The role of the central government was to be confined to matters connected to defense, foreign policy, fiscal-monetary and macroeconomic policy, justice and religion. Not less important was that the regions would receive a larger share of revenues from the regional production of natural resources. Previously, regions had always felt uncomfortable seeing the majority of earnings from local natural resources flow to stakeholders in the capital city of Jakarta. However, since not every region in Indonesia is blessed with abundant natural resources, it increased the gap between richer and poorer regions.

Along with power, corruption was decentralized to the regional level as well where so-called "shadow states" emerged in which the regional elite is in control of power, business and money flows. One of the victims of this new era is the environment. In exchange for large sums of money, logging and mining permits were granted on a large scale by local authorities (especially on resource-rich islands Sumatra and Kalimantan), usually without proper monitoring or administration. Today, nearly 20 years later the consequences are still being felt as there is often unclarity about the size of concession areas due to weak governance in the Post-Suharto era.

The process of decentralization was also accompanied by regional violence entrenched with ethnic or religious aspects because of the emergence of competition for local political positions in conjunction with a revival of regional identities. For more information on this topic, visit the Ethnic and Religious Violence section.

The Bacharuddin Habibie Administration (1998-1999)

Bacharuddin Jusuf Habibie, vice president during Suharto's last presidential term, replaced Suharto in 1998 when the latter stepped down from the presidency. But this did not mean an end to the political system that had been applied during the New Order. Many Indonesians were highly suspicious of Habibie because of his closeness to Suharto (who had been a father figure to Habibie) and the fact that he had been an important player in Suharto's political patronage system. Habibie's refusal to order a thorough investigation into Suharto's accumulated wealth only strengthened this distrust.

Habibie had no other option than to launch the reform program. It would have been political suicide if he did not comply with demands of the Indonesian public. During Habibie's presidency thirty new laws were approved by the People's Consultative Assembly (MPR), some of which characterized by fundamental breaks with the political past. A number of noteworthy reforms were:

Introduction of freedom of the press
Allowing the establishment of new political parties and unions
Release of political prisoners
Limiting the presidency to two terms of five years
Decentralization of power to the regions

Another important decision was to schedule new general elections, to be held in June 1999. Parliament had no intention yet, however, to reduce the political influence of the army and to order an investigation into Suharto's wealth.

Indonesia entered a period of increasing violence in the regions. East Java was plagued by mysterious killings (perhaps led by army units) while religious violence flared up in Jakarta, Ambon (Moluccas), Kupang (West Timor) and West Kalimantan. Moreover, there were three regions that rebelled against the central authorities: Aceh (Sumatra), Irian Jaya (Papua) and East Timor.

It all resulted in an environment in which foreign investors were hesitant to invest, thus holding back economic recovery for the country. Not less important was the sanitation of the Indonesian financial sector, which had been the heart of the Asian Financial Crisis in the late 1990s. The Indonesian Bank Restructuring Agency (IBRA), set up in January 1998, became a powerful agency that undertook an integrated and comprehensive series of activities consisting of matters such as bank liability programs, the recovery of state funds, bank restructuring, bank loan restructuring, and shareholders settlements.

The East Timor case was one that caused much conflict, both nationally and internationally. East Timor had declared independence in 1975 but was invaded by Indonesia the following year. This did not end its desire for independence. Habibie had an open-minded stance towards East Timor's independence. He stated that if East Timor rejects the special status of autonomous province within Indonesia, then it can become independent.

This statement of Habibie was not agreed upon by the Indonesian army that fiercely wanted to prevent separation from Indonesia. According to the army East Timor's separation was dangerous for Indonesian unity as it could lead to a domino effect in the other provinces. It was decided that the people of East Timor could express themselves on this matter through a referendum. The outcome of this referendum was that 78 percent of the voters chose for independence. The Indonesian army subsequently reacted by ravaging much of East Timor, killing more than one thousand people.

Habibie's reputation was severely damaged by losing control over the situation in East Timor. Although it were army units and civilian militias that committed the extreme violence, Habibie was personally held responsible being acting president. Moreover, Habibie himself became linked to a big corruption scandal involving Bank Bali. This bank received funds from the IBRA for its recapitalization but - allegedly - almost half of these funds were used for Habibie's campaign team.

Elections of 1999

After 1955 the Indonesian people were forced to wait for 44 years to witness another example of free and fair parliamentary elections. In this election of 1999 people voted for a political party, not for an individual. Since there were no limitations to the establishment of political parties (as part of the reform program), Indonesia had witnessed the mushrooming of many such parties. No less than 48 parties were allowed to participate in the elections of 1999, although most of these parties would play an insignificant role.

Most political parties could count on few popular support. In modern Indonesian politics a political party is basically the political vehicle for a specific individual rather than an institution that expresses a shared ideology or vision. Because only a few people could count on public support during the 1999 elections, most political parties were destined to receive few votes.

One of these people was Megawati Soekarnoputri, daughter of Indonesia's first president Soekarno. She had established a new party PDI-P (Partai Demokrasi Indonesia Perjuangan) in 1998 after being outcasted from the PDI in 1996. Due to her father's legacy and her opposition to the New Order towards the end of Suharto's rule, she enjoyed widespread popularity (especially on the islands of Java and Bali). Similar to her father, she stressed national unity and propagated secular nationalism.

Another popular national figure was Abdurrahman Wahid who had founded the PKB (Partai Kebangkitan Bangsa) in 1998. Previously, he served as chairman of the biggest Muslim organization in Indonesia, the Nahdlatul Ulama (NU), but now he set his eyes on the presidency. Wahid propagated a sort of tolerant nationalism and could rely on popular support from the traditional Muslim community (mostly on Java).

Habibie, Indonesia's acting president, fostered ambitions to maintain his position. Although not enjoying much popularity, he could rightfully claim that he launched the reform program and could benefit from Golkar's powerful political machine which stretched up to the village level.

Lastly, Amien Rais, exponent of opposition against Suharto's New Order, joined the race with his Partai Amanat Nasional (PAN) and was a serious outsider.

An important matter during these elections was that seats in parliament would be divided in half. The island of Java received half of the seats while the other half would go to all other islands. This was done as a measure to lessen Java's dominant position in politics. But as Java is much more densely populated than Outer Java, it basically implied that a non-Javanese vote was more powerful than a Javanese one. This situation would have far reaching consequences for the results in this election.

Legislative Election Indonesia 1999:

PDI-P   34%
Golkar   22%
PKB   13%
PPP   11%
PAN    7%

Around 90 percent of the Indonesian electorate came to cast their vote on 7 June 1999. As could be expected, the PDI-P received most of the votes (34 percent) with Golkar coming in second (22 percent). However, these two parties were allocated almost a similar amount of seats in the parliament as the PDI-P received most of the votes from Java, while Golkar enjoyed most votes from the Outer Islands.

In October Habibie had to deliver an accountability speech in front of the parliament. This speech was a report regarding his performance as president and the performance of policies during his presidency. His speech was rejected by a majority of the members of parliament. After this rejection Habibie decided to renounce his bid for the presidency in 1999. This meant that there were now just two persons who enjoyed significant political support to become the next president of Indonesia: Megawati and Wahid. In another session the Indonesian parliament eventually chose Wahid as the new president. Megawati became the new vice president and Rais was elected as chairman of the parliament.

The Abdurrahman Wahid Presidency (1999-2001)

In order to establish a broad based coalition Wahid appointed members from many political parties as well as army officers as ministers to his cabinet. But this diverse composition also implied a lack of cohesion within the cabinet and, moreover, it contained few reformers. Wahid did put effort in reducing the political role of the army but this led to conflict and the subsequent loss of support from the army.

Without army support there were few means to survive for the president as Indonesia was plagued by conflicts and violence in the regions. These regional outbursts needed army intervention but due to the conflict with Wahid the army did not seem to have any interest in settling or interfering, resulting in the undermining of Wahid's presidency.

Corruption cases still seemed to be the rule rather than the exception. In his first year as president, Wahid sacked seven ministers who were all - allegedly - involved in corruption cases. Four of these ministers belonged to the four most important coalition partners: PDI-P, Golkar, PPP and PAN. This meant that Wahid became even more isolated. And - even more serious - Wahid himself also became linked to two corruption scandals which eventually led to his impeachment. These two scandals became known as 'Buloggate' and 'Bruneigate', each involving the abstraction of public funds. Indonesian parliament saw this as a great opportunity to impeach Wahid and Megawati was subsequently appointed president, while Hamzah Haz (leader of the PPP) became the new vice president.

The Megawati Soekarnoputri Presidency (2001-2004)

Towards the end of Suharto's New Order rule, the late Soekarno (Indonesia's first president) became a symbol of opposition to the government. Soekarno was the national hero who had devoted his life to - and succeeded in - reaching independence. Most of the anti-Suharto protesters were born during the New Order regime which had lasted for more than three decades and therefore probably had rudimentary knowledge only of the pre-Suharto era. But for them Soekarno represented freedom, an independence from Suharto. Therefore it was only logical that his daughter, Megawati, could count on much support among the people.

But this support was based on her status as daughter of Soekarno only and not based on her political vision nor skills. Her cabinet did not differ markedly from Wahid's initial cabinet: it contained a broad parliamentary basis and army officers were well represented. Megawati herself did not do a lot of decision making, which she left to her ministers. There were no signs that corruption was dealt with while the status quo in the government remained.

But although Megawati herself did not seem highly supportive of political reforms, the reform process had in fact already been initiated in 1999 when parliament commenced designing new laws (including constitutional amendments) which would become effective during Megawati's presidency. These reform measures implied a significant increase in democratic checks and balances which put an end to the possibility of an authoritarian regime. It placed power in the hands of the people instead of the central government. Moreover, the executive and legislative branches were separated more strictly.

Megawati's predecessor (Wahid) made strong efforts to reduce the influence of the army (which actually undermined his position) but Megawati had no intention to mingle with army affairs. As a consequence the army would regain some influence in politics. International developments also enlarged the role of the Indonesian army. After the 9/11 attacks on the Twin Towers in New York, the American government resumed cooperation with the Indonesian army (which had been halted since the army's participation in violence in East Timor in 1999) to combat international terrorism.

Although parliament had been careful in reducing the political role of the army, it was the commander-in-chief of the army who stated that by 2004 army fractions should be eliminated in parliament. A military officer who wanted to become active in politics would have to resign from his military position first. These reforms were realized but did not mean an end to political influence of the army in Indonesian society. To this day the army is a strong force as former generals who are active in politics can still rely on a network within the army and, moreover, the army is still entangled in business activities in the regions.

Read more: Analysis of the Susilo Bambang Yudhoyono Administration
Read more: Analysis of the Joko Widodo Administration

Poll Indonesia Investments:

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