ASIET Net News 39 - October 6-12, 1997

Lisbon &150; Jose Ramos-Horta, 1996 Nobel Peace Prize co-laureate, emphatically denounced the recently reported murder, in East Timor, of one elementary school teacher, Jacinto da Trindade. His colleague, Jzlio Pereira, was seriously injured in the assault and was taken to the military hospital in Dili. Mr. Ramos-Horta firmly refuted the allegation that the East Timorese resistance is to be blamed for the attack. The only sources of the news, it must be noted, are the Indonesian military and the state controlled Antara news service.

Mr. Ramos-Horta believes that these murders were deliberate acts perpetrated by Indonesian security personnel with the intended purpose of discrediting the East Timorese resistance. In an interview to a Portuguese radio station, Mr. Ramos-Horta said:

"The resistance has never before been masked during attacks. And why attack a school?"

This is not the first instance of premeditated murder of East Timorese civilians by the Indonesian military to be attributed to the resistance. In the past, such barbaric acts have not been investigated as they might have been had the Indonesian authorities had a clean conscience.

On 26 June 1997, Josi Ramos-Horta appealed to the office of the UN High Commissioner for Human Rights for an independent investigation to be held on the capture and assassination of resistance leader David Alex. Apart from a letter of acknowledgment, no specific action is known to have been carried out by the appropriate UN bodies.

Once again, Mr. Ramos-Horta demands a prompt UN investigation to establish the responsibilities of the perpetrators of these crimes. He urges the United States and other nations with diplomatic representation in Jakarta to undertake their own investigation. To this date, Indonesia has refused to cooperate with the UN thematic rapporteurs who have repeatedly requested access to Indonesia and East Timor. Until the authorities in Jakarta agree to cooperate fully with the UN human rights bodies and the independent NGOs such as Amnesty International, any allegation by Indonesia attributing violent actions to the East Timorese resistance must be taken with due skepticism.

Mr. Ramos-Horta stated, as he has said in the past, that he will not hesitate to condemn the actions of the resistance if an independent international investigation finds it responsible for acts of premeditated violence against unarmed civilians be they East Timorese or Indonesian migrants. The Nobel Peace Prize co- laureate reiterated his appeal to the resistance in East Timor, the students and youths to refrain from engaging in any violence. They should exercise increased caution at this time when the Indonesian military intelligence is attempting to discredit the resistance.

Two die at East Timor shrine after flag clash

Reuters - October 8, 1997

Jim Della-Giacoma, Jakarta &150; Two died in fighting at an East Timor mountain shrine including a man who tried to erect a banner bearing the guerrilla movement Fretilin's flag, military sources said on Wednesday.

A pilgrimage to the top of the territory's highest mountain, the 2,963-metre (9,778- foot) Mount Tatamaileu, also known as Ramelau, was to have been led by East Timor's two Roman Catholic bishops.

They cancelled the visit after the clash.

Trouble broke out after Ardilino Da Silva, 36, from the town of Baucau, tried to erect the banner near a statue of the Virgin Mary, East Timor military information officer Captain Tri Yoga Budi Prasetyo told Reuters by telephone from the capital Dili.

Those taking part objected on the grounds it was a religious and not a political occasion, Tri Yoga said.

After this Da Silva began running towards the shrine. He was blocked by two church scouts, who were acting as security for the occasion.

"At that point Da Silva took out a sharp weapon and stabbed the two youths," Tri Yoga said. One later died. "After the stabbing other scouts set upon Da Silva and beat him to death."

Security forces were not present, he said, and no arrests had been made. The case was being investigated.

East Timor, a mainly Roman Catholic territory, was annexed by predominantly Moslem Indonesia in 1976 in a move not recognised by the United Nations, which still regards Portugal as the administering power.

Last week, two school teachers were killed near Bacau in an attack blamed on rebels resisting Indonesia's rule.

Nobel laureate and overseas resistance spokesman Jose Ramos-Horta said on Tuesday the teachers were killed by Indonesian security forces to discredit the resistance movement.

Nobel laureate Bishop Carlos Belo of the Dili diocese and Bishop Basilio do Nascimento of the Baucau diocese cancelled their planned walk to the summit after the fight, church sources said.

However, Tri Yoga said the ceremony, which involved around 10,000 people, went ahead led by a local pastor.

In a separate incident, 17 people were killed when a truck plunged into a ravine while carrying participants back from the ceremony.

The official Antara news agency said the truck plunged into a 25-metre (80-ft) deep ravine near Ledeluli village in Ermera area about 35 km (22 miles) from Dili.

Evironment/land disputes

Smoke signals send a warning

Sydney Morning Herald - October 1, 1997

George J. Aditjondro &150; The haze enveloping our northern neighbours should not be allowed to obscure a lesson for their ruling elites, who are largely to blame for the disaster.

South-East Asia is in the grip of its worst environmental disaster since the Vietnam War. Smoke from forest fires in Sumatra and Kalimantan has created a region-wide haze which, mixed with air pollution from the big cities, has practically choked millions of residents in Sumatra, the Malay peninsula and Borneo. People have died from the smoke, thousands have been treated in hospitals and millions other have been badly effected.

Before the monsoon rains will, it is hoped, flush the haze from the air next month, this regional disaster may already have spread to the central and northern Philippines, the Moluccas, and Papua New Guinea.

Amazingly, Malaysian Prime Minister, Mahathir Mohammad, whose country was the first hit by the haze last month, has kept silent about this man-made catastrophe. He has been busy shadow-boxing with the U.S. multibillionaire George Soros, blaming him for the financial woes of the Malaysian currency, the ringgit.

Is Mahathir's silence caused by a different sense of priorities, whereby he can simply delegate the fire-fighting business in Indonesia to his junior partners in the Malaysian Government? Or does he feel that the haze, which is nearly affecting much of the ASEAN region, has no severe economic implications for Malaysia's economy?

Certainly, the tourism business in Malaysia is being effected by the haze, with travel agents discouraging potential customers from flying to Langkawi and other tourist resorts. BHP and other Australian companies have also advised their personnel to take a break &150; and inhale some fresh air &150; Down Under.

By focusing the media's attention &150; and Matathir is an expert in that field &150; on George Soros and the "decadent West", he is actually covering up the fact that some of the economic interests of the ASEAN ruling elites have become an ecological time bomb. With their logging concessions, timber estates feeding paper and pulp factories, oil palm and rubber plantations, as well as peat and coal mines, these business interests collectively contribute to the current environmental disaster, by reducing Sumatra and Kalimantan's forest cover and increasing the inflamable biomass in this dry season.

For instance, Malaysia's "sugar king," Robert Kuok, is a co- shareholder with the young Indonesian businessman, Hashim Djojohadikusumo, and his sister-in-law, Titiek Prabowo, in a 44,000 hectares oil palm plantation in South Sumatra. Titiek, by the way, is President Soeharto's second daughter and wife of the rising army general Prabowo Subianto.

In Sarawak, business cronies of the Soeharto family, such as the Raja Garuda Mas and Sinar Mas Groups, are involved in timber, pulp, and plantation projects with some very well-connected Malaysian conglomerates such as Ekran Berhad, whose Bakun Dam project has recently been shelved, and Guthrie, the Anglo- Malaysian rubber plantation company.

Mahathir's own son, Mirzan, and Soeharto's son, Bambang Trihatmodjo, are business partners of Malaysia's Berjaya Group. Together with the Suharto family's Musa Group, Berjaya has been accused by environmental groups in the Americas of destroying the rainforests of Suriname and Guyana.

Environmentalists constitute an additional sore point for Mahathir: he has often accused Malaysian environmentalists of being "Western lackeys," who wanted to halt Malaysia's economic growth by opposing tropical deforestation and defending indigenous cultures in Sarawak.

Now, the warnings of many ASEAN environmentalists have proven to be true. After the 1992 and 1994 fire forests in Kalimantan and Sumatra, they had warned Indonesia and other ASEAN countries that the region might be enveloped by a "veil of smoke" if the rate of tropical deforestation in this region were not slowed.

Even back in 1983, when Friends of the Earth Malaysia was holding an Asia-Pacific conference on natural resources destruction in Penang, similar warnings had already been expressed.

Yet in 1987, when Mahathir cracked down on more than 100 social activists, many Malaysian environmentalists were also arrested and detained for months, without fair trial. One of them, Harrison Ngau, is an Iban Dayak intellectual who later served in the Sarawak Parliament as an Independent and strongly campaigned against the logging of the Penan people's forests as well as against the Bakun Dam.

It is crucial that ASEAN's ruling elites recognize the role of their home-grown environmental movements can play. As with canaries in the coal mines, these movements, which include many indigenous activists, are early warning systems against economic development boomeranging back on the welfare of the region.

Commentary: Will the smoke wake up Southeast Asia?

Business Week - October 8, 1997

Michael Shari &150; For years, environmentalists have pleaded with governments in Southeast Asia to save the region's vast rain forests. Officials responded that if wealthy western nations were so concerned, they should foot the cleanup bill. They also downplayed the damage loggers and planters caused by lighting fires every dry season to clear land on Sumatra and Borneo. The consequent smog dissipated quickly enough for Indonesia and its neighbors to ignore these annual pollution spells.

This fall, nature has revealed the alarming hollowness of the official position. A delay in the monsoon and a deep drought have left the fires to burn out of control across 300,000 hectares&150;and the haze to thicken like a deadly blanket. Birds have fallen, and schoolkids have fainted in playgrounds. The economic destruction&150;to tourism, to crops, to land&150;has been huge. The disaster has shown how dangerous it is to rely on reckless development for nonstop growth. And it sends a signal to the region's policymakers: Rethink your attitudes toward the environment and growth now, before it's too late.

Pulp faction

There's a lot to rethink. Local activists at the Indonesian Forum for the Environment charge that the tight connections between the Suharto government and its favored business associates have played a large role in creating this devastating smog. Indonesia's palm oil, plywood, and pulp-and-paper industries win land concessions from the government. Then after cutting down valuable trees, they burn commercially unviable ones and plant cash crops like oil palm, acacia, and eucalyptus. "They use fires for land clearing because it is the cheapest way," laments Antung Dedy, subdirector for environmental damage at Indonesia's Environment Ministry. Also to blame are migrant farmers from overcrowded Java who use their traditional slash-and-burn practices.

Embarrassed by the scale of the disaster, the ministry has announced an investigation into the roles played by 176 companies in starting the fires. But businessmen close to President Suharto are defiant. "Why should we burn? We need the raw materials. It does not make sense," said Mohamad "Bob" Hasan, chairman of Apkindo, Indonesia's plywood cartel, at a press conference. He blamed local farmers and accused environmentalists "that have connections with communist groups" of slandering reputable firms. While the companies deny any wrongdoing, the economic and environmental destruction mounts. Now that zero visibility has closed remote airports, Malaysian travel agencies have lost more than 30% of their business, and Silkair and Merpati Nusantara Airlines have canceled some flights from Singapore. Tourism makes up 3% of Indonesia's gross domestic product, 11% of Singapore's, and 6% of Malaysia's. The out-of-control fires have even destroyed 3,000 hectares of oil palm plantations in North Sumatra. Indonesia, which had hoped to export 4.5 million metric tons of palm oil this year, now has to import oil to meet domestic needs.

The region may suffer permanent ecological damage from this season of woe. In primary rain forests not yet burning, a 20% reduction in sunlight has lowered temperatures by 6C, which will affect fungi in the soil that promote new growth. The fires killed many small mammals, leaving tigers without food. Parched soil and ash will wash out to sea, smothering coral reefs, concludes Ron Lilley, species conservation officer at the World Wide Fund for Nature in Jakarta.

When the monsoons arrive and put out these fires, the region's governments will probably forget the whole matter. That would be a huge mistake. Southeast Asia's development is now so intense that the region's governments must manage it more effectively. That means sharing information on environmental threats with neighbors, giving regulators more clout, funding studies of the impact of logging, scrutinizing the relationship between government and business, and speeding response to disasters. The alternative is to reap more short-term gain until the costs of a polluted environment become overwhelming. That's the kind of setback the now-beleaguered nations of Southeast Asia cannot afford.

No escape for the people of Jambi

Asiaweek - October 10, 1997

What is life like under the asphyxiating pall created by the burning forests of Sumatra? Australian radio and television journalist Andrea Thomson visited the town of Jambi, in the center of the island. From inside the ring of fire, she filed this eyewitness report:

Juliana lies motionless on a sticky batik sheet in an overcrowded hospital. Her anxious mother stands beside her, weeping, telling me that today, for the first time, she has begun to worry that her daughter might not recover. Trails of acrid smoke swirl in through an open window, only centimeters from Juliana's face. The air is both thick and still, and the temperature inside is in the high 30s, despite the fact it is almost dusk. An electric fan stands unused on a nearby bench, the plug removed from an apparently broken socket. In the next room, an elderly man with sunken cheeks gasps for breath as the tiny blue air-filter he is attached to bubbles and spits.

This suffering is the human face of a disaster the Indonesian government has acknowledged, but, inexplicably, still refuses to treat with the urgency it so clearly needs.

On my last morning in Jambi, I decide to visit the health clinic. On the way, my driver, Zulfan, explains how the smoke has disrupted his life: "This morning, like most mornings, I wake with a headache. In my stomach I feel very strange, and my eyes, they sting." I ask him how long he thinks Jambi can go on like this. He turns to me with a pained look. "Jambi cannot handle these things. This has gone on too long. We have not seen the sun for more than a month. We are suffocating."

We arrive at the clinic as a stream of distressed mothers comes down the outdoor stairs, their small pouches stuffed with unknown medicines for their families at home. Inside, in a stifling waiting room, the smoke once again hangs in the air. Parents clutching babies in sarong slings line the grubby walls. Young children cough and mutter, clutching handkerchiefs to their faces. One child continuously spits mucous into a dirty plastic bucket beside him on the floor. Everyone wants to see a doctor. Everyone wants an answer.

Zulfan dips into my backpack and hands me a box of surgical face masks we had brought from Jakarta. As I begin handing them out to the smallest children near me, consternation breaks out. Women and men grab my clothes and hands, almost pulling me off my feet. They grip my shoulder tightly, crying out in desperation: "Please, me. I want." Within seconds, the cardboard box is empty and lies crushed on the floor. I explain that I am sorry. That I wish I had more. I begin to cry with frustration.

How can the outside world understand what is facing the people of Jambi? No matter how heavy the air becomes, no matter how seemingly impossible the next breath, there is no escape from the smoke. Until the monsoon rains break later this year &150; maybe not even until next year &150; the lives of the young, the sick and the elderly will be at risk this way. Such is the reality of life at the center of one of the world's most senseless man- made catastrophes.

Suharto under siege, rupiah plummets

Sydney Morning Herald - October 7, 1997

Louise Williams, Jakarta &150; The Soeharto Government was facing an unprecedented crisis last night as a wave of public criticism over its handling of the fire emergency coincided with a dramatic fall in the rupiah and warnings of serious economic problems ahead.

The Environment Minister, Mr Sarwono Kusumaatmadja, pushed the urgency of the forest fire and smog crisis to a new level yesterday, saying: "If we do not change our ways, we will not survive as a nation."

Soon after, President Soeharto called an emergency meeting of economic ministers after the Central Bank intervened to save the sliding rupiah, which lost almost 5 per cent in morning trading.

More than 50 per cent has been wiped off the value of the Indonesian currency in less than two months.

At the same time yesterday, Indonesia's biggest Islamic organisations called on the Government to act more decisively in dealing with the forest fires, and to look at the corruption and collusion behind the burning off of large tracts of land despite warnings of the coming drought. The leader of the 28-million strong Muhammadiyah, Mr Amien Rais, said the fires, drought, economic crisis and fatal accidents of the past few months were a warning to both the Government and the community to "repent".

In a statement signed by religious leaders, Mr Rais said: "We are calling on the Government to remember that power is a mandate from Allah that has to be accounted for. No matter how great and strong a power is, Allah will one day take it back."

The biggest disaster facing Indonesia was the complacency and arrogance of those in power, he said.

Government ministers responsible for the recent disasters should resign and the Soeharto Government had to face the problems of corruption and collusion in its own ranks.

Mr Sarwono said Indonesia had no choice but to change its land- use policies, end slash and burn practices and stop the abuse of political connections to flout environmental regulations.

Asked whether he was concerned that a repeat of this year's haze could threaten the Commonwealth Games in Kuala Lumpur next year, he said: "Of course, we are very concerned. It is my job to stop the haze. If it happens all over again next year we are out of business as a nation."

Mr Sarwono was speaking at an extraordinary briefing for journalists by seven Indonesian ministers dealing with the fire crisis, in an attempt to arrest the damage to Indonesia's international image the haze crisis is causing.

Fire-fighting teams had put out scores of fires, he said, but fires burning in peat seams in Sumatra and Kalimantan would be difficult to extinguish and could burn for months.

On the economic front, the Central Bank moved in to halt the collapse of the rupiah yesterday morning when the currency fell to an all-time low of 3,855 to the US dollar, a loss of more than 50 per cent since mid-August.

The stock market also lost ground as brokers and economists predicted the rupiah could fall to the 4,000 mark, leaving scores of major Indonesian companies critically exposed on large US dollar debts.

There would be a certain economic slow-down and the prospect of politically sensitive inflation and unemployment as crop failures due to the drought coincided with the corporate financial crisis.

El Nino gets blamed: but Indonesian inertia is equally responsible for the fires

Far Eastern Economic Review - October 9, 1997

John McBeth, Jakarta &150; Almost nightly on Indonesian television, thousands of firefighters armed with little more than water- filled backpacks are shown trying to beat back the blazes that are blanketing Southeast Asia in smoke. Growing alarm has led Malaysia to send 1,200 firefighters to join the assault and Japan to offer pumping equipment and waterjet shooters. It's a frantic effort, but to no avail: The battle is already lost.

The fires &150; mostly started by companies clearing land for plantations have spread to parched peat bogs in East Sumatra and Kalimantan. Peat fires can't simply be doused with water; only a rising water table can put them out. That will come only with the long- overdue monsoons. Until then, say forestry experts, the Indonesian government can only try to minimize the consequences of the worst burning season on record and make plans to head off a similar disaster next year.

Dennis Dykstra, deputy director-general for research at the Bogor-based Centre for International Forestry Research, warns that with the drought-inducing El Nino weather phenomenon expected to intensify, 1998 could be even worse. Prevention of another smoky haze will require far tougher enforcement of forestry regulations, more comprehensive monitoring of land- clearing practices, better coordination among ministries, improved planning of plantation expansion, and a greater willingness by government officials to take on politically powerful businessmen. Based on this year's experience, the prospects that Indonesia's leaders will muster the political will to take such measures seem hazy at best.

But at least the government now acknowledges that it has a problem. "In 1994, they wouldn't accept criticism or offers of assistance," says a senior Asean diplomat. "This time, it's a whole new ball game. They now realize the real proportions of the disaster." So much so that President Suharto took the unprecedented step of apologizing to Indonesia's neighbours, reaffirmed a ban on burning forest to clear land, and made it clear he expected his ministries to enforce it.

One reason that realization came so late lies in the Asean belief that members should avoid interfering in each other's affairs. While transboundary issues such as narcotics and piracy have received passing attention, the environment was largely off the agenda until 1994, when Indonesian fires caused severe smog over Singapore and parts of Malaysia.

Yet since then there have been only two meetings of a so-called Haze Technical Task Force, set up by Asean environmental ministers in 1995 to consult on ways to address the problem. Asean officials admit that the task force can't do much. As one Thai official said in Jakarta: "Indonesia is where the action has to be taken." Asked why they haven't made that point more forcefully to Indonesia, an Asian diplomat in Kuala Lumpur explains: "It's part of the Javanese culture. You never tell them they're wrong. They can be very prickly if you tell them it's their fault. There may be a backlash."

The World Wide Fund for Nature estimates that between 500,000 and 1 million hectares have been torched this year, much of it forest that has already been logged. The Fund's Jakarta-based forestconservation officer, Jim Schweithelm, says that with enforcement of forestry regulations almost nonexistent, there are signs that the fires have also spread to secondary and primary jungle. In addition to peat fires, perpetually smouldering subsurface coal seams have been responsible for fires in East Kalimantan's 1,400-squarekilometre Kutai Forest Reserve.

Much of the blame for the fires is falling on companies clearing land for new oil-palm estates by burning forest and brush. Since 1985, the total area of oilpalm plantations has grown from 600,000 to 2.2 million hectares, about a third of that belonging to four politically well-connected conglomerates and the rest shared between state enterprises (440,000 hectares) and smallholders (760,000 hectares).

And there's more to come: 3.3 million hectares are to be planted over the next two to three years as part of the government's drive to become the world's biggest palm-oil producer by 2005. Large areas are also being cleared by pulp and paper companies anxious to reduce their reliance on natural forests by developing their own sustainable resources. Forestry Ministry projections show industrial pulpwood and timber plantations growing from 1.8 million hectares in 1995 to 2.3 million by the end of the decade.

Satellite photographs reveal another culprit. Many of the fires in Central Kalimantan are in a 1-million-hectare expanse of marshland that Suharto has personally designated for rice-growing and other cash crops. Experts say the draining of the swamp has exposed the peat to sunlight and made it particularly flammable, with prevailing winds sending particle-filled smoke over Sarawak to the north.

More than 170 companies are suspected of starting the fires, but typically none have been named. It was only on September 29 that a group of timber tycoons broke a long industry silence to announce a $6.4 million fund to help victims of the haze in Sumatra and Kalimantan. They also said they would deploy tractors, bulldozers and heavy equipment to prevent the fires from spreading.

The government, for its part, has begun to do something about the fires only in the past three weeks. But lack of coordination among ministries has compounded by influence peddling and a critical logistics shortage that makes monitoring piecemeal. Azwar Anas, the coordinating minister for social welfare and head of the National Committee for Disaster Management, has often sought to play down the extent of the disaster, laying all the blame on El Nino. Government data on the areas affected have been well below estimates by non-governmental organizations, despite the available satellite imagery. Notes one government official: "People are trying to cover themselves."

In the weeks leading up to the presidential ban on burning, Environmental Minister Sarwono Kusumaatmadja was a lone voice, sometimes indirectly criticizing his fellow ministers for not doing more. Even Indonesia's usually timid newspapers have been harshly critical of the failure to enforce the ban and provide better coordination. Most of the criticism has been directed at large, well-connected companies for either overriding the authority of local officials or paying them to look the other way. The Muslim- orientated daily Republika said in a recent editorial that the crisis reveals just how poorly Indonesia's forests are managed. "Short-term economic interests are being made the priority," it complained, "while sustainable management of our environment is being ignored."

That's a view shared by World Bank forestry consultant Jim Douglas, who says enforcement has become so lax that many companies are simply clearing out regenerative forest, which is only meant to be selectively logged. "We'd be suggesting to the government that the private sector agrees on some sort of model of good practice on concession operations," he says. "Clearly, the pace of plantation development is now such that it's difficult for the Forestry Ministry to keep up."

Little wonder. A 1990 World Bank report noted that half of all Forestry Ministry staff are stationed in Java, which has less than 2% of all forested land. "Forestry officials in the outer islands rely largely on concessionaire reports to determine annual allowable cut and this, in turn, leads to . . . a tendency to ignore good logging practices and breaches of regulations," the report said.

A 1990 report by the International Institute for Environment and Development also said that the Forestry Ministry should be strengthened, its staff increased and redeployed, and officials given the means to carry out its work without depending on concessionaires. But industry sources say little has changed since then.

There have also been suggestions in the local media that the country's Reafforestation Fund, a nest-egg of levies collected from forest concessions, could somehow be used to battle the haze. The government hasn't yet responded.

The fund which stood at $660 million in 1994-97is meant to develop timber estates, but its disbursements have often been controversial. In 1994, Suharto approved a $178 million loan from the fund for the state-run aircraft maker IPTN. More recently, it was the source of a $108 million loan for a pulp and paper mill in East Kalimantan. The owner: Suharto confidant Mohamad "Bob" Hasan, probably the most influential of Indonesia's timber barons.

Steve Strand, a New Zealand-based forestry expert, says the only way to avoid another Southeast Asian smoke-out is to force Indonesian companies to use only mechanical and chemical land- clearing methods. But it will be difficult convincing Indonesian firms to pay as much as $200 per hectare for something they now get for the price of a matchstick.

Nor will it be easy to convince the government that it has to take a more systematic approach in its push to expand plantations. "What they haven't done is sit down and plan out what areas to clear in a controlled way," says Strand. "They don't appear to have any clear development plan; they've just rushed in without thinking things through. It's a real cowboy approach."

Head on the block - Forestry Minister Jamaludin

DIGEST No. 42 (Indonesian news with comment) - October 4, 1997

Amidst the fires furore, spare a thought for Forestry Minister Jamaludin Suryohadikusumo. As official custodian of Indonesia's vast but shrinking forests, he has both to maximise state revenue from the forests, as well as maintain them for the future. This makes him both partner and policeman to well-connected timber tycoons like Bob Hasan, Prayogo Pangestu and Eka Tjipta Widjaya. Hasan in particular is jokingly referred to as Indonesia's real Forestry Minister.

The policeman role has predominated. Yesterday Jamaludin carried through a threat to remove timber usage licenses (IPK) from a major commercial timber plantation owned by Hasan in East Kalimantan for starting fires. PT Kiani Lestari feeds the giant PT Kiani Kertas pulp factory recently opened by President Suharto (Suharto also gave it a lovely tax break). Kiani Lestari was probably the biggest fish caught in Jamaludin's net, but the list of 158 also contained companies owned by Prayogo Pangestu, Eka Tjipta Widjaya, and Liem Sioe Liong, Indonesia's richest individual. Most were oil palm plantations.

Jamaludin said satellite monitoring showed them starting fires that blanketed the region in smoke for six weeks, despite a ban on burning timber wastes effective since last July. The accusation was a welcome change for the small-time shifting agriculturists of Kalimantan and Sumatra, who have for years been blamed for causing smoke, while large companies walked scot-free. Bob Hasan, on the contrary, fumed about communist environmental NGOs, and continued to blame shifting agriculturists and El Nino for the fires.

Appointed to cabinet in 1993 from an obscure career in the Forestry Department (he is not even listed in Tempo's Who's Who of 1986), Jamaludin now joins Minister for the Environment Sarwono Kusumaatmaja as the cabinet members most respected by Indonesia's environmental movement.

One reason among many: he has backed proposals for eco-labelling put forward by environmentalists worldwide, saying it would help trace the origin of Indonesian timber. Unfortunately, the project has been stalled since 1995. Bob Hasan is not happy with it.

Some of his early attempts to assert himself against the flood of untaxed timber leaving the country were amateurish. Nothing was heard again, for example, about his 1994 curbs on the sale of chain saws. But Jamaludin's confrontation with Hasan's Kiani Lestari was by no means the first clash with big business.

In 1993 Jamaludin publicly resisted an attempt by tycoon Prayogo Pangestu to list forest concessions as assets for his Barito Pacific Group, reeling under bad debt. Later, Jamaludin took over two Barito logging concessions to be run by the state. Barito is well- known for its cowboy-ish attitude to government regulation. It was fined by the Forestry Department in 1991 but only ever paid 10% of the fine.

In the same year - soon after taking office - he tried to fine the pulp factory Indah Kiat, owned by tycoon Eka Tjipta Widjaya, for using illegal timber. Like many of his confrontations with the powerful, the attempt failed and he was forced to back down publicly.

To track down timber criminals he got together with the Armed Forces Commander, the Police Chief and the Attorney General to form special teams (TPHT). But since April 1995 Jamaludin has complained repeatedly that, despite being offered up to 50% of the proceeds of auctioned illegal timber captured, the military- backed teams have produced no meaningful results. In any case, if it gets to auction at all (more often it 'disappears' well before), captured timber is mostly bought by the thieves themselves.

In October last year he refused to renew 60 of the 90 forestry concessions (HPH) whose contracts had expired, citing their poor management (clear- felling, cutting outside the concession, building illegal roads). Those companies allowed to continue had to accept government participation in their forestry operations through Inhutani, owned by the Departments of Forestry and Finance. Even so, it was revealed last April that some of the banned forest concession holders had merrily gone on exploiting their patch of forest, as if nothing had happened.

Under his leadership the Department of Forestry has somewhat bucked the trend towards deregulation and privatisation. In March this year he blocked new Malaysian investment in palm oil, apparently because the Malaysians ignored local community interests. He has been trying to slow the speed at which logged forest is converted to palm oil plantation, fearing oversupply.

In July this year he tried to block a new cement factory at Gombong in Central Java, to be built by a company (Medco) partly owned by the late father-in-law of Suharto's daughter Tutut. The plant was to use limestone under state-owned forests. He faced strong opposition from Central Java's governor and from Trade and Industry Minister Tungky Ariwibowo, and again the attempt appears to have failed.

The next month he ordered a financial audit of Menara Hutan Buana, a commercial timber plantation company owned by Suharto's half-brother Probosutejo for misusing Reafforestation Fund money. Nothing more was heard.

Politically the most explosive has been the Reafforestation Fund (Dana Reboisasi, DR). Little is known about this extra-budgetary fund, but it contains billions of dollars drawn from timber taxes. Administered via presidential decree, it has long been a convenient fund for many other purposes beyond restoring forest cover. It has funded the development of new aeroplanes, the destruction of a million hectares of Kalimantan forest in favour of irrigated rice, and has lately propped up the plummeting rupiah. Allegations that it was used to fund Tommy Suharto's 'national car' have been denied.

Its major use has been to provide cheap loans to commercial timber plantation companies (HTI), which replant logged forests with quick-growing pine or acacia for pulp factories. The tycoons have been major consumers of this credit. Jamaludin says he will refuse to fund HTI companies who burn forest.

Making a career of checking up on powerful tycoons, in the name of the state treasury as much as of the rain forest, has brought Jamaludin many enemies. The fires may have provided the pretext they were looking for. Last Tuesday, the day after he threatened to cancel Kiani Lestari's timber usage licence, a call went up in parliament for Jamaludin's resignation. It came from two parliamentarians - both deputy chairmen of parliamentary commissions dealing with tourism and the environment - and was backed by three other individuals close to the government. The five individuals are not known as stooges, and it is still unclear how much backing the unusual call will receive. Environmentalists have spoken out in Jamaludin's defence. Jamaludin went to talk with the president on Thursday, with results thus far unknown.

[Gerry van Klinken, editor, Inside Indonesia magazine]

Human rights/law

Fr Sandy: My trial a test for Indonesian law

SiaR - October 7, 1997 (Summary by Tapol)

Jakarta &150; Father Sandyawan Sumardi SJ, 38, said, after a hearing of the trial in which he and his brother Benny are the accused, that their trial is a test for the Indonesian government and for the rule of law. 'Does Indonesian law respect the principle of sanctuary given by a spiritual leader to a political activist whose life is in danger because of his political activities?'

'As a pastor, I an fully aware of my humanitarian duty to uphold the principles of canonic law to protect those whose lives are in danger, whether because of war or political circumstances,' he said. The test for Indonesian law is, whether it respects the principle of sanctuary for someone whose life is threatened because of his political activities.'

Fr Sandy and his brother are being charged with giving sanctuary to three leaders of the People Democratic Party (PRD) who were accused of being behind the 27 July 1996 event. This accusation was later dropped and the PRD activists were charged with subversion based on their political beliefs.

The hearing on Monday heard the indictment of the prosecutor, who charged the accused under Article 221 of the Criminal Code with a maximum penalty of nine months.

There were attempts by the public prosecutor's office and the police to abandon the case because they felt that it did not constitute a criminal act, bearing in mind that Fr Sandy as a religious leader has a kind of immunity to protect those whose lives are in danger because of their political activities. 'The canonic law of the Catholic Church guarantees this,' said his lawyer, Luhut Pangaribuan, after the court hearing.

But these attempts were frustrated by armed forces HQ which insisted on proceeding with the trial. Some church circles see this as a deliberate attempt by the armed forces to discredit the Suharto government in the eyes of the world. 'The Vatican will not let this pass,' one commentator told SiaR. The court hearing was attended by representatives from the diplomatic corps and foreign journalists. The next session on 13 October will hear Fr Sandy's demurrer.

Buchori Nasution refuses to attend court

Kompas - October 8, 1997 (summary only by Tapol)

Buyung Rachmad Buchori Nasution, private secretary of the writer and politician Soebadio Sastrosatomo, who is on trial in the South Jakarta district court, has for a second time refused to attend a court hearing because the judge is still refusing to accede to his request that the injured party [ie, Suharto] in the case be ordered to attend.

Nasution is on trial on charges of insulting the President because he helped to publish a book entitled: New Era, New Leadership', written by Soebadio which is critical of President Suharto.

In a note delivered to the presiding judge, Nasution said that he would persist in not attending the court hearings if the injured party is not summoned. 'We want to ensure that these proceedings are open, honest and fair,' he wrote.

Because of the refusal of the defendant to attend, the court did not proceed as scheduled with hearing testimony from five witnesses. The trial was postponed for two weeks to give the prosecutor a chance to get the defendant to attend.

'If the defendant continues to refuse to attend, it is possible, in accordance with the Criminal Procedural Code, for the prosecutor to use force,' presiding judge Suratman said.

Meanwhile, Nasution's lawyers went to the Supreme Court to ask it to intervene in this matter. They were told that the Court could not intervene while the trial is in progress as this might suggest that it was undermining the lower court's independence. If the accused is dissatisfied with the proceedings, this will have to be raised during the appeals process, they were told.

Social unrest

Warning to Soeharto: the future comes now

Sydney Morning Herald - October 11, 1997

Events in modern Indonesia bear an eerie resemblance to the calamities foretold in an ancient prophecy by a Javanese king. Herald Correspondent Louise Williams in Jakarta traces the connections - and the consequences. A thousand years ago, a Javanese king told his people of an apocalyptic future with morality lost, and a nation crying in the face of corruption, riots, crime and promiscuity.

The nation would be ruled by a powerful and wealthy king. If the people did not fight those who held them down, those who stole, womanised, gambled and drank, then God would intervene and natural and human disasters would follow - social revolutions, erupting volcanoes, rising floods and the world would be turned upside down by the felling of the forests.

This prophecy is still told now, a millennium later, because much of what it foresaw has already taken place. The king, Joyoboyo, has already been proved right, followers say. He said the Hindus would fall to the Muslims, that outsiders (the Dutch) would come to rule for 400 years and then a yellow cruel race (the Japanese in World War II) would invade before the nation was freed by a charismatic leader.

Last week, as Indonesia faced devastating forest fires and a vast cloud of smog, a crippling drought bringing starvation and disease, a fatal plane crash, an earthquake, ethnic violence, an a alarming slide in the value of the rupiah, Muslim leaders called on the nation to repent.

At a prayer meeting in south Jakarta, religious leaders warned the Soeharto Government that the coincidence of these human and natural calamities was a sign from God. "We are calling on the Government to remember that power is a mandate from Allah which has to be accounted for. No matter how great and strong a power is, Allah will one day take it back."

Amien Rais, leader of the 28-million strong Muhammadiyah organisation, said the greatest disaster facing Indonesia was the complacency and arrogance of its leaders, who no longer thought the pain of the people warranted their sympathy and let fatal riots pass without even offering condolences to the families of the victims.

The next day, the nation's biggest Islamic group, with more than 30 million members, also voiced its concern. Its leader, Abdurrahman Wahid, warned the Soeharto Government that unless it paid closer attention to the rights of the people, the masses "would take the matter into their own hands". "Hundreds of demonstrations happen every day, even if the newspapers hardly cover them," he said. "Actually the people are very patient, they want things gradually, they don't ask for everything at once. But don't think the people are stupid, that they don't have any feelings at all."

In an extraordinary, if oblique, warning, Mr Wahid, the country's most powerful religious figure, said he could call a million people onto the streets to force "whoever is causing trouble to run away".

For years the mood in Indonesia has been slowly turning. Ancient prophecies can be read whatever way you like, but in the overriding gloom which has engulfed Indonesia over the past two months, many ordinary people do believe natural disasters have a social meaning.

The past 18 months have been marked by a series of ethnic and religious riots, labour strikes have increased dramatically and more and more Indonesians are willing to challenge authority, often using violence as a substitute for the country's ineffective legal system. Mr Soeharto, long safe at the top of a political system which has effectively crushed or co-opted its opponents and neutralised the forces of instability by playing one group off against another, still seemed to stand aloof.

While millions of Indonesians were choking under the blanket of poisonous smog, he was smiling across the front pages of the national dailies astride a new national motorbike.

But when the Soeharto Government was forced to call in the International Monetary Fund in the face of the dramatic slide in the national currency, it became clear that the Jakarta regime was facing a test far bigger than spot fires of social dissent.

Economic growth and development is the source of the Soeharto regime's legitimacy. Human rights, democracy and freedom of speech have all been put on hold in the name of national stability, the essential condition for the economic growth which has delivered millions from dire poverty.

The implementation of that system, though, has been imperfect. The complacency of power breeds corruption. Major corruption in the handing out of multi-million dollar contracts to political allies or relatives, and minor corruption like the under-the- counter payments needed to secure essential documents such as identity cards.

The question now is how control will be maintained if Indonesia slides into a significant economic downturn, in a rapidly urbanising society of rising expectations.

This week thousands of workers sat idle on construction sites. Orders and materials are no longer being delivered because the cash-strapped developers cannot afford to pay. At the same time the severe drought is certain to cause crop reductions, and 7,000 people a day are estimated to be pouring into Jakarta looking for work.

Indonesia's population reached 200 million this year, 38 per cent of whom are officially acknowledged to be unemployed or under- employed. The national economy is dominated by about 200 massive conglomerates, mostly with close political connections to the President.

The 36 per cent devaluation of the rupiah over the past two months and rocketing interest rates have left many companies facing massive short-term debts in US dollars, with insufficient funds to pay.

The emerging middle class, the key group of professionals and intellectuals, are watching their gains evaporate. Home loan interest rates have risen to 30 per cent or more. The consequences of even one prominent corporate collapse are alarming. Brokers and economists are worried.

Mr Soeharto has succeeded for three decades in building an impenetrable personal fortress, his power often likened to that of a Javanese king, an absolute ruler rather than a modern political leader.

But the prospect of an economic slump comes as Indonesia is starting to accept that the aging Mr Soeharto will eventually go. Next year's presidential elections, in which he is expected to be elected unopposed for a seventh five-year term, are expected to be his last. After so many decades of closed politics, there is jostling behind the scenes to lay the groundwork for the succession.

In an atmosphere of economic uncertainty and political competition, there are fears that old and painful divisions in Indonesian society will be exposed. The economy is dominated by ethnic Chinese, and many of the recent riots have pitted the majority Muslims against the minority Chinese, with mobs burning down whole streets of Chinese shops.

The calls for a moral revival are coming mainly from large Muslim organisations. Indonesia's working-class Muslims, the factory workers, the constructions labourers, the farmhands and the food hawkers, have long been at the bottom of a power pyramid which has offered them the least opportunity for upward mobility and personal gain.

The potential for large-scale mobilisation of millions of disaffected people around calls for social justice is enormous.

Right across the spectrum in Indonesia, from the military elite to the pro-democratic intellectuals, the mantra of change is being chanted. Senior government officials acknowledge that democratisation must come, and that the pressures for reform are building.

At a recent private meeting, a retired general confirmed that the armed forces had been ordered not to shoot during this year's turbulent national election campaign, even if the mobs were hurling stones and shouting abuse at the soldiers trying to keep order.

"What is more important is to track down the roots of the riots, issues such as the social gap," he said. "We told the soldiers not to be tempted to shoot, because if there is even one victim among the people, then there would be mass rioting."

Arms/armed forces

Row in Cabinet over Cook's 'ethical' policy

Financial Times - October 3, 1997 (Extracts only)

Robin Cook, the foreign secretary, has been told by the prime minister to moderate his policy of blocking arms sale to countries accused of serious human rights violations.

While Mr Cook yesterday outlined his plans for an ethical foreign policy to the Labour Party Conference, it emerged that aides of Tony Blair had reacted angrily to last week's announcement that three contracts worth #31 million had been blocked. [See The Guardian, 26 September. The licences were for arms sales to Indonesia.]

The prime minister's office wrote to Mr Cook, exppressing irritation at his handling of the announcement and asked to see all the documents relating to the decision.

Officials close to Mr Blair were understood to have been concerned about Mr Cook's public emphasis on the #31m, a tiny proportion of total arms exports. They stressed, however that the row had been patched up and that overall working relations remained good.

Trade union leaders, the companies affected, and the arms lobby as a whole had complained to officials about 'posturing', which, they said, damaged British weapons exports.

Courtaulds said it was baffled that its contract for six converted Land Rovers was blocked after they were classified as armoured personnel carriers. The other contracts related to sniper rifles.

Mr Cook's attempt to set a different tone has encountered hostility in Whitehall, although the project is proving popular among party activists.

Mr Cook said (in his speech to the Conference) Britain was giving 'a new lead on human rights' around the world. He referred to support from Mr Jospin, the French prime minister, for his proposed European Code of Conduct to regulate the arms trade.

However, Mr Cook said: 'Britain has one of the largest arms industries in Europe. We have a duty to the 400,000 people who work in our defence industries to continue to have the opportunity to work.'

Officials said that Mr Cook had felt under pressure to make a gesture ahead of the conference to affirm his commitment to ethics in foreign policy.

Non-governmental organisations and charities had been dismayed by a decision in July to let through contracts worth #3160 million for Hawk jets and other weapons to Indonesia, in spite of its human rights record in East Timor.

At the same time, the government published new criteria for arms sales that, while tighter than its predecessor's, appeared to have been toned down after fierce lobbying in Whitehall by the arms trade.

The defence industry believes the government is preparing to clear a backlog of licence applications pending closer scrutiny under the new rules.

Mr Cook is pinning hopes of change on a long-term shift in exports from defence. George Robertson, defence secretary, said the government is to publish a consultation paper on plans for a defebce diversification agency.

[Note: The Department of Trade and Industry wrote to Ann Clwyd MP on 3 October informing her that 'between 2 May and 25 September, eleven standard licences have been issued to end-users in Indonesia of good specified in Part 1 of Schedule III to the Export of Goods (Control) Order (1994) (the so-called 'Military List'); 4 such applications were refused.'

However the DTI would not divulge the equipment covered by the licences that had been granted. So, now we know that what Robin Cook told The Guardian on 26 September was only a tiny part of the truth. Far greater than the licences rejected, in number and certainly in value, were the licences granted - Tapol.]

Economy and investment

Department of connections

Far Eastern Economic Review - October 16, 1997

President Suharto has earned plaudits for deregulating various aspects of Indonesia's economy. But he can't complete the job without challenging some powerful vested interests.

John McBeth, Jakarta &150; Among the troubled Southeast Asian economies, Indonesia has done much to embrace the globalizing, deregulatory spirit of the age. Since 1990, Jakarta has cut tariffs and dismantled a slew of monopolies&150;the sort of thing that's supposed to promote competition and lower prices.

But if Indonesia is such an avid reformer, why do Indonesians pay 58% above world prices for sugar? Because sugar, like other politicized sectors of the economy, remains immune to the forces of deregulation. The National Logistics Agency, or Bulog, has a monopoly on imports of sugar, wheat and other commodities. More than any other commodity, sugar is a source of patronage funds for Indonesia's civilian and military leadership, and, just as important, a means of subsidizing the price of rice, the country's most politically sensitive crop.

In short, when the forces of reform hit up against the immovable object of political interests, reform makes a detour. Today, that sort of politics is the last line of resistance to the reforms Indonesia needs if it is to compete in a global economy. While many observers praise Indonesia's response to Southeast Asia's currency crisis&150;it has scrapped foreign-ownership limits on shares, cut key tariffs and delayed capital- intensive projects&150;President Suharto has yet to tackle the even more urgent tasks of deregulation. They include busting remaining monopolies, unravelling red tape and introducing more transparency and competition into major development projects. Without such change, warns Sumitro Djojohadikusumo, a trusted former economics minister and preside ntial adviser, the battle against inflation and the current-account deficit will be a losing one.

The reason for the foot-dragging is that reform has reached the point where the only interests left unchallenged are those close to the hearts of some very powerful people. "I think what has happened," says a prominent banker, "is that they've run up against the hard stuff."

The hard stuff includes the business activities of the Suharto children, which now blanket everything from cars, telecoms, petrochemicals and toll roads to power plants, television, shipping, airlines, taxi cabs&150;and even birds' nests. Not long ago analysts agreed that rapid GDP growth would contain public resentment over the extent of the family tentacles, whose impact on such a large and growing economy was in any event minimal. Now, they're not so sure, noting how a single Suharto-family project can distort an entire industry&150;as with Tommy Suharto's controversial Timor national car.

"The growth in family-connected activities has become so broad that one small plant owned by one person can easily derail systematic reform," says a senior banking source who has studied the issue. Referring to Suharto's children, he adds: "As the kids get a little bit of a lot of things, it makes it more difficult for the good guys to make changes."

The family interests are already hard to avoid. Aside from Tommy's car project, there are the duties Indonesia imposed a year ago to protect the giant Chandra Asri petrochemical complex, owned by Suharto son Bambang Trihatmodjo and a group of powerful businessmen. Sometimes Suharto interests align with those of other powerful people. Bulog's cosy relationship with the Salim group's Bogasari Flour Mills illustrates how cartels, price controls and exclusive licensing arrangements blur the boundary between public and private sectors. Bulog sells wheat to Bogasari at prices heavily subsidized by the government. Bogasari mills the wheat into flour and sells it back to Bulog, adding a 30% margin. The higher prices are passed on to consumers and downstream industries. In addition, Salim gets to dominate one of the world's fastest- growing instant-noodle markets.

Insiders say wheat was placed on the deregulation agenda earlier this year. Salim founder Liem Sioe Liong, a close friend of Suharto, claimed to have no objection when senior officials informed him of their reform plans, but he did point out that the president's eldest daughter, Siti Hardijanti "Tutut" Rukmana, also owned a flour mill. By the time the next deregulation package was announced in early July, wheat was off the agenda.

Also gumming up the works is the absence of a genuine deregulation culture. "The bureaucracy hasn't caught up with this yet," says a government adviser. "It hasn't tackled the idea that things can't be run the way they were. The Ministry of Trade and Industry, for example, shouldn't be handing out licences and doing stuff like that." But in a country where regulation allows civil servants to supplement their incomes, even cabinet ministers are divided over reform.

For economist Djisman Simandjuntak, Indonesia is still fighting a legacy of the past. "If we could, we would prefer to live without competition," he muses. "The chaotic nature of globalization is not well understood by our top officials, by the business elite, even by people in academia. Our founding fathers fought against colonialism and liberalism, and there was always this dream of big government and enough natural resources to make Indonesia self-sufficient."

The dream lives on, and it's easy to see why. Through the 1970s, state patronage produced a whole class of rent seekers who grew rich from import monopolies, export cartels and distribution rights. All that only began to unravel with the early-1980s oil bust, which forced the government to build a non-oil-export base. "There were so many export controls, not even the ministers knew how many," recalls former finance adviser James Van Zorge. "There were all these regulations and no one was keeping track."

Even some of Indonesia's harshest critics acknowledge it has come a long way since then. In the past seven years, the number of non-tariff barriers has fallen from 1,000 to fewer than 200, while average tariffs have shrunk below 12% from 22%. But even with commitments to the World Trade Organization, the Asean Free Trade Area and Asia-Pacific Economic Cooperation forum, key sectors remain untouched.

The myriad restrictions on domestic competition range from so- called essential commodities like cement and fertilizer, whose distribution is considered too important to leave to market mechanisms, to products like plywood, where a powerful international cartel headed by Suharto's closest confidant, Mohamad "Bob" Hasan, exploits Indonesia's leading position in the world market. In addition, there are growing concerns about what the World Bank calls "reregulation." This is most apparent in transport, where shippers are complaining about a resurgence in port delays. In fact, they were complaining even before Indonesian customs resumed control over preshipment inspections that for several years were contracted out to a private Swiss firm, Societe Generale de Surveillance, in an attempt to induce efficiency.

Earlier this year, despite the much-touted 1994 deregulation of direct foreign investment, the government imposed a freeze on new foreign investment in a palm-oil industry already dominated by Salim and three other domestic groups.

The fishing industry is also being reregulated. A year ago, the government ended a ban on the import of fishing boats. Recently however, it issued licensing and local- content guidelines that have the same effect as the old ban. They prohibit the import of ships more than 10 years old&150;the only sort of vessel many companies can afford&150;and imply that fishery operators must buy a certain number of local vessels for each one imported.

"Because the new regulations haven't been clearly done, everyone has a different interpretation," says Indonesian Fishery Club Vice-Chairman Irwan Hariandja, echoing a complaint heard in other corners of the economy.

The case also illustrates another common problem: little interdepartmental coordination. Irwan notes that while firms may now import boats newer than 10 years, that doesn't mean they will get a fishing licence from the director-general of fisheries.

Ship imports were banned in the late 1980s in an effort to foster capital-intensive local shipbuilding, a pet project of Research and Technology Minister B.J. Habibie. Apart from increasing inter-island shipping costs, the ban was a disaster for the country's cash-strapped fishing industry: Without enough boats to maximize capacity, the industry was catching only one-fourth the volume of fish the government considers sustainable and leaving much of Indonesia's fishing grounds to foreign poachers.

Even in areas substantially deregulated, corruption remains hard to wipe out. A good example is the garment and textile sector, the country's largest foreign-exchange earner after oil and gas. Attempting to limit opportunities for graft, the government last year reduced to about six from 35 the number of steps exporters must go through. But Djafri Chamroel, senior adviser to the Indonesian Textile Association, says there's still some way to go, and that low-ranking officials, especially, remain vulnerable to temptation. "At the head office it's all right," he acknowledges, "but at local level it's not perfect. Living expenses for the lowest-ranking officials aren't enough."

Djisman says now that the government is relying more on private capital for infrastructure projects it should be putting more resources into government salaries and general education, where massive investment is required to improve the skills of Indonesian workers. He and other analysts warn that unless officials are paid more, they will find ways to impose spurious charges.

Indeed, a byproduct of decentralization is the growth of local fiefdoms in which officials have become adept at creating new sources of revenue. In two localities in South Sumatra and Kalimantan, for example, a land tax has been slapped on . . . fishing boats. "The further you go from Jakarta, the more the local governments intervene," says a researcher. "In some cases the government doesn't have full knowledge of what's going on. In other cases, it's a way of keeping allegiances."

The World Bank's main criticism is directed at retribusi, or retribution taxes imposed by local governments on a wide range of goods and services moving within Indonesia. It says levies on specific commodities, such as garlic, interfere with trade between regions, fragmenting markets and distorting both production and consumption decisions. Then there's livestock. Although the industry is one of the more viable for many of Indonesia's outer islands, high shipping costs and quantitative controls imposed by the central government have severely limited its potential.

While Indonesia gets high marks for freeing up trade, many sectors remain protected by high tariffs&150;among them chemicals, metal products, cars and selected agricultural products. "Without cuts in their protection," says a World Bank report, "there is a danger of encouraging high-cost production in these sectors." The reductions would directly affect the national car and, of course, Bambang's Chandra Asri petrochemical complex.

"In some senses the government has done fine, but the whole deregulation of the economy to remove monopolies and to get reasonably competitive behaviour just hasn't happened&150;and frankly I can't see where the energy for change is going to come from," says a ministerial adviser. "The president is increasingly surrounded by sycophants, which wasn't true 10 years ago. But the real problem is that the economy has done so well the president has been able to say 'Why do we need to make changes?'"

Maybe the economy's recent troubles will provide an answer to that question. "Accelerating the process of deregulation will have to be the main agenda for action in the coming three or four years," says former adviser Sumitro. "We are long past the point of no return."

Short-term solution to crisis

Sydney Morning Herald - October 9, 1997

David Jenkins &150; President Soeharto's decision to call in the IMF and the World Bank, his second attempt in as many weeks to staunch a hemorhaging rupiah, has sent what should be a convincing message to the financial markets.

In an area where a herd mentality so often prevails and where psychological counter- measures are immensely important, the president has in effect told the markets they are not just taking on Indonesia but Indonesia supported by the IMF and the World Bank.

That should be enough to provide a short-term stabilising influence on a market shaken to its foundations by the currency crisis.

But the fact that Jakarta has been forced to take this step suggests that the market either saw through the Government's recent - and largely cosmetic - attempt to defer a series of major infrastructure projects or was caught in a downward spiral of confidence with a momentum all its own. Nor will this be a cost-free exercise for Jakarta. The IMF and World Bank are certain to insist that Indonesia speed up the policy reform process.

Among the likely recommendations will be an attack on what one expert on the Indonesian economy calls "the more outrageous forms of cronyism".

The international agencies are also likely to push for the sort of reforms that would support a stronger financial system. At present, Bank Indonesia, the central bank, does not have the detailed supervisory capacity that is necessary to provide confidence about the viability of the financial system. As Dr Hal Hill of the Australian National University has noted, Indonesia's recent economic crises have come along, almost like clockwork, in the middle of decades.

In the mid-1960s, hyperinflation and economic decline ushered in the army-backed New Order Government. In the mid-1970s, Pertamina, the State oil company, ran up debts of $US10 billion, equal to about one-third of the country's GDP.

In the mid-1980s, oil prices collapsed at a time when oil was responsible for 75 per cent of export earnings. Now, in the mid- 1990s, the country is hit by a crisis which has seen the rupiah fall 36 per cent against the US dollar in barely three months.

The latest crisis coincides with fall-out from a foreign haze problem which has seen smoke from Indonesian fires blanketing many parts of South-East Asia. It comes six months before President Soeharto, 76, is expected to stand, unopposed, for a seventh successive five-year term.

It comes, too, at a time of mounting criticism over the business activities of members of the First Family and of others associated with the ruling group.

Jakarta announced two weeks ago that it would postpone $US17 billion in infrastructure projects and "review" another $US21 billion of government-connected spending.

However, this was largely a window-dressing exercise given that a number of those projects were not really under serious consideration. The fact that the president refused to kill off a number of costly and controversial projects associated with his family and friends did nothing to reassure financial markets.

Soeharto refused to pull the plug on a company headed by his son, Hutomo Mandala Putra (Tommy), who is spending $US1 billion to develop Indonesia's first "national car".

Nor was he willing to abandon a project under which the Research Minister, Dr B. J. Habibie, is attempting to carve out a niche for Indonesia in the crowded and highly competitive commuter aircraft market.

No laughing matter

Far Eastern Economic Review - October 9, 1997

Jay Solomon &150; The playful smile on President Suharto's face as he gave the new "national motorcycle" a spin around his palace late last month could give the impression that all is well in Indonesia.

But it isn't. Massive forest fires are choking the archipelago, drought is worsening, the economy is mired in the Southeast Asian financial quagmire, and the rupiah has depreciated 27% since mid July, reaching a record low of 3,355 to the U.S. dollar on October 1. Downward pressure on the currency continues, multiplying Indonesia's debt- servicing costs and ratcheting up inflation. The drought is likely to force Indonesia to import rice and other commodities, straining the nation's balance of payments.

Financial analysts still marvel at how quickly sentiment has shifted against Indonesia. A stock market index fluttering at the 700 level in early August is now struggling to stay above 500. GDP growth that was targeted by the government at 7.8 % for 1997 and 8.1 % for 1998 is now seen slipping as low as 5.5% and 5% respectively by SocGen-Crosby Securities. Inflation, which hovered at a benign 5% for the first half of 1997, is expected to drift back towards double digits next year.

While the April-June current-account deficit was down to $1.7 billion from $2.6 billion for the same quarter last year, it is expected to grow considerably with the rupiah's slide. Economists who earlier projected the deficit at 4% of GDP now put their estimate at 5%. "Dramatic changes of sentiment may be commonplace in financial markets," says a recent Peregrine Securities report. "But there have been few examples as extreme as that witnessed in Indonesia."

How Indonesia comes out of the crisis rests essentially on Suharto's response. Initial steps have been encouraging. Rather than blaming foreign speculators for his country's predicament, Suharto seems to realize that at least some substantive reform is the answer. In mid-September, the government scrapped the 49% foreign ownership limit on Indonesian stocks, leading to a 11% surge in the Jakarta Stock Exchange index. Key import tariffs have been reduced to boost the competitiveness of Indonesian exports, which in June totalled $4.4 billion, a 6% year-on-year increase. And in a bid to slow down imports, the Finance Ministry delayed a number of capital-intensive projects, many that involve companies controlled by Suharto's children and friends.

But while these moves have been well received, economists say much more is needed. Most pressing is a clean-up plan for the wounded finance sector. Cash-flow problems at Indonesian companies savaged by debt-servicing costs (total private debt in 1996 reached $55 billion) are expected to seriously damage the asset quality of local banks already suffering from tight liquidity.

Economists say they also hope for more serious structural reform. Weeks after the rupiah's float, the government said it might deregulate Bulog, the agency that controls the supply of rice, soyabeans and sugar. Other measures that would boost sentiment: an increase in fuel oil prices, liberalization of the port system and the cancellation of such first-family projects as Tommy Suharto's "Timor" car venture.

But there is growing fear that structural reform in Indonesia has run its course. With Suharto-linked companies having a major stake in virtually every sector, it's hard to see what more the technocrats can tackle.