[Senate Hearing 109-407]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 109-407
                        U.S.-INDONESIA RELATIONS



                               BEFORE THE

                       SUBCOMMITTEE ON EAST ASIAN
                          AND PACIFIC AFFAIRS

                                 OF THE

                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                           SEPTEMBER 15, 2005


       Printed for the use of the Committee on Foreign Relations

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                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director



                    LISA MURKOWSKI, Alaska, Chairman

LAMAR ALEXANDER, Tennessee           JOHN F. KERRY, Massachusetts
CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         RUSSELL D. FEINGOLD, Wisconsin
GEORGE ALLEN, Virginia               BARACK OBAMA, Illinois



                            C O N T E N T S


Cleveland, Hon. Paul, Ambassador (Ret.), Arlington, VA...........    25
    Prepared statement...........................................    27
    Responses to questions submitted by Senator Lisa Murkowski...    54
John, Eric G., Deputy Assistant Secretary, Bureau of East Asian 
  and Pacific Affairs, Department of State, Washington, DC.......     4
    Prepared statement...........................................     7
    Responses to questions submitted by Senator Russ Feingold....    62
    Responses to questions submitted by Senator Barack Obama.....    67
Kunder, Hon. James R., Assistant Administrator, Bureau for Asia 
  and the Near East, U.S. Agency for International Development, 
  Washington, DC.................................................    11
    Prepared statement...........................................    14
    Responses to questions submitted by Senator Russ Feingold....    65
Martin, Randy, Director, Global Emergency Operations, Mercy 
  Corps, Washington, DC..........................................    47
    Prepared statement...........................................    50
    Responses to questions submitted by Senator Lisa Murkowski...    61
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     1
Obama, Hon. Barack, U.S. Senator from Illinois...................     3
Soesastro, Hadi, Executive Director, Centre for Strategic and 
  International Studies, Jakarta, Indonesia......................    35
    Prepared statement...........................................    37
    Responses to questions submitted by Senator Lisa Murkowski...    58



                        U.S.-INDONESIA RELATIONS


                      THURSDAY, SEPTEMBER 15, 2005

                               U.S. Senate,
    Subcommittee on East Asian and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Lisa 
Murkowski (chairman of the subcommittee) presiding.
    Present: Senators Murkowski and Obama.


    Senator Murkowski. We will bring to order the Subcommittee 
on East Asian and Pacific Affairs. Good afternoon and welcome 
to today's hearing on United States-Indonesia relations. I 
appreciate the witnesses' acceptance of the invitation to 
appear before this subcommittee here this afternoon.
    And before we get going, I would like to express my 
appreciation and the gratitude to the people and the Government 
of Indonesia for their generous offer of assistance to our 
recovery efforts in the wake of Hurricane Katrina. And this 
offer is even more impressive given that Indonesia is, itself, 
still recovering from the devastating December tsunami.
    In 2001, Congressman Jim Leach noted that, ``There is no 
country in the world of such vital importance that is less 
understood than Indonesia.'' And he made that comment in 2001, 
and I believe that this statement still applies when it comes 
to the United States-Indonesia relationship.
    Shortly before we went on break in August, I had an 
opportunity to meet with some members of the Australian 
Parliament, and they urged me and the United States, as a 
whole, to pay more attention to Indonesia. And, I think, for 
some very good reasons. In our efforts in the war on terrorism, 
we are also, unfortunately, battling the misperception of many 
in Islamic nations that our actions target all Muslims. And, 
while Indonesia's perception of the war on terror has changed 
as a result of terrorist bombings in Bali and the Jakarta 
Marriott, many Indonesians point to the repression of Muslims 
around the world as the root cause of terrorism.
    Indonesia, as the world's fourth most populous nation, is 
home to, by far, the largest Muslim population of any nation 
and provides a moderating influence among Islamic states. So, 
if we want to improve our standing with the Muslim community 
outside of the United States, Indonesia is, appropriately, a 
good starting point. Accordingly, it is in the United States 
interest to have a strong bilateral relationship with 
    Following the destruction of the December tsunami, U.S. 
efforts to assist the affected areas brought us tremendous 
goodwill. And, rather than sit on our laurels, we must work to 
build on that goodwill.
    I'm pleased that Mr. Kunder, with USAID, is here today to 
provide an overview of our continued work in Indonesia. The 
people of Indonesia know who is working with them side by side 
as they rebuild their communities. And, while media attention 
of the tsunami aftermath has faded in the background, our 
assistance efforts must remain strong.
    Likewise, the United States must continue our efforts 
against the avian influenza, or the bird flu. As part of the 
supplemental appropriations bill passed in May, Congress 
provided $25 million to help contain and prevent the spread of 
the bird flu in the Asia region. The United States also 
sponsored the attendance of four Indonesian officials from the 
Ministries of Health and Agriculture to the APEC Health Task 
Force Symposium held in July.
    And the impacts of the bird flu are not limited to just the 
health of the people, but the health of the economy, as well. 
In the past year, Indonesia's rate of inflation was 7.84 
percent, in part because the destruction of chickens due to the 
avian influenza, which had led to an increase in the price of 
eggs and chickens. According to Indonesia's Central Bureau of 
Statistics, the increase in food prices was the major 
contributing factor in inflation growth. Continued cooperation 
on this issue is a win for United States-Indonesian relations 
and a win for the people of both our nations.
    Looking at other economic factors coming from a state whose 
economy is heavily dependent on natural resources, it should 
come as no surprise that I tend to pay attention to the energy 
sector. Of course, right now we've got plenty of company from 
those who are also looking at the high oil prices around the 
    Indonesia, however, continues a policy of energy 
subsidization, and the high price of oil and gas on the 
worldwide market is having a significant impact on Indonesia's 
economy. The subsidies are expected to cost $13-$14 billion 
this year, which I understand is about one-third of Indonesia's 
federal budget.
    The fuel subsidies distort economic development by 
encouraging the inefficient use of energy sources. As an 
example, Japan, which does not have price subsidies, is five 
times more efficient with its energy uses than China, which 
does subsidize its energy costs.
    Indonesia's fuel subsidies have increased domestic demand 
to the point that even with its vast reserves, Indonesia is a 
net importer of oil. The increased demand for foreign monetary 
reserves to purchase the oil has led to a 10-percent decrease 
in the value of the rupiah. Combine this with the inflation 
rate's nearly 8-percent increase, and the average Indonesian's 
domestic buying power is considerably impacted, causing 
potential harm to economic stability.
    While the issue of domestic fuel subsidies is one for 
Indonesia's Government to address, I, for one, remain very 
interested in international energy policy. In a world that is 
more and more interdependent on global oil supplies, we need to 
be encouraging greater energy efficiencies, not just here at 
home, but overseas, as well.
    I'm pleased that at their meeting in May, President Bush 
and President Yudhoyono announced the resumption of bilateral 
energy consultations. Delegations met in Jakarta on August 29 
for the first working-group meetings on mutual energy security 
issues and production and capacity capabilities, and I look 
forward to what progress can come from this effort.
    The last several years have also brought a spotlight to the 
various separatist groups within Indonesia. East Timor's 
independence in 2002 continues to resonate as Congress 
considers whether to lift restrictions to military aid. I 
compliment the Government of Indonesia and the Free Aceh 
Movement for reaching a peace agreement this past August. And 
the issue of West Papua has been raised in the context of the 
House-passed Foreign Relations Authorization bill.
    Now, without going into it too much further, I would note 
that the joint statement between the United States and 
Indonesia following the President's meeting in May emphasized 
the administration's support for Indonesia's territorial 
integrity and reiterated that the United States opposed 
secessionist movements in any part of Indonesia.
    It is clear that Indonesia's importance to the United 
States is not fully recognized on a general level, but its 
geographic location cannot be ignored. Strategically positioned 
along some of the key shipping lanes in the world, and 
centrally located within the Asian region, with 224 million 
people, Indonesia is ready to grow.
    So, I look forward to hearing from each of the witnesses to 
get their thoughts on what steps we, in Congress, can take to 
further our relationship, while not sidestepping our 
responsibilities to ensure international standards are upheld.
    I want to welcome to the committee Senator Obama and would 
ask if you have any opening remarks or comments you would like 
to make.


    Senator Obama. Well, thank you very much, Madam Chairman.
    I appreciate the witnesses being here today. As usual with 
these very informative hearings on important topics, we end up 
having to split our time with votes. But I did want to make 
sure that I took the time to hear the testimony, in part 
because I suspect I'm the only U.S. Senator who ever spent time 
in Indonesia as a child. And not only did I develop a great 
love for the people and the country, but also as a consequence, 
I have a deep appreciation for the absolutely critical role 
that Southeast Asia, in general, and Indonesia, in particular, 
can play in U.S. foreign policy.
    I'm glad to see that we have some capable people involved 
in helping to craft policy in that part of the world. I think 
that the trends that have taken place with respect to democracy 
in Indonesia are extraordinarily encouraging. One of the 
memories that I have from growing up is of a deeply faithful 
brand of Islam that also existed side by side with 
Christianity, with other cultures, and of an extraordinary 
tolerance for diversity that existed in Indonesia. In that 
sense, Indonesia provides a potential model for how a modern 
developing country can reconcile the demands of a modern world 
with traditional faith.
    I think it's absolutely critical that we spend more time 
and pay more attention to thinking about this region at the 
highest levels of our Government, to strengthen the linkages 
between our two countries.
    Obviously, there are still some problems that remain, 
dating back to 1967, 1968, and the early 1970s, when I was 
there. Corruption was always a problem. I would expect that it 
continues to be a problem, in terms of hampering the 
development of the country. The extraordinary breadth and power 
of the military and in the ability for civilian officials to 
control the military process was a problem then. It is still a 
problem today. And the vast differences in wealth and 
opportunity between a small elite and the majority of the 
people who continue to struggle to survive in Indonesia was a 
problem, and continues to be a problem. Issues surrounding the 
free press have also remained a constant theme.
    I don't want to gloss over some of the issues that the 
country faces, but, given the enormous size and strategic 
importance of the country, and given the extraordinary quality 
of the people in Indonesia, I hope that this committee, as well 
as the administration, will be devoting more and more attention 
to the country as time goes by.
    So, with that, I would look forward to hearing from these 
witnesses. And I apologize in advance if I end up having to 
leave a little bit early.
    Senator Murkowski. Thank you, Senator. Appreciate the 
comments. I didn't realize that you had spent growing-up years 
there. That's----
    Senator Obama. Oh, if the testimony was in Indonesian, I 
could actually understand some of it. [Laughter.]
    Senator Murkowski. There you go. Well, we'll call on you 
for interpretation, if necessary. Thank you. Appreciate that. 
    With that, let's go to the first panel that we have with us 
this afternoon: Mr. Eric John, who's the Deputy Assistant 
Secretary, Bureau of East Asian and Pacific Affairs, here with 
the Department of State.
    Mr. John.

                         WASHINGTON, DC

    Mr. John. Thank you, Madam Chairman.
    I appreciate the fact that you're taking time for this 
hearing, not just in a busy Senate Calendar, but also in the 
context of the suffering of hundreds of thousands of fellow 
citizens in the South in the wake of Hurricane Katrina.
    I think you'll find a lot of my statement matches, or is 
actually redundant, with what the chairman and Senator Obama 
have said, and that is that we see very great potential in the 
relationship with Indonesia and positive trends in the 
direction that it's going.
    In his inaugural address this year, President Bush spoke of 
the spread of democracy throughout the world and our Nation's 
need to support that. And Secretary Rice, in her confirmations 
here, again spoke of the compatibility of the support for 
democracy and the spread of peace and prosperity, and how those 
two work together. And I think you won't find any nation that 
exhibits that better than Indonesia, with its democratic 
transformation over the past year and the implications for 
United States policy and our strategic interests in the region.
    Indonesia is clearly, by virtue of its size, its location, 
and status as a democracy, one of the most important countries 
to the United States in Asia or, indeed, I would say, the 
world. If you look at such facts as, since the fall of--since 
the fall of Suharto in 1998, Indonesia has become the world's 
third-largest democracy. It has more people of Muslim faith 
than Iran, Iraq, Egypt, and Saudi Arabia, combined. The 
strategic sealanes that pass through and along Indonesian 
territory carry one-third of the world's sea trade. And the 
Malacca Straits have over half the world's oil trade.
    Finally, but perhaps most importantly, Indonesia is a key 
player in the dominant ideological struggle of our time, and 
that is the competition between democratic modernization and 
the rise of extremist Islam. And I think Senator Obama put it 
very well when he said that we have this problem of reconciling 
the demands of a modern world with the demands of faith and the 
diversity of faith in a nation. And I think Indonesia sets the 
example of democracy being able to accommodate that diversity 
and support for that faith. Indeed, when I was back in--when I 
was visiting Jakarta in July, I met with several members of 
Islamic parties in the Congress, and they pointed out that not 
only is Islam compatible with democracy, but, indeed, it 
thrives under democracy, because the two match well together 
and they can spread the word of Islam and there is no threat to 
it. It's the perfect case for how democracy supports Islam.
    I would like to look at three things briefly, and that is 
the opportunity that we have in Indonesia, the trends that we 
see going on in Indonesia, and the implications for United 
States foreign policy there.
    The trends in Indonesia today are very positive with 
respect to democracy, countering terrorism and extremism, 
economic reforms, security-service reform, and peaceful 
resolution of conflicts.
    The success of the 2004 national elections and the joint 
United States-Indonesian response to the tragic earthquake and 
tsunami of December 26 have opened a window of opportunity for 
our relationship with Jakarta. We now have the opportunity to 
forge close long-term ties with this nation that composes 14 
percent of the Islamic world. We have the chance to achieve a 
breakthrough in our relations with the largest Muslim-majority 
nation and third-largest democracy in the world. And if we 
succeed, it will have far-reaching effects on our common 
    Secretary Rice noted to President Yudhoyono in their--
during the last meeting that the United States has pulled back 
at times in its relationship with Indonesia, but she added that 
this will not be the way it is in the future. Madam Chairman, 
we must be both a good and a reliable friend to Indonesia, and 
we must act now to make this a reality. We must do everything 
we can to develop our relationship to its full potential and 
allow Indonesia to succeed as a modern democratic power, and 
one that acts as a positive force on the global stage and 
ensures prosperity for its people at home.
    The positive trends we've seen: Democracy, we've noted--the 
national elections were free, fair, peaceful in 2004; and, in 
2005, they have their first-ever democratic local elections.
    For countering terrorism, extremist Islam, the Indonesian 
Government has done an admirable job of pursuing, arresting, 
and prosecuting terrorists and also shown that Islam in 
Indonesia is tolerant and open.
    In terms of economic reform, the government has announced 
an ambitious reform program, boosted investor confidence, 
attacked corruption, and made a push for infrastructure 
development. It's a very long road to countering corruption, 
but it's one that the President of Indonesia is committed to.
    And, in terms of your comments on fuel subsidies, I don't 
think I could agree more. It is not only a question of energy 
production and an impact on the energy markets, but the budget 
impact that you noted has a significant deleterious effect on 
the ability of discretionary spending for infrastructure, for 
the health system, and for the education system in Indonesia. 
And I don't think Indonesia will be able to tackle those until 
it tackles the problems of its fuel-subsidy program. President 
Yudhoyono is doing so now, and we fully support him in those 
    In terms of security-service reform, in May President 
Yudhoyono and President Bush jointly stated that normal 
military relations would be of interest to both countries, and 
they undertook to continue working toward that objective. The 
reforms that we have in Indonesia to date include the 
establishment of a police force that's separate from the 
military, the end of the military dual-function system that 
placed military officers in civilian government positions, the 
end of military- and police-appointed seats in Parliament in 
2004, and the passage of legislation, that same year, to ensure 
that Parliament begins to exert control over the military's 
business interests.
    And also we've seen a positive trend in resolving political 
differences through dialog. In Aceh, which you mentioned, the 
implementation of a peace accord is underway. In fact, it was 
today that the Aceh rebels, GAM, began turn their weapons in. 
And the Indonesian military has begun its first stage of 
withdrawal from Aceh.
    President Yudhoyono has publicly pledged to fully implement 
the special autonomy law in Papua, and the Indonesian and East 
Timor Governments created, in August, the Bilateral Truth and 
Friendship Commission to promote reconciliation and bring 
closure to the gross human rights violations that were 
committed there in 1999.
    Briefly, the implications for how we should approach 
Indonesia now. I've stated that Indonesia's democratic 
transition and reformist government present a window of 
opportunity. I would also like to underline the importance of 
seizing this opportunity.
    The world's fourth most populous country, a potentially 
very strong partner in Southeast Asia, a partner in the war on 
terrorism, and a major open economy in a critical region--
together these factors make a strong case for upgrading and 
deepening our relationship with Indonesia. In this light, we 
should aim to develop a more mature multifaceted relationship 
between our two major democracies; continue United States 
assistance, as described by Mr. Kunder, for tsunami 
reconstruction, education, the justice sector, and police; 
increase exchanges between our two countries; support President 
Yudhoyono's reformist program; and support further development; 
support military reform; and bolster Indonesia as a leader in 
ASEAN and as a stable democracy in this critical region.
    Thank you.
    [The prepared statement of Mr. John follows:]

Prepared Statement of Eric G. John, Deputy Assistant Secretary, Bureau 
 of East Asian and Pacific Affairs, Department of State, Washington, DC

                         I. STRATEGIC OVERVIEW

    I am pleased to appear before you to talk about a compelling 
success story--Indonesia's democratic transformation--and its 
implications for U.S. policy and our strategic interests. Although it 
is no surprise to members of the committee, Indonesia is clearly, by 
virtue of its size, location, and status as a democracy, one of the 
most important countries to the United States in Asia. Consider these 

   Since the fall of Suharto in 1998, Indonesia has become the 
        world's third-largest democracy.
   Indonesia has more people of Muslim faith than Iran, Iraq, 
        Egypt, and Saudi Arabia combined.
   The strategic sealanes that pass through and along 
        Indonesian territory carry one-third of the world's sea-borne 
   Half the world's oil passes through the Malacca Strait.

    Finally, and perhaps most importantly, Indonesia is a key player in 
the dominant ideological struggle of our time: The competition between 
democratic modernization and the rise of extremist Islam. Indonesia is 
aggressively combating the tiny minority of terrorists. It is also 
working to promote religious tolerance among the population at large, 
while demonstrating to the world that Islam and democracy are fully 

                            II. OPPORTUNITY

    The success of Indonesia's 2004 national elections, and the joint 
Indonesian-United States response to the tragic earthquake and tsunami 
of December 26 have opened a window of opportunity for United States-
Indonesian relations. The positive trends in Indonesia today with 
regard to democracy, countering terrorism and extremism, economic 
reform, security service reform, and peaceful resolution of conflicts, 
strengthen this opportunity. We have the chance to achieve a 
breakthrough in our relations with the world's largest Muslim-majority 
nation and third-largest democracy. If we succeed, it will have far-
reaching effects on our common interests with Indonesia and throughout 
the world.
    Indonesia's national elections proceeded in an exceedingly peaceful 
and democratic manner, and gave Indonesians for the first time the 
right to directly elect their President. President Yudhoyono emerged 
from the elections with a mandate from the Indonesian people, receiving 
over 60 percent of the votes in the Presidential runoff in September of 
last year. With Indonesian voters demanding change, President Yudhoyono 
is pursuing a bold reformist agenda. Furthermore, as a U.S. university 
and military college graduate, he has firsthand knowledge of the United 
States and its people. President Yudhoyono is keenly aware of 
Indonesia's status as a role model to the Islamic world and seeks a 
greater international profile that accords with this status. The 
example he sets is a positive one.
    President Yudhoyono demonstrated his statesmanship in the aftermath 
of the tsunami, and he opened up the previously closed Aceh Province to 
international assistance, particularly from the United States. Our 
joint efforts in relief and reconstruction for the victims of the 
tsunami saved the lives and lessened the suffering for tens of 
thousands of victims, helping to bridge the distance between our 
countries. The USS Lincoln off the coast of Aceh made a strong positive 
impression on the people and Government of Indonesia--no other country 
was able to match our response. Scenes of U.S. relief workers and 
soldiers working side by side with their Indonesian counterparts showed 
Indonesians that the United States is a friend. Public opinion toward 
the United States has since improved.
    With Indonesia we have the opportunity now to forge close, long-
term ties with a developing democracy that is home to 14 percent of the 
Islamic world. Indonesia has a history that includes serious human 
rights abuses, separatist conflict, ethnic and interreligious strife, 
and other problems and challenges that have affected our relations. 
Many of these problems and challenges remain today. However, it is 
essential that we address these issues not in isolation but in the 
context of a mature relationship that keeps in focus the broad, 
positive trends in today's Indonesia.
    In the context of a mature and robust relationship with a fellow 
democracy, we have an opportunity to resolve--not ignore--our 
differences with Indonesia, while strengthening our partnership with 
this tremendously important and dynamic country. The dominant trends in 
Indonesia today are positive ones for U.S. strategic interests. 
Secretary Rice noted to President Yudhoyono during their last meeting 
that the United States has pulled back at times in its relationship 
with Indonesia. But she added that this is not the way it will be in 
the future. We must be both a good and reliable friend to Indonesia, 
and we must act now to make this a reality. We must do everything we 
can to develop our relationship to its full potential, and help 
Indonesia succeed as a modem, democratic power, one that acts as a 
positive force on the global stage and ensures prosperity for its 
people at home.

                          III. POSITIVE TRENDS

    Indonesia is a frontline state in a trend we see all over the 
world: People want to rule themselves, and they want their governments 
to be accountable. It has been only 7 years since the fall of Suharto 
and the end of three decades of authoritarian rule. In this short span, 
Indonesia has emerged as the world's third-largest democracy and a 
leading global example of a democratic, Muslim-majority nation.
    The successful series of national democratic elections in Indonesia 
last year produced a sea change in the country's domestic politics. 
More than 75 percent of eligible voters cast their ballots in last 
year's Presidential election. To put those numbers in context, just as 
many Indonesians voted in their Presidential election as did Americans 
last fall--about 118 million in each case. This year Indonesia is 
conducting 8 gubernatorial and 157 local elections; reports so far have 
been similarly positive.
    The direct Presidential election itself was a product of sweeping 
constitutional reforms aimed at strengthening democratic institutions, 
accountability and transparency, and separation of powers. A free press 
and an increasingly active civil society have become important agents 
of change. People are debating the abuses and excesses of the Suharto 
years and are demanding real accountability for what happened. Citizens 
are demanding justice from the judicial sector. Finally, the country is 
going through one of the most ambitious decentralization efforts ever. 
That process is empowering Indonesia's farflung 33 provinces and 
introducing unprecedented levels of transparency and accountability 
into local governance.
    Looking forward, we envision an Indonesia that is democratic in the 
full sense of that term, with an educated electorate, a government that 
is transparent and accountable to its people, respects the rule of law, 
and protects the human rights of its citizens. Indonesia has many 
difficult obstacles, both past and present, which it must strive to 
overcome. As our 2004 Human Rights Report indicates, Indonesia's human 
rights record has been poor, and there is much to be done, 
particularity in the area of accountability for abuses committed by 
members of the security services. But we cannot overlook the 
flourishing of democracy in Indonesia. We will continue to encourage 
and assist the positive democratic trend in Indonesia, while working 
with the country to achieve needed progress on education, 
accountability, the rule of law, transparency, and respect for human 
rights, to realize the vision of a modern, fully democratic Indonesia.

Countering terrorism and extremism
    Indonesia is a key player in the dominant ideological struggle of 
our time: The competition between democratic modernization and 
extremist Islam. As the world's largest Muslim-majority nation, 
Indonesia is buffeted by the same radical strains of Islamic thought 
and hate-preaching firebrands that afflict much of the Islamic world. 
Related to this, we face a challenge in convincing countries like 
Indonesia of the truth that the Global War in Terror is not anti-
    Indonesia is in the midst of this ideological struggle, but the 
overall trend is positive. Indonesia stands as a democratic example to 
the Islamic world. Islam in Indonesia has always been and remains 
predominantly tolerant and open to combining Islamic beliefs with 
modernization and free speech. Indonesia has maintained its pluralistic 
Constitution and proven that Islam and democracy are compatible and 
complementary. The ability of such a diverse nation to pursue a 
democratic, just agenda respectful of other faiths serves as a powerful 
reminder of what a successful, tolerant society can look like.
    Indonesians know better than most the devastating effects of 
terrorist attacks that are the product of extremist Islam, such as 
those that have occurred in Bali and Jakarta over the last 3 years. The 
Indonesian Government has done an admirable job of pursuing, arresting, 
and prosecuting terrorists. Since the Bali bombings in October 2002, 
Indonesia's police and prosecutors have arrested and convicted more 
than 130 terrorists. Indonesia has established an effective 
counterterrorism police force that is working hard to bring terrorists 
to justice. Despite progress, the threat of future attacks remains 
grave. Our two countries thus share an interest in addressing the 
causes of terrorism and protecting our people from further terrorist 
violence. President Yudhoyono is committed to this cause.

Economic reform
    President Yudhoyono places priority on economic growth and poverty 
reduction, recognizing that Indonesia has just recovered from the 1997-
1998 financial and economic crisis. The Government of Indonesia has 
announced an ambitious reform program, boosted investor confidence, 
attacked corruption and made a push for infrastructure development. 
President Yudhoyono remains committed to this program. Real GDP growth 
increased to 5.1 percent in 2004, and the Indonesian economy has been 
resilient in spite of the tsunami, avian influenza, polio, and high 
world oil prices. American investors continue to show interest in 
Indonesia. More than 300 U.S. companies have investments in Indonesia 
valued at a total of more than $10 billion, and an estimated 3,500 U.S. 
business people work in Indonesia. The combination of high-level 
commitment, pressing economic issues, and American investor interest 
poses a special opportunity for us to make progress with Indonesia on 
economic reforms.
    We have moved to take advantage of this special opportunity to help 
Indonesia address economic reforms. We have already had two rounds of 
Trade and Investment Framework Agreement (TIFA) talks this year and 
have started a dialogue with Indonesia on conducting a full review of 
all trade-related policies. We have restarted our Energy Policy 
Dialogue after an 8-year gap, and are working closely with the 
government on strategies for boosting Indonesia's crude oil production. 
We are also supporting the Yudhoyono government's crucial effort to 
change the culture of corruption in Indonesia, in part through his 
launch of several corruption cases against high-level officials. To 
support this important effort, we are putting in place a major USAID 
project to help the Government of Indonesia set up an anticorruption 
court and reform the commercial courts. We want to see an Indonesia 
that is open for investment and trade, and open to American investors 
playing a prominent role in the country's economic development. 
American investors continue to push for investment climate and legal 
system reform and fair resolution of investment disputes, signaling 
their long-term commitment to Indonesia's economic growth.
    Indonesia's economy faces concerns over fluctuating exchange rates 
and high fuel subsidies. Oil prices have posed a challenge as highly 
subsidized domestic fuel prices and subsidies have increased to over 
one-fourth of the government's budget in 2005. In a bold but necessary 
move, Yudhoyono reduced fuel subsidies in March, and in a recent 
speech, stated that the government will raise fuel prices again soon 
after compensation programs for the poor are in place. Subsidies and 
additional policy decisions by Bank Indonesia have increased pressure 
on the rupiah and shaken market sentiment. While investors on the 
ground remain bullish, we still plan to pay close attention to currency 
concerns and will continue to urge Indonesia to once again reduce fuel 
subsidies. We are pleased with the government's ability to address 
major reforms right away and encouraged by their plans to promote 
growth and stability.

Security service reform
    A central element of the transformation of Indonesia into a stable 
and prosperous democracy is the continuing evolution of the Indonesian 
military, or TNI, into a modern, professional, civilian-controlled 
force focused on external security. The Indonesian public has rejected 
a formal role for the military in politics, and the TNI has remained 
professional and out of politics during Indonesia's democratic 
transition. Major reforms of the security forces include:

   The establishment of a police force separate from the 
   The end of the military ``dual function'' system that placed 
        military officers in civilian government positions.
   The end of military and police appointed seats in Parliament 
        in 2004.
   The passage of legislation in 2004 to ensure that the 
        Parliament begins to exert control over the military's business 

    President Yudhoyono and Defense Minister Juwono Sudarsono are 
committed to implementing and consolidating these reforms. Sudarsono is 
Indonesia's first civilian Defense Minister and is working to 
strengthen civilian control over the budgetary and procurement process. 
The Indonesian legislature in 2004 passed an armed forces law that 
makes clear the importance of democratic values, civilian supremacy, 
and respect for human rights. The TNI has also supported the Aceh peace 
    When President Yudhoyono visited Washington in May, he and 
President Bush jointly stated that normal military relations would be 
in the interest of both countries and undertook to continue working 
toward that objective. President Yudhoyono also reaffirmed his 
commitment to further strengthen military reform, civilian control, and 
accountability. President Bush pledged his full support in these 
efforts. Secretary Rice's February decision to resume International 
Military Education and Training will reestablish professional links 
between our militaries and result in increased professionalism of 
Indonesian military officers with respect to transparency, human 
rights, and public accountability. We also think that Foreign Military 
Financing (FMF) is in the interests of both countries. We see TNI 
reform as a long-term project, and we trust that President Yudhoyono is 
committed to take the necessary steps for enhanced military-to-military 
relations. We are committed to supporting Indonesia in that effort.

Resolving political differences through dialogue
    The capacity to resolve political differences through dialogue, 
rather than violence, is a hallmark of a functioning democracy. 
Although Indonesia has experienced political violence in places like 
Aceh, Papua, and East Timor, President Yudhoyono is leading a new era 
in Indonesia, which promises to separate Indonesia from its repressive 
past. While we have raised concerns over abuses by security forces in 
areas of separatist conflict, and we have urged closer attention to the 
implementation of Special Autonomy in places like Papua, it is 
incorrect and, in fact, detrimental to U.S. interests to, in any way, 
imply that the United States does not support the territorial integrity 
of Indonesia. The United States firmly supports Indonesia's territorial 
integrity, and does not support, nor condone, any effort to promote 
secession of any region from the Republic of Indonesia.
    The Yudhoyono government conducted a series of peace talks this 
year with the separatist Free Aceh Movement, known by the Indonesian 
acronym ``GAM.'' These talks proceeded rapidly and culminated in a 
peace agreement signed on August 15 in Helsinki. If implemented 
successfully, this will end a three-decades long conflict that has 
claimed thousands of lives, and will put the people of Aceh on a path 
to economic recovery and political integration. Early signs have been 
positive, with the Indonesian Government granting amnesty to 
noncriminal GAM prisoners and beginning to withdraw military troops 
from the Province. United States and other donors' support for 
implementation will play an important role in promoting peaceful 
reconciliation and addressing key elements of the Peace Agreement, such 
as professional training for Aceh police and assistance for the 
reintegration of excombatants.
    Like Aceh, Papua has suffered from separatist conflict and serious 
human rights abuses. The Indonesian Government has not fully 
implemented the 2001 Special Autonomy law that was designed to address 
political and economic grievances. However, there have been two recent 
positive developments. First, last month a series of large 
demonstrations in Papua proceeded without violence, due to good 
communication between separatists and local officials. Second, 
President Yudhoyono met with Papuan leaders in Jakarta and pledged to 
fully implement Special Autonomy. President Yudhoyono has vowed to 
peacefully resolve the longstanding conflict in Papua.
    With respect to East Timor, the Governments of Indonesia and East 
Timor have created a bilateral Truth and Friendship Commission (TFC) to 
promote reconciliation and achieve credible accountability for the 
crimes against humanity committed in 1999. There has been no credible 
accountability for the crimes. The Jakarta-based Ad Hoc Tribunal and 
Dili-based Serious Crimes Unit failed for different reasons. The 
Indonesian Government is cognizant of the need for the TFC process to 
be genuinely credible. The members recently selected by the GOI to the 
TFC appear to be committed to pursuing genuine truth and 
reconciliation. We will continue to remind and work with both Indonesia 
and East Timor on the importance of achieving credible accountability.

                            IV. IMPLICATIONS

    How should we approach Indonesia now? Indonesia's democratic 
transition and reformist government present a window of opportunity. 
The importance of seizing this opportunity cannot be overstated. The 
world's fourth most populous country, the third largest democracy, a 
country undergoing rapid modernization, the largest majority-Muslim 
country, a partner in the war on terrorism, a major open economy in a 
critical region--together those factors make a strong case for 
upgrading and deepening our relationship with Indonesia. In this light, 
we should:

   Aim to develop a mature, multifaceted relationship between 
        two major democracies.
   Continue U.S. assistance, as described by my colleague from 
        USAID, for tsunami reconstruction, education, the justice 
        sector and for the police.
   Increase exchanges between our two countries, through more 
        congressional/parliamentary delegations in both directions, 
        through more contact between senior officials, and through 
        increased student exchanges.
   Support President Yudhoyono's reformist program and support 
        further development of democracy, respect for human rights and 
        freedom of the press in Indonesia.
   Support military reform in Indonesia by constructively 
        engaging with its military. This will require lifting existing 
        legislative restrictions.
   Bolster Indonesia as a leader of ASEAN and as a stable 
        democracy in a critical region.

    Senator Murkowski. We will next turn to the Honorable James 
Kunder, who is the Assistant Administrator in the Bureau for 
Asia and the Near East in the U.S. Agency for International 


    Mr. Kunder. Thank you, Madam Chairman.
    I would just like to echo Eric's comments about the 
Hurricane Katrina situation. We're aware of the fact, 
obviously, that while we're focusing on these issues halfway 
around the world, as Eric said, many of our own citizens are 
suffering. The Administrator of USAID, Andrew Natsios, did 
offer the assistance of our technical experts from the Office 
of Foreign Disaster Assistance. And, in fact, these folks are 
working along the gulf coast right now. And we've opened some 
of our warehouses for international disaster assistance 
supplies to make those available to FEMA, just as FEMA has, in 
the past, made some of those supplies available to us. So, I 
think there's been pretty good cooperation on that score.
    Let me just echo what's been said thus far. I think we, 
also, look at Indonesia in terms of enormous opportunities, but 
also risks. And what our programs have been trying to do is 
seize the opportunities and try to minimize the risks. 
Indonesia is the largest single United States foreign 
assistance program in East Asia. In 2005, we've obligated $143 
million. And in fiscal 2006, we've asked to spend $164 million. 
These are obviously very sizeable figures. But, of course, with 
the populations we're looking at, these amount to less than a 
dollar per Indonesia citizen. So, in a nation of this size and 
strung out across the archipelago, the operational question for 
us is: How do we make an impact? How do we use these U.S. 
taxpayer dollars that the Congress has generously provided to 
have an impact across this country?
    What we have done is focused in on four areas:
    One is democracy, to take advantage of the opportunities 
that the Indonesians themselves have made available through 
last year's elections and also through their own attempts to 
decentralize government and move away from a more authoritarian 
model to a model closer to the citizenry. For that to work, 
local government has to be effective in delivering social 
services and being accountable to the population. So, while we 
continue to support democracy in the electoral process, and 
while we continue to support the improvement of central 
Indonesian institutions, like the Parliament and like the 
Supreme Court, and the elimination of endemic problems like 
corruption, we're also focusing on making local government more 
responsive across Indonesia.
    Second, we're focusing on the economic-growth issues. The 
challenge that President Yudhoyono faces and which, of course, 
is directly relevant to the international war on terrorism is: 
How do you find jobs for 2\1/2\ million new entrants into the 
workforce every year? Historically, education has not been job-
relevant in Indonesia, so we're focusing on creating the 
economic reforms, addressing issues like improper subsidies in 
the Indonesian budget, so that this economy will be investor-
friendly and will create those 2\1/2\ million new jobs each 
    Third, we are focusing specifically on education. The 
educational statistics in Indonesia indicate that it is an 
education system in some crisis. Indonesian students do not 
score well on international tests. And, in fact, their 
performance has been declining in recent years. The 
decentralization of the education system provides us with new 
opportunities to address the critical problems facing education 
in Indonesia. These include better teacher training, more 
community participation, and a more participatory, engaged 
method of teaching that gets students doing creative thinking 
on their own, rather than just rote recitation. We also believe 
this is critically important to providing the kind of citizens 
that the new democratic Indonesia will need.
    So, we're focusing on 200 model school districts around the 
country, and we've had success in getting parental involvement 
and community involvement, better teacher training. And we've 
seen signs that the Indonesians are grabbing this opportunity, 
because the teacher-training and community-participation 
techniques we've piloted in those 200 schools have already been 
adopted in an additional 900 schools voluntarily by the 
Indonesian Government. We hope that kind of replication will 
    We're also working on basic healthcare. Indonesia continues 
to have high infant mortality and maternal mortality rates, 
continues to suffer from lack of safe drinking water and other 
endemic health and social problems. We're trying to address 
those, as well.
    Let me turn my attention briefly to the avian flu issue. We 
very much appreciated the $25 million that was made available 
in the appropriations bill this year. That is going to be a 
complex and challenging problem for us to take on. As the 
chairman indicated, the nature of the poultry industry, not 
just in Indonesia, but across East Asia, tends to be a backyard 
poultry industry. And, given the inefficiency of compensation 
programs for birds that are culled out of the population to 
stymie outbreaks, and the lack of faith of many of these small 
farmers that they will receive compensation for their birds, 
enforcement of regulations when there are outbreaks is a 
challenge across the region. I can certainly answer more 
detailed questions about that. We're focusing that money as 
effectively as we can, but it is a very challenging 
environment. Also, given the transmission between the 
commercial poultry industry and the migratory birds that fly 
through the region, you have a particularly challenging 
environment to keep these vectors from spreading.
    Let me just turn very briefly to the tsunami, if I could. 
On the principle that a picture is worth a thousand words, let 
me just show a couple of brief slides. This shows the epicenter 
of the earthquake, the red dot there. And, naturally, it's 
right next to Sumatra. Indonesia did, of course, bear the brunt 
of the tsunami--both the earthquake damage and the tidal wave.
    The thing that we did immediately after the tidal wave hit 
was to meet the emergency needs of the population in Sumatra. 
U.S. food assistance went in immediately. And, also, these are 
portable chlorination bottles that were widely distributed 
among the population. One of the almost miraculous successes of 
this is, despite the horrific loss of life, there was no 
follow-on widespread starvation, there was no follow-on 
widespread outbreak of endemic disease. We applaud the quick 
response by the United States military, United States civilian 
agencies, the international community, the NGOs that were on 
the ground, and the United Nations, not to mention the 
Indonesians themselves, who, despite the institutional 
weaknesses of some of their crisis response agencies, did a 
very credible job of getting on the ground and starting to work 
closely. All of those things headed off the epidemic diseases 
that might have raised those death tolls even higher.
    The other thing we did was to immediately try to get some 
cash into that economy and start rebuilding people's lives. 
This is a typical cash-for-work program, where we provided some 
resources in wages so that people could get back to work 
rebuilding their own communities. And the other aspect of that, 
of course, is that there's a psychological benefit if people 
immediately can reengage in the reconstruction process.
    An important part of what we tried to do in Aceh and across 
Sumatra was to get community involvement--this slide is a 
community meeting, a townhall meeting, if you will--so that we 
heard from the local citizens what they thought the priorities 
are for reconstruction, so that it wasn't outsiders coming in 
telling the local folks what we thought should be done, but, 
rather, hearing what their priorities were so that they would 
sustain the effort.
    And, finally, we are now transitioned from the relief and 
rehabilitation phase into the reconstruction phase. This is the 
charge at the U.S. Embassy and our USAID mission director 
cutting the ribbon to start the reconstruction of the Banda 
Aceh-Meulaboh Road. This is a sign of the initial work. The 
trucks are literally out dropping gravel along the road right 
now. What we've done is to get the project up and running and 
to show visible signs of reconstruction--we're focusing on the 
first 80 kilometers out of Banda Aceh--while we look at the 
much larger reconstruction program that's going to rebuild the 
entire 240-kilometer road between Banda Aceh and Meulaboh.
    So, my report here would be that I view this, despite the 
horrific loss of life, to be a reasonably successful 
international relief effort led by the Indonesians themselves. 
Because of the money generously provided by the Congress, we've 
tried to launch, as quickly as possible, into the 
reconstruction effort that'll be necessary. I just spoke, this 
morning, with our rep who's on the ground in Banda Aceh. He 
reports that things are moving along quickly. But we still 
anticipate a very substantial reconstruction effort, probably 
extending out 2 to 4 years before we have the kind of major 
reconstruction that we'll need in that region.
    The final issue I just want to touch on, Madam Chairman, 
because you raised it in the last hearing, was that a 
significant part of our tsunami response is the building of a 
tsunami early-warning system. Again, Congress generously 
provided resources so that we could launch this effort as part 
of an international attempt to prevent this kind of tragedy in 
the future. That effort is underway. It, also, is a complex 
effort because of the more than 20 nations that border the 
Indian Ocean. There are a number of technical and political 
approaches to how this should be done. And, naturally, each of 
those governments feels some responsibility for warning its own 
citizens. So, building a system that we can do quickly, but 
also building a system in which we have buy-in from all the 
nations of the region, is a complex technical and political 
task. But we are actively engaged with the United Nations, 
International Oceanographic Commission, and a number of other 
bilateral donors on that effort right now.
    Thank you.
    [The prepared statement of Mr. Kunder follows:]

 Prepared Statement of Hon. James R. Kunder, Assistant Administrator, 
   Bureau for Asia and the Near East, U.S. Agency for International 
                      Development, Washington, DC

    Madame Chairman, members of the subcommittee, thank you for 
inviting us to testify today on United States-Indonesia relations and, 
more specifically, on U.S. Agency for International Development (USAID) 
programs there and in other tsunami-affected countries. I will address 
why Indonesia is important to U.S. foreign policy, its major 
development challenges, and what the USAID is doing to help the 
Government of Indonesia (GOI) meet these challenges. Among those 
challenges is, of course, the havoc wrought by the tsunami of December 
2004 which affected several countries within the region. I will 
summarize the broader USAID tsunami response and its impact.
    Indonesia is strategically important to the United States. With the 
world's fourth largest population and the largest Muslim population, it 
is also the third largest democracy. Last year, Susilo Bambang 
Yudhoyono, the democratically elected President, successfully 
campaigned on a pro-jobs and anticorruption platform. This year, local 
elections continue throughout the archipelago with local government 
leaders directly elected by their constituents for the first time in 
Indonesian history. Indonesia has embarked on major changes in 
democratic governance and decentralization. It has vast energy and 
mineral resources, a location astride some of the globe's most 
important ocean routes, and large expanses of rainforest and coral 
reef. It is in U.S. interests to support Indonesia's future as an 
independent, stable democracy, prosperous and at peace with its 
neighbors. And U.S. interests support an Indonesia with diminished 
potential as a source and victim of terrorism, crime, fewer internally 
displaced persons, less disease prevalence, fewer trafficked persons, 
and less narcotics trafficking.
    Indonesia's challenges are immense. Lack of a democratic tradition 
has meant a lack of experienced political leadership in democratic 
governance. Despite progress, economic growth remains too low to 
accommodate the growing labor force. Serious rule of law deficiencies 
and widespread corruption and bureaucratic obstacles discourage job-
generating foreign investment. High levels of poverty, foreign radical 
religious influences, and a poor education system work against our goal 
of Indonesia as a stable, democratic state and foster conditions that 
potentially create an operating and recruiting environment for violent 
Islamic groups.
    There are also encouraging signs. The GOI has taken bold steps to 
improve governance including transferring about 2 million employees, 
approximately two-thirds of the central government workforce to local 
governments. Since 1998, GOI efforts have reduced inflation from 80 
percent to below 6 percent and growth is set to expand by approximately 
5.7 percent this year. There are substantial challenges that could 
derail this transition. The education system is in crisis. Democratic 
reforms are fragile after years of authoritarian government and most 
local governments are ill-equipped to assume planning, budgeting, and 
management responsibilities. The current rate of GDP growth, while much 
improved, will still not absorb the 2.5 million new entrants into the 
job market each year. Net foreign investment has declined over the last 
5 years, although there is some hope that it is turning around. 
Sectarian and separatist conflicts continue.
    USAID programs are an integral part of an integrated USG strategy 
to combat terrorism, promote democracy and good governance, provide 
education reform, assure a better life for the people of Indonesia, and 
support Indonesia's economic prosperity. Another key component is post-
tsunami reconstruction.
    The USAID 5-year strategy in Indonesia (FY 2004-2008), focuses on 
five key strategic directions, with crosscutting themes that focus on 
working at the local level, fighting corruption, and developing public-
private partnerships that support all of our program objectives. These 
five strategic directions are: (1) Improving the quality of 
decentralized basic education; (2) improving the delivery of basic 
human services such as health care and clean water; (3) advancing 
democratic, decentralized governance; (4) strengthening economic growth 
and promoting job creation; and of course, (5) providing critical post-
Tsunami reconstruction assistance.

                            BASIC EDUCATION

    To improve the quality of decentralized basic education, this 
administration committed to provide at least $157 million (from FY 
2004-2009) to improve management and governance in the education 
system, improve teaching and learning in public and private schools, 
and provide relevant life and work skills to students. This program is 
coordinated closely with the Embassy public affairs section, which 
provides scholarships, exchange programs, English teacher development, 
and university exchanges. Our education programs contribute to 
countering extremism and terrorism. Education is the foundation for 
effective citizen participation in a democracy. Education helps secure 
economic opportunities for disadvantaged or marginalized populations. 
Increased quality of teaching and learning in public and private 
schools provides an alternative to the more extremist, radical schools. 
Livelihood programs help out-of-school youth learn essential skills for 
jobs. Education programs diminish the underlying conditions that 
terrorists seek to exploit. We are promoting moderation, tolerance, and 
support for pluralism by developing critical thinking skills. These 
same skills are also essential to finding and keeping good jobs and 
effectively participating in Indonesia's democratic system, modern 
society, and the world economy. We are also increasing access to 
education opportunities for vulnerable or marginalized populations.
    USAID basic education programs are already working in 200 schools, 
including 40 madrassahs, and are reaching 70,000 students. New and 
expanded programs are expected to directly reach 4,500 public and 
private schools, 4 million students, 55,000 educators and 1 million 
out-of-school youth over the life of the programs. Concrete results are 
already being achieved. Active learning methodologies are being 
effectively applied and community and parental involvement is on the 
rise. School committees are actively managing 80 percent of the schools 
currently involved in our programs. Local governments in other parts of 
Indonesia have introduced best practices developed in USAID partner 
schools to 900 additional schools using their own resources. Most 
importantly, student performance in key subjects such as math and 
science is improving.


    To improve basic human services, the USG is providing assistance to 
improve access to higher quality basic human services, using an 
integrated approach that combines support for health care at the 
community level, food and nutrition, and access to clean water and 
sanitation. Health care programs are focusing on maternal and neonatal 
health; reproductive health; child health and nutrition; prevention of 
HIV/AIDS, tuberculosis and malaria; decentralization of health care 
service delivery; and improved hygiene to prevent diarrhea. In fiscal 
years 2004 and 2005, the USG provided $64.7 million for these 
activities. USAID food assistance programs will target poor communities 
and directly impact women and children. Environmental services programs 
will support better health through improved water resources management 
and expanded access to clean water and sanitation services. These 
integrated programs will also promote biodiversity conservation, forest 
management, land-use planning, and reforestation activities, which 
provide a sustainable source of clean water. Activities will introduce 
sustainable approaches to providing safe drinking water at the point of 
    HIV/AIDS prevention activities have directly reached over 1 million 
members of high-risk groups. USAID has worked with 300 private sector 
midwives from six provinces to improve the quality of the services they 
provide. We have worked with the GOI and international agencies to plan 
and implement essential National Immunization Days to halt the spread 
of the life-threatening wild polio virus, which has recently been 
reintroduced to Indonesia, and are working with the GOI and other USG 
agencies on response programs to control the risk of avian influenza in 
Indonesia. Progams have enabled local authorities to provide 18 million 
preschool children with Vitamin A capsules to strengthen their immune 
systems and prevent blindness. USAID assistance has helped local 
authorities to place an additional 2.2 million hectares of forest and 
coastal areas under better management and protection.

                            ECONOMIC GROWTH

    To strengthen economic growth and employment creation, and in a 
direct response to one of President Yudhoyono's highest priorities, the 
USG is providing assistance to assist both the government and the 
private sector in improving the business and investment climate, 
combating corruption, increasing competitiveness in key sectors, and 
improving the safety and soundness of the financial system. Efforts to 
promote a transparent and predictable legal and regulatory climate for 
business will reduce the hidden costs of doing business, reduce 
business uncertainty and promote trade, investment, and job creation. 
USAID support will help the GOI to improve the oversight of bank and 
nonbank financial intermediaries in assuring safety and soundness in 
the financial system and to improve transparency and governance. 
Programs in this area will assist in the detection and prevention of 
financial crimes and terrorist financing. Anticorruption efforts will 
include support to the Commercial Court and the Anti-Corruption Court. 
As a result of GOI commitment and USAID technical assistance, Indonesia 
was removed from the international watch list of Non-Cooperating 
Countries and Territories on February 11, 2005.
    USAID successfully advised the GOI on Indonesia's Deposit Insurance 
Law, and is now assisting in the creation of a new deposit insurance 
agency that will better protect depositors and the banking system. In 
an important public-private alliance, USAID launched the ``Success 
Alliance'' to promote and improve the quality of Indonesia's cocoa, 
under which more than 60,000 farmers have been trained. Our industry 
partners have invested several million dollars in research and 
marketing and have committed to purchasing more than $150 million in 
Indonesian cocoa.

                        DEMOCRACY AND GOVERNANCE

    To advance democratic decentralized governance, the USG is 
providing assistance to help Indonesia build effective and accountable 
local governance, to address conflict and improve pluralism, and to 
consolidate the democratic reform agenda. USAID will work with 100 
local governments to strengthen the local legislative process, to 
engage citizens in planning and strategic decisionmaking, and to link 
participatory planning, performance budgeting, and improved financial 
management support to improve local government ability to effectively 
deliver basic services. Programs will advance and safeguard key 
democratic reforms, including the rule of law, freedom of information, 
justice sector reform, free and fair elections and decentralization. 
USAID support will help local organizations address violent conflict 
across Indonesia, promote pluralism, reach out to Islamic mass-based 
and other civil society organizations, and will provide immediate 
support to the implementation of the peace accord agreed to by the GOI 
and the Free Aceh Movement (GAM).
    In 2004, USAID was the largest bilateral donor to the nationwide 
legislative elections and to the first ever direct Presidential 
elections. With 155 million registered voters and more than 575,000 
polling stations, the Indonesia elections were the largest single-day 
elections in the world. USAID assistance helped the Supreme Court 
establish and implement its blueprint for comprehensive reforms, which 
includes reducing the backlog of cases, improving the quality and 
integrity of judges, publishing court decisions, and modernizing the 
court information systems. In support of Indonesia's decentralization 
process, USAID has been a leading donor, providing direct capacity-
building support to local governments. USAID helped the GOI develop and 
implement revenue-sharing formulas and techniques that have assured 
funding continuity for local governments. With USAID assistance, local 
governments are implementing measures to address corruption at the 
local level.
    USAID in a partnership with The Asia Foundation (TAF) successfully 
administers the Islam and Civil Society Program (ICS). Over the past 7 
years, The Asia Foundation's ICS program has played a crucial role in 
fostering, consolidating, and strengthening the prodemocracy movement 
in Indonesia by engaging mass-based organizations that have strong 
nationwide networks, as well as on-the-ground credibility and 
legitimacy. USAID and TAF have created a network of over 30 
prodemocracy and mass-based organizations addressing issues such as 
women's human rights, the integration of democracy themes into 
mainstream media, and cooperation among civic education providers at 
higher education institutions.
    USAID and TAF have supported innovative civic education curriculum 
development programs in three Islamic education systems nationwide, 
providing teacher training and textbooks on democracy education and 
active learning pedagogy to over 550 education providers and 120,000 
students in 2004 alone. TAF support has enabled Indonesian partner 
organizations to provide training on human rights and gender issues 
within over 1,000 pesantren (Islamic boarding schools) and introduce 
civic education and active learning methods to pesantren and madras 
(Islamic day schools), the sector of Indonesia's education system in 
most need of reform. The People's Voter Education Network (JPPR) was 
established by TAF, with USAID financing, in 1998 and has provided 
large-scale voter education and election-day monitoring in the 1999 and 
2004 elections. The JPPR, composed of long-term ICS partners, mass-
based Muslim organizations, combined with mass-based Christian and 
interfaith groups, deployed over 140,000 community-based voter 
education and election day monitoring volunteers, and produced and 
distributed over a million pieces of voter education materials in 350 
districts. USAID and TAF have supported the creation and continued 
production of one of the largest radio talk shows in Asia, reaching 3 
million listeners, called ``Religion and Tolerance.'' In addition to 
the above-mentioned media programs, TAF has opened a dialogue with more 
than 20 Islamic youth groups (including hardline groups) on university 
campuses in 4 cities.

                       TSUNAMI RELIEF--INDONESIA

    The Indian Ocean tsunami struck on December 26, 2004. The Provinces 
of Aceh and North Sumatra, on the island of Sumatra, were the closest 
bodies of land in the direct path of the killer tsunami waves. American 
individuals, families, nonprofit organizations, and private 
corporations donated hundreds of millions of dollars to help relieve 
the suffering and begin the reconstruction. The U.S. Congess responded 
to the President's request with a supplemental budget package that is 
currently providing approximately $400 million for relief and 
reconstruction in Indonesia.
    The funding provided by the Federal Government enabled USAID/
Indonesia to immediately assist over 580,000 people. USAID supplied 
food, water, and hygiene kits, and provided cash for work to clean up 
and rebuild damaged infrastructure. In the aftermath, USAID is building 
roads, supporting reconstruction programs that are identified by the 
affected communities themselves, strengthening the community governance 
and political infrastructure, and helping to establish early warning 
prevention systems for future catastrophes. USAID has also partnered 
with the private sector to help channel resources to assist with the 
reconstruction. We have developed five Global Development Alliances, or 
public/private partnerships, providing tangible assistance to Acehnese 
    The compassion of ordinary American citizens and the private 
sector, combined with prompt government action, has significantly 
changed the way Indonesians view the United States of America. 
According to post-tsunami polls conducted by Terror Free Tomorrow, a 
nonprofit/nonpartisan organization represented by Senator John McCain, 
Lee H. Hamilton, and many other distinguished professionals, 65 percent 
of Indonesians are now ``more favorable'' to the United States because 
of the American response to the tsunami, with the highest percentage 
among people under 30. A separate poll conducted by the Pew Global 
Attitudes Project in Indonesia reports that nearly 80 percent of 
Indonesians say that the donations gave them a more favorable view of 
the United States. This measurable progress on ``winning hearts and 
minds'' and gaining allies in the Global War on Terrorism is a major 
blow to al-Qaeda and other terrorists.
    After only 2 months in office, President Yudhoyono was faced with 
the tsunami disaster. Dealing with the immediate aftermath was far 
beyond the capability of any single government. While the massive 
damage resulting from the tsunami cannot be undone overnight, the GOI, 
in partnership with international donors such as the U.S. Government, 
has taken several important steps forward over the past 9 months. USAID 
has played a vital role in that process.
    USAID moved quickly to put to good use the funds that were provided 
by the U.S. Congress--$48 million was immediately obligated for 
emergency relief and recovery programs. USAID cooperated closely with 
both civilian and military authorities. Our Office of Foreign Disaster 
Assistance (OFDA) and the Asia Near East Bureau worked closely with the 
military, planning the initial relief effort. The USAID tsunami point 
person traveled to the region with Deputy Secretary of Defense 
Wolfowitz to ensure a seamless transition from initial relief to 
reconstruction. As the Navy sailed away from Aceh, we were already 
announcing new grants to rebuild lives and communities. In June, the 
USG and the GOI signed an agreement to defer and reschedule debt 
payments falling due to the USG this year in order to free GOI 
resources for tsunami victims. Approximately $21 million was obligated 
for the budget subsidy cost of this rescheduling consistent with the 
Federal Credit Reform Act.
    On July 7, 2005, USAID signed a new agreement with the GOI, 
committing $332 million (of FY 2005 tsunami supplemental funding) for 
reconstruction programs. On August 25, USAID launched a $13.5 million 
contract with an Indonesian construction company and started work on 
the first phase of road reconstruction in Aceh. USAID has committed to 
reconstructing the 240-kilometer road from Banda Aceh to Meulaboh in 
its entirety. The road is the economic backbone of the region, 
connecting Aceh Province with the rest of North Sumatra and Indonesia. 
The overall road project, which will total $245 million, will provide 
mobility, improve communication, create local jobs, and serve as the 
lifeline for economic growth in the tsunami-devastated region. The 
first (or ``phase one'' contract) phase will repair enough of the road 
surface and bridges to reopen the first 80 kilometers of the road 
leading from Banda Aceh to Lamno. A second contract will be awarded for 
Architecture and Engineering (A&E) services for the design of the 
remaining road sections and overall construction supervision. A third 
contract will be awarded to resurface, rehabilitate, and reconstruct 
the road from Lamno to Meulaboh as these sections are not covered by 
the first contract.
    I should mention that USAID is assuring that our contractors hire 
employees from all parts of Aceh and North Sumatra. Young men from 
diverse communities and backgrounds will have the opportunity to work 
together rebuilding their nation, and develop respect for each other at 
the same time. A significant factor in evaluating the phase one road 
project proposals was the quality of plans to ``utilize local resources 
both personnel and material,'' and the demonstrated ability of the 
contractor to ``integrate local Acehnese subcontractors.'' The 
contractor has a management plan in place and estimates that between 
300 and 400 full-time Acehnese personnel will be hired to support the 
project. Tenders for the large road project will also include a plan 
for recruiting, training, and hiring Indonesian personnel for all other 
phases of the construction project.
    Second, to ensure proper oversight and success of this project and 
all of our projects in Aceh, we have established a USAID satellite 
office in the city of Banda Aceh. From there our staff continues to 
monitor the successful culmination of relief and recovery activities, 
such as water and sanitation and cash-for-work programs, as well as 
manage implementation of our reconstruction work. Over 580,000 people 
have already benefited from these efforts.
    The GOI has established its Aceh Rehabilitation and Reconstruction 
Agency, referred to as the BRR. Its director, Dr. Kuntoro, has 
requested technical assistance and USAID has been able to quickly 
provide the necessary expertise in the areas of audit and financial 
management, spatial planning, information and communications 
    We are particularly proud of the communities participating in our 
Community Based Recovery Initiative. They have moved from temporary 
employment activities, such as debris cleanup, to implementation of 
small-scale reconstruction projects, such as meeting houses and health 
posts. Community members work together democratically to set their 
priorities. In order to rebuild, residents need to agree on land 
boundaries. USAID is providing important expertise on community mapping 
to help families establish proper land claims and to help communities 
map out the proper locations of schools, commercial areas, parks, and 
other public infrastructure.
    In the wake of the tsunami, there is new hope in Indonesia. After 
30 years of conflict, the Free Aceh Movement has signed peace accords 
with the Government of Indonesia. This unprecedented progress deserves 
U.S. Government support. USAID has already started funding public 
information campaigns to assure that all excombatants and communities 
understand the terms of the peace agreement, including their roles. 
These efforts may be followed by longer term reintegration support in 
areas such as vocational training and microfinance support. Such 
programs are crucial to solidifying the early months of peace and to 
the long-term success of our larger reconstruction programs in Aceh and 
North Sumatra.

                        TSUNAMI RELIEF--REGIONAL

    In Sri Lanka, where over 30,000 people lost their lives and over 
half a million were rendered homeless, the USAID team moved quickly to 
reestablish a means of livelihood for the victims. Over 300,000 people 
were put to work on construction activities, and we are pleased to 
report that over 1,500 businesses have been started or restarted. Some 
24,230 people have received grants and training to start up new 
employment. We have paid special attention to restoring and rebuilding 
critical services, and to date have rebuilt 74 schools (benefiting over 
181,000 students), 21 clinics and 3 hospitals, and other community 
structures such as market places, bathing enclosures, and small roads. 
In keeping with our desire to improve disaster preparedness at the 
local level, 37 communities have received equipment to enable them to 
join the national emergency alert system. Also in Sri Lanka, USAID has 
built vocational education centers to help diversify a workforce that 
was overly reliant on fishing. Another effort was the construction of 
playgrounds, to try to help children cope with returning to communities 
near the sea.
    I am pleased to note that the Sri Lanka mission has just signed a 
contract with a U.S. firm for several major construction projects in 
the east and south of the country. Over the coming 2 to 3 years, USAID 
will rebuild a major bridge washed away in the southeast, repair three 
fishing harbors, and construct or repair up to 14 vocational and 
technical centers where people can go to learn a marketable skill. Work 
on these important projects is beginning this month. You are aware of 
the tragic civil war that has gripped the island for decades. Wherever 
possible, our USAID mission uses such projects to bring together people 
from diverse communities to work together for the common good. We are 
proud of the collaborative work among Mission Teams and with the Office 
of Foreign Disaster Assistance to provide not only immediate relief, 
but early on to incorporate longer term options for rehabilitation and 
reconstruction. We believe Sri Lanka can serve as a model for future 
collaboration and programming.
    In India, state and municipal governments responded well and are 
coordinating a number of vital reconstruction activities, such as 
moving people into permanent housing. Soon after the tsunami hit, USAID 
provided temporary employment to 17,280 people. We are now moving to 
help provide longer term employment opportunities, and have given out 
over $100,000 in microcredit to over 86 self-help groups, serving a 
total of about 1,500 people. Further to getting people back to work, we 
have repaired over 200 boats. Over the next 2 years USAID will finance 
skills training and job placement services for thousands of vulnerable 
women and youth. USAID financed the construction of 1,500 temporary 
shelters, established or restored 1,300 water points, and built over 
5,500 latrines. To ensure that villagers are better prepared for any 
further disasters, USAID trained over 400 communities in disaster 
preparedness, including actual drills simulating an emergency. By 
September 2007, USAID will have financed such training in over 22,000 
Indian villages.
    In Thailand, USAID is working with communities to diversify 
livelihood opportunities, better manage community-based resources and 
effective disaster management systems. The targeted communities 
encompass five rural fishing communities in Ranong Province on the 
Andaman Sea that were severely affected by the tsunami. USAID's 
implementing partners, the University of Rhode Island's Coastal 
Resources Center and Thailand's Asian Institute of Technology, have 
helped villagers to identify and prioritize their needs for assistance, 
fostering participatory decisionmaking processes. The $3 million 
project has replaced fishing boats, provided microcredit and small 
business training to 21 microenterprises, started 20 new businesses, 
and provided 941 person days of cash-for-work in mangrove 
rehabilitation for tsunami affected families. The integrated coastal 
management strategies of this demonstration will provide lessons and 
good practices for the nation and other tsunami affected countries.
    In the Maldives, USAID provided three airlifts. These provided 250 
rolls of plastic sheeting which provided temporary shelter for 750 
people. Three water bladders, 9,600 water containers which provided 
safe drinking water for approximately 24,000 people, and 2,000 hygiene 
kits that served 10,000 people. USAID also provided $1,200,000 for 
health, nutrition, water, and sanitation. Combined humanitarian 
assistance from the U.S. Government to the Maldives totaled $1,363,000 
with a possible $8.7 million in additional funding being negotiated by 
the Department of State. Currently, all USG funds allocated for the 
Maldives are managed by the U.S. Embassy in Sri Lanka.
    In an effort to mitigate the effects of further disasters, USAID is 
coordinating the U.S. Goverment's Indian Ocean Tsunami Warning System 
(IOTWS) program. This $16.6 million, multiagency effort to develop 
early warning capabilities for tsunamis and other hazards will monitor 
changes in the ocean floor and also connect local communities to a 
warning system. USAID is working together with U.S. technical agencies 
such as the National Oceanic and Atmospheric Association, the U.S. 
Geological Survey, the U.S. Forest Service, and the U.S. Trade and 
Development Agency to bring targeted expertise to both national and 
regional efforts. USG funding will also support the International 
Oceanographic Commission as it takes the lead role in developing an 
international warning system with data-sharing for over 26 countries.
    The USAID Global Development Alliance (GDA) works to enhance 
development impact by mobilizing the ideas, efforts, and resources of 
the public sector with those of the private sector and nongovernmental 
organizations. USAID, through the GDA, has formed 18 partnerships with 
the private sector in tsunami-affected countries leveraged more than 
$17,200,000 in private sector funds for the tsunami. USAID current and 
prospective partners in post-tsunami reconstruction include: Mars, 
Chevron, Microsoft, Coca-Cola, Prudential, Deutsche Bank, IBM, Hilton, 
3M, Conoco-Phillips, and the Mellon Foundation.
    In conclusion, I would like to thank the committee for this 
opportunity to report on tangible progress in achieving USG foreign 
policy goals in Indonesia as well as the early results of USAID 
programs addressing the tsunami. Our USAID staff at the missions in Sri 
Lanka, Indonesia, India, and Thailand have made a tremendous effort to 
get things moving quickly, using existing contracts and grants and 
expedited procedures wherever possible, to restore living conditions 
and economic security to the victims of this disaster. As we have moved 
out of the relief effort and into longer term reconstruction, USAID 
continues to place emphasis on helping people get back to work, 
training men and women for new types of employment, and providing the 
infrastructure they need for better living conditions, as well as 
economic security.

    Senator Murkowski. Thank you, Mr. Kunder. I appreciate it, 
and I appreciate that last comment there about the early-
warning alarm system, because we're curious about how that is 
going to be implemented and wanted to know if, in fact, we're 
achieving the success that we're hoping for in educating the 
people about what the system is all about. It's one thing to 
put it in place, it's another thing to actually know what to do 
with the information once you get there. So, it sounds like 
there is some progress on educating the communities in that.
    Mr. Kunder. As you pointed out the last time, Madam 
Chairman, it is a segmented approach. The technical part of it, 
the getting the buoys out there in the water, determining what 
the locations will be, getting the transmission of the signals 
to land, and then having each nation distribute that 
information out to the local community in such a way that it'll 
be received in, in some cases, what are rural areas, and then 
educating the local public both on how to respond and what kind 
of mitigation efforts they should take, it's a very complex 
undertaking across the region. I'm not here to report success 
yet, but I'm here to report that the effort is well underway.
    Senator Murkowski. Senator Obama, may I just mention, I got 
a note that we're supposedly going to have a vote here in about 
10 or 15 minutes. It's my hope that we will be able to ask the 
questions that we have of these two gentlemen and then take a 
break to do the votes. I understand there's a couple of them, 
at least. And then we would come back for that second panel.
    Senator Obama. Yes. Madam Chairman, unfortunately, before 
we go vote I've got to return to my office.
    Senator Murkowski. OK.
    Senator Obama. I just want to thank the witnesses. We'll 
probably submit some questions in writing to the witnesses, and 
hopefully that can open up a dialog between our office and both 
State Department and AID on this. But thank you very much for 
the informative testimony.
    Senator Murkowski. Thank you for being here.
    Let me go ahead and ask a couple of questions--of you, 
first, Mr. John. Talking about, you know, the spread of 
democracy and the opportunity that we have with this 
relationship, growing and positive relationship, with 
Indonesia. And both of you have mentioned a little bit about 
the education aspect. And you, Mr. Kunder, have indicated that 
there's a need for education reform, that we need to do more to 
help in that area.
    The question to you, Mr. John, is, in terms of the 
exchanges that we might have between Indonesia and the United 
States, are there many Indonesians who look to the United 
States as a place to come for higher education? And are we 
doing anything to seek Indonesian students in any way?
    Mr. John. There aren't enough Indonesian students who are 
looking at the United States as a place to study. I think it's 
a function of many things, and it's hard to describe all of the 
factors. I think the financial crisis of many years ago, of 
1997, impacted them. And I think the new visa regulations and 
restrictions that we have in the United States are, perhaps, 
misunderstood by the general public in Indonesia as being much 
more restrictive than they really are. And we have to get out 
the word--and the Embassy is working to get out the word--that 
we do welcome Indonesian visitors, and particularly Indonesian 
students. That's in a general perspective.
    Specifically, Indonesia has, compared to a lot of its 
neighbors in the region, a woefully inadequate number of 
graduate degrees--and, specifically, Ph.D.s. I believe they 
only have 7,000 or so in the entire nation of 230 million, 
which is far short of what they need.
    One of the aspects of our engagement with Indonesia in the 
years ahead--in the next 3 years, specifically--is to invite 
a--I don't have the number, exactly, but several dozen 
Indonesians per year to the United States for master's degrees 
in areas that are applicable and quite necessary in Indonesia 
right now.
    We also are working with universities on a regular basis in 
Indonesia to enhance their American studies programs, to 
enhance other areas that would enable Indonesia to develop more 
rapidly. So, it's a key concern of ours, and it's one that 
we're working closely with the Indonesian Government on.
    Senator Murkowski. Recognizing, then, that you--at least at 
the higher-education level--you really have a real discrepancy, 
or you're not able to find the Indonesians that you would 
think--I would want to think that you want at the higher 
levels, what does this do to those efforts to make sure that we 
are hiring and training the local people in the efforts for 
reconstruction? For instance, you know, it's one thing to be 
out there moving the dirt. It's another thing to be out there 
heading up the company that's making the decisions to move the 
dirt. How are--are we able to assist at all with the training, 
with the education, to make sure that it is the Indonesian 
population that is making things happen at the higher levels? 
Either one of you.
    Mr. Kunder. Certainly capacity-building of Indonesian 
institutions is a high priority for us and is embedded in all 
of the programs. Specifically on moving dirt, in fact, an 
Indonesian construction firm is building that first 80 
kilometers of the road. The way the system is structured, we 
anticipate an American firm coming in behind that to do the 
larger-scale reconstruction, but we've gotten the Indonesians 
immediately involved.
    The reconstruction agency, the rehabilitation and 
reconstruction agency of the Indonesian Government that is 
leading the effort in Aceh, is receiving technical assistance 
from us and support in its internal procedures. Approximately 
one-third of our total program supports what we would consider 
democracy and governance interventions. We are putting programs 
into the Supreme Court, into the Indonesian Parliament, and 
into the Indonesian Ministries to build their oversight 
systems, their inspector general capacity, so that we're very 
much aware of the fact, because we are spending less than a 
dollar per person, it's not going to be United States taxpayer 
dollars that are either going to rebuild Aceh or are going to 
make the transition to a vibrant, prosperous democracy in 
Indonesia; it's going to be the Indonesians, themselves. So, we 
are investing in building up Indonesian institutions. It's not 
something we have to convince them to do. I mean, they are very 
eager to take the lead on these issues.
    So, we have been providing technical assistance 
specifically on the scholarships issue. This is a fundamental 
problem. We have done analysis within our USAID programs, and, 
because of a number of policy decisions and budgetary 
constraints, we are not supporting as many scholarships 
worldwide as we were 10 years ago or 15 years ago. We have 
asked for additional funds in the 2007 budget to get these 
numbers back up again, because of all the reasons Mr. John was 
    It's ironic that the gentleman who leads the reconstruction 
effort for the Indonesian Government in Aceh, Dr. Kuntoro, who 
has been universally praised for his leadership and 
organization, was a beneficiary of a U.S. Government 
scholarship for study in the United States, a graduate 
scholarship. And now he's back, leading that agency, and doing 
an excellent job. And, of course, we're able to interface 
effectively with him. So, he's a living, breathing example of 
the kind of thing we're talking about here.
    Senator Murkowski. Mr. John, let me go back to the 
discussion about energy issues. And we've both raised the issue 
of the subsidization. There's actually an article in today's 
Financial Times indicating that there's this discussion in--not 
a debate--it doesn't sound like it's a debate anymore--that 
Indonesia is going to move to reduce the subsidy. And there's 
some discussion about a date as early as the 1st of October, 
but it--nobody seems to be willing to commit to a timetable, 
but it seems clear from this article that there is a move afoot 
to do that. But it makes reference to the fact that these 
subsidies have caused a distortion in price. They use terms 
``causing a massive misallocation of budget resources.'' But 
they also speak to the disincentive to businesses in terms of 
viewing this as an--viewing Indonesia as an investment 
opportunity when we have the subsidization as it is and just a 
level of uncertainty.
    What actions, if any, is Indonesia currently taking to 
improve their energy efficiency, to help with their capacity 
development to meet the demand--what's going on that will help 
this picture and, hopefully, provide a little bit more 
    Mr. John. I guess it's, sort of, two components--one on 
reducing the subsidies. You know, the very good news is that 
Indonesia is a democracy, which means it has a lot of 
politicians. And, you know, they run into a political wall on 
reducing subsidies that have been very popular when they were 
affordable and became just ingrained in the system. So, it's--
you know, there's a commitment by the leadership. And they have 
to reconcile the very difficult political demands that are 
placed on them, though, when they actually reduce the subsidies 
because the people it adversely impacts in the very short run 
are the ones that Senator Obama was referring to as the least 
wealthy of society. President Yudhoyono is working on a program 
to assist the poor at the same time as reducing subsidies.
    The second component of increasing capacity, I think, in 
terms of relationship with the United States, one key part of 
that is getting increased foreign investment into Indonesia. 
Today, for example, President Yudhoyono is in New York meeting 
with a large investor forum to attract foreign investment. But 
what foreign investors have stated is that Indonesia--well, 
they would spend more on exploration in Indonesia if the 
government there would modify its investment tax and business 
rules to make them more clear and to apply them consistently.
    The business people--foreign business people are worrying 
less about the tax rates, but more about fair and transparent 
tax administration. I think there is a commitment by the 
administration in Jakarta to work on that, that's key to having 
more investment. And more investment is key to having a better 
energy sector. I mean, if you look at U.S. investment, most of 
the $10 billion that we have invested there is in energy and 
mining, so it has a very direct impact on that.
    Senator Murkowski. I am told we've got about 8 minutes left 
into the vote, so I've got a couple of more before we're going 
to have to take a break here.
    Very quickly, Mr. John, Secretary Rice did not go--did not 
attend the ASEAN Ministry Conference at the end of July, and I 
think it was--there were a lot of raised eyebrows, or, ``What's 
going on?'' How was that--how was that viewed or taken by 
Indonesia, her lack--or her not being in attendance at that--
those meetings? Was that--did that cause some consternation?
    Mr. John. I think--well, throughout ASEAN, as a whole, 
there was--certainly a lot of the leaders voiced consternation 
about her inability to appear at the ASEAN Regional Forum. I 
think, to look at it from a broader perspective, though--and I 
believe that most nations, including Indonesia, in Southeast 
Asia are--is that bilaterally the United States has committed 
to enhancing our relationships with most of the nations in 
Southeast Asia. And if you look at all the steps that we've 
done, which I think all of us have spoken to today, the 
Indonesian Government sees that we are very committed to a 
strong bilateral relationship. And Secretary Rice, on Monday, 
at the U.N. General Assembly, met with all of the ASEAN Foreign 
Ministers. She met with them in June, in Washington, with--not 
with the Foreign Ministers, but with ASEAN representatives who 
were visiting Washington. I think she's made very clear, on a 
variety of instances, our willingness to, and very strong 
desire to, remain deeply engaged with ASEAN, make it a very 
strong organization, and build that in the future. And, indeed, 
I think on Monday she looked forward to continuing her 
cooperation and work with ASEAN.
    Senator Murkowski. Good. Good.
    Let me ask you, Mr. Kunder--you mentioned the 
reconstruction efforts--has the funding for the tsunami 
response been adequate, in your opinion?
    Mr. Kunder. The money that the Congress made available, we 
think, allows us to do the absolutely critical elements, which 
were to do some of the emergency relief, to at least jumpstart 
the reconstruction effort, to launch the early-warning system 
across the region. In the business we're in, we could always 
use a few more dollars, and, given the scale of the 
devastation, there's a lot more work that needs to be done, but 
we have no complaints. We appreciated the money that was made 
available. And I think it will get the critical issues 
    Senator Murkowski. Good. Good. That's important.
    The bird flu that we've discussed relatively briefly here, 
I understand that there has been a working group that has been 
established. And I'm curious to know whether or not the working 
group has proven itself effective. What's the level of 
cooperation with Indonesian officials?
    Mr. Kunder. You're talking about the U.S. Government 
working group or the international group? Within the U.S. 
Government, the President just announced the need to have an 
international group working on this, and that idea is just 
launched at this point. Within the U.S. Government, we do have, 
I think, excellent interagency coordination. There was a State 
Department coordinator named earlier. The NSC is heavily 
involved. Our military colleagues are working, as are the 
Centers for Disease Control at HHS, and many other U.S. 
Government agencies. As I mentioned earlier, it is a complex 
multifaceted problem we're taking on, but I'm very satisfied 
with the level of interagency cooperation, thus far.
    Senator Murkowski. Good. And then, as that expands to the 
international group, hopefully you're just drawing in a bigger 
network, then.
    Mr. Kunder. There is already a fair amount of cooperation 
among the nations of the region and the international donors. 
And with the President's new initiative, I think that's going 
to be enhanced.
    Senator Murkowski. Good. Good. I was pleased to see the 
picture that you had there--you described it as a town 
meeting--because I think we want to know that there is a level 
of input at the very local level in terms of what is happening 
with the reconstruction and how priorities are set. And it 
appears, from what you have said here this afternoon, that 
there is a great deal of input at that very local level. Is 
that correct?
    Mr. Kunder. Yes, ma'am. You'll have NGO panelists later who 
also have folks on the ground, and I believe they'll confirm 
that same thing. That's been one of the hallmarks of the 
effort. First of all, in any disaster, it is the local people 
who save most of the people who were saved initially. As much 
as outside help is appreciated, the Indonesians got this thing 
started on their own, and we've tried to make sure that they 
continue to have a strong voice, not only in doing the work, 
but setting the direction and setting the priorities locally. 
Yes, ma'am.
    Senator Murkowski. Good. Good. Thank you.
    I'm going to have to excuse myself. We will take a break 
and commence with the next panel when we get done. I'm not 
certain how many votes we have. I guess we've just got one 
vote, so it should be a pretty quick break.
    So, I appreciate the testimony from both of you this 
afternoon, and the time that you've spent with us.
    Thank you.
    Senator Murkowski. OK. Well, thank you for indulging us in 
a little bit of a stretch break and an opportunity to go vote.
    We will next turn to our second panel this afternoon. And 
welcome to all three of you, gentlemen. We will lead off the 
testimony this afternoon, the Honorable Paul Cleveland. He will 
be followed by Dr. Hadi Soesastro, the executive director for 
the Center for Strategic and International Studies. And, upon 
his conclusion, Dr. Randy Martin, who is the director of Global 
Emergency Operations for Mercy Corps, will speak to us.
    So, with that, Ambassador Cleveland, thank you for joining 
us this afternoon.


    Ambassador Cleveland. Good afternoon. All right, thank you. 
Does that do better?
    Senator Murkowski. There you go.
    Ambassador Cleveland. I appreciate the opportunity, Madam 
Chairman, to come before this committee today. May I say that 
my views don't necessarily represent the views of the United 
States Indonesia Society, nor its board. I want to say that at 
the outset. They're my own, so I'll be a little more direct, 
maybe, than otherwise.
    I'm particularly pleased, Senator, to be here before you 
and to note that you've picked up the long-term abiding 
interest that your father had in East Asia. I met and worked 
with him on many occasions, and I know from my personal 
experience, that he made major contributions to the improvement 
of relations with East Asia and the Pacific, and we're all very 
grateful to him, and grateful to you for picking up the baton.
    Also, all of us at USINDO are delighted that you've chosen 
to focus on Indonesia, as previous panelists have said. This 
nation has always been of major importance, but it's 
increasingly so these days, because it's a counterweight to 
China's and India's--and I don't think we should forget 
India's--growing influence in Southeast Asia--and because 
democracy is flourishing there in the largest Muslim nation in 
the world.
    It is our interest to pay commensurately greater attention 
to Indonesia. These hearings clearly are moving us in that 
    Democracy is, indeed, flourishing in Indonesia today, and 
that is the major point I would make here, along with the 
corollary that it is, therefore, in our interest, more than 
ever, to support Indonesia as much as we possibly can.
    One year after the exceptionally well-run, transparent, and 
clean elections of 2004, the year of voting frequently, 
President Susilo Bambang Yudhoyono (SBY), is emerging as the 
best President Indonesia has ever had, in my view. While he's 
sometimes criticized as hesitant and indecisive, it's 
increasingly clear to me that's not really the case. He's a 
deliberate, politically astute man who focuses on developing 
consensus. That's true. But that's a virtue in a democracy, 
particularly one that's as diverse and as large and as 
difficult to manage as Indonesia's. His decisions have been 
largely wise and courageous. They're moving the country 
forward--if not as fast as everybody would like, they're 
certainly moving in the right directions. And, moreover, he is, 
for the most part, bringing the people with him.
    He's moved with great speed and under great pressure when 
called on. One day following the terrible tsunami that wrecked 
Aceh and killed over 130,000 people, Yudhoyono flew from the 
opposite end of the country to be onsite, began immediately to 
organize the greatest disaster-relief effort--one of the 
greatest, I would say, probably in his nation's history. One 
that, after some organizational bumps, is now proving 
reasonably effective.
    He set aside the military state of emergency in Aceh, and 
opened the province to outside assistance, which immediately 
began pouring in. That was not necessarily an easy decision to 
make. Indonesians are very sensitive to outside involvement, 
interference as they may see it, but, in fact, our assistance 
following the tsunami became a tremendous plus for the United 
States, because we did very well, and I think that's been 
recognized by the Indonesian people.
    But, not only that, with a major assist from his aggressive 
Vice President, Jusuf Kalla, SBY recognized and exploited the 
deep desire of the Acehenese in the depth of the tragedy to 
rebuild better lives, and he fashioned a deal with the 
separatist movement, the GAM (Gerakan Aceh Merdeka), that was 
signed on August 15. In the view of a large number of 
observers, it has a very good chance of succeeding after 30 
years of fighting and the loss of 15,000 or more lives. The 
first major surrender--as Erik John mentioned--the first major 
surrender of weapons and the extraction of TNI and police 
forces begin today, as we speak here.
    There are a lot of other successes. To list just a few, I 
think SBY has struck out against the nation's greatest scourge, 
which has been corruption. A substantial number of leading 
officials have gone to jail, and there are a lot more under 
indictment. This is a very difficult, hard job for him. There 
are, and will always be, more big fish to be indicted.
    Moreover, the criminal code needs clarifying, judges need 
higher salaries. We always used to say, ``If you put a man that 
makes $30 a week opposite a man who makes $3,000, the latter is 
obviously going to buy off the former.'' Sentencing needs to be 
more commensurate with crimes committed.
    There's widespread amazement among Indonesians and 
foreigners, both, at how seriously SBY has pursued this goal of 
going after corruption, and, also, I think the progress he's 
    With the help of a great Minister of Defense and reformist, 
Juwono Sudarsono, plus several generals and admirals whom he 
has placed at the head of the TNI who are reformists 
themselves, SBY has continued the extraction of the military 
from politics and has begun to budget more for the TNI so he 
can persuade the military to give up the businesses that enable 
them to remain independent of civilian control. I think that's 
a critical and important move. It will take quite a long time 
to accomplish, but they're moving in that direction, and they 
have already increased the Defense Department's official 
    SBY has declared continuing war on terrorism. He's reached 
out effectively to the United States and to the world to build 
confidence in his leadership and to encourage foreign direct 
investment vital to the success of Indonesia's economy. He has 
also attacked tough problems confronting the domestic economy. 
For example, he decreased budget-busting fuel subsidies, and he 
looks like he's on the verge of doing some more of that. And I 
think your emphasis on that, Senator, is exactly right. It is 
probably the single greatest problem in the domestic economy 
that he faces. It's very difficult politically, as has been 
stated, but he is proceeding.
    His government is also continuing the complex, but 
essential, job of decentralizing government. If he didn't have 
any of these other things to do and he was just doing that, 
that would be plenty. Indonesia has been the largest 
undecentralized government in the world, so I think it's very 
    Madam Chairman, there are a lot of things that still have 
to be done, and I will be happy to address some of those in 
questions. But a great mentor of mine, and many others of my 
generation in the Foreign Service, Marshall Green, coined a 
phrase when he was our Ambassador in Indonesia in the late 
sixties, ``We must help the Indonesians help themselves.'' 
Indonesians are proud, enduring people, determined to succeed. 
With so many truly effective younger Indonesians now emerging 
in Indonesia's new democracy, the time has never been more 
opportune to help the Indonesians help themselves. I'm sure 
whatever we do, they will prevail. If we help them seriously, 
however, they will prevail that much sooner and we'll both 
benefit greatly from the progress and partnership that results.
    Thank you.
    [The prepared statement of Ambassador Cleveland follows:]

   Prepared Statement of Hon. Paul M. Cleveland, Ambassador (Ret.), 
   Immediate Past President and Trustee, the United States-Indonesia 
                           Society, (USINDO)


    It is an honor and pleasure, Madam Chairman, to appear before this 
committee today. May I begin by saying that the views expressed in my 
testimony are my own and not necessarily those of USINDO or its board.
    The United States-Indonesia Society welcomes the focus this hearing 
brings to developments in the fourth largest nation in the world and to 
relations between the United States and Indonesia, the world's third 
and fourth largest democracies. Not only is Indonesia's democracy 
flourishing, it is flourishing in the world's most populous Muslim 
    Indonesia has always been important to us and to the world in 
strategic, political, and economic-cum-commercial terms, but that 
importance has risen substantially in the past several years as 
Indonesia has become an increasingly important counterweight to China's 
spreading influence in the region. Also Indonesia has become a 
democratic pacesetter for the Islamic world and for the Southeast Asian 
    Indisputably, the United States has a very high level of interest 
in Indonesia's success. To ensure fulfillment of that interest, our 
Government needs to devote more time, energy, and assistance to 
Indonesia's development.
    I am pleased to appear on today's panel with Dr. Hadi Soesastro, 
executive director of the Center for Strategic and International 
Studies in Jakarta. CSIS is Indonesia's oldest think tank and with 
which USINDO has had a long and productive relationship. Dr. Soesastro 
is his country's leading authority on economic, trade, and business 
relations with ASEAN and the larger Asian community.

                          REMARKABLE PROGRESS

    Relatively secure against outside encroachment, resource and 
culturally rich, Indonesia was governed for centuries under 
authoritarian and colonial rulers in such a way that political growth 
was stunted and the country's full potential never came near being met.
    While progress toward establishing democracy along with economic 
recovery was substantial in some areas during the first 6 years after 
President Suharto's fall in 1998, it was marked by halting leadership, 
continuing high levels of corruption, only modest economic growth, and 
failure to grapple comprehensively and effectively with such major 
problems as separatism, military and police reform, environmental 
degradation, judicial and public prosecutorial reform, plus tax and 
other commercial and trade related changes necessary to attract 
essential foreign investment. Advances were made on self-sustaining 
political/economic development, but relapse into authoritarian control 
remained a widely considered possibility.
    Progress made in the last year contrasts sharply.
    In 2004 Indonesia held a series of remarkably clean elections with 
high voter turnout, including the largest one day election in the 
history of the world when it voted for Parliament in April of that 
year. Moreover, the electorate proved sophisticated and sought honest, 
progressive leadership, voting in the government of President Susilo. 
Bambang Yudhoyono (SBY) with a 61-percent margin in Indonesia's first 
direct election of a President last September. Among other things, 
SBY's campaign featured a promise to eradicate corruption that 
decidedly appealed to the Indonesian people. To satisfy the high level 
of voter confidence, in its first year SBY's administration has:

   Undertaken widespread change and reform for better 
        governance including critical military and police reform;
   Required his Cabinet appointees to sign an anticorruption 
        pledge and taken on a substantial number of corruption cases, 
        including several high profile ones;
   Struggled to maintain fiscal balance by reducing politically 
        explosive fuel subsidies in early 2005--now it clearly must 
        repeat that move against the background of ever mounting 
        international oil prices;
   Addressed tax, investment, and microbusiness climate reforms 
        to attract urgently needed foreign investment;
   Effectively managed the tsunami relief effort despite the 
        magnitude of the task and bureaucratic shortcomings;
   Reached a peace agreement with Acehnese rebels (the GAM), 
        initiated serious political dialogue on Papua, and sought 
        common ground with East Timor on a reconciliation process;
   Worked closely with the United States in restoring 
        cooperative military relations and pursuing the investigation 
        into the Timika incident of August 2003;
   Undertaken an impressive set of overseas visits including 
        one to the United States to reestablish key relationships and 
        made distinct strides in improving relations with Australia, 
        Japan, China, India, and others; and
   Reinvigorated regional dialogue on trade, investment, 
        terrorism, security cooperation, and maritime security.

    By any measure it has been a remarkably active beginning and has 
gone far toward locking in effective, sustainable, democratic 

                            CHALLENGES AHEAD

    As impressive as this beginning has been, the long-term challenges 
ahead are larger still. To illustrate:

   Improved organization and management in the administration, 
        including creation of Presidential Palace coordinating 
        mechanisms (such as national security and domestic councils) 
        will be a must if any President of Indonesia is to govern more 
   Along with better political party organization and improved 
        staffing and organization within the Parliament itself, as well 
        as better performance by the parliamentarians, there must be 
        increased coordination with and lobbying of the Parliament by 
        the administration in order to pass difficult legislation and 
        cease reliance on overuse of Presidential decrees--the 
        President has done well personally in persuading the DPR to 
        raise fuel subsidies and in winning approval of the Aceh peace 
        accord, but he cannot devote all his energy to the DPR and a 
        large number of bills are currently languishing in the DPR's 
   Other reforms within the administration such as increased 
        tax collection, especially from large tax payers, new tax law 
        revision and strengthening of the commercial court will be 
        crucial to ensure fiscal viability;
   Continued heavy emphasis needs to be placed on 
        decentralizing and balancing the distribution of power, 
        responsibility, and fiscal capability from Jakarta to local 
        government--an immensely complicated task;
   Capacity-building among government civil servants at 
        provincial and local government levels is needed so officials 
        will be closer to the people and take responsibility for their 
        actions; and
   Local elections in 2005 and 2006 must be clean and well run.

    These problems would be formidable enough for any new democracy to 
manage. But there is much more, and I would now like to turn to several 
major issues discussed below in greater detail, in which both the U.S. 
Government and the Society are involved: Corruption and judicial 
reform; security; separatism (Aceh and Papua); society and religion; 
and education.


    Corruption is endemic in Indonesia--the country ranks at the bottom 
of Transparency International's corruption pile--and it is universally 
seen at home as well as abroad as the number one problem Indonesia must 
overcome if it is to restore confidence in both government and 
    Obviously closely related, judicial reform along the lines of the 
Indonesian Supreme Court's ``blueprint'' has to be implemented. Apart 
from the courts, reform has yet to take hold in the Justice Ministry 
and public prosecutor's office, and upgrading and reform of Indonesia's 
legal fraternity also still lies ahead.
    SBY has made initial inroads into this problem. As noted, he 
required all Cabinet Ministers to take a pledge to conduct their 
affairs with integrity and to avoid corruption, collusion, and nepotism 
(KKN). He sent special messages to key targets where corruption has 
been most rampant: The Attorney General's Office, Customs and Taxation, 
and the Bank of Indonesia.
    The Supreme Audit Agency which has had a good reputation in the 
past was given sweeping powers to gather facts regarding the operations 
of the state-owned enterprises. He gave the Corruption Eradication 
Commission both autonomy and special security protection in addition to 
which he formed a special interdepartmental corruption eradication 
    Getting down to cases the administration's prosecutions are 
beginning to produce results. The former governor of Aceh, Abdullah 
Puteh, was given a 10-year sentence for misuse of state funds; the Bank 
Mandiri's former president was fired and has been indicted for a major 
loan scandal. New investigations are being mounted regularly into 
state-owned companies as well as the activities of some 57 state 
officials, including governors, mayors, and legislators. The former 
Minister of Religion is being investigated for filching $71 million 
from Haj funds.
    In some areas SBY has fallen short. While he retains impeccable 
credentials personally, his administration in the view of some failed 
to go after some high-level people it should have, leading to the 
accusation that he has not come down hard enough on ``the big fish.'' 
He has basically proven courageous against the scourge of corruption 
and he has accumulated political capital that he should put to use in 
this most vital cause. But follow-through will be the watchword of 
observers and critics in the future.
    The Judiciary: All the ``follow-through'' in the world, however, 
cannot correct the corruption problem if cases can be bought off and 
come to naught in the courts or the prosecutors' offices. It has been 
said that judges have gathered to bid on cases that they believe hold 
potential for large payoffs. More than any other of the three sectors 
of government, the judiciary is in need of reform. Indonesia's 
economic, political, and social strengths cannot be upgraded in the 
last analysis unless the courts uphold the law of the land. There are a 
number of reform needs:

   Judicial incompetence is both legend and intact. One reason: 
        Personnel selection is often corruption, but there is 
        encouragement in the recent appointment of the Judicial 
        Commission that will oversee the performance of the country's 
        6,000 judges and recommend appointments.
   Case outcomes vary widely. An Australian girl allegedly 
        dealing in marijuana received 20 years; Abu Bakar Basyir got 
        less than 3 for his leading role in terrorism in Indonesia. 
        Some big businessmen have gotten off scot-free even when open-
        and-shut cases are brought against them, or in some cases as 
        some foreign investors have found big business miscreants are 
        able to turn the tables on their accusers.
   Judges salaries are too low, and they are therefore more 
        susceptible to bribery.
   Administration of the judiciary branch is poor. It no longer 
        depends administratively or legally on the executive as it once 
        did and that is certainly a step forward. Nor, however, has it 
        been closely monitored and held accountable. There is 
        considerable irony not to mention danger in the fact that it 
        has become a law unto itself. Much is done behind the scenes, 
        out of sight of potential exposure and correction. Lack of 
        transparency, low pay, and an overall budget that is three-
        tenths of 1 percent of the entire government's budget lie at 
        the heart of the problem. Mismanagement abounds.
   A new criminal code (some 20 years in the making) has been 
        widely criticized for its vagueness and repressive nature with 
        regard to press freedom. Vague definitions of crimes, 
        procedures, and jurisdictions complicate an already overly 
        complicated and inefficient system based to a considerable 
        extent on old colonial laws.

    The Supreme Court has a ``blueprint,'' a widely anticipated 
Judicial Commission is underway, and NGOs and outside assistance are 
all over the place. Yet the overall reform process promises to continue 
slowly at best. The way ahead is clear enough. A start has been made. 
But the need for more rapid implementation cries out.
    The United States has a substantial role to play. First of all it 
is useful for the U.S. Government and its legal profession to apply 
diplomatic pressure on the Indonesians when it is clear that individual 
Americans or corporations have been hard done by in the Indonesian 
courts. To avoid nationalistic backfires, it is important that to the 
extent possible, this be in the form of respectful assistance to those 
in Indonesia who are even more concerned than we about the need for 
corrections. Our approach should be to help Indonesians help 
    Apart from the diplomatic pressure in some cases that clearly go 
off the rails, we need to help with the reform process. Through USAID 
we are supporting NGOs that are providing valuable advice and inputs 
into the reform process. A code of legal ethics is being developed with 
the assistance of the American Bar Association. Importantly, a joint 
working group on legal reform was announced during President 
Yudhoyono's visit to Washington in May and this should bring new 
impetus to the overall effort. The involvement of a senior judicial 
official, perhaps a Supreme Court Justice, would be a welcome spur to 

                          DEFENSE AND SECURITY

    The United States-Indonesia Society has recently produced three 
publications on Indonesia's defense and security:

   ``Towards a Stronger U.S.-Indonesia Security Relationship'' 
        by John Haseman and Eduardo Lachica;
   ``Indonesia's War on Terror'' by William Wise; and
   ``Indonesia and the United States, Shared Interests in 
        Maritime Security'' by Bronson Percival.

    These studies point to three major conclusions:

   More effective measures to promote regional and maritime 
        security and counter terrorism in Southeast Asia require closer 
        United States cooperation with the armed forces and law 
        enforcement authorities of Indonesia;
   Promoting defense reform in Indonesia requires cooperation 
        with the Yudhoyono government, not sanctions and withholding 
   There are important--indeed essential--opportunities to 
        further cooperation and constructive relations with Indonesia 
        to achieve human rights, professional and other reforms within 
        the Indonesian military that many outside the Indonesian Armed 
        Forces would like to see.

    Supporting these conclusions is the important progress that has 
already been made to overcome the shortcomings and in some cases the 
abuses of the past.

   The military has essentially taken itself out of formal 
        politics, although no one would deny that it still wields 
        substantial informal political clout;
   Members of the armed forces no longer sit in Parliament as 
        part of a special faction and active duty military officers can 
        no longer serve in civilian government positions;
   The police (Polri) have been separated from the armed forces 
        (TNI) and are separately under the command of the President;
   The military justice system has been placed under the 
        civilian oversight of the Supreme Court as in the United 
   Of great importance a recent law requires that military-run 
        businesses be brought under full government control, a working 
        group headed by the Defense Ministry is to recommend 
        implementation measures to go to the President soon;
   Treasury expenditures for the TNI are now subject to prior 
        approval by the Defense and Finance Ministries; if the TNI 
        gives up its businesses the TNI budget will need to be doubled 
        to $5.6 billion;
   And consideration is being given to a long-term plan for 
        repositioning and realigning the structure; roles and missions 
        of the armed forces.

    While reform is the focus of discussion when the subject of the 
military comes up, it is important to keep in mind that the military is 
vital not just for external defense but for the time being at least to 
the security and stability of the domestic scene as well. The 
shortcomings of democracy remain widespread. The military should be in 
the background and ease or be eased out gradually to avoid violence 
during the present institution-building phase. The TNI has a long proud 
history; it cannot be cast over the side. Reform should zero in on a 
careful transition to civilian control, adequate budgets and capacity-
building to enable the military to play the professional, nonmilitary 
role many of its best officers see in its future.
    Co-equal with reform of the TNI and closely linked to the reform in 
the judiciary branch is capacity-building for the police. Necessary 
measures identified in the USINDO studies include:

   At least a doubling of police forces close to U.N. standards 
        to perform community policing and basic local security 
   Improvements in salaries, training, and living conditions as 
        a disincentive for corruption--a major problem in the police;
   Emphasis on upper level management; and
   Improvements in police intelligence and coordination with 
        other law enforcement authorities, particularly relating to 
        counterterrorism and internal security.

    To help ensure success in this area, Indonesia is blessed with 
moderate reform-minded leaders. First, SBY, himself, a former general 
who has been known as a reformer and who has placed other moderates at 
the top levels of the armed forces, while supporting the General 
Endriartono Sutarto, who has taken a strong nonpolitical stance, as his 
senior military commander. Then there is Defense Minister Juwono 
Sudarsono who is the best possible leader to begin to assert the 
necessary civilian leadership in the defense sector.
    Reform of the military and the police will take a long time as the 
military's presumption of power in domestic terms has existed for a 
long time, moreover it will take time to bring the police up to 
standard, ready to take over. But we should not wait for some ideal to 
emerge. Now is the time that U.S. assistance will have the most impact 
on the reform process.
    Against this background there are many opportunities for the United 
States and other donors to assist with professional training, defense 
management, improvements in command and control, and establishment of a 
national security or defense council and staffing in the office of the 
President. Through IMET and FMF and police assistance we can help the 
trustworthy defense leadership of Indonesia to make the changes we 
would like to see. By continuing to stiff them we will only frustrate 
and eventually alienate them.
    Juwono Sudarsono had good bilateral defense talks with our 
administration in early August. Congress should join the effort to 
further cooperation, not impose further restrictions.

                            SEPARATISM: ACEH

    Indonesia has long been bedeviled by threats of separatism and 
separatist forces in Aceh and Papua. While prepared to make concessions 
in the form of greater autonomy, the national goverment has always seen 
a united Indonesia as vital to its interests. Fearful not only of 
losing control of these important provinces but of the centrifugal 
effect the losses would have elsewhere in the country, Indonesia has 
resisted the separatist movements zealously, and the United States 
instructed by its own history, along with many other nations, has 
supported this position.
    An insurgency was underway for many years in Aceh where tens of 
thousands of people have been killed. The TNI has been in the vanguard 
of the effort to quell rebellion and has among other things developed 
major vested interests in illegal logging and other ventures in the 
province. Many among the resistance have had vested interests of their 
own, so the antagonists became locked in struggle despite central 
government efforts to reach accord.
    Ironically, it took disaster to engender peace. The tsunami that 
struck Aceh and killed well over 100,000 people has had a beneficial 
effect on the conflict in that province and an agreement has been 
reached that will call for careful monitoring and nurturing but holds 
genuine promise. Under a balanced set of compromises, the GAM gives up 
its guns and the TNI leaves the province, while the province achieves 
autonomous status but remains a province within Indonesia. The 
agreement will take careful monitoring. The government will face 
challenges from nationalists who believe it was too generous with the 
GAM and from the Acehnese people who do not yet fully understand the 
terms. The popular view favors peace. But implementation will be as 
large a determinant of success as the initial agreement. We should 
strongly encourage positive resolution of problems and a lasting peace 
settlement wherever appropriate.
    The challenge now to use the phrase of Sidney Jones is ``to shift 
from bullet to ballot.''
    The tsunami has opened the way to unprecedented public and private 
assistance from the United States, other nations, and world 
organizations. The outpouring of our aid, particularly our military's 
emergency role in the early post-disaster period, has helped repair the 
United States tarnished image throughout Indonesia.
    Acehnese reconstruction in general is encouraging. While it got off 
to a slow start, USINDO President Al La Porta just back from the 
province reports major progress. Housing construction is now rapid, 
most people are out of tents, local mosques, and schools are being 
rehabilitated, land issues are being sorted out, commercial activity is 
on the rebound.
    The task now is twofold: To reconstruct Aceh's settlements and 
livelihoods and consistent with the new agreement and prospects for 
economic growth to reorient the province from south to north, 
rebuilding the entrepots in Banda Aceh and on Sabang Island. There is 
also a need to upgrade the east coast highway, as well as an internal 
road networks and many other infrastructure components. GAM fighters 
and victims of the past fighting need resettlement assistance. 
According to political observers, GAM candidates are unlikely to 
capture a single county-level government, but the elections rightly 
should involve ex-GAM fighters to give them a political outlet for 
their needs and demands.
    USINDO has played a small but, we believe, effective role directing 
its own assistance efforts to rebuilding a small component of the Aceh 
educational system. Agreements have just been concluded for USINDO to 
build a new model high school on the campus of Syiah Kuala University 
in Banda Aceh to meet local community need as well as provide a 
training facility for new teachers. We are cooperating with the 
Sampoerna Foundation of Jakarta as well as USAID and hope that the 
model school buildings will be opened a year from now. We have received 
generous donations from the corporate sector as well as private 
individuals and school children. An elementary school walkathon in New 
York raised $10,000.
    On the larger front the continuing assistance of the United States 
as well as other donors will be needed for years to come. We have done 
well so far. The new west coast road will make a major contribution as 
will community development, teacher training, and schools management. 
United States help in police training will help replace the roughly 
2,000 police lost in the disaster, and further avenues of U.S. 
assistance should be considered to support the Asean Monitoring 
Mission, or AMM, that is led by the European Union (EU) and ASEAN 
countries. Consideration should also be given to resettlement 
assistance, perhaps through the International Organization of Migration 
(IOM), which is working closely with the Aceh Reconstruction Authority 
    Beyond these efforts we need to continue to work closely with other 
donors, principally including the World Bank, which is in charge of 
donor coordination as well as the Consultative Group for Indonesia to 
ensure there is long-term support in that quarter for Aceh.

                           SEPARATISM: PAPUA

    The conflict in Aceh and more recently the peace accord with the 
GAM have won more publicity in recent years in the West than the 
challenge Indonesia faces with Papua, nevertheless the Papuan problem 
could in the end prove more difficult to resolve if it is not managed 
    A key fact underlying this conclusion, all too little understood 
outside Indonesia, is that there are more Melanesians in the eastern 
islands of Indonesia than in Melanesia itself. Multiethnicity 
exacerbates the separatist tension that Indonesia is bound and 
determined to overcome.
    The history of Papua's incorporation into Indonesia is unique. A 
resource rich area with a population of 2.3 million, roughly 40 percent 
of whom come from other parts of Indonesia. Papua originally remained 
under the Dutch after Indonesia won its sovereignty in 1949. However, 
in 1902, partly in response to heavy United States pressure, the Dutch 
gave up control, the United Nations took over briefly, then Papua 
became part of Indonesia, with the caveat that there be a confirming 
act of free choice.
    In the event, the act of free choice involved selected tribal 
leaders who voted unanimously for incorporation, and it has always been 
controversial. The origins of Papua's incorporation, unfair return of 
the income from Papuan natural resources and repression of the Papuan 
people have fueled a separatist movement involving a small number of 
rag-tag militants, (the OPM), but a far larger group of 
proindependence, nationalist, and opportunistic supporters. The fact 
that rival groups claim to speak for all of the people will make final 
settlement more difficult.
    A special autonomy law was passed in 2003 but because of deep-
seated mistrust and lack of Papuan capacity, progress toward this 
sensible goal has been halting at best. Subsequently, the government in 
Jakarta announced its intention to divide Papua into three parts, but 
this transparent effort to weaken separatist strength was strongly 
opposed by the local population, and President Megawati's decree was 
    Most recently in June the House of Representatives International 
Relations Committee inserted language in a State Department 
authorization bill questioning the circumstances of Papua's integration 
into Indonesia and this has angered many Indonesians. In a pointed 
rejoinder, one Indonesian colleague suggested to Stanley Weiss, a long-
time observer of Indonesian affairs, that the Indonesian ``Parliament 
revisit the Cherokee Indian Nation's `integration' with the United 
    The United States has played an important role in the past in 
trying to help resolve difference over Papua's relationship with 
Indonesia. As in the case of Aceh, the centerpiece of our position has 
been to firmly support continued integration of the province within 
Indonesia. We should just as firmly reiterate that position.
    In addition, we should help SBY to move forward toward his 
announced pledge to negotiate implementation of the existing special 
autonomy law, with additional provisions as necessary. The United 
States should provide assistance for development, local government 
capacity-building and civil society in Papua. Assistance to education 
should be high on our agenda in Papua as elsewhere in Indonesia. We 
also need to improve explanations of U.S. administration and 
congressional positions vis-a-vis Papua in Indonesia where the policy 
distinctions are not so apparent. The formation of a new United States-
Indonesian working party in the Indonesian Parliament (DPR) on 
September 5, which a USINDO officer attended, as well as a high-level 
Papua Forum in Indonesia may also provide opportunities for improving 
mutual understanding on this crucial issue of importance to Indonesian 
national integrity.

                       INDONESIA'S MODERATE ISLAM

    Despite expressed concerns in some quarters, the weight of evidence 
supports the conclusion that Islam in Indonesia continues the 
historical trend and in the main remains moderate. Surveys conducted by 
the Center for the Study of Islam and Society show a rising level of 
Islamic consciousness and piety; they do not confirm a concomitant rise 
in radicalism, according to leading Australian Islamic scholar, Greg 
Fealy, as well as a large number of other scholars both inside and 
outside Indonesia.
    It is true that substantial percentages of survey respondent appear 
to support various aspects of shariah law, however, there is little 
actual practice of extreme forms of shariah in Indonesia and only a 
small percentage continue to favor shariah police which would be 
necessary to enforce the law. The PPIM results, says Fealy, are 
significant in that they show a rising Islamic consciousness and 
shariah-mindedness. They indicate a continuing Islamisation within 
society and culture. But they do not necessarily show growing or 
increasingly radical Islamic politics.
    Some read disturbing signs in the increased vote for Islamist 
parties, e.g., the more radical Islamic-oriented parties favoring the 
introduction of shariah law. The Islamist vote in 1999 was 16 percent 
and increased in 2004 to 21 percent. But this rise was very largely due 
to a 5-percent increase in votes for the Justice and Prosperity Party 
(PKS). And it is generally agreed that the PKS success was largely due 
in turn to the party's clean image and organizational ability. Most 
believe it will be very difficult for the PKS to expand its reach 
further without moderating the more radical religious elements of its 
    It is useful also to recall that a radical Islamist bloc in the 
Parliament tried in 2002 to pass legislation to make it compulsory to 
follow shariah, but found so little support they withdrew it.
    In the immediate post-Suharto era there was a rapid spread of 
radical Islamist groups, but since then the trend has really been in 
reverse. Violent extremist groups such as Laskar Jihad are now largely 
defunct, but the Islamic Defenders Front (FPI) and the Indonesian 
Mujahidin Council (MMI) still attract hardline fringe support. 
Furthermore, Jemaah Islamiyah, the extremist group linked to al-Qaeda 
which is responsible for the bombings in Indonesia, continues to exist 
and its members can be expected to attempt future terrorist acts. No 
question they are dangerous. It is notable, however, that the bombings 
that occurred in Bali and at the Marriott Hotel and in front of the 
Australian Embassy in Jakarta have turned the population at large away 
from violent extremism.
    In sum, the continuing overall moderate nature of Indonesian Islam 
supports the conclusion that it is and will continue to prove to be 
fully compatible with Indonesia's nascent democracy. That is decidedly 
good news. Debate on Islam will continue but that is to be encouraged 
so that new ideas and political organizations compatible with the view 
of the diverse Indonesian people can emerge.
    To be sure, intra communal conflict caused by political, economic, 
ethnic, as well as religious differences, will continue and will have 
to be contained. SBY's government is dedicated, however, to resolving 
conflict wherever it springs up and to furtherance of a moderate, 
multireligious, and multiethnic society. These are goals which the 
United States with its own diverse heritage is in a unique position to 
understand and to encourage. We should do all we reasonable can to do 


    USINDO officers have previously testified before Congress about the 
importance of human resource development to strengthen United States-
Indonesian relations. As Indonesian universities undergo the transition 
toward greater self-sufficiency and less government control, many 
needs, but also many opportunities for assistance and beneficial 
relationships, are becoming apparent. In the report of the commission 
on strengthening United States-Indonesian relations led by George 
Shultz and Lee Hamilton observed in late 2003, there is a pressing need 
to restore the close relationships that existed between the educational 
institutions of our two countries as existed in the 1970s and 1980s 
when U.S. assistance programs were better funded and centered on a web 
of university-level collaborations. Reductions in U.S. development 
assistance, public diplomacy initiatives, and other programs in the 
1990s have taken their toll. President Bush's initiative to channel 
$157 million into basic education over the next 6 years is an excellent 
start, but U.S. assistance should be expanded to the university level. 
It is in tertiary education that our country can make strong 
contributions to Indonesia's continued development.
    For the past 2 years, USINDO has been working with the Indonesian 
Embassy in Washington, the Directorate General of Higher Education of 
the Ministry of National Education, and a broad spectrum of Indonesian 
public and private universities on a package of proposals to meet the 
expressed needs of the tertiary institutions themselves. A conference 
held in Jakarta in March of this year identified four main initiatives 
which we are pursuing:

   The creation of up to 40 new Centers of Excellence and 400 
        new Ph.D.s to improve first-class academic research and 
        teaching capabilities. The U.S. Department of State has 
        committed to train 100 new Ph.D.s in 10 Centers of Excellence 
        under the Fulbright program as part of this Presidential 
        Scholars Initiative. These initial Centers of Excellence, 
        moreover, would be linked with United States counterpart 
        universities to promote faculty and other exchanges. We are 
        also working with the World Bank to enlist other national 
        contributions toward these same objectives, coordinate the 
        program, and sponsor prematriculation training in English and 
        academic skills.
   A new teachers training project, being formulated by joint 
        Indonesian-American consortium led by Ohio State University, is 
        identifying pressing needs to upgrade the skills, including 
        English teaching, of Indonesian university instructors. Current 
        thinking is to point this skills modernization toward the 
        certification of university level teachers.
   A similar project aimed at improving university management 
        is to be developed under a joint consortium arrangement led by 
        the University of Pittsburgh.
   Three initiatives in the educational technology field:

     Creation of a nationwide and affordable Internet system 
            open to public and private universities to expand research 
            and other capabilities. This project is to be developed 
            under a public-private enterprise umbrella by U.S. and 
            Indonesian technology providers.
     The development of Indonesia-specific software in the 
            national language by U.S. companies in partnership with 
            Indonesian universities.
     The establishment of an interactive Web site, hosted by 
            USINDO in cooperation with the University of Indonesia, to 
            facilitate communication and knowledge sharing between 
            researchers and universities on both sides of the Pacific.

    USINDO is not a development assistance provider, nor are we highly 
expert educators, but we are trying to play a project incubation role 
in order to focus the university communities in both countries on 
common goals, supported by their respective private sectors. The World 
Bank and other multilateral institutions, along with U.S. foundations, 
are potential facilitators of these projects. We are pleased that there 
is excellent support for these innovative approaches on the Indonesian 
side, aimed especially at improving the commitment of tertiary 
institutions to move ahead in highly selective areas.
    In conclusion, Madam Chairman, we believe that the advancement of 
Indonesian higher education and reforging linkages with American 
colleges and universities offer an excellent opportunity to strengthen 
the modernist and moderate interests of the coming generations of 
Indonesians. As a small organization, we, in USINDO, cannot claim too 
much, but we hope to work with the U.S. Government through Fulbright 
and USAID programs, as well as with multilateral institutions and other 
donors to help Indonesian academic institutions to increase their 

    Senator Murkowski. Thank you.
    Now we'll move to Dr. Soesastro.


    Dr. Soesastro. Thank you very much, Madam Chairman. It is 
certainly a great honor for me to be invited to this hearing.
    I would like to focus my remarks on Indonesia's role in 
ASEAN, the Association of Southeast Asian Nations, and the 
impact on Indonesia-United States economic relations.
    ASEAN, the Association of Southeast Asian Nations, now has 
10 members. And it will include all Southeast Asian nations 
when the newest younger nation in the world, Timor Leste, is 
ready to join ASEAN, hopefully in the not-too-distant future.
    In 1967, ASEAN had only five members, but it was a historic 
beginning, as it signifies the major change in the foreign 
policy and international outlook of Indonesia, the region's 
largest nation. It also signifies the beginning of Southeast 
Asia as a region of cooperation, peace, and prosperity.
    Economic cooperation has been ASEAN's main agenda. But, to 
be honest, the various cooperation schemes and programs that 
were introduced in the first 25 years of its existence were 
quite disappointing. The region's remarkable economic progress 
was largely due to the adoption of sound and open economic 
policies by the individual members.
    Having said this, however, I do need to add that stability 
and regional peace that ASEAN helped create in the region have 
allowed countries in the region to pursue international 
development efforts. And this, perhaps, has been the greatest 
contribution that ASEAN has made to the region.
    A significant change happened in 1992, when members agreed 
to achieve greater regional economic integration by forming the 
so-called AFTA, the ASEAN Free Trade Area, largely in response 
to increased challenges of globalization.
    Indonesia has not exercised economic leadership in ASEAN, 
as it does not regard itself as a regional economic power. Its 
leadership was mainly in the political field. Its active 
involvement in ASEAN in the first place, I believe, 
demonstrates its willingness to work in the regional structure. 
And some of us even said that Indonesia had voluntarily put 
itself within a regional structure. And that, I think, was a 
main contribution that Indonesia has made politically to 
regional community-building.
    Its leadership has also not been exercised through an 
assertive posture. It did not attempt to dictate the region's 
policies, although it had de facto veto power. Instead, its 
leadership has been exercised in terms of crafting a regional 
consensus on many important policies for the region.
    The financial crisis of 1997 and 1998 virtually put an end 
to Indonesia's active regional involvement. It was only in 
2003, when hosting the ASEAN Summit, that Indonesia again 
raised its profile. This was done with the encouragement of its 
neighbors, and it played an active role in formulating new 
efforts to achieve an ASEAN community, a community with a 
capital ``C,'' by 2020.
    Strengthening of ASEAN was seen as a necessity, since ASEAN 
was seriously losing its diplomatic clout in the international 
arena and its effectiveness to global investors. And Indonesia 
today, having recovered from the crisis and has a government 
with overwhelming political legitimacy, is in a better position 
to take a lead.
    An important component of the ASEAN community is the ASEAN 
economic community, which envisages a single market and 
production base that is internationally competitive and where 
there is free flow of capital, of goods and services, as well 
as skilled labor. To realize the ASEAN economic community, 
members have agreed to accelerate the integration of 11 
priority sectors. These efforts will create real opportunities 
for the expansion of trade and investment between ASEAN and the 
United States.
    In the year 2004, two-way merchandise trade amounted to 
$136 billion, and the stock of U.S. investments in the region 
has reached close to 90 billion U.S. dollars. There are still 
huge untapped opportunities for further promotion of this 
economic relationship.
    At the same time that ASEAN undertakes this ASEAN economic 
community project, it is also engaged in forming Free Trade 
Agreements with a number of its main trading partners.
    The first agreement that it has concluded is with China, 
and it is an agreement that involves all ASEAN countries, as a 
group. The United States and several ASEAN countries have 
either concluded a Free Trade Agreement, such as Singapore, or 
are in the process of, or will be negotiating, an FTA under the 
so-called Enterprise for the ASEAN Initiative. This initiative 
will help strengthen overall U.S./ASEAN relations, as well as 
United States/Indonesia economic relations.
    Indonesia's efforts to strengthen ASEAN, specifically to 
realizing the ASEAN community, will also strengthen U.S./ASEAN 
relations, and this will, in turn, have a positive impact on 
bilateral relations between the United States and Indonesia, 
particularly in the economic field.
    I believe that, in the not-too-distant future, Indonesia 
will be ready to enter into a Free Trade Agreement with the 
United States. This is, of course, a major challenge for an 
economy like Indonesia, but, if designed well, this agreement 
will be beneficial to both sides.
    The impact for Indonesia will not only be in terms of 
enhancing its market access, but more so, I believe, in terms 
of improving its competitiveness, because it will continue to 
undertake economic reforms at home that it will have to 
undertake under, you know, more or less a binding agreement. It 
will also make Indonesia more attractive to United States 
    Finally, Madam Chairman, the United States side, I believe, 
could assist Indonesia in developing capacity to implement 
economic reforms and economic institution-building in this 
globalized world. It is, to me, a major challenge that a nation 
like Indonesia is facing. And this--today we also heard, from 
USAID person, that this particular agenda of capacity-building 
is also being given attention, too.
    An Indonesia that is economically stronger and more 
competitive will be able to provide economic leadership in 
ASEAN. And this should be in the interest of the United States.
    Thank you.
    [The prepared statement of Dr. Soesastro follows:]

 Prepared Statement of Dr. Hadi Soesastro, Executive Director, Centre 
   for Strategic and International Studies, Jakarta, Indonesia, and 
              Visiting Professor, Columbia University, NY


    In the latest U.S.-ASEAN Dialogue held in Washington, DC, on 28 
June 2005, two major proposals were aired. First, that the idea of a 
``strategic partnership'' between the United States and ASEAN be 
developed. Second, that an ASEAN-U.S. Summit be held in 2007 to 
commemorate the 30th anniversary of the dialogue relationship.
    U.S.-ASEAN relations have reached a stage of maturity. In 1977, at 
the first U.S.-ASEAN Dialogue the focus of the meeting was on such 
functional cooperation areas as commodities, market access, development 
assistance, operations of multinational corporations, transfer of 
technology, shipping, energy resources development, and food security. 
Over the years the nature and direction of the dialogue relationship 
have changed. In 1988, it was agreed that cooperation projects would be 
developed on the basis of mutual interests, comparative advantage in 
the project area and project sustainability. The private sector was 
drawn in to play a key role in the development of cooperation and 
networks to facilitate market-driven economic activities.
    In 2002, two major initiatives were launched. The first was the so-
called ASEAN Cooperation Plan (ACP) to promote cooperation in such 
areas as information technology, agricultural biotechnology, health, 
and disaster response. The second was the Enterprise for ASEAN 
Initiative (EAI) to form a set of bilateral free trade agreements 
(FTAs) between the United States and interested ASEAN member countries. 
In the same year, a Joint Declaration for Cooperation to Combat 
International Terrorism was signed, which subsequently led to the 
formulation in 2004 of an ASEAN-U.S. Work Plan to Counter Terrorism.
    The broadening of the dialogue relationship to political and 
security issues followed the ending of the cold war. The dialogue 
addressed the role of the United States in maintaining stability in the 
region, as well as nuclear nonproliferation and regional security 
issues, developments in the Korean Peninsula and the South China Sea. 
The United States is increasingly engaged with ASEAN in the political 
and security fields through its active involvement in the ASEAN 
Regional Forum (ARF). In addition to the so-called ASEAN Post 
Ministerial Meeting (PMC), which is attended by the U.S. Secretary of 
State, there are periodic meetings between ASEAN SOM (Senior Officials 
Meeting) leaders and the U.S. Assistant Secretary of State for East 
Asia and the Pacific Affairs.
    In the economic field, there are regular meetings between ASEAN 
Economic Ministers and the U.S. Trade Representative, as well as at the 
level of senior officials. Interactions amongst the private sectors 
have also increased through the U.S.-ASEAN Business Council.
    Economic relations between the United States and ASEAN continue to 
be vibrant. In 2004, two-way merchandise trade reached $136 billion, 
and the stock of U.S. investments in the region amounted to $88 
billion. There are huge untapped opportunities to further promote this 
economic relationship. For its part, ASEAN has launched the ASEAN 
Economic Community (AEC) project that would make the region a single 
market and production base by 2020. Efforts are being undertaken to 
accelerate the integration of priority sectors. These will create real 
opportunities for the expansion of trade and investment between ASEAN 
and the United States. The U.S. side has pledged to help in the 
implementation of the Vientiane Action Plan toward the realization of 
the AEC.
    All these seem to suggest that there is a great deal of substance 
in the relationship between the United States and ASEAN that is worthy 
of being elevated to becoming a ``strategic partnership.'' The 
commemoration summit in 2007 could put a seal on the establishment of 
that elevated partnership between the United States and ASEAN.

                       INDONESIA'S ROLE IN ASEAN

    Strengthening U.S.-ASEAN relations could help strengthen United 
States-Indonesia relations. But in fact, this also works in the reverse 
direction. In essence the two relationships tend to reinforce each 
other. Indonesia's efforts to strengthen ASEAN will in turn help 
strengthen U.S.-ASEAN relations and this will have a positive impact on 
the bilateral relationship between the United States and Indonesia, 
particularly in the economic field.
    The regional dimension of bilateral Indonesia-United States 
economic relations provides an opening for further improvement of that 
bilateral relationship. For its part, the United States has launched 
the Enterprise for ASEAN Initiative (EAI) as a vehicle for 
strengthening trade and investment relations with Southeast Asian 
nations. This initiative involves the development of TIFAs (Trade and 
Investment Framework Agreements) and FTAs (Free Trade Agreements) with 
individual ASEAN countries. The significance of the initiative could go 
beyond trade and economic relations to strengthen political and 
strategic relations with the region.
    On the ASEAN side it is believed that efforts to promote regional 
economic cooperation in the wider East Asian and Asia Pacific region 
are critical to engaging the United States. The APEC (Asia Pacific 
Economic Cooperation) and East Asian regionalism (ASEAN+3, namely ASEAN 
plus China, Japan, and South Korea) indeed should be designed to 
strengthen trans-Pacific economic relations, specifically between the 
East Asian countries and the United States.
    In each of these regional arrangements (or processes), ASEAN has 
played an important role, in large part as a result of the prevailing 
political configuration in the region, which is the rivalry between 
China and Japan. As has often been stated, ASEAN is the least 
objectionable party in the region to take up a leadership role in 
regional community building. In APEC, since its inception, ASEAN was to 
act as a copilot. It has also occupied the driver's seat in the ASEAN+3 
    ASEAN's future is important to regional arrangements in the East 
Asian and Pacific region, and critical to promoting the region's 
relations with the United States.
    The prevailing wisdom is that Indonesia is the natural leader of 
ASEAN. Being the largest country in the region, in terms of its 
geographic extent and population size, gives Indonesia a predominant 
position in relation to its neighbors. However, perhaps it is the 
historical factor that has an equally great significance to Indonesia's 
position in the Southeast Asian region.
    The initiative to form ASEAN was part of a package to end 
Indonesia's policy of Konfrontasi (confrontation) against Malaysia, its 
immediate neighbor. The creation of ASEAN was to symbolize a radical 
change in Indonesia's foreign policy orientation, from being a 
revolutionary force to becoming a responsible member of a regional 
community. This change in foreign policy orientation had strong 
domestic source.
    Suharto took over the helm of a country that was virtually 
bankrupt. Rebuilding the economy required a stable and peaceful 
regional environment. Resources and energies have to be directed to the 
huge task of national development. The first step was to end the policy 
of confrontation and to seek ways to improve relations with its 
neighbors. Beyond this was the idea of creating a stable and peaceful 
regional order.
    The five founding members of ASEAN (Indonesia, Malaysia, 
Philippines, Singapore, and Thailand in 1967, later joined by Brunei 
Darussalam in the mid-1980s, and in the late 1990s by Cambodia, Laos, 
Myanmar/Burma, and Vietnam, known as the newer members) recognized the 
strategic challenges they faced from within and outside the region. 
However, it was not easy for countries in the region to adjust to the 
new developments. Indonesia under Suharto was no longer seen as a 
threat to its neighbors. Yet, some of the neighbors maintain their 
military alliances with the major powers, originally as an insurance 
against possible adventurous acts by Indonesia. Since the establishment 
of ASEAN, the existing military alliances gradually diminished in their 
importance, while they were accommodated by Indonesia.
    In fact, the region was not free from potential insurgencies as 
some other Southeast Asian countries, North Vietnam then, were still in 
a revolutionary mode. The perceived threat posed by another 
revolutionary force, namely China's Communist Party, was another reason 
for strengthening the region through a comprehensive security approach. 
Indonesia introduced its concept of national resilience to the region, 
and proposed that ASEAN strives to build its regional resilience.
    That comprehensive security approach rests on the idea of enhancing 
regional peace and security through cooperation in the economic and 
social fields. ASEAN was not meant to be a military pact. In fact, its 
members refrained from engaging in regional cooperation in matters of 
defense, so as not to create opposing military and ideological blocs in 
Southeast Asia. Although the original ASEAN members were anti-Communist 
in their domestic orientation, they projected to the outside world a 
nonaligned posture as advocated strongly by Indonesia.
    The fall of South Vietnam led to heightened security concerns in 
ASEAN. Indonesia's Suharto underlined the importance of regional 
resilience. This meant strengthening regional cooperation and greater 
efforts to build the national economy. Indonesia maintained open 
charnels with Hanoi during the Indochina wars. When Vietnam invaded 
Cambodia, and thereby posed a direct threat to Thailand, ASEAN's policy 
to support Thailand in opposing Vietnam was adhered to by Indonesia. 
However, Indonesia believed that it should continue to keep its 
channels to Hanoi open. This policy was misunderstood in many quarters 
in ASEAN, but in the end proved to be useful in resolving the conflict 
    Indonesia's leadership in ASEAN has been mainly in the political 
field. Its efforts to develop ASEAN have clearly demonstrated its 
willingness to be involved in a regional structure. Indonesia sees this 
as the most credible way to gain the confidence of its neighbors. In 
fact, within this regional structure Indonesia has never thrown its 
weight around. Its political leadership has not been exercised through 
an assertive posture, dictating the region's policies. It was exercised 
in terms of crafting regional consensus on many important issues for 
the region.
    Indonesia has not exercised economic leadership in ASEAN as it does 
not regard itself as a regional economic power. In the first 25 years 
of its existence, ASEAN's many economic cooperation programs have been 
disappointing. It was the changed external environment of the early 
1990s that brought about significant change in ASEAN economic 
cooperation. ASEAN leaders agreed to pursue regional economic 
integration through the ASEAN Free Trade Area (AFTA). Indonesia's 
agreement was critical, but Thailand's diplomatic efforts made that 
possible. Indonesia, until then dubbed ``Mr. No'' for always tending to 
say ``no'' to various economic integration plans, suddenly changed its 
policy and became ``Mr. Go'' when agreeing to ``go ahead'' with AFTA in 
    Two years later, when chairing and hosting APEC, Suharto further 
strengthened this policy by crafting the so-called APEC Bogor goals of 
``free and open trade and investment in the region'' in 2010 for 
developed APEC members and 2020 for developing APEC members. In an 
interview, Suharto proposed that the end goal for APEC should be 
similar to that of AFTA, namely removal of barriers to trade, including 
reduction of tariffs to 0-5 percent.
    This was followed in 1997 by an ASEAN Vision 2020, which envisaged 
the creation of ``a stable, prosperous, and highly competitive ASEAN 
Economic Region in which there is a free flow of goods, services, and 
investment, [and] a freer flow of capital. . . .'' As the Indonesian 
economy was growing rapidly in the first half of the 1990s, Indonesia 
began to participate actively in economic cooperation activities in 
    The financial crisis of 1997/1998 virtually put an end to 
Indonesia's active regional involvement. Indonesia was the hardest hit 
by the crisis. It experienced not only an economic and financial 
crisis, but it came under multiple crises. ASEAN Economic Ministers 
rightly decided that the ASEAN economies must continue with their open 
economic policies in order to be able to overcome the crisis. Yet, 
political leadership in the region turned inward. The Suharto 
government, having been in place for 32 years, fell. It was replaced by 
a transition government under Habibie, who was not interested in ASEAN. 
His successor, Abdurrahman Wahid, wanted to promote a Western Pacific 
Forum, involving Indonesia, the Philippines, Papua New Guinea, Timor 
Leste, and Australia, instead of ASEAN.
    Megawati was initially also not interested in ASEAN. However, since 
Indonesia was to host the ASEAN Summit in 2003, she accepted the 
suggestion that Indonesia should again provide leadership in ASEAN. 
ASEAN was seriously losing its diplomatic clout in the international 
arena and it had lost its attractiveness to global investors. The 
foreign policy community in Indonesia thought that Indonesia's 
``comparative advantage'' lies in providing political rather than 
economic leadership. It began to air the idea of an ASEAN Security 
Community to strengthen the region's cohesion. This was aimed at both 
enhancing regional peace and security and restoring ASEAN's diplomatic 
    In 2002, Singapore Prime Minister Goh Chok Tong, aired the idea of 
an ASEAN Economic Community. Singapore knew that without active 
involvement by Indonesia this idea would not fly. Its skillful 
diplomatic efforts led to the adoption of the idea by Indonesia. 
Megawati, in her Inaugural ASEAN Lecture in 2003, proposed that ASEAN 
be built on two pillars, the ASEAN Security Community (ASC) and the 
ASEAN Economic Community (AEC), which will reinforce each other. In 
October of that year, when Indonesia organized the ASEAN Summit, it 
crafted an even more ambitious goal for ASEAN, namely an ASEAN 
Community in 2020. The ASEAN Community now consists of three pillars, 
to include an additional one proposed by the Philippines, namely the 
ASEAN Social and Cultural Community (ASCC).
    At the same time, ASEAN embarked on a number of bilateral trade and 
economic initiatives with China, Japan, India, as well as Australia and 
New Zealand, which involve the formation of FTAs.
    Indonesia's challenge today is to provide leadership to realize the 
ASEAN Community. The new President, Susilo Bambang Yudhoyono, has been 
encouraged by many in the region to take this up as Indonesia's 
    Indonesia's leadership will again have to be expressed in terms of 
building regional consensus. This type of leadership should be 
distinguished from the kind that is aspired by Singapore or Thailand. 
Their approach is to move faster than the others and in doing so they 
hope to force others to follow them. This is the essence of the ``2+X'' 
formula that they have introduced in ASEAN. This approach could weaken 
ASEAN's solidarity that, in fact, is ASEAN's greatest asset. There is 
also the danger that ASEAN will be pulled into many directions because 
of its engagement in a number of FTA initiatives, seemingly without a 
clear strategy of how it will manage this web of FTAs.


    It all began with the approaches by China. ASEAN on its part 
initially did not regard free trade areas (FTAs) as a major element in 
its international economic diplomacy. ASEAN's own economic integration 
has been the priority since the decision in 1992 to form an ASEAN Free 
Trade Area (AFTA), which was followed by initiatives in the fields of 
investment (AIA) and services (AFAS), and a few other measures. Beyond 
ASEAN, its trade liberalization efforts are directed at the 
multilateral level, the WTO's Doha Development Agenda. At the regional 
level, ASEAN members of APEC attempt to continuously improve their 
Individual Actions Plans (IAPs) under the region's modality of 
concerted unilateral liberalization toward free and open trade and 
investment in the region in 2010/2020. The proposal for an East Asia 
Free Trade Agreement (EAFTA) was presented by an East Asian Vision 
Group to the ASEAN+3 leaders as a means to realize an East Asian 
community, but EAFTA is seen as a long-term effort.
    In 2001, at the ASEAN-China Summit in Bandar Seri Begawan, China 
came up with a proposal to establish an ASEAN-China Free Trade Area 
within 10 years. Within 1 year, at the Summit meeting in Phnom Penh in 
November 2002, the Heads of State of ASEAN and China were ready to sign 
a Framework Agreement on Comprehensive Economic Cooperation (CEC), 
which included an FTA.
    There is no doubt that China's proposal essentially was politically 
motivated, but China and ASEAN both saw the economic significance of 
the initiative. However, the process appeared to have been driven 
largely by China. Having participated in a lengthy and difficult 
process of WTO accession, China has acquired sufficient expertise to 
negotiate a trade deal. The deal was made attractive for ASEAN with the 
introduction of an Early Harvest program. China's initiative was 
immediately followed by a proposal from Japan. This was to be expected 
as Japan naturally did not want to be left out. Since then ASEAN has 
been courted by other countries and have entered into an agreement with 
a few other countries. However, to date there is as yet no ASEAN 
document that clearly spells out ASEAN's strategy of engagement in FTAs 
with its trading partners.

    The ASEAN-China Framework Agreement on CEC contains three elements: 
Liberalization, facilitation, and economic cooperation. In addition it 
has a provision on the mechanism to implement the agreement, including 
a dispute settlement mechanism. The liberalization element covers trade 
in goods, trade in services, and investment. In the context of 
liberalization, the agreement provides for special and differential 
(S&D) treatment and flexibility to the newer ASEAN members as well as 
flexibility to address sensitive areas.
    The Framework Agreement contains an Early Harvest program that 
covers all products in chapters 01 to 08 at the 8/9 digit level (HS 
Code): Live animals; meat; fish; diary produce; other animals products; 
live trees; edible vegetables; and edible fruits and nuts. Products 
under this program are divided into three categories for tariff 
reduction and elimination, but tariffs will have to be brought to zero 
for all three categories within 3 years. However, the program allows 
for an Exclusion List and different timeframes between the ASEAN-6 
(Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) and 
the CLMV (newer members--Cambodia, Laos, Myanmar, and Vietnam), for 
whom zero tariffs will be reached in 2010. Initially it was thought 
that China would offer the Early Harvest program on a nonreciprocal 
basis, but this turned out not to be the case. Moreover, some 
agricultural commodities of great interest to ASEAN, such as rice and 
palm oil, were excluded from the program. Some ASEAN countries (e.g., 
the Philippines) did not immediately join the program.
    Beyond the Early Harvest, tariff reduction and elimination will be 
pursued along two tracks, the normal track and the sensitive track. 
Applied MFN tariffs of products listed in the normal track should be 
gradually reduced or eliminated in accordance with specified schedules 
and rates over a period from 2005 to 2010 for ASEAN-6 and China, and to 
2015 for CLMV. Reduction of tariffs of products in the Sensitive List 
will be in accordance with mutually agreed end rates and end dates. The 
number of products in the Sensitive List is subject to a maximum 
ceiling, also to be mutually agreed upon.
    The Framework Agreement was later amended to incorporate the Rules 
of Origin (ROO) applicable to the products covered under the Early 
Harvest program. It also included subsequent Early Harvest agreements 
between some ASEAN members and China, and it clarified the 
implementation of the provision of the program as well as the terms and 
conditions for the acceleration of the tariff reduction and elimination 
through bilateral or multilateral agreements.
    The negotiation on the FTA for goods was concluded within a short 
time. This was a rather ambitious undertaking. Initially the parties 
could not agree on the maximum number of tariff lines in the sensitive 
list. However, as political leaders were determined to begin the 
process of tariff reduction and elimination in 2005, a compromise was 
struck, and Ministers were able to sign an agreement at the ASEAN 
Summit in Vientiane in November 2004. This does suggest the importance 
of setting target dates.
    The Agreement on Trade in Goods of the Framework Agreement on CEC, 
or for short, the ASEAN-China FTA (ACFTA), is only the first portion of 
a series of agreements to implement the Framework Agreement. At the 
Vientiane Summit, Ministers also signed an Agreement on Dispute 
Settlement Mechanism of the Framework Agreement on CEC. They will be 
followed by an agreement on services, an agreement of investment, and 
other agreements. It is indeed rather surprising that ASEAN and China 
were able to produce those two agreements within a short time.
    The ACFTA contained the modality for tariff reduction and 
elimination for tariff lines both in the normal track and the sensitive 
track. In the normal track there are three sets of schedules. The first 
applies to ASEAN-6 and China. The implementation will begin on 1 July 
2005, when applied MFN tariff rates will be brought down to 20 percent, 
15 percent, 10 percent, and 5 percent for tariffs still above 5 
percent. By 2007 they will be reduced to 12 percent, 8 percent, and 5 
percent, and by 2009 to 5 percent and 0 percent, and finally by 2010 
all rates will become zero. The second schedule applies only to 
Vietnam, where all tariffs will be brought down to 0 percent in 2015. 
The third schedule applies to Cambodia, Laos, and Myanmar, where some 
tariffs will still be higher than in Vietnam's schedule, but from 2011 
onward they will be the same.
    In addition, agreement was also reached to bring as many tariff 
lines to the 0-5 percent range. For instance, for ASEAN-6 and China, by 
1 January 2007 at least 60 percent of tariff lines placed in the normal 
track must be reduced to 0-5 percent. However, some ``flexibility'' is 
allowed in 2010, whereby up to 150 tariff lines could still have 
tariffs but should be eliminated not later than 1 January 2012. For the 
CLMV countries, this flexibility allows for having tariffs on up to 250 
tariff lines to be eliminated not later than 1 January 2018.
    In terms of tariff lines in the sensitive track, the agreement 
subjects the number of tariff lines to a maximum ceiling. Tariff lines 
in the sensitive track are further classified into Sensitive List and 
Highly Sensitive List. For ASEAN-6 and China, the maximum ceiling is 
400 tariff lines at the HS 6-digit level and 10 percent of total import 
value, based on 2001 statistics. The Highly Sensitive List should have 
not more than 40 percent of the total number of tariff lines in the 
sensitive track or 100 tariff lines at the HS 6-digit level, whichever 
is lower. For CLMV, the maximum ceiling is 500 tariff lines. To note, 
tariff lines at the HS 6-digit level for the ASEAN-6 countries varies 
between 5,600 (Philippines) and 10,400 (Malaysia). The number of tariff 
lines in the Sensitive and Highly Sensitive Lists is shown in Table 1. 
Applied MFN tariff rates in the Sensitive List must be reduced to 20 
percent not later than 1 January 2012 and to 0-5 percent not later than 
1 January 2018. For CLMV countries, the target dates are 1 January 2015 
and 1 January 2020, respectively. In any case, the sensitive track will 
be reviewed in 2008.

                             SENSITIVE LISTS
                              [HS 6-digit]
                    Country                      Sensitive    sensitive
Brunei........................................           66           34
Cambodia......................................          350          150
Indonesia.....................................          349           50
Lao PR........................................           88           30
Malaysia......................................          272           96
Myanmar.......................................          271            0
Philippines...................................          267           77
Singapore.....................................            1            1
Thailand......................................          242          100
Vietnam.......................................           --           --
China.........................................          161          100

    The modality for tariff reduction and elimination in this agreement 
resembles AFTA's CEPT (Common Effective Preferential Tariff) reduction 
scheme. Experience in AFTA suggests that this modality does result in 
reductions in accordance with the schedule and, in fact, also brings 
about acceleration in the reduction and the progressive transfer of 
tariff lines from the sensitive track to the normal track.
    The Rules of Origin (ROO) for the ACFTA as stipulated in the 
Agreement (Annex 3) are as follows: ``A product shall be deemed to be 
originating if: (i) Not less than 40 percent of its content originates 
from any Party; or (ii) if the total value of the materials, parts or 
produce originating from outside of the territory of a Party (i.e., 
non-ACFTA) does not exceed 60 percent of the FOB value of the product 
so produced or obtained provided that the final process of the 
manufacture is performed within the territory of the Party.'' In 
addition the Cumulative Rule of Origin applies provided that the 
aggregate ACFTA content, i.e., full accumulation, applicable among all 
Parties, on the final product is not less than 40 percent. Also, 
products that satisfy the Product Specific Rules, i.e., products that 
have undergone sufficient transformation in a Party, will be treated as 
originating goods of that Party. The ROO in the ACFTA is also similar 
to that in AFTA. It is relatively simple and quite liberal. In fact, 
ACFTA should be commended for this, and perhaps is an example of ``best 
practice'' in this regard.
    It is also to be noted that the ACFTA explicitly adopts GATT 1994 
provisions on national treatment on internal taxation and regulation, 
transparency, BOP safeguard measures. It also abides to the provisions 
of the WTO disciplines on, among other things, nontariff measures, 
technical barriers to trade, sanitary and phyto-sanitary measures, 
subsidies and countervailing measures, antidumping measures and 
intellectual property rights.
    The Agreement on Dispute Settlement centers on arbitral proceedings 
in case consultations fail to settle a dispute. The agreement 
stipulates the appointment, composition, functions, and proceedings of 
Arbitral Tribunals. It enters into force on 1 January 2005. How well 
this mechanism will function will be known only when it is being used. 
This mechanism is perhaps more straightforward than the one recently 
adopted by ASEAN as part of its efforts to realize the ASEAN Economic 
Community. The ASEAN mechanism is yet to be tested as well.
    The ACFTA might become a model for other ASEAN FTAs, particularly 
if the partner country is a developing country. It should be noted that 
while tariff reduction and elimination are scheduled to be completed in 
2010 for the ASEAN-6 and China, and 2015 for the CLMV countries, in the 
case of the normal track, reduction of tariff lines in the sensitive 
list (to 0-5 percent) could be extended to 2018 and 2020, respectively. 
It should be in interest of ASEAN and China to try to accelerate this 
process. The modality adopted in the agreement can accommodate this. 
However, political will has to be there for this to happen. It also 
should be noted that the ACFTA is only the first step in the 
implementation of the Framework Agreement. Negotiating an agreement in 
services and investment may prove to be more difficult.
    To conclude on a more optimistic note, it may well be that ASEAN's 
engagement in FTAs with other trading partners could create a kind of 
competition amongst the various FTAs that might lead to acceleration of 
their completion.

    In January 2002, during his visit to Singapore, Prime Minister 
Koizumi of Japan announced Japan's interest to form an Economic 
Partnership agreement with ASEAN, which might have an FTA component. 
Japan has completed a bilateral FTA with Singapore, the Japan Singapore 
Economic Partnership Agreement (JSEPA), which is the first FTA for 
Japan. Japan also wants to develop FTAs with individual ASEAN countries 
on a bilateral basis. It was immediately obvious that Japan was 
reacting to the earlier move by China toward ASEAN that led to the 
decision in November 2001 to develop an ASEAN-China Comprehensive 
Economic Cooperation Agreement.
    At the ASEAN-Japan Summit in November 2002, in their Joint 
Declaration the Heads of State/Governments agreed to implement measures 
for the realization of a Comprehensive Economic Partnership (CEP), 
including ``elements of a possible FTA,'' which should be completed as 
soon as possible within 10 years. A committee was established to draft 
a framework for the realization of an ASEAN-Japan CEP.
    In October 2003 in Bali, ASEAN and Japan signed a Framework for 
Comprehensive Economic Partnership (CEP). Both sides agreed to adhere 
to the following principles:

          (a) The ASEAN-Japan CEP should involve all ASEAN members and 
        include a broad range of sectors focusing on liberalization, 
        facilitation, and cooperation activities;
          (b) The integrity, solidarity, and integration of ASEAN will 
        be given consideration in the realization of the ASEAN-Japan 
          (c) The agreement should be consistent with the rules and 
        disciplines of the WTO Agreement;
          (d) Special and differential treatment should be provided to 
        ASEAN members in recognition of their different levels of 
        economic development, and additional flexibility should be 
        accorded to the newer ASEAN members;
          (e) Flexibility should be given to address the sensitive 
        sectors in each ASEAN member and Japan; and
          (f) Technical cooperation and capacity-building programs 
        should also be considered.

    The above suggests that an ASEAN-Japan CEP will not be too 
different from ACFTA, except that there will be no Early Harvest 
program. The Japanese side has insisted that the agreement should be a 
``single undertaking.'' The negotiations were scheduled to begin in 
2005. It remains to be seen whether such a single undertaking could be 
negotiated within a reasonable timeframe. Both sides want to realize 
the agreement by 2012.
    An agreement with Japan, being a developed economy, must strictly 
adhere to Article XXIV of the WTO to cover substantially all trade. 
There cannot be a long Exclusion List of sensitive items. In contrast, 
ASEAN and China could avail themselves of the WTO ``enabling clause.'' 
Nonetheless, they agreed on limiting the so-called sensitive track to 
10 percent of total import value. The Japanese side has made it known 
that in their understanding ``substantially all trade'' also could mean 
at least 90 percent of the value of trade. It should also be closely 
observed whether the ASEAN-Japan CEP will adopt an equally simple and 
liberal Rules of Origin (ROO) as in AFTA and ACFTA.
    The problem is that Japan already has a bilateral agreement with an 
ASEAN country, Singapore, which has adopted a ROO that is less liberal 
than AFTA and ACFTA, and Japan has completed similar agreements with 
Thailand, the Philippines, and Malaysia. The CEP between ASEAN and 
Japan signed in Bali stipulated that schedules of liberalization 
concessions between Japan and individual ASEAN countries that have 
concluded a bilateral FTA or EPA (Economic Partnership Agreement) will 
not be renegotiated and will be annexed to the ASEAN-Japan CEP 
Ageement. Nothing has been said about the ROO.
    Japan has adopted a dual strategy in regard to negotiating free 
trade agreements with ASEAN, namely with ASEAN as a group and 
selectively with certain ASEAN countries. The strategy is to move 
faster on the latter. It has been said that the origin of this dual 
strategy was bureaucratic, in that METI was championing for an 
agreement with ASEAN while Gaimusho (Ministry of Foreign Affairs) 
preferred bilateral agreements. MOFA thought that it would be very 
difficult for Japan to have FTAs with the CLMV countries.
    How Japan will handle this problem in the ASEAN-Japan CEP is 
unclear. It can make use of the S&D principle to provide a longer 
timeframe for the CLMV countries as in the case of ACFTA. However, 
since Japan is negotiating bilateral FTAs with most of ASEAN-6, it is 
likely that the liberalization schedules will be different even amongst 
ASEAN-6, and that similar agreements with CLMV will be postponed to a 
later date. The focus of the agreement with CLMV will be initially on 
facilitation and cooperation. This could suggest that the ASEAN-Japan 
CEP will essentially be an umbrella agreement for separate FTAs. It is 
unclear whether this is consistent with the principle of a single 
    In this sense, the agreement with Japan could be different from the 
agreement with China. In the ACFTA, ASEAN can act as a ``hub,'' but in 
relation to Japan, ASEAN countries could become ``spokes.''

    In 2002 ASEAN and India agreed to enhance economic cooperation and 
to work toward an ASEAN-India Regional Trade and Investment Area 
(RTIA). Amongst the ASEAN countries Singapore has been the main 
promoter of increased economic and trade relations with India.
    In October 2003 in Bali the ASEAN and India Heads of State/
Governments signed a Framework Agreement on Comprehensive Economic 
Cooperation (CEO). It entered into force on 1 July 2004. This Framework 
Agreement is very similar to, and appeared to have been largely 
inspired by, the ASEAN-China Framework Agreement. It also introduced an 
Early Harvest program. The Early Harvest program commenced from 1 
November 2004, with tariff elimination to be completed by 31 October 
2007 for ASEAN-6 and India, and 31 October 2010 for the CLMV countries.
    The schedule to liberalization in the normal track will be over a 
period from: (i) 1 January 2006 to 31 December 2011 for Brunei 
Darussalam, Indonesia, Malaysia, Singapore and Thailand, and India; 
(ii) 1 January 2006 to 31 December 2016 for the Philippines and India; 
and (iii) 1 January 2006 to 31 December 2016 for the CLMV countries. 
The timeframes for liberalization in the sensitive track have not been 
specified in the Framework Agreement and will be mutually agreed upon 
among the Parties.
    The ROO negotiation was to be concluded by 31 July 2004, but the 
deadline has been missed. In fact, the negotiation has been difficult 
and becomes the main obstacle in the entire process, including the 
implementation of the Early Harvest. The Indian side has not agreed to 
adopt ASEAN's simple and liberal ROO, as applied also in the agreement 
with China, and the ASEAN side has not been willing to compromise on 

ASEAN-Republic of Korea (ROK)
    Until recently, Korea resisted to take part in the bilateral FTA 
game with ASEAN. Former President Kim Dae-jung was more interested in 
promoting the East Asia Community idea. His successor, President Roh, 
also focuses his attention to initiatives in Northeast Asia, where 
Korea is to be developed as a business hub. In the end, however, Korea 
felt that it cannot afford to be left behind by the other Northeast 
Asian (+3) countries.
    A Joint Declaration on Comprehensive Cooperation Partnership (CCP) 
was signed at the summit in Vientiane in November 2004. The 
establishment of an ASEAN Korea FTA (AKFTA) is seen as ``a natural 
extension of the existing relations as well as a stepping stone to 
elevate the ASEAN-ROK relationship to a higher and more comprehensive 
    AKFTA will be similar to other ASEAN FTAs in terms of its 
comprehensive scope and provision for flexibility to deal with the CLMV 
countries. The possibility of achieving Early Results will be 
considered in developing a Framework Agreement. However, the kind of 
Early Harvest program to be included will not be confined to 
agricultural products as in the case of the ASEAN-China CEC, but will 
include manufactured products that are not sensitive to either side. In 
fact, it might exclude many agricultural products.
    The negotiations on AKFTA will commence in early 2005 and be 
completed within 2 years. While AKFTA was conceived at a much later 
date than the other FTAs, the intention is to realize it at an earlier 
date, with a goal of achieving as high a level of liberalization as 
possible, whereby at least 80 percent of products will have zero 
tariffs in 2009, and with consideration for S&D treatment and 
additional flexibility for the CLMV countries.
    AKFTA may well be the agreement that will drive other FTAs to 
accelerate their implementation. This could substantiate the point that 
was made earlier.

    A linkage between AFTA and CER (Closer Economic Relations between 
Australia and New Zealand) was established as early as September 1995. 
This led to the establishment of a High Level Task Force on an AFTA-CER 
FTA. The Task Force report, ``The Angkor Agenda,'' was presented to 
Ministers from ASEAN, Australia, and New Zealand on 6 October 2000 in 
Chiang Mai (Thailand).
    It should be noted that the idea of an AFTA-CER FTA was proposed at 
an earlier date than the ASEAN-China FTA. The AFTA-CER FTA discussions 
failed to lead to an agreement. The ASEAN side was not ready to embark 
on this initiative. It was also not launched at a summit level. Perhaps 
it was an idea whose time had not arrived. There were sensitivities on 
the part of ASEAN to engage in a narrow FTA. The ASEAN side demanded 
that Australia and New Zealand undertake some facilitation and 
development cooperation efforts as a prerequisite for the negotiation.
    In September 2001 the two sides revisited the idea of promoting 
closer economic relations and endorsed a new Framework for AFTA-CER 
Closer Economic Partnership (CEP). In September 2002, a Ministerial 
Declaration on the AFTA-CER CEP was signed. The CEP is regarded as a 
building block for greater economic integration. The fields of 
cooperation under the CEP will be broadened to include, but not limited 
to, promoting and facilitating trade and investment, capacity-building, 
new economy issues, and other areas of cooperation.
    However, since relations between Australia and some ASEAN countries 
were rather cool, not much was happening in terms of implementing the 
CEP agreement. It was only in Vientiane in November 2004 at the ASEAN-
Australia and New Zealand Commemorative Summit that the Leaders revived 
the idea of an FTA between ASEAN and Australia and New Zealand. The 
Joint Declaration of the Leaders announced the launching of 
negotiations on an FTA, to commence in early 2005 and to be completed 
within 2 years, as is the case of the ASEAN-Korea FTA.
    The Annex to the Joint Declaration stipulates the guiding 
principles for negotiating an FTA. The FTA will be comprehensive in 
scope. All barriers to trade in goods, services, and investment will be 
progressively eliminated. It should build on members' commitments in 
the WTO. It also will have a provision of flexibility as in the other 
ASEAN FTAs. The hope is that the FTA will be fully implemented within 
10 years.
The U.S. ``Enterprise for ASEAN Initiative''
    During the APEC meeting in Mexico in 2002, President Bush announced 
the Enterprise for ASEAN Initiative (EAI). This initiative is aimed at 
strengthening U.S. economic and politico-security relations with 
Southeast Asia. It has often been interpreted as an initiative to 
support the U.S. fight against global terrorism.
    The initiative is to develop FTAs between the United States and 
selective ASEAN countries. The United States already concluded an FTA 
with Singapore. ASEAN countries that have concluded a TIFA (trade and 
investment facilitation agreement) with the United States are eligible. 
Brunei Darussalam, Indonesia, Malaysia, the Philippines, Thailand, and 
Vietnam now have such agreements with the United States.
    Thailand is already negotiating with the United States, and 
approaches have been made with Indonesia, the Philippines, and 
Malaysia. The United States is also negotiating FTAs with other 
countries and subregional groupings in other parts of the world. It 
will only negotiate with a country that it regards ready to make 
significant commitments. In the case of Indonesia, for instance, the 
United States has put some conditionalities, which include the 
resolution of current trade disputes involving chicken legs exports 
from the United States and the strengthening of intellectual property 
protection in Indonesia, especially in relation to optical disks.
    It remains to be seen in how far the second Bush administration, 
and the new USTR, will put their priority on ASEAN. An agreement with 
the United States will bring about more wide-ranging reforms 
domestically in the ASEAN countries. The United States will also put 
greater emphasis on services liberalization. However, U.S. ROO tends to 
be rather restrictive, especially in such areas as textiles and 

Implications for ASEAN and East Asia
    ASEAN has a huge agenda. Its priority is to deepen economic 
integration amongst its 10 members. This is a major undertaking in view 
of the big differences in levels of economic development and economic 
openness. In 2003, at the summit in Bali, ASEAN leaders agreed to 
establish an ASEAN Economic Community (AEC) by 2020. In line with the 
ASEAN Vision 2020, it is envisaged that the AEC will be a single market 
and production base with free flow of goods, services, investments, 
capital, and skilled labor. The AEC remains vaguely defined. ASEAN 
officials have opted for a pragmatic approach, essentially moving on a 
sectoral basis. Eleven priority sectors have been selected for fast-
track integration. The 11 sectors are: Wood-based products, 
automotives, rubber-based products, textiles and apparels, agro-based 
products, fisheries, electronics, e-ASEAN, healthcare, air travel, and 
tourism. A roadmap has been drawn for each sector.
    At the same time that ASEAN undertakes its AEC project, it is 
engaged in forming FTAs with a number of trading partners as briefly 
described above. Two immediate issues confront ASEAN. First, can these 
FTAs be completed before ASEAN realizes the AEC? In terms of the plan 
(intention), ASEAN-Korea FTA will be completed in 2009, ASEAN-China in 
2010, ASEAN-India in 2011, and ASEAN-Japan in 2012, all with some 
built-in ``flexibility,'' allowing for some countries or some sectors 
to move slower. However, the AEC is scheduled for completion by 2020. 
This means that ASEAN members must try to accelerate the implementation 
of their AEC initiatives. At least the fast-track sectors should be 
fully liberalized by 2010.
    The second issue regards the need for ASEAN to develop a common 
framework for its extra regional cooperation, particularly in forming 
FTAs. A common framework would make it easier for the various FTAs (or 
RTAs--regional trading arrangements) to become building blocks for, or 
to be amalgamated into, wider regional arrangements. More importantly, 
in so doing ASEAN can become a ``hub'' to drive the process in East 
Asia through the ASEAN+1 agreements. In addition, a common framework 
can help reduce tensions between ASEAN members. As some ASEAN members 
(e.g., Singapore) have moved faster in developing FTAs, there is an 
additional, practical reason for having a common framework. The 
Singapore-New Zealand FTA has been referred to as a model for 
nonrestrictive ROO. Bilateral FTAs involving ASEAN members should have 
harmonized ROOs along lines of Singapore-New Zealand.
    Finally, for ASEAN to become a production base, it also needs to 
minimize business transaction costs by having similar rules and 
schedules of tariff reduction to ensure use of most efficient supplier. 
Most important in this regard is the Rules of Origin (ROO), which 
constitute one of the elements of a common framework. Restrictive ROO 
constrains sourcing of inputs. New ROO can also change sourcing 
decisions away from use of inputs from existing partners. In essence, a 
common ROO can facilitate the spread of full cumulation and the 
development of regional production networks. In its FTA with the United 
States, Singapore has introduced two new approaches in calculating ROO 
that takes into account regional production networks. The first is the 
principle of outward processing that recognizes manufacturing chains 
and outsourcing. The second is the so-called Integrated Sourcing 
Initiative (ISI), allowing parts and components produced in Singapore's 
neighboring countries as coming from Singapore, but this is limited to 
certain nonsensitive items only (IT components and medical devices).
    Beyond trade in goods, a common framework also needs to be 
developed for services and investment, and perhaps also competition 
policy and IPR. Many of these elements form an integral part of the AEC 
project. This is a tall order, and ASEAN needs leadership in realizing 
this objective.


    In assuming a leadership role in ASEAN, should Indonesia be 
actively engaged in forming bilateral FTAs with ASEAN's main trading 
partners? This issue might have become less relevant now as ASEAN as a 
group has formed FTAs or is negotiating FTAs with a number of 
countries, China, Korea, India, and with the CER countries (Australia 
and New Zealand). In regard to Japan and the United States, Indonesia 
has no other option than to go bilaterally.
    Indonesia has extensive economic and trade relations with these two 
countries. An FTA with these countries would have a major impact, not 
only in terms of enhancing Indonesia's market access but also in terms 
of improving its competitiveness due to the economic reforms that it 
will have to undertake in implementing such binding agreement. The 
other objective is to increase the country's attractiveness to 
international investors, especially from the countries with which it 
has formed an FTA. Furthermore, the agreement could strengthen 
political and overall relationship with the partner country.
    Concluding an FTA with Japan, and especially with the United 
States, will be more difficult than with other countries as the 
coverage will likely be wider and the commitments will have to be 
deeper since it will encompass not only cross-border issues but many 
``behind the border'' issues, including domestic regulations.
    In the domestic arena, efforts need to be made to gain better 
understanding of which sectors will benefit most from the FTAs and 
which ones will be adversely affected by them. The latter will help the 
government devise necessary measures to lessen the negative impacts of 
the FTAs. Equally important are efforts to build capacity, especially 
of the bureaucracy that will be involved in implementing the 
agreements. The United States can provide valuable assistance here, 
perhaps to be undertaken under the United States-Indonesia Trade and 
Investment Framework Agreement (TIFA) signed in 1997. Domestic 
adjustments and reforms will have to be undertaken continuously, and 
perhaps they need to be properly sequenced. It is often the case that 
bilateral or regional FTAs help promote domestic reforms.
    An agreement with the United States could have the greatest effect 
on Indonesia's reform agenda. If properly designed, this will be highly 
valuable for Indonesia. An Indonesia that is economically stronger and 
more competitive will be able to provide economic leadership in ASEAN 
in the efforts to create a single market and a production base in 2020, 
if not earlier. It should be in the interest of the United States to 
see the emergence of a strong and economically integrated ASEAN region.

    Senator Murkowski. Thank you.
    And we will now go to Mr. Randy Martin, with the Mercy 


    Mr. Martin. Madam Chairman, thank you very much for the 
invitation and the opportunity to share Mercy Corps' 
perceptions and impressions on our progress on recovery in 
    I think we all remember very vividly the impact of the 
tsunami last December 26, which wrought incredible devastation 
to a broad swath of South Asia. The world responded very 
quickly and very generously with life-saving assistance on an 
unprecedented scale. InterAction, which I think you know is an 
American consortium of 160 American NGOs, put out a report last 
June indicating that 60 American nongovernmental organizations 
responded to the tsunami. Together, they raised $1.5 billion in 
funds and spent a quarter of a billion dollars in the first 90 
days, alone. So, it was just an incredible response from the 
NGO community and from the American people.
    The Indonesian Province of Aceh was particularly 
devastated, and which was compounded there by not just the 
tsunami, but the earthquake, of course, which preceded it.
    In Aceh, there were 128,000 deaths and displacement of over 
half a million people. There were 7 militaries and roughly 300 
national and international NGOs that responded, some 2,000 
expatriates flooded into Aceh to provide assistance to the 
Indonesian Government and to the people of Aceh.
    Eight months later, we are well past the emergency needs of 
those early days and weeks. We are now embarked on the very 
challenging work of reconstruction, though without the benefit 
of the world's focused attention, which has now moved on to new 
crises here and abroad. Therefore, from the very onset, I want 
to applaud this committee for its commitment to monitoring this 
critical process and encourage you to keep doing so.
    I'll talk a bit about the NGOs' response in Aceh. But, as 
Mr. Kunder, before me--from USAID, before me--pointed out, it's 
really important to underscore that the progress in Indonesia 
has really been led by Indonesian--by the Acehenese 
communities. It's--when we are doing our best work as NGOs, we 
are catalyzing, we are supporting, the work of those 
communities. And we are very, very impressed by the leadership 
and the courage that we've seen coming out of those 
    A visitor to Banda Aceh, right now and for the first time, 
may be struck by the amount of work that's still left to be 
done. There are still tens of thousands of people living in 
temporary shelters and in plywood barracks, which are really 
horrendous. There are still--although children are in school, 
the schools are temporary, health facilities are temporary and 
of poor quality. There is a lot of work left to be done.
    Rapid-onset disasters--I think we're finding from our own 
experience in the gulf--rapid-onset disasters of this 
proportion destroy not only lots and lots of property and 
displace thousands of people, but they also destroy the very 
institutions and structure that are put in place to respond to 
    Militaries--the military did, really, an outstanding job in 
its initial response in Aceh. They have substantial logistics 
capacity, but they are enormously expensive and don't have the 
expertise or time horizons necessarily--necessary to mobilize 
communities for long-term reconstruction.
    Private contractors, likewise, are unlikely to bring 
community-development expertise, multiple funding sources, or 
the long-term commitment needed to sustain reconstruction.
    Thus, the role of humanitarian NGOs, with our experience, 
our broad base of resources, and our commitment to the long 
term, it's very important to fill the gap.
    The problem is, as I described, the local institutions to 
coordinate a response are not there. And I'm here to tell you, 
in the early days in Aceh, it was a real circus. It was a very, 
very difficult time to coordinate. If you can imagine 300 NGOs, 
2,000 expatriates, NGOs with different funding bases, with 
different objectives, with staff who had never been there 
before, all arriving at the same time, without a coordinating 
mechanism in place. It was a real challenge.
    But, despite that, I think we've done really well to put 
one together. And, for that, my hat's off to the United Nations 
Office for Coordination of Humanitarian Assistance, OCHA. They, 
in the early days, assembled a Humanitarian Information Center, 
which, in turn, registered these NGOs, took records on where 
they were working, what their resources were, mapped that out, 
and handed it back out to the NGO community so that we could 
coordinate our activities better together.
    The United Nations also put together the Interagency 
Standing Committee, which actually existed before the tsunami. 
It coordinates the activities of the various U.N.-family 
organizations with the activities of the NGOs and the 
    So, I think, with these instruments in place, our efforts 
became far more coordinated as time has moved on.
    So, despite the extraordinary level of destruction wrought 
by the tsunami and the challenges of mobilizing NGOs and 
coordinating them, I think we've made an awful lot of progress.
    Over half a million people have received monthly food 
rations. Over 90 percent of students have returned to schools. 
Moreover, despite the dire predictions that we heard, there has 
not been a major outbreak of disease.
    NGOs and international organizations have slated over 
60,000 houses for reconstruction, and now we're working with 
the authorities on land-ownership issues and construction 
designs, which will help mitigate the kind of damage that we 
saw, should there be another tsunami.
    Almost a hundred agencies are working to rehabilitate 1,500 
damaged schools. Over 100,000 individuals supporting family 
members, totaling over 500,000, have received assistance to 
restart livelihoods.
    For Mercy Corps' part, we, alone, have injected over $10 
million into Aceh over the last 8 months through our programs. 
We provided cash-for-work opportunities for over 26,000 people 
in 93 villages. We supported the return of over 46,000 
individuals, through cash grants, to communities for quick-
impact projects restoring basic infrastructure. In 66 villages, 
we have funded the restoration of cultural and social 
institutions, benefiting another 77,000 people.
    I think right now we're in the process of shifting gears, 
of moving away from the immediate cash-for-work direct-cash 
programs that we saw in the relief phase, and we're focusing 
more on economic development and in restarting local markets.
    Already out of time.
    Clearly, I think you've seen--you can see, a lot has been 
accomplished. We still have a long way to go. If I may, 
quickly, four very brief recommendations:
    First, as Mr.--as the presentation from USAID, before, 
indicated, we think it's very, very important to support local 
government and to work through local government institutions.
    Second, we think it's very important to support community-
led initiatives. Communities must be leading the recovery. Not 
NGOs. And it's not that they just participate in it. They must 
be at the head of it. We can't just count houses as a measure 
of our success. The process is very, very important.
    Third, it's very important that we support the peace 
agreement between the Government of Indonesia and the Free Aceh 
Movement. Disasters create opportunities, and one of the ones 
that came out of this disaster was the silver lining of the 
peace agreement with the Free Aceh Movement. Fifty percent of 
peace agreements fail on the implementation. It's very, very 
important that we look at implementation of tsunami recovery as 
part and parcel of this peace process. We have to look at them 
    Finally, it's very important that we remain mindful of 
long-term recoveries--recovery needs. That means that we have 
to be developmental in our approach. It feels great to hand 
things out, but it's very, very important that we see that 
communities are engaged in the process of their own 
    And I think part of that, also, is doing exactly what this 
committee is doing, and that's to continue to insist on 
excellence and to continue to monitor progress well into the 
    So, in closing, I just want to say I think it's essential 
that we sustain our commitment to recovery in an area of the 
world impacted not only by a devastating natural disaster, but 
also by years of civil war. We encourage you to keep checking 
in with us on progress. Mercy Corps greatly appreciates the 
continuing interest of this community in the work of 
nongovernmental organizations in this effort, even as our 
interest is drawn away to respond to new crises here and 
    Thank you very much.
    [The prepared statement of Mr. Martin follows:]

    Prepared Statement of Randy Martin, Director, Global Emergency 
                Operations, Mercy Corps, Washington, DC

    Mr. Chairman and committee members, thank you very much for 
inviting Mercy Corps to share our impressions and thoughts on the 
current recovery activities in Indonesia. As we remember all too 
vividly, the tsunami of December 26, 2004, was horribly destructive to 
a broad swathe of South Asia. Stunned by the images, the world quickly 
responded with immediate life-saving assistance on an unprecedented 
scale. An InterAction study released in June found that 60 American 
InterAction-member NGOs responded to the Asian tsunami, raising nearly 
$1.5 billion and spending a quarter of a billion dollars in the first 
90 days alone.\1\
    \1\ For detailed information on the tsunami-related activities of 
American NGOs during the first 90 days of the response, see 
``InterAction Member Tsunami Response Accountability Report; A Guide to 
Humanitarian and Development Efforts of InterAction Members in Tsunami-
Affect Areas'': InterAction; June, 2005.
    The Indonesian province of Aceh was particularly devastated with 
the compounded impact of the earthquake and resulting tsunami. The 
Acehnese suffered 128,000 deaths and the displacement of over 500,000 
people. Seven militaries and roughly 300 national and international 
nongovernmental organizations--including 2,000 expatriates--have worked 
alongside the Indonesian Government and people to respond to this 
humanitarian crisis of extraordinary proportions.
    Eight months later, we are well past the emergency needs of those 
early days and weeks. We are now embarked on the very challenging work 
of reconstruction, though without the benefit of the world's focused 
attention--which has moved on to new crises here and abroad. Therefore, 
from the onset, I want to applaud this committee for its commitment, to 
monitoring this critical process of rebuilding--and encourage you to 
keep doing so.

                        THE NGO RESPONSE IN ACEH

    I've been asked to comment on, summarize, and provide an update on 
United States-based NGO activity in Indonesia, including Mercy Corps' 
work, which I am pleased to address. However, I would also note that in 
our experience the primary accomplishments are the result of 
communities coming together to chart their recovery. When we are most 
effective as an INGO \2\, we are primarily catalyzing and supporting 
the great strength and resiliency of these communities. Our teams on 
the ground continue to be inspired and moved by the great courage, 
dedication, and problem-solving approach of the many community leaders 
with whom we have worked.
    \2\ INGO: International Non-Governmental Organizations.
    To visitors arriving in Banda Aceh now and for the first time, one 
may be struck by the amount of work still to be done. However, I submit 
that there has indeed been substantial progress in Aceh over these past 
8 months. Significant challenges remain, but many of the toughest 
hurdles have been surmounted and we are collectively now poised for the 
long and hard work of rebuilding. Let me speak to some of the 
challenges we have overcome.
    In rapid-onset disasters of this proportion, communities suffer not 
only from the massive destruction of property and loss of lives, but 
they also lose the very institutions and structures that were put in 
place to respond to emergencies. Militaries have substantial logistics 
capacity, but are enormously expensive and do not have the expertise or 
time horizons necessary to mobilize communities for long-term 
reconstruction. Private contractors, likewise, are unlikely to bring 
community development expertise, multiple funding sources, or the long-
term commitment needed to sustain reconstruction. The role of 
humanitarian NGOs--our experience, our broad base of resources, and our 
commitment to the long term--is thus essential to fill the gap.
    However, in the aftermath of such destruction, indigenous capacity 
to coordinate the outside assistance being offered is dramatically 
undermined. Despite this challenge, the humanitarian community managed 
to construct serviceable coordination functions early on in the crisis. 
Taking the lead in coordination, the United Nations Office for 
Coordination of Humanitarian Affairs set up a Humanitarian Information 
Center (HIC) in Banda Aceh at which NGOs registered, indicating their 
intervention plans and resources, which were in turn mapped by the HIC. 
A variety of general and sector specific coordination meetings were 
established. The United Nations ran regular meetings of the Inter-
Agency Standing Committee (IASC) to coordinate the efforts of the 
various U.N. agencies with the efforts of the NGOs and governments.\3\ 
These efforts were instrumental to bringing the aid effort together in 
the early days.
    \3\ For more information on NGO coordination in Aceh, see ``A 
Review of NGO Coordination in Aceh Post Earthquake/Tsunami''; 
International Council of Voluntary Agencies (ICVA); April 8, 2005.
    Given the extraordinary level of devastation wrought by the 
tsunami, the progress has been substantial: Over 500,000 people have 
received monthly food rations and over 90 percent of students have 
returned to local schools. Moreover, despite dire predictions, there 
have been no major outbreaks of disease. NGOs and international 
organizations have slated over 60,000 houses for reconstruction and, 
working with local authorities, have begun the arduous of task of 
clarifying land ownership, developing appropriate designs to ``build 
back better'' and have initiated the long process of rebuilding. Almost 
100 agencies are working to rebuild or rehabilitate 1,500 damaged 
schools. Over 100,000 individuals, supporting family members totaling 
over 500,000 persons, have received assistance to restart their 
    Mercy Corps alone has injected over $10 million into the local 
economy through our programming. We have provided cash-for-work 
opportunities to over 26,000 people in 93 villages. We have supported 
the return of over 46,000 individuals through cash grants to 
communities for quick impact projects and by restoring basic 
infrastructure. In 66 villages we have funded the restoration of 
cultural, social, and religious institutions benefiting over 77,000 
individuals. This support has been critical in restoring the social 
fabric of local communities that is so critical to recovery after such 
a disaster.
    On February 10, 2005, Mercy Corps President Nancy Lindborg--having 
recently returned from Banda Aceh--testified before this committee 
about ``Tsunami Response: Lessons Learned.'' In mid-August, Ms. 
Lindborg returned to Banda Aceh to observe firsthand the progress made 
in restoring peoples' lives, livelihoods, and hope. In January, she had 
reported that survivors of the crises still appeared ashen in shock; 
that over 2 miles of the coastal belt were nothing but the remains of 
debris-strewn villages and roads, and that economic activity had all 
but ground to a halt. By August, she witnessed that most of the debris 
had been cleared and new houses were being built; children had returned 
to school; normal village social life was returning and local markets 
were again thriving. Unless someone had visited Aceh in January they 
could not put into perspective how much progress has actually been 
    During her trip in August, Ms. Lindborg revisited the village of 
Tibang, which she had gone to during her January trip. In January, the 
village was waist-high in debris, most houses and buildings were 
destroyed and the village was devastated not only by the destruction of 
its infrastructure, but at the loss of several hundred residents killed 
and the remainder displaced. Since then the debris and rubble have been 
cleared, new houses are being built, regular community meetings are 
held to discuss local issues and priorities, and the village has 
erected a bulletin board providing detailed plans and commitments from 
various international and local NGOs. Mercy Corps is working with the 
local community to restore shrimp ponds, which was their primary source 
of income prior to the tsunami, and we are working with Habit for 
Humanity to rebuild 300 houses by December.
    More recently, as Mercy Corps has been phasing out of cash-for-work 
and direct cash projects, we have begun focusing on economic 
development and restarting local markets. Mercy Corps has assisted over 
5,200 people, including fishermen and farmers, to restore their 
livelihoods and we are working with local banks on a loan guarantee 
program to allow entrepreneurs to access credit to restart their 
businesses. The first client of this program has been able to restart a 
fiberglass production facility that employs eight people and whose main 
work is in replacing destroyed fishing boats.
    It is a tribute to the people of Banda Aceh and to the 
international community that so much has been done to restore the sense 
of vitality, purpose, and hope among the local population. However, 
given the enormity of the destruction there remain serious challenges 
in the months and years ahead. Though rebuilding communities never 
happens as fast as we would like, those of us in the thick of it--those 
of us who witnessed ground zero on day one--are very proud of what we 
have managed to accomplish in just 8 months.
    As we look ahead, I would like to leave you with four 

1. We must support government capacity for rebuilding
    The Badan Rehabilitasi dan Reconstruksi \4\ (BRR)--the lead 
Indonesian body overseeing rehabilitation and reconstruction--is now 
well established and beginning implementation of its formidable task. 
The BRR provides a vehicle to cut through bureaucratic redtape and move 
reconstruction forward. Of particular importance is that the highly 
regarded director of the BRR is based in Banda Aceh and reports 
directly to Indonesian President Yudhoyono. However, attention must 
remain on ensuring that BRR has sufficient resources--both human and 
financial--to fulfill its mandate.
    \4\ Badan Rehabilitasi dan Reconstruksi translates as ``body for 
rehabilitation and reconstruction.''
    Under the Government Implementation Plan for Aceh Development--
rebuilding and improving government capacity is a critical goal. There 
are many challenges in working with the local government--weaknesses 
both on the part of the government and on the part of INGOs. The 
goverment has limited capacity to assess, implement, and monitor 
projects of the size and scope that are required. It lacks knowledge of 
humanitarian principles and the working practices of the international 
humanitarian response community, which hampers partnering and 
coordination with these important actors. Finally, the government is 
too often challenged by internal corruption and bureaucratic 
inefficiency. NGOs, for their part, often fail to coordinate and 
communicate effectively with the government, or to channel their 
resources to support government guidelines and priorities.
    The local government needs to be supported through initiatives that 
build the skills and facilities of the local government. For their 
part, the INGOs need to be encouraged to partner with and support local 
government initiatives--encouragement which could be provided by the 
donor community. We are seeing a more proactive government emerge as it 
gains the experience and expertise to address the challenges.
    One specific area that the BRR needs focused support and capacity-
building in is in determining land ownership, resolving land conflict 
issues, and developing a system for arbitrating conflicting claims to 
parcels of land. This has emerged as a key issue due to the loss of 
government records during the tsunami. It is one of the primary 
impediments to more timely reconstruction of housing.

2. We must continue support for community-led initiatives
    In Mercy Corps' experience throughout the world, local communities 
can and should be leading their own recovery and reconstruction 
efforts--not merely participating or, even worse, standing by as 
outsiders do the planning and implementation. Leadership and engagement 
of local communities in the design and implementation of recovery 
programs are essential not only to achieve the desired impact of 
recovery efforts and their sustainability, but also to strengthen 
capacities and role in civil society. Rebuilding infrastructure such as 
houses, schools, and clinics is important, but by encouraging active 
local leadership in these efforts we will ensure that these facilities 
are maintained far beyond the presence of international NGOs and donors 
and that the impact moves beyond the physical infrastructure to 
building a better society.
    While a considerable amount of resources have gone toward the 
physical rehabilitation requirements, it is still critical to emphasize 
the development of the knowledge, skills, and abilities of local 
communities to fully engage in the reconstruction process. This 
requires developing community capacity to link and work with local 
government actors, improving availability of services and empowering 
communities to demand access to them, and improving community access to 
information for decisionmaking.
    A clear example of supporting community-led initiatives is Mercy 
Corps' work providing cash grants to villages that allow village 
councils to use these financial resources to best address local issues 
which they themselves have identified. In one village outside of Banda 
Aceh, the village voted to use their cash grant to create a small scale 
brick factory that not only contributed to reconstruction needs, but 
also generated local employment.

3. We must strongly support the peace agreement between the Government 
        of Indonesia and the Free Aceh Movement
    Disasters often create opportunities. Prior to the tsunami, Aceh 
had been locked in a civil conflict between the Government of Indonesia 
and the Free Aceh Movement (GAM) which remained seemingly insoluble 
after nearly 30 years of struggle which has taken thousands of lives. 
The tsunami's silver lining is that it brought the international 
attention that motivated a political solution to the conflict. An 
agreement has been signed, and the initial stages of implementation 
have moved forward in an encouraging manner, but as with all such 
accords, continued international attention and support of this peace 
agreement are essential. It is essential that the tsunami recovery 
reflect the needs for peace dividends and reconciliation. I urge that 
progress on the implementation of the peace agreement be looked at as 
part and parcel of recovery in Aceh.

4. Remain mindful of the long-term recovery needs
    Eight months after the tsunami, efforts to rebuild and rehabilitate 
the affected areas in Aceh are still in their early stages, and a 
satisfactory physical and economic recovery may take five additional 
years or more to complete. Indeed, even though the dire emergency 
created by the tsunami has largely stabilized, much of the affected 
population is still in need of basic necessities like adequate shelter, 
food, clean water, and access to medical care.
    The importance and urgency of this work can overshadow the need for 
long-term strategies to strengthen civic structures and civil society 
values and practices that are indispensable to making reconstruction 
efforts sustainable. This can be true even when the need for long-term 
programming that addresses the roots of the problems facing Acehnese 
society is generally agreed on. One of the reasons for this is a lack 
of resources and a natural reluctance to allocate funds and energy 
toward activities that do not produce rapid, tangible results while 
more urgent and salient needs abound. It is essential, however, that 
despite these pressures we remain cognizant that long-term development 
requires a different approach than emergency relief in recovery. Relief 
and recovery strategies made in an environment of severe and acute need 
may not always lead to effective plans for sustainability years down 
the road. Furthermore, transitioning to a long-term mindset can be 
difficult. The daily gratifications that come from tangibles like 
clearing debris, fixing schools, and planting acres of rice are not 
easily traded in for the long, complicated, and often delicate tasks of 
strengthening the civic values and institutions that ensure sustainable 
    In closing, let me reiterate the importance of a long-term 
commitment to recovery in an area of the world impacted not only by a 
devastating natural disaster, but also by years of civil strife. We 
encourage you to keep checking in with us on progress. Mercy Corps 
greatly appreciates the continuing interest of this committee in the 
work of Non-Governmental Organizations in this effort--even as we are 
drawn to respond to new crises in our own country and around the world.

    Senator Murkowski. Thank you. And I appreciate the very 
specific recommendations that you have given and would 
certainly agree that every effort that we make to make sure 
that we are working from the bottom up, working with the people 
in the communities, those--the residents, the local folks, we 
can be assured of greater success.
    I'm told that I now have 2 minutes remaining until our next 
vote, and we do have two votes. So, I am going to bring this 
hearing to a close.
    I do have some questions that I had intended to direct to 
all three of you, and, as I am going to have to excuse myself, 
I would like to just be able to present them to you, in 
writing, and would await your response.
    Senator Murkowski. Ambassador Cleveland, one--the one that 
I wanted to ask you--and I'll just give you a heads-up--is--
given where you've been and what you've seen and your comments 
about the new president and what we are seeing out of this 
administration is, What's Indonesia going to look like in the 
year 2020? Where are we going to be?
    And, you know, right now we're talking, Mr. Martin, about 
the very--responding to the very immediate needs after a huge 
catastrophe, but we recognize that we've had a very 
distinguished panel, immediately preceding you, talking about 
some very significant opportunities in the future, the 
relationship between Indonesia and this country and how we can 
really see some positive and good things coming.
    So, I'd be curious to know your response. And certainly if 
either one of you would like to jump in on that question, even 
though it might be not directed to you, we'd appreciate that, 
as well.
    With that, gentlemen, thank you for your time. Thank you 
for your insight and for all you do for us. We appreciate it a 
great deal.
    Thank you.
    [Whereupon, at 3:40 p.m., the hearing was adjourned.]

       Additional Questions and Answers Submitted for the Record

 Responses of Hon. Paul M. Cleveland to Questions Submitted by Senator 
                             Lisa Murkowski

    Question. Ambassador Cleveland, given the events over the past few 
years, where do you see Indonesia in 2020?

    Answer. Indonesia has made extraordinary strides in locking in 
democracy. It would have been hard to envision a decade ago that the 
Suharto regime would have been ousted, pretty much peacefully; there 
would have been peaceful transitions of power to three administrations; 
fully democratic elections could have been held in 1999 and 2004; the 
military (TNI) would have been removed from civil positions and the 
legislature; the devolution of power to local governments would occur; 
and a new, democratic constitution would be implemented. Indonesia's 
progress has been exceptional. All observers should give major credit 
to the resilience and intrinsically democratic instincts of the 
Indonesian people.
    Looking ahead, there are trouble spots, mainly relating to extreme 
Islam and religious confrontation, but the future mainly is positive:

   Democracy, fundamental freedoms and respect for human rights 
        should be fully entrenched by 2020. Popular expression through 
        local governmental institutions, combined with greater social 
        equity and civic responsibility, should be well developed.
   With the wise application of government policy and power, 
        religious tolerance as provided for under Indonesia's 
        Constitution likewise should be firmly established. 
        Accomplishing this, however, will require enormous efforts to 
        improve Indonesia's educational system, as well as bolster 
        mainstream religious organizations of all faiths and stop 
        violent extremism when it appears.
   Indonesian national integrity, and the continued 
        incorporation of the critical regions of Aceh and Papua, will 
        be maintained as an important element of regional harmony and 
        stability. Increased respect for human rights in the 
        performance of government, stronger civil society, and an 
        effective, though culturally appropriate, accounting for past 
        abuses should occur, but there will be a need for more 
   Indonesia should be more deeply integrated into the ASEAN 
        regional economy as a web of free trade agreements (FTAs), 
        including with the United States, promotes market 
        harmonization, access, and trade-related investment flows. If 
        the United States shows leadership in promoting trade and 
        economic integration in the Asia-Pacific region as a whole, 
        Indonesia can be expected to be the most dynamic player in 
        Southeast Asia.
   Indonesia has maintained a good record in macroeconomic 
        management. Given current modest population growth, substantial 
        inroads into poverty and unemployment can be made. 
        Unfortunately, corruption and bureaucratic inefficiency will 
        continue to stunt overall growth rates, although on a declining 
   With increased investment and participation by U.S. energy 
        companies, Indonesia can reassume its position as a net energy 
        exporter and substantial provider of mineral resources to the 
        global economy.
   In foreign relations, Indonesia should again be an effective 
        contributor in regional political, security, and economic 
        affairs; interlocking functionally based ``communities'' in 
        Southeast Asia and East Asia will recognize Indonesia as the 
        natural, constructive leader and force for regional 

    There are other aspects of Indonesia's role in the Asia region 
which should be congenial to United States interests. Above all, the 
United States at this point of time should give Indonesia the emphasis 
it deserves as an important regional actor, the world's third largest 
democracy and the world's most populous Muslim nation.

    Question. In your testimony, you state that Indonesia has become an 
increasingly important counterweight to China's spreading influence in 
the region. Yet we are also seeing China and Indonesia sign investment 
agreements worth tens of billions of dollars. Could you elaborate on 
where Indonesia has been a moderating force on China's influence?

    Answer. First of all, if as we believe, Indonesia continues the 
substantial political and economic progress described above, it will 
avoid becoming a soft, potentially disintegrating nation where China 
and possibly India could ``fish in troubled waters.''
    To the extent that Indonesia has had a historical record of seeking 
to blunt Chinese chauvinism in Southeast Asia, it has been a brake on 
Chinese political aspirations. Our assessment is that a strong 
Indonesia will maintain its skepticism of PRC political objectives in 
the region and would react strongly to any inappropriate behavior, 
especially toward exploitation of its overseas Chinese population. 
Since the fall of Suharto, Indonesia has made great strides to fully 
dignify the role of its ethnic Chinese citizens. Special identification 
cards, tax regulations, limitations on the use of the Chinese language, 
restrictions on Chinese language education and other discriminatory 
measures have been eliminated since President Habibie's time. These 
have been positive measures to deprive the PRC of a base of sympathy 
and support among Indonesia's ethnic Chinese population.
    The ultimate total value of Chinese projects in Indonesia cannot be 
predicted as it is well known that trade and investment agreements with 
Beijing are rarely realized to the full extent. Nevertheless, the 
Yudhoyono government is canvassing strenuously for additional foreign 
investment, particularly in infrastructure, as an essential element of 
its economic growth and job creation strategy. China has been included 
in this effort to attract greater investment, along with the United 
States, Japan, Australia, and Europe. PRC interest has been shown in 
energy resource development and power generation. Jakarta also has made 
an effort to attract Indonesian Chinese capital that moved offshore 
during the Asian financial crisis of 1997, some of which is in the PRC 
and Hong Kong. If Chinese investment is transparent and Chinese 
companies play by accepted international rules, their participation in 
the Indonesian economy can be constructive and complementary.

    Question. Ambassador Cleveland, you spent some time in Indonesia, 
but you also served as Ambassador to Malaysia. What has been the 
traditional relationship between Indonesia and Malaysia, especially 
given the need for cooperation for security maintenance in the Strait 
of Malacca?

    Answer. Indonesia had a troubled cross-strait relationship with the 
Federation of Malaya under Confrontation (Konfrontasi) during the time 
of President Sukarno; there also was an active cross-border insurgency 
in Kalimantan that exacerbated political tensions. Under Suharto, 
confrontation gave way to cooperation and ASEAN has served over the 
years to harmonize Indonesian and Malaysian interests as well as to 
build a habit of working together, including in law enforcement, 
traffic separation, and other matters relating to the Malacca Strait. 
At the same time, the relationship has not been trouble free. In recent 
years, the forced repatriation of Indonesian laborers in Malaysia has 
created difficulties and mistrust between the two neighbors. This year 
competing claims for territorial waters in the resource-rich Ambalat 
area off East Kalimantan and Sabah resulted in saber-rattling and 
public outbursts of jingoism. Malaysia also has strongly defended its 
sovereign rights vis-a-vis international cooperation in Southeast Asian 
maritime security.
    Yet the outlook is more positive as a good dialogue, with more 
frequent personal contact, is emerging between Prime Minister Abdullah 
Badawi and President Yudhoyono. However, totally satisfactory 
accommodations have not been reached on the labor and territorial 
disputes. Malaysia has come forward with an international technological 
monitoring proposal for the Southeast Asian sealanes which is somewhat 
analogous to Singapore's ``horizon scanning'' concept and which 
promises to upgrade regional cooperation and joint operations with 
Indonesia in maritime patrolling and enforcement. According to reports, 
Malaysia welcomes U.S. assistance to Indonesia to improve Indonesian 
navy and police maritime patrolling capabilities, as well as 
immigration and law enforcement. Overall we see a modest pattern of 
cooperation developing, one that the United States can support with the 
cooperation of other regional partners such as Japan and South Korea.

    Question. For American businesses looking to invest in Indonesia, 
how would you assess the country's resources, including its human 
resources--literacy and public access to schools?

    Answer. Indonesia continues to have strong potential for major 
development of natural resources, especially oil, natural gas and 
mining, which can serve to attract near-term investment and serve as an 
engine of growth and job creation. As part of its proinvestment 
outlook, the Yudhoyono administration is endeavoring to overhaul 
government bureaucratic machinery and state-owned enterprises (SOEs) in 
these sectors. Unquestionably, major U.S. investors would respond 
positively to actions by the Yudhoyono government to open up new 
opportunities for natural resource investment and to overcome 
regulatory, tax, and other factors constraining new investment.
    Education, both in cost and quality, unquestionably is a prime 
national concern; together with basic health care, it is an important 
determinant of Indonesian competitiveness as an investment venue. 
Indonesia's literacy rate of 88 percent is high among developing 
nations, but especially since the 1997 financial crisis national 
expenditures on education have slipped badly to the point that, among 
Southeast Asian nations, on a per capita basis Indonesia ranks above 
only Myanmar (Burma) and Laos. While the Yudhoyono government is 
addressing the growing educational gap by increasing budgetary 
expenditures by 12 percent this year, there is a long way to go to meet 
the constitutionally mandated target of 20 percent of the annual 
national budget, much less to boost the quality of education up to 
acceptable regional and world standards.
    At the same time, experience has shown that the Indonesian 
workforce is eminently trainable. For example, at the Batam Industrial 
Zone near Singapore, Indonesian workers perform very well in highly 
sophisticated industrial and high-tech operations. This is also true of 
other industrial enclaves as Indonesia's white-collar workforce has 
proven to be highly talented. Yet with the addition of an estimated 9 
million new entrants into the workforce each year, the challenge of 
meeting basic educational needs and providing higher level skills 
training and academic experiences is tremendous.
    For these reasons, as well as to support moderation, democracy, and 
religious tolerance among the vast majority of the population, the 
report of the U.S. National Commission on U.S.-Indonesian Relations, 
chaired by George Shultz and Lee Hamilton, in late 2004 recommended the 
creation of a bilateral ``Partnership for Human Resource Development'' 
to spur additional U.S. and other assistance in education, especially 
to local schools (including Islamic educational institutions) and at 
the university level aimed at producing new Ph.D.s and restoring 
collaborative linkages with American universities.
    Responding to basic education needs, USAID is providing $157 
million in assistance over 6 years to improve the quality of teaching 
in primary and secondary schools, schools management, computer 
literacy, and school-to-work transition. USINDO, for its part, is 
concentrating on four initiatives in higher education: Establishment of 
a Presidential Scholars program, with a major U.S. Fulbright program 
component and World Bank and other donor contributions, which would 
turn out 400 new Ph.D.s in 5-7 years to teach and perform research in 
40 centers of excellence; a joint consortium to improve teacher 
education in public and private universities; another bilateral 
consortium to focus on university management needs; and three 
initiatives utilizing state-of-the-art educational technology to create 
a nationwide university Internet system, develop Indonesia-specific 
educational software, and establish an interactive Web site to 
facilitate communications between United States and Indonesian 
    U.S. Government Public Diplomacy also has an important role in 
terms of expansion of the regular Fulbright program and educational 
exchanges, the promotion of new ideas through expanded International 
Visitors programs, sending prominent educators, technologists, and 
experts to Indonesia, and reaching out to elements of Indonesian 
society, especially Muslim political, social, and educational 
opinionmakers, to strengthen mainstream religious practice against the 
small violent radical minority.
    U.S. assistance in these key areas should be increased at least 
two-fold above current levels, among other things to address urgent 
public health requirements, most prominently the threat of an avian flu 
pandemic. Clean water and HIV/AIDS campaigns also deserve increased 
U.S. and donor support. Working together through the Consultative Group 
for Indonesia (CGI) led by the World Bank, concerted donor efforts in 
education and public health could within a decade create a healthier 
and better educated workforce that would enable Indonesia to keep pace 
with other countries in the region to develop its economic and 
industrial base and attract major new foreign investment.

    Question. Given the problems you note with corruption in Indonesia, 
how is this impacting on foreign investment? We have seen China's 
willingness to invest in places like Zimbabwe and Sudan while ignoring 
concerns from the international community. Are Chinese companies 
playing a role in helping to reduce corruption in Indonesia?

    Answer. There is no indication that investment from the People's 
Republic of China has an impact on the Yudhoyono government's 
anticorruption campaign. Most Chinese investment is state supported, if 
not directly from SOEs, hence it largely reflects Beijing's policy 
interests encapsulated in the PRC's ``smiling diplomacy'' toward 
Southeast Asia of the past 6 years or so. Furthermore, Chinese 
investment is not constrained by national policies such as the U.S. 
Foreign Corrupt Practices Act; ``rules of the road'' on transparency 
and good conduct in OECD and other international agreements. Moreover, 
Chinese investors know how to ``go along to get along'' in Indonesian 
and Southeast Asian business circles.
    It is unquestionable that Chinese investment in Indonesia is 
increasing. Securing energy supplies is one clear interest, but also 
Chinese manufacturers are opening up shop to produce consumer and other 
goods. Open investment from China improves Indonesia's overall inflow 
of foreign direct investment (FDI) and generates employment as it does 
elsewhere in Southeast Asia. As with other investment partners, the 
Yudhoyono government has sought to attract greater Chinese capital but 
evidently there is a more cautious approach today than under the 
government of former President Megawati Sukarnoputri when several 
questionable transactions involving favoritism were concluded. The 
recent appointment of a seasoned political military affairs veteran, 
retired General Sudradjat, a former Defense Attache in Washington, as 
Ambassador to China indicates a more careful approach in Jakarta's 
dealings with Beijing.

    Question. Sticking with corruption, up until the mid-1970s, Hong 
Kong faced rampant corruption, permeating almost every area of people's 
lives. In 1974, after widespread public discontent, the Independent 
Commission Against Corruption was enacted--an event that is rated as 
the sixth most important event in Hong Kong's 150-year history--and 
Hong Kong has since turned into a model for anticorruption. Is the 
public frustration in Indonesia regarding corruption at a high enough 
level to support a similar government agency?

    Answer. The Hong Kong model to countering corruption is certainly 
to be emulated in international practice. But Hong Kong is small. The 
Yudhoyono government faces a much more amorphous and geographically 
wide-ranging problem. Nevertheless, it has breathed new life into 
Indonesia's statutorily independent Anti-Corruption Commission (KPK), 
legislatively authorized in 2002, and a new Anti-Corruption Court has 
been established. The President was able to garner a better than 60 
percent popular mandate in the Presidential runoff election in 
September 2004 because of his strong stance against corruption and in 
favor of improved government performance. Moreover, he underscored his 
2004 election campaign pledge to contain corruption by issuing 
Presidential Decree No. 11/2005 which authorized a new 51 member 
ministerial-level Coordinating Team for Corruption Eradication. All 
Ministers and senior officials in the Presidency had to sign 
anticorruption pledges when the new government took office in late 2004 
and an assets disclosure procedure is in place.
    President Yudhoyono has given strong impetus to the anticorruption 
campaign by sanctioning investigations into the National Election 
Commission, Bank Mandiri, Bank Indonesia, and other financial 
institutions, and he has given the Supreme Audit Agency (akin to the 
U.S. GAO) sweeping powers to track nonbudgeted spending in state-owned 
enterprises (SOEs), including the Garuda national airline, Telkom, and 
the social security agency. President Yudhoyono has also supported 
investigations into at least 57 high officials, including the former 
governor of Aceh (now jailed), other governors, legislators, mayors, 
and other officials for alleged misuses of public funds. As recently 
observed by a respected consulting firm, Van Zorge and Heffernan, the 
President ``is still seen to be clean and is widely viewed both 
domestically and internationally as a leader with scrupulous ethics and 
unassailable integrity.''
    All this does not mean, however, that problems of malfeasance in 
government have been solved. Far from it. It will be a long, tough slog 
with setbacks. But, under the Yudhoyono administration, there is 
promise that the situation is improving and that gains in transparency 
and integrity in government will be achieved in the next few years.

    Question. What can we in Congress be doing to help our fellow 
legislators in the Indonesian Parliament increase their influence and 

    Answer. USINDO has supported efforts to promote closer relations 
and understanding between the United States and Indonesian legislative 
branches. For a number of years young Indonesians have served as 
Congressional Fellows under international exchange programs but, with 
the further development of Indonesian democracy and the important 
issues before our two countries, enhanced interchange is recommended.
    The U.S. Congress can provide support to moderate members of the 
Indonesian Parliament (DPR) and enhance their influence by continuing 
to bolster the bilateral relationship across a wide range of common 
interests and programs: Restoration of a full and complete defense 
relationship; conditions and incentives for U.S. investment in 
Indonesia; promotion of a more open and robust bilateral trade; and 
continuing U.S. Government support for assistance to the Indonesian 
education system.
    We would urge a continued expansion of the bicameral U.S. Congress 
Indonesia Caucus which currently has 24 members: 22 from the House and 
2 from the Senate. We would further suggest that the caucus develop a 
close relationship with its new counterpart in the Indonesian 
Parliament, the Indonesia-United States Working Group. Nineteen members 
of the DPR have joined this group, which is led by strong supporters of 
improved United States-Indonesian relations, and it is expected that 
they will propose initiatives to establish a variety of ties with the 
U.S. caucus.
    Additionally, we suggest that the Congress organize periodic CODEL 
visits to Indonesia and that members agree to appointment requests by 
Indonesian parliamentarians during their visits to Washington. Meetings 
with members of the DPR's Commission I (committee on foreign and 
defense affairs) would be quite productive and appropriate to address 
pressing issues, including military-to-military relations, Aceh and 
    Finally, we applaud the initiative of the House International 
Relations Committee to establish a Democratic Assistance Commission to 
support the legislatures of emerging democracies. A House staff 
delegation recently visited Jakarta and the DPR is reportedly under 
serious consideration for inclusion in this new program. Specific 
interests to be served through a closer relationship between the 
Congress and the DPR are legislative research and drafting, constituent 
services, budget and measures to reduce reliance of the DPR on the 
executive for its routine operations and support, and strengthening DPR 
relations with civil society organizations, including those concerned 
with human rights.

Responses of Dr. Hadi Soesastro to Questions Submitted by Senator Lisa 

    Question. Dr. Soesastro, given the events over the past few years, 
where do you see Indonesia in 2020?

    Answer. Over the past few years Indonesia underwent a remarkable 
process of democratic transition. It can be said that the process has 
been successful because the people are ready for it. In 2004 the people 
enthusiastically went to the voting booths to exercise their sovereign 
right. They voted out a government that in their view did not deliver 
and reduced their support for political parties that they regard as 
being insensitive to their aspirations. If this enthusiasm can be 
sustained, by 2020 Indonesia could indeed become the fourth largest, 
consolidated democracy in the world. This is of great value to the 
global community of democracies as Indonesia is a country with the 
largest Muslim population.
    It needs to be recognized, however, that the process of democratic 
consolidation in the country is still rather fragile. People's 
expectations are high, but the institutions to support the 
democratization process are still weak. There is the risk of people's 
disillusionment should not be ignored. The democratization process 
cannot be taken for granted. Development and strengthening of political 
institutions should be given priority in the country's agenda. 
Education also plays a critical role in strengthening the 
democratization process. The global community of democracies, including 
the United States, could extend a helping hand.

    Question. Your testimony indicates that Indonesia feels a sense of 
commitment to ensure the success of ASEAN. Have the United States 
efforts in signing bilateral FTAs with Singapore and Australia, along 
with our current negotiations with Thailand helped or hindered ASEAN's 
growth and what is the view of the FTAs in Indonesia?

    Answer. To Indonesia, the success of ASEAN is important for 
Indonesia's own development, because a peaceful and prosperous regional 
environment will directly benefit Indonesia. Indonesia supports any 
effort by ASEAN's partners, including the United States, to strengthen 
relations and cooperation with ASEAN as a group and with individual 
ASEAN countries. Strengthening relations and cooperation between the 
United States and ASEAN can take many forms. Concluding bilateral free 
trade agreements (FTAs) is only one initiative that could contribute to 
deepening the overall relationship. However, in drafting such bilateral 
FTAs, the United States should give duly consideration to their impacts 
on the region as a whole because FTAs are by their nature 
discriminatory. The U.S.-Singapore FTA has included some provisions, 
albeit limited, that could bring some positive impact on Singapore's 
neighbors, particularly Indonesia. The so-called Integrated Sourcing 
Initiative, allowing some products that are produced in Singapore's 
immediate neighbors to enter the U.S. market as if they were produced 
in Singapore is an innovation and should be expanded in its 
    In Indonesia's view, the United States should increase its efforts 
to strengthen trade and economic relations with all ASEAN countries, 
with some in the form of FTAs and with others perhaps mainly through 
enhanced Trade and Investment Framework Agreements (TIFAs). All these 
relations could contribute not only to increasing trade and economic 
relations with the United States but in particular will help sustain 
domestic economic reforms and the strengthening of markets in the ASEAN 

    Question. How is Indonesia managing the numerous ASEAN FTAs (China, 
Japan, Korea, India) with its own domestic issues?

    Answer. Indonesia's main challenge is to be able to manage the 
development of a very few sectors that are seen as highly sensitive 
politically. Since the introduction of the ASEAN Free Trade Area (AFTA) 
in 1993, Indonesia has done away and greatly reduce many of its trade 
barriers, tariffs in particular, but also a number of nontariff 
barriers. It is important to note that in line with the reduction of 
the AFTA preferential tariffs, the overall (MFN--most favored nation) 
tariffs have also come down. Thus, the conclusion of the FTA with 
China, a highly competitive economy, requires less painful adjustments, 
although it remains challenging. If Indonesia can manage this rather 
well, it is likely that it will also be able to do so with Japan, 
Korea, and India.
    Only a very few manufacturing sectors in Indonesia continue to 
receive some protection, and they are also no longer excessive. The 
more difficult area is agriculture because it affects the livelihood of 
a large number of low-income people. This is not a major problem in 
ASEAN's FTA with Japan and Korea that have very high-cost agricultural 
production. It could be a major problem for Indonesia with the United 
States, as already exemplified now in the U.S. exports of chicken legs 
to Indonesia.

    Question. Do you see a difference in the promotion of Indonesia's 
interests regionally from the authoritarian rule of Suharto to a more 
representative government today? Is Indonesia looking to expand its 
influence in the region to promote its views?

    Answer. During Suharto's rule, Indonesia played an active role in 
ASEAN as a de facto leader. It is perhaps of interest to note that 
while domestically the government was rather authoritarian, it was 
quite democratic in the interaction with its ASEAN neighbors. In fact, 
Indonesia has exercised a kind of leadership through building 
consensus. This posture had a lot to do with the origin of, and 
rationale for, the regional cooperation arrangement: Indonesia's 
genuine intention to become part of a peaceful regional order.
    Following the financial crisis of 1997/98 and Suharto's fall, the 
succeeding governments were preoccupied with domestic problems and gave 
little attention to ASEAN and regional cooperation. This began to 
change since the end of 2003 when Indonesia hosted the ASEAN Summit and 
was eager to craft a new agreement for ASEAN that would give it a new 
stimulus and life: The realization of an ASEAN Community. The present 
government of President Susilo Bambang Yudhoyono gives greater 
attention to ASEAN and Indonesia's role in it. The government has 
stressed the importance of political development, including 
democratization in the region, and the role of civil society and the 
people in regional community building. This has been stated explicitly 
in the concept of the ASEAN Security Community that was originally 
proposed by Indonesia, and was further stressed at the recent ASEAN 
Lecture of President Susilo Bambang Yudhoyono on 8 August 2005.

    Question. Dr. Soesatro, in my State of Alaska, there are 20 
different types of languages spoken by Native Alaskans. In Indonesia, 
there are more than 250, not to mention many religious, ethnicities, 
and cultures. For Indonesia to move forward economically, what 
considerations must it make with regard to this fact?

    Answer. It is most fortunate that Indonesia's founding fathers were 
enlightened to have adopted a common language for the very diverse 
communities, the Indonesian language (Bahasa Indonesia) that is derived 
from the Malay language, the language of a small ethnic group in the 
country but has become the lingua franca since the beginning of the 
20th century, rather than the language of the majority (Javanese). The 
Indonesian language has become a strong uniting factor. The nation has 
also adopted the wisdom of ``unity in diversity'' that values 
inclusiveness, plurality, and tolerance.
    It needs to be recognized, however, that these ideals have been--
and perhaps will be increasingly--under threat. The threat has come 
from a growing sense of parochialism and primordial sentiments, and 
especially religious fanatism and fundamentalism.
    In regard to the former, the nation has tried to deal with and to 
overcome it by introducing greater regional autonomy under a more just 
and equitable decentralized system. This has been done in recognition 
of the highly centralized system of government in the past. The 
decentralization project, implemented since 2001, is also seen as part 
and parcel of the democratization process. There are many challenges in 
the implementation of decentralization but overall it has been a 
success. In June 2005, a system of direct election of local governments 
has been put in place, and the 200 or so local elections did proceed 
without major problems.
    On the latter, it is a much more complicated problem for the nation 
to deal with. There cannot be a scheme to accommodate religious or 
other extremism in the governance of the nation. Indonesians are 
puzzled by the motivation of such groups to create so much damage to 
the country. Home grown terrorists have also become susceptible to the 
mobilization by international terrorist groups. Both national and 
international efforts will be necessary to deal with this problem.
    Overcoming these problems will be important for Indonesia to move 
forward economically. Without a secure and stable environment Indonesia 
cannot expect international investors to come.

    Question. Could you comment on the oil subsidy issue in Indonesia? 
What is the impact this has on economic growth and foreign direct 
investment in Indonesia?

    Answer. Fuel subsidies have been given for a long time. Over the 
years there have been efforts to rationalize these subsidies. Until the 
recent increases in international oil prices, gasoline was no longer 
subsidized. On the other hand, kerosene--regarded as a fuel for the 
poor--continues to be heavily subsidized. Some other types of fuel, 
such as diesel oil, are also subsidized. These subsidies are paid from 
the budget. With the recent increases in the price of oil, the burden 
to the budget has increased dramatically. If prices are not adjusted, 
the government will have to allocate about 30 percent of the budget for 
fuel subsidies. This cannot be sustained and justified. However, it has 
always been a politically difficult problem for the government to take 
back what it has given to the people, and specifically since the people 
regards it as their right to receive the subsidy.
    While subsidies can be a legitimate instrument for social policy, 
the problem with the fuel subsidies is that most of it has not been 
received by the groups in the society--the low-income people--that are 
the target of the policy. Differential pricing can never be 
successfully administered. In addition, the low prices have also led to 
smuggling of fuel to neighboring countries.
    Despite protests, on 1 October 2005 the government has raised fuel 
prices by an average of 130 percent. This has been the highest increase 
ever. This was a brave decision, and aroused a lot of criticisms. 
However, the government has justified it on the basis that the highly 
distorted prices are economically unhealthy, and that one-shot increase 
will be better than a series of price increases that could lead to 
excessive price adjustments each time.
    The immediate impact on the economy of this price shock will be an 
increase in inflation. However, if managed well by the monetary 
authority, the inflationary impact can be checked. In the medium and 
longer term, fuel prices that are more aligned with international 
prices will result in a healthier economy. International investors have 
also welcomed this decision. This is immediately shown by the firming 
up of the currency and increase in stock prices.

    Question. How is the transportation infrastructure in Indonesia? 
How does this hinder economic development?

    Answer. The transportation infrastructure in Indonesia today has 
become a major obstacle for economic development and growth. It is in a 
condition that discourages investors. Since the financial crisis in 
1997/98, there has been no major infrastructure development project in 
the country.
    The government is faced with a serious resource constraint to 
undertake large infrastructure projects but the investment environment 
has not been conducive to private, national, and international, 
investment in infrastructure.
    At the beginning of 2005, the new government organized an 
infrastructure summit to offer a large number of infrastructure 
projects to private investors. There was great interest on the part of 
international investors, but the process has been slow. The government 
needs to put in place regulations that would provide greater certainty. 
Unless this is done, it will be difficult to expect great improvements 
in the country's infrastructure, and in turn a return to higher 
economic rates of growth that will be necessary to create sufficient 

   Responses of Randy Martin to Questions Submitted by Senator Lisa 

    Question. Mercy Corps has done a remarkable fundraising for tsunami 
relief. What has the NGO/relief community learned from this incident in 
terms of fundraising and gaining awareness of the issue? How has 
Katrina affected the tsunami response?

    Answer. I don't believe the tsunami has taught us any lessons, but 
rather emphatically confirmed what we already knew.
    First, that the American public is incredibly generous when 
confronted with catastrophic disasters, particularly natural disasters 
that receive overwhelming media coverage. The tsunami was the worst 
natural disaster in recent times, and, not surprisingly, it elicited 
the largest public response in terms of dollars donated. Mercy Corps 
raised $31 million in private funds--more than ten times the previous 
disaster record of $3.3 million for Kosovo in 1999. Katrina confirmed 
this lesson when Mercy Corps raised $7.2 million (and counting) despite 
our relative inexperience in domestic disaster response.
    A second lesson of the tsunami is that donors tend to give very 
quickly and usually to the largest, best-known agencies, not 
necessarily the ones with ongoing on-the-ground operations in countries 
affected by the tsunami. The American Red Cross dwarfed all other U.S. 
charities in funds raised for the tsunami and indeed was the virtual 
default charity for many donors, especially Fortune 500 corporations. 
Many corporate donors, even large private donors do little to research 
into the organizations that they are giving to. The desire to provide 
help quickly--as well the need to publicly demonstrate this concern to 
stakeholders--leads to impulsive decisions-based brand-name perceptions 
rather than true needs on the ground and capacity to deliver results.
    A key lesson for mid-sized groups like Mercy Corps is to 
proactively engage large corporate and foundation donors before 
disasters strike to make the case for diversifying funding among 
several groups. Groups like the Bill & Melinda Gates Foundation have 
long practiced this methodology during disasters, recognizing that 
different groups bring different core skills to the table.
    Another lesson is the rise of Internet commerce during disasters--
not only organization's own Web site, but also third party entities 
like Network for Good, which collect funds on behalf of many charities, 
and also e-commerce giants like Amazon, which collected tens of 
millions of dollars on behalf of the Red Cross. The rise of e-commerce 
during disasters is reducing the costs of fundraising, but even more 
important, it is increasing the speed of response by giving disaster 
response planners more money, more quickly, enabling more robust 
initial responses. For example, in the first 5 days after the Pakistan 
earthquake, Mercy Corps raised $525,000--funds that are immediately 
available to spend. In the pre-Internet era, a direct mail piece would 
just be dropping by Day 5, and the first gifts would be arriving days 
after that. The faster flow of funds takes the ``how much money will we 
raise'' guesswork out of the equation, leading to more aggressive 
responses in the field.
    As for the second part of the question--whether Hurricane Katrina 
has affected the tsunami response--the answer for us is ``no.'' We have 
raised $2.2 million for tsunami relief in FY06 (that is, since July 1), 
but most of it was from large donors who had funds remaining. The 
general public response has tapered off well before Hurricane Katrina 
came on the scene. Beyond fundraising, the response to Hurricane 
Katrina also has not affected our programs or operations in Indonesia 
or the 34 other countries we work in around the world. We found the 
existing systems and staff we had in place for international response 
were well positioned to deal with the issues in responding to Hurricane 

    Question. How has the transition from relief to reconstruction 
been? Has the threat of terrorism been an issue in your experience?

    Answer. In Mercy Corps' experience the transition from relief to 
development is not a linear process easily captured on a timeline. That 
being said, reconstruction is moving forward in Banda Aceh with 
significant accomplishments in terms of meeting people's basic needs, 
restoring livelihoods and markets, and in general creating a better 
economic atmosphere.
    One area that needs continued attention and support is in the 
physical reconstruction, particularly of the estimated 120,000 houses 
that were damaged or destroyed by the earthquake and subsequent 
tsunami. The current rainy season in Indonesia is posing great 
difficulties for some families who are living in temporary quarters or 
in inadequate shelters. The United Nations and the International 
Federation of the Red Cross and Red Crescent Societies have recently 
taken on the need in increasing support for these families.
    In terms of the threat of terrorism, Mercy Corps like many 
organizations were concerned by initial press reports in the post-
tsunami period about the influx of radical or violent groups moving 
into Aceh. However, Mercy Corps' team on the ground has not reported 
any concerns or issues regarding these groups. In fact, Mercy Corps, 
through its work in over 40 local religious and social institutions 
including mosques, boarding schools, and orphanages, has received an 
overwhelmingly warm welcome by local religious and social leaders.

    Question. In Alaska fishing is a way of life and plays an important 
part in our communities and our economy. Hurricane Katrina has caused 
major damage to those fishing communities on the gulf coast. Has Mercy 
Corps focused on fishing communities in Indonesia?

    Answer. Mercy Corps believes that economic revitalization is key in 
achieving a long-term, sustainable recovery of Aceh. Realizing the 
importance of fishing as a source of income for many tsunami-affected 
communities, Mercy Corps started supporting the recovery of this sector 
in early January 2005. Mercy Corps is working in more than 21 fishing 
communities on the west coast of Aceh, in the area of Meulaboh in the 
district of Aceh Barat.
    The fishing program is holistic in focusing on the complete fishing 
market chain:

   In the boat repair program, 142 damaged boats have been 
        transported back to sea in cash-for-work projects since January 
        2005. Of these 142 boats, 138 have been fully repaired and 135 
        are back at sea with a full complement of fishing kits and 
   213 cash grants have been provided to sampan (canoe) 
        fishermen to commission local production of canoes and nets, a 
        further 253 sampan grants are being processed, along with 
        grants to fish vendors and processors (dryers, salters) to 
        support the restart of their businesses. Further projects focus 
        on supporting cage fishing and fish pond revitalization.
   Mercy Corps has provided a mobile ice machine to make ice 
        available locally to preserve catch.
   Future projects will include: Building docks, landing 
        stations (jetty), fish markets, auction houses, and workshops.

    For all fishing activities, Mercy Corps closely collaborates with 
the DKP (Indonesian Ministry of Fisheries) and the Panglima Laut 
(Acehnese Fishermen's Association). Capacity-building and institutional 
support is provided and given to both of these institutions and several 
smaller local fishermen associations, and further training for 
fishermen and technical support is provided through coordination with 
the Center for Research for Coastal and Marine Management (CRCMM) of 
the Bogor Agricultural University (IPB).

   Responses of Deputy Assistant Secretary Eric G. John to Questions 
                   Submitted by Senator Russ Feingold

    Question. As you know, I have worked for several years now to 
ensure that justice is done in the case of the ambush that occurred in 
Timika in August 2002, killing one Indonesian citizen, two Americans, 
and wounding several others. Please provide an update on the status of 
the case. Do you have a sense of why Indonesia has issued no 
indictments and made no arrests?

    Answer. The Indonesian Government continues to support achieving 
justice in this case, as does our Government. When President Yudhoyono 
visited the United States in May 2005, he personally met with Mrs. 
Patsy Spier, widow of one of the murdered Americans, to convey his 
concern. The Indonesian National Police (INP) and the Indonesian 
military (TNI) also continue to work closely with the FBI in pursuing 
the investigation. With INP and TNI support, the FBI deployed to Papua 
in August. The FBI is currently evaluating further investigative 
options, and plans on returning to Papua again in the near future.
    The Indonesians have not yet issued an indictment because the 
procedures of their legal system dictate that an indictment is not 
prepared until after a suspect is arrested and the police transfers 
his/her case to prosecutors. For a charge of murder, the police have 60 
days after making an arrest to prepare a dossier on the accused and 
present it to the prosecutors. The prosecutors then have 50 days to 
prepare the indictment and present it to a court of law. The act of 
presenting the case before the court constitutes an indictment under 
Indonesian law. No arrests have been made because the main suspect, 
Antonius Wamang, is in hiding, and investigators are still working to 
identify other possible accomplices. We continue to make Wamang, and 
any other suspects' apprehension, a priority and closely monitor the 
investigation's progress.

    Question. What steps have been taken thus far by the Indonesian 
Government to alter longstanding arrangements whereby the TNI engages 
in its own, sometimes quite lucrative, private sector interests? What 
are the major barriers to eliminating this practice, which is clearly 
an obstacle to professionalization of the military?

    Answer. In September 2004, the Indonesian Parliament passed a law 
requiring the government to take over the military's business interests 
over a 5-year period. During this time, the defense budget is to be 
increased to make up for the lost business revenue. The Indonesian 
Defense Ministry has begun the transfer process, and the military's 
Supreme Commander has publicly stated that he supports the divestment. 
In addition, the government and the legislature are exploring the 
future adoption of legislation to place the TNI under the authority of 
the Minister of Defense.
    The single most significant barrier to eliminating this practice is 
the present inability of the Indonesian Government to provide a defense 
budget, which makes up for the lost revenue and is adequate for 
Indonesia's legitimate defense needs. Nonetheless, President Yudhoyono 
has publicly called for the need to increase the defense budget. The 
recent Government of Indonesia decision to substantially reduce fuel 
subsidies removes some pressure from the government budget and could 
allow increased expenditures on defense, education, and health.

    Question. As you know, Munir Said Thaib, a prominent Indonesian 
human rights activist, was murdered last year, and his killers have not 
been held accountable for their crime. A Presidential Fact-Finding Team 
was established to look into this case and this team reportedly 
implicated senior intelligence officers in the Munir murder. But the 
team's key recommendations and findings have been ignored by the 
Indonesian police and attorney general's office, the team's final 
report has not been made public, and the Indonesian Government has gone 
so far as to investigate members of the Fact Finding Team for 
defamation. This case calls the Indonesian commitment to the rule of 
law into serious question. What steps have been taken by the 
administration to encourage a transparent, law-governed investigation 
and prosecution of the Munir murder case?

    Answer. I share your concern about this case. For that reason, when 
I first visited Indonesia this summer, I met with NGO representatives 
who had worked with Munir to hear their views and assure them of U.S. 
Government attention to this murder. During meetings with Indonesian 
Government officials on that trip, I impressed them that we view the 
pursuit of justice in this case as a critical issue.
    The administration has followed this case closely from the 
beginning. Upon news of his death last year, we released a press 
statement expressing our shock and sadness, acknowledging Munir's 
status as an internationally respected human rights activist, and 
stating our hope that the investigation would reveal the facts about 
the circumstances surrounding his death.
    As the investigation began, our Embassy met quickly with the 
Indonesian police investigating the case and communicated our interest 
in seeing justice for Munir's death to the highest levels in the 
Indonesian Government, including to President Yudhoyono. Ambassador 
Pascoe met early on with Munir's widow, Suciwati, and members of the 
fact finding team established by President Yudhoyono. Embassy officials 
have followed closely developments in both the police investigation and 
fact finding team, and Embassy efforts continue. Under Secretary 
Dobrianksy met earlier this summer with Suciwati in Washington, and 
other State Department officials have met with NGOs to discuss the 
ongoing case.
    We believe that it is essential for the Indonesian Government to 
pursue a thorough investigation and seek justice in this case. A 
credible investigation and related prosecutions would demonstrate to 
the world that Indonesia seeks accountability for this horrendous 
crime. We noted the President's appointment and support for the fact 
finding team as a positive step. It would not be appropriate for me to 
comment on the details of the current trial of one suspect, 
Pollycarpus, or the ongoing police investigation, but we continue to 
closely monitor both.

    Question. I applaud the peace accord for Aceh, and commend the 
negotiators on this important achievement. Certainly, the United States 
and the rest of the international community should be strong partners 
in supporting this peace, and carefully and fairly monitoring the 
implementation of the accord. But this agreement does not address the 
disarmament of government-backed militias in the regions. This seems a 
rather glaring omission. How should this issue be addressed?

    Answer. The ultimate aims of the Aceh peace agreement Memorandum of 
Understanding (MOU) are to end the longstanding conflict between the 
Indonesian Government and the separatist Free Aceh Movement (GAM) and 
to create the circumstances for successful political and economic 
development that will tie Aceh in more closely with the rest of the 
country. The MOU is comprehensive, and contains provisions to address 
security, political, and economic issues. The success of the security 
provisions of the MOU is essential for the political and economic 
provisions of the agreement to be implemented.
    As stipulated in the MOU, GAM has already begun to turn in weapons 
in parallel with TNI troop withdrawals. This process is to occur in 
four stages and conclude by December 31, 2005. Initial progress has 
been excellent and, although incidents have occurred, the overall level 
of violence in the province has decreased. I observed a constructive 
attitude of engagement on the part of the Indonesian Armed Forces and 
GAM during my just-completed trip to Aceh. The Aceh Monitoring 
Mission's role is commendable. Although weapons will no doubt remain in 
the hands of some individuals and groups, violence in Aceh is 
increasingly being delegitimized.
    We intend to support several key aspects of MOU implementation with 
U.S. funding, including public information campaigns, public dialogues, 
technical assistance and capacity-building for key provincial/local 
government offices charged with MOU implementation, and assistance 
related to the reintegration of GAM excombatants into mainstream 
society. In coordination with other key donors and partners, USAID 
plans to support community-based development programs in villages that 
are accepting the reintegration of amnestied political prisoners and 
demobilized GAM fighters, and those villages which have been identified 
as a highly conflict-affected community. In addition, at the Indonesian 
Government's request, during the first week in October 2005, we plan to 
broaden our existing International Narcotics and Law Enforcement (INL) 
Indonesian police reform assistance program to include civil 
disturbance management and human rights police training in Aceh. The 
police are in the process of taking over security duties in the 
province from the military, and this training will help to ensure that 
in doing so they are properly trained and sensitized to human rights 
issues. Finally, USAID is now disbursing $700,000 for public 
information campaigns and a further $125,000 for technical assistance 
and capacity-building.

    Question. When I met with Indonesia's Defense Minister earlier this 
year, I was shocked to hear him assert that Jemaah Islamiya is not a 
terrorist organization, and that to think otherwise was to be 
misinformed. Is this the official position of the Indonesian 
Government? How can Indonesia be a strong partner in combating 
terrorism if its most senior officials fail to acknowledge the problem 
in the first place?

    Answer. While the Government of Indonesia has not officially banned 
Jemaah Islamiya (JI), it has exhibited regional leadership in 
counterterrorism by arresting and prosecuting al-Qaeda linked members 
of JI. Furthermore, it continues to strengthen its law enforcement and 
judiciary personnel to bring terrorists to justice. Most recently, two 
JI terrorists were sentenced to death for their participation in the 
bombing of the Australian Embassy in Jakarta. President Yudhoyono 
continues to make public statements on the importance of a strong 
counterterrorism agenda. The Government of Indonesia is currently in 
the process of establishing a coordinating agency to focus on its 
counterterrorism agenda. President Yudhoyono is also committed to 
rejecting any links between terrorism and religion and does so by 
promoting an interfaith dialogue and engaging in outreach to religious 
moderates. We will keep working with the Government of Indonesia to 
address the threat of JI in the region and within Indonesia's borders. 
In order to work with us on this important goal, Indonesia must also 
continue focusing on strengthening its capacity to pursue and bring 
terrorists to justice.

    Question. Overall, what is your sense of how the Indonesian people 
view U.S. efforts to fight terrorism around the world? Do the 
Indonesian people have the impression that the United States is hostile 
to Islam?

    Answer. Under the leadership of President Yudhoyono, Indonesia is 
making substantial progress in its democratic transition. While the 
majority of Indonesia's people are Muslims, it is a multireligious 
society that strives to maintain religious freedom and promote 
interfaith dialogue. During President Yudhoyono's May visit to 
Washington, he and President Bush underscored their strong commitment 
to fight terrorism and agreed that it threatens the people of both 
nations and undermines international peace and security. The two 
leaders rejected any link between terrorism and religion and pledged to 
continue to work closely at the bilateral, regional, and global levels 
to combat terror. While some groups in Indonesia have been critical of 
U.S. efforts to fight terrorism around the world, the views of the 
Indonesian people are changing as our relationship with Indonesia 
becomes stronger. Following the tsunami disaster, the compassion of 
ordinary American citizens and the private sector, combined with prompt 
government action and cooperation, has significantly changed the way 
Indonesians view the United States. The President's Education 
Initiative and our diverse assistance also help to change Indonesians' 
    According to post-tsunami polls conducted by the nonprofit/
nonpartisan organization Terror Free Tomorrow, 65 percent of 
Indonesians are now ``more favorable'' to the United States because of 
the American response to the tsunami, with the highest percentage among 
people under 30. A separate poll conducted by the Pew Global Attitudes 
Project in Indonesia reports that nearly 80 percent of Indonesians say 
that donations gave them a more favorable view of the United States. We 
hope that our continued cooperation on tsunami-reconstruction efforts 
and other shared goals will strengthen these favorable views and help 
us in our efforts to combat terrorism.

  Responses of Hon. James R. Kunder to Questions Submitted by Senator 
                             Russ Feingold

    Question. It seems to be that the emergence of a strong civil 
society that demands good governance is vital to the success of the 
peace agreement in Aceh. What kind of assistance is the United States 
providing to strengthen civil society in Aceh? What about other 
international donors?

    Answer. USAID has a long history of supporting civil society 
organizations (CSOs) in Indonesia. The USAID Civil Society 
Strengthening Project (CSSP) provided capacity-building assistance to 
more than 100 CSOs in Indonesia, including at least 6 that are Aceh-
based. Under CSSP, USAID's assistance strengthened the ability of CSOs 
to analyze and advocate for policy reforms and their implementation; 
improved CSOs' management, administration, and planning capabilities; 
and enhanced CSOs' financial self-reliance.
    USAID has utilized a small grants program to support a number of 
CSOs in Aceh since 2000 through its Support for Peaceful 
Democratization program and its predecessor. Prior to the tsunami, this 
assistance was mainly to CSOs advocating for human rights, transparency 
and accountability, and peace and reconciliation. Since the tsunami, 
USAID has provided small grants to CSOs to become involved in 
humanitarian response, recovery, and now peace-building.
    In support of the peace process, many CSOs will be involved in 
public information campaigns, peace-building initiatives and support to 
the local elections in Aceh. USAID also supports CSOs that are 
advocating for transparency and accountability in Aceh.
    More generally, USAID's support for Tsunami Recovery and 
Reconstruction programs in Aceh will include targeted assistance to 
women-led nongovernmental organizations or CSOs, community mapping 
programs being implemented by an Indonesian CSO (an essential first 
step toward shelter reconstruction), and antitrafficking programs that 
will directly support CSO activities. USAID's livelihood restoration 
programs will include participation by producer cooperatives, another 
form of Acehnese CSO.
    USAID is also providing critical support to strengthen local 
governance in Aceh, building on our successes with these types of 
programs throughout Indonesia. In addition to direct technical 
assistance and training for city and district governments in Aceh (kota 
and kabupaten), our local governance programs emphasize transparency 
and public participation in government decisionmaking. CSOs play a 
critical role by demanding good governance and are important partners 
for USAID in all of our local governance programs.
    In these programs USAID is collaborating with a number of 
international donors. The European Union, acting through the European 
Commission, is directly engaged in supporting the implementation of the 
peace agreement, first through support for the Aceh Monitoring Mission 
and then through planned assistance for reintegration of former Free 
Aceh Movement combatants and political prisoners. The World Bank-
managed Multi-donor Trust Fund for Aceh and Nias is considering support 
to a United Nations Development Program activity that will provide over 
$10 million for capacity-building and small grant support for CSOs in 

    Question. I have been struck by how often some of the most alarming 
and militant forces in Indonesian society point to official corruption 
as a primary grievance. Please describe the scope and scale of 
anticorruption assistance the United States currently provides to 

    Answer. Corruption is a serious obstacle to Indonesia's continued 
economic, democratic, and social development. A lack of transparency 
and consistency in the interpretation and application of laws and 
regulations raises concerns about corrupt practices and discourages 
investment necessary to create jobs and stimulate economic growth.
    In the day-to-day lives of the Indonesian people, an informal 
``envelope'' system of payoffs to government employees undermines the 
rule of law and makes government services much more expensive to 
secure. A lack of adequate controls over public procurement, although 
now beginning to be addressed by the Government and international 
lending institutions, robs the public purse of funding desperately 
needed for public goods and services.
    President Susilo Bambang Yudhoyono's willingness to undertake 
difficult reforms provides the U.S. Government with a unique window of 
opportunity to support his efforts at tackling corruption, instituting 
justice sector reforms, and continuing with the overall democratic 
reform process. USAID is viewed as a leader in supporting Indonesia's 
democratic reform process and strengthening national and local 
democratic institutions.
    Given the breadth and depth of these problems in Indonesia, USAID's 
program addresses issues of corruption in the economy, the political 
and judicial systems; in the control of natural resources; and in the 
operations of government by focusing on the specific challenges of 
governance that must be addressed in each of these areas.
    Through our Economic Growth work, USAID promotes economic 
governance, including combating corruption and financial crime. 
Streamlining business registration by consolidating the required 
permits and licenses within a single office reduces the opportunity and 
incidence of corruption at local levels. USAID is also assisting local, 
provincial, and national governments to evaluate regulatory impacts. 
This helps separate those levies that have fiscal merit from those that 
are introduced for ``rent-seeking'' and corrupt purposes. Other USAID 
activities target the enterprise and agriculture sectors.
    Because the adjudication and enforcement of law has been fraught 
with inefficiency and corruption, USAID's Economic Growth Program has 
designed a major Judicial Reform initiative that targets the Commercial 
Court and the Anti-corruption Court. The Commercial Court currently 
adjudicates Bankruptcy and Intellectual Property Rights cases only. In 
addition to bolstering judicial capacity to adjudicate such cases and 
improving court management and administration, USAID will work with the 
Supreme Court to expand the authorities of the Commercial Court to hear 
a broader range of the increasingly complex commercial cases. 
Otherwise, cases related to sophisticated financial and contract law 
are heard by District Courts that are ill-equipped to adjudicate such 
    Assistance in establishing and strengthening the Anti-corruption 
Court is among the several initiatives designed to combat corruption 
and financial crime directly. Strengthening the processes, practices, 
and competencies of the Anti-corruption Court will result in improved 
adjudication of such cases.
    USAID is also implementing a major ``Financial Crimes Prevention 
Project'' (FCPP) that targets major Government of Indonesia (GOI) 
institutions associated with anticorruption/antifinancial crimes 
activities. Under FCPP, USAID helped the GOI establish the Financial 
Intelligence Unit, the primary unit that tracks financial transactions 
to detect and prevent financial crime. In less than 1 year, compliance, 
cooperation, and convictions have all increased. In February 2005, 
Indonesia was removed from the Financial Action Task Force 
international blacklist that it had been on since 2001. Going forward, 
USAID will also provide capacity-building assistance to the Corruption 
Eradication Commission, the Supreme Audit Commission, the Attorney 
General's Office, and the Inspector General in the Ministry of Finance. 
Together, these institutions comprise the front line of Indonesia's 
efforts to combat corruption and financial crime.
    USAID's Democratic and Decentralized Governance Program works with 
both governmental institutions and nongovernmental actors on preventing 
corruption, creating a more accountable and transparent governance 
environment, and increasing public oversight of government. For 
example, USAID is (a) working with national, regional, and local-level 
Parliaments to address transparency in governance and to equip these 
legislative bodies with the appropriate tools to develop sound policies 
and regulations; (b) training local governments in participatory 
planning, performance-based budgeting, civil service reform and 
improved access to services; and (c) strengthening civil society 
organizations including universities, political parties, NGOs, business 
associations, labor organizations, and the media to advocate for 
transparency and accountability in government and legislative 
procedures, as well as to provide public oversight to governmental 
    Building on the first direct Presidential election in 2004, the 
expansion of direct elections to the provincial and local levels in 
2005 was a critical next step in increasing accountability in 
government. USAID's programs have provided training to regional 
election commissions in eight provinces, including Aceh, on adopting a 
model code for local elections, formulating voter information 
strategies, and addressing problems of voter registration. USAID is 
also working on key legislative issues such as the Draft Freedom of 
Information Act, the Draft Criminal Code, the Codification of Election 
Laws, and other important anticorruption legislation. Finally, USAID is 
finalizing the design of a new long-term Rule of Law/Justice Sector 
Reform activity which will provide direct assistance to the Supreme 
Court, the Commission on Anti-Corruption, and the Attorney General's 
Office in their efforts to strengthen the public's trust in these 
governmental bodies. The program will work with these institutions to 
improve transparency, efficiency, and access to justice.
    Other USAID programs, such as Basic Education, Basic Human Services 
and Healthy Ecosystems include important good governance components 
that contribute to anticorruption efforts at the district level.

   Responses of Deputy Assistant Secretary of State Eric G. John to 
              Questions Submitted by Senator Barack Obama

    Question. We all know that the Indonesian military is the pivotal 
institution in the country. In short, it really is the only truly 
national institution that is capable of holding the far-flung 
archipelago nation together.
    The history of the TNI is checkered, to say the least--full of 
corruption, human rights abuses and so forth. Many of these problems 
exist today, and I believe the Indonesian military simply must make 
progress in reforming if Indonesia is to move to the next stage of 
development and modernization.
    Credible estimates suggest that somewhere between 50 to 70 percent 
of the Indonesian military budget is self-generated, which is a huge 
problem for obvious reasons concerning corruption, transparency, and 
civilian control.
    Has the Indonesian Government recognized this problem? What steps 
are they taking to deal with this issue? Do they have the resources to 
fund the Indonesian military at appropriate levels--if outside funds 
are cut off?

    Answer. The Indonesian Government recognizes the problems 
associated with having its military procure much if not the majority of 
its own fimding. In September 2004, the Indonesian Parliament passed a 
law requiring the government to take over the military's business 
interests over a 5-year period. During this time, the defense budget is 
to increase to make up for the lost revenue. The Indonesian Defense 
Ministry has begun the transfer process, and the military's Supreme 
Commander has publicly stated that he supports the divestment.
    As part of this process, the Indonesian Government needs to 
determine how it will provide the resources to fund the military at 
appropriate levels. This will require prioritization of the national 
budget, a difficult task given that the country has only recently 
recovered from the Asian economic and financial crisis, has not yet 
achieved economic growth rates sufficient to accommodate its burgeoning 
population, and has many other pressing demands for budget resources, 
including tsunami reconstruction, improving education, maintaining 
public health programs, and decreasing fuel subsidies. Nonetheless, 
President Yudhoyono has spoken publicly about the need to increase 
government financing of the military.

    Question. The strategic location of Indonesia is critical. One of 
the major reasons why, is that an estimated 30 percent of the world's 
shipping and 50 percent of the world's oil pass through the Strait of 
Malacca--this is a critical chokepoint.
    In the past, there have been concerns about piracy, as well as 
terrorist activity, in this area. As a result, Indonesia is working 
with Malaysia, Singapore, and Thailand to enhance the security of the 
    What is the U.S. assessment of these efforts? What else can be done 
to bolster security in this key area?
    Followup: I understand that there are regional sensitivities that 
augur against an overly direct U.S. role in this issue, but is there 
anything else we should be doing--either on a bilateral or multilateral 
basis--to improve security?

    Answer. The United States is pleased with the efforts of Indonesia, 
Malaysia, Singapore, and Thailand to improve security in the Strait of 
Malacca. The littoral states have increased and coordinated their 
maritime patrolling efforts, and have launched new initiatives such as 
the aerial surveillance ``Eyes in the Sky'' program of joint patrol 
flights. On September 7-8, 2005, Indonesia hosted a meeting of the 
International Maritime Organization (IMO) devoted to examining ways in 
which the littoral and user states could further cooperate to enhance 
safety, environmental protection, and maritime security in the strait. 
Participants (including the United States) agreed to hold follow-on 
meetings designed to further clarify requirements of the littoral 
states and opportunities for user states to donate maritime security 
assistance. Possible contributions might include and aerial patrol 
platforms, surveillance equipment, and command and control systems.
    The United States respects the sovereignty of the littoral nations, 
and is committed to working together bilaterally, multilaterally, and 
through the appropriate international organizations to achieve our 
mutual objective of improved maritime security in this key area.

    Question. There is no question that Chinese influence is on the 
rise in Southeast Asia, and the relationship between China and 
Indonesia is no exception. One concrete example of this is that the two 
nations just signed of a series of agreements worth $20 billion in an 
effort to triple bilateral trade to $30 billion over the next few 
    In my view, it does not have to be a zero-sum game between U.S. and 
Chinese influence in the region. And, I don't think that we want to get 
into a situation--certainly not at this point--where we are forcing 
nations to pick sides.
    Having said that, believe that we have to effectively manage this 
issue with focused diplomacy, senior level attention, and other 
instruments of U.S. power.
    What is the United States doing to deal with this emerging issue in 
the region?

    Answer. China's emergence in Southeast Asia is an important issue 
for the United States and the world. As China's influence grows, we are 
taking a multifaceted approach to deepening and strengthening our 
relationships in the region, while working to ensure that China's 
growing influence does not come at the expense of our national 
interests. We do this through bilateral and multilateral engagement 
with the countries in the region as well as through direct dialogue 
with Chinese officials.
    The United States is using multilateral fora such as the 
Association of Southeast Asian Nations (ASEAN), the Asia-Pacific 
Economic Cooperation (APEC), and the ASEAN Regional Forum, to open 
markets and deepen our political and economic linkages with the 
countries in Southeast Asia. These activities demonstrate our 
commitment to the region and also help create opportunities for 
American business. One example of this is the development of the ASEAN 
Enhanced Partnership. This arrangement will ensure that our relations 
with the region are on par with those of other Asian countries such as 
Japan and China. ASEAN's eagerness to develop the Enhanced Partnership 
is evidence of the value the region places on its relationship with the 
United States. We are also working through APEC to promote free trade 
and through the ASEAN Regional Forum to enhance our security 
relationships with countries in the region.
    In parallel with our multilateral engagement efforts, we are 
advancing our bilateral ties with the countries in the region. We have 
concluded a bilateral free trade agreement with Singapore and are 
currently negotiating a free trade agreement with Thailand. The United 
States is also seeking other partners with whom we may establish 
similar agreements. Free trade areas help enhance our economic 
relationships in the region and create opportunities for U.S. 
commercial interests.
    We are also seeking ways to work with China to ensure that its 
increased involvement in the region does not come at the expense of 
open markets and transparency. Deputy Secretary Zoellick has addressed 
these issues with Chinese officials during the ongoing Senior Dialogue 
and Under Secretary for Global Affairs Dobriansky has sought to enhance 
cooperation with Chinese officials via the Global Issues Forum.
    Finally, it is important to note that America's role in the 
Southeast Asia is increasing at the same time China is deepening its 
involvement in the region. Through our alliance relationships, our 
participation in regional fora, and the access we provide to markets, 
the United States plays and will continue to play an essential role in 
the Southeast Asian region.

    Question. I have been following the situation in Aceh quite closely 
and actually offered an amendment to the Foreign Assistance 
Authorization Act, which was accepted by Chairman Lugar, concerning the 
situation in that part of Indonesia.
    The recent progress between the GAM and the Indonesian Government 
has certainly been encouraging in recent weeks. There was more good 
news today as the BBC reported that the GAM has started to give up some 
of its weapons, deepening the peace process.
    Don't get me wrong: There is still a long way to go and the peace 
deal could fall apart with little or no warning.
    However, suppose for a moment the deal holds and is implemented. Is 
this model--cessation of hostilities, disarmament, a pullback of 
Indonesian troops, Aceh-based political parties, and certain forms of 
amnesty--a model that can be replicated in other parts of Indonesia?

    Answer. In early October, I traveled to Aceh and met with the Aceh 
Monitoring Mission, the Indonesian Armed Forces, and representatives of 
the Free Aceh Movement (GAM), and I agree with you that the situation 
is encouraging. The first phase of weapons turnover and Armed Forces 
withdrawal went well, and I noted a constructive spirit of engagement 
in Aceh. I also agree with you that the peace agreement could face 
difficulties. Our intent is to support the reintegration process and 
remain engaged to help support this hopeful and historic process.
    The conflict in Aceh is similar to conflict in other regions of 
Indonesia but also differs in some important respects. Consequently, 
aspects of the Aceh agreement may not apply to other regions. In Papua, 
for example, unlike the GAM, the separatist group Free West Papua 
Movement (OPM) consists of various tribal groups with distinct 
languages from different areas of that vast region and is a smaller and 
less organized group of poorly armed independence fighters. 
Additionally, the concept of locally based political parties is still 
very controversial in Indonesia and will need to be discussed further 
within the context of the country's burgeoning democracy, civil 
society, and free press. Nevertheless, the agreement's overall shape 
and comprehensiveness, in that it covers security, political, economic, 
and human rights issues, is something that could be useful elsewhere.
    Grievances in both Aceh and Papua raise similar issues of economic 
development, political participation, and serious human rights abuses. 
To address these issues, President Yudhoyono has vowed to implement 
fully the 2001 Special Autonomy Law in Papua and has begun an effort to 
do so. We support him in this effort and have long encouraged the 
Indonesian Government to fully implement this law.
    One factor that has influenced the early success of the peace 
agreement in Aceh is the opening up of the province to journalists, aid 
workers, and human rights organizations. This has led to increased 
international attention on Aceh, and both the Indonesian Government and 
the GAM now better understand that the international community supports 
Indonesia's territorial integrity and a peaceful end to the 
longstanding conflict there. In addition to fully implementing Special 
Autonomy, we believe the Indonesian Government should open Papua in the 
same manner and we continue to urge them to do so.

    Question. In my view, one of the things that we need more in 
Southeast Asia is time, attention, and visits from senior U.S. 
officials. More time is something of which senior U.S. policymakers 
don't have vast amounts.
    I was pleased to see that one of Deputy Secretary Zoellick's first 
foreign trips was to Southeast Asia, including a stop in Indonesia. 
But, I don't believe that Secretary Rice has yet traveled to the 
region, and more needs to be done.
    It is understandable that the senior policymakers in Washington are 
often consumed with other parts of Asia--Japan, North Korea, China. 
But, how do we address this problem of trying to get this part of the 
world higher up on the agenda?

    Answer. I agree with you that it is important that Southeast Asia 
receive sustained attention from our government. We are engaging with 
the governments in the region on both a bilateral and multilateral 
basis. The latter is important because of the increasing importance of 
ASEAN for governments in South East Asia. We discuss a range of issues 
with Southeast Asian countries, including economic development, 
regional security, and counterterrorism, and, most recently, combating 
Avian Influenza.
    On the bilateral side, we work for close relations with Southeast 
Asian nations. To that end, Indonesian President Susilo Bambang 
Yudhoyono paid an official visit to Washington in May and met with 
President Bush, Secretary Rice, and several other Cabinet members. 
President Yudhoyono was also seated next to President Bush at the U.N. 
Secretary General's luncheon in New York recently. In addition, the 
Secretary visited Thailand on July 11, in part to review our tsunami 
recovery assistance. I have taken two trips to the region since June to 
establish working relations with a range of senior officials, most 
recently in Vietnam, Malaysia, and Indonesia.
    On the multilateral side, Deputy Secretary Zoellick participated in 
the annual ASEAN Regional Forum Meetings in Vientiane in July. The 
Secretary met with ASEAN senior officials in Washington this summer and 
hosted a meeting in New York for ASEAN Foreign Ministers. Additionally, 
in September we had discussions with several Southeast Asian Foreign 
Ministers who traveled to Washington after the U.N. General Assembly 
for meetings. Secretary Leavitt, Under Secretary of State Dobrianksy, 
and Under Secretary of State Hughes are planning travel to Southeast 
Asia this fall. This fall, the United States is hosting the main 
working-level gathering of the ASEAN Regional Forum in Honolulu.
    Congressional interest in Southeast Asia is also important. Here in 
the State Department and at our Embassies and consulates in the region, 
we encourage Members of Congress and staff to travel to Southeast Asia 
to experience its dynamism firsthand, and we will assist such travel in 
any way we can, including briefing Members or staff before they travel.