
a fair and credible manner, one cannot rule out the possibility of a 
mishandling of the appeals process by the judiciary.
    The upcoming elections are one in a series of steps that our 
friends in Indonesia must take on the long road to democracy. The 
elections are not a panacea for all of the social conflicts and 
economic problems the country is now dealing with. But if the June 
election is conducted in a fair, transparent, and credible manner, 
broader and more equitable representation of the people's political 
aspirations will be achieved. We have an opportunity to help make this 
the first truly democratic election in Indonesia since 1955, and I 
strongly advocate continued engagement, consultation, financial and 
humanitarian assistance to Indonesia at this critical time.
                                 ______
                                 

               Prepared Statement of Hon. Stanley O. Roth

                              introduction
    Mr. Chairman, thank you for the opportunity to address this 
subcommittee. I am particularly pleased with your decision today to run 
a little counter to current trends and give me the chance to focus not 
on Korea or China, but on Indonesia.
    Indonesia is one of Secretary Aibright's four ``priority'' 
developing democracies. Her criteria for selection included regional 
impact, prospects for near-term democratic developments, and 
resources--both natural and human--available for future development. 
The Secretary's choice of Indonesia acknowledges what Indonesia 
watchers have long held: what happens to Indonesia impacts all of 
Southeast Asia.
    I know that I need not belabor the importance of Indonesia with 
this subcommittee: Indonesia sits astride strategic global shipping 
lanes. It is the fourth most populous nation in the world and has the 
largest Muslim population. It possesses a wealth of natural resources. 
It plays a critical role in regional political issues. It encompasses a 
wide array of cultures and religions. It is a co-founder of the non-
aligned movement, a member of OPEC, and a respected participant in the 
Organization of Islamic Countries. It is a critical member of ASEAN.
    What I do want to emphasize is that this is a pivotal moment in 
Indonesia's history. Indonesia is about to hold the first election in 
over forty years where the results are unknown. A successful electoral 
process, culminating in the selection of a new President and Vice 
President by the MPR in November, will go far in determining the 
prospects for democracy, the pace of recovery, and the potential for 
social stability in this key Southeast Asian nation. By extension, the 
course that Indonesia follows will have ramifications well beyond its 
borders.
                          present developments
    The situation in Indonesia today is remarkably complex, reflecting 
a number of positive developments as well as a number of troubling 
ones.
    On the positive side, President Soeharto's ouster in May, 1998 
created genuine opportunities for reform in Indonesia's political 
system. President Habibie has lifted controls on the press, political 
parties, and labor unions. Civil society has blossomed. There is a 
growing spectrum of diverse political parties. New rules for the 
electoral system have been accepted by the major opposition leaders. 
Parliamentary elections are set for June 7, 1999, and a new President 
is to be selected several months later.
    ABRI, Indonesia's military, one of the pillars of the Suharto 
regime, is also changing. The Indonesian people have made it clear that 
military dominance of the state is no longer acceptable. The number of 
ABRI representatives in Parliament has been halved. Many opposition 
parties have placed a diminution of the military's socio-political role 
high on their agendas.
    The armed forces leadership appears to be getting the message. 
Under the leadership of General Wiranto, ABRI has committed to a number 
of key structural reforms aimed at reducing the military's political 
role in the state, including withdrawing support from the ruling party 
and pledging neutrality in the upcoming elections; scheduling the 
separation of the police from the military; requiring ABRI personnel 
who accept jobs as civilian administrators to resign from active 
service; and eliminating the position of Chief of Staff for Social and 
Political Affairs--the very embodiment of the military's political 
role.
    Negotiations on East Timor's future have seen dramatic progress in 
recent months since President Habibie's announcement that he will 
recommend independence for the troubled territory if the East Timorese 
reject Indonesia's offer of wide-ranging autonomy. Just last week, 
Indonesia agreed to a direct ballot ``democratic consultation'' 
mechanism by which the East Timorese will be able to consider the 
Indonesian autonomy offer. As things stand now, the UN, Portugal, and 
Indonesia plan to finalize the autonomy proposal by late April and then 
put the package to the East Timorese for a direct vote no later than 
July.
    On the economy, President Habibie's recent decision to shut down 38 
insolvent banks is a vital step forward in the process of economic 
recovery. Revitalized banks, ready and able to lend on commercial 
bases, are necessary to get Indonesia back on the path to prosperity. 
Consequently, with the rupiah strengthening from summer lows, inflation 
down, and interest rates declining, the Indonesian economy is showing 
some positive signs.
    And so, Mr. Chairman, Indonesia has come a long way in the 10 short 
months since Suharto resigned, but much continues to threaten that 
which has been accomplished. First and foremost on the list of concerns 
is the troubling persistence of violence. ABRI's inability to restore 
order during outbreaks of violence has caused serious concerns both in 
Indonesia and abroad. Ambon is one visible example, but many others 
exist.
    Unless this violence can be brought under control, Indonesia's 
ability to carry out free and fair elections will be put at risk. More 
fundamentally, the violence threatens the very fabric of Indonesia's 
multi-ethnic society, jeopardizing the spirit of tolerance that has 
distinguished Indonesia for so many years. ABRI's inability to quell 
this violence, and the lack of accountability for past actions, have 
all but destroyed the notion of ABRI as the protector of the people.
    East Timor has not been spared this violence. In fact, a cycle of 
violence may be intensifying in East Timor between pro-independence and 
pro-integration factions. There are persistent, credible reports that 
elements of the Indonesian military are arming pro-integration civilian 
groups, and we have repeatedly made it clear to the Indonesians that 
such actions must be stopped.
    Another serious issue which will require a credible effort is the 
lack of a credible effort to systematically address corruption. For 
example, reports that ``money politics'' are creeping into the election 
campaign are undermining the Indonesian people's confidence in the 
credibility of the election process.
    Finally, while the Indonesian government's recent bank 
restructuring was a welcome and much needed step, the basic economic 
picture remains grim. Indonesia's GDP dropped over 13 percent in 1998 
and the IMF predicts it will drop another 3.4 percent in 1999. The 
World Bank reports that 14 percent of Indonesians now live below the 
poverty line, and the International Labor Organization estimates 
unemployment between 8 and 11 percent. The return of investor 
confidence, an important indication of, and contributor to, Indonesia's 
economic recovery, will be dependent on sound economic policies as well 
as credible elections.
                           policy priorities
    The foregoing sketch gives an indication of the plethora of 
important issues which Indonesia must address. For the immediate 
future, this Administration will focus on the following: the importance 
of credible June 7 elections, stemming the spreading violence, 
continued progress towards economic recovery, and peaceful resolution 
to the situation in East Timor.
June 7 Elections--
    The success of Indonesia's June 7 parliamentary elections 
constitutes our highest short-term priority because the elections are a 
necessary, if not sufficient, condition for the restoration of 
political stability and economic recovery. In order for these elections 
to play that positive role, it is essential that Indonesians perceive 
them as free, fair, and credible.
    Preparations to achieve this standard of electoral legitimacy are 
underway, but in an immense archipelagic country with as many as 125 
million voters, much remains to be accomplished. The Indonesian 
Government has recently indicated that it welcomes technical assistance 
for the elections. The UNDP has stepped forward to coordinate the 
international community's response. Financially, even our significant 
$30 million in planned electoral assistance is far short of the total 
amount Indonesia will need. Consequently, we are working closely with 
other potential donors to ensure that additional monies are made 
available to Indonesia on a timely basis.
    Hopefully the June elections will be harbingers of fundamental 
political change in Indonesia. Not surprisingly, however, there are 
those who question the extent of the transformation underway. A legacy 
of generally weak and frequently corrupt institutions has led many 
potential political participants to remain deeply skeptical, both about 
the elections and the reform process in general. These disaffected 
actors do not trust the current Habibie government to carry out free 
and fair elections. They believe the military should be completely 
removed from politics. They want to see former President Soeharto, his 
family, and cronies, prosecuted for corruption. They see President 
Habibie's failure to follow through on some highly visible human rights 
cases as evidence that his government does not have the political will 
to break with past practice.
    This skepticism is not without basis and those concerns should not 
be dismissed. But, the vast majority of Indonesians see these elections 
as the only way forward, even while recognizing that one election does 
not a democracy make. Indonesians will have to work hard to internalize 
democracy. Political parties which are unsuccessful will have to accept 
the electoral results and take up the role of constructive opposition. 
In subsequent elections, former victors will have to voluntarily 
relinquish power. In short, successful June elections are only a first 
step, and the U.S. must be prepared to remain engaged to support 
democracy in Indonesia over the long term.
Violence--
    Indonesia's present level of ambient violence threatens to negate 
the country's hard-won progress. Ethnic conflict. Intra-religious 
violence. Skirmishes between armed civilian factions. All have either 
recently taken place, or are presently taking place.
    Ambon is perhaps the most tragic example. Once known for its 
tradition of peaceful co-existence between Muslims and Christians, now 
Ambon is characterized by charred churches and mosques, fleeing 
residents, armed civilians, and a collapsing economy. Up to 200 
inhabitants have been killed in the violence that has erupted since 
January. Thousands are homeless. The initial cause of the conflict is 
not clear, but social restraints and security forces have thus far 
proven unequal to the task of containing the spreading violence.
    Throughout Indonesia, security forces have been faced with constant 
street rallies and demonstrations. They have been forced to walk a 
precarious line between violent suppression and unresponsive inaction, 
and have erred in both directions. This in turn perpetuates the image 
of Indonesia as a major human rights violator, overshadowing the very 
significant progress that has otherwise been made on human rights 
issues.
    Given the inadequacy of police forces, ABRI will have to continue 
to play a major internal security role for the foreseeable future. With 
insufficient training in controlling massive and sustained civil 
discord, cognizant of its past excesses and present failings, and 
intent on keeping its pledge to remain out of politics, ABRI is 
reticent to enter the new Indonesian era as the enforcer of domestic 
peace. However, with the lack of any other viable alternative, ABRI 
must shoulder its responsibilities honorably.
    At a minimum, ABRI must assist in identifying and bringing into 
civilian custody the provocateurs of violence and premeditated unrest, 
and it must do more to end human rights abuses by its own members. The 
course that ABRI takes on this critical issue will significantly 
contribute to, or distract from, its domestic and international 
reputation. By extension, the choice will dictate the strength of the 
relations other nations, such as the U.S., will have with ABRI in the 
future.
    ABRI, however, cannot be expected to successfully combat the 
violence alone. Civic and religious leaders, respected elders, leading 
publications, all have an obligation to actively denounce the violence 
and call for calm.
Economy--
    In order to restore confidence and growth to its economy, Indonesia 
will have to continue implementing its economic reform package. As both 
Secretary Albright and Treasury Deputy Secretary Summers noted during 
their most recent meetings in Indonesia, Indonesia must be particularly 
vigilant from now through the November selection of a President. Most 
major political figures have indicated their intention to continue with 
the IMF program in a new government.
    For its part, the international community will have to remain 
committed to seeing the economic recovery process through and to 
addressing social safety net programs to help Indonesia's poor. The 
U.S. assistance program for Indonesia provides humanitarian assistance, 
promotes democracy and fair election practices, accelerates economic 
reform and recovery, and encourages better environmental management.
    Under the rubric of humanitarian assistance, the U.S. government is 
donating 600,000 tons of wheat as well as rice and other food 
commodities. We are also engaged in activities to help strengthen 
Indonesia's social safety network. Democratization activities center on 
providing voter education, election administration, and training of 
election monitors. We plan to provide more than $30 million for the 
upcoming elections. We are also exploring ways to promote civil-
military dialogue and strengthen institutions of civil society.
    Economic reform programs draw on the expertise of a myriad of U.S. 
agencies. EXIM has offered a $l billion line ot short-term credit to 
help ease trade financing constraints on Indonesian importers. Treasury 
is providing technical expertise to assist Indonesian efforts in bank 
and corporate restructuring. Other expert advisers, funded by USAID, 
are helping design Indonesia's fiscal policy reforms outlined by the 
IMF.
    A list of U.S. economic efforts on Indonesia's behalf would not be 
complete without mentioning the many American corporations who have 
retained their presence and operations in Indonesia despite the 
difficult economic conditions. The decisions of these companies to stay 
the course in Indonesia not only support that economy directly, they 
also support general investor confidence in Indonesia.
East Timor--
    The situation in East Timor is unique in Indonesia. East Timor did 
not share the experience of Dutch colonialism and was forcefully 
incorporated into Indonesia just 23 years ago. Many in the erstwhile 
Portuguese colony, primarily Christian and ethnically Melanesian, have 
resisted Indonesia's incursion ever since. The associated, often-times 
brutal, military repression has not engendered support or sympathy for 
Jakarta in this province.
    In an unprecedented and unexpected announcement on January 27, the 
Indonesian government stated that, if the East Timorese rejected 
Indonesia's autonomy offer, it would recommend to the incoming People's 
Consultative Assembly--the MPR--to consider ``letting go of East 
Timor'' on January 1, 2000. This announcement constituted a dramatic 
reversal of long-standing policy, a reversal for which the Habibie 
government deserves credit.
    A window of opportunity exists in East Timor from now until the 
July autonomy ``consultation'' to establish some of the fundamental 
components of democracy. How to register voters, where and how to 
establish polling stations, what kind of voter education to provide and 
by what means, are only a sample of the many practical issues that will 
have to be resolved in the near future. The U.S. intends to be actively 
involved with this process. Furthermore, we believe that the systems 
established will provide a foundation for East Timor's democracy no 
matter what the outcome of this particular vote.
    However, no electoral system will be successful in the atmosphere 
of increasing tension in East Timor. The Indonesian government must, 
therefore, put high priority on restoring a sense of calm and stability 
on the island. Disarming civilian factions and embracing proposals such 
as a broad-based council to promote peace and reconciliation are 
necessary steps. Confidence building measures such as troop reductions 
and an increased international presence in East Timor would also be 
very useful.
    No one can predict the outcome of the East Timorese vote on 
autonomy. Clearly, however, the possibility exists that East Timor 
could choose to turn down Indonesia's autonomy proposal thereby raising 
the real possibility of independence. If this is the electoral outcome, 
Indonesia must realize that an immediate withdrawal of Indonesian 
support from East Timor will greatly increase the risk of civil war and 
long-term inviability for East Timor. This would reflect badly on 
Indonesia's international image and call into question its regional 
leadership abilities. Consequently, should East Timor opt for 
independence, Indonesia should commit to fair and supportive 
transitional arrangements.
                               conclusion
    The translation of Indonesia's national motto is ``unity in 
diversity.'' Diversity--as exemplified by differing languages, multiple 
religions, and distinct ethnic origins--is inherent to Indonesia. 
Harmonious unity, on the other hand, will be a goal towards which 
consecutive Indonesian governments will have to strive. Successful 
market and financial reforms will help create the necessary economic 
conditions for stability and, eventually, prosperity. Equity, justice, 
and transparency, adopted as fundamental governance principles, will 
help create an atmosphere of trust. Indonesia, just like any other 
emerging democracy, will face many challenges in order to achieve 
positive economic conditions and political trust, but both components 
will contribute to the unity which characterizes successful nation-
states.

                                 
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