Democracy and Governance in Indonesia
The Development Challenge: On December 26, 2004, an earthquake with a magnitude of 9.0 on the Richter Scale triggered massive tsunamis in the Indian Ocean. The impact on Indonesia's island of Sumatra was catastrophic with over 120,000 dead, 113,000 missing, and 400,000 displaced (estimates at the time of this publication). The former U.S. Secretary of State Powell described this as the worst disaster he has ever seen. Besides the new challenges created by the tsunami, significant social, political, and economic barriers continue to impede Indonesia's progress toward becoming a moderate, stable, and productive nation. More than half of Indonesia's population subsists on less than two dollars per day. Governing institutions remain weak and corruption is endemic. Approximately half of Indonesian children who start primary school do not complete junior secondary school, and drop-out rates are increasing. Poor health and environmental conditions contribute to millions of illnesses every year reducing incomes and productivity. Regional conflicts and terrorism continue to destabilize the country's fledgling democracy. While important strides have been made toward creating an open and democratic society since 1998 and the fall of Suharto, Indonesia still has tough social, political and economic development challenges to address that are critical for a prosperous future.
In 2004, Indonesians voted in a new President, Vice President, and national and local legislators in internationally recognized free and fair elections. The success of the elections cannot be overstated. By holding the largest and most complex single-day elections in history, the most populous Muslim nation demonstrated to the world the compatibility of democracy and Islam. The vote was also a clear mandate for political, social, and economic reform. The country chose reform-oriented Susilo Bambang Yudhoyono (SBY) as their first directly elected president. The new Government of Indonesia's (GOI) political will to implement essential reforms is high, but it has yet to be tested. SBY has set ambitious goals to fight corruption and terrorism, and to increase investment and employment. However, specific reform policies have yet to be implemented, and the President has warned the nation to abandon high expectations of quick fixes to rampant corruption, sectarian and separatist conflict, widespread unemployment, and the threat of terrorism. The tsunami presents an opportunity to address these endemic problems.
Indonesia's economic growth lags behind other countries in the region, and the current 4% to 5% gross domestic product (GDP) growth is insufficient to absorb new entrants to the labor force or reduce numbers of unemployed and underemployed. While key macroeconomic reforms have resulted in lower interest rates and a stronger Rupiah, poor business and investment climates continue to impede growth. Weak governing institutions, inadequate rule of law, and pervasive corruption are the principle obstacles facing the new government. According to a study co-sponsored by the World Bank and IFC in 2004, it takes 151 days to register a business in Indonesia. Corruption in business and government continues to rob Indonesia of its business development and investment potential.
Indonesia's poor are not receiving adequate human services necessary for productive and healthy lives. Public funding for education is estimated between 1% and 2% of GDP, the lowest in the region. An estimated 77 million people, particularly rural and low-income urban populations, lack access to safe and affordable drinking water. Diarrhea, which often results from water-born diseases, causes over 100,000 deaths per year. Indonesia has one of the highest maternal mortality ratios in Southeast Asia. Rapidly developing sub-epidemics in HIV/AIDS are occurring. While it is true that tremendous progress has been made over the last 40 years toward improving the education and health of Indonesians, much more remains to be done. From the early 1970s to 1998, Indonesia achieved almost universal enrollment in primary school. Fertility rates have more than halved since 1971 (6.0 to 2.1) and life expectancy is now 68 years. However, the inadequate provision of essential health and human services in recent years threatens these positive trends.
Many local governments are still not providing accountable governance and services to their constituencies. The political decentralization process occurred rapidly and transferred substantial responsibilities to cities and districts. Local governments are now controlled by freely-elected councils that can hold local administrators accountable for performance. Communities and non-governmental organizations have greater opportunities to participate in government decision-making. However, most local governments are still struggling to plan, budget and manage their new responsibilities in a transparent, efficient, and effective manner.
(Excerpted from the 2006 Congressional Budget Justification for Indonesia)
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