Senate Foreign Relations Committee, East Asia and Pacific Affairs Subcommittee: Hearing on U.S.-Indonesia Relations

USINDO Brief: The following Senate Hearing took place in the afternoon of September 15, 2005 in the Dirksen Senate Building in Washington, DC. Senator Lisa Murkowski presided over the hearing.

Senate Foreign Relations Committee
East Asia and Pacific Affairs Subcommittee
Hearing on U.S.-Indonesia Relations

Senator Lisa Murkowski, chairman of the Subcommittee on East Asian and Pacific Affairs, began the hearing by expressing her appreciation of Indonesia’s offer of assistance to the Katrina disaster. Indonesia is, she continued, a good place to start in improving US relations with the greater Islamic world. In describing the current situation in Indonesia, she said that the increase in food prices was a contributing factor in the inflation Indonesia’s economy is currently facing; a rise partly  due to the mass destruction of poultry in an attempt to curb the rise in the avian flu virus. The fuel subsidies, currently totaling about $13-$14 billion eats up about 1/3 of Indonesia’s budget, and only encourages inefficient fuel use. Indonesia is, as the newspapers have reported, a net importer of oil. In yet another example of how these effects multiply, about 10% of the rupiah’s recent weakening is due to the demand for foreign exchange to purchase oil.  An encouraging sign for change is the first meeting on August 29th of the working group for energy efficiency in Jakarta. Indonesia is important to the US for geopolitical reasons, and the recent joint statement between Washington and Jakarta reiterated Washington’s support for Indonesia’s territorial integrity.

Senator Barack Obama, who was only able to attend the hearing for the first panel, spoke of his remembrances of a few childhood years spent in Indonesia. The problems Indonesia experienced then, he believed, are still the problems Indonesia faces today. Corruption was, and continues to be, a problem, as well as Indonesia’s wealth gap, the functioning of a free press, and the difficulty of civilian control over the military. The Senator said that it was “absolutely critical” to spend more attention on Indonesia.

The first panel opened with Deputy Assistant Secretary of State Eric G. John, who echoed the Senator’s statements on the need for positive relations with Indonesia, a country that its “one of the most important countries to the United States in Asia.” Indonesia’s waters transport about 1/3 of the world’s maritime trade, and the Malacca Strait sees ½ of the world’s oil trade pass through. He referred to a meeting of Secretary of State Condoleezza Rice and Indonesian President Susilo Bambang Yudhoyono, where Secretary Rice observed that in the past, the US has often pulled back from its relationship with Indonesia, and that this is no longer to be the case in the future relationship. The United States must be a reliable friend to Indonesia to ensure a continued strong and positive relationship.

Indonesia is experiencing several positive trends, including a strengthening democracy, the cohabitation of Islam and modernity, economic reform, security service reform and resolution of conflicts. The Indonesian government is currently pushing for infrastructure reform and anticorruption measures in the hopes of attracting more investment and strengthening the economy. Additional economic reforms lay in the realm of the fuel subsidies, a program that cuts into other important budgets such as health, education and public works. A positive sign was the reduction of fuel subsidies in March, and the possibility that the price of fuel will rise in the coming months.

What does all of this mean? The current government and its reforms present the United States with an opportunity to strengthen its relations. Indonesia is “the world’s fourth most populous country, the third largest democracy, a country undergoing rapid modernization, the largest majority-Muslim country, a partner in the war on terrorism, a major open economy in a critical region,” and the US should continue its assistance programs, increase exchanges between the two countries, and support Jakarta’s reforms.

The second panelist, USAID’s Assistant Administrator for Asia and the Near East, James Kunder, agreed with the opportunities the current situation in Indonesia presented, but cautioned that there are also risks. Indonesia is the largest assistance program in Southeast Asia, though the numbers break down to less than $1 per Indonesian citizen. What needs to be asked is “how do we make an impact?” Kunder described four areas to make that impact:

  • Democracy
  • Economic Growth – each year, Indonesia witnesses 2 ½ million new entrants into the labor force. An investment friendly government is needed to ensure that those jobs are created.
  • Education – Indonesian academic performance has declined. Already USAID has programs in 200 schools with “concrete results.” Similar programs have been implemented voluntarily in 900 other schools without the use of USAID funds.
  • Basic Health Care – Indonesia still has a high infant and maternal mortality rate. Much is being done to focus on this, and provide other basic health care needs, such as safe drinking water.

Kunder then briefly summarized US assistance after December’s tsunami, noting that US food assistance was in Indonesia immediately. Another success was that there was no follow-on starvation or endemic disease, as had otherwise been predicted. Aceh is out of the relief phase and in the reconstruction phase and the local populace has also been heavily involved in the reconstruction process. The last thing Kunder commented on was an issue raised by Senator Murkowski at the last hearing on Indonesia, and this was in regards to the establishment of an early warning system in the Indian Ocean. The effort to do so is underway, however, the issue is complex with 20 countries bordering the Indian Ocean and having their own political and technical concerns.

Question and Answer in the first panel

Senator Murkowski’s first question was about higher education. She wondered if there were many Indonesians looking to the US for higher education, and what was being done to seek them out? Deputy Assistant Secretary John said that there were not enough Indonesians looking to the US. The financial crisis did affect the exchange programs, as well as the perception that the US’ new visa regulations are stricter than they really are. Indonesia has a “woefully” small amount of graduate degrees, without 7000 PhDs in the whole country. One suggestion is to invite several dozens of Indonesians to the US to study for Masters Degrees in areas applicable to Indonesia. This of course raised the question as to what does this education level do to the hiring and training of the local populace? Is the US able to assist in the training? USAID’s Kunder noted that much is being done to train the local populace; for example, a local Indonesian firm was hired to begin building the first 80km of the Banda Aceh to Meulaboh Road. Work is being done to strengthen Indonesian oversight abilities. Kunder also said that ultimately, it will be the Indonesians who build a successful democracy.

Reflecting back to the concern of fuel subsidies, Senator Murkowski asked what Indonesia was doing to improve its fuel efficiency. Eric John noted that President Yudhoyono was committed to helping the poor while decreasing subsidies, as in the short run, the least wealthy would be the hardest hit. Indonesia can also work to attract foreign investment in its energy sector, noting that a better energy sector comes from better investment.

The next to last question before the hearing broke for a quick break and a Senate vote was whether or not funding for the tsunami was adequate.  James Kunder said the funding was adequate for critical assistance. More could always be used, but SUAID has no complaints. The last question, a brief one, asked about the efficacy of the working group for the bird flu. Kunder said that there was positive inter-agency cooperation in the US, but it was still too early for the international working group which had only just been formed.

The second panel convened shortly after the Senate vote, with only Senator Murkowski returning. Former USINDO President Paul Cleveland presented his testimony first. Indonesia provides a counterweight to Chinese and Indian influence in the Asian-Pacific arena, and Indonesia’s current President, elected after the “well run, transparent and clean elections of 2004,” Yudhoyono “is emerging as the best President Indonesia has had.” The current peace deal between the Indonesian government and GAM in Aceh is believed to have a strong chance of success, despite breakdowns in previous agreements. As noted earlier, President SBY has a strong commitment to fight corruption, and since his presidency began, “a substantial number of leading officials have gone to jail or are under indictment.” Cleveland acknowledged that there will be setbacks in the anticorruption movement, but Indonesia is off to a strong start. The US can, and should, continue to support AID programs and Indonesian reforms, normalize military relations and support Indonesia’s education programs as these will help in the long run to ensure that Indonesia flourishes.

Hadi Soesastro, Executive Director, Centre for Strategic and International Studies Jakarta continued with the relationship between Indonesia and ASEAN.  ASEAN helped to bring stability to the region, and though it did not become the economic community initially anticipated, the regional peace allowed countries to reform on their own. Indonesia is not an assertive member of ASEAN, but tries to build a regional consensus. Its ASEAN role was hindered after the 1997 Asian financial crisis, but Indonesia is beginning to increasingly involve itself in the regional organization. ASEAN members will look to the European Community has an example, and perhaps head towards the free flow of capital and goods between members. This will prove a challenge for Indonesia, who is trying to increase its competitiveness and attract foreign investment. The US can aid Indonesia in building the capacity it needs to fully implement and negotiate further Free Trade Agreements (FTA). An Indonesia that is economically stronger can provide more leadership to ASEAN. Soesastro concluded by suggesting that an economically strong and integrated ASEAN is in the US interests.

The third panel concluded after Randolph Martin’s, Mercy Corps’ Director of Global Emergency Operations, statement. About six months after the tsunami, an InterAction study found that 60 American InterAction-member NGOs were working in the tsunami affected areas, raising $1.5 billion dollars. However, now the world’s attention has shifted, and he commended the committee’s continued interest. Disasters of this kind, rapid on-set disasters, destroy the very institutions in place to respond to those disasters and add to the level of destruction that has taken place. These structures also need replacing in the reconstruction phase. Much has been done in Aceh in the time that has elapsed since the tsunami. Over 90% of students in the affected region have returned to school, and month food rations have reached over 500,000 people. Martin ended with four recommendations:

  • Support local government
  • Support community led initiatives
  • Support the peace agreement with GAM
  • Remain mindful of the long-term development needs

The hearing finished after Martin’s testimony with no time for questions, which would be submitted later to the panelists in writing. Senator Murkowski did note that one question she was planning to ask Paul Cleveland was his predication on how Indonesia will look in the year 2020.