The Case of Indonesia

Charles Victor Barber
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American Academy of Arts and Sciences
The Case of Indonesia The Case of Indonesia Author:
Charles Victor Barber
(Cambridge: American Academy of Arts & Sciences, 1997)

Table of Contents


Indonesia is the world's fourth most populous nation, and the planet's largest archipelago. Blessed with abundant natural resources and one of the earth's greatest assemblages of biological diversity, Indonesia was nonetheless among the poorest nations in the mid- 1960s, with a per capita income of just $50 and its economy in shambles. Since coming to power following a spasm of civil violence sparked by an attempted coup in 1965 - events that left as many as 500,000 dead - the "New Order" regime of President Soeharto has utilized exploitation of the archipelago's rich natural resources - primarily oil, timber, and minerals - to jump-start and sustain a process of economic development that the World Bank has praised as "one of the best in the developing world." The economy grew at nearly 8 percent annually in the 1970s, and despite external shocks averaged 5.3 percent in the 1980s. Per capita income has risen from $50 in 1967 to $650 today, and poverty has been cut from 60 percent to an estimated 15 percent of the population.

The regime has, however, used natural resources as more than tinder for economic growth. The delivery of tangible development benefits -increased food production, roads, schools, health care, and the like - to a large segment of the populace, made possible by revenues from resource extraction, has helped ameliorate longstanding social cleavages within Indonesian economy and society and cement allegiances to the regime.

Natural resources - and resource policies - have also been used to strengthen various dimensions of the New Order state's capacity. Natural resource revenues have provided a strong financial basis for strengthening state power, while natural resources policies have provided an important vehicle for projecting New Order values and priorities throughout society.

In this process, new conflicts have arisen between state-led resource extraction activities and local communities deprived of their longstanding access to forests and other resources. Up until now, the regime has been relatively successful in localizing, suppressing, or resolving these conflicts far short of the point where they might, taken together, pose a threat to the regime's capacity or stability.

The state's ability to contain conflict over natural resources has depended, though, on particular circumstances: abundant natural resources; continued economic growth and poverty reduction for many; an efficient and heavy-handed military intelligence and domestic security apparatus; transformation of the electoral process into a state-controlled mechanism for reinforcing regime legitimacy; a quiescent and depoliticized peasantry and urban workforce; the continuity of President Soeharto's thirty-year rule; and a small and politically quiescent middle class willing to accept authoritarian politics in exchange for growing economic prosperity.

All of these conditions are changing rapidly in the mid- 1990s: Conflicts over natural resources are not as "local" as they once were, due to the globalization of communications and strengthened international human rights and environmental advocacy networks. The international development Zeitgeist has changed in thirty years from a single-minded focus on "economic growth" to "sustainable development," with growing attention to environmental, social, and human rights concerns. It is no longer as acceptable to "break a few eggs" locally in order to make an "omelette" of national economic growth. And as Indonesia takes a higher profile on the international stage (chairing the Non-Aligned Summit in 1993-94 and hosting APEC in 1994, for example), the government is more sensitive to international opinion.

The natural resource base of the country is increasingly degraded, leaving less for the regime to exploit, and less for the growing rural population to seek its livelihood from. Forests, for example, are declining by as much as 1 million hectares per annum, and Indonesia is expected to become an oil importer early in the next century. At the same time, while the relative share of primary commodities in total GDP has declined from 60 percent in 1970 to 39 percent today, and will likely reach 17 percent by 2010, the absolute value added from primary commodities has more than doubled over the past twenty years, with nonrenewables (oil, LNG, minerals) up 128 percent and "renewables" (agriculture, fishing, and forestry) up by 91 percent. The total value of these sectors is expected to increase by 50 percent by 20 10. Thus, while the regime will continue to rely on natural resources, it will do so in the face of growing absolute scarcities, pressures to conserve, and increasing demand from growing rural populations.

Indonesia's economy and society have changed dramatically since the 1960s, and the pace of change is accelerating, leaving a transformed sociopolitical landscape in its wake. The economy grew at nearly 8 percent annually in the 1970s, and despite external shocks averaged 5.3 percent in the 1980s. The manufactured goods sector has grown an average of 27 percent annually for the past five years, and overall private investment has grown by an average I I percent annually since 1986. Per capita income has risen from $50 in 1967 to $650 today, and poverty has been cut from 60 percent to an estimated 15 percent of the population. Adult illiteracy has been cut by two-thirds, and life expectancy at birth has increased by twenty years (almost 50 percent). Fifteen percent urban in 1970, the country's population is already 30 percent urban today, and may reach 50 percent by 2020. The regime's impressive development achievements have created a wholly new class of educated, increasingly mobile, urban, and informed people with greater expectations for political participation and less tolerance for autocratic or corrupt behavior on the part of government officials and agencies.

The concentration of natural resource-based wealth in the hands of a small political-economic elite, in which the president's family is very prominent, is under growing attack from many parts of society. The power and conspicuous consumption of these elites - often ethnic - Chinese in league with members of the president's family and other regime figures - is increasingly unacceptable to a general public long suspicious of the country's wealthy Chinese minority, to the rising middle class which sees its own business prospects constrained by cronyism, and to elements within the military and civilian state elite itself who see the growing power and profile of the Chinese conglomerates and "the kids" as obstacles to a smooth presidential succession, and as a potential source of general social unrest and political opposition.

President Soeharto, 75, has been in power since 1966, no clear successor is in view, and there is no reliable - or even tested - mechanism for managing this crucial political transition. The sudden death of his wife in May 1996 and a highly publicized trip to Germany for medical treatment a few months later put these questions front-and-center. Soeharto is the linchpin and symbol who holds the New Order regime -and hence the current stability and prosperity of Indonesia - together.

It is unclear exactly what the "Indonesian state" is apart from the New Order regime, and it is equally unclear what the New Order without Soeharto will look like.

As current trends and events play themselves out over the next decade, it seems unlikely that the regime can continue to contain growing conflicts over natural resources, continue to appropriate the resource rents needed to maintain the support of clients and the bureaucracy, or sustain the cohesion of the elite interests and actors who constitute the power centers of the regime. With three-fourths of the nation claimed as "state forestland" and the pressures on those lands building, for example, forestlands and resources conflicts are likely to intensify far beyond the current situation.

Indonesia holds the second largest tract of tropical forests on the planet. Currently thought to cover some 92-109 million hectares - an expanse second only to Brazil's - they blanketed more than 150 million hectares - over three-fourths of the nation - as recently as 1950. In the Outer Islands, many forest areas have long been home to indigenous groups which gained their livelihoods from forest farming, hunting, and gathering.

Since the late 1960s, these forests - and the lands on which they grow - have played important roles in the political and economic strategies of the New Order. They have been a substantial source of state revenue, a resource for political patronage, a safety valve for scarcities of land and resources in densely populated Java, and a vehicle -through the policies applied to them - for penetrating New Order ideological, political, security and economic objectives into the hinterlands. In short, forestlands, resources, and policies have been a key arena for the New Order's program of economic development, political control, and social and ideological transformation.

Under these circumstances, it is not surprising that forests have become the arena for increasing levels of social conflict, sometimes violent, between the interests of local communities on the one hand, and those of the state, its clients and agents on the other. Allocation of the huge resource rents derived from commercial forest exploitation - such as the $1.3 billion Reforestation Fund - have also recently provoked disputes within the elite.

These conflicts have potential to erode state capacity in various ways, although only the community-level conflicts have the realistic likelihood of turning violent - some already have. Even short of violence, local forest conflicts are poisoning relationships between local communities and government agencies and increasing local resistance to both forest production and conservation efforts. And conflicts within the elite over the distribution of forest resource rents threaten to weaken the coherence of power centers within the New Order constellation. As these conflicts grow, they are compounded by increasing absolute scarcity of forest resources and intensifying population pressures on the forest frontier.

The ability of the regime to respond to these snowballing pressures and conflicts is limited by forest policy choices made over the past few decades. From nearly nothing in 1966, the timber and forest products industry has with the state's active support grown into a highly concentrated, wealthy, and well-connected political and economic actor dependent on cheap raw materials, used to high levels of profit, and accustomed to passing the environmental costs of unsustainable logging practices to local communities, the state, and society at large. The industry is now a significant factor in forest policy-making and thus lessens the autonomy of the state to move policy in directions that might be more sustainable but would hurt the industry.

At the same time, just as consensus is growing among forest management experts and many government policymakers - not to mention nongovernmental organizations and donor agencies that sustainable forest policies must grant local communities greater access and more participation in management, the state's capacity to work with or even listen to local communities is severely constrained by three decades of "top-down" development policies and the erosion of community management capabilities caused by those policies.

Moreover, the New Order's capacity to adapt its policies to deal with these growing conflicts is weak, in contrast to the nimbleness of its macroeconomic policy-making in recent years. The choices and policies of the New Order over the past three decades developed from the perceptions and experiences of its leaders during the first twenty years of Indonesia's independence, and the violent transition from Old Order to New. Those policies have served the internal interests of the state well over the past three decades. And they have delivered sustained and broad-based economic and social development to the majority of Indonesia, although they have also been the cause of a great deal of oppression and suffering for some. But the regime now seems bereft of the ideas, mechanisms, and skills to adapt to the rapid changes engulfing the archipelago in the late 1990s. Unless a dormant reserve of political and social ingenuity is soon tapped, the impressive development gains of the past three decades may prove fragile in the face of growing conflicts over forest and other natural resources, and the broader societal conflicts which they mirror.

And the challenges of the next few decades will require vast amounts of ingenuity to surmount. By 2020, Indonesia's population will likely rise from 180 million to nearly 260 million, a 45 percent increase. Fifty percent of that population will be urban, up from 31 percent in 1990, putting pressure on Java's irrigated rice lands, some 10 percent of which may be converted to municipal and industrial uses over the next two decades. Total GDP will increase by 320 percent over 1990, and fully 63 percent of it will come from manufacturing and services by 20 10. Demand for petroleum products by 2020 will expand nine-fold, and the demand for electricity thirteen-fold. Proven oil reserves will be exhausted by about 2015 even at current rates of extraction, and the production of coal and natural gas will have skyrocketed. With rapidly rising demand, though, it is likely that Indonesia will be a net oil importer by as soon as 2000.

In the forestry sector, if current deforestation rates continue, an additional 15 million to 32.5 million hectares of forest will be lost by 2020. And demands for agricultural land, timber plantation sites, and coal mining will increasingly compete with logging, intensifying pressures and probably increase the deforestation rate. If demand for wood continues to climb at present rates, a serious timber shortage seems likely. And while timber plantations are the cornerstone of the government's strategy to bring supply in line with demand, the bulk of current investment in timber plantations are for stock to feed the new and rapidly expanding pulp and paper industry, not to replace timber now coming from natural forests.

To ameliorate growing scarcities of renewable resources, minimize the spread of scarcity-induced conflicts, and protect the capacity of the state from erosion, the New Order must take its "ingenuity gap" seriously, and take steps to close it. Failure to unfetter the generation and delivery of ingenuity needed to deal with the complex challenges of the next few decades will stunt the ability of both state and society to counter the impacts of growing resource scarcity. These challenges include intensifying social conflicts (some violent), impediments to the continued growth of the economy, rising social dissatisfaction, and serious threats to the legitimacy and overall capacity of the Indonesian state. Failures of ingenuity are likely to reinforce themselves: lack of creative state adaptation to increasing scarcity and conflict may in themselves even further limit the state's ability to respond effectively. As conflicts grow more severe, the state may cut itself off from innovative solutions that might otherwise arise from local communities and other elements of civil society.

This need not be. Indonesia's rich resources and incredibly diverse cultures provide the basis for rapid and sustained increases in ingenuity equal to the challenges of rising population and consumption, a fixed resource base, and growing scarcities. The history of Java, where nearly 100 million people - 65 percent of the population - live on 7 percent of the country's land, shows the potential of the Indonesian people for productive social and technical adaptation to growing scarcity (although other islands, with far poorer soils, could not support anything near Java's population density. The "portfolio" subsistence strategies of many Outer Islands peoples - in which reliance on a wide variety of crops and income sources secures the people against scarcities of any one source - provide another important example.

Nor is the New Order state apparatus itself bereft of ingenuity by any means. The economic rise of Indonesia since the 1960s, the major strides made against poverty and illiteracy, and the deft handling of global economic turbulence in the 1980s amply illustrate the ability of this regime to produce ingenuity and act upon it. Anyone who has spent time working with officials of the Indonesian government will attest that there are untold numbers of them bursting with innovative ideas - both visionary goals and rudimentary practicalities - on how to better realize the goals of sustainable development, stability, and equity. If the combined ingenuity of the state and the society can be unleashed from the outmoded and harmful structures, attitudes, and webs of special interests that have developed over the past thirty years, Indonesia will stand a good chance of surmounting the challenges of resource scarcity that all of humanity faces on the cusp of the twenty-first century.

Table of Contents

I. Introduction

  • "The State" and "State Capacity": Working Definitions
  • Thesis of the Case Study

II. Legacies of the Past and the Birth of the New Order

  • Sukarno and the Old Order
  • The Coup Attempt of 1965 and the Beginnings of the New Order
  • Legacies of the Past: Summary

III. New Order State Capacity: Growth, Strengths, and Weaknesses

  • Economic Development and Natural Resources
  • Political Institutions and Natural Resource Policies
  • Civil Society and Local Natural Resources
  • Management New Order State Capacity:
    Strengths and Weaknesses

IV. Forest Resource Scarcity and the Growing Potential for Social Conflict

  • Forestlands and Resources: Status and Trends
  • New Order Forest Institutions and Policymaking
  • The Sources of Forest Resource Scarcity
  • The Varieties of Forest Resource Conflict

V. Natural Resource Scarcity and Conflict in the Next Twenty-five Years: Probable Impacts on State Capacity

  • Likely Trends in Natural Resource Scarcity and Conflict
  • Likely Impacts on State Capacity Conclusion