The Indonesian Quarterly Vol. XXVI No. 1 First Quarter 1998

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by  CSIS Indonesia

VOL. XXVI, NO. 1
Current Events
The Strategic Implications of the Economic Crisis in East Asia
Review of Political Development
Sailing on the Wave: Indonesia's Recent Social and
Political Situation
Articles
Southeast Asia and the Social Agenda: Critical Policy Responses
ASEAN's Future
Myanmar in ASEAN: Challenges and Prospects
Socio Economic and Political Bases of the Nahdlatul Ulama Elite
The Current Legal Status of Transit Passage:
Analysis of State Practice Before and After the LOSC
Centre for Strategic and International Studies
The Quarterly The Indonesian Quarterly is a journal of policy oriented studies published by
the Centre for Strategic and International Studies (CSIS), Jalan Tanah Abang
HI/23-27, Jakarta 10160. It is a medium for research findings, evaluations and
views of scholars, statesmen and thinkers on the Indonesian situation and its
problems. It is also a medium for Indonesian views on regional and global
problems. The opinions expressed in The Indonesian Quarterly are those of
their authors and do not necessarily reflect the opinion of the CSIS.
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To better represent the underlying ideas that gave birth to
the CSIS in 1971 the Centre uses as of 1989 the logo that
figures on the front cover of this journal. The original, in
bronze, designed by G. Sidharta, it consists of a disc with
an engraving that depicts the globe which serves as a
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raised upwards. Altogether it simbolises the Centre's nature as an institution
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Centre, just as it is with scholars everywhere. The inscription reads "Nalar
Ajar Terusan Budi", which in the Javanese language essentially means that
to think and to share knowledge are only the natural consequence of an en-
lightened mind. It is a surya sengkala, that is chandra sengkala, a Javanese
traditional way to symbolise a commemorable year in the lunar calendar,
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in reverse order, represents the year the CSIS was established: 1971.
Editor Vidhyandika Moeljarto
Advisory Board Mari Pangestu, Hadi Socsastro, J. Kristiadi, Hantarto Bandoro, Rizal Suknia.
ofEditors T.A. Lcgowo, Mcdclma K. Hendityo, Pande Radja Silalahi, Pubagus
I'endhanusctyawan, Omar llalim.
The Indonesian Quarterly is published m January, April, July and October.
SIT 01381/SK/DirjcnP(;/sn/72
ISSN 0304-2170
VOL. XXVI, NO. 1, FIRST QUARTER, 1998
Contents
Current Events • ASEAN's Future
• The Strategic Implications of JusufWanandi 21
the Economic Crisis in East Asia
JusufWanandi • Myanmar in ASEAN:
Challenges and Prospects
Review of Political Development AderemiIsolaAjibewa 28
• Sailing on the Wave:
• Socio Economic and Political
Indonesia's Recent Social and
Bases ofthe Nahdlalul Ulama
Political Situation
Elite
MedelinaK. Hendytio
KacungMarijan 37
Articles
• The Current Legal Status of
Southeast Asia and the Social Transit Passage: Analysis of
Agenda: Critical Policy State Practice Before and After
Responses the LOSC
MarzukiDarusman 14 FarhadTalaie 52
Current Events
The Strategic Implications of
the Economic Crisis in East Asia
Jusuf Wanandi
THERE
are several possible implica- ways directed at the world's only super-
tions of the economic crisis in the power. That is why a greater role of the US
strategic realm. It has to be said in the region for the future is to a certain
at the outset that the conclusions below extent a double-edged sword. On the one
are still tentative as the changes still have hand they are expected to have a greater
to be worked out through the system. The role in the region to overcome the crisis,
first level of change is in the relative bal- but on the other hand there is the con-
ance of power among the great powers cern about US domination in the region.
of the region, particularly the US, Japan, A backlash could happen against the US
and China. The US, with its overwhelm- because of her increasing role in the fu-
ing political, economic and military power ture. There is also the possibility that the
has become more powerful and influential crisis will result in a new nationalist back-
in the region as a result of the economic lash due to the resistance on the part of
crisis, because it has been the most active new developing countries to new inter-
one in taking leadership in looking for ventions in their domestic developments
a solution, although in the beginning it resulting from globalisation as well as
showed some hesitation in relation to the heightened feelings of injustice caused by
Thai crisis. That was because at that time the economic crisis that happens so sud-
no officials were in place at the State De- denly. In these circumstances it is not
partment, while the Treasury Department easy to have a balanced view of what really
that had taken the lead on the issue was has happened as one docs not usually re-
not really sensitive to the needs of the cognise one's own dcfcncicncics. An in-
region. creasing US role is inevitable, since there
arc no other powers that have the same
As usual the US role is always consider- reach and leadership in the region. There
ed controversial. Whether they do some- is another danger about US involvement
thing or they are inactive, criticisms arc al- in the region for the future. This relates to
CURRENT EVENTS
3
its lack of consistency and staying po- was amended in early November by some
wer, due to some large extent to an inward APEC countries to become a complement-
looking US public, the tendency on the ary effort to the IMF Fund and as an early
part of the US to take unilaterist actions, warning system. However, the idea was no
and the possibility of a lack of interest on longer considered relevant. Even after an-
the part of the Executive Branch, while a other discussion at the ASEAN Finance
new bi-partisan consensus on foreign policy Ministers Meeting in Kuala Lumpur in De-
has not yet emerged after the ending of the cember it could not get off the ground.
Cold War.
In the case of the crisis in Thailand and
Japan, the second most powerful eco-
Indonesia, Japan has been supportive as
nomy in the world, has been expected to
part of the deal with the IMF. Japan has
take the lead in the economic recovery of
been willing to do more in providing ad-
East Asia. This could be undertaken by re-
ditional aid to Indonesia to alleviate the
flating her own domestic economy, which
plight of the poor in the form of food-aid
has been dormant for the last 8 to 9 years. and medicine. It also provides assistance
The economy was not in a prolonged re-
to overcome the problem of the rejection of
cession and was not experiencing real ro- L/Cs from Indonesia due to a loss of in-
bust growth either. That is why there was ternational confidence on Indonesia's bank-
no real sense of crisis in Japanese public
ing system. However, Japan has not been
opinion. As Japan has been able to achieve forthcoming on the opening up of her do-
a very high real per capita income after a mestic market through a reflation and
growth for over 30 years, there also was no
greater liberalisation of the domestic eco-
sense of urgency to stimulate the economy. nomy. This was made clear at the ASEAN
This has been compounded by the fact that Informal Summit in Kuala Lumpur in De-
Japan has no strong political leadership al- cember 1997. This has been the main reason
though for the time being the LDP seems
for the criticisms by the G-7 and others in
to remain unchallenged. A
Asia towards Japan. reflation of Japan"s
Japan began with a wrong initiative by economy and the opening of her market
proposing a special Asian Fund to be es- could be the most important help for the
tablished at the Annual Meeting of the depressed Asian economics to get out of
IMF-IBRD in Hong Kong, September 1997. their crisis. Although Japan is quite will-
First, the initiative was taken without the ing to help the Asian economics to over-
consent of the US and the other G-7 mem- come the crisis, her leadership role is both
bers. Second, it was meant to be a Special not quite visible and not fully acceptable
Fund for Asia to be arranged outside the This might be due to her own domestic
IMF and will be made more readily avail- political constraints and leadership prob-
able. The idea was rejected by the other lems and could also be due to being ill-
G-7. especially the US, but other Asian prepared in fulfilling such a role. There is
countries were not very supportive cither a feeling of a real lacuna in Japan's leader-
because the proposal was not made very ship in this crisis, which after all is an eco-
clear to them. The idea of an Asian Fund nomic one and is happening in East Asia
4 THE INDONESIAN QUARTERLY, Vol. XXVI/1998, No.
1
and therefore should be of great concern to In the meantime, if China could manage
Japan. This suggests that Japan really has her economy well, despite deflationary pres-
to prepare herself and to get her act to- sures due to reduced foreign investments
gether now in order to play a leadership role (by a third in 1998 compared to last year)
for the future developments of the region. and a declining trade surplus (50 per cent
of her trade is with East Asia whose eco-
China, at the very least, has shown some
nomice are slowing down), then in polit-
understanding about the expectations of
ical and strategic terms China will increase
the region and the world regarding her
her weight relatively to the rest of East
leadership and policies to assist the East
Asia. This also means that her military
Asian economic in resolving their crisis, might also increase relatively. How she is
although she is completely new in this
going to use this relative increase in polit-
game. First, she participated for the first
ical and strategic weight will be an im-
time in providing financial assistance to
portant factor in the strategic balance of
Thailand as part of the IMF deal, and also
the region in the future.
made a pledge to support the IMF finan-
cial package for Indonesia. Second, she It was therefore encouraging that China
understood that another devaluation of has not only had good relations with the
the Renminbi now will mean another blow region and has become more involved,
to the other Asian currencies, including to particularly with ASEAN, bilaterally as well
the Hong Kong dollar. Therefore she has as through multilateral frameworks such
promised not to do that and she has as the ASEAN Regional Forum (ARF) as
enough reserves (of about 140 billion dol- well as CSCAP (Council for Security Co-
lars) to back up that promise at least for operation in the Asia Pacific), a second
1998. She also understood gradually, after track level of cooperation for the ARF.
being rather nonchalant about the minimal However, two of their policies in dealing
impact of the currency crisis on China, that with the situation in the region stand out.
it can have a serious impact on her own One is to improve relations with Taiwan
economic development and policies. That through bilateral dialogues following tense
is why they started to study the phenom- relations for the last two years due to
enon more seriously since November 1997, the visit of Lee Teng Hui to the US. This
and why it is so important to have stronger effort has been undertaken after Taiwan
policies on domestic investments and to has increased her economic diplomacy in
have less regulations as well as to have a East Asia with the promise of helping to
strong technocratic team under PM Zhu resolve the crisis. Initially China reacted
Rongji to manage their economy. Here, as negatively to these Taiwanese activities, but
in the case of Japan, the most important the reactions were moderate because she
policy should be on how to keep the eco- docs understand that the economic parti-
nomy in order, and in that way help the cipation of Taiwan in the region could help
other East Asian ones by not burdening to overcome the economic crisis of East
them with another crisis of a big economy Asia. In the meantime, China also under-
such as China's. stands that the economic approaches and
CURRENT EVENTS
5
activities from Taiwan will not lead to the economic crisis is of strategic importance,
establishment of diplomatic relations. especially because the underlying factors
for regaining growth are present. These
The other policy relates to her mature
include high savings, natural resources
reactions towards the riots in Indonesia,
endowments, educated and trained labour,
where Indonesian Chinese shops were at-
export led growth and open economies, and
tacked and damaged. Her new policy on
becoming a part of the globalised economy.
the so-called "overseas Chinese" in South
This crisis has also demonstrated the im-
East Asia, recognizing that most of them
portant role of regional and global insti-
have chosen the local citizenship, suggests
that China would not repeat her policy of tutions such as the IMF and the IBRD. It
has yet to be shown that the region can
solidarity as in 1958 and 1965. This shows
cooperate with them by biting the bullet
the importance of her bilateral relations
and taking the bitter medicine and with
with the countries of ASEAN. In the longer
regional and international assistance it can
term China of course will become a power-
return to the growth path and economic
ful country strategically in East Asia. If
dynamism. However, it is a condition sine
in the meantime she also could become
qua non that governments as well as the
a responsible power, abiding by the rules
private sector in the region recognise the
of international relations, then she should
real problem, including the follies and ex-
become a beneficial and responsible great
cesses that have been made.
power. If political development also occurs
domestically in the direction of a more What about ASEAN's relative influence
democratic country based on the rule of law, in the future, now that the crisis has hit
this would strengthen her moderating role the members quite hard? ASEAN has been
in the future. seen as a regional institution that has had
a positive impact on the region's develop-
Meanwhile, a strong US presence in the
ments due to her initiatives for peace and
region is always a prerequisite for a healthy
stability, supported by dynamic economic
and positive balance of power in the region.
growth and cohesive cooperation among
And
since that is to be maintained prim-
its members. That explains why ASEAN
arily through the US-Japan alliance, it has
become a real anchor for peace and stabil- was able to take initiative in APEC, ARF
ity in the region, although burdensharing and ASEM. Now that she is in an economic
crisis, and with some of the members be-
with others in the region, including ASEAN,
is also becoming more important for keep- coming more feeble socially and political-
ASEAN
ing the support for the alliance in the US ly, is challenged to be able to show
and Japan. that she can sustain her support for re-
gional institutions she has helped create
Strong regional economic growth and by devoting sufficient financial and hu-
dynamism are another important factor for man resources. More than that she has to
peace and stability to be maintained in the show her ability to make ASEAN even
region. That is why a relative quick and ade- more relevant to the region by making
quate response of the region towards the changes that would convince the region
6 THE INDONESIAN QUARTERLY, Vol. XXVI/1998, No. 1
that she is better organised and can co- This means that ASEAN has to become
operate more deeply. Because of the eco- more than a regional institution based on
ASEAN
nomic crisis has done little for state to state relations. She has to become
the region lately. a community based on the principles of
ASEAN a democratic and just society as well as
has been critised for her in-
humanitarian, open nationalism, and re-
ability to tackle the haze problem caused
gionalism. Therefore "constructive involve-
by Indonesia which has created havoc
among the other members of ASEAN. Little ment" in each others domestic affairs for
the greater good of the region should be-
appears to have been done to prevent this
ASEAN
come an acceptable way. should
from happening in the future. Similarly, on
other new issues such as the migration establish more institutions to be able to
cope with the new challenges, while her de-
problem and illicit drug-trafficking in the
ASEAN cision-making process should be based on
region, the present cannot do very
much about. Another question is how consensus only with regard to essential
ASEAN will handle Cambodia's member- problems whereas on others it could be de-
ASEAN
cided upon by majority vote. also
ship in the future, while facing strains
due to the enlargement of ASEAN. Only if has to incorporate more of the civil so-
ASEAN makes substantial changes, can cieties that are already cooperating amongst
ASEAN
she cope with the new and fundamental themselves. Only then could re-
challenges in the future and maintain her gain an influence in the greater region of
relevance to her own members, societies as East Asia and the Asia Pacific, and could
well as to the greater East Asian and Asia it continue to lead in regional institutions
that she has initiated.
Pacific region.
Review of
Development
Political
Sailing on the Wave
Indonesia's Recent Social and Political Situation
Medelina K. Hendytio
Introduction stronger impact in creating the chaotic situ-
THE ation. The obvious message that can be
development of Social and
taken out from the current situation is the
Politics in Indonesia in the last
stronger call for both economic and polit-
three months (December 1997 -
ical reforms. These reforms are needed since
February 1998) has been characterised by
the current economic crisis has been caused
a turbulent situation and crisis. This situ- by the lack of confidence in both the eco-
ation emerged as economic crisis, the worst nomic and political sectors. This means that
since Soeharto came to power three de-
any solution offered by the government to
cades ago, interwoven with the rising of po-
the economic downturn would be ineffective
litical temperature. The national discussion
unless it is accompanied by political reform.
on succession issue, broad speculation on
the next vice president and the increasing
number of riots and demonstration in the Economic Crisis
face of deepening economic crisis are in-
dicative of the complicated social and po- The economic disaster faced by Indo-
litical atmosphere. nesia can not be separated from the crisis
happened in the Asia region. Started with
The
raise of political temperature is the fall of Thai baht in the mid last year,
mostly due to the upcoming general session it spreaded out to the other countries in
of the People's Consultative Assembly the Asia region like a contagious descasc.
(MPR) which will be held in March to elect Without exception, Indonesia has been
the president and vice president. In this con- hittcd by the same condition. The rupiah
text, it is hard to say whether political or has been continuing to fall since July 1997.
economic phenomenon has contributed a At the end of November 1997 rupiah down
8 THEINDONESIAN QUARTERLY, Vol. XXVI/1998, No.l
to level of 4000 to one US dollar and then In order to restore confidence, the Gov-
hit another historic low of 7,750 in the ernment went to the International Monet-
following weeks. Rupiah's persistent fall ary Fund (IMF). On January 15th the IMF
was mostly caused by the president's announced a new reform agreement covering
health after the presidential doctors advised 50 items of actions that should be carried
him to rest in December after an exhaust- out by Indonesia. The President personally
ing international tour. Moreover, the gov- signed and delivered the letter of intent
ernment's draft 1998/1999 budget and Pres- to the IMF and gave his personal stamp
ident Soeharto's speech in January 6th on these reforms. This showed the govern-
were expected to serve a turning point to ment's seriousness over reform and is ready
the country's economic woes. The draft to carry out the most extensive and drastic
shows that Indonesia is in situation where measures since the government embarked
the country is forced to tighten the belts on the course of economic reform in the
and implement austerity measures. More- mid-80's. The most outstanding feature
over, it also exhibits that the development of the economic reform package was the
funding depends heavily on external fac- elimination of monopolistic privileges and
tors. Funds allocated for debt payment in cartel practices, the phasing out of sub-
the current draft budget rose from 19.23 sidies and cancellation of the lavish project.
trillion up to the Rp30.24 trillion. How- Moreover, national programs that could no
ever, after his budget speech the rupiah longer be subsidized such as National car
went into free fall at one point touching a and IPTN were included in the package as
rate of 11,000 to the dollar, less than a well. IMF also suggested a revision for the
quarter of its value six months earlier. This state budged draft. The basic assumption
leads to the fearing hyperinflation and food used in the earlier draft of the state budged
shortages, besieged markets and striffed- 1997/1998 was that: Rp4,000 for one dollar,
shop shelves. Furthermore, the value of inflation rate at 11 per cent and growth are
shares traded on the Jakarta stock exchange expected 4 per cent. This basic assumption
fell drastically that even some reputable has been changed by using Rp5,000 for
companies were technically bankrupt. Mean- one dollar, 20 per cent inflation rate and
while, the economic deterioration is happen- zero growth.
ing, the continuing fall of the rupiah re-
However, the market has not respond
sulted in lay off and a decline in produc-
tion at most industrial companies. positively. Rupiah is still weak against the
US dollar. This reflected the increased so-
Many people have questioned why he cial and political risk associated with un-
I
Indonesian rupiah continues to wane against stable regime. The devalued currency pushes
the US dollar although the government has up the prices of imports while food prices
assumed the implementation of the appro- arc rising because farmers have been hit by
priate economic policies. The cause of the a prolong drought. At the same time the
confidence crisis describes that the issue country has also been experiencing an un-
of implementation and credibility of a crisis employment crisis. By the end of 1997. the
management theme has not been resolved. number of uncmplomcnt had already stood