______________________________________ Stratfor's FREE Kosovo Crisis Center - http://www.stratfor.com/kosovo/crisis/ The most comprehensive coverage of the Kosovo Crisis anywhere on the Internet ______________________________________ STRATFOR's Global Intelligence Update May 10, 1999 The Emerging Indonesian Crisis and its Strategic Implications Summary: Indonesia's coming presidential elections have created enormous social and political tension domestically, and they have significant strategic implications. With U.S.-Chinese relations at their lowest point in years, the possibility of confrontation over Indonesia is substantial. Indonesia is vital strategically, sitting astride the trade routes between the Pacific and Indian Oceans. Everything from Japanese oil supplies, to Singapore's banking system and U.S. power projection in the Persian Gulf, are at risk in an Indonesian crisis. The crisis is also an opportunity for China to do what Russia did in Yugoslavia: make it clear to the United States and the region that China cannot be excluded from the regional dynamic and that the U.S. does not have the ability, without Chinese cooperation, to act in Asia. Everything is in place for a crisis that could dwarf Kosovo in global significance. Analysis: More than anywhere else in Asia, Indonesia was socially and economically destabilized by the 1997 Asian meltdown. Indonesia has recovered less than almost any other Asian country, thus feeding the social and political crisis. The social and political crisis has, in turn, made recovery impossible. Indonesia has been caught in a downward spiral that could result in a major crack-up, triggered by a presidential campaign that is scheduled to begin on May 19 and culminate in elections on June 7. There are some real questions about whether those elections can be held without a blood bath and indeed, whether Indonesia can ultimately survive the political crisis surrounding the elections. Indonesia's Asian neighbors are deeply concerned. On May 7, both South Korea and Taiwan warned their nationals against traveling to Indonesia in the coming weeks. Today, Thailand joined in that warning. Let's consider the origins of this potential crisis. President B.J. Habibe assumed the Presidency of Indonesia after President Suharto, who had ruled Indonesia for more than thirty years since he overthrew his predecessor, Sukarno. Upon taking power, Suharto had waged a ruthless campaign against Indonesia's small, but extremely wealthy, Chinese community. Tens of thousands of Chinese were slaughtered, to state a conservative number. Why were the Chinese attacked? The Chinese community had become a mainstay of Sukarno's power. First, its financial resources buttressed Sukarno's regime. Second, the Indonesian Communist Party (PKI), which was substantially broader than the Chinese community alone, but which was closely linked to the People's Republic of China (PRC), had grown in strength and threatened to create a revolutionary regime. Sukarno tried to balance between the competing forces in Indonesia, but the dynamics of the situation drew him closer into the PKI/PRC orbit. Suharto overthrew Sukarno and with that action arrayed himself against both the PRC and Indonesia's domestic Chinese community. There were two foundations for Suharto's regime. One was xenophobia against the Chinese residing in Indonesia and China itself. The importance of this xenophobia cannot be overestimated. Indonesia is not so much a country as a legal fiction imposed on widely dispersed islands by Dutch colonialism. This regime governs a mixture of ethnic groups, religions, languages and deep resentments, not much dissimilar in scope and intensity to what we have seen of late in Kosovo. Both Sukarno and Suharto sought psychological glue to hold the country together. For Sukarno it was the creation of a revolutionary nationalism that sought confrontation with neighbors. For Suharto it was an inward looking nationalism that drew its strength from anti-Chinese sentiment. The second pillar of the regime was the Indonesian Army. The only truly national institution, the Army represented a means for the elite to administer the country and a path toward upward mobility for poor peasant boys. The Army suppressed not only the Chinese community, but also numerous regional challenges to Djakarta's authority. The Army's command structure remained loyal to the Suharto regime because Suharto cleverly used the expanding Indonesian economy of the 1970s and 1980s to reward local and regional commanders. Indeed, the Army became a participant in and a facilitator of the tremendous growth in Indonesia's economy. It also became a prime beneficiary, participating at many levels in the lucrative deals that were being made until the collapse of 1997. All of this motivated the Army to hold the country together. Moreover, it gave regional political and military administrators the means for holding the country together: money. While the economy was expanding explosively, Indonesia was awash in cash. One of the uses of that cash was to co-opt potential opposition into the system. Simply put, there was much more money to be made on an individual and regional level by cooperating with Jakarta and the military, than there was in standing in opposition. From the village level to the elite, money was the mechanism for national solidarity. The military transformed itself from a repressive force into a mechanism for sharing some of the wealth. At the top, holding most of the wealth inside the web of family and friends that constituted the Indonesian elite, were Suharto and his children. This tale is no different from events in much of the rest of Southeast Asia, save for one fact. Social, ethnic, and religious tensions within Indonesia were orders of magnitude greater than what existed in other countries in the region, including the Philippines or Malaysia. Indonesia was able to suppress this tension while the cash was flowing in, but the tension remained there, covered over but still seething. Once the cash stopped flowing, the lid flew off the pressure cooker with incredible speed. That is why we said, as early as October 7, 1997, that "A deeply divided society, Indonesia has papered over differences with an expanding economy. As with many revolutions of rising expectations in other countries, even reasonable, passing disappointments carry with them the danger of instability. Since we see Indonesia's disappointment as more than a passing phase, we fully expect economic problems to turn into social and political problems" (http://www.stratfor.com/services/giu/100697.asp). By January, 1998, we were asking: "The ultimate question: if not Suharto, then who?" (http://www.stratfor.com/services/giu/010798.asp). The answer was B.J. Habibe: Suhartoism without Suharto, and without the resources that had held the country together. Two issues came to the fore very quickly. One was the religious issue. Indonesia is predominantly Moslem, but contains numerous other religions, some concentrated in certain areas. Second, even after the pogroms of the 1960s, the ethnic Chinese continue to hold disproportionate economic power. As the power of the relatively secularist Suhartoist regime declined, the power of Islamic and xenophobic forces rose dramatically. As important, the ability of the military to contain these forces also declined. Money was a more efficient means than terror for keeping the country, and the Army, together and loyal. It is in this context that the June 17th Presidential elections are being waged. The personalities, parties, and issues of the election are in many ways less important than the economic dynamic that has been established. We haven't the space here to lay out the complexities of Indonesia's politics. We can, however focus on the effect of those complexities. For example, the May 5 edition of Bisnis Indonesia cited Pungky Bambang Purwadi, Chairman of the Jakarta chapter of the Indonesian Chamber of Commerce, as warning that large numbers of businessmen have already fled Indonesia and the numbers will certainly grow as the elections draw nearer. Many of those fleeing are from the ethnic Chinese community, a point made by Indonesian Investment Minister Hamzah Haz in an April 14 Media Indonesia article, where he warned that 25,000 ethnic Chinese may soon leave the country, taking with them 500 million dollars. In the same report, other sources estimated that as much as 80 billion dollars had actually already been taken out of the country. President Habibie, fighting for his political life, is trying to play this ethnic card in a manner remarkably similar to what his predecessor did in 1965. Speaking to members of the Moslem Muhammadiyah Youth Movement, Habibie warned that Communists are behind much of the unrest in Indonesia. Habibie's warning about Communists will undoubtedly raise even more concern among the ethnic Chinese community, since communism became a code word for Chinese ethnicity in the 1960s. The Habibie government had tried to woo Indonesia's Chinese by eliminating discriminatory laws and emphasizing the need for all Indonesians to work together. Habibie, in an effort to stem the out flow of significant amounts of capital, has also tried to avoid labeling ethnic Chinese as a scapegoat for economic disparities and distress in Indonesia. However, by blaming the Communists for instigating unrest, Habibie has reminded not only the Chinese community, but also the Indonesian populace of Suharto's rise to power. These are potent signals in Indonesia and can trigger social explosions. It is one measure of Habibie's growing political desperation that he has resorted to these tactics. Therefore, the crucial question is not who will win the election but whether the election can be held at all. More precisely, will growing social and political chaos make it either impossible to hold the election or impossible for whomever is elected to govern. Suharto was able to hold Indonesia together because of the relative solidarity of the military. It is not clear that the military is as cohesive today as it was on 1965. Years of insider and other corrupt financial dealings have created expectations as deep in the military as in the rest of Indonesian society. The loss of that leaves the Army quite as disappointed as the rest of the country, and therefore potentially unreliable. The time for all this to come to a head is now. The election campaign officially begins in a week and continues for a month. Every skeleton in the Indonesian closet will be at the feast. Every hatred, disappointment, resentment, fear will be there, in a country not held together by much more than a memory of a colonial administration that treated unconnected islands as if they were one for the sake of convenience. The issue is not so much whether Indonesia can hold together but how far the disintegration will go. In this regard, attention has been focused on little East Timor. The concern is much broader than that. The United States is deeply involved economically and politically. With the announcement over the weekend that U.S. police commanders will be going to Indonesia in the next few days to train Indonesian police in riot control, it is now more deeply committed. Japan is considering sending police to East Timor. Both countries understand the importance of Indonesia. Indeed, a glance at any map will show the importance: Indonesia sits astride the major trade route between the Indian Ocean and the Pacific. That means that Persian Gulf oil on which Japan is dependent, flows through Straits that could be easily cut if Indonesia destabilized. The ability of the United States to maintain military operations in the Persian Gulf and Indian Ocean basin could also be dramatically affected. If Indonesia destabilized, Singapore, a major economic and money center, could be threatened and destabilized as well. So could Malaysia and Brunei. The valuable gold mines in Irianjaya (owned by Freeport- McMoran, a U.S. company with close ties to the Suharto regime) could be affected. Should significant numbers of Indonesians decide to flee instability, Australian security could be negatively impacted. The stakes are enormous at a time when U.S.-Chinese relations are at a nadir. Two years ago, we would have expected U.S.-Chinese cooperation in stabilizing the situation. There are two reasons why they may not cooperate this time. First, the Chinese do not want the outcome of this crisis to be increased U.S. influence in Indonesia. China is deeply suspicious of U.S. strategic goals in the region and they will be eager not only to limit U.S. influence but to use the crisis as an opportunity to warn the region that China, not the United States, is the major regional power. Thwarting U.S. attempts at stabilization would serve China's global interest in undermining the U.S. If China could become the dominant force in Indonesia, then Japan would become increasingly dependent on China for securing its trade routes. Now, China's ability to impose a pro-Chinese regime in Djakarta is minimal to say the least. Its ability to prevent stabilization in Indonesia without Chinese cooperation (and concessions to China) is much greater. Which brings us back to the primordial issue of ethnic politics in Indonesia. The Chinese community in Indonesia is the center of gravity of this election. Xenophobia is a central motif of the elections. China has forged close economic and psychological links with overseas Chinese communities. Its relationship with the overseas Chinese in Singapore is particularly important. These communities will be watching Beijing's reaction to China- bashing in Djakarta. Beijing will react. China is less interested in Indonesia's stability than it is in the region's perception of China's ability to act decisively to protect its interests. That gives it an advantage over the United States that has strategic and financial reasons for stabilizing Indonesia. China has the easier mission. China will not permit the United States to act unilaterally nor is it likely to be able to find common ground with the United States for a joint stabilization mission. Thus, if Indonesia falls apart, the possibility for an extended confrontation between China and the United States is substantial. Moreover, this confrontation will intersect with the crisis over Chinese espionage in the U.S. One of the issues is whether the Clinton Administration avoided creating a crisis with China over espionage because it was more interested in good economic relations between China and U.S. economic interests that were administration backers. We need to recall that the other country deeply entangled in the Administration's campaign finance problems was none other than Indonesia. Thus, Indonesian instability could intersect with U.S. domestic politics quite as much as with international strategic reality. This makes for an explosive mix. ___________________________________________________ To receive free daily Global Intelligence Updates, sign up on the web at: http://www.stratfor.com/services/giu/subscribe.asp or send your name, organization, position, mailing address, phone number, and e-mail address to [EMAIL PROTECTED] ___________________________________________________ STRATFOR, Inc. 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: http://www.stratfor.com/ Email: [EMAIL PROTECTED]
