Table Of Content

The Indonesian VOL. XXIX NO. 1 FIRST QUARTER, 2001 Quarterly CONTENTS ABSTRACTS CURRENTEVENTS Future Relations between Indonesia and Australia Jusuf Wanandi Toward an ASEAN Strategy ofGlobalization Jose Almonte T. 1 1 REVIEWOF ECONOMIC DEVELOPMENT Scenario for Year 2001 Creative Destruction, : Muddling-Through, orSky-Dive? Staff, Department ofEconomics 17 ARTICLES The Source Market Performance in Indonesia's Manufacturing Industry Haryo Aswicahyond, DionisiusArdiyanto, TitikAnas 31 Democratic Consolidation in Indonesia: Hopes and Reality Elaine Kohar 43 Conflict Resolution Perspective in Indonesia: What is to be Done? Raphael Lengesa Nombo 56 Globalization and Human Economic Security: Issues and Constraints MohammadA. T. Chpwdury 63 A New Thinking for PRC Leaders Towards Cross-Strait Relations in the New Century Samuel C. Y. Ku 74 ABSTRACTS THE SOURCE MARKET PERFORMANCE IN INDONESIA'S MANUFACTURING IN- DUSTRY By Haryo Aswicahyono, Dionisius Ardiyanto, Jitik Anas Prior to the enactment of competition law and the establishment of competition commission,- much,has been debated about competition policy. Two major views emerged from such debate. The first one tends to interpret the high level of concentration and profitability as indicators of the presence and abuse of market power {market power hypothesis). The other one translates both concentration and profitability as measures of firms's, which in turn relflects consumer satisfaction {efficiency hypothesis). The article examine the determinants of market performance of the Indonesian manufacturing industry based on the two hypotheses. The empirical studies support both the efficiency and market power hypothesis. The authors, however, suggested a stronger support for eficiency hypothesis than that of market power hypothesis. The findings indicate the blanket deconcentration is not approriate. But by the same token, a permissive attitude towards strategies designed to hiaintain dominant position is not appropriate either. DEMOCRATIC CONSOLIDATION IN INDONESIA: HOPES AND REALITY By Elaine Kohar Two most important aspects of democratization are the smooth conduct of election and the liberalization of a nations's mass media system. However, the success of an election and the opening up of the media system do not necessarily lead to democratic consolidation. The article discusses ways to promote democratic consolidation in Indone- sia. The author argues that there is istill a long way before democratic consolidation turns from mere goals into realjty. Several factors that contribute to the process of democratic consolidation are: (a) external determinants that will influence the country's choice whether or not to democratize; (b) economic growth; and (c) law enforcement. CONFLICT RESOLUTION PESPECTIVE IN INDONESIA: WHAT IS TO BE DONE? By Raphael Lengesa Nombo Discussions on public management have long been focused on how to deliver public services enterpreheurily and innovatively. Meanwhile, the field has had less emphasis on aspect of conflict resolution. The article examines the relevance of conflict resolution perspective in contemporary Indonesia and recomends what is to be done in order to revitalize the potential of this field, which is quite imperative for the CURRENT EVENTS 5 replaced Prime Minister Hawke, the per- who were trained by their intelligence sonal relationship with Soeharto grew to agencies a decade earlier for clandestine its closest. A defence cooperation treaty operations. Surprisingly, the pro-indep- was signed between the two govern- endence voters had won the plebiscite, ments, although the Indonesian elites in which was beyond TNI's expectations. general were not supportive of It. For the TNI leadership the result was ca- lamitous. In turn, TNI had allowed the mi- The East Timor question has always litia to go on rampage. been a source of tension between the two countries, because Indonesian Armed What the western countries including Australia have completely miscalculated Forces {Tentara Nasional lndonesiallH\) rule has become increasingly oppressive, was the fact that Habibie's weak government could hot reaMzejtheir promises. especially since The Santa Cruz massacre in November 1991. However, it was the There was just too much ovdr-eagerness Habibie government that created a real on their side in making use of Habibie's division in policies towards East Timor wrong move In getting making East Ti- mor Independent. Whilst they have got that has soured the relationship between their independence, the cost to East Ti- Australia and Indonesia. morese has been tremendous that and Prime Minister Howard has always been will hurt them for a long time to come. lukewarm towards East Asia, particularly towards Indonesia, and has been more In the last instance, East Timor opted for independence because of it was Habi- interested to have closer relations with bie's mistaken move together with TNI's the US and Europe. When he proposed history of paired with abuses and exces- to Habibie to expand the proposed ple- ses of TNI, why East Timor opted for in- biscite for autonomy of East Timor to al- dependence. The recerit excesses of ABRI/ so include the possibility of independence TNI were merely was just a continuation at the end of a 5-10 year transition per- of what they have been doing since East iod, as was the case with New Caledo- Timor was arinexed in 1975. And be- nia's Matignon Accord, Habibie was angry cause they have kept East Timor as their at the proposal. Instead of Howard's pro- special domain for so long, it is. That posal, he instructed his cabinet to agree on giving East Timor immediate indep- made it possible that .they are the only part of, the Indonesian elite that is really endence if they chose to in the plebiscite upset vvith the results of the plebiscite. for autonomy that was being negotiated And they are still not willing to accept with Portugal. completely that Independence Is the way It was obvious that TNI was never go- that the East Timorese have decided. But ing to accept independence for East Ti- on the other hand that was also the re- mor, although they did not protest openly ason. This Is the reason, why the Indone- against Habibie's decision. Instead, they sian elites have been more disturbed with planned to sabotage it and they used the the Australian rhetoric than Australia's pro-Indonesian leaders and the militia involvement and leadership in the East CURRENT EVENTS Future Relations between Indonesia and Australia* Jusuf Wanandi HISTORICAL BACKGROUND leftist in domestic as well as foreign policies. HISTORICALLY, bilateral relations After President Soekarno was demoted between Australia and Indonesia and replaced by president Soeharto, a have always been up and down. new ideological phase was introduced. Under Labor leadership, the Australian Ideologically, Soeharto has placed Indo- government was very supportive of Indo- nesia in the center but leaning towards nesia throughout its struggle for indepen- the West. This was partly due to the need dence (1945-1950). Australia had been to rescue Indonesia's economy from active as a representative of Indonesia stagnation and very high inflation. in the UN sponsored Three States Com- mission. Moreover, the Australian repre- Good relations between the two coun- sentative on the Commission, Tom Critch- tries enjoyed one of its peaks when Labor ley, had become the Australian Ambas- Government was elected under Prime Min- sador to Indonesia in the 1980s. ister GoUgh Whitlam in the early 1970s, it was during Whitlam's leadership in 1 974 Subsequently, under the Liberal Coun- when East Timor was suddenly "de-co- try Party Coalition of Prime Minister Men- lonized" by Portugal. Part of the Austra- zies, Australia resistyed Indonesia's strug- lian bureaucracy showed certain ambi- gle to regain Irian Jaya from Dutch neo- valence against Indonesia's interests in colonialism in the period of 1959-1962. filling the power vacuum in East Timor, partly due' to ideological considerations. although Whitlam was more inclined to The Sukarno government was considered accept Indonesia's interests. When the Liberal-Country Party Coalition rose again to power in mid-1970s under Prime Min- •Paper presented at the Indonesia-Australia Bilateral Conference, organized Jointly by Centre ister Eraser, the basic objectives of the for Strategic and International Studies and The relationship were maintained and con- Indonesia Project, The Australian National Uni- versity, Jakarta, 22-23 March 2001. tinued. When Labor's Prime MinisterKeating CURRENT EVENTS 7 ah important relationship should not Indonesia was supportive of Australia's be dependent upon personalities alone. (and New Zealand's) membership in ASEM Soeharto had the right strategic appre- (Asia Europe Meeting) from the beginn- ciation of the relationship, and that is ing, although some members in East Asia why he was serious In maintaining it de- are still against it. That is a matter that spite the deep and vast differences be- will be solved in time, although Indone- tween the two countries. sia's support could definitely be stronger and more consistent than what currently Maybe it could indeed be said that exist. Similarly, Indonesia could strengthen the two nations are the most different its support for Australia in the ASEAN + 3 neighbors you could find on the globe. forum, an important partnership in the Australia is developed, "western" in values East Asian region. with a small population, democratic, and a member of the western alliance under Gus Dur's ideas of creating a Western the US. Indonesia is developing, has "east- Pacific Forum including Australia, PNG, East ern" values, a big population, and non- Timor and maybe New Zealand aod the aligned foreign policy, and was author- Philippines has some merit, but lacks the itarian. But Soeharto recognized that both deep rationale and objectives, which must have to live together as neighbors and be clear before it can be entertained seri- have tried to find a modus vivehdi for ously. peaceful co-existence through close co- Above all, "institutionalfatigue" amongst operation. More than that, he thought regional institutions could abort its im- we could become strategic partners. But plementation. The forum could only be this authoritarian rule and abuses of hu- useful as a regular forum for dialogue and man rights, especially in East Timor always consultations between the four countries hampered the good strategic relations most relevant to the idea, namely Indo- that Soeharto tried to establish. nesia, Australia, East Timor and PNG. Besides, the two nations did cooperate BILATERAL REU\TIONS AT PRESENT strategically in regional affairs and to a certain extent on global issues. Australia Compared to a generation ago (two and Indonesia have been active in sup- decades ago), it jias to be recognized porting APEC since Bob Hawke and Gareth that more intensive and deeper relations Evans proposed the idea in 1989. It was have been created between Australia and Indonesia, as the then chair of ASEAN, Indonesia. In economic relations, namely that provided the weight and early sup- In trade and investment (especially in the port that brought the rest of ASEAN on mining field but also in services, such as board and enabled APEC to succeed. engineering, law, accounting, consulting, Gareth Evans' support (together with Jap- training and education), there has been anese support) for the ASEAN Regional an impressive expansion. The Australia- Forum (ARF) was critical for its acceptance Indonesia Business Council has been an by the USA. active instrumental to Aid programs from 6 THE INDONESIAN QUARTERLY, Vol. XXIX/2001 No. , 1 Timorese peacekeeping force (UNIFET). suggested in Howard's letter), the situat- In the end, Australia's actions and involve- ion might have been completely different. ment in East Timor helped to limit TNI It might have allowed the parties to be abuses and prevent more calamities to prepared for the reconciliation, and the happen from happening to the East Ti- East Timorese for governing themselves. morese, who have already suffered so It could have prevented civil war and much during indonesian/TNI's rule. the violent reaction from TNI, who needed time to come to terms with an independ- After all, Australia's intervention was with UN support and Indonesia's consent, ent East Timor. In any case, such indep- however reluctantly given. Besides, General endence would have been the most likely outcome after a period of transition. But Crosgrove has stated that the peacekeeping operations in East Timor could not it could have been peaceful, with all parties prepared for the outcome. have, happened In such a successful way without the assistance and supported Habibie did not want to take care of provided by the TNI under the leadership East Timor anymdre because he consid- of General Kiki Syahnakri (who was in ered the cost was too high for Indonesia charge of withdrawal operations from and because he could not depend on "Ca- East Timor after the plebiscite). Except tholics" there to be loyal to the Republic. for some TNI elements, the intervention has The manner in which he "lost" East Timor not created a widespread and or deep en- became one of the main reasons why he mity against Australia. lost any chance to be elected as president by the People's Assembly. Ih hindsight it would have been much better for every party if Habibie has had There was much hope that the Austra- taken Howard's suggestion seriously. This lia-Indonesia relationship could be quickly would have opened the possibility of hav- restored when Gus Dur was democratic- ing a transition period of 5-10 years with ally elected as president. He was known full autonomy prior to holding a plebiscite to be open-minded, democratic, with a to decide whether the East Timorese high sense of justice, pro human rights chose to stay with Indonesia or become and supportive of the rights of minorities. independent. However, autonomy alone Alas, he was too capricious in his act- was no longer an acceptable proposition ions and too confused in his thinking to for the East Timorese after what hap- be able to bring stability to relations. pened to the rest of Indonesia since the Instead, he made relations worse by off- fall of Soeharto. In any case, the autonomy ering conciliatory rhetoric towards Aus- process had been undermined, because tralia on the one hand, and then chang- it had been discussed only with Portugal, ing his mind when it came to implement- and not with local East Timorese leaders. ation. This is particularly the case with Had the autonomy/independence pro- his promised visit, which has been post- cess happened in accordance with the poned five times in only twelve months. Matignon Accord on New Caledonia (as This experience vividly shows that such CURRENT EVENTS 9 of the world. Indonesia has the weight sible for Indonesia to complete its trans- in ASEAN and could bring ASEAN along ition in a period which, it is hoped, does in a lot of efforts to build a regional ar- not last too long. chitecture for the region. And since ASEAN is an important sub-regional institution If Indonesia is successful in its trans- with 10 member nations, it is an absolute ition efforts, then it will be easier for both sides to find common ground for coop- necessity to have those nations in every eration. And since a democratic system regional institution of the region. is more transparent than an authoritar- Australia on the other hand Is important ian one, as much more public debate will because of its ideas, commitment, initia- occur and the rights to the public purse tives, rigorous thinking, and willingness to will be in the hands of people's repres- spend resources, which the region does entatives, Indonesia will be looked upon need if it is serious about regional institu- by the Australian public as more of a re- tions. Efforts for regionalism are critically liable neighbor and partner and a less important to sustain stability, peace and of a threat. This will make it easier for economic dynamism. Regionalism prov- the Australian government and its other ides better chance for associated count- Australian leaders to forge closer bilat- ries to stay competitive, cope with the eral relations with Indonesia in every field challenges of establishing a new balance of life. At times, it may a|so mean a mes- in the post-Cold War period, and at the sier relationship and a slower pace of same time face the onslaught of global- cooperation because dernocratic pro- ization. cesses can also be cumbersome - incre- ased debate can delay decision making. CONCLUDING REMARKS ABOUT And public debates on aspects of the FUTURE RELATIONS relationship could make it look untidy. But, at the same time, the relationship There are two parts aspects of coop- will be more enduring and stable in the eration that are important to future relat- longer term. ions between Indonesia and Australia. In a new democracy such as Indone- Bilateral: as neighbours it is only nat- sia, sudden changes in public opinion and ural for the two nations to cooperate in in government decisions could still hap- the various fields that have been men- pen, however temporary in nature. As tioned above. In fact, there is a lot of has been said earlier, for the relationship big chance to deepen the relationship in to flourish a broad-based relationship the future, because in the meantime In- has to be established among all sectors donesia is on the its way to becoming a of the society, and that is much more more mature democracy - however diff- likely in a democracy. icult that process looks today. Since this a cathartic period for Indonesia, Austra- One aspect of the relationship that will lia should be patient, and it should as- need nurturing in the future is military co- sist wherever it can assist to make it pos- operation. It is the hope of TNI to have a 8 THE INDONESIAN QUARTERLY, Vol. XXIX/2001 No. , 1 Australia; and it has been considered very ganized by "joint ventures" between uni- effective and especially those meant for versities and institutes in both countries. East Indonesia, which might need the This is critically important for Indonesia's most help in satisfying basic human future and also for bilateral relations. And needs including training, education and more efforts are being made how to co- health. operate even closer at the tertiary level, where Indonesia is really lagging behind. It is also true that real improvements have been made in relation to news coverage Due to the financial crisis, the trend and the presence of media represent- of sending students to Australia has grown atives in both countries, in both electronic because it is cheaper than the USA or and printed media. More extensive relat- Europe. And that should be good for ions are also developing at the official future relations because former students level. The fifth bilateral Ministers Council will play a big role in continuing certain was held in Canberra in December 2000. goodwill towards the country where they Despite the East Timor abuses after the have studied in and generally have good memories about. Besides, their friend- plebiscite, meetings are also taking place ship networks in the country in which they between the military of each country, .al- studied could be useful in future relat- beit at a low-key level. The .T.ilitary re- ions. lationship was previously centered on a defence treaty that was primarily a pro- Tourism from Australia has always duct of Keating's efforts and Soeharto's been high even during the crisis of East support. But since the treaty was not sup- Timor, except perhaps immediately after ported by the elites, it did not last the the carnage in East Timor, when TNI-or- East Tirnor rampage by the militia and ganized public reactions in Jakarta were Australia's support for East Timor's inde- covered amply by the Australian mass pendence. media. But this period was no more than a few months long. In the meantime, a The military to military relations have lot of Indonesian tourists continue to been deep, broad-based and really pro- visit Australia despite the financial cri- ductive and important bilaterally and for sis. Although it is arguable whether tour- the region. Training and joint exercises ism has been an important- vehicle or were particularly important for the mil- not in understanding other countries, itary forces to know and respect each because tourists tend to stay only at cer- other and to get used to cooperating. tain "touristy" places, it is likely to have ... Another aspect of the relationship that created a certain appreciation to the coun- has become much more important on try and the people visited in the longer is the educational side, including training. term. There are now more Indonesian students As has been mentioned above, Indo- in Australia than in the US or Europe, in nesia-Australia cooperation in the Asia the realm of over 20,000. This number Pacific has been an important part of excludes classes partly in Indonesia or- regional institution building in this part CURRENT EVENTS Toward an ASEAN Strategy of Globalization* Jose Almonte T. GLOBALIZATION AS A HISTORICAL the Arabs stretched from West Asia and PROCESS the Mediterranean across the Indian Ocean through Southeast Asia clear to HOW China and the Japanese home-islands. to cope with the forces of globalization is likely to be the Throughout all that time, the dominant great economic-and-political de- states have worked to reduce barriers to bate of the new century. Put most simply, the movementofgoods, capital and techno- "globalization" is shorthand for the way logy-often enough, forcibly, as the British trade, investmenjt, and industry are spread- opened up China, the Amerii-ans opened ing around the world in a more or less up Japan, and the Europeans opened up uniform pattern, going beyond political Africa. In our time, the information and frontiers and national cultures. In recent communications revolution -by overcom- years, the perceived disadvantages of glob- ing the tyranny of distance- has speeded alization have generated an ideological up this historical process. backlash, which has become a worldwide Despite the protests of those who op- counter-movement. (In late 1 999, this backlash closed down the World Trade Organ- pose it, globalization in our time is not ization's ministerial meeting in Seattle.) likely to be reversed. Not only does it pro- mise the best results as a development Actually the process is nothing new. model. The only alternative autarky under Globalization has been going on not least the command economy-has become thor- since the sudden entrance of the V/estern oughly discredited by the collapse of the powers on the world scene in the fifteenth Soviet Union. century. In fact, Japanese Intellectuals like to recall an even earlier period, when a The Benefits and the Downside of pre-industrial trading system mediated by Globalization Over this last generation, ASEAN and East Asia were among the greatest bene- * Paper presented at a Public Seminar and a Re- ficiaries of the open trading system. The gional Workshop on "Development Countries and Globalization" organized by the Centre for Stra- East Asian "economic miracle" was founded tegic and International Studies In cooperation with on eA-porf-Zec^ development strategies that Konrad-Adenauer-Stlftung, Jakarta, 7-8 March 2001. tapped into rich western markets, particul- 1 0 THE INDONESIAN QUARTERLY, Vol. XXIX/2001 , No. 1 partner that really cares about them, de- operation should be more intensive in spite the cooling of relationship due to order to substantially improve the capab- East Timor. Australia has a strategic inter- ilities of the regional institutions, and Aus- est in improving the relationship, since tralia membership in ASEAN+3 is a pre- Indonesia is an important neighbour and requisite. Indonesia has to support Aus- strategic friend and partner. This is not tralia's membership more vigorously. only true in bilateral terms, but also in regional terms. Not only is Indonesia in Another challenge is future strategic development, namely what is going to crisis today, the region itself is in crisis. happen after the post-cold war era, which Therefore, cooperation between the military of the two countries makes sense is a transition period, is over? Here, Chi- na's rise to a great or even super-power in order to contribute together towards regional stability, especially in the imme- in the next 20 to 30 years will be the main longer-term challenge. diate neighbourhood. How the region, including Australia- However, if this cooperation is to be deepened, TNI has to cut its losses in Indonesia, will work together with other East Timor and move on. That means that friends and partners to make the entree of China into the region as peaceful as it has to stop the activlLies of the militia along the border of East Timor, expatri- possible will be the main strategic pre- ate the refugees in West Timor and bring occupation. Mechanisms to rise to this the perpetrators of human rights violat- challenge will include strengthening regional institutions such as ARF and CSCAP ions to the courts. in the security realm, as well as the re- Regional: There are two great chal- gional organisations in the economic field. lenges to the region in the longer term, It is also important to use the new re- which are critical to the future stability, gional fora such as ASEM and ASEAN+3 peace and well-being of the region. One tor this all encompassing objective. is globalisation, and here the challenge is how to overcome the crisis in the Here, again, the earlier experiences short term and medium term, and build between Indonesia and Australia could a more dynamic and resilient region which prove to be critical in making efforts suc- is capable of facing the impact of global- cessful in building and sustaining peace, isation better than it did a few years ear- stability and the well-being of the region. lier. For this, regional institutions such as In so doing, these Tegional efforts will APEC and the newly established ASEAN also contribute to global peace and well- +3 are important. Australia-Indonesia co- being in the longer term.