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27–909 PDF 2006

S. HRG. 109–407

U.S.-INDONESIA RELATIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON EAST ASIAN

AND PACIFIC AFFAIRS

OF THE

COMMITTEE ON FOREIGN RELATIONS

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

SEPTEMBER 15, 2005

Printed for the use of the Committee on Foreign Relations

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

COMMITTEE ON FOREIGN RELATIONS

RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska

LINCOLN CHAFEE, Rhode Island

GEORGE ALLEN, Virginia

NORM COLEMAN, Minnesota

GEORGE V. VOINOVICH, Ohio

LAMAR ALEXANDER, Tennessee

JOHN E. SUNUNU, New Hampshire

LISA MURKOWSKI, Alaska

MEL MARTINEZ, Florida

JOSEPH R. BIDEN, JR., Delaware

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

JOHN F. KERRY, Massachusetts

RUSSELL D. FEINGOLD, Wisconsin

BARBARA BOXER, California

BILL NELSON, Florida

BARACK OBAMA, Illinois

KENNETH A. MYERS, Jr., Staff Director

ANTONY J. BLINKEN, Democratic Staff Director

SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

LISA MURKOWSKI, Alaska, Chairman

LAMAR ALEXANDER, Tennessee

CHUCK HAGEL, Nebraska

LINCOLN CHAFEE, Rhode Island

GEORGE ALLEN, Virginia

JOHN F. KERRY, Massachusetts

JOSEPH R. BIDEN, JR., Delaware

RUSSELL D. FEINGOLD, Wisconsin

BARACK OBAMA, Illinois

(II)

CONTENTS

Page

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

(III)

(1)

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.

OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S.

SENATOR FROM ALASKA

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.

2

Accordingly, it is in the United States interest to have a strong bilateral relationship with Indonesia.

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 globe.

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.

3

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.

STATEMENT OF HON. BARACK OBAMA, U.S. SENATOR FROM

ILLINOIS

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

4

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. [Laughter.]

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.

STATEMENT OF ERIC G. JOHN, DEPUTY ASSISTANT SECRETARY, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS,

DEPARTMENT OF STATE, 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,

5

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 interests.

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

6

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 fuelsubsidy program. President Yudhoyono is doing so now, and we

fully support him in those efforts.

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

7

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 facts:

• 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 trade.

• 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

compatible.

II. OPPORTUNITY

The success of Indonesia’s 2004 national elections, and the joint IndonesianUnited 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.

8

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

Democracy

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-Islamic.

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

9

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 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.

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• The passage of legislation in 2004 to ensure that the Parliament begins to exert

control over the military’s business interests.

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 process.

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 longterm 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.

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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 Development.

STATEMENT OF HON. JAMES R. KUNDER, ASSISTANT ADMINISTRATOR, BUREAU FOR ASIA AND THE NEAR EAST, U.S.

AGENCY FOR INTERNATIONAL DEVELOPMENT, WASHINGTON, DC

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:

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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 21⁄2 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 21⁄2 million new jobs each year.

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 continue.

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

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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.

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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 reVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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ligious 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.

HEALTHCARE, CLEAN WATER, AND ENVIRONMENT

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 proVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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vided $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 use.

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 NonCooperating 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

17

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 citizens.

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 alQaeda 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

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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 technology.

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 supVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
19

port 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.

20

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, ConocoPhillips, 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.

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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

22

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 mentioning.

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

23

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 stability?

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 comVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 96226.SEN SFORELA1 PsN: SFORELA1
24

mitted 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 underway.

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?

25

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.

[Recess.]

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.

STATEMENT OF HON. PAUL CLEVELAND, AMBASSADOR (RET.),

ARLINGTON, VA

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 SouthVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 96226.SEN SFORELA1 PsN: SFORELA1
26

east 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 direction.

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

27

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 made.

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 budget.

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 important.

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)

INTRODUCTION

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.

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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 nation.

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 region.

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 development.

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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 effectively;

• 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 inbox;

• 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 AND JUDICIAL REFORM

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 business.

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 team.

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

30

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 themselves.

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 progress.

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 assistance;

• There are important—indeed essential—opportunities to further cooperation

and constructive relations with Indonesia to achieve human rights, professional

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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 States;

• 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 functions;

• 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 reformminded 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.

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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 (BRR).

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

33

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 correctly.

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

suspended.

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 States.’’

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-mindedVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
34

ness. 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 platform.

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 so.

EDUCATION

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.

35

• 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 capabilities.

Senator MURKOWSKI. Thank you.

Now we’ll move to Dr. Soesastro.

STATEMENT OF HADI SOESASTRO, EXECUTIVE DIRECTOR,

CENTRE FOR STRATEGIC AND INTERNATIONAL STUDIES,

JAKARTA, INDONESIA

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.

36

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 socalled 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

37

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 investors.

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

INTRODUCTION

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

38

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 process.

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 reVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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gional 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 politically.

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 1992.

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

40

the 1990s, Indonesia began to participate actively in economic cooperation activities

in ASEAN and APEC.

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 power.

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 responsibility.

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.

ASEAN AND FREE TRADE AGREEMENTS

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.

41

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.

ASEAN-China

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

42

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.

TABLE 1.—ASEAN–CHINA FTA: TARIFF LINES IN SENSITIVE AND HIGHLY SENSITIVE LISTS

[HS 6-digit]

Country Sensitive Highly

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

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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.

ASEAN-Japan

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 CEP;

(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 socalled 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

44

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 undertaking.

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.’’

ASEAN-India

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 this.

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

45

as a stepping stone to elevate the ASEAN–ROK relationship to a higher and more

comprehensive level.’’

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.

AFTA–CER

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

46

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

clothing.

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: Woodbased products, automotives, rubber-based products, textiles and apparels, agrobased 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.

INDONESIA-UNITED STATES RELATIONS

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

47

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 Corps.

STATEMENT OF RANDY MARTIN, DIRECTOR, GLOBAL

EMERGENCY OPERATIONS, MERCY CORPS, WASHINGTON, DC

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 Indonesia.

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

48

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 communities.

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 emergencies.

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 longterm reconstruction.

Private contractors, likewise, are unlikely to bring communitydevelopment 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 government.

49

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 together.

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 reconstruction.

50

1For 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. 2 INGO: International Non-Governmental Organizations.

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 future.

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 overseas.

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 InterActionmember 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

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.

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 reVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
51

3For 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.

construction. 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.

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 livelihoods. 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 made.

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.

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4 Badan Rehabilitasi dan Reconstruksi translates as ‘‘body for rehabilitation and reconstruction.’’

ity 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 recommendations:

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.

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

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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 solutions.

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

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tion 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 progress.

• 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 scale.

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• 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 cooperation.

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 visa-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

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trolling 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 universities.

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

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paigns 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.’’

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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 capabilities?

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 Papua.

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

MURKOWSKI

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

59

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 implementation.

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 countries.

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.

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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?

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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 employment.

RESPONSES OF RANDY MARTIN TO QUESTIONS SUBMITTED BY SENATOR LISA

MURKOWSKI

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 onthe-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

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staff we had in place for international response were well positioned to deal with

the issues in responding to Hurricane Katrina.

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 engines.

• 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

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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.

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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 imporVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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tant 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’ perceptions.

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 critVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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ical 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 Bankmanaged 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 Aceh.

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 Indonesia.

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 matters.

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 AtVerDate 11-MAY-2000 14:38 Jun 07, 2006 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6621 96226.SEN SFORELA1 PsN: SFORELA1
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torney 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 operations.

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 AntiCorruption, 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.

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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 strait.

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 years.

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.

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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, Acehbased 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.

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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 workinglevel 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.

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