[Congressional Record (Bound Edition), Volume 149 (2003), Part 18]
[Senate]
[Pages 24813-24818]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   REPORT ON U.S.-INDONESIA RELATIONS

  Mr. LUGAR. Mr. President, today I rise to commend to Senators the 
Report of the National Commission on U.S.-Indonesian Relations issued 
today by the United States-Indonesia Society. This report is the 
culmination of more than one year of work by the Commission, whose co-
chairs are former Secretary of State George Shultz, my fellow Hoosier 
and former Congressman Lee Hamilton, and George Russell, Chairman 
Emeritus of the Frank Russell Company.
  This report will be an important point of reference for members of 
Congress and the public as a whole as the future course of Indonesia-
U.S. relations is debated. I, for one, believe that the significance of 
Indonesia to Asia and to the world is often underappreciated. A 
relatively new democracy, Indonesia is home to the world's largest 
Muslim population and overall is the world's fourth most populous 
nation. The U.S. trade deficit with Indonesia is decreasing. U.S. 
exports of goods to Indonesia in 2002 were $2.6 billion, up 2.4 percent 
from the previous year and U.S. imports from Indonesia were $9.6 
billion, down 4.6 percent from 2001.
  The Commission's report examines the U.S.-Indonesia relationship and 
outlines policies and programs that ``will help strengthen the nation's 
prospects for success.'' Education, democratization, economic growth 
and security are areas for emphasis highlighted by the Commission.

[[Page 24814]]

  The report goes into considerable detail about many aspects of life 
inside Indonesia, citing the challenges and hopes of this fellow 
democracy. For example, the report notes that the roles of the military 
and police are changing, with the goal of the Indonesian government 
being to make the police, rather than the military, fully responsible 
for internal security.
  Important reference is made to ongoing conflict in the province of 
Aceh as well as unrest in Papua connected to issues surrounding the 
special autonomy law. Of special significance to justice-seeking 
citizens in the United States and Indonesia, the Commission highlighted 
the need for a full and thorough investigation into the murder of an 
Indonesian and two Americans, and the wounding of eight others in an 
ambush last year near Timika in Papua.
  My purpose today is not to concur in all of the report's findings, 
but rather to recommend it to my colleagues as a helpful point of 
reference in future deliberations by this body on a wide range of 
issues regarding Indonesia.
  Those Members interested in viewing the full report may contact the 
United States--Indonesia Society for a copy. I conclude my remarks by 
commending the ongoing work of Paul Cleveland, President of the United 
States--Indonesia Society and Edward Masters, Co-Chair of the Society's 
Board of Trustees for their tireless and outstanding commitment to 
stronger Indonesia--U.S. relations.
  I ask unanimous consent to print the Executive Summary in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

     REPORT OF THE NATIONAL COMMISSION ON U.S.-INDONESIAN RELATIONS

 Strengthening U.S. Relations With Indonesia: Toward a Partnership for 
                       Human Resource Development

          The National Commission on U.S.-Indonesian Relations

       Honorable George P. Shultz, Co-Chairman--Thomas W. and 
     Susan B. Ford Distinguished Fellow, Hoover Institution, 
     Stanford University; Honorable Lee Hamilton, Co-Chairman--
     Director, The Woodrow Wilson International Center for 
     Scholars; Mr. George Russell, Co-Chairman--Chairman Emeritus, 
     Russell Investment Group; Honorable Edward Masters, Vice 
     Chairman--Co-Chair of the Board of Trustees, United States-
     Indonesia Society; Admiral Dennis C. Blair--Senior Fellow, 
     Institute for Defense Analyses; Honorable Paul Cleveland--
     President, United States-Indonesia Society; Dr. Richard J. 
     Ellings--President, The National Bureau of Asian Research; 
     Professor Donald K. Emmerson--Director, Southeast Asia Forum, 
     Asia-Pacific Research Center, Stanford University; Dr. Ellen 
     L. Frost--Visiting Fellow, Institute for International 
     Economics; and Professor R. William Liddle--Professor of 
     Political Science, Ohio State University.

                                Preface

       This report is the culmination of more than one year of 
     effort by members of the National Commission on U.S.-
     Indonesian Relations. We first assembled in September 2002 to 
     discuss increasingly evident and pressing concerns: that 
     Indonesia is a frontline state in the war on terrorism; that 
     it is in the midst of one of the most significant political 
     transitions and economic recoveries in its history; that, 
     despite its size and strategic location in Southeast Asia, it 
     is one of the least well-known or understood countries in the 
     United States; and that it would be enormously beneficial for 
     the U.S.-Indonesia bilateral relationship, which has become 
     strained in recent years, to move to a more balanced and 
     sustainable footing.
       The members of the National Commission on U.S.-Indonesian 
     Relations represent a diverse range of backgrounds, 
     interests, and opinions from the worlds of policymaking and 
     diplomacy, the military, business, and academic. We were 
     charged with drafting a consensus report that reflects the 
     breadth of U.S. interests in Indonesia, of consulting widely 
     with current and former policymakers, and others, in 
     Washington and Jakarta, and of suggesting ways that the U.S. 
     Congress and Administration might move toward a relationship 
     which over the longer term will serve the interest of both 
     countries.
       In our work, we have been supported by the hardworking 
     staff and representatives of the three institutions 
     sponsoring this initiative--the Asia-Pacific research Center 
     at Stanford University, The National Bureau of Asian 
     Research, and the United States-Indonesia Society--to whom we 
     offer our sincere appreciation. Thanks are also due to our 
     colleagues on the Commission, who gave freely of their time 
     and expertise, as well as for the valuable counsel of a large 
     number of Americans and Indonesians who contributed their 
     insights to this report. In particular, we wish to 
     acknowledge and commend the work of Edward Masters, former 
     U.S. Ambassador to Indonesia, Co-Chairman of USINDO, and Vice 
     Chairman of this Commission, who has expended great effort 
     over many months on the unenviable task of drafting a report 
     that reflects our general consensus of opinion.
       Two final notes: First, although it reflects the views of 
     various public and private Indonesians with whom the general 
     concept of a ``partnership'' has been discussed, this report 
     is written from a U.S. standpoint. If the partnership concept 
     is formally accepted by the two governments, we hope this 
     report can serve as the basis for more detailed discussions 
     to ensure that both sides have an equal opportunity to 
     express their views, and that any programs adopted have the 
     full support of the two governments and relevant private 
     organizations.
       Second, the National Commission and this report represent a 
     non-governmental effort to explore ways to improve relations 
     between the third and fourth most populous countries in the 
     world. In an international environment driven by the 
     challenges and opportunities of globalization and beset by 
     the problems of global terrorism, we are convinced that 
     strong and positive relations between the United States and 
     Indonesia are, and will remain, a key component of a 
     prosperous and peaceful future.

                           Executive Summary

       Indonesia, the world's fourth most populous nation and 
     third largest democracy, is the pivotal state in Southeast 
     Asia. It has exercised major influence in the region and 
     plays an active and constructive international role. It has 
     vast natural resources and is strategically located astride 
     major lines of communication between the Pacific and Indian 
     Oceans. Half of the world's merchant fleet capacity passes 
     through straits with Indonesian territory on one or both 
     shores. Including its oil and mineral sectors, Indonesia is 
     home to about $25 billion in U.S. investment, with more than 
     300 major U.S. firms represented there.
       Two additional factors are of particular importance today: 
     Indonesia has the world's largest Muslim population--more 
     than all the Middle Eastern Arab states combined. The vast 
     majority of Indonesia's Muslims have historically been noted 
     for their moderation. Theirs is one of the few Muslim-
     majority nations in which Islam is not the state religion; 
     and given its size and importance, Indonesia is critical to 
     stability in Southeast Asia. It has been the anchor of the 
     Association of Southeast Asian Nations (ASEAN) and a key 
     player in the ASEAN Regional Forum, the only organization in 
     the Asia-Pacific region that brings the United States 
     together with Japan, China, ASEAN and others to discuss 
     security issues.
       Today Indonesia faces major faces major problems: a 
     difficult transition from authoritarian rule to democracy; 
     slow economic growth combined with inadequate job creation; 
     capital outflow; endemic corruption; ethnic and sectarian 
     violence; a weak judiciary; and a serious threat from 
     domestic and international terrorists. The October 12, 2002 
     bombings in Bali were the most grievous instance of terrorism 
     since the September 2001 attacks on the United States. The 
     carnage in Bali was a wake-up call for Indonesians and their 
     government, and Indonesia joined the fight against terrorism. 
     Local police arrested more than 90 suspected terrorists, but 
     more are still at large as shown by the August 5, 2003 attack 
     on the J.W. Marriott Hotel in the heart of the capital city 
     Jakarta. Fourteen people (all but one were Indonesians) died 
     as a result of that attack and 150 were injured.
       There are continuing problems, but the news from Indonesia 
     has not by any means been all bad. Since 1999 the country has 
     had a free and fair national election and two peaceful 
     presidential successions. Its media are among the most free 
     in Southeast Asia. Civil society is flourishing, and more 
     than 5,000 non-governmental organizations are active across a 
     broad range of sectors. Constitutional reform and 
     decentralization have made the government less top-down. For 
     the first time, beginning in 2004, the president and vice 
     president will be directly elected. In this process of 
     reform, the leaders of major Muslim organizations have played 
     a constructive role in defining relations between religion 
     and the state. The ceasefire agreement in Aceh has failed, 
     but those between hostile ethno-religious groups in the 
     eastern islands are holding. And the Indonesian economy, 
     despite its vulnerabilities, has stabilized in important 
     respects.
       The country is now at a critical juncture in its democratic 
     transition and economic recovery. This is therefore an 
     opportune time for the United States to rethink its approach 
     to Indonesia. A failure of democracy there would hurt not 
     only Indonesians. It would reinforce the stereotype that a 
     Muslim-majority nation cannot manage a democratic system. 
     Given the size and importance of Indonesia, we believe that 
     success of that nation's democracy would not only provide a 
     better life for its people but also reduce vulnerabilities to 
     radicalism and have an impact beyond Indonesia's borders.
       For these multiple reasons, the National Commission on 
     U.S.-Indonesian Relations recommends that the United States 
     and Indonesia enter into a ``Partnership for Human

[[Page 24815]]

     Resource Development'' in which the two nations pledge to 
     work together on joint programs to promote in Indonesia an 
     effective democracy, sustainable development, and the rule of 
     law. The idea of a formal partnership is new to this 
     important bilateral relationship. We believe this concept is 
     essential to increase the prospects for success and to ensure 
     that both nations buy into these programs and are committed 
     to make them succeed. In other words, that both accept 
     ownership.
       Events in the coming five years, including national 
     elections in 2004 and their consequences, will determine the 
     fate of Indonesia's democracy and the nature of the new 
     leadership generation expected to emerge before the following 
     elections in 2009. Accordingly, we recommend that the United 
     States pledge $200 million annually in additional assistance 
     funds to this partnership during this five-year period. The 
     Commission believes that Indonesia would be a good candidate 
     for funding under the Millennium Challenge Account. Whatever 
     the source, it is important that these be add-on funds that 
     do not disrupt important ongoing assistance programs.
       These additional funds would be used to strengthen existing 
     programs and initiate new programs in four critical fields:
       1. Education--work with Indonesian officials to strengthen 
     the nation's educational system at all levels, including 
     Islamic schools, and rebuild ties with U.S. educational 
     institutions. Before the fall of Suharto, Indonesia's 
     experience with democratic systems and practices was limited 
     to a few years in the 1950s, so that most Indonesians living 
     today have had no direct experience with democracy. As a 
     result, Indonesia's democracy must be built from the ground 
     up. A key prerequisite for success is an informed electorate. 
     Education is the key to success and is also essential to give 
     greater depth to the management level in virtually all 
     sectors. We therefore attach special importance to education 
     and urge prompt, large-scale U.S. support.
       2. Democratization--improve governance, speed and deepen 
     legal reform, strengthen parliament and the electoral system, 
     and help ensure the effectiveness of decentralization.
       3. Economic Growth--improve the investment climate, 
     strengthen Indonesia's private sector, expand trade, 
     facilitate the resumption of full debt servicing.
       4. Security--strengthen the police and, when practicable, 
     resume carefully crafted military education programs that 
     will strengthen those elements willing to promote reform.
       In addition to these funding priorities, ongoing U.S. 
     assistance for emergency relief and improved health should be 
     continued. Bolstering the ethical rationale for such support 
     is the contribution it can make to reducing hardship and thus 
     limiting the grievances that can be used to incite cycles of 
     violence and repression.
       Indonesia today offers a unique but temporary window of 
     opportunity for the United States to help this nation of 230 
     million people build an effective democracy based on a civil 
     society and a market economy under the rule of law. The time 
     to rise to the occasion is now.

  Strengthing U.S. Relations With Indonesia: Toward a Partnership for 
                       Human Resource Development


                              introduction

       Congressman Jim Leach, head of the East Asia Subcommittee 
     in the House of Representatives International Relations 
     Committee, said in a 2001 Congressional hearing that ``there 
     is no country in the world of such vital importance that is 
     less understood than Indonesia.'' He went on to say that ``it 
     is strongly in the interest of America and the world for 
     Indonesia to succeed.'' As members of the National Commission 
     on U.S.-Indonesian Relations, we share this view.
       This important nation of 220 million people, occupying some 
     of the world's most strategic real estate, faces formidable 
     problems: a complicated political transition which has 
     produced three governments in as many years; complex and 
     politically sensitive economic problems left from the 1997-98 
     financial crisis; ethnic and religious strife resulting in 
     thousands of deaths and hundreds of thousands of displaced 
     persons; continued armed rebellion in Aceh and Papau; and a 
     significant increase in violence by radical Muslims. The 
     October 2002 bombing in Bali, in which more than 200 people 
     were killed, was the most serious terrorist attack worldwide 
     since the September 11, 2001 attacks on the United States. To 
     show their continuing capability, Indonesian militants 
     attacked the J.W. Marriott Hotel in Jakarta in early August 
     2003 resulting in 14 deaths and 150 injured.
       In coping with these problems, Indonesia is handicapped by 
     the legacy of more than 40 years of authoritarian rule--weak 
     institutions and poor administrative capabilities. 
     Nonetheless, the nation has made important progress. It has 
     shown a commitment to openness, development, political 
     stability, economic reform, and, since the Bali bombings, to 
     rooting out terrorists. This progress, the remaining 
     challenges, the stakes for U.S. national interests, and our 
     recommendations for U.S. policymakers are outlined in this 
     report.
       Our broad conclusion is that the United States and 
     Indonesia should enter into a ``partnership'' to strengthen 
     Indonesia's fragile democracy, reduce the problems that lead 
     to radicalism, and improve this important bilateral 
     relationship. The basic development decisions must be made by 
     the Indonesians themselves, but U.S. assistance can be 
     critical to their success. Under the partnership the two 
     nations can work together on programs where their national 
     interests converge. This will enable U.S. policymakers to 
     recognize Indonesia's priorities, understand what the 
     Indonesians are willing to do, determine how the United 
     States might best assist, and monitor progress. The 
     partnership will also give Indonesia ``ownership'' of the 
     agreed programs and ensure that these programs have the full 
     support of both governments.
       We believe there are few better investments for the United 
     States at this critical time than to help strengthen 
     democratic behavior and institutions in the world's largest 
     Muslim-majority nation and one which is striving to build a 
     viable democracy. The price of failure would be serious for 
     Indonesia, for the region, for the Muslim world, and, not 
     least, for the United States.


                u.s.-indonesian relations in perspective

     Why is Indonesia important to the United States?
       Indonesia is the pivotal state in Southeast Asia. The 
     world's fifteenth largest and fourth most populous nation, it 
     exercises strong influence in Southeast Asia and plays a 
     constructive international role. It has huge natural 
     resources and a strategic location astride major sea lines of 
     communication--half of the world's merchant fleet capacity 
     passes through the Straits of Malacca, Sunda, and Lombok. 
     Including the oil and mineral sectors, Indonesia is home to 
     an estimated $25 billion in U.S. investment, with more than 
     300 major U.S. firms represented in the country.
       There are two additional factors of great importance today: 
     Indonesia has by far the world's largest Muslim population, 
     and historically Indonesia's Muslims have been noted for 
     their moderation. It has the two largest Muslim social and 
     educational organizations in the world--the Nahdlatul Ulama 
     and Muhammadiyah--each of which is moderate and has more than 
     30 million members. Indonesia is one of the very few Muslim-
     majority nations in which Islam is not the state religion. 
     Indonesian Islamic scholars have had a moderating impact on 
     debate within the Muslim world on the relationship between 
     religion and the state. This influence will be enhanced if 
     Indonesia succeeds in its efforts to develop a viable and 
     nonsectarian democratic system; and a stable and responsible 
     Indonesia is critical to regional stability. It is the anchor 
     of the Association of Southeast Asian Nations (ASEAN) and a 
     key player in the ASEAN Regional Forum (ARF), the only 
     organization in the Asia-Pacific region that brings the 
     United States together with Japan, China, the ASEAN nations, 
     and others to discuss security issues. The cohesion and 
     effectiveness of ASEAN have eroded significantly due to 
     Indonesia's preoccupation with domestic crises. Instability 
     in Southeast Asia has already provided openings for Islamic 
     radicalism.
       In short, an unstable, hostile or unpredictable Indonesia 
     would adversely affect U.S. interests and objectives, tilt 
     the international balance toward radical Islam, complicate 
     transit through strategic sea and air routes, hamper efforts 
     to combat piracy and drug trafficking, and weaken a 
     potentially constructive regional counterpoint to China.
     What is the current U.S.-Indonesian relationship?
       U.S. relations with Indonesia have been close for much of 
     the country's history. The United States played an important 
     and supportive role in Indonesia's transition to 
     independence, and the country was a reliable strategic 
     partner from the mid-1960s through the end of the Cold War. 
     Bilateral relations suffered during the late 1950s when the 
     United States intervened in domestic strife in Indonesia and 
     during the post-Suharto transition, which saw three 
     presidents in as many years. Although relations are generally 
     good today, there are negative undercurrents stemming from 
     differing demands and expectations over the war in Iraq and 
     its aftermath, priorities in the war on terrorism, and the 
     most appropriate steps in Indonesia's democratic transition.
       Since September 11, 2001, U.S. strategic priorities have 
     been driven by the demands of the war on terrorism. 
     Washington was frustrated through much of 2002 by the limited 
     extent of Jakarta's commitment to support this war in 
     Southeast Asia and the reluctance of many Indonesians to 
     recognize that terrorism was an urgent internal problem. Such 
     frustrations were not unique to the U.S.-Indonesian 
     relationship, but similarly affected Jakarta's relations with 
     its neighbors in Southeast Asia.
       The initial reaction of many Indonesians to the Bali 
     terrorist attacks of October 12, 2002, was that their 
     countrymen were incapable of such a horrible act. Some blamed 
     outsiders, including the CIA, which was accused of 
     precipitating the bombings in an effort to draw Indonesia 
     into the war on terrorism. The well-conducted police 
     investigation into

[[Page 24816]]

     the bombings and their aftermath (which by mid-September 2003 
     had led to the arrest of more than 90 suspected Indonesian 
     terrorists) clearly showed that terrorism is an Indonesian as 
     well as an American problem.
       The August 5, 2003 attack on the J.W. Marriott Hotel in 
     Jakarta by an Indonesian terrorist drove home the point. 
     Thirteen Indonesians and one foreigner were killed and 150 
     people were injured in this noon-time car bomb attack on a 
     hotel in Indonesia's financial district known to be 
     frequented by Americans. The Indonesian reaction was one of 
     shock and anger perhaps even greater than the earlier 
     terrorist attack in distant Bali. The two largest Muslim 
     social and educational organizations in Indonesia, the 
     Nahdlatul Ulama and Muhammadiyah, promptly issued a joint 
     statement strongly condemning this ``heinous, ruthless and 
     uncivilized crime against humanity'' and called it an action 
     which ``belies religious values.'' The two organizations 
     called on the government to ``further strengthen the capacity 
     of security officials'' to combat terrorism. These themes 
     were also echoed in the press. Like the Bali attack, this 
     terrorist act was carried out by Indonesians, probably, 
     according to government officials, with encouragement and 
     support from the regional terrorist organization Jemaah 
     Islamiyah.
       Indonesia's growing awareness of the problem and its 
     increased cooperation with U.S. and regional security 
     counterparts, plus the willingness of moderate Muslims to 
     speak out against radical extremists, have helped improve 
     bilateral relations. Improved communications between the U.S. 
     embassy and the Indonesian government are also helping, as is 
     the fact that the U.S. ambassador is successfully developing 
     contacts with a broad cross-section of opinion leaders, 
     including more traditional Muslim elements.
       Despite such progress, there are at least two notable areas 
     where significant problems in the relationship remain: The 
     August 2002 murder of two Americans and an Indonesian working 
     for a U.S. company in an ambush near Timika in Papua is a 
     major issue. The Indonesian police have implicated military 
     elements in the attack. The long-running investigation into 
     this deplorable incident, in which US FBI agents have 
     participated, has not led to any charges or prosecutions. 
     This will plague the relationship until a credible 
     investigation is completed and appropriate follow-on actions 
     are taken; and this incident is symptomatic of broader U.S. 
     concerns on acountability--a problem that requires special 
     attention. The Leahy Amendment and various U.S. policy 
     statements stress the need for accountability by senior 
     Indonesian military and police officers for human rights 
     abuses in East Timor and elsewhere. The amendment bans U.S. 
     military education and training programs (IMET) for 
     Indonesian officers until there is an accounting for these 
     actions. A small IMET program was included in the 2003 
     Defense Department budget, which is not subject to the Leahy 
     Amendment, but there were indications in September 2003 that 
     these funds would not be used because of continued concern 
     over the slow pace of the Timika investigation.
       The war in Iraq led to large demonstrations against the 
     United States and official and private criticism, but 
     government authorities took strong measures to prevent 
     outbreaks of violence. President Megawati, while criticizing 
     the coalition's lack of UN support, stressed that this U.S. 
     action did not represent an attack on Islam. Indonesians can 
     be expected to continue to watch developments in Iraq 
     closely, but unless large-scale fighting resumes or there is 
     a prolonged and difficult direct U.S. occupation, we do not 
     expect this to become a major issue in the bilateral 
     relationship. Indonesians have in the past complained about a 
     perceived ``lack of balance'' in the Middle East policy of 
     the United States. They hope that, with the end of the Saddam 
     Hussein regime, the United States will take a more active 
     role in resolving basic problems in the Middle East, 
     particularly the plight of the Palestinians, and that the 
     U.S. government will strongly pursue implementation of the 
     ``roadmap.''
       Other sticking points in the relationship from the 
     Indonesian perspective include: The January 16, 2003 
     announcement that Indonesia had been added to the list of 
     nations whose males over 16 visiting the United States must 
     register with the Immigration and Naturalization Service and 
     be fingerprinted and photographed. Indonesians see this as 
     further evidence of religious profiling by the United States. 
     They also object strongly to what they see as the failure of 
     the U.S. government adequately to discuss the matter before 
     the rules were published in the Federal Register. This is 
     likely to be a continuing source of friction which will 
     discourage travel to the United States by students, business 
     representatives, and others, and add fuel to anti-American 
     sentiment; and Indonesian perceptions of U.S. 
     ``unilateralism'' and ``bellicosity.'' While agreement with 
     many U.S. criticisms of the problems facing Indonesia, 
     Indonesians resent what they see as America's heavy-handed 
     style and its demands that Indonesia must take certain 
     actions. One well-informed American scholar has said the 
     United States should ``demustify'' its approach. It is 
     important that the United States work with the Indonesians to 
     identify problems and agree on approaches to solve those 
     problems. A joint approach is likely to be more effective 
     than public exhortations or the imposition of sanctions.
       Top Indonesian officials have expressed deep appreciation 
     for quiet U.S. assistance in working out the Aceh ceasefire 
     in December 2002. Unfortunately, that agreement has not held 
     and fighting has resumed. Nonetheless, we believe that Aceh 
     should continue to have a high priority for the United 
     States, and that the U.S. government should be prepared to 
     offer additional help in ending the violence if this is 
     requested by the Indonesians. Similarly, recognizing that 
     responsibility for Papua lies with the Indonesian government, 
     we recommend that the United States also assist in reducing 
     tensions and violence in that area.
     Why do we need to rethink U.S.-Indonesian relations now?
       We hear a great deal about Indonesia's continuing problems 
     but much less about the real progress that has been achieved 
     during the past several years. This progress provides a good 
     base for expanded U.S. assistance in areas where Indonesia 
     wants and can effectively use our help to consolidate the 
     gains already made and to strengthen the base for democracy 
     and continued economic growth. The Commission sees 
     encouraging progress in five important areas:
       The nation had a free and fair national election in 1999 
     and peaceful political transitions in 1999 and 2001. Many key 
     elements necessary for a successfully democratic system are 
     in place--an active and independent legislature, a 
     functioning party system, a free and active press, and a 
     growing civil society.
       Constitutional reform has gone much further than most 
     observers anticipated. Sovereignty for the first time is 
     vested in the people, a system of checks and balances has 
     been introduced, appointed seats for the military in elected 
     bodies will be eliminated at the time of the 2004 elections, 
     and in these elections the president and vice president will 
     for the first time be directly elected. A new Regional 
     Representative Council has been created to advance the 
     interests of the provinces, and a new Constitutional Court 
     and a Judicial Commission have been formed to strengthen the 
     legal structure.
       Indonesia's decentralization--the largest in history--
     transferred many central powers and two million civil 
     servants to some 400 local districts and towns on January 1, 
     2001. Despite initial misgivings, the process has gone 
     reasonably well, and some of the concerns about the potential 
     problems--increased corruption, double taxation--have proved 
     to be exaggerated. Moreover, while the process is still in 
     its early stages, there are already sign in some areas of 
     grassroots democracy and local leadership.
       Macroeconomic conditions have improved significantly. The 
     rupiah is relatively stable, interest rates are down to 
     manageable levels, monetary policy is sound, the banking 
     system has been strengthened, asset recovery is proceeding, 
     and inflation has fallen from 80 percent at the peak of the 
     financial crisis to less than 10 percent. There has also been 
     progress in reducing the debt ratio, which is down from 102 
     percent of GDP in 1999 to 67 percent in late 2003 according 
     to Indonesian official sources. Per capita income is 
     approaching 1997 pre-crisis levels, and the 13 percent of the 
     population living in absolute poverty, while still excessive, 
     is less than half the level in 1998. Citing ``good progress'' 
     in June 2003, the IMF announced a further release of $486 
     million, raising the amount released under the Extended Fund 
     Facility arrangement to about $4 billion out of the $5 
     billion total.
       The government moved quickly after the Bali bombings to 
     revise internal security regulations to give the authorities 
     greater flexibility in moving against suspected terrorists. 
     The police, who welcomed support from Australia, the United 
     States and others, have arrested more than 90 Indonesians 
     suspected of complicity in terrorist activities, and 
     international cooperation is continuing following the 
     Marriott Hotel attack.
       In short, Indonesia has made progress and is now at a 
     critical juncture in its democratic transition and economic 
     recovery. This is an opportune time for the United States to 
     rethink its approach to the relationship. If the democratic 
     transition is unsuccessful, Indonesia's political situation 
     will become less predictable, with increased risk of 
     exaggerated nationalism and/or Muslim radicalism. Less 
     likely, although impossible to discount, is a return to 
     authoritarian rule.
       Such negative scenarios are by no means inevitable, and it 
     is therefore important for the United States to identify 
     policies and programs that will help strengthen the nation's 
     prospects for success. As members of the National Commission 
     on U.S.-Indonesian Relations, we see a need for broad, 
     consistent U.S. engagement with Indonesia in four priority 
     areas (while anticipating that the significant U.S. health 
     and humanitarian assistance programs will continue):
       Education. Underlying all other areas is the urgent need to 
     help develop Indonesia's poorly functioning educational 
     system and significantly expand the pool of trained 
     administrators. This is an essential underpinning for a 
     successful democracy and for continued domestic economic and 
     social reform.

[[Page 24817]]

     Support for education was an important component of U.S. 
     policy in the 1960s and it made a major contribution to 
     Indonesia's rapid economic growth in the 1970s and 1980s. It 
     is now time for a similar effort to strengthen the country's 
     democratization programs and administrative capabilities.
       Democratization. The United States is well placed to assist 
     Indonesia in its efforts to strengthen the electoral system, 
     improve civil governance, pursue legal reform, and extend 
     decentralization. Helping to ensure the emergency of 
     Indonesia as a democratic, moderate, Muslim-majority state 
     directly serves the long-term national interests of the 
     United States.
       Economic growth. There are a variety of measures that the 
     U.S. government could undertake to alleviate Indonesia's 
     financial burden, help improve the climate for investment and 
     trade, and facilitate economic recovery. Encouraging a 
     resumption of foreign investment will be a major boost to 
     Indonesia's economy and contribute to social and political 
     stability.
       Security. The United States can help improve the Indonesian 
     authorities' capabilities to guarantee security through 
     education for the police and, when conditions are 
     appropriate, for the military. Doing so will help reduce 
     abuses and will also contribute to social and political 
     stability, improve the investment climate, and coincide with 
     U.S. strategic objectives in the war on terrorism.
       The Joint Statement issued by Presidents Bush and Megawati 
     following the Indonesian president's September 19, 2001 visit 
     to Washington provides a good basis for future relations 
     between the two nations. President Bush ``expressed his 
     conviction that Indonesia's transition to democracy is one of 
     the most significant developments of this era . . . [and] he 
     pledged his support for President Megawati's efforts to build 
     a stable, united, democratic and prosperous Indonesia.'' He 
     announced that the United States, in the ``spirit of their 
     shared commitment to promote reform and profes-
     sionalization of the military . . . would lift its embargo on 
     commercial sales of non-lethal defense articles for 
     Indonesia'' subject to the usual case-by-case review. The two 
     presidents also noted ``the importance of open markets and 
     expanded trade for economic growth . . . .''
       For her part, President Megawati ``condemned the barbaric 
     and indiscriminate acts'' of September 11 and ``pledged to 
     cooperate with the international community in combating 
     terrorism.'' She also ``reaffirmed her determination to 
     pursue a multidimensional approach'' to separatism in Aceh 
     and Papua and ``underscored her determination to improve 
     Indonesia's investment climate'' by ``strengthening the rule 
     of law, resolving outstanding investment disputes, and 
     protecting investors' assets and property.''


             the partnership for human resource development

       Ensuring a successful transition to democracy, stability, 
     and growth in Indonesia is not something that the United 
     States can do. The basic parameters must be set by Indonesia, 
     and the programs must be those with high priority for them as 
     well as for the United States. Open communication and regular 
     consultations are central to this. To ensure that both 
     countries are in full agreement on the course ahead, we 
     recommend creation of a formal coordinating mechanism to 
     facilitate dialogue on the wide range of concerns in the 
     bilateral relationship and to guide programs in the priority 
     areas outlined above. This mechanism--which might be termed a 
     ``Partnership for Human Resource Development''--would be a 
     standing body of senior officials from both nations which 
     would meet at least once a year, alternating between the two 
     capitals. The basic purpose would be to ensure that both 
     countries accept ``ownership'' of the agreed programs and 
     understand their responsibilities.
       Membership in the partnership on the U.S. government side 
     should come from the Departments of State, Treasury, Defense, 
     Commerce, USAID, USTR, Members of Congress or their staff, 
     and other appropriate agencies. Specialists could be brought 
     in as needed on specific issues. Indonesian representation 
     should be comparable. To ensure that the designated members 
     participate fully and actively, we suggest participation not 
     be at the cabinet level but perhaps at the deputy assistant 
     secretary level, but the actual level should be set by the 
     two governments.
       It has been suggested that the private sector also be 
     included in the partnership. To avoid the group becoming 
     unwieldy and the need to make difficult choices regarding 
     participation, we suggest that permanent private membership 
     in the partnership be limited to several broad organizations 
     focusing on the bilateral relationship such as the American 
     Chamber of Commerce in Jakarta, the Indonesia Committee of 
     the U.S.--ASEAN Business Council, the American-Indonesian 
     Chamber of Commerce in New York, and the United States-
     Indonesia Society. The Indonesian side may wish to invite 
     participation by a similar Indonesian organization or 
     organizations. As issues requiring additional expertise 
     arise, other private sector representatives (teachers, 
     lawyers, NGO members and others) could be invited to 
     participate in partnership meetings on a case-by-case basis.
       We do not envisage the creation of a large bureaucracy, but 
     we suggest it would be useful to have several working groups, 
     located in Jakarta, to handle day-to-day liaison. These might 
     include working groups on: civil governance and legal reform; 
     trade and investment; education and public affairs; military 
     relations; and police programs. USAID and the public 
     diplomacy section of the U.S. embassy could provide 
     leadership and continuity to these groups.
       If the United States agrees to pursue such a partnership, 
     it should be aware of three basic factors:
       1. Fixing Indonesia's problems will take many years. In 
     most cases it is not a matter of simply repairing something 
     which is broken. Many of Indonesia's problems go back to the 
     country's independence. The Indonesian military has been 
     engaged in politics, civilian activities, and independent 
     fund raising since the early days of the republic. Except 
     possibly for a few years in the 1950s, the nation has never 
     had an honest or credible legal or court system. The 
     bureaucracy has been inefficient from the start and there has 
     always been corruption, although it reached new heights under 
     Suharto. Knowledgeable Indonesians estimate that it will take 
     10 to 15 years to get the military and the legal system on 
     track. We agree.
       2. What the United States can do directly is limited. Many 
     of the basic reforms will have to come from within Indonesia, 
     and this underscores the need for a partnership. U.S. 
     exhortations, threats, and penalties are of minimal effect 
     and can be counter-productive. What the United States can do, 
     and do very well, is to train, encourage and support 
     Indonesians who can reform from within. This underscores our 
     strong emphasis in this report on education.
       3. Indonesians are in a state of heightened sensitivity at 
     present because of what they view as U.S. ``unilateralism,'' 
     ``arrogance,'' and a tendency to lecture or threaten others. 
     They resent Congressional restrictions and demands that they 
     ``must'' take certain actions. It is important that the 
     United States consider the public diplomacy aspects of all 
     bilateral assistance programs.
       Monitoring arrangements. As we are recommending a 
     substantial increase in the American commitment to Indonesia, 
     so too should Indonesia demonstrate its commitment to 
     internal reform and partnership with the United States in 
     order to ensure maximum effectiveness of the additional U.S. 
     assistance. As the details of U.S. assistance are worked out, 
     we believe benchmarks should be established by the 
     partnership to provide for verification of progress. The 
     ``Partnership for Human Resource Development'' can serve as a 
     forum for Americans and Indonesians to evaluate the progress 
     of the various programs and identify areas of success or 
     underperformance.


                              conclusions

       Indonesia faces three critical challenges: (1) It is 
     striving to consolidate a fragile democratic system with 
     little experience and limited resources. If it fails it could 
     revert to authoritarianism or chaos. Some Indonesians already 
     speak nostalgically of the stability and economic progress of 
     the Suharto era; (2) Moderate Muslims, still a substantial 
     majority, are under challenge from a radical fringe which has 
     grown significantly during the past five years. The goal of 
     the radicals is to capitalize on domestic vulnerabilities and 
     international issues to win over or intimidate the moderate 
     majority; (3) The nation is striving, in the face of rising 
     economic nationalism, to work its way out of the economic 
     mess left by the Suharto regime. The outcome of these three 
     contests will be crucial to the future of Southeast Asia and 
     U.S. relations with the region.
       The National Commission on U.S.-Indonesian Relations 
     recommends that the United States enter into a five-year 
     ``Partnership for Human Resource Development'' with Indonesia 
     in which the two nations agree to work together in the 
     following areas:
       We strongly believe that our top priority should be to help 
     Indonesia in the field of education. We need urgently to help 
     train the trainers and reformers. We leave to experts on both 
     sides to work out specific programs, but we favor a major 
     effort to help improve Indonesia's educational system and 
     expand opportunities for education and training in Indonesia 
     and the United States.
       The United States should support expanded programs for 
     legal reform.
       The two nations should explore ways in which the United 
     States could help strengthen the Indonesian parliament, 
     including the establishment of cooperative arrangements with 
     the U.S. Congress.
       The United States and Indonesia should cooperate on 
     programs to strengthen Indonesia's administrative services 
     through support to Indonesia's civil service and other 
     bodies.
       The United States should initiate discussions with other 
     major donors to encourage the World Bank and the Asian 
     Development Bank to increase fast-disbursing loans tied 
     primarily to macroeconomic performance rather than to 
     structural reforms.
       The United States should work with Indonesia to reduce 
     obstacles to foreign direct investment and, by offering 
     technical assistance and lowering barriers to key Indonesian

[[Page 24818]]

     products, help Indonesia expand its exports to the United 
     States. It should press other developed countries to do the 
     same.
       Indonesia, with U.S. cooperation, should revive the U.S.-
     Indonesia Energy Dialogue and other forums that will 
     strengthen cooperation between the private sectors in the two 
     countries.
       Working with Indonesian counterparts, the United States 
     should expand support for the Indonesian police, with 
     particular emphasis on education and training, and the 
     establishment of long-term institutional relationships.
       The United States should set aside plans to resume the 
     International Military Education and Training program for 
     Indonesia until the political climate is more conducive on 
     both sides. The government should, however, continue to be 
     alert to ways to expand contacts with the TNI in order to 
     reduce its isolation.
       If Indonesia wants U.S. help, the United States should 
     provide appropriate assistance and support in seeking 
     peaceful settlements in disputed or troubled areas.
       U.S. public affairs should be significantly expanded to 
     create additional opportunities for information and cultural 
     programs.
       The United States should take all possible measures to 
     reduce the delay in issuing visas for Indonesian students, 
     business representatives, scholars, and others with 
     legitimate reasons to visit the United States.
       The Commission sees this new relationship as a partnership 
     and hopes accordingly that the Indonesian government, for its 
     part, will take steps to make these programs successful.
       The Commission commends the U.S. embassy and USAID in 
     Jakarta and Washington for the excellent programs underway to 
     strengthen civil governance, decentralization, and the 
     electoral system. A good base has been built and the 
     Commission recommends that these programs be expanded and 
     augmented as noted in this report.
       The Commission also recognizes and commends the efforts of 
     the U.S. diplomatic mission to broaden the mission's contacts 
     with political, media, religious and other leaders. We 
     congratulate the ambassador in particular for his efforts to 
     open dialogue with Muslim leaders, an area that has been 
     neglected. These programs are of increasing importance in 
     these difficult times, and the Commission calls on the U.S. 
     government to provide full support.

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