Jakarta Drifts

Indonesia's president talks reform but is struggling to make good on his promises.
By Joe Cochrane
Newsweek International

Feb. 19, 2007 issue - During his military career, Indonesian President Susilo Bambang Yudhoyono was known as "the thinking general" for his intellectual approach. One can only wonder what was going through his mind last week, when monsoons caused floods that submerged three quarters of Jakarta, killing 46 people and displacing some 420,000. It was a replay of a similar disaster in the capital five years ago—leading angry citizens to wonder why a single canal hadn't been dug nor dam built since then. Yudhoyono's rivals pounced on the opportunity to take potshots at the increasingly beleaguered leader. "Local [Muslim] preachers asked their congregations to [deal with the floods by] asking for forgiveness from God," said Azyumardi Azra, rector of the State Islamic University in Jakarta. But among the political elites, he continued, the disaster was seen as a sign that even nature has turned against Yudhoyono.

So it goes for Indonesia's president as he approaches the midway point of his five-year term next month. Long gone are the heady days of 2004, when his huge popularity allowed him to win the country's first-ever direct presidential election with a whopping 62 percent. Tall and confident, he promised to provide Indonesians with a firm but gentle hand and to root out its endemic corruption and nepotism. Two-and-a-half years later, however, his reform program seems dead in the water, and last week's floods only symbolized how little he's accomplished. Local commentators now accuse SBY, as the president is known, of pandering to his vice president, Jusuf Kalla, whose ruling Golkar Party gives him political muscle in Parliament. Critics also accuse the president of ignoring his own reform mandate and kowtowing to cabinet members, smaller parties in Parliament, hard-line Islamic groups and even his political rivals. To make matters worse, Jusuf Wanandi, chairman of the Center for Strategic and International Studies in Jakarta, says Yudhoyono has developed the flaw of indecisiveness. "He's in angst if he has to decide," Wanandi says. "He talks nice, but it's tough to get him to decide anything."

As SBY waffles, his country is drifting. Last year Yudhoyono proved unable to push through much-needed tax, labor, civil service and other reforms. Indonesia is already paying the price: foreign direct investment, the key component of the president's job-creation strategy (more than 40 million of his constituents are unemployed), plummeted by 32 percent in 2006. The country possesses vast natural resources, but multinational corporations have grown wary of trying to exploit them due to the red tape and discrimination they are likely to face. During the 32-year regime of the dictator Suharto, foreign investors flocked to the country; despite the profound corruption, the rules of business were clear—grease the right palms and anything was possible. SBY's attempts to crack down on such practices have only paralyzed the country's bureaucracy. While he sends one message, meanwhile, other top officials send another.

The president has also failed to extend his writ outside Jakarta, thanks to a de-centralization process started in 1999 by President B.J. Habibie, which has empowered local players with their own agendas. "In Suharto's day, everybody knew the rules about payoffs and kickbacks," said one Western executive in Jakarta. The current situation, he said, "makes for uncertainty, and businesses don't like uncertainty."

Underscoring the problem, next month a court in North Sulawesi is expected to rule on an environmental suit brought against the U.S.-based Newmont Mining Corporation. The company's Indonesian unit is alleged to have dumped toxic substances from a gold mine into Buyat Bay, and its American president, Richard Ness, faces three years in prison. Prosecutors have accused Newmont of pillaging Indonesia's resources and despoiling its environment. Newmont, backed by the U.S. Embassy in Jakarta, calls the charges a "hoax" orchestrated by figures in Sulawesi and Jakarta, who it says doctored evidence for political and monetary gain. There's something to this: prosecutors have produced little in the way of hard facts; an independent WHO study found no contamination in Buyat Bay; and at least one key government witness has already retracted her accusations. Yet the trial continues. Now in its second year, it is being viewed by other foreign businesses as a key test of SBY's claims to be investor-friendly. "Anything less than an acquittal is going to be seen as a disincentive" for foreign investment, says one U.S. official in Jakarta.

In Suharto's day, the whole affair might have ended with a quick phone call from the Presidential Palace. But Yudhoyono doesn't want to interfere in provincial matters. Other top officials aren't so squeamish, as shown by the difference between Newmont's harsh treatment and the kid-gloves handling of an Indonesian gas company accused of similar misdeeds. In May 2006, Lapindo Bratas hit an underground volcano while doing exploratory drilling in Sidoarjo, East Java. The result was one of the country's worst environmental disasters: a mud-flow that inundated more than 4.5 square kilometers of land and displaced 25,000 people. The police have named 13 Lapindo officials as suspects, but nine months on, none have been arrested (despite the fact that two American, one Australian and three Indonesian Newmont executives were jailed).

The difference between these two cases? Lapindo is owned by the family of Aburizal Bakrie, a wealthy business tycoon who is now minister of people's welfare and a leader of the Golkar Party. He has insisted that the mudflow was a "natural disaster" triggered by an earthquake, and so far his boss, the president, has kept mum about Bakrie's involvement in the case. Critics in Indonesia speculate that this is mainly because SBY needs Bakrie and his Golkar Party's support if he is to have any hopes of pushing the country toward reform. At Yudhoyono's insistence, Lapindo did agree to pay $420 million in compensation to affected persons and businesses. But it remains to be seen whether any of its officials end up in court. Colonel Rusli Nasution, head of the East Java provincial police's investigation team, told NEWSWEEK that the investigation was concluded last year but state prosecutors returned the case file to police because it was incomplete. "The prosecutors told the police to get more information on the role of each suspect and information from experts," he said.

Back in Jakarta, SBY faces more problems. Local media have jumped on rumors of a planned coup by retired generals. The alleged plotters deny the allegations, and analysts say the idea of toppling of a man who recently won a landslide election is unthinkable. But if Western investors start fleeing the country, new jobs will not materialize, and SBY's grasp on power—and chances of re-election in 2009—could continue to slip.