INDONESIA

2004
an official handbook

NATIONAL INFORMATION AGENCY

REPUBLIC OF INDONESIA
Front cover: Modern buildings of Bank Indonesia in Jakarta (front), and ancient
buildings of Prambanan Temple in Yogyakarta (back)

All material contained in this book may be freely quoted provided

that the source is acknowledged.

Prepared by:

Proyek Peningkatan Pelayanan Informasi Publik TA 2004

Direktorat Media Informasi Tercetak
Lembaga Informasi Nasional
Jl. Medan Merdeka Barat, 9. Jakarta 10110
INDONESIA

ii
 EDITORIAL BOARD

Supervisor : Roem Lintang Suharto

Editor-in-Chief : Amsal Asagiri
Managing Editor : Nana Sunara
Executive Editor : Bagio Prihatono
Associate Editors : Totok Saptogondo
Jamalem Subangun
Sedia Barus
Writers Coordinator : Maria Sri Margini
Writers : Zulfa Basier
Wiwiek Satelityowati
Fasekhah
Yane Erina
Nusirwan
Ifnaldi Jaka
Photography : Indar Ritawani
Art Design & Layout : Brontho Dwiatmoko
Cover Design : Suandi Tanjung
Secretariat : Theresia Luciana M.M
Jose rizal

iii
FOREWORD

INDONESIA 2004 is the thirty-fifth official handbook in the series prepared and revised
each year by the National Information Agency, a government institution dealing
chiefly with operational activities in the field of information.
This 2004 edition, which covers events up to October 2004, gives a factual
account of administration and the national economy of Indonesia. It features the
activities of many of the national institutions, and the part done by the Government
in the life of community.
This handbook does not claim to be comprehensive. But the factual and
statistical information it contains has been compiled from official and other
authoritative sources.
The issuance of this book is in coincidence with the inauguration of President
Susilo Bambang Yudhoyono and Vice-President Mohammad Yusuf Kalla -the first
President and Vice-President of the Republic who were elected by direct popular vote.
The editors sincerely hope that this book can assist the readers in keeping track
of the progress of the world's largest archipelagic republic.

November, 2004

The Editors

iv
CONTENTS
FOREWORD iv

CONTENTS v

LAND AND PEOPLE 1

Land 1
• Geographical Features
• Climate and Weather
• Rivers and Lake
• Fauna and Flora
• Indonesian Standard Time
• Exclusive Economic Zone
People 10
• Languages and Dialects
• Race, Culture and Ethnic Groups
• Population Growth Rate
• Religions
HISTORY 17
Ancient Time 17
The Period of Hindu Kingdoms 18
The Period of Islamic Kingdoms 22
European Influences 23
National Movements 26
General Elections 40
STATE AFFAIRS 49
Pancasila, the State Philosophy 49

v
 The 1945 Constitution 51
The National Flag 58
The Coat of Arms 58
The National Anthem 59
State Organs 60
• The People's Consultative Assembly
• The Presidency
• The House of Representatives
• The State Audit Board
• The Supreme Court
• The Constitutional Court
• The Regional Representatives Council
• The Indonesian Presidents
REGIONAL DEVELOPMENT 79
THE LAW 85
ECONOMY 90
General Features 90
Banking 102
Insurance 105
Investment 106
Manufacturing Industry and Trade 113
Small and Medium-Scale Enterprises and
Cooperatives 120
Agriculture 124
Forestry 130
Transport, Postal Services and Telecommunications 134
Mining 143
Maritime Resources and Fishery 148
Manpower 152
Tourism 158
Culture 161
POLITICAL AFFAIRS 164
Domestic Affairs 164
Foreign Affairs 168
• The Bali Concord II
Information, Communications and Mass
Media 173

vi
SOCIAL AFFAIRS 178
Social Welfare 178
Religious Affairs 181
Education 185
Science and Technology 190
Health 194
Housing 200
Women Empowerment 203
Youth Sports, and Drug Abuse Control 206
Environment 209
DEFENCE AND SECURITY 213
Security Problems 218

vii
LAND AND PEOPLE

LAND

Indonesia, the largest archipelago in the world to form a single state, consists of
five main islands and some 30 smaller archipelagoes, totalling about 17,508 islands and
islets of which about 6,000 are inhabited.

The name "INDONESIA" is composed of the two Greek words: "Indos" meaning India
and "Nesos" meaning islands. The Indonesian archipelago forms a crossroad between two
oceans, the Pacific and Indian oceans and a bridge between two continents, Asia and
Australia. Because of its strategic position, therefore, Indonesia's cultural, social, political
and economic patterns have always been conditioned by its geographical position.

GEOGRAPHICAL FEATURES

The territory of the Republic of Indonesia stretches from 6°8' north latitude to 11°15'
south latitude and from 94°45' to 141°65' east longitude. Its estimated total area is 9.8
million sq km (including Exclusive Economic Zone _EEZ), which consists of a land
territory of 1.9 million sq km and a sea territory of 7.9 million sq km.

Indonesia's five main islands are: Sumatra is about 473,606 sq km in size, Java 132,187
sq km, the most fertile and densely populated island, Kalimantan or two-thirds of the
island of Borneo measuring 539,460 sq km, Sulawesi 189,216 sq km and Papua 421,981
sq km which forms part of the world's second biggest island of New Guinea. The other
islands are smaller in size.

Kerinci Mountain, Jambi

The Indonesian archipelago is divided into three divisions. The island of Java, Sumatra
and Kalimantan, together with the small islands in between, stand on the Sunda Shelf
which extends from the coast of Indonesia's land area is generally covered by thick
tropical rain forests where fertile soils are continuously replenished.

1
 Indonesia, the largest archipelago in the world to form a single state, consists of
five main islands and some 30 smaller archipelagoes, totalling about 17,508 islands and
islets of which about 6,000 are inhabited.

The name "INDONESIA" is composed of the two Greek words: "Indos" meaning India
and "Nesos" meaning islands. The Indonesian archipelago forms a crossroad between two
oceans, the Pacific and Indian oceans and a bridge between two continents, Asia and
Australia. Because of its strategic position, therefore, Indonesia's cultural, social, political
and economic patterns have always been conditioned by its geographical position.

GEOGRAPHICAL FEATURES

The territory of the Republic of Indonesia stretches from 6°8' north latitude to 11°15'
south latitude and from 94°45' to 141°65' east longitude. Its estimated total area is 9.8
million sq km (including Exclusive Economic Zone _EEZ), which consists of a land
territory of 1.9 million sq km and a sea territory of 7.9 million sq km.

Indonesia's five main islands are: Sumatra is about 473,606 sq km in size, Java 132,187
sq km, the most fertile and densely populated island, Kalimantan or two-thirds of the
island of Borneo measuring 539,460 sq km, Sulawesi 189,216 sq km and Papua 421,981
sq km which forms part of the world's second biggest island of New Guinea. The other
islands are smaller in size.

The Indonesian archipelago is divided into three divisions. The island of Java, Sumatra
and Kalimantan, together with the small islands in between, stand on the Sunda Shelf
which extends from the coast of Indonesia's land area is generally covered by thick
tropical rain forests where fertile soils are continuously replenished by volcanic eruptions
like that on the island of Java. The island of Java has 112 volcanic centers of which 15
are active. The lava ejected has a high degree of fertility.

Gorgeous Uluwatu, Bali, in the evening

2
An additional advantage of the island of Java is that its coastal plains are not edged by
wide swamps as in the case of Sumatra, Kalimantan and Papua, not bordered by coral
reefs as in the case of the island of Sulawesi. On the island of Sumatra there is plenty of
evidence of past volcanic activities, although the ejected material contained acid which is
of less fertility compared with Java.

CLIMATE AND WEATHER

Indonesia's climate and weather is characterized by an equatorial double rainy season. Its
variation is caused by the equatorial circulation (Walker circulation) and the meridional
circulation (Hardley circulation). The displacement of the latter circulation is closely
related to the north-south movement of the sun and its position at a certain period with
regard to the earth and the continents of Asia and Australia. These factors contribute to
the displacement and intensity of the Inter-Tropical Convergence Zone (ITCZ) being an
equatorial through of low pressure. This characterizes the weather of Indonesia, while the
prevalence of the West monsoon and the East monsoon (the rainy and dry seasons) are
characterizing Indonesia's climate.

Indonesia's monsoon-type climate changes approximately every six months although in

recent years weather patterns have been somewhat disrupted as part of global changes in
weather.

Land and People

Humidity and temperatures are vary according to the season but temperatures are affected
additionally by time of day, height above sea level and proxim ity to the sea and
exception. The dry season is from June to September and the rainy season from
December to March. Intervening periods are transition months in which the weather will
be mixed.

Average temperatures are classified as follows: Coastal plains: 28°C; inland and
mountain areas: 26°C; higher mountain areas: 23°C, varying with the altitude.

Indonesia has an average relative humidity between 70 percent and 90 percent, with a
minimum of 73 percent and a maximum of 87 percent.

RIVERS AND LAKES

Besides the great number of mountains and hills, there are still many rivers scattered
throughout the country. They serve as substantial transportation means in certain islands;
the Musi, Batanghari, Indragiri, and Kampar Rivers in Sumatra, the Kapuas, Barito,
Mahakam, and Rajang Rivers in Kalimantan; and Memberamo and Digul Rivers in
Papua. In Java, rivers are very important for irrigation means, for instance the Bengawan
Solo, Ciliwung and Brantas Rivers.

3
A number of unique lakes are also found in some islands. All of them are located amidst
of islands, such as the Toba, Maninjau and Singkarak Lakes in Sumatra; the Tempe,
Towuti, Sidenreng, Poso, Limboto and Tondano Lakes in Sulawesi, the Paniai and
Sentani Lakes in Papua.

FAUNA AND FLORA

FAUNA

Within the Indonesian archipelago lies one of the most remarkable zoogeographical
boundaries in the world, which dates back to the glacial period when the sea level fell
worldwide. In that glacial period, Java, Sumatra, and Kalimantan lay on the Sunda Shelf
and were joined to each other and to the mainland of Asia, but Papua and the Australian
continent at that time, lay on the Sahul shelf. This original geographical segregation
explains why the typical oriental fauna species found in Java, Sumatra and Kalimantan
are completely lacking in Papua. Similarly, the marsupials, which occur in Papua, are not
found in the Oriental Region.

The region between these two shelves (Maluku, Sulawesi and the Lesser Sunda Islands)
has another type of fauna. The bulk of Oriental fauna does not occur in Sulawesi,
although it is only 50 km from Kalimantan across the Makassar Strait, and the islands,
such as Seram and Halmahera, closest to Papua, lack the major part of the latter's fauna.
This may be the result of the ancient presence of a deep strait between Kalimantan and
Sulawesi and the depth of the Banda Sea so that this group of islands may never have
been connected with either shelf during the glacial period. Scientists represent this
situation in terms of three faunal lines Wallace's (a line drawn from south to north
through the Lombok and Makassar straits, ending at the southeast of the Philippines),
Weber's (a line drawn and passing through the sea between Maluku and Sulawesi) and
Lydekker's (a line drawn at the edge of the Sahul shelf, which skirts the western border of
Papua and the Australian continent) although some of them prefer to characterize the
zone itself as a "subtraction-transition zone."

Endangered one-horned rhino (Rhinoceros sondaicus) that can be found only at Ujung
Kulon National Park in West Java (above), Bekantan (Nasalis larya-tus wurmb),

4
belonging to the monkey species, is found only in Kalimantan and its surroundings
(above), A gorgeous peacock, now this kind of bird is decreasing in number (below).

Information obtained from the paleontological record reveals that the number of species
known today is much smaller in the past. The extinction of many species of animals was
probably due to normal ecological and evolutionary processes related to such factors as
shifting sea levels, climatic changes and habitat alterations. For example, in Java, out of
at least 75 species of mammals known as fossils, 35 are extinct, 20 still survive and 20
are extinct in Java but found elsewhere in Asia. The more recent process of extinction of
certain animals in Java may have been closely related to human influences on the
ecosystem.

At the present stage of Indonesian social and economic development, wildlife is

considered as being incapable of caring for itself. In order to safeguard and protect
wildlife in Indonesia, the Directorate of Nature Conservation and Wildlife Management
(Direktorat Perlindungan dan Pengawetan Alam) or PPA as abbreviated has set the target
of designating about 10 percent of land as preserve areas. There are at present 320 natural
preserves and natural parks in Indonesia, and more being proposed.

The PPA has adopted the modern natural conservation practice, which emphasizes the
conservation of the entire ecosystem. This is necessary, as it is often not possible to
preserve wildlife without its habitat. For example, the orangutan (Pongo pygmaeus),
found only in Sumatra and Kalimantan, is very dependent on primary forest habitat.
Therefore, to protect their habitat, the PPA in cooperation with the World Wildlife Fund
(WWF) has established "Orang Utan Rehabilitation" Projects in Bohorok and in Tanjung
Putting reserve, in Sumatra and Kalimantan respectively, for retraining illegally captured
orangutans for life in the wilderness.

The Komodo dragon (Varanus komodoensis) which is the largest lizard in the world,
reaching a length of 2 to 3 meters, has its home in the Komodo group of reserves,
comprising Komodo, Padar, and Rinca Islands, eastward of Java, off the west coast of
Flores.

5
Due to its geographical isolation from other land masses for a longer period than the
other major islands, Sulawesi has a unique fauna comprising many endemic species and
many variations thereof. The babirusa or pigdeer (Babyroussa-babyroussa) and the anoa,
a forest-dwelling dwarf buffalo are among the interesting endemic animals of Sulawesi.
Other endemic mammals of Sulawesi are the giant pam civet (Macrogalidia
musschenbroeki), the largest of all civets, a species of tarsier (Tarsius spectrum), and
several forms of the Sulawesi macaque (Cynopithecus niger).

Among the many species of birds in Sulawesi, two species of the megapode birds, the
maleo fowl and the Sulawesi shrubhen, are very interesting.

Papua and Maluku areas are rich in colorful birds, ranging from the great flightless
cassowaries (Casuarius-casuarius) to brilliantly plumaged birds of paradise of the family
Paradiseidae and Ptilinorhynhidae (more than 40 species altogether) and many numbers
of the parrot family.

Other members of the Oriental fauna are the hornbills of the family Bucerotidae,
which are noted for their enormous beak topped by a bony casque, elephants (Elephas
indicus), roaming the forest of Sumatra and Kalimantan, the Sumatran tigers (Panthera
tigris Sumatrae), and the very small number of remaining Java tigers (Panthera tigris
Sondaica), the Mentawai macaquel and leaf monkey Mentawai (Macoca pagensis and
Prebystis potenziani) only found on the Mentawai Islands, off the west coast of Sumatra,
the small number of one-horned rhinoceros (Rhinoceros sondaicus) found only in the
Ujung Kulon reserve in West Java.

Besides, many interesting animals are worthy to note, such as the banteng (Boss
Javanicus), three kangaroo (Dorcopsis mulleri) from Papua, fresh-water dolphin
(Orcaella brevirostris) from Mahakam River in Kalimantan and the proboscis monkey
also from Kalimantan. In addition there are the great variety of birds including egrets,
herons, kingfishers, hawks, eagles, and many others, thousands of species of insects,
tortoises, turtles, and many kinds of lizards and snakes, and also exotic species of fishes,
crabs, mollusks and other aquatic animals living both in salt and fresh water.

Some parts of the Indonesian archipelago are still unexplored and open for botanical and
zoological surveys and discoveries.

Ornamental Fish

Indonesia is also known for its ornamental fish species which are now being exported to
the United States, Japan, and Germany. These ornamental fish species which are known
for their colorful shape and beauty include: the Amphiprion fish, the Dascyllus, the red
colored Labridae and the Coris Aygula species found in plenty around the Bali strait.

6
Doctor fishes or Labroidae dimidiatus are ornamental fishes, which behave like doctors,
examining their patients or pecking the body of other fishes. The most common species
among Indonesia's ornamental fishes are the Thalassoma lunare. The Chaetotontidae
have small beaks, but the Forcipiger longirostris and the Rostratus fish are characteristic
for their long snouts. The Heniches acuminatus have very long back-fins exceeding their
body length and the Monish idol or Zanclus canescens can have a size of 20 cm.

Pamancanthus imperator, Pamancanthus semicirculatus, Pygoplites-diacanthus and

Auxiphipos navarchus or angle fishes belonging to the Pamancanthidae families are
collected because of their beautiful colors.

The Acarthuridaes and Paracunthurus hepatus fishes are very attractive due to their
specific bleish color. Other attractive species are the Acunthurus-leucosternon fish, the
Zebrazoma-veliverum and the Naso-literature fishes. Fishes living solitary are the
Triggerfishes or Balistidaes.

Sea Horses or Hippocampus-coronatus of the syngnathidae family are also among the
ornamental fishes collected in Indonesia. The Peacock fishes called so after their long
fins, found in Indonesian waters are the Ptrerois-zebra, Pterois-bachiopterus, P.
Volitans, P. Rusellii, P. Miles and the Radiatas, all of them belonging to the Scorpanidae
family. There are still many other species of ornamental fish in Indonesia, too many to be
mentioned.

Pearls Shells

Pearl oysters found in Indonesia are the Pictada maxima, Pmagaritifera and Rteria
penguin species. The seas of Indonesia's eastern part around Halmahera Island, the
Maluku and Aru islands are the habitat of these species.

Pearl oysters became an important marine product after the setting up of the Marine
Fisheries Research Institute (LPPL) in 1960 which started to conduct research and
making experiments on the cultivation of pearl bearing oysters on the island of Aru and
in Sulawesi. The series of successful experiments have given rise to the establishment of
several pearl cultivation companies in the country. Indonesian pearls are in great demand
because of their large size and superb quality. Pearl shells are found plentifully in
Maluku. People used to dive for these shells for their iridescent colors and make of them
beautiful ornamental articles and jewelry.

Flora

Indonesia lies within the botanical region of Melanesia, covering the Malay Peninsula
south of the Isthmus of Kra, the Indonesia archipelago; the Philippines and the whole of
Papua New Guinea and Papua except the Solomon Islands. For the most part the
Melanesian region is covered by the luxuriant growth of the characteristics tropical
rainforest vegetation, a type of ever-wet vegetation containing a large number of timber
species harboring various kinds of epiphytes, saprophytes and lianas. These characteristic

7
features and the high number of genera and species endemic within this region make the
flora of Indonesia completely different from that of neighboring continental Asia and
Australia, as well as from the flora of other tropical areas in the world. The richness of
the Melanesian region of which Indonesia represents the major portion, is reflected in the
accommodation of close to 40,000 species of pants, or about 10-12 percent of the
estimated number of plant species in the whole world.

Above an altitude of 1,000 m, a better development of what is normally considered

temperature families can be seen, such as the Rosaceae, Lauraceae, Fogaceae, etc.
Higher still, elfin or mossy forest and alpine vegetation are found, but comparatively
speaking this is insignificant since the major part of Indonesian land-mass consists of
lowland.
As might be expected, the rich flora of Indonesia contains many unique examples of
tropical plant life and manifestations Rafflesia arnoldi, which is found only in certain
parts of Sumatra is the plant with the largest flower in the world; this parasitic plant
grows on certain lianas but does not produce leaves.

Rafflesia arnoldi

From the same area in Sumatra comes another giant, Amorphoplalus titanum,
with the largest inflorescence of its kind. The insect trapping pitcher plants (Nepenthea
Spp.) are represented by different kinds of species from many areas in western Indonesia.
The myriad or orchids found in Indonesia are rich in species, varying in size from the
largest of all orchids, the tiger orchid Grammatophyllum speciosum, to the tiny and
leafless species of Taeniophyllum used by the local people as a source of food, medicine
and handicraft. The forest ground in Indonesia is so rich in litter enabling a multitude of
fungi to grow luxuriantly, including the horsehair blight, the luminescent species, the
sooty mould and the black mildew.

Moreover, the flora making up the Indonesian vegetation abounds in timber species. The
Dipterocarp family is world famous as the main source of timber (the meranti) as well as
resin and vegetable fat, tengkawang or illipe nuts. Ramin, a valuable kind of timber for
furniture, is obtained from species of Gonystylus, whereas sandalwood, ebony, ulin and
the kayu Palembang are taken directly from the forest. Besides, Indonesia is also known
for its teakwood, a product of man-made forest in Java.

In view of the richness of the Indonesian flora it isn't surprising that the Indonesian
people are depending heavily on these natural resources to support their daily life.
Approximately 6,000 species of Indonesian plants are known to be used directly by the

8
local people. Most characteristics in this modern time is probably the use of plants as the
source of raw material for Indonesia's traditional herbal medicine (jamu) and as
indispensable part in ceremonies, customs and traditions.

Indonesia Standard Time

Indonesia's three time zones are as below:

1. Western Indonesia Standard Time equals GMT plus 7 hours (meridian 105°E),
covering all provinces in Sumatra and Java, and the provinces of West and Central
Kalimantan.

2. Central Indonesia Standard Time equals GMT plus 8 hours (meridian 120°E), covering
the provinces of East and South Kalimantan, all provinces in Sulawesi, and the
provinces of Bali, West and East Nusatenggara.

3. Eastern Indonesia Standard Time equals GMT plus 9 hours (meridian 135°E), covering
the provinces of Maluku and Papua.

Exclusive Economic Zone

When independence was proclaimed and sovereignty gained, Indonesia had to enact laws
to govern the seas in accordance with the geographic structure of an archipelagic state.
This, however, did not mean that the country would bar international passage. The laws
were necessary instruments for the unity and national resilience of the country, with a
territory that embraces all the islands, the islets and the seas in between.

In view of the country's susceptibility to foreign intervention from the sea and for
domestic security reasons, on December 13, 1957, the Indonesian Government issued a
declaration on the territorial waters of the Republic. It stated that all the waters
surrounding and between the islands in the territory came within Indonesia's sovereignty.
It also determined that the country's territorial water limit was 12 miles, measured from a
straight baseline drawn from the outermost points of the islands.

In the past, archipelagic states like Indonesia have unilaterally determined their 200-mile-
Exclusive Economic Zones. Today such economic zones are confirmed by the
International Convention on the Law of the Sea, which was ratified by the Indonesian
Government on October 18, 1983, by Act No. 5 of the same year. This is the legal basis
of the Indonesian-Exclusive Economic Zone.

9
People

Due to Indonesia's emergence into an archipelago where its inhabitants, though of one
similar ancestry, were separated by seas and therefore lost contacts, have caused the
individual development of cultures, including their languages and their growing into
diversification.

Nevertheless, the population of Indonesia has been reclassified, not so much on the basis
of their racial origins, but more so on the basis of their linguistics identities caused by
mentioned diversification, into four ethnic groups. A pure classification according to their
racial origins is difficult to realize due to their inter-marriages. These four main ethnic
groups are the Melanesians (the mixture between the Sub-Mongoloids with the Wajaks),
the Proto-Austronesians (including the Wajaks), the Polynesians and the Micronesians.

These Melanesians are again sub-divided into the Acehnese of North Sumatra, the Batak
in Northeast Sumatra, the Minangkabaus in West Sumatra, the Sundanese in West Java,
the Javanese in Central and East Java, the Madurese on the island of Madura, the
Balinese, the Sasaks on the island of Lombok, and Timorese on Timor Island. On the
island of Borneo in Indonesia's Kalimantan, one finds the Dayaks. On the island of
Sulawesi in the north are the Minahasas and in the center the Torajas, and in the southern
part, the Makasarese and the Buginese. The Ambonese on the group of islands in the
Maluku and the Irianese in Papua are classified into the Polynesians and the Proto-
Austronesians. The Micronesians are found on tiny islets of Indonesia's eastern borders.

Languages and Dialects

Languages and dialects spoken and written over the whole of the Indonesian archipelago,
150 to 250 in number are usually classified according to the above mentioned ethnic
denominations. The main district local languages of Indonesia are among others: the
Acehnese, Batak, Sundanese, Javanese, Sasak, Tetum of Timor, Dayak, Minahasa,
Toraja, Buginese, Halmahera, Ambonese, Ceramese, several Irianese languages and other
such languages. In between these languages there exist many other different dialects.

10
 Profiles of some Indonesian women

Ambon Bali Betawi

Riau West Kalimantan South Tapanuli

Lombok South Sumatra Nias

Indonesia's National Language has been officially introduced since Indonesia's

independence and is called the BAHASA INDONESIA. Its lexicon and structure is
mainly based on the Malay language enriched by Indonesia's lexicon of her multi-local
languages and dialects. Although the Bahasa Indonesia has since been regarded as the
Lingua Franca, yet local languages are equally valid and no attempt and intention exist to
abolish these local languages and dialects. Therefore, the greater parts of the Indonesian
nationals are bilingual.

In August 1973, Indonesia and Malaysia signed a cultural agreement in which similar
spelling of both the Malaysian "Bahasa Persatuan" and the Indonesian "Bahasa
Indonesia" has been agreed upon.

9
Race, Culture and Ethnic Groups

The first inhabitant of Indonesia was the Javaman, who lived 500,000 years ago, named
Pithecanthropus erectus by Eugene Dubois who found the fossils at several places on the
island of Java in the vicinity of the Bengawan Solo River. The fossils found in 1891 and
1892 in the village of Trinil, near Solo, were called Homo Soloensis, while those found in
Wajak were called Wajakensis. Homo Soloensis with the same characteristics as the
Austro-Melanosoid people had roamed to the West (Sumatra) and to the East (Papua).

In the period of 3,000-500 BC, Indonesia was inhabited by Sub-Mongoloid migrants

from Asia who later inter-married with the indigenous people. In 1,000 BC, inter-
marriage still occurred with Indo-Arian migrants from the South-Asian sub-continent of
India.

The influx of the Indian settlers until the seventh century AD brought about the Hindu
religion spread throughout the archipelago.

Moslem merchants from Gujarat and Persia began visiting Indonesia in the 13th century
and established trade links between this country and India and Persia. While conducting
trade, the Gujarat and the Arab people also spread the Islamic religion in this area. The
first to accept the Islam religion were the coastal kingdoms, which before had embraced
Hinduism.

In Aceh, Islam was widely accepted by the community with the Pasai and Perlak
Kingdoms becoming the first Moslem kingdoms in the archipelago.

First accepted by court circles, Islam founds its way to the community at a later stage.
Particularly in Java, the "Wali Songo" (Islamic preachers) had played a very important
role.

It was in 1511, that Portuguese arrived in Indonesia. The arrival of the Portuguese should
be linked to the European demand for spices. They were followed by Spaniards, the
Dutch and the British. Besides search for spices, they propagate Christianity.

In the rivalry that ensued, the Dutch ultimately succeeded in gaining the trade monopoly
in spices throughout the archipelago, thus making the beginning of 350 years of Dutch
colonialism over the country.

In the period preceding independence, Indonesia's community was made up of a large

variety of ethnic groups or rural communities. The members of each group are tied to
each other by a sense of solidarity and identity which finds its roots in the land,language,
art, culture and customs they share.

There are about 500 ethnic groups in Indonesia spread from Sabang (the northernmost tip
of Sumatra) to Merauke in Papua. The Javanese community is the largest number of
Indonesia's total population, followed by the Sundanese, Madurese, Minangkabau,

11
Buginese, Batak and the Balinese. Other ethnic groups are among others the Ambonese,
Dayaks, Sasaks, the Acehnese, etc.

Apart from the indigenous communities, other sub-communities of foreign descent are
the Chinese, Arabs and Indians.

POPULATION

Number, Growth Rate, and Distribution

According to the 2000 Population Census, Indonesia had total population of 205,843,000
heads _placing it the world's fourth largest after China, India, and the United States of
America_ with ratio between males and females over 100, meaning more male than
female in number. With population growth of 1.49 percent per annum during the period
of 1990-2000, the total number of population in June 2003 was estimated at 215,276,000
heads with population density at about 111 heads per sq km.

Since its proclamation of independence in August 1945, the country has held population
census for five times i.e. in 1961, 1971, 1980, 1990, and 2000. Such a census was once
held during the Dutch colonialists' occupation as well but its results' accuracy were
doubtful. However, its data could be used as comparative basis of reference. According to
Kolonial verslag: Volkstelling 1930 (Colonial Report: Population Census 1930), at the
time the total number of population of the Netherlands East Indies now called Indonesia,
was 60,700,000 heads, of which 41,700,000 heads (68.7%) occupied the island of Java.
The island of Sumatra accounted for only 13.6 percent, Sulawesi 6.9 percent, Nusa
Tenggara 5.7 percent, Kalimantan 3.6 percent, Maluku and Papua 1.5 percent.

Population growth rate tended to decline during the past two decades. During the period
of 1980-1990, population grew at an average of 1.97 percent per annum; it decreased to
an average of 1.49 percent in the 1990-2000 period. This declining growth rate was
parallel with the decrease of a households' number. Based on the 1990 Census, there were
39,546,000 households with an average of 4.5 heads per household. The following
decade saw the total households numbering 52,008,000 with an average of 3.9 heads per
household. The decline was chiefly due to the success of family planning programs
starting into operation in 1970s.

In 2002, of 91,600,000 working population, some 44.34 percent worked in agricultural

sector, 19.42 percent in trade, 13.21 percent in manufacturing ployees in the sectors of
services, manufacturing, trade, and agriculture.industry, and 11.30 percent in services.
Higher proportion of the working population in Java earned their life in manufacturing
and trade rather than in agriculture. The reverse applied in other islands. Further, the
remaining 27.33 percent worked as labors or employees.

12
With its land area of about 6.75 percent of the country's total land area, Java accounts for
about 58.83 percent of the country's total population. It means population density in Java
Island is 997 heads per sq km. The Greater Jakarta, which accounts for only 0.4 percent
of the country's total area, is home to about 4.01 percent of the country's total population,
making its population density stood at 12,985 heads per sq km. Trailing behind is Banten
with 1,100 heads per sq km. Outside Java, Bali is the most dense with 596 heads per sq
pm, and North Sumatra with 162 heads. On the contrary, Papua which accounts for some
19.3 percent of the country's total area, is home to only 1.10 percent of total population,
making its density of only six heads per sq km; Kalimantan (part of Indonesia), which
makes up some 30.37 percent of the country's total land area, accounts for only 5.49
percent of the country's total population or with an average density of 20 heads per sq
km.

In overcoming such uneven distribution of population, Indonesia had for many years
introduced and carried out migration programs by moving a number of people from the
densely populated islands (Java and Bali) to the sparsely populated islands (Sumatra,
Kalimantan and Papua). The programs ended a couple of years ago.

Races and Ethnic Groups

The Indonesian people consist of hundreds of ethnic groups, with each group having
distinct language, art, tradition and custom. Those ethnic groups politically and
geographically unite into a nation, the Indonesian nation under the Unitary State of the
Republic of Indonesia, with Pancasila as its state philosophy. It was during the second
Indonesian Youth Congress on October 28, 1928, that the Bahasa Indonesia, the
Indonesian Language, was for the first time declared as lingua franca for ethic groups
residing in the territory of then the Netherlands East Indies, now called Indonesia. The
event _called as the "Youth Pledge"_ was the starting point of the all ethnic groups to
awake to build one nation and one motherland, Indonesia.

The island of Sumatra is home to the ethnic groups of Acehnese, the Gayo, the Batak,
Malays, Minangkabauan, Jambi, Palembang etc. The island of Java is home to the ethnic
groups of Betawi, Javanese, Sundanese. The island of Bali is home to the Balinese, while
the ethnic groups of Lombok, Sasak, Flores and Timorese live in East and West Nusa
Tenggara. In Kalimantan live in the Dayak, Banjar and Malays; in Sulawesi the
Minahasans, Torajans, Bugisnese, Makassar, Mandar etc. The Asmat, Marind-anim,
Dani, Yali, Korowai, Biak, Serui, Artak are ethnic groups that live in Papua.

Each of those ethnic groups has its own distinct dances popularly known among the
public, such as Saman dance of Aceh, Tortor dance of the Batak, Piring dance of
Minangkabau (West Sumatra), Ondel-ondel dance of Betawi, Lenso dance of Ambon
(Maluku), etc.

13
Each ethnic group adopts a different kinship system as well. The Bataks, for instance,
adopt a patriarchal system, and bear clan names after their own surnames. The Bataks are
known for their talented singers. The Minangkabauans, known as domestic tough
migrants, stick to a matriarchal system.

Sundanese and Javanese are known for their industrious and tenacious labors, and their
arts batik textiles are popular at home and even abroad. So are the Balinese with their
particular dancing and carvings. The Bugisnese-Makassars have been known for their
seafaring people with their wooden "phinisi" ships sailing high seas since hundreds years
ago. Meanwhile, the people of Maluku have been known for their skillful singers and
traditional music instruments, and Papuans are the country's promising athletes for the
future.

It was the 1930 census that for the first time recorded the composition and number of
ethnic groups in the country. This feature was dropped in the following censuses until the
1990 Census due to mainly socio-political reasons. But the 2000 Census did it again,
particularly in term of quantitative data reflecting socio-political perspective changes in
the country. The availability of data on each ethnic group is believed to be able to help
understand them, and settle any ethnic conflict.

The 2000 Census recorded only 15 ethnic groups, among the hundreds existing ones,
with ethnic members more than one million people. It also revealed different composition
from that of the 1930 Census recorded.

According to the 2000 Census, Javanese people account for the greater part, namely some
41.71 percent of the country's total population. Trailing behind are Sundanese with 15.4
percent, Malay 3.45 percent, Madurese 3.37 percent, the Bataks 3.02 percent,
Minangkabau 2.72 percent, Betawi 2.51 percent, Bugis 2.49 percent, Banjar 1.74 percent,
Balinese 1.51 percent, Sasak 1.30 percent, Makassar 0.99 percent, Gorontalo 0.84
percent, Acehnese 0.43 percent, Torajan 0.37 percent, and others 14.66 percent. Chinese
descents make up only 0.86 percent.

Composition of Main Ethnic Groups to the country's Total Population (%) No.
Ethnic Group 1930 2000

1. Javanese 47.02 41.71

2. Sundanese 14.53 5.41

3. Madurese 7.28 3.37

4. Minangkabau 3.36 2.72

5. Bugisnese 2.59 2.49

6. Batak 2.04 3.02

14
7. Balinese 1.88 1.51

8. Betawi 1.66 2.51

9. Malay 1.61 3.45

10. Banjar 1.52 1.74

During the period of 1930-2000, recording the highest population growth rate was the
Malay with an average of 2.84 percent per annum; followed by Betawi with an average of
2.34 percent, the Batak 2.31 percent, Banjar 1.94 percent, Bugis 1.69 percent, and the
Javanese with an annual average of 1.58 percent.

The majority of the Javanese people reside in Central Java, East Java, and Yogyakarta
_their native land. However, they also live in Lampung (4,713,731 heads or 61.89 percent
of the area's total population), in Jakarta (35.16 percent), North Sumatra (32.62 percent).
The least Javanese people can be found living in West Nusa Tenggara (1.47 percent of its
total population) and in East Nusa Tenggara (0.81 percent).

The Sundanese live in West Java _their homeland_, in Banten (22.66 percent of the area's
total population), and in Jakarta (15.27 percent). The least percentage of this ethnic group
can be found living in East Nusa Tenggara (0.03 percent) and North Sulawesi (0.08
percent of the province's total population).

Jakarta, homeland to the Betawis, and the capital of the Republic, in 2003 was home to
estimated 8,640,000 people, of whom 35.16 percent are of Betawis, 15.27 percent
Sundanese, 5.53 percent Chinese descents, 3.61 percent the Bataks, 3.18 percent
Minangkabauans, 1.62 percent Malays, and the remaining of other ethnic groups.

Religions

Since many centuries ago the territory, which is now called Indonesia, has been an
important passage of trading ships and place to call in for traders from many nations.
While trading, they also propagated religious teachings they respectively adhered to local
people. Hinduism and Buddhism, for example, were propagated by Indian merchants and
migrants. Remnants of the two religion's glory are the monumental buildings of
Borobudur Temple (Buddhist) and Prambanan Temple (Hindu) in addition to tens of
smaller temples, particularly in Java. Indonesians may boast Borobudur Temple, located
in Magelang, Central Java, as one of the world's marvels.

In 2000, some 1.60 percent of the country's total population adhered to Hinduism. The
greater concentration of Hindus is in Bali Island (some 75.35 percent of the Island's total
population).

15
Buddhism is followed by some 1.51 percent of the country's total population, with their
greater concentration found in the province of Bangka-Belitung (7.23 percent of the
province's total population) and in Riau Province (4.18 percent).

Islam was brought to Aceh, the most northern tip of Sumatra Island, by Gujarati and
Persian merchants embracing the religion, before spreading to Banten and Demak in Java
Island, and other areas later on. Islam was thus developed at coastal areas first before
penetrating to hinterlands. In Java in particular, the role of the nine Islamic holy men
(Wali Songo) in propagating Islam was prominent. The number of followers has been
increasing from time to time. According to the 1971 Census, some 87.51 percent of the
country's total population were followers of Islam; and according to the 2000 Census,
Islam followers accounted for 88.22 percent, or an average increase of 1.86 percent
annually. This makes Indonesia a country with the largest Islam followers in the world. It
is worth noting that the Istiqlal Mosque in Jakarta is the country's largest mosque, and
even the largest in Southeast Asia, and the Demak Mosque one of the country's oldest
mosques.

Catholicism was first introduced to this area by pastors participating in the Portuguese
voyages in search of Indonesian spices. After failing to defend Malacca, the Portuguese
went away to land in Larantuka, Flores. From this place Catholicism was propagated and
spread for the first time to throughout the country.

Jakarta's large and beautiful cathedral is the pride of Indonesian Catholics. While
Protestantism was introduced and propagated by Dutch and German missionaries, and
later on by American missionaries. They initiated preaching the religion at Tapanuli
(North Sumatra), Ambon (Maluku), Minahasa (North Sulawesi) and Manokwari (Papua),
before to Kalimantan, Java and others. Missionaries are still active in Papua.

According to the 2000 Census, some 8.92 percent of Indonesia's total population adhere
to Catholicism and Protestantism. The number of the two religions' followers grew at an
annual average of 2.48 percent during the past there decades. Greater concentration of the
Christian denominations are found in East Nusa Tenggara Province (87.67 percent of the
province's total population), Papua (75.51 percent), and in North Sulawesi Province
(69.27 percent).

16
 HISTORY
Ancient Time

Indonesia in ancient time

DURING the Paleocene period (70 million years BC), Indonesia did not exist yet.
Nor did it exist during the Eurocene period (30 million BC), the Oligacene period (25
million BC), and Miocene period (12 million BC). It is believed that Indonesia must have
existed and was linked with the present Asian mainland, during the Pleitocene period (4
million BC). This period was also closely related to the first appearance of the Homonids.
It was in this period that the "Java Man" must have inhabited that part of the world now
called Indonesia. "The Java Man, named Pithecanthropus erectus by Eugene Dubois,
who found fossilized remains on the island of Java, must have been the first inhabitant of
Indonesia.

It was during the smelting of ice sheets north of Europe and America that resulted in the
emergence of islands, due to the rise of the sea that the Indonesian archipelago emerged.
It was also in this period (3000-500 BC) that Indonesia was inhabited by Sub-Mongoloid
migrants from Asia who later inter-married with the indigenous population of the
archipelago. A later mixture was brought about by Indo-Aryan migrants from the South
Asian sub-continent of India (1000 BC).

The first Indian immigrants mostly from Gujarat in Southeast India came during the
period of the first Christian era.

The Caka period in Indonesia was marked by the introduction of the Sanskrit language
and the Pallawa script by the Indian Prince Aji Caka (78 AD). Beside this Pallawa script,
the Devanagari script of the Sanskrit language was also in use as indicated in the ancient
stone and copper inscriptions (pracasthies) unearthed in Indonesia. Both the language and
scripts were in a later period of Indonesianized and called the "Kawi" language which has
in its lexicon a number of additional Javanese words and phrases. Early trade relations
were established between South India and Indonesia. Sumatra was then named "Swarna
Dwipa" or the Island of Gold, the island of Java was called "Java Dwipa" or the Rice
Island, while the Hindu Kingdom on Borneo (Kalimantan) Island was called Kutai.
Relations with India were not only confined to religious and cultural exchanges which
later on developed into diplomatic realizations between the Buddhist Kingdom of
Sriwijaya and Nalanda in South India, but grew into well-developed trade relations.

17
A continuous influx of Indian settlers went on during the 1st to the 7th century AD. The
Hindu religion was peacefully spread throughout the archipelago gradually to all layers of
society in Java and to the upper classes only in the outer islands.

The Period of Hindu Kingdoms

Many well-organized kingdoms with high civilization were ruled by indigenous Rajas
who embraced the Hindu religion or Buddhist religion at a later stage, and it was for this
reason that this period in history was called the Period of Hindu Kingdoms, which lasted
from ancient time to the 15th century AD. Its culture and civilization, emanating from the
Hindu and Buddhist religion were later syncretized with Indonesia's cultural elements and
therefore also termed as the "Hindu-Indonesian" period.

Indian customs and culture were introduced with regard to the monarchic system of
governing, their ancestral geneological pedigree system, the organizing of their armed
forces, literature, music and dances, architecture, methods and ritual of worship and even
the "Varna" (cast) division of labor system was introduced in a less strict division of the
"Varnas." The Hindu religious interpretation of the "Vedas" Holy Scriptures in the
Mahabharata and Ramayana epics presented through the Wayang puppets shadow-play as
its visual media, was introduced and spread all over the country, which are still popular
nowadays in the Republic of Indonesia.

The first Indian Buddhist arrived in Indonesia between 100 and 200 AD, introducing the
Hinayana and the Mahayana sects. The latter became more advanced in the 8th century
AD.

As Buddhism was also spread to China so many Chinese pilgrims went to India, sailing
through the Strait of Malacca. Some of them on their way to India did make visits to
Indonesia and even stayed for a while to get trained in and to develop their knowledge on
the Buddhist religion. In 144 AD, a Chinese Buddhist Saint Fa Hsien, driven by a storm,
landed in Java Dwipa (present Java Island) and stayed there for five months. The
northern part of Java was then ruled by a Hindi Raja, Kudungga. Opposite his kingdom,
on the island of Borneo, in Kutai region there were the successive rules of the Hindu
Rajas, Devawarman, Aswawarman, and Mulawarman.

The Greek explorer and geographer, Ptolemy from Alexandria who visited Indonesia,
named either the island of Java, or Sumatra, "Labadiou's Ptolemy's Chronicles described
Java as a country having a good state system, advanced in agriculture, navigation and
astronomy and mentioned that the people already knew the "batik" processing of cloths,
while there already existed metal works, the use of the metric system and the production
of coins.

Other Chinese chronicles dated 132 AD mentioned the existence of diplomatic relations
between Java Dwipa and China.

18
Around 502 AD, China, which already knew the use of ink and paper since 2nd century
AD, recorded in their annals the existence of the Buddhist kingdom in Sumatra, "Kanto-
Li", presumably in the neighborhood of present Palembang in South Sumatra, which was
ruled by a Buddhist Raja Gautama Subhadra and later by his son Pryawarman or
Vinyawarman who established diplomatic relations with China. Due to phonetically
language barriers, "Kanto-Li" was presumably "Crivijaya," one of the might Buddhist
kingdoms in Indonesia. The Chinese Buddhist pilgrim I-Tsing, on his way to India,
visited Sriwijaya in 671 AD to study the Sanskrit language and returned 18 years later in
689 AD. Sriwijaya was then the center of Buddhist learning and had many well-known
scholars in the Buddhist philosophy, like Sakyaktri, Dharmapala and Vajrabudhi. This
kingdom had established diplomatic relations with the South Indian kingdom in Nalanda.
The Crivijaya diplomatic mission had attached to its building a school when local Indians
could learn the art of molding bronze statues, apart from developing their knowledge on
the Buddhist philosophies. As Buddhism at the period flourished, so Sriwijaya influence
sphere also grew in many other parts of the archipelago.

Another known Buddhist kingdom emerged on the island of Java (i.e. Central Java),
called Cailendra and was ruled by the Cailendra dynasty or Rajas. It was in this period
(750-850 AD) that the famous Buddhist monument "Borobudur" was built. In 772 AD,
other Buddhist temples were built by Raja Panchapana such as the temple complexes of
Mendut, Kalasan and Pawon. The Kingdom of Cailendra was also known as being the
center of commercial and naval power, which was fostering art and culture. These
temples are at present still found in the vicinity of Yogyakarta, the capital of the Special
Territory of Yogyakarta.

A manual for singing, named the Chandra-Cha-ana was first composed in 778 AD.

One of the Pallawa language stone inscriptions (Pracasthi) of 732 AD mentioned the
name of the Hindu Raja Sanjaya who was later identified as the Raja of the Hindu
Kingdom of Mataram (Replacing Cailendra in Central Java).

The Hindu Civaite temple complex of Prambanan was built in 856 AD and accomplished
in 900 AD by Raja Daksa. The capital of this Hindu Kingdom of Mataram was Medang
Kamolan, in the neighborhood of present Semarang city. Earlier, in the year 675 AD,
Hindu Civaite temples were erected on the mountain plain of Dieng, southwest of the
capital of Medang Kamolan.

West of the Central Java Kingdom of Cailendra, in present West Java Province, were the
Hindu Kingdoms of Galuh, Kanoman, Kuningan, and Pajajaran. "Pajajaran" was founded
by Raja Purana, with Pakuan as its capital and which succeeded an earlier established
kingdom of "Galuh." Later there were the kingdoms of Taruma Negara, Kawali and
ParahyanganSunda.

At the end of the 13th Century, the Crivijaya Empire began to decline as a result of
severance by its vassal states as well as due to frequent attacks by the South Indian
Kingdom of Chola and by the Kingdom of Majapahit. It was ultimately entirely subdued

19
by Majapahit who in its subjugation efforts was supported by Raja Adityawarman of the
Kingdom of Melayu. Majapahit first conquered the Jambi Kingdom in Sumatra, which
later extended its expansion along the rivers and finally annexed the Kingdom of Pagar
Ruyung in West Sumatra, which completed the entire subjugation of Sumatra under the
rule of Majapahit.

Meanwhile, for unknown reasons, mighty Hindu kingdoms of Central Java disappeared
from its historic records and new prosperous Hindu kingdom emerged in East Java. Raja
Balitung who ruled within 820-832 AD had once succeeded in uniting Central and East
Java kingdoms. The disappearance of records was presumably caused by a catastrophic
natural disaster, or by an endemic.

At the end of the 10th Century (911-1007 AD), a mighty Hindu Kingdom of Singasari
was emerging in East Java. Its King, Raja Dharmawangsa codified laws and translated
the Indian Sanskrit Hindu Epic of the Mahabharata into the Javanese language and also
the philosophical essence of it as contained in the "Bhisma Parva" scripture. Besides, he
also ordered the translation of the Hindu Holy Book, the "Bhagavat Gita."

Raja Airlangga who meanwhile also ruled over the island of Bali was known for his water-works
along the Brantas River now still in use and who was a wise and firm ruler. Before his death in 1409
AD, Raja Airlangga divided the kingdom into the Kingdom of Jenggala and Daha or Kediri to be
ruled by his two sons. Airlangga was also known as the promoter of the production of literary works.
The "Panji" novel produced

Prambanan temple in Yogyakarta, built in 856 AD by Hindu King Sanjaya

frequent attacks by the South Indian Kingdom of Chola and by the Kingdom of
Majapahit. It was ultimately entirely subdued by Majapahit who in its subjugation efforts
was supported by Raja Adityawarman of the Kingdom of Melayu. Majapahit first
conquered the Jambi Kingdom in Sumatra, which later extended its expansion along the
rivers and finally annexed the Kingdom of Pagar Ruyung in West Sumatra, which
completed the entire subjugation of Sumatra under the rule of Majapahit.

Meanwhile, for unknown reasons, mighty Hindu kingdoms of Central Java disappeared
from its historic records and new prosperous Hindu kingdom emerged in East Java. Raja
Balitung who ruled within 820-832 AD had once succeeded in uniting Central and East

20
Java kingdoms. The disappearance of records was presumably caused by a catastrophic
natural disaster, or by an endemic.

At the end of the 10th Century (911-1007 AD), a mighty Hindu Kingdom of Singasari
was emerging in East Java. Its King, Raja Dharmawangsa codified laws and translated
the Indian Sanskrit Hindu Epic of the Mahabharata into the Javanese language and also
the philosophical essence of it as contained in the "Bhisma Parva" scripture. Besides, he
also ordered the translation of the Hindu Holy Book, the "Bhagavat Gita."

Raja Airlangga who meanwhile also ruled over the island of Bali was known for his
water-works along the Brantas River now still in use and who was a wise and firm ruler.
Before his death in 1409 AD, Raja Airlangga divided the kingdom into the Kingdom of
Jenggala and Daha or Kediri to be ruled by his two sons. Airlangga was also known as
the promoter of the production of literary works. The "Panji" novel produced during this
period are today still known and taught at certain university literary coleges in Thailand,
Cambodia, and Malaysia.

Raja Jayabaya of the Hindu Kingdom of Kediri (1135-1157) wrote a book in which he
foretold the downfall of Indonesia and made subservient to the white race domination
(the Dutch), which afterwards was succeeded by a yellow race (the Japanese) domination
and ended his book by forecasting that Indonesia ultimately will regain her independence
under the rule of justice. During this golden period many other literary works were
produced such as the Javanese version of the Hindu epic "Mahabharata" composed by the
Hindu Mpu (Saint) Sedah and his brother Mpu Panuluh and published in 1157.

In 1292, the first European, Marco Polo visited Java and North Sumatra. These kingdoms
of East Java were later succeeded by a might Hindu Kingdom of "Majapahit," first ruled
by the Hindu Prince Wijaya or later known as Raja Kartarajasa.

The Moghul emperor, Kubilai Khan in 1293 attempted to invade Majapahit. His troops
however were defeated and driven back to their ships. This gradually powerful growing
empire also subdued the kingdom of Sriwijaya in South Sumatra, which was earlier
attacked by the South Indian Kingdom of Chola.

The Mogul Empire founded in East Java became the most powerful. Hindu kingdom ever
known in Indonesia under the reign of Raja Hayam Wuruk, which had dependencies in
territories outside the present borders of the Indonesian archipelago as far as Champa in
North Vietnam, Cambodia, and the present Philippines (1331-1364). Raja Hayam Wuruk
who appointed his successful premier, Gajah Mada, succedeed in gradually uniting the
whole Indonesian archipelago under the name "Dwipantara." During that golden period
many literary works were produced such as "Nagara Kertagama" by the famous author,
Prapancha (1335-1380) in which some parts described the diplomatic and economic ties
with the then existing South-East Asian countries like Burma, Thailand, Tonkin, Annam,

21
Gate of the mighty Majapahit Kingdom in Trowulan, East Java

Cambodia and even with India and China. Other literary works written in the "Kawi" (old
Javanese) like the Pararaton, Arjuna Wiwaha, Ramayana, Sarasa Muschaya and many
other such literary works were later translated into many modern languages of Europe for
study purposes. Also books on various codes of law were produced such as the
"Kutaramanawa," the "Manava Dharma Sastra," the "Gajah Mada" and the "Adigama"
Codes of Law.

The Period of Islamic Kingdoms

Gujarati and Persian merchants who embraced the Islam religion started to visit Indonesia
in the 13th century and established trade links with Persia and India. Along with the trade,
they also propagated the Islam religion among the Indonesian Hindus, particularly in the
coastal area of Java, such as in Demak. At a later stage they succeeded in influencing and
even converting Hindu ruling Rajas to Islam.

Grave of Maulana Malik Ibrahim, Gresik, East Java

22
The Hindu Raja of the Kingdom of Demak was the first in Java who converted to Islam.
It was this Islam Sultan who later further spread Islam west of Demak in Cirebon up till
Banten and then eastwards along the northern coast of Java to the Kingdom of Gresik and
ultimately caused the downfall of the mighty Hindu Kingdom of Majapahit (1513-1520).
After the subjugation of Majapahit by Islam rulers, Islam spread further east of the island
of Java and established the Bone and Goa Sultanates in Sulawesi, and further east to the
northern part of the Maluku where the Sultanates of Ternate and Tidore were established.
North of Java, Islam spread to Banjarmasin in Borneo and further west on the island of
Sumatra and converted Palembang, Minangkabau (West Sumatra), Pasai and Perlak to
Islam. Meanwhile, Majapahit aristocratic descendants, religious scholars and Hindu
Khsatryas ret through the East Java Peninsula of Blambangan, further eastwards to the
island of Bali and Lombok. However, in later periods the eastern part of the island of
Lombok was converted to Islam which infiltrated the island from Makassar in South
Sulawesi.

The capital of the Hindu Kingdom of Pajajaran in West Java was Sunda Kelapa (1300
AD), which was situated at the present Capital of the Republic of Indonesia, Jakarta. This
capital of the Sunda Kelapa Kingdom was conquered by an Islam General Falatehan of
the Sultanate of Demak in 1527, and ever since renamed it Jaya-Karta meaning "the City
of Victory." Besides conquering Sunda Kelapa, General Falatehan succeeded also in
defeating the Portuguese who attempted to conquer mentioned city.

European Influences

The Portuguese in Indonesia

The Portuguese, in search of Indonesian spices, entered Indonesia after conquering the
Islam Kingdom of Malacca on the Malay Peninsula, which was followed by the
Spaniards. Both started their first attempt to propagate Christianity in Indonesia. Their
position was strongly felt then in Maluku.

The Beginning of Dutch Colonialism

In the meantime, the Dutch started their ventures to seek spices in Indonesia, which they
sold in European markets with big profits. To make their trade more efficient and
organized, the Dutch established the Dutch East India Company (VOC) with the aim to
exploit the Spice Islands in the Indonesian archipelago for European markets (1602). As
VOC's merchant fleets were often not free from pirate attacks, therefore, their sailing to
the East were later on accompanied by Dutch warships in convoy. After Dutch VOC was
nationalized by the then Dutch Government (1799), the exploitation of Indonesian
commodities for Europe developed into Dutch suzerainty over Indonesian territories
where the people on such territories were levied by force to make agricultural tributes to

23
the Dutch. In 1605, Dutch colonialism began to have a foothold in Indonesia. The capital
of Sunda Kelapa was named "Batavia" by the Dutch.

Meanwhile, the former Hindu Kingdom of Mataram in Central Java became the Islam
Kingdom of Mataram and was ruled by the Islam Sultan Agung Hanyokrokusumo. Sultan
Agung did not only develop the political power of the state but was also a great patron of
arts and culture. He introduced the Islamic Javanese calendar in 1633. Sultan Agung was
also the greatest enemy of the Dutch, who in 1629 sent his troops to Batavia to attack the
Dutch bulwark but were repulsed by the troops of the then Dutch Governor General, Jan
Pieters Zoon Coen. After Dutch seizure of Ambon in Maluku in 1605 and Banda Island
in 1623, the Dutch gained all the spice islands trade monopoly. Merciless, Dutch policy
of exploitation through "divide and rule" tactics were introduced. Indonesia's inter insular
trade, such as between Makassar, Aceh, Mataram and Banten, as well as foreign trade
was gradually crippled by the Dutch ruthless policies and which had forced Indonesia to
merely become an agricultural country growing crops suitable to be sold to European
markets.

The Dutch meanwhile pursued a so-called open door policy for Chinese to become their
middlemen in their trade with Indonesia

Wars against the Dutch

Sultan Hasanuddin of Goa waged a war against the Dutch in 1666, but was
defeated by the Dutch who made Goa a vassal state of the VOC under the Treaty of
Bunggaya signed in 1667. Prince Trunojoyo of the Kingdom of Madura, who waged a
war against the Dutch was defeated and killed by the Dutch in 1680. To control spice
monopolies in the Maluku, the Dutch carried out their notorious "Hongi Expedition" by
burning clove trees of Indonesians which they regard as being "superfluous" causing the
drop of its prices in European markets. These outrageous expeditions aimed at destroying
crops were seldom not accompanied with cruelties, particularly conducted against those
who opposed the destruction.

Grave of Dutch Major General J.H.R. Kohler who was killed during the Aceh War

24
In 1740, the Dutch suppressed a rebellion in Jakarta sparked by dissatisfied Chinese.
These rebellious Chinese were later joined by Indonesians. Ten thousand Chinese were
massacred by the Dutch.

The Kingdom of Mataram, which deteriorated in strength, was divided by the VOC into
the Principalities of Yogyakarta and Surakarta. Mismanagement and corruption forced
the VOC into bankcruptcy and on December 31, 1799 all its territories in Indonesia were
taken over by the Dutch Batavian Republic.

British Temporary Rule

In 1714, the British came to Indonesia and built their "Fort York" fortress in Bengkulu on
the west coast of Sumatra, which was later renamed "Fort Marlborough." The British
stayed in Bengkulu till 1825.

During the Napoleonic wars in Europe, when Holland was occupied by France, Indonesia
fell under the rule of the British East India Company (1811-1816). Sir Thomas Stamford
Raffles became Lieutenant-Governor-General of Java and dependencies subordinated to
the Governor General in Bengal in India. Raffles introduced partial self-government and
the slave trade was prohibited. In those days, slaves were held and traded by foreigners.
Raffles introduced the "land-rent system" replacing the Dutch hated system of
"contingent land use" and "compulsory deliveries of crops." The Buddhist monument of
Borobudur and other Hindu temples were restored and research carried out. Raffles wrote
his famous books entitled "The History of Java" in which he described Java's high
civilization and culture.

Since the British stayed in Sumatra from 1814 till 1825, William Marsden wrote a similar
book on the history of Sumatra, which was published in 1889. After the end of French
occupation of Holland, the British and Dutch signed a convention in London on August
13, 1814, in which it was agreed that Dutch colonial possessions existing since 1803
should be returned and consequently the Batavian Republic reclaimed the Indonesian
archipelago from the British in 1815, after the downfall of Napoleon.

Dutch Return to Indonesia

Soon afterwards, the Dutch intensified their colonial rule in Indonesia but was responded
by wide-spread Indonesian revolts to regain their independence but were suppressed by
the Dutch one after the other. To mention some of those revolts: Thomas Matulessy alias
Pattimura staged a revolt against the Dutch in Maluku (1816-1818). Prince Diponegoro
of Mataram led the Java war against the Dutch from 1825 till 1830, which was a fierce
struggle for independence. Tuanku Imam Bonjol led the "Padri" war against the Dutch in
West Sumatra. Teuku Umar led the Aceh war in North Sumatra (1873-1903).
Sisingamangaraja, King of the Batak led the war against the Dutch in 1907.

25
In 1908 the Dutch attempted to occupy Bali but were fiercely repelled by Raja Udayana
who led the Bali war against the Dutch. Revolts were also launched in Goa in South
Sulawesi and also in South Kalimantan.

Second Youth Congress held on 27-28 October 1928, in Jakarta

National Movements

When all these regional wars of independence were unsuccessful, Indonesian leaders
started a more organized struggle against Dutch colonialism known as Indonesia's
national movements for independence.

This period was pioneered by the founding of the "Boedi Oetomo" (Noble Conduct)
movement on the 20th of May 1908, which was initially designed as a cultural association
for Indonesian intellectuals, turned into politics, stimulated by Japan's victory over Russia
in 1901, which accelerated modern national movements throughout Indonesia. The
founder of "Boedi Oetomo" was Dr. Wahidin Sudirohusodo, supported by Dr. Soetomo,
Gunawan and Suradji.

In 1911, the Society of Moslem Entrepreneurs "Sarekat Dagang Islam" was founded by
Haji Samanhudi and others which was aimed at encouraging and sponsoring the interest
of Indonesian business within the Dutch East Indies. However, in 1912 this middle class
entrepreneurial organization turned into a political party and called them "Sarekat Islam"
led by HOS Tjokroaminoto, Haji Agus Salim and others.

In 1911, a Progressive Moslem Organization "Muhammadiyah" was established by Hajji

Dahlan in Yogyakarta aimed at social and economy reforms.

In December 1912, an Indonesian Party "Partai Indonesia" was founded by Dr. Douwes
Dekker, later named Setyabudhi, with Dr. Tjipto Mangunkusumo and Ki Hajar
Dewantoro (Suwardi Suryaningrat) striving for complete independence for Indonesia
from the Dutch. These three leaders of the party were later exiled by the Dutch colonial
government of the Dutch East Indies in 1913. In 1914, Communism was introduced in
the Dutch East Indies by Dutch nationals, Sneevliet, Baars, and Brandsteder.

26
In May 1920, Sarekat Islam was split into a right and left wing faction, the latter of which
formed the Indonesian Communist Party "Partai Komunis Indonesia" (PKI) under the
leadership of Semaun, Darsono, Alimin, Muso and others.

The Powerless People's Council "Volksraad"

In 1916, the Sarekat Islam Party held its first congress in Bandung and advocated in its
resolution self-government for Indonesia in cooperation with the Dutch. When the
Sarekat Islam demanded the Dutch Colonial Government of Dutch East Indies for
minimum social legislation in the colony, this demand was countered by the Dutch by
setting up powerless People's Council named the "Volksraad" in 1918 which was purely
of an advisory nature to Dutch colonial rulers. The Indonesian representation within the
council was by indirect election through regional councils, whereas part of the number of
its members consisted of appointed colonial officials. It later developed into a semi-
legislative assembly in which body some Indonesian prominent nationalist leaders, such
as Dr. Tjipto Mangunkusumo, HOS Tjokroaminoto, Abdul Muis, Dr. GSSJ Ratulangi,
MH Thamrin, Wiwoho, Sutardjo Kartohadikoesoemo, Dr. Radjiman, Soekardjo, and
others, were members of mentioned body.

Under pressure of social unrest in the Netherlands at the end of World War I in Europe,
the Dutch pledged to the Indonesians to grant self government to Indonesia known as the
"November" pledge which was never realized.

Besides the "Volksraad" there was another body called the "Raad van Indie" whose
members were appointed by the Ducth. Achmad Jayadiningrat and Sujono were among
the very few Indonesian members of the "Raad van Indie."

Restrictions of Civil Liberties

Worsening economic conditions and increasing labor strikes in the Dutch East Indies
prompted the Dutch colonial government in 1923 to put severe restrictions on Indonesian
civil liberties and made further amendment to the colonial constitutional law and penal
codes. Restrictions were put on the freedoms of assembly, speech and expression in
writing.

Further Growth of Indonesian Organizations

Despite those restrictions by the Dutch colonial government, in 1922, an organization

aimed at promoting Indonesian national education calling themselves "Taman Siswa"
was founded on the 3rd of July of mentioned year by Ki Hadjar Dewantoro.

In 1942, the Indonesian Students Association "Perhimpunan Mahasiswa Indonesia" was

founded by Dr. Mohammad Hatta, Dr. Sukiman, and others. This student's association
had put more leverage to the Indonesian Nationalist Independence Movements in
Indonesia in general.

27
In 1926 till 1927, Communist revolts, led by the Indonesian Communist Party "PKI"
broke against Dutch colonial rule. In November 1926 it rebelled in West Java and in
January 1927 in West Sumatra. After Dutch suppression of these communist rebellions
many Indonesian non-communist nationalist leaders were exiled to Tanah Merah, which
the Dutch called "Boven Digul" in Papua. Dr. Tjipto Mangunkusumo was exiled to
Bandaneira.

In February 1927, a federation of all Indonesian parties was called into being by Dr.
Mohammad Hatta, called the "Perhimpunan Politik Kebangsaan Indonesia" (PPKI). Dr.
Mohammad Hatta and Achmad Soebardjo and some other members of the federation
attended the First International Congress of League Against Imperialism and Colonial
Oppression in Brussels together with Jawaharlal Nehru and many other prominent
nationalist leaders from Asia and Africa.

In July 1927, Ir. Soekarno, Sartono and others formed the Indonesian Nationalist Party
(PNI), which adopted the Bahasa Indonesia as the official language. It exerted a militant
policy of non-cooperation with the Dutch colonial authorities on the basis of a permanent
conflict of interest between Indonesian nationalism and Dutch colonialism.

In the same year an all Indonesia's Nationalist Movement was set up among the
Indonesian youth and women replacing earlier established youth organizations based on
regionalism, such as the "Young Java," "Young Sumatra," and Young Ambon," etc.

On the 28th of October 1928, during the Second Indonesian Young Congress held in
Jakarta, a pledge was made by the Indonesian Youth to strive for "One Nation," "One
Motherland," and "One Language." This youth pledge is today still commemorated every
year. "The Indonesia Raya" song, which later became Indonesia's National Anthem, was
for the first time introduced at the Second Indonesian Youth Congress by its composer,
Wage Rudolf Supratman.

Meanwhile, the Technical University College was set up in Bandung in 1920. The Law
University College was opened in Jakarta, replacing the former Law School in 1924. The
Medical University College, replacing the former Medical School was opened in August,
1927. All of these University Colleges were later united into the University of Indonesia
in 1946 during Indonesia's independence.

In 1929, Dutch colonial authorities in the Dutch East Indies concerned about the
developing national conscience and the increasing urge for independence by the
Indonesian arrested PNI leader, Ir. Soekarno in December of mentioned year which
caused great discontent among the Indonesians.

Meanwhile in 1930, the world suffered from an economic and monetary crisis, which had
a great impact in the Indies being a raw material producing colony of the Dutch. A
balanced budget policy for the colony was strictly carried out detrimental to the economic
and educational life of the Indonesians. Other leaders of the PNI, Gatot Mangkupradja
and Maskun Supriadinata were tried in court on charges of "plotting" against the colonial

28
regime. Ir. Soekarno was released in September 1931 but again exiled in August 1933
and remained in Dutch custody till the Japanese invasion in 1942.

In January 1931, Dr. Soetomo aimed at elevating the status of the Indonesian people on
the basis of nationalism founded the Indonesian Unity Party, the "Persatuan Bangsa
Indonesia." In April of the same year, the PNI was abandoned and followed by the
founding of another party, the Indonesia Party or "Partai Indonesia" by Sartono, LLM,
based on nationalism and Indonesia's self-supporting movement. In the same year, Sutan
Syahrir founded the Indonesian National Education Group or "Pendidikan Nasional
Indonesia," abbreviated as the new PNI, which was joined by Dr. Mohammad Hatta.

In 1933, a mutiny broke out on the Dutch warship "Zeven Provincien," the Indonesian
nationalists were held responsible for this. In 1934, Sutan Syahrir, Dr. Mohammad Hatta
and other nationalist leaders were arrested by Dutch colonial authorities and sent into
exile till 1942.

In 1935, under the leadership of Dr. Soetomo a merger of the "Persatuan Bangsa
Indonesia" organization with the "Boedi Oetomo" was brought about, aimed at striving
for the independence of Greater Indonesia, the "Parindra."

Indonesian Petition

In July 1936, Sutardjo submitted to the "Volksraad" the Indonesian petition calling for
greater autonomy for Indonesia. This petition was flatly rejected by the Dutch dominated
"Volksraad."

In 1937, Dr. AK Gani founded the Indonesian People's Movement, "Gerakan Rakyat
Indonesia," which was based on the principles of Indonesian nationalism, social
independence and Indonesia's self-supporting efforts.

In 1939, the All Indonesia Political Federation "GAPI" called for the establishment of
Indonesia's full-fledged parliament, which was flatly rejected by the Dutch government in
Holland in 1940. They also demanded an Indonesian National Military Service in order to
defend Indonesia in times of war. This demand was also rejected in spite of the grave
international situation, which proceeded the outbreak of the Second World War, the
situation of which called for fundamental and progressive reforms in colonies and
dependencies in Asia in general.

Japanese Occupation

After the Japanese attacks of Pearl Harbor in Hawaii, Japanese Armed Forces went
southwards and occupied several Southeast Asian countries. After the British defeated
Singapore, Japanese forces invaded the Dutch East Indies whereupon the Dutch colonial
army surrendered to the Japanese in March 1942. Ir. Soekarno was released from his

29
detention. The Japanese introduced Japan's "Great East Asia Co-Prosperity Idea," which
became unpopular in Indonesia as the Indonesians realized that Japanese occupation was
just an alternate colonialism substituting Dutch colonialism. For the sake of furthering the
course of Indonesia's independence however Ir. Soekarno and Dr. Mohammad Hatta were
giving limited assistance to Japanese occupation authorities on the surface while other
Indonesian nationalist leaders went underground to stage insurrection all over Java, such
as in Blitar (East Java), Tasikmalaya and Indramayu (West Java), Sumatra and
Kalimantan.

Due to the hardships suffered by the Japanese in waging the Pacific war caused by
interruptions of their supply lines and by Indonesian insurrections, the Japanese
occupation forces in Indonesia ultimately gave in to recognize the Indonesian Red and
White colored flag as the Indonesian national flag which was followed later by the
recognition of the "Indonesia Raya" as Indonesia's National Anthem, and the "Bahasa
Indonesia" as Indonesia's National Language.

After persistent demands by the Indonesians for complete Indonesianization of the Civil
Administration in Indonesia, the demands were ultimately met the Japanese. This became
Indonesia's basis to further build up the foundation for the proclamation of independence
of the Republic of Indonesia.

Proclamation of independence …..sian insurrections, the Japanese occupation forces in

Indonesia ultimately gave in to recognize the Indonesian Red and White colored flag as
the Indonesian national flag which was followed later by the recognition of the
"Indonesia Raya" as Indonesia's National Anthem, and the "Bahasa Indonesia" as
Indonesia's National Language.

Text of Proclamation

30
After persistent demands by the Indonesians for complete Indonesianization of the Civil
Administration in Indonesia, the demands were ultimately met the Japanese. This became
Indonesia's basis to further build up the foundation for the proclamation of independence
of the Republic of Indonesia.

Proclamation of independence

The final defeat of Japan after the dropping of the atomic bomb in Hiroshima and
Nagasaki on the 6th and 9th of August 1945 prompted the Japanese to surrender
unconditionally to the Allies. This constituted an ample opportunity for Ir. Soekarno and
Dr. Mohammad Hatta to proclaim Indonesia's independence on the 17th of August 1945.
The Republic of Indonesia came into being based on Pancasila under a constitution, with
strong Presidential powers, a Parliament, Supreme Advisory Council, State Audit Board
and a People's Consultative Assembly as the embodiment of people's sovereignty in free
Indonesia, all of which were adopted on the 18th of August 1945. This 1945 Constitution
is still in force up till now. The Red and White flag was officially accepted as the
National Flag of Indonesian and the Bahasa Indonesia as the National Language. Ir.
Soekarno was elected as the first Indonesian President and Dr. Mohammad Hatta as Vice-
President. On the 5th of September 1945, a Presidential Cabinet was formed with
President Soekarno as Premier.

Wars of Independence against the Dutch

Soon after the independence proclamation, British troops as a component of the Allied
Forces landed in Indonesia with the task of disarming Japanese Forces in Indonesia.
Dutch troops have meanwhile used this opportunity to also land in Indonesia however
with a different purpose, i.e. to restore the Dutch East Indies. The Dutch were in the
beginning aided by the British Forces under General Christson which was confirmed later
by Lord Louis Mountbatten, British Commander of the Allied Forces in Southeast Asia
and based in Burma, whereas the British Allied Forces' task was to be the repatriation of
Allied Prisoners of War and Internees and the disarming and internment of Japanese
troops in Indonesia.

Fierce fighting broke out in Surabaya on the 10th of November 1945 between the British
troops and Indonesian armed volunteers, which culminated in "Allied Forces" attacks by
battle ships, airplanes tanks and armored cars in which Brigadier Mallaby died. The
newly recruited republican army was not yeat ready to face such an all-out attack by such
superior and well-armed Allied Forces fresh from their victorious battle against Hitler's
Nazi forces in Europe. The Indonesian Armed Forces therefore withdrew from urban
battles and organized themselves into guerilla forces, which put heavy pressures on the
invading troops. The newly Republican Armed Forces fought along with the people
armed units. Meanwhile, Dutch troops, under the pretext of representing Allied Forces,
grew in number and attacked Indonesian Republican strongholds twice in their military
actions between 1945-1949.

31
During the 1948 Dutch military action against the Republic, the Indonesian Communist
Party unilaterally proclaimed the "Indonesian People's Republic" in Madiun (East Java),
armed themselves and began to attack republican forces, from the rear. Squeezed by
Dutch forces and communist forces, the Indonesian people and the republican army
fought their enemies back in two fronts.

Since its inception, Indonesia experienced threats from without and from within.

Diplomacy vis-à-vis Fighting

On the 11th of November 1945, Vice-President Hatta issued a Manifesto laying down the
policy of peace with the whole world and the principle of good neighbor policy for the
new Republic.

On the 14th of November 1945, the newly appointed Prime Minister, Sutan Sjahrir
introduced a parliamentary system in the republic with political party representation.

On the 22nd of December 1945, Sutan Sjahrir announced Indonesia's acceptance of the
British proposals to disarm and confine to internment camps, 25,000 Japanese troops
within Indonesia's territory, which successfully carried out by the Indonesian National
Army "TNI." On the 28th of April 1946, the transportation of the Japanese troops to be
emigrated, took place from all places in Indonesia.

When fighting with Dutch troops continued, even in urban areas, including Jakarta, the
seat of the Government was moved from Jakarta to Yogyakarta on 4th January 1946.

The Indonesian Question in the United Nations

Since the war in Indonesia dragged on which was considered as endangering the
maintenance of international peace and security, in line with the principles of the United
Nations as stipulated in Article 24 of its Charter, the question of Indonesia was officially
brought before the Security Council by the Ukranian Soviet Socialist Republic. Soon
afterwards the first official meeting of representatives of the Republic of Indonesia and
the Netherlands took place on the 10th of February 1946, under the chairmanship of Sir
Archibald Clark Kerr.

Besides Indonesian forces putting stiff resistance against Dutch military aggressions and
therefore dragging the war, the Indonesian government also conducted diplomatic
offensive against the Dutch.

With the good offices of Lord Killearn of Great Britain, Indonesia and Dutch
representatives met and negotiated together at Linggarjati in West Java in which
negotiations the Dutch were forced to recognize the "de facto" sovereignty of the
Republic of Indonesia over the territories in Java, Sumatra and Madura. The Linggarjati

32
Agreement was initiated on the 15th of November 1946 and officially signed on the 25th
of March 1947.

This agreement was in fact in violation of Indonesia's independence, which was

proclaimed on the 17th of August 1945. Therefore, guerilla fighting continued putting
heavy pressure on Dutch troops wherever they exercised their military operations.

The first Dutch military aggression was launched in July 1947, in which Dutch troops
intensified from their urban military bases, their military aggression against Indonesia
guerilla strongholds. This first military aggression was ended by the signing of the
"Renville Agreement" on the 17th of January 1948, under the auspices of the United
Nation's Security Council, initiated by representatives of India and Australia.

It was in September 1948 that Muso, leader of the Indonesia's Communist Party (PKI) led
the communist coup and attacked the Indonesian Army from the back, but was finally
defeated and killed.

On the 19th of December 1948, the Dutch, ignoring the Renville Agreement launched
their second military aggression against the Republic and succeeded to penetrate into the
then Republican capital, Yogyakarta, which resulted in the capture of President Soekarno,
Vice-President Dr. Mohammad Hatta and other Republican leaders whom they interned
on the island of Bangka, off the east coast of Sumatra.

The Indonesian Government still functioned under caretaker Syafruddin Prawiranegara

who headed the Republican Emergency Government with headquarters in Bukittinggi,
West Sumatra.

On the 20th of January 1949, initiated by Jawaharlal Nehru of India, 19 nations gathered
in New Delhi at the Asian meeting which adopted a resolution submitted to the United
Nations demanding the Dutch to surrender complete sovereignty to the Republic of
Indonesia by 1st January 1950. It also demanded the Dutch to surrender all Indonesian
prisoners and territories seized during their military actions to the Indonesian Republic.

On the 28th of January 1949, the UN Security Council adopted a resolution on a ceasefire,
the release of republican leaders and their return to Yogyakarta.

On the 7th of May 1949, an agreement was signed between Indonesia's Emissary,
Mohammad Roem and Dutch Emissary Van Royen calling for the end of hostilities, the
restoration of the Indonesian Republican Government to Yogyakarta and the holding of
further negotiations, under the auspices of a UN Commission at a Round Table
Conference between Indonesia and the Dutch.

33
World Recognition of Indonesia's Sovereignty

Indonesian Representative Office in Colombo, Ceylon

On the 23rd of August 1949, the Round Table Conference was held in The Hague under
the auspices of the United Nations. The conference was concluded on the 2nd of
November 1949 in which an agreement was reached that Holland was to recognize the
sovereignty of the Republic of Indonesia.

On the 27th of December 1949, the former territory of the Dutch East Indies ceased to
exist and became the sovereign Federal Republic of Indonesia under a federal
constitution based on a parliamentary system providing Cabinet responsibility of
Parliament, while the sovereignty over Papua (former West New Guinea) was suspended
till further negotiations between Indonesia and Holland. This issue had since become the
source of perpetual conflict between the new Republic and Holland, which dragged on
for more than 13 years. And since September 28, 1950, Indonesia became a member of
the United Nations.

The Unitary State of the Republic of Indonesia

On the 15th of August 1950, the original proclaimed Unitary State of the Republic of
Indonesia was restored however, retaining a liberal democratic system of a cabinet
answerable to the House of the People's Representatives, which became the source of
frequent changes of cabinet or governments. This situation naturally could not be a firm
basis for national development in a developing country, which had just become an
independent state, where no political stability could be secured.

With the reinstatement of the Unitary State, the President became Chief Executive and
Mandatary of the People's Consultative Assembly. He is to be assisted by ministers of his
choice and at his discretion and who can not be discharged by the House.

34
The First Government of the Republic of Indonesia

The Dutch East Indies was since its unconditional surrender to the Japanese Armed
Forces on the 7th of March 1942, occupied by Japanese occupation forces. The official
surrender took place at 16.00 hours of that date in which the Dutch East Indies' Governor
General, Mr. Tjarda van Starkenborgh Stachouwer and Dutch East Indies Armed Forces
Commander, Ter Poorten signed the documents of surrender to the Japanese Commander,
General Imamura. It was only after the 14th of August 1945, i.e. when Japan surrendered
to the Allies after the atom bomb dropped at Hiroshima that a power vacuum existed in
the Indonesian archipelago.

Earlier, Soekarno and Hatta had pressed the Japanese for yielding to

Indonesia's demand to set up a committee for the preparation of Indonesia's

independence, consisting of 26 members comprising Indonesian nationalist leaders
chaired by Ir. Soekarno. This forum provided ample opportunity for these Indonesian
nationalist leaders to debate, weight and contemplate about the ideological basis, the
structure of the state and the constitution to be, for a sovereign Indonesia. After hectic
debates which went on and which were seldom not interrupted by extreme conflicting
views, Soekarno emerged as the over-riding leading figure who won the acceptance of
the "Pancasila" principles to be the ideological basis for a sovereign Indonesia. It was
also at this forum that Indonesia's first constitution, the 1945 Constitution, was debated
and ultimately adopted.

This power vacuum prompted Soekarno and Hatta to proclaim Indonesia's independence
on the 17th of August 1945, followed by the election of Soekarno and Hatta as Indonesia's
first President and Vice-President. On the same day, the Committee for the Preparation of
Indonesia's independence dissolved itself.

The first year of the sovereign Republic of Indonesia under the Presidency of President
Soekarno was marked by a war of defense against the Dutch who attempted to reinstate
the former colony of the Dutch East Indies. The Indonesian Communist Party (PKI)
disagreed with the principles of Pancasila and in 1948 staged an armed and bloody
rebellion against the newly proclaimed Republic of Indonesia and unilaterally proclaimed
a Communist "People's Republic" in the region of Madiun (East Java).

When the Dutch, due to Indonesia's armed resistance and pressed by world opinion as
manifested in the UN resolution finally recognized Indonesia's independence, another
armed rebellion flared up pressing for Islamic state under the leadership of Kartosuwirjo
who coined his demand as "Darul Islam."

Since then many other armed rebellion emerged such as the "Queen of Justice" (APRA)
rebellion led by an ex-Dutch Army Captain, Turco Westerling. Outside Java, other armed
revolts were staged such as in Maluku where demobilized ex-colonial army-men faithful
to the Dutch Crown proclaimed the Republic of South Maluku. In South Sulawesi ex
colonial army-man, Andi Aziz also rebelled. In Kalimantan Ibnu Hadjar led another

35
armed revolt, while in Sumatra and later linked up with North Sulawesi rebellions against
the central Government demanded separation like the case in the South Maluku. At the
end of this chain of armed rebellion emerged the second communist rebellion on 30rd of
September 1965 led again by the Indonesian Communist Party manifested in an abortive
coup attempt by kidnapping and murdering six top army generals of the Defense
Department.

The first Republican Government under President Soekarno after the recognition of
independence was marked by efforts to unite the Indonesian people and to claim the
Dutch occupied Province of Papua. The political pattern which governed the new
republic was a liberal parliamentary democracy based on a provisional constitution of the
Federal Republic of Indonesia as imposed by the Dutch after its abandonment of the 17th
of August 1950. Political strive was rampant due to the multi-political party system
Indonesia copied from the then existing system in Holland. This system has not seldom
led towards a dichotomy of extreme political and ideological view which found linkages
between parliamentary and armed conflicts.

President Soekarno succeeded in carrying out Indonesia's first General Elections in 1955
in which 47 political parties contested to elect their representatives for the House of
People's Representatives and for the Constituent Assembly, which was to lay down a new
constitution for the Republic. This election was won by the Indonesian Nationalist Party
(PNI), the Nahdlatul Ulama Moslem Scholars Party (NU), the Muslim Majelis Sjura
Party (Masyumi) and the Indonesian Communist Party (PKI). Their elected
representatives in the Constituent Assembly failed to reach a consensus on laying down a
new constitution which compelled President Soekarno to dissolve the Constituent
Assembly and the House which he was constitutionally entitled to and called for the
reinstatement of the 1945 Constitution.

The Asian-African Conference

President Soekarno had to his credit the holding of the Asian-African Conference in
Bandung, West Java, from April 18 to 24, 1955. The initiative was taken by Indonesia,
India, Pakistan, Myanmar and Ceylon (Sri Lanka). The conference was attended by
delegates from 24 Asian and African countries. The purpose of the meeting was to
promote

36
 The Asian African Conference, April 1955,

in Bandung

closer and amiable cooperation in the economic, cultural and political fields. The
resolution adopted became known as the "Dasa Sila", or "The Ten Principles," of
Bandung. It strived for world peace, respect for one another's sovereignty and territorial
integrity, and for non-interference in each other's internal affairs. The resolution also
sought to uphold the human rights principles of the United Nations.

The Asian-African Conference became the embryo of the Non-Aligned Movement. The
seeds that sprouted in Bandung took firm root six years later when 25 newly independent
countries formally founded the Non-Aligned Movement at the Belgrade Summit of 1961.
Since then the membership of the Movement has grown to its present strength of 112
member countries.

The Beginning of the New Order Government

Over-confident of their strength and precipitated by the serious illness of President

Soekarno, who was undergoing treatment by a Chinese medical team from Beijing, the
Indonesian Communist Party (PKI) attempted another coup on September 30, 1965. The
uprising, however, was abrupt and quickly stamped out by the Armed Forces under
Major General Soeharto, then Chief of the Army's Strategic Command.

On the night of September 30, or more precisely in the early hours of October 1, 1965,
armed PKI men and members of Cakrabirawa,

the President's security guard, set out to kidnap, torture and kill six top Army Generals.
Their bodies were dumped in an abandoned well at Lubang Buaya, on the outskirts of
Jakarta. The coup was staged in the wake of troop deployments to Kalimantan, at the
height of Indonesia's confrontation with Malaysia. Moreover, at the time, many cabinet
members were attending a celebration of the Chinese October Revolution in Beijing. It
was during this power vacuum that the communists struck again.

Under instructions from General Soeharto, crack troops of the Army's Commando
Regiment (RPKAD) freed the central radio station (RRI) and the telecommunication
center from communist occupation.

37
Students made for the streets in militant demonstrations to fight for a three-point claim,
or "Tritura," that aimed to ban the PKI, replace Soekarno's cabinet ministers, and reduce
the prices of basic necessities. They set up a "street parliament" to gather the demands of
the people.

Under these explosive conditions, President Soekarno eventually gave in and granted
Soeharto full power to restore order and security in the country. The transfer of power
was affected by a presidential order known as "the 11th of March order" of 1966. Soon
afterwards, on March 12, 1966, General Soeharto banned the PKI. This decision was
endorsed and sanctioned by virtue of the Provisional People's Consultative Assembly
Decree Number XXV/MPRS/1966. He also formed a new cabinet, but Soekarno
remained as Chief Executive. This brought dualism into the cabinet, particularly when
Soekarno did not show support for the cabinet's program to establish political and
economic stability. Hence, a special session of the Provisional People's Consultative
Assembly (MPRS) was convened from March 7-12, 1967. The Assembly resolved to
relieve Soekarno of his presidential duties and appointed Soeharto as Acting President,
pending the election of a new President by an elected People's Consultative Assembly.

The New Order Government

Ever since taking office in 1967, the New Order Government of President Soeharto was
determined to return constitutional life by upholding the 1945 Constitution in a strict and
consistent manner and by respecting Pancasila as the state philosophy and ideology.

To emerge from the political and economic legacy of Soekarno's Old Order, the new
government set out to undertake the following:

1. To complete the restoration of order and security and to establish political stability.

2. To carry out economic rehabilitation.

3. To prepare a plan for national development and execute it with the emphasis on
economic development.

4. To end confrontation and normalize diplomatic relations with Malaysia.

5. To rejoin to the United Nations, which Indonesia had quit in January 1965.

6. To consistently pursue an independent and active foreign policy.

7. To resolve the West Irian question.

8. To regain Indonesia's economic credibility overseas.

9. To hold general elections once every five years.

38
With regard to Malaysia, not only were relations normalized but Indonesia together with
Malaysia, the Philippines, Singapore and Thailand joined to establish the Association of
Southeast Asian Nations (ASEAN). Further, Brunei Darussalam became the sixth
member of ASEAN, while Vietnam was accepted as the seventh member of this regional
organization followed suit by Myanmar, Kampochea and Laos. The objective of the
association is the establishment of regional cooperation in the economic, social and
cultural fields, but ASEAN also operates in the political area.

To prepare for national development, in addition to economic rehabilitation, Indonesia

secured an agreement with creditor countries to reschedule an overseas debt of US$5
billion. With the recovery of the country's overseas credibility, Indonesia succeeded in
the formation of a consortium of creditor countries to assist in her economic
development. This consortium was known as the Inter-Governmental Group on Indonesia
(IGGI) and included the United States, Canada, Australia, New Zealand, Japan, Britain
and a number of West-European countries. Its annual meetings were held in Amsterdam
under the chairmanship of the Netherlands. Currently, the IGGI has been replaced by the
Consultative Group for Indonesia (CGI) consisting of the former members of IGGI
(except the Netherlands) and five new creditors.

The Reform Order Government

Since the outset of the First Five-Year Development Plan in 1969, Indonesia under the
New Order Government of President Soeharto had endeavored to achieve its national
development goals. Indonesia, indeed, had been able to achieve substantial progress in
various fields which had been enjoyed by the majority of the Indonesian people.
Indonesia had gained success in the national development. Unfortunately, severe
economic crisis, which began with the monetary crisis, struck Indonesia as of July 1997.

Since the middle of 1997, the people's standard of living dropped considerably. The
decline in the people's standard of living was aggravated by various political tensions
arising from the 1997 general elections. The political system which had been developed
since 1966 turned out to be unable to accommodate the dynamism of the aspirations and
interests of the community. This led to riots and disturbances. To a certain extend, they
reflected the malfunctioning of the political order and of the government, finally causing
this situation to develop into a political crisis.

A number of student demonstrations ensued, including the occupation of the People's

Consultative Assembly/House of People's Representatives compound. They appealed for
political and economic reform; demanded President Soeharto to step down and stamp out
corruption, collusion and nepotism. Critical moments prevailed in the capital, Jakarta,
and other towns from 12 to 21 May 1998.

On May 12, a tragedy happened in the Trisakti University Campus, causing the death of
four students. On May 18, the leadership of the House suggested the President resign.
The President's effort to accommodate the developing aspirations of the people by
forming are

39
form cabinet and a reform committee never materialized as there was no adequate
support from various circles.

Finally, on May 21, 1998, President Soeharto, after a 32-year rule of the New Order
Government resigned. Pursuant to Article 8 of the 1945 Constitution and the People's
Consultative Assembly decree No. VII/1973, he handed over the country's leadership to
Vice-President Bacharuddin Jusuf Habibie. After the announcement, Habibie took his
oath of office before Chief Justice Sarwata to become Indonesia's third President. Earlier
President Soeharto disbanded the cabinet which he formed shortly after his reelection for
a seventh five-year presidential term in March.

A day after his installment as the third president, Habibie formed the Reform
Development Cabinet. He picked the ministers from the various political and social
forces, including three politicians from the United Development Party (PPP) and the
Indonesian Democratic Party (PDI), to provide the needed synergy.

President B.J. Habibie outlined the agenda for reform during his presidency as follows:

1. Rooting out corruption, collusion and nepotism, and create a clean government.

2. Reviewing the five political laws upon which the current political system is bound.
They are the laws on mass organization, the House of Representatives (DPR), the
People's Consultative Assembly (MPR), political parties, regional administrations and
elections.

3. Implementing sweeping reform in all sectors, including in the political, economic,

and legal fields, to enable the government to satisfy mounting demands for a strong
and clean government.

4. Boosting output from the agriculture, agribusiness, export-oriented industry and

tourism sectors.

5. Safeguarding the implementation of the 1998/99 state budget

6. Accelerating the bank restructuring program

7. Resolving the problem of corporate foreign debts.

8. Conducting a special session of the People's Consultative Assembly (MPR) in

November 1998, followed by General Elections on May 1999.

General Elections

The Indonesian nation has been so far organizing general elections for nine times, namely
in 1955, 1971, 1977, 1982, 1987, 1992, 1997, 1999 and the recent 2004. The first, widely
acclaimed as a fairly democratic general elections, was held in 1955 under the

40
Administration of Soekarno, the first president of the Republic. During this general
elections many parties, with ideologies ranging from religious, Marxism and
nationalistic, contested to elect members of the House of Representatives and the
Constituent Assembly with the task to draw up the nation's new constitution to replace
the existing 1945 Constitution adopted on August 18, 1945, the day after the nation
proclaimed its independence. However, after deliberating for three years, they failed in
scoring a majority. As a result, then President Soekarno was forced to dissolve the
Assembly, and to issue a Presidential Decree calling for the reinstitution of the 1945
Constitution. The Presidential Decree, issued on July 5, 1959

revoked at the same time a Government Manifesto calling for the formation of as many
political parties as possible.

The second was in 1971, held under the Administration of President Soeharto, in which
there were still many parties contesting. Then in 1975, Act No.3 of 1975 was issued with
regard to the fusion of about 150 political and mass organizations into two political
parties i.e.

Eligible voters cast their votes at the 1955 General Election

Partai Persatuan Pembangunan (the United Development Party) and Partai Demokrasi
Indonesia (the Indonesian Democratic Party), and one Functional Group (Golongan
Karya). After that there had been only the two parties and the functional group contesting
the next five general elections, in which the Functional Group always came up first with a
landslide victory. Only during the 1999 General Elections under the relatively short-term
Administration of President B.J. Habibie, many parties (48 parties) could contest again.
This time Partai Demokrasi Indonesia-Perjuangan, the Indonesian Democratic Party of
Struggle (PDI-P) won the contest by getting the most votes, relegating the Golkar Party
to second place.

41
 Eligible voters cast their votes at the 2004 General Election

Counting of votes in the poll station in 2004 General Election

The 2004 General Elections

Article 1 clause (2) of the amended 1945 Constitution stipulates that "sovereignty is
vested with the people and shall be exercised according to the Constitution." It explicitly
means that sovereignty shall no more be exercised by the People's Consultative Assembly
as it did previously, but shall be done according to the provisions of the Constitution.
Under this stipulation all members of the House of Representatives and the Regional
Representatives Council _the members of the two legislative bodies then constitute
members of the Assembly_ and members of provincial and district as well as municipal
Houses of Representatives should be elected, and for the first time in the history of this
Republic, the President and Vice-President are to be elected direct by popular votes.

Translating the stipulation are Law No. 23 of 2003 concerning General Elections to elect
the President and Vice-President, Law No. 31 of 2002 on Political Parties, Law No. 12 of
2003 on General Elections to elect Members of the House, Regional Representatives

42
Council and Regional Houses of Representatives, and Law No. 22 of 2003 concerning
the Composition and Status of the Assembly, the House, and the Regional Houses.

Law No. 12 of 2003 stipulates that the number of seats of the House is 550; that of
Provincial Houses shall not be less than 35 and no more than 100 seats, and those of
district/municipal Houses shall not be less than 20 and no more than 45 seats.

Contesting in the 2004 general elections to elect members of House, and regional Houses
were 24 political parties to fight for seats mentioned earlier. Five major parties topping
the outcome of the 2004 general elections are: the Golkar Party that garnered 24,480,757
votes to win 127 seats of the House, followed by the Indonesian Democratic

Party of Struggle (PDI-P) with 21,026,629 votes to get 109 seats, the Nation's Awakening
Party (PKB) with 11,989,564 votes to gain 52 seats, the United Development Party (PPP)
with 9,248,764 votes to have 58 seats and the Democratic Party with 8,455,225 votes to
seize 57 seats. There were 148 million eligible registered voters, but only 124 million or
some 83 percent cast their ballots.

Pursuant to Article 6A of the Constitution, the election of the President and Vice
President is in pair by direct popular votes, and the candidates in pair shall be proposed
by a political party or a coalition of parties participating in the general elections. During
the 2004 general elections to elect the President and Vice President, there were five
candidate pairs competing, namely: (1) H. Wiranto-Ir. H. Salahuddin Wahid, proposed by
the Golkar Party; (2) incumbent President Megawati Soekarnoputri-K.H. Hasyim
Muzadi, proposed by the Indonesian Democratic Party of Struggle; (3) Prof. DR. Amien
Rais-Ir. Siswono Yudo Husodo, proposed by the National Mandate Party (PAN); (4)
Susilo Bambang Yudoyono-Muhammad Jusuf Kalla, proposed by the Democratic Party;
(5) and incumbent Vice Prersident Hamzah Haz-Agum Gumelar, proposed by the United
Development Party (PPP). With no single pair winning a majority votes in the first-round
presidential election on July 5, the two top pairs, Susilo Bambang Yudoyono-Jusuf Kalla
and Megawati Soekarnoputri-Hasyim Muzadi were eligible to contest to the election run-
off that was held successfully on September 20, 2004 in fair, peaceful and democratic
manner.

The General Elections Commission (KPU), an independent institution that organized the
legislative and presidential-vice-presidential elections, announced officially on October 4,
2004 that retired Army general Susilo Bambang Yudoyono and his running mate
Mohammad Yusuf Kalla as the winner of the election runoff. The Susilo Bambang
Yudoyono-Jusuf Kalla pair garnered 69,266,350 votes or 60.68 percent of total valid
votes, against 44,990,704 votes or 39.38 percent seized by incumbent Megawati
Soekarnoputri and Hasyim Muzadi. There were 155 million registered voters but only
114,257,054 votes or less than 80 percent declared valid.

Susilo Bambang Yudoyono is the first president of the Republic since Indonesia
proclaimed its independence on August 17, 1945, who was elected by direct popular
votes.

43
Political Party

Law No. 31 of 2002 that governs political parties was enacted on December 27, 2002 to
replace Law No. 2 of 1999.

The law stipulates the formation, maintenance, and development of political parties that
basically constitute one of the reflections of citizens' rights to assemble, associate, and
express opinion. Through those political parties, people can manifest their rights to
express their opinion concerning their life direction and their future in the society and
state. Political parties constitute the most important component in the democratic political
system. Therefore the political structure must rely on the people's sovereign norms which
give freedom, equality and togetherness.

In the democratic political system, freedom and equality are exercised in order to be able
to reflect the feeling of togetherness that guarantees the manifestation of the people's
whole ideals. It is realized that the process that lead to political life giving a role to
political parties as a national asset takes place on the foundation of the principles of
change and continuity that promote democratic maturity and responsibility. This can be
achieved by systematizing the parties' life, in addition to the existence of appropriate
system and process of general elections.

To create the aims of the society and state having national perspective, it is necessary to
establish a sound and mature party life and system, i.e. a simple multiparty system. By
the simple multiparty system it will easier to carry out cooperation for the creation of
national synergy. This mechanism tends not only to discourage monolithic, but also better
nurture democratic environment that enables political parties to take optimum role.

Political parties as participants of general elections have the opportunities to struggle to

win the broad interests of the people, fill up state institutions, and to form government.

Through implementing their functions as agents of political education, socialization,

interests formulation and channeling, and communication, political parties in fact will
improve political awareness and participation of the society, and cohere various groups
and social classes, underpin national unitary and integrity, materialize justice, uphold the
law, respect human rights, and secure stability.

A political party must be established by a notary public certificate and registered to the
Department of Justice, with the requirements of having regional party boards at least 50
(fifty) percent of the total provinces, some 50 percent of the total districts/municipalities
in each province concerned, and 25 percent of the total sub-districts in each
district/municipalities concerned.

A political party is prohibited to receive contribution either in the form of goods or

money from individual and/or enterprise or any part whatsoever without stating clear
identities, and over the fixed limit, and receive donation and/or grant contribution from
foreign parties in any means that is against the statutory regulations.

44
In addition, a political party is prohibited to ask or receive contribution from state-owned
enterprises, regional-owned enterprises, national-owned enterprises, and other names,
cooperatives, foundations, non-government organizations, social organizations, and
humanity organizations.

With the taking effect of this law, the settlement of the cases of political parties in penal
process adjusts itself to the provisions of this law.

General Elections to Elect Members of the Houses, and the Council

The amendments to the 1945 Constitution of the Republic of Indonesia, Article 1 clause
(2) states that sovereignty shall be vested in the people and shall be exercised according
to the Constitution. This amendment means that the sovereignty is no longer fully
exercised by

the People's Consultative Assembly, but shall be exercised according to the provisions of
the Constitution.

Based on these amendments, all members of the House of Representatives (DPR), the
Regional Representatives Council (DPD), the Regional Houses of Representatives
(DPRD) of the provinces, and the Regional Houses of Representatives of the
Districts/Municipalities shall be elected through elections which shall be executed based
on the principles of direct, general, free, secret, fair, and just and once in every five years.
The general elections will in turn produce democratic representative institutions and
government.

In conformity with the reformation mandate, the general elections shall be executed in a
more qualified fashion in order to secure sound competition, higher representation, and
clearer mechanism of accountability. To this end, a new law is required to replace Law
No. 3 of 1999 on General Elections.

General elections shall be executed based on the principles of direct, general, free, secret,
honest, and fair.

According to the Law, the membership of the House of Representatives (DPR) shall total
550 persons, while of the House of Representatives of the provincial level (Provincial
DPRD) shall have at least 35 seats and no more than 100 , and of the House of
Representatives of the district/municipal level shall have at least 20 seats and no more
than 45.

Every political party that participates in the general elections can nominate its candidates
for the membership of the DPR, Provincial DPRD, and District/Municipal DPRD for
each electorate by taking the female representation at the minimum of 30 percent into
account.

45
To supervise the general elections, the Central General Elections Supervisory
Committees, Provincial General Elections Supervisory Committees, District/Municipal
General Elections Supervisory Committees, and Sub-District General Elections
Supervisory Committees shall be established.

In the 2004 general elections, the personnel of the Indonesian Defense Force and the
National Police had no rights to vote.

The General Elections Commission has determined April 5, 2004 as the 2004 General
Elections Day.

Composition and Status of Legislature

The Preamble to the 1945 Constitution has stated that the state of Indonesia shall be in
the form of Republic which in its implementation will adopt the principle of democracy
guided by the inner wisdom of deliberation amongst representatives. To realize that, the
legislative bodies shall be established to strive for the people's aspirations including
regional ones in the frame of upholding democratic values.

In line with development of state affairs and national public, after the 1945 Constitution
having been amended, the state organs have experienced a substantial change in their
composition and status, including of the newly established regional representatives
council.

Law No. 22 of 2003 concerning Composition and Status of the People's Consultative
Assembly (MPR), the House of Representatives (DPR), the Regional Representatives
Council (DPD), and the Provincial

and District/Municipal Houses of Representatives (DPRD), is enacted in the frame of

improving the role and responsibility of the members of parliament/regional parliament
in exercising their duty and authority, and developing the mechanism of checks and
balances between legislative bodies and executive ones, as well as improving the quality,
productivity, and performance of the members of those bodies for the sake of realizing
the people's well-being.

Constitutional Court

Based on the amended 1945 Constitution, the Constitution Court is one of the state
organs exercising an independent judiciary power to uphold law and justice according to
its duty and authority. The existence of the Constitutional Court is also aim to keep state
administration stability, as well as correction to the state affairs experience emerging in
the past dual interpretation to the Constitution.

Considering that the Constitutional Court is one of the substantial parts to the 1945
Constitution, Law No. 24 on the Constitutional Court was enacted, regulating

46
appointment and discharge of constitutional court judges, duty and authority, law of
procedure, composition and status, and other provisions on the Constitutional Court.

The 24 Parties Taking Part in the 2004 General Election

The General Elections Commission determined the 24 parties that have passed the
clarification. Therefore, they have the right to be the participants of the General Elections
of the members of the House of Representatives, the Provincial Houses of
Representatives and the District/Municipal Houses of Representatives. The parties are as
fallows: 1. Marhaenism Indonesian Nationalist Party (Partai Nasional Indonesia
Marhaenisme _PNI Marhaenisme), 2. Democratic Solidarity Labor Party (Partai Buruh
Sosialis Demokrat _PBSD), 3. Crescent and Star Party (Partai Bulan Bintang _PBB), 4.
Freedom Party (Partai Merdeka _PM), 5. United Development Party (Partai Persatuan
Pembangunan _PPP), 6. Democratic Nationhood Unity Party (Partai Persatuan
Demokrasi Kebangsaan _PPDK), 7. New Indonesia Alliance Party (Partai Perhimpunan
Indonesia Baru _PIB), 8. Freedom Bull Nationalist Party (Partai Nasionalis Banteng
Kemerdekaan _PNBK), 9. Democratic Party (Partai Demokrat _PD), 10. Indonesian
Unity and Justice Party (Partai Keadilan and Persatuan Indonesia _PKPI), 11. Indonesian
Democratic Vanguard Party (Partai Penegak Demokrasi Indonesia _PPDI), 12.
Indonesian Nahdlatul Community Party (Partai Nahdlatul Ummah Indonesia _PPNUI),
13. National Mandate Party (Partai Amanat Nasional _PAN), 14. Concern for Nation
Functional Party (Partai Karya Peduli Bangsa _PKPB) , 15. National Awakening Party
(Partai Kebangkitan Bangsa _PKB), 16. Prosperous Justice Party (Partai Keadilan
Sejahtera _PKS), 17. Reform Star Party (Partai Bintang Reformasi _PBR), 18.
Indonesian Democratic Party of Struggle (Partai Demokrasi Indonesia Perjuangan
_PDIP), 19. Prosperous Peace Party (Partai Damai Sejahtera _PDS), 20. Golkar Party
(Partai Golongan Karya _Golkar), 21. Pancasila Patriot Party (Partai Patriot Pancasila
_PPP), 22. Indonesian Unity Party (Partai Sarikat Indonesian _PSI), 23. Regional Unity
Party (Partai Persatuan Daerah _PPD), and 24. Pioneer Party (Partai Pelopor _PP)

General Elections to Elect President and Vice President

According to the amended 1945 Constitution of the Republic Indonesia, Article 1 clause
(2), it is stated that: "The sovereignty shall be vested in the people and shall be exercised
in accordance with the Constitution. The amendment has a meaning that the people's
sovereignty is no longer fully exercised by the People's Consultative Assembly (MPR),
but shall be exercised in accordance with the stipulations of the Constitution. As one of
the application of the sovereignty, there will be general elections to be executed to elect
the members of the People's Consultative Assembly (MPR), the House of
Representatives (DPR), the Regional Representatives Council (DPD) and the Regional
Houses of Representatives (DPRDs) as well as another to elect the President and Vice
President. Both the elections shall be executed in accordance with the Law as an
implementation of a state based on law in the Unitary State of the Republic of Indonesia.

The first general elections to elect the President and Vice-President in 2004 is a political
process for the Indonesian nation towards a democratic and responsible political life, and

47
to elect the President and Vice President who have concrete support from the people. The
general elections to elect the President and Vice-President shall be executed once in five
years in direct, general, free, secret, fair and just manners and will be organized by a
national, permanent and independent commission.

The candidate pairs who want to race in the general elections to elect the President and
Vice President shall be proposed by a political party or a coalition of political parties
which meet the requirements. The political party or a coalition of political parties shall
only be able to, propose one candidate pair who meets the requirements of having a votes
return minimum of 20 percent of valid votes in the national general elections to elect the
House of Representatives members. This is meant that the political party as a means of
people's political participation to propose candidates has made first selection for the
candidate pairs of President and Vice-President.

The general elections supervision and monitoring are executed based on the principle of
accountability. Supervision on the general elections to elect President and Vice-President
shall be executed by supervisory committees for general elections at the level of
province, district/city and sub-district. Whereas the General Election Commission (KPU)
will handle violations and dispute settlements of general elections related with
administration and procedures. The law enforcement of criminal provisions shall be done
by the court of justice. The Constitution Court will settle disputes on the results of
general elections to elect President and Vice-President.

General Elections Commission has determined July 5, 2004 as the date of the first round
of general elections for President and Vice-President, and September 20, 2004 as the
second round if it is deemed necessary. The determination of the result of the general
elections for President and Vice-President took place on October 5, 2004.

48
STATE AFFAIRS

When World War II broke out in Europe and spread to the Pacific, the Japanese occupied
the Dutch East Indies as of March 1942, after the surrender of the Dutch colonial army
following the fall of Hong Kong, Manila and Singapore.

On April 1, 1945, American troops landed in Okinawa. Soon after, on August 6 and 9,
the United States dropped Atom bombs on two Japanese cities, Hiroshima and Nagasaki.
A few days later, on August 14, 1945, the Japanese surrendered to the Allied Forces.

That occasion opened the opportunity for the Indonesian people to proclaim their
independence. Three days after the unconditional Japanese surrender, on August 17,
1945, the Indonesian national leaders Ir. Soekarno and Drs. Mohammad Hatta proclaimed
Indonesia's independence on behalf of the people.

The proclamation, which took place at 58, Jalan Pegangsaan Timur, Jakarta, was heard
by thousands of Indonesians throughout the country because the text was secretly
broadcast by Indonesian radio personnel using the transmitters of the Japanese-controlled
radio station, Jakarta Hoso Kyoku. An English translation of the proclamation was
broadcast overseas.

Pancasila, the State Philosophy

Pancasila, pronounced Panchaseela, is the philosophical basis of the Indonesian State.

Pancasila consists of two Sanskrit words, "Panca" meaning five, and "sila" meaning
principle.

It comprises five inseparable and interrelated principles. They are:

1. BELIEF IN THE ONE AND ONLY GOD

2. JUST AND CIVILIZED HUMANITY

3. THE UNITY OF INDONESIA

4. DEMOCRACY GUIDED BY THE INNER WISDOM IN THE UNANIMITY

ARISING OUT OF DELIBERATIONS AMONGST REPRESENTATIVES

5. SOCIAL JUSTICE FOR WHOLE OF THE PEOPLE OF INDONESIA

49
Elaboration of the five principles is as follows:

1) Belief in the One and Only God

This principle of Pancasila reaffirms the Indonesian people's belief that God does exist. It
believe in life after death. It emphasizes the pursuit of sacred values will lead the people
to a better life in the hereafter.

The principle is embodied in article 29, Section 1 of the 1945 Constitution and reads:
"The state shall be based on the belief in the One and Only God.

2) Just and Civilized Humanity

Just principle requires that human beings be treated with due regard to their dignity as
God's creatures. It emphasizes that the Indonesian people do not tolerate physical or
spiritual oppression of human beings by their own people or by any other nation.

3) The Unity of Indonesia

This principle embodies the concept of nationalism, of love for one's nation and
motherland. It envisages the need to always foster national unity and integrity. Pancasila
nationalism demands that Indonesians avoid feelings of superiority on ethnical grounds,
for reasons of ancestry and color of the skin. In 1928 Indonesian youth pledged to have
one country, one nation and one language, while the Indonesian coat of arms enshrines
the symbol of "Bhinneka Tunggal Ika" which means "unity in diversity."

4) Democracy Guided by the Inner Wisdom in the Unanimity Arising Out of

Deliberations amongst Representatives

Pancasila democracy calls for decision-making through deliberations, or musyawarah, to

reach a consensus, or mufakat. It is democracy that lives up to the principles of Pancasila.
This implies that democratic right must always be exercised with a deep sense of
responsibility to God Almighty according to one's own conviction and religious belief,
with respect for humanitarian values of man's dignity and integrity, and with a view to
preserving and strengthening national unity and the pursuit of social justice.

Thus, Pancasila Democracy means democracy based on the people's sovereignty which is
inspired by and integrated with other principles of Pancasila. This means that the use of
democratic rights should always be in line with responsibility towards God Almighty
according to the respective faith; uphold human values in line with human dignity;
guarantee and strengthen national unity; and be aimed at realizing social justice for the
whole of the people of Indonesia.

50
5) Social Justice for the Whole of the People of Indonesia

This principle calls for the equitable spread of welfare to the entire population, not in a
static but in a dynamic and progressive way. This means that all the country's natural
resources and the national potentials should be utilized for the greater possible good and
happiness of the people.

Social justice implies protection of the weak. But protection should not deny them work.
On the contrary, they should work according to their abilities and fields of activity.
Protection should prevent willful treatment by the strong and ensure the rule of justice.

These are the sacred values of Pancasila which, as a cultural principle, should always be
respected by every Indonesian because it is now the ideology of the state and the life
philosophy of the Indonesian people.

The 1945 Constitution

The Constitution of the Republic of Indonesia is usually referred to as the 1945

Constitution. This partly is because the constitution was drafted and adopted in 1945
when the Republic was being established, and another to distinguish it from other
constitutions which were introduced in free Indonesia.

Furthermore, the articles of the 1945 Constitution spell out the ideals and the goals for
which independence was proclaimed on August 17, 1945, and defended thereafter.

It reflects the spirit and vigor of the time when the constitution was shaped. It was
inspired by the urge for unity and for the common goals and democracy built upon the
age-old Indonesian concepts of gotong royong (mutual assistance), deliberations of
representatives (musyawarah) and consensus (mufakat).

The Main Materials of the Amendments to the 1945 Constitution

Since the reformation era, the 1945 Constitution has experienced some amendments,
additions, and completion for four times in the annual session of 1999, 2000, 2001 and
2002. All the amendments were based on topics covering the following issues:

1. Sovereignty

The Constitution, the 1945 Constitution originally adhered an ideology that the
sovereignty was vested in the people executed fully by the People's Consultative
Assembly (MPR). It adhered an ideology of the People's Consultative Assembly
supremacy, making the MPR be a state institution that had unlimited authority because it
became an institution of the sovereignty embodiment of all Indonesian people. Its huge
and unlimited power caused the People's Consultative Assembly was unable to be
controlled by any other state institutions. Accordingly, the MPR became a super body
state institution that in the structure of the matters pertaining to form of the government

51
of the Republic of Indonesia was positioned as the highest state institution. To keep
abreast to the changing era, the original 1945 Constitution views was no longer
conforming to democracy ideology that required the implementation of checks and
balances system among intra-state institutions. For that, its decree of the Article 2 section
(1) were converted to the sovereignty is vested in the people and executed according to
the constitution.

2. The Structure of the Membership Authority of the People's Consultative

Assembly

Before the amendment, the structure of the membership of the People's Consultative
Assembly consisted of member of the House of Representatives (DPR) including
appointed members of the Indonesian Military/Police, the appointed Regional Delegates
(RD), and Group and Delegates (DG). The members of the HR were elected in the
General Election, while the RD and DG were appointed. The appointment of some
members of the MPR was considered not conforming to with the teaching and spirit of
democracy, therefore the formulation was changed by conforming that all members of the
MPR have to be chosen by the people through general election. With this amendment, the
structure of the membership of the MPR consists of the HR members and the Regional
Representatives' Council members, a new representative institution in the structure of the
matters pertaining to form of government of the Republic of Indonesia.

The MPR does no longer become the state institution having huge authority; the People's
Consultative Assembly is no longer the highest state institution, so that its position makes
it be equal with other state institutions.

3. The Authority of the President

The 1945 Constitution adheres presidential government system. Either in theoretic and
practice of the matters pertaining to form of government in countries following the
presidential government system by this constitution, the president has such a quite big
and important power and role. So does in Indonesia. Therefore, it was logical that there
were quite many materials related to the Presidential authority in the 1945 Constitution
that spread over in various articles and sections, especially concerning his power begun
from declaring war until granting abolition.

4. Direct Election of the President and the Vice-President by the People

Since the establishment of the Republic of Indonesia, the election of president and vice-
president had been executed by the MPR by an indirect of representative mechanism. In
accordance with the spirit of democracy that requiring the people are being given the
right to elect the president and vice-president directly, so the current election system by
the MPR has to be changed to the direct election system by the people.

If the conditions of the first round general election are not fulfilled, then the second round
will be executed to appoint a candidate pair who has the majority vote from the first and

52
second ranks. The couple that has the majority vote will be inaugurated as the president
and vice-president.

5. The Term of Office of the President and Vice-President

Before having been amended, the formulation of the term of office of the president and
vice-president in the 1945 Constitution was not decisive or concrete to arrange the
frequency of the term. In consequence, it opened chance for more than one interpretation.

The amended 1945 Constitution sets that the president and vice-president hold the fixed
term of five years and can be reelected for another term. It means that an Indonesian
citizen is only being able to be voted for the president and/or vice president for 10 years
consecutively.

6. The Discharge of the President and Vice-President on Posts

Prior, there was no decree in the 1945 Constitution which arranged the discharge of the
president and/or vice-president from

their offices. The constitution only stipulated a decree on the accountability of the
president before the extraordinary session of the MPR based on the invitation of the DPR.
It is executed when the DPR considers the president is really violating the basic state
guidelines or guidelines of state policy.

Now the amended 1945 Constitution embodies casual factors and procedures of
discharging the president and/or vice-president from their offices.

7. The replacement of the President amid the Term by the Vice-President

According to the amended 1945 Constitution, the position of the Vice-President is to

assist the President in discharging his/her duties. That position makes the Vice-President
automatically shall replace the president until the end of his/her term if the president dies,
resigns, and is discharged, or unable to discharge his/her duties during his/her term of
office.

8. The Executor of the Presidential Duties

Although improbable, there remain another possibility of the emergency condition caused
by, for example, the President and Vice-President at the same time die, resign, and are
discharged, or are unable to discharge their duties of offices during on their terms. In this
condition, prompt decision based on a strong law is needed.

Ancitipating such case the amended 1945 Constitution stipulates that in case that
condition occurred, the executors of the presidential duties are that consisting of three
cabinet members namely: the Foreign Affairs Minister, the Home Affairs Minister and
the Defense Minister.

53
9. The formation of the President Advisory Council and the Elimination of the
Supreme Advisory Council

The existence of the Council as a state institution, which was equal with the president and
had a task to give advice and judgment to the president was viewed as less effective and
efficient. It was due to unbinding of the advice and judgment to the president.

Based on that consideration, the amended 1945 Constitution eliminates the existence of
the Council. To substitute for it the constitution gives the authority to the President to
form the Advisory Council that has the task to give advice and judgment to the President.

10. The State Ministry

As a constitution adhering to the ideology of presidential government system, the

amended 1945 Constitution asserts that the state ministers, who are appointed and
discharged by him/her, are to assist the President.

11. The Regional Government

The regions are given the freedom and authorities to exploit and manage their natural
resources, with the yields emphasized regu

lates to raise the regional progress and prosperity. The regional autonomy has to be
executed and remains within the Unitary State of the Republic of Indonesia.

The newly amended Constitution also regulates the state recognition of and respect for
regional administration units, which is special and extraordinary in character.

12. The Regional Representative's Council

The amended 1945 Constitution introduces a new representative institution in the

structure of the government of Indonesia. The institution is the Regional Representatives
Council as stated in the provisions of the Chapter VIIA concerning the Council.

13. Financial Matters

Concerning with the increase of the awareness of the importance of the state financial
management, the original 1945 Constitution was amended to be more details and
perfectly managed.

Now, study of constitution draw of the budget that was proposed by the president and
then executed together with the HR by taking note of the judgment of the Regional
Representatives' Council.

54
In the new chapter concerning the financial, it was also firmed that there is the tax
arrangement and other collection of finance duty that are by force for the state needs, it is
arranged in the new amended 1945 Constitution.

14. The Audit Board

In the new provision concerning the Board it is, among others confirmed that the AB as
the state institution functions in the field of financial investigation, having the status of a
free and independent. The confirmation is viewed as very important, so that the
implementation of its duties is not intervened, influenced, or be under the pressure, either
by the state institutions or boards or public and individuals.

The amended Constitution stipulates that besides locates in the capital city the Board also
has a representative office in each province.

15. The Supreme Court

The amended constitution concerning the justice authority produces two new state
institutions: Judicial Commission and Constitutional Court. The formation of those two
institutions is aimed at strengthening the implementation of the justice authority to
achieve the expected results to upholding the law and justice.

16. The Constitutional Court

The existence of the Court is viewed very important to implement the judicature function
on cases related to the judicial review, inter-institutional arbitrariness disputes, political
party dismissal, and results of the general election.

It is expected to be able to manifest the prompt court in order not to become a prolonged-
term case.

The authority of the Court as enacted in the provision of the Article 24C of the 1945
Constitution is to judge in the first level and final, which decision is final.

17. The Judicial Commission

The judicial commission as a new institution is formed related to the implementation of

the justice authority. With the formation of the Judicial Commission it is expected that
the quality of the supreme judges and judges improve, and in turn it will improve the
judicial process and judicial decision in the Commission as the highest judicial institution
in the Indonesia judicial structure, except certain cases taken into court by the
Commission.

55
18. Human Rights

Along with the development of ideas concerning Human Rights, it is necessary to

improve the formulation of the rights in the 1945 Constitution. The implementation of it
is the inclusion of Human Rights in a separated chapter of the amended Constitution.

Concerning with the exercise of human rights there has been a non-retroactive principle
confirming that the violation on human rights shall not to be charged on the ground of the
retroactive law.

The retroactive principle shall be operative in the context of protecting human rights
themselves.

In the provision concerning human rights it is also asserted that the responsibility to
implement protection, development, upholding, and fulfilling of human rights is vested
on the state, mainly the government.

19. The State Defense and Security

The 1945 Constitution stipulates that defense and security is carried out through total
people's defense and security system by two state organs, namely the Indonesian Nation
Army and the Indonesian Police, as the main force, and the Indonesian people as the
supporting force. This formulation becomes a specific characteristic of the Indonesian
national defense and security since it places the people to take part actively in the system.

20. Educations and Culture

It was formerly formulated in the 1945 Constitution that each citizen has the right to
obtain education and the right to take basic education. So it becomes the government
obligation to pay for each citizen acquisition of his/her elementary education.

After having been amended, the formulation of the provisions of the national education
objectives improved by inserting the formulation of "improving faithfulness and
devotation," "nobleness of character" and "advance the intellectual life of the nation".
The inclusion of those three matters constitutes the realization of the collective awareness
of the Indonesian nation as a religious nation, and nation having the wish to realize the
national grandeur and noble civilization.

The national education budget prioritize is at least 20 percent of the state budget and the
regional budget constitutes the answer to the reality that most part of the human resources
belong to lower standards of education.

21. National Economies and Social Welfare

By examining carefully the dynamic of national economy and development of the global
economy, formulation concerning the national economy contained in Chapter XIV Social

56
Welfare, underwent some improvements by constitutional amendment to become Chapter
XIV National Economy and Social Welfare. The change of the title has been viewed
appropriate considering that the provisions encompass economy and social welfare.

Beside maintaining the formulation of the existing provision of Article 33, the amended
1945 Constitution inserted into it formulation about the national economy that shall be
managed based on economic democracy with the principles of common endeavor,
efficiency, fairness, persistence, friendly environmental vision, independence, and by
maintaining the balanced proportion between the progress and the national economic
entity.

22. The State Attributes

Before the amendment, the state attributes mentioned in the 1945 Constitution included
only the State Flag (Article 35) and Indonesia Language as the state language (Article
36). Having been amended, the 1945 Constitution encompasses the "Garuda Pancasila"
as the state symbol with the slogan "Bhineka Tunggal Ika" (Unity in Diversity) in Article
36A, and "Indonesia Raya" as the National anthem (the Article 36B).

23. The Amendment of the Constitution

One of the provisions considered important to be regulated in a constitution is a matter

concerning amendment to the constitution itself. It aims that the next generations remain
to have an opportunity and poses legal foundation to amend it to keep abreast with the
changing era.

24. Transitional Provisions

The provision concerning the transitional provisions in the 1945 Constitution consists of
3 (three) articles aimed at regulating the transitional enforcement from ius constitutem
(positive law in force) to ius constituendum (new law replaces it)

The transitional provisions are needed because each constitutional amendment (in the
wider aspect of law amendment) will cause the transitional situation of the old
constitution to the new one with the legal norms having been changing. The transitional
provision is proportional, transitional, or interim in character.

In the transitional provisions embodied in the 1945 Constitution it is said that all existing
provisions remain in force before being amended according to the Constitution. In
addition is asserted that all existing state institutions remain functioning before being
amended according to this Constitution.

25. Additional Provisions

The additional provision consists of 2 (two) articles that govern the task of the MPR to
carry out judicial review on the materials and legal status of the provisions of the PCA

57
and the PCA in relation with the MPR changing authorities as stipulated in Article 33 of
the 1945 Constitution.

The provision of Article 11 Additional Provision asserts that by the enactment of the
amendments to the 1945 Constitution, the 1945 Constitution consists of the Preamble and
Articles. These provisions terminated the existence of the elucidation of the 1945
Constitution of which, before the 1945 Constitution amended, it was a part of this
Constitution.

The National Flag

The Indonesian national flag is called "Sang Saka Merah Putih". As provided for in
Articles 35 of the 1945 Constitution, the flag is made up of two colors, red on top of
white. Its width is two-third of its length, or two meters by three meters. It is hoisted in
front of the presidential palace, of government buildings and Indonesian missions abroad.
The first flag was courageously flown amidst Japanese occupation forces on the day
Indonesia's independence was proclaimed. Since then it has been hoisted at Independence
Day commemoration in front of the presidential palace in the capital city of Jakarta. This
historical flag, or "bendera pusaka", was flown for the last time on August 17, 1968.
Since then it has been preserved and replaced by a replica woven of pure Indonesian silk.

The Coat of Arms

The Indonesian coat of arms consists of a golden eagle; called "garuda" that is a figure
from ancient Indonesian epics. It is also pictured on many temples from the 6th Century.

The eagle is a symbol of creative energy. Its principal color, gold, suggests the greatness
of the nation. The black color represents nature. There are 17 feathers on each wing, 8 on
the tail and 45 on the neck. These figures stand for the date of Indonesia's independence
proclamation: 17 August 1945.

58
The motto, "Bhinneka Tunggal Ika" (Unity in Diversity), is enshrined on a banner held in
the eagle's talons. Empu Tantular, a saint of the Majapahit Kingdom introduced this old
Javanese motto, in the 15th century. It signifies the unity of the Indonesian people despite
their diverse ethnic and cultural backgrounds.

The shield symbolizes self-defense in struggle and protection of oneself. The red and
white colors on the shield's background denote the colors of the Indonesian national flag.
The five symbols on the shield represent the state philosophy of Pancasila, the foundation
of the Indonesian state.

The bar across the center indicates the equator, which passes through the islands of
Sumatra, Kalimantan, Sulawesi and Halmahera. This is a reminder of the fact that the
Republic of Indonesia is the only tropical country in which the people have built a free
and sovereign state by their own hands.

The golden star on the black background in the center of the shield represents the first
principle of Pancasila, belief in the One and Only God. The chain symbolizes successive
human generations. The round links represent women and the square ones men. It is the
symbol of the second principle, just and civilized humanity. The "beringin," or banyan
tree, symbolizes the third principle, the unity on Indonesia. The head of the "banteng", or
wild bull (Bos javanicus), which is black on a red background, represents the fourth
principle, democracy guided by the inner wisdom in the unanimity arising out of
deliberations amongst representatives. The fifth principle, social justice for the whole of
the people of Indonesia, is symbolized by the gold and white paddy and cotton ears.

The National Anthem

The national anthem is "Indonesia Raya", which means Great Indonesia. The song was
composed in 1928.

The colonial policy of the day was "divide and rule." It was a policy that deliberately
aggravated language, ethnic, cultural and religious differences amongst the people.

The birth of Indonesia Raya marked the beginning of Indonesian nationalist movements.
The song was firstly introduced by its composer, Wage Rudolf Supratman, at the second
All Indonesian Youth Congress on October 28, 1928 in Batavia, now Jakarta. It was the
moment when Indonesian youth of different ethnic, language, religious and cultural
backgrounds resolutely pledged allegiance to:

1. One native land, Indonesia;

2. One nation, the Indonesian nation;

3. One unifying language, the Indonesian language.

59
Soon the national song, which called for the unity of Indonesia, became popular. It was
echoed at Indonesian political rallies, where people stood in solemn observance. The
song seriously aroused national consciousness among the people throughout the
archipelago Indonesia's National Anthem

State Organs

According to the amended 1945 Constitution, there are now 7 (seven) organs of the state:

1. The People's Consultative Assembly (Majelis Permusyawaratan Rakyat _MPR)

2. The Presidency

3. The House of Representatives (Dewan Perwakilan Rakyat _DPR)

4. The State Audit Board (Badan Pemeriksa Keuangan _BPK)

5. The Supreme Court (Mahkamah Agung _MA)

6. The Constitutional Court (Mahkamah Konstitusi _MK)

7. The Regional Representatives Council (Dewan Perwakilan Daerah _DPD)

The People's Consultative Assembly

Article 1 of the amended 1945 Constitution states that Indonesia is a unitary state which
has the form of republic with the sovereignty vested in the people and shall be exercised
in accordance with the constitution.

The Assembly has the authority to amend and stipulate the Constitution and to inaugurate
the President and Vice-President. According to the amended the 1945 Constitution, the
assembly is no more the highest political institution in the state. The Assembly does no
longer elect the President and Vice-President, because the President and Vice-President
in pair are elected direct by the people. The Assembly can only discharge the President
and/or Vice-President during his/her term of office with due observance of the
Constitution.

The membership of the Assembly consists of 550 members of the House of

Representatives and the number of the members of the Regional Representatives Council,
which is elected through the general elections. According to the amended 1945
Constitution, delegates of the regions and delegates of functional grouping will no longer
be appointed to the membership of the MPR, as they were previously.

Pursuant to Decree Number VII/MPR/1998, the Chairmanship of the People's

Consultative Assembly is made separate from that of the House of Representatives.
According to the amended 1945 Constitution, the MPR Chairman is assisted by three

60
vice-chairmen, who reflect the groupings in the DPR and DPD and are elected by and
from among the members of MPR in an MPR Plenary Session. Current chairman of the
Assembly is Hidayat Nur Wahid.

In fulfilling one of its tasks, the Assembly has taken the oath of Susilo Bambang
Yudhoyono as president, and Mohammad Yusuf Kalla as Vice-President.

The Regional Representative Council

The Regional Representatives Council (DPD) is a regional representation institution with

the status as a state institution. It is established pursuant to Article 22C of the 1945
Constitution and based on Law No. 22 of 2003 on structure and status of the People's
Consultative Assembly (MPR), the House of Representatives (DPR), the Regional
Representatives Council (DPD) and the Regional House of Representatives (DPRD). The
establishment of DPD is aimed at enhancing the democratic life, securing people's
regional representation in implementing their duty and authority, and developing a
mechanism of check-and-balance between legislative bodies and executive ones and
improving the quality, productivity and performance of the members of people's
consultative/representative's bodies and the regions to realize justice and welfare for the
people.

The DPD consists of regional representatives of the provinces who are elected through
general elections. Electoral region for DPD members are the provinces, and the amount
of DPD members for each province are 4 (four) persons, whereas total number of all
DPD members shall not exceed 1/3 (one third) of the number of DPR members. The
determination of DPD elected candidates is based on candidates' names who have the
first, second, third, and fourth largest number in the concerned province. Candidates for
DPD members should meet the requirements of: having been domiciled in concerned
province at least for three consecutive years, which is counted until the date of submitting
the candidacy or have been domiciled for ten years since he was 17 years old in the
concerned province, and he/she is not being an organizer of a political party at least for
four years, which is counted until the date of submitting the candidacy.

Where as the candidates who come from civil servants, the Indonesian Military/Police
members, should resign themselve from their organizations/offices.

The DPD may submit to the DPR bills relating to regional autonomy, relationship
between the central and regional government, establishment and development of new
regions, natural and economic resources management which are related to the central and
regional finance affairs. Accordingly, the DPD will also give considerations to the DPR
concerning the bills on State Budget and the bills concerning tax, education, and religious
affairs and perform surveillance on the implementation of the law and submit the results
of surveillance to the DPR. The DPD shall hold session at least once in a year. The terms
of office for the DPD is five years, and the DPD members shall be able to be dismissed
from their position, the requirements and procedures shall be regulated by law.

61
The Presidency

In the government system of Indonesia, the President is both head of state and chief
executive. In exercising his/her duties, the President shall be assisted by a Vice-President.

According to the amended 1945 Constitution, the President and Vice-President in pair is
elected direct by the people.

The President and Vice-President shall hold office for a term of five years and shall be
eligible for re-election in the same position only for another term.

The President has the right to submit bills to the House of Representatives and determine
Government Regulations to expedite the enforcement of laws.

The President and Vice-President can be discharged from office in mid-term by the
People's Consultative Assembly, based on the proposal of the House of Representatives,
either when he/she has been proved guilty of violating the law, such as betrayal of the
state, corruption, bribery, or any other big crime, or indecent act, or he/she has been
proved to be no longer fulfilling the qualifications of a President and/or Vice-President.

The House of Representatives

The total membership of the House of Representatives is five hundred and fifty (550)
members, representing political organizations that took part in the general elections
which are elected through general elections.

The House shall convene at least once a year. It shall have legislative function, budgetary
function, and supervision function. In carrying out its functions the House shall also have
the rights of interpellation, inquiry and expression of opinions. Besides those rights it
shall have the rights to pose questions, submit suggestions and views, as well as the right
of immunity. Further, members of the House shall have the right to submit a bill.

Decree No. VII/MPR/1998 regulates that the Chairman of the People's Consultative
Assembly is made separate from Speaker of the House; current House Speaker is Agung
Laksono.

The General Elections Commission has determined seats allocation for the House of
Representatives by the amount of 550 seats for 32 provinces in Indonesia.

62
 South Sumatra Provincial House of Representative Building

The State Audit Board

The functions of the State Audit Board are outlined in Article 23E of the 1945
Constitution. Its main function is to conduct official examinations of government
financial accounts. The findings of the Board are submitted to the House of
Representatives, the Regional Representative Council, and the Regional Houses of
Representatives in accordance with their respective authorities.

The Board should locate in the capital of the state and have representatives in every
province. Current chairman of the Board is Anwar Nasution.

The Supreme Court

The Supreme Court and the subordinated judiciary institutions within the realms of the
general court, the religions court, the material court and the administrative court are
independent courts.

They shall exercise the judiciary power. The Supreme Court, according to Article 24A of
the Constitution, shall have the authorities to hear appeal cases to review regulations
below the level of laws to the laws concerned, and other authorities accorded by law.

Current chairman of the Court is Bagir Manan.

The Constitutional Court

The Constitutional Court shall have the authority to put on trial at the first and final
instance, whose ruling irreversible, to review laws against the Constitution, to rule on
conflicts of authorities among state institutions whose authorities are given by the
Constitution, to decide the dissolution of political parties, and to settle disputes on the
results of general elections.

63
It shall also be obliged to rule on the opinion of the House on the assumption of violation
by the President and/or Vice-President according to the Constitution.

The Court's current chairman Jimly Asshidiqie.

The Government Apparatus

The government apparatus have a decisive role in achieving successful implementations

of general government affairs and development activities. Therefore, measures have been
taken to include the execution of state apparatus supervision, the institutional and
management refurbishment, the improvement of public services quality, and the
enhancement of human resources capacity.

In this context there have been some schemes, including the State Apparatus Scrutiny
Scheme, which aims to realize clean, respectable state apparatus that are free from cases
of corruption, collusion and nepotism. In addition, there are main activities of the scheme
aimed at: developing a transparent and accountable information system on supervision;
improving the information quality of supervision system, which is integrated with the
measure of enhancing the quality of planning, monitoring, controlling, and reporting;
upholding ethics and morality of the government auditors, and following up transparent
internal supervisory results, and reinforcing civil servants disciplinary regulations;
implementing consistently Law No.28 of 1999 concerning the Management of State
Affairs, which is free from corruption, collusion and nepotism and at the same time
improving the role of the Commission Watch on the State Apparatus' Wealth; arranging
and developing the system of Governmental Institutions' Performance Accountability as
criteria for the success and/or failure of main tasks completion and function of
government institutions; and striving efficiency in the inspectorial structure.

The other schemes are: the Institutional and Management Restructuring Scheme, which is
designed to refurbish the state apparatus institutional and management system in the
execution of general governmental task and development focused on the implementation
of decentralization which is supported by a more efficient and effective
documentary/archival management; the Improvement of Public Services Quality Scheme,
which is intended to improve the quality of public services in various fields of public
administration and development in consonance with the system of Governmental
Institutions' Performance Accountability in central and regional administrations' working
units; and the Improvement of Public Services Quality Scheme, which is aimed at
enhancing quality, professionalism and skill of the state apparatus in performing their
respective duties and functions in a more optimum way.

64
The Indonesian Presidents

Soekarno, the First President

On August 18, 1945, the day after independence was proclaimed, the Indonesia's
Committee for Preparation of Independence (PPKI) elected Soekarno by acclamation as
first president of the young Republic with Hatta as vice-president.

Soekarno's address before the members of the Investigating Committee for Preparation
for Indonesian Independence (BPUPKI) on June 1, 1945, outlined five principles called
Panca Sila that later on developed to become the nation's basic philosophy contained in
the Preamble of the 1945 Constitution.

In 1955, President Soekarno had to his credit the holding of the Asian-African
Conference in Bandung, West Java. The initiative was taken by Indonesia, India,
Pakistan, Myanmar and Ceylon (Sri Lanka). The conference was attended by delegates
from 24 Asian and African countries. Also presences in the conference were Chou En-Lai
of China, Nehru of India, and Nasser of Egypt. This was an important beginning for non-
aligned movement.

In the same year Soekarno succeeded in holding Indonesia's first general election in
which 47 political parties contested to elect their representatives for the House (DPR) and
the People's Consultative Assembly (MPR).

On July 5, 1959 he issued a Decree for the reinstatement of the 1945 Constitution. This
was followed by his announcement of a Political Manifesto on August 17. Later the
Manifesto became the Guidelines of State Policy. Furthermore, his handpicked
Provisional People's Consultative Assembly did resolve to make President Soekarno
president for life.

Regarding Indonesia's claim to get back West Guinea, now Papua that was being
occupied by Dutch troops, President Soekarno's stance was firm; he ordered to establish

65
the "People Threefold Command" to liberate it. He also created the "Mandala Command
for Liberation of the

West New Guinea." This move was bringing some tangible result which led to the
negotiations between the Dutch and Indonesian Government in New York under the
auspices of the UN to reach an agreement to settle the problem of Indonesia's claim to
West Irian or West New Guinea.

The negotiations resulted in a resolution of the UN to administer the territory of West

Irian for a period of one year to be ultimately officially transferred to the Republic of
Indonesia. The people's "act of free choice" later resulted the West Irian's choice to
remain with the Republic of Indonesia.

Considering the formation of Malaysia being the British Empire's puppet and satellite
government, President Soekarno staged a confrontation against it. Diplomatic ties
between the two countries, Indonesia and Malaysia severed as of September 3, 1964. At
the time Malaysia was ultimately accepted as member of the UN Security Council, that
President Soekarno ordered Indonesia's representatives of the UN to quit the
organization.

On the 30th of September 1965 the Indonesian Communist Party (PKI) staged another
coup which was however abortive failed by the Indonesian Armed Forces.

Later, Major General Soeharto emerged as the strong man of a new regime, and ordered
the army to eliminate all traces of the Communist Party.

In March 1967 the MPR formally revoked Soekarno's governing authority and appointed
Soeharto acting president, pursuant to the Provisional People's Consultative Assembly's
Decree No. XLIV/1968.

Soekarno was put into house detention, before passing away in June 1970

Soeharto, the Second President

In July 1971, the second general election was held, and the functional group (Golkar)
won 73 percent of the total seats in the House of Representatives (DPR).

66
The 960-seat Assembly (MPR) unanimously re-elected Soeharto as president to a second
five-year term on March 22, 1973. Sultan Hamengku Buwono IX was elected vice-
president.

The nation's third general election was held on May 2, 1977. The ruling Golkar won 62
percent of the vote, and took control of 332 seats in the 460-member House of
Representatives. On March 22, 1978 the MPR re-elected

Soeharto to third five-year term as president. Adam Malik was elected vice-president.

The nation's forth, fifth, sixth, and seventh general election had been held consecutively
in 1982, 1987, 1992 and 1997. The Golkar emerged as the winning party at every
national election with landslides

vote during the New Order government. Parallel with this, the MPR had re-elected
Soeharto to the fourth, fifth, sixth, and seventh five-year term as president.

Indonesia under the New Order Government of President Soeharto had shown substantial
achievement in many fields, which had been enjoyed by the majority of the Indonesian
people. It had gained success in the national development, before severe economic crisis
that began with monetary crisis hitting the country as of July 1997.

Such economy crisis caused substantial decline in the people's standards of living.
Following suit was political crisis since the existing political system was unable to
accommodate the dynamism of the aspirations and interests of the community. Students'
street protests occurred frequently; they demanded political and economic reform as well
as resignation of President Soeharto who had ruled the country for more than 32 years
and eradication of corruption, collusion and nepotism. Pressure against President
Soeharto to resign became so strong. Even the leadership of the House suggested
Soeharto that he should resign.

Finally, Soeharto resigned on May 21, 1998, and he handed over the country's leadership
to Vice-President B.J. Habibie.

67
B.J. Habibie, the Third President

Habibie became the nation's third president. A day after having been inducted as
President, he formed the Reform Development Cabinet, composing of various political
and social forces, including politicians from the two minority parties, the United
Development Party (PPP) and the Indonesian Democracy Party (PDI).

It was under the leadership of President Habibie the country's eighth general election
taking place on June 7, 1999.

At the conclusion of its session, then the Assembly elected Mr. Abdurrahman Wahid
after he outvoted four contenders including Megawati Soekarnoputri, who later was
elected vice-president after overcoming Mr. Hamzah Haz. Abdurrahman Wahid secured
373 votes out of the total 691 against 313 votes gained by Megawati.

Earlier, the Habibie's administration reintroduced party system, by which forty-eight (48)
political parties contested the election. The Indonesian Democracy Party of Struggle
(PDI-P) got the top of the list, followed by its major contenders, i.e. Golkar Party, the
National Awakening Party (PKB), the United Development Party (PPP) and the National
Mandate Party (PAN).

It was under the Habibie Administration a number of political prisoners were released,
freedom of expression by the people and press respected.

The MPR held general session in two stages, from October 1 to 3, and October 14-21,
1999. During the session the accountability address of President Habibie was rejected,
and Habibie withdrew from his presidential nomination as a candidate from the Golkar
Party.

68
Abdurrahman Wahid, the Fourth President

Abdurrahman Wahid, better know as Gus Dur, indisputably became Indonesia's fourth
president. Internationally acclaimed moderate Moslem leader, he is one of the National
Awakening Party's founders. He started his political career in 1984 when he was elected
chairman of the Nahdlatul Ulemas Islamic Organization.

The people's earlier expectations and hope upon President Abdurrahman Wahid to be
able to restore the prolonged crisis was high enough. But it proved that during his one
year and nine months in office he failed to recover the economic as well as political
crisis. Even his image started to fade away, especially when he was suspected to have a
connection with the so-called "Buloggate" and "Bruneigate" extortion.

Relations between the House and President Abdurrahman Wahid became sour and severe
because the House regarded Abdurrahman Wahid failed to execute the constitution
properly and to administer good governance. For this, the House sent letters of warning in
the form of "Memorandum" I and II to him and demanded him to give explanations to
Parliament. But on the other hand, President felt his administration had governed in
conform with the constitution, so he ignored the summon from Parliament to give
explanations. Instead, he declared a state of emergency that would be effective as of 6
p.m. on July 31, 2001, and suspended the MPR, DPR and Golkar Party.

In respond to the actions made by President Wahid, the MPR immediately held a special
session during which it discharged Abdurrahman Wahid as president and appointed Vice-
President Megawati Soekarnoputri the fifth president of the Republic of Indonesia.

69
Megawati Soekarnoputri, the Fifth President

On July 23, 2001, Diah Permata Megawati Soekarnoputri took an oath of office of
President of the Republic of Indonesia. She served his term of office until October 20,
2004.

However, it was only on August 9, 2001, President Megawati could announce members
of her Cabinet named "Kabinet Gotong Royong" (Mutual Cooperation Cabinet). Her
cabinet consists of three coordinating ministers, 18 ministers with portfolio, nine state
ministers, and two high officials enjoying ministerial level.

So far, Megawati _the eldest daughter of Soekarno, the first Indonesian president_ and
her cabinet have tried hard to first of all stabilize the country and to recover the nation's
economy from severe crisis.

During her tenure, Megawati succeeded in not only improving substantially macro-
economic performance, maintaining socio-political stability, but also in managing fairly
arduous, complicated but peaceful, fair and democratic general elections of members of
legislature and President and Vice-President in 2004. She surrendered the presidential
post she served for more than three years, to her predecessor Susilo Bambang
Yudhoyono.

70
SUSILO BAMBANG YUDHOYONO, the SIXth President

Susilo Bambang Yudhoyono, retired Army general, was officially inducted by the
People's Consultative Assembly, and took his oath of office, on October 20, 2004, to
become the sixth President of the Republic of Indonesia, replacing Megawati
Seokarnoputri following his landslide victory _by garnering more than 60 percent of total
valid votes in the nation's first-ever direct presidential election.

The installment itself was also attended by heads of governments of and special envoys
from some foreign countries _the first installment of an Indonesian President attended by
foreign envoys. Heads of foreign Governments at ending the installment of President
Susilo Bambang Yudhoyono were newly elected Australian Prime Minister John
Howard, Malaysian Prime Minister Abdullah Ahmad Badawi, Brunei Darussalam Sultan
Hassanal Bolkiah, Singaporean Prime Minister Lee Hsien Loong, Timor Leste Prime
Minister Mari Alkatiri, and special envoys from Japan, Thailand, South Korea and the
Netherlands

President Susilo Bambang Yudhoyono was proposed to be a candidate for the President,
pairing with Mohammad Jusuf Kalla as his running mate, by his party, the Democratic
Party.

Before becoming President, Susilo Bambang Yudhoyono was once Minister of Energy
and Mineral Resources under the Abdurrahman Wahid Administration, and Coordinating
Minister for Political and Security Affairs under the Cabinet of Megawati Sukarnoputri
before quitting to contesting for the presidency. Under the administration of President
Soeharto, he was considered among the Army's rising stars and one of the architects of
reform in the military.

He graduated from the Military Academy in 1973 before earning a master degree in
management from Webster University in the United States of America, and recently
completing his doctorate with the Bogor Institute of Agriculture.

Broad education and experiences during his military and public services he holds are
regarded as his advantages to lead the country to a better situation and condition.

71
"INDONESIA BERSATU" (UNITED INDONESIA) Cabinet

The first Indonesian President elected by direct popular votes, President Susilo Bambang
Yudhoyono inducted his cabinet called as the United Indonesia Cabinet, consisting threee
coordinating ministers, 18 ministers with portfolios, 11 state ministers, and three high
officials with status of state ministers, on 21 October, 2004 at Presidential Palace.

Listed below is the line up of the cabinet:

Coordinating Ministers:

1. Coordinating Minister for Political, Legal, and Security Affairs: Widodo A.S., S.I.P.

2. Coordinating Minister for the Economy: Ir. Aburizal Bakri

3. Coordinating Minister for People's Welfare: Prof. Dr. Alwi Shihab

Ministers with Portfolios:

4. State Secretary: Prof. Dr. Yusril Ihza Mahendra

5. Minister of Home Affairs: H. Moh. Ma'ruf, S.E.

6. Minister of Foreign Affairs: Dr. Nur Hassan Wirajuda

7. Minister of Defense: Prof. Dr. Juwono Sudarsono

8. Minister of Justice and Human Rights: Dr. Hamid Awaluddin, S.H.

9. Minister of Finance: Dr. Jusuf Anwar

10. Minister of Energy and Mineral Resources: Dr. Ir. Purnomo Yusgiantoro

11. Minister of Industry: Dr. Ir. Andung Nitimihardja

12. Minister of Trade: Dr. Marie Elka Pangestu

13. Minister of Agriculture: Dr. Ir. Anton Aprianto, M.S.

14. Minister of Forestry: H. M.S. Kaban, M.Si.

15. Minister of Transportation and Telecommunication: Ir. M.Hatta Rajasa

16. Minister of Maritime Affairs and Fisheries: Freddy Numberi

17. Minister of Manpower and Transmigration: Drs. Fahmi Idris

72
18. Minister of Public Works: Ir. Joko Kirmanto, Dipl.H.E.

19. Minister of Health: Dr. Fadilah Supari

20. Minister of National Education: Prof. Dr. Bambang Sudibyo, M.A.

21. Minister of Social Affairs: Dr. H. Bachtiar Chamsyah

22. Minister of Religious Affairs: M. Maftuh Basyuni

23. Minister of Culture and Tourism: Ir. Jero Wacik, S.E.

State Ministers:

24. State Minister for Research and Technology: Dr. Kusmayanto Kadiman

25. State Minister for Cooperatives and Small/Medium Enterprises: Drs. H. Suryadarma
Ali, M.Si.

26. State Minister for Environment: Ir. Rahmat Witoelar

27. State Minister for Women Empowerment: Dr. Meutia Farida Hatta Swasono, S.S.,
M.A.

28. State Minister for Administrative Reform: Drs. Taufiq Effendi, M.B.A.

29. State Minister for the Accelerated Development of Disadvantaged Regions: Dr.
Saifullah Yusuf

30. State Minister for National Development Planning/Chairman of the National

Development Planning Board: Dr. Sri Mulyani Indrawati

31. State Minister for State-Owned Companies: Sugiharto, S.E., M.B.A.

32. State Minister for Communication and Information: Dr. Sofyan A. Djalil, S.H., M.A.,
MADD.

33. State Minister for Public Housing: Drs. Muhammad Yusuf Asy'ari, A.K., M.Si.

34. State Minister for Youth and Sports: Adhyaksa Dault, S.H., M.Si.

73
High-ranking Official with the Status of State Minister:

35. Attorney General: Abdul Rahman Saleh, S.H., M.H.

The 100-Day Working Program of "Indonesia Bersatu" Cabinet

The United Indonesia Cabinet's 100-day working program, an inseparable part of the
Cabinet's middle-term development program for the next five years, contains concrete
measures to respond to public high expectations over the government of the newly
inducted President Susilo Bambang Yudhoyono. However, a number of urgent matters
that are considered routine and already going on well are excluded from the 100-day
program. Meanwhile, the cabinet's middle-term development program itself is scheduled
to be introduced to the House of Representatives in January 2005 to be made into a law.

The short-term program covers a wide-range of activities in many fields. They include
maintaining security and order, and creating a tranquil situation in some conflict-torn
areas, such as in Mamasa (West Sulawesi), North Maluku, Poso, and building and
fostering trust among inter-communal groups in those places. Other activities are to cope
with separatist movements in the provinces of Nanggroe Aceh Darussalam and Papua; to
uphold law enforcement at the country's territorial waters, and to combat illegal logging,
illegal fishing, and smuggling of sea-sand and tin-sand; to augment the nation's resilience
against terrorism, and to fight terrorism as well as to improve institutional bodies dealing
with terrorist acts.

The program also urges on the maintenance of conducive situation during the
commemoration of religious events of Idul Fitri (Islamic feast at the end of the Ramadhan
fasting month) and Christmas, and the anticipation of possible floods during the rainy
season (October 2004-March 2005).

Prominent in the short-term program is the eradication of corruption, including serious

handlings of corruption cases, that have the potential to retrieve embezzled state money,
and the provision of sufficient attention over the establishment of courts for corruption
criminal acts, on their authorities, personnel, and finance; the formation of a commission
tasked to control public prosecutor offices; and the reform of governmental
administration system (bureaucracy).

On the creation of job opportunities and the protection of workers, the 100-day working
program puts emphasis on the improvement of regulations and ministerial decisions to
make them capable of creating a more flexible manpower market; the protection and the
repatriation of Indonesian migrant workers from Malaysia; the close monitoring over
some organizations that possibly do massive lay-off; the payment of Idul Fitri and
Christmas allowance; and the formation of an independent Professional Certification
National Body.

Regarding macro-economy, the 100-day program impels on the prudent execution of the
2004 State Budget; and on the review of the 2005 State Budget.

74
On investment, the program stresses the review of regional regulations and taxes which
are considered impeding investment; and the improvement of competitive edge of
industrial products, and the protection of small-scale depositors.

In dealing with education, the program drives for the improvement of the implementation
of the nine-year compulsory education system; the provision of qualified skills and
entrepreneurship education; the improvement of educators' professionalism; and the
establishment as well as equitable distribution of educational facilities and
infrastructures.

As far as the business world is concerned, the program seeks to enhance the provision of
various tax incentives and trade facilities for business players; and the protection of
manufacturing industrial establishments as well as the encouragement of industrial
establishments in the regions.

Susilo Bambang Yudhoyono takes official oath as President of the Republic of

Indonesia before the Assembly

Touching on health care, the program aims on the provision of free-of-charge health care
services by third-class hospitals; and the purification of drinking water.

On poverty alleviation, the program spurs the Cabinet on the provision of access and
guarantee on rights over land plots for people belonging to economically-weak bracket.

Last but not least, the program encourages the improvement of hajj pilgrimage services
and the provision of free meals for nine days during the pilgrimage in Saudi Arabia.
commission tasked to control public prosecutor offices; and the reform of governmental
administration system (bureaucracy).

On the creation of job opportunities and the protection of workers, the 100-day working
program puts emphasis on the improvement of regulations and ministerial decisions to

75
make them capable of creating a more flexible manpower market; the protection and the
repatriation of Indonesian migrant workers from Malaysia; the close monitoring over
some organizations that possibly do massive lay-off; the payment of Idul Fitri and
Christmas allowance; and the formation of an independent Professional Certification
National Body.

Regarding macro-economy, the 100-day program impels on the prudent execution of the
2004 State Budget; and on the review of the 2005 State Budget.

On investment, the program stresses the review of regional regulations and taxes which
are considered impeding investment; and the improvement of competitive edge of
industrial products, and the protection of small-scale depositors.

In dealing with education, the program drives for the improvement of the implementation
of the nine-year compulsory education system; the provision of qualified skills and
entrepreneurship education; the improvement of educators' professionalism; and the
establishment as well as equitable distribution of educational facilities and
infrastructures.

As far as the business world is concerned, the program seeks to enhance the provision of
various tax incentives and trade facilities for business players; and the protection of
manufacturing industrial establishments as well as the encouragement of industrial
establishments in the regions.

Touching on health care, the program aims on the provision of free-of-charge health care
services by third-class hospitals; and the purification of drinking water.

On poverty alleviation, the program spurs the Cabinet on the provision of access and
guarantee on rights over land plots for people belonging to economically-weak bracket.

Last but not least, the program encourages the improvement of hajj pilgrimage services
and the provision of free meals for nine days during the pilgrimage in Saudi Arabia.

76
President Susilo Bambang Yudhoyono Vice-President Mohammad Jusuf Kalla

Members of the United Indonesia Cabinet pose for a photograph in front of Merdeka
Palace

77
Dumai from previously a fishing village to a modern town

78
REGIONAL DEVELOPMENT

Policy on regional development underlines the development of regional autonomy

focusing on the creation of balance in financial proportion between the central and
regional administrations; improvement of managerial institutions of regional
administrations; betterment of personnel and public service management; enhancement of
competency of regional government apparatus; and empowerment of the Regional
Houses of Representatives or regional legislative bodies. The policy covers 20 regional
development schemes as Law No. 25 of 2000 regulates, and are divided into four major
programs, namely the regional autonomous development program, area development
program, empowerment of communities program, and special development program for
the provinces of Nanggroe Aceh Darussalam, Papua, and Maluku.

The regional development comprises the Regional Government Apparatus Promotion

scheme, the Regional Government Institutions Development scheme, the Regional
Financial Development scheme, the Non-Governmental Institutions Promotion scheme,
the Regional Economic Development scheme, the Strategic Areas Development scheme,
the Rural and Urban Development scheme, the Housing Development scheme, the Less-
developed Areas Development scheme, the Development scheme of Areas at Borderlines
with few neighboring countries, the Development scheme of Spatial Management, the
Land Management Development scheme, the Social-Organizations Promotion scheme,
the Empowerment of Poor People Development scheme, the Community's Alertness
Promotion scheme, and the Special Management of Aceh, Papua, and Maluku.

In implementing the policy on regional development, measures adopted as of 2001

included the maintenance of the nation's unity and integrity, the continuation of
reformation and democratization, and the improvement of regional economy.

The decentralization policy, which is pursuant to Law No. 22 of 1999 on Regional

Administration and Law No. 25 of 1999 on Financial Sharing between Central and
Regional Administrations, has been so far formulated through phases consisting of the
Initiation Phase in 2001, the Installation Phase during the period of 2002-2003, the
Consolidation Phase during the period of 2004-2007, and the Stabilization Phase after
2007.

Law No. 22 of 1999 on Regional Administration allows extensive, concrete, and

responsible execution of regional autonomy based on the principles of democracy,
people's participation, equality and justice, as well as the potentiality and plurality in the
provinces. Law No. 25 of 1999 on Financial Sharing between the Central and Regional
Administrations meanwhile governs the regional governments in performing their tasks.

Pursuant to Law No. 25 of 1999 and Government Regulation No. 104 of 2000, the
allocation of profit-sharing fund of oil and gas for regional administrations is determined
at 15 percent and 30 percent respectively from the revenue after taxes. Pertaining to the
Province of Nanggroe Aceh Darussalam (NAD), the allocation of profit-sharing fund
from oil and gas for the province is 70 percent each, but in nine years the ratio will be

79
reduced to 50 percent each. Further, Chapter 7 of Law No. 25 of 1999 regulates the ratio
of budget between Central and Provincial Governments, in which the general allocation
fund is fixed at a minimum of 25 percent of net domestic revenue minus profit-sharing
fund and special allocation fund derived from reforestation fund.

Revenues apportioned for provincial and local governments are derived from taxes and
natural resource revenues. The 2004 state budget allocates some 31.8 percent of central
government expenditures for provincial and local governments, a slight decrease from
that of 2001 which was 32.2 percent.

Regional Autonomy

The implementation of decentralization and regional autonomy policy based on Law No.
22 of 1999 concerning Regional Administration has caused changes in the paradigms that
contained in the concept of regional autonomy. The regional autonomy gives a greater
role and participation of regional (district) administrations to manage their regions, and
conversely decrease the role and participation of province and central government. The
change of this function and role, as regulated in Law No. 22 of 1999 concerning Regional
Autonomy covers some regional administration instruments, such as regional
administration construction, head of region accountability, filling the position of head and
deputy head of regions and policy making concerning the region.

The background and goals of which underlaid the writing of Law No. 22 of 1999 on
Regional Autonomy are: first, to give an extensive autonomy to the region in anticipation
of the rapid growth of social affairs, politics and economy that need fast and accurate
response; secondly, to enhance people's participation, just and equitable, self-reliant,
exploring regional potentials in the process of the development which is based on the
principle of democracy; and thirdly, to maintain the integrity of the Unitary State of the
Republic of Indonesia, and to promote a dynamic sense of unity and cohesion, which is
still processed creatively in line with temporal change.

According to the law, the regional administration will receive some power delegation or
decentralization from the central government. District/city or municipality up to the
province will manage their regions according to its relevance, significance and capacity
to execute the authority. Article 7 of Law No. 2 of 1999 says that the authority of the
regional administration covers the authority in all government aspects, except those of
defense foreign policy, monetary, fiscal and religious affairs. Meanwhile, the authorities
to be executed by a regional administration are among others: public works, health,
education and culture, agriculture, communication, industry and trade, investment,
environment, land affairs, cooperatives and manpower. The reposition and redefinition of
government administration in the region shall be understood clearly to reach the goals of
the regional autonomy. That reposition has also influenced the regional administration
accountability which is previously is in vertical manner, i.e. to the President through the
Minister of Home Affairs. Subsequently, based Law No. 22 of 1999, the accountability
will become horizontal, i.e. to the Regional House of Representatives (DPRD). With

80
these new procedures, it is hoped that the supervisory function of the legislative will run
smoothly

In the regional autonomy, the provincial tax revenue will be shared with the
districts/cities or municipalities. In the case, the regional administration will receive all
fund received from Tax on Land and Building (PBB), while the 10 percent of the central
government share will be distributed back to the region, both in the from of average and
proportional computation. Meanwhile, 20 percent of personal income tax and corporate
income tax, will be given to the region, with the distribution of 8 percent for the province
and 12 percent for districts/cities. The central government has also given share to the
provinces state revenues from the exploitation of natural resources of forestry, general
mining, fishery, oil and gas mining and natural gas. In line with the principle of justice,
the share will be divided not only to the producer-region, but also to the non-producer
regions that are situated in the neighboring areas within the province. Besides taxes, the
region will also receive fund from the State Budget (APBN), the General Allocation Fund
(DAU) and the Special Allocation Fund (DAK)

Expansion of Regional Administrations

Parallel with on-going political dynamism of development and in accommodating public

aspirations, several provincial and local (district and municipal) administrations came
into being, and were put into the state system. Up to 2004 there have been six new
provinces added to the system to make the country's total provincial governments 32,
along with 80 new district administrations to total 349, and six new municipal
administrations to number 91 in total.

Developing Less Developed Areas

Disparities, particularly in economic and welfare term, are tangible and common between
the relatively more-developed regions in the country's western part and the relatively
less-developed regions in the country's eastern half, between those of relatively more-
developed urban areas and the relatively less-developed rural areas, and between the
relatively advanced Java Island and the less-advanced outer-Java. Regional developments
are among other things aimed at addressing and dealing with such unfavorable conditions
and simultaneously boosting regional economic growth rate, including regional gross
domestic products (RGDP), improving economic infrastructures and facilities etc. of the
less-developed areas to make them on par with the relatively more-developed areas.

The areas that also receive development priority are of areas near and along the
borderlines with the neighboring countries such as with Malaysia in Kalimantan, with
Papua New Guinea in Papua, and with Timor Leste in East Nusa Tenggara. In fact there
are some problems to deal with seriously among other things: a lackluster of control due
to primarily unavailability of sufficient infrastructures and facilities; still not definitive
border marks, unavailability of integral national policy to develop areas along the
borderlines and of coordination between the central and regional administrations. Also
conditions hampering the development of the areas are limited domestic funds to

81
accompany foreign investment; bilateral cooperation still takes the form of ad hoc nature
and valid for certain areas; welfare disparity between domestic people

Downtown Palembang city, South Sumatra

living along the borderlines and those across such as in Kalimantan; rampant smuggling
of people and natural resources; limited availability of infrastructures and facilities in
offices of local security, immigration and custom as well as quarantine services, and
crossing points.

Therefore the main aims of the development of areas near and along the borderlines are
to improve the living standard of the people of these areas, to enhance managerial
capacity to exploit potentialities the border areas have, and to maintain the areas' security
and order. To achieve such conditions, there have been action plans to be executed,
including to set out integrally development of border areas, to maintain the security and
order at border areas, such as in Kalimantan, Papua, and East Nusa Tenggara, to arrange
spatial management of land and seas at border areas, to encourage the development of
growth centers at areas near and along borderlines, to promote potential resources the
areas near borderlines have, to improve bilateral cooperation with neighboring countries
in the fields of security, economy and management of natural resources and environment,
to empower socio-political, and economic institutions and non-governmental
organizations, and to improve infrastructures and means of security, immigration and
custom and quarantine offices, as well as to better infrastructures and means of transport,
education and health.

Up to 2004 some regional development programs have been carried out, including the
complete arrangement of measures and strategies as well as planning of spatial
management of areas near borderlines, the organization of bilateral meetings with some
foreign parties from neighboring countries like Malaysia, the Philippines, Papua New
Guinea, and Timor Leste through various fora, the execution of economic cooperation
through investment for development of special areas in the districts within the Provinces

82
of West and East Kalimantan under the Malindo socio-economic framework., and many
others. At the same time database on areas along borderlines have been composed and
built up, and information and charts of areas along borderlines and the most outer islands
and islets have been made available.

ISSUES ON THE PROVINCES OF ACEH, PAPUA, AND MALUKU

The national issues the Government has been giving serious attention to are those
pertaining to problems of security and order in the provinces of Nanggroe Aceh
Darussalam (NAD), Papua or Irian Jaya, and Maluku.

A main problem the province of NAD administration has been facing is on security
matters caused by a rebellious armed movement calling themselves the GAM (Gerakan
Aceh Merdeka the Aceh Freedom Movement) that has hampered the province's socio-
economic and administrative activities, thus impeding almost all development activities.
The security problem has also forced many people to flee to more secure and tranquil
areas, causing the implementation of Law No. 18 of 2001 on Special Autonomy Status
for the province of NAD crippled and ineffective, and hampering the development and
rehabilitation of transport infrastructures and facilities as an important economic mover.

In dealing with such unfavorable situation and condition, the Central Government along
with the Provincial Administration of NAD, have introduced the development
acceleration schemes to make the province more conducive to allow all aspects of life
including legal certainty, human rights, and status of special autonomy run normally as
they should. So far, the schemes have been bearing fruit, for instance there are some
regional regulations adopted to support the implementation of Law on Special Autonomy
Status of NAD, and the Law has been socialized to people at large.

Regarding the province of Papua, things that to some extent impede developments in this
province are among other things unfavorable condition and situation of internal security
and order due to frequent armed conflicts among tribes, and between the Indonesian
Armed Forces and the rebellious armed group of OPM (Free Papua Organization), its
geography that is rather too rough to facilitate the development of economic
infrastructures and facilities, the lackluster implementation of Law No. 21 of 2001 on
Special Autonomy of the Province of Papua, rather less-developed socio-culture of native
tribes, etc.

The main aims of the development acceleration scheme are to encourage the local people
to take part more actively in development activities, to improve the capacity of the local
governmental institutions, to settle more quickly cases of human rights abuses, and to
expedite the implementation and operation of Law No. 21 of 2001 on Special Autonomy
of the Province of Papua. The main goals of the scheme are the availability of qualified
human resources, and the good functioning of local governmental institutions to provide
public services in the context of maintaining security and order, and peace, and
improving welfare and justice; the settlement of cases of human rights abuses; and the
improvement of welfare of the Papuan people.

83
 One of supermarkets available in Banda Aceh, Nanggroe Aceh Darussalam Province

It is hoped that under the scheme Law No. 21 of 2001 would serve as it is envisaged,
regional administrative services run more effectively and efficiently, development
activities go well as they are planned, the welfare of the local people improves
meaningfully, the people's economic activities flourish, and their education level
advances, and the people's health condition sound, etc.

Meanwhile the main aims of the development acceleration scheme for the provinces of
Maluku and North Maluku are to maintain security and order, and to recover
comprehensively the feeling of the local people from traumatic insecurity and gross fear
of previous bloody social conflicts. The goals of the scheme are the resumption of normal
life of the local people and the refurbishment of socio-economic as well as public
infrastructures and facilities, as well as the settlement of cases of human rights abuses.

The scheme has been designed as well to reconcile the hostile parties, and to normalize
the life of the local people through dialogues and peaceful agreements, to strengthen the
communities' resistance against any provocation from within and without, to intensify
religious guidance and preaching, to recover socio-economic life, to restore damaged
infrastructures and facilities of education and health as well as to activate schooling,
including schooling for children in refugee camps, and to grant financial assistance to
refugees, etc.

Under the scheme and with the issuance of Presidential Instruction No. 6 of 2003 on the
Post-conflict Accelerated Development Recovery for the province of Maluku and North
Maluku, the local socio-economic conditions has been showing an encouraging trend,
marked by the lifting of civil emergency status, the growing number of refugees who
have returned to their hometowns or villages, and the normalization of local
governmental administrative activities.

84
THE LAW

Legal developments during the recent years have been focusing on the promotion of law
supremacy and improvement of good governance, to be executed through four
development programs: the Legislation Formulation Program; the Empowerment of
Judiciary and other Law Enforcement Institutions Program; the Program for the
Settlement of Cases of Corruption, Collusion and Nepotism and Human Right Abuses;
and the Program for the Enhancement of Legal Awareness and Development of Legal
Culture among the People.

In the context of reinforcing law supremacy, the 1999-2004 Guidelines of State Policy
gives directions to promoting legal affairs as follows: 1) to develop legal culture to all
levels of society to make them have legal awareness and obedience within the frame of
upholding law supremacy and a law state; to arrange a comprehensive and integrated
national legal system by recognizing religious and traditional laws, and replacing
statutory regulations inherited from the Dutch colonial government as well as
discriminative laws, including those related to gender; to uphold consistently regulations
to secure legal certainty and respect to human rights; to continue ratifying international
conventions, particularly those pertaining to human rights, suitable with the need and
interests of the nation; to improve moral integrity and professionalism of law enforcers,
including the Police of the Republic of Indonesia, to cultivate the public's trust in them by
improving their welfare, supportive means and facilities, education and control; to realize
independent legal institutions that are free from interference by any party whatsoever; to
develop statutory regulations conducive to economic activities in facing the free trade era
without hampering national interests; to manage fast, low-cost operations, and
corruption-collusion-and nepotism-free judicial process by upholding the justice and truth
principles; to nurture legal understanding and consciousness, and to promote the
protection, respect to and enforcement of human rights in all aspects of life; and to settle
completely various judicial processes on unsettled abuses of laws and human rights.

In relation with the legislation formulation program, a number of laws pertaining to

various areas have been enacted and promulgated.

On intellectual property rights, there has been put into force Law No. 30 of 2000
concerning Trade Secrecy, Law No. 31 of 2000 concerning Industrial Design, Law No.
32 of 2000 concerning Integrated Circuit Lay-out Design, Law No. 14 of 2001
concerning Patent, Law No. 15 of 2001 concerning Trademark, and Law No. 19 of 2002
on Copyright. On monetary and tax, several laws have been enacted, among other things
Law No. 3 of 2004 on Amendment to Law No. 23 of 1999 concerning Bank Indonesia
(Indonesia's Central Bank), and Law No. 17 of 2002 on Amendment to Law No. 7 of
1983 concerning Income Tax as well as Law No. 14 of 2002 on Tax Tribunal. Regarding
money laundering, Law No. 25 of 2003 concerning Money Laundering Criminal Acts has
been put into force. So has Law No. 30 of 2002 concerning Commission for Corruption
Crime Eradication. As regard to judicial authority, there are Law No. 24 of 2003 on
Constitutional Court, Law No. 4 of 2004 on Judicial Power, Law No. 5 of 2004 on
Supreme Court, etc. Pertaining to human rights, there are Law No. 1 of 2000 on

85
Ratification of International Labor Organization Convention No. 182 (concerning the
Prohibition and Immediate Action For the Elimination of the Worst Form of Child
Labor), and Law No. 26 of 2000 on Human Rights Court.

In the context of developing the national legal system, studies have been done to cover
five issues: 1) legal matters on economic reform and regional autonomy; 2) direct
election of president; 3) law on the Constitutional Court; 4) laws on foreign investment in
the framework of the World Trade Organization; and 5) laws on private court in the
system of free foreign exchange.

In addition, legal researches have been conducted to include Legal Aspects of the
Implementation of the Rights of the House of Representatives in the context of
controlling government management; Legal Aspects of the Settlement of BLBI (Bank
Indonesia Liquidity Support) by banks; and Legal Aspects of Credit Reconstruction in
stimulating the real sector. It has been endeavored as well to arrange bills on Police Acts
against Legislators, on Banking Reconstruction, on Ombudsmen, on State-Owned
Enterprises, and Amendment to Law No. 9 of 1990 concerning Tourism.

In view of empowering judiciary and other law enforcement institutions, various

activities have taken place to include promotion of public courts and state administrative
courts at central and regional levels, legal assistance, improvement of legal service
facilities at central and regional levels, improvement of trainings for justices, promotion
of correctional institutions, of immigration and customs, and projects planning and
control.

So far there are 321 legal technical organizing units, and 399 permanent court halls,
manned by 2,773 justices.

In overcoming the shortage of justices in conflict-torn areas, 154 justices have been
assigned to 47 courts of first level in those areas. In addition, 50 justices have been
appointed under crash-program recruitment to fill the posts in those areas.

On immigration matters, a special measure has been adopted that allows citizens of the
People's Republic of China wanting to visit Indonesia to get visa from all Indonesian
representative offices abroad without prior approval from the Directorate-General of
Immigration of the Republic of Indonesia. In addition, the obligation for visitors from
troubled countries to show US$ 2,000 in their possession when entering Indonesia, has
been lifted.

Much more attentions have also been given to the fight against the drugs abuses, by
among other things setting up 13 special correctional institutions for drugs convicts in 13
cities and towns.

86
Human Rights

Under Law No. 39 of 1999, the National Commission on Human Rights came into being
to among other things promote and maintain human rights and help settle human right
cases arising in the public. Further, under Law No. 26 of 2000, the Human Rights Court
is established. This law in principle accommodates conventions of Rome Statute that
contains definitions of international crimes such as genocide and crime against humanity.
In relation with the Human Rights Court, there have been issued as well Law No. 2 of
2002 concerning Procedure for the Protection of the Witnesses and the Victims of
Serious Abuses of Human Rights, and Government Regulation No. 14 of 2003 on
Compensation, Restitution, and Rehabilitation to the Victims of the Crimes of Human
Rights.

Promotion of human rights has been giving stress on efforts to protect the rights of
women, children, labors, disabled and minority people. In this context, the Ministry for
Law and Human Rights as the official institution that is concerned with the matter, has
been active in maintaining cooperation and coordination with other related bodies such as
the Police, the Offices of Immigration and Customs, the Office of Attorney General etc,
to promote the public's legal awareness, and respect to human rights. The legal promotion
has taken place in various forms from dramas broadcast by radio and television, to
displays, etc.

During the period of 2001-2004, the Human Rights Courts, available only in Jakarta,
Medan, and Makassar, had adjudicated 24 cases of serious human rights abuses, namely
18 cases in East Timor, four cases in Tanjung Priok incident and two cases in Abepura
(Irian Jaya or Papua) incident. Evaluation and assessment of the legal promotional
activities have been regularly made. In line with this, it has been officiated villages with
high awareness of legal matters in West Sumatra and East Kalimantan.

Eradication of Corruption

Endeavors to establish good and clean governance have been persistently sought out by
among other things preventing and eradicating the practices of corruption, collusion and
nepotism. In line with this, Law No. 30 of 2002 on Corruption Crimes Eradication
Commission has been enacted and put into effect.

Under the Law, the Commission has been in operation, and even investigating six big
corruption cases involving government officials. This is to add to Law No. 20 of 2001 on
the Eradication of Corruption Crimes that broadens the meaning of corruption crime, and
put into force the burden of reverse proof by keeping on abiding the principle of
presumption of innocence.

During the period of 2001-2004, the Attorney General handled 1,807 special criminal
cases including corruption cases, of which 1,099 cases had been adjudicated.

87
It is realized that there are still difficulties for law enforcers to handle cases of corruption,
collusion and nepotism as well as abuses of human rights due to primarily the lack of
public trust over law enforcers for there are still many cases left unsettled, in addition to
lackluster of the intelligence function, putting investigators and attorneys on unfavorable
situation to gather sufficient corruption-related proofs.

It must be admitted that the eradication of Corruption, Collusion, and Nepotism, (KKN)
has not been executed optimally. To eradicate KKN optimally, the Government has
enacted Law No. 30 of 2002 on Corruption Crimes Eradication Commission. Meanwhile,
to follow up the law aforementioned, the Ministry of Justice and Human Rights has
established the Steering Committee for the Preparation of Appointment of Membership
of the Corruption Crimes Eradication Commission.

In line with KKN eradication in the law enforcement field, so far the steps have been
taken for the supervision of special cases in relation with cases handling, authority
delegation, accountability and transparency, primarily in the Attorney General Office.

The Attorney General had handled 733 cases of corruption crimes in the period of
January 2002 to April 2003 in the phase of investigation, 522 cases in the phase of
prosecution, 6 cases in the phase of resistance, 318 in the phase of appeal, 502 cases in
the phase of appeal to the Supreme Court, and 38 cases in the phase of judicial review.

Application of Copyrights Law

Law No. 19 of 2002 on Copyrights started to take effect as of Tuesday, July 29, 2003.
The Ministry of Justice and Human Rights, in coordination with the Indonesian Police, in
the short term has made priority to eradicate film and song piracy, which is estimated to
have caused the state losses of Rp8 billion every year.

Films and songs have been included as intellectual property. Preferring to the Law on
Copyrights, other property works that have also been admitted are computer program,
books, speeches and lectures material, visual displays for education and science, songs or
music, drama, art works, architecture, batik arts, photography, cinematography, and
translation or interpretation.

Law on Anti-Money Laundering

In its Plenary Session on September 16, 2003, the House of Representatives agreed to
enact Law No. 16 of 2003 on Eradication of the Crimes of Money Laundering.

Five important articles from the previous law were amended as the efforts to prevent
money laundering parties. The amendment of these five articles is important because
these will be one requirement for Indonesia to be exempted from the sanctions of Counter
Measures from the countries involved in money laundering eradication grouped in the
Financial Action Task Force on Money Laundering (FATF). Previously, the FATF
determined that the previous law on Money Laundering still contained weaknesses.

88
The fight against money laundering action has been boosted since the tragedy of bomb
blast at the World Trade Centre (WTC) building in New York on September 11, 2001.
The United States and other developed countries believed that the biggest sources for
terrorist fund had come from dirty money resulted from narcotics trafficking, corruption,
financial fraud, or smuggling. By tightening money laundering action, it is hoped to
narrow the terrorism actions.

The five articles of the amendment of Law concerning Money Laundering Crimes are:

— To eliminate the minimum requirement of Rp500 million to be categorized as a crime

of money laundering.

— To extend the definition of money suspicious money transaction.

— The period of reporting suspicious transactions has been shorted from 14 work days to
three work days.

— To prohibit financial service institutions and authorities not to leak the transaction
reports.

— To regulate international cooperation in the form of reciprocal legal on problems of

money laundering handling.

The enactment of the bill into law shows Indonesia's commitment to adjust the regulation
on prevention and eradication of money laundering crimes to international standard, as
well as a realization of Indonesia as a member of the international community to
participate in narrowing the action space of crimes and as an effort to prevent and
eradicate money laundering.

89
ECONOMY

General feature

Entering the year of 2004, the country's macro-economy was enjoying a heartening and
significant improvement, following the maintaining of more favorable political and
security conditions. Thanks to sound achievements of the country's macro-economy
during the year of 2003 the best achievement since the crisis hit the country in the middle
of 1997. The performance has become a solid basis for economic development in the
future, particularly for the year 2004. More heartening are the implementations of the
country's legislative general elections and the direct presidential election in 2004, which
ran smoothly without even a single incident. This will certainly promote a sustained
economic recovery with more favorable condition. Fairly conducive and stable monetary
condition as indicated chiefly by the strengthening of rupiah (the country's currency), a
continued easing of inflation environment, and controllable base money, had indeed
attributed to moderate economic growth of 4.1 percent in 2003.

In 2002, economic growth was recorded at 3.77 percent. As a matter of fact, inflation in
2003 stood at 5.6 percent (y.o.y), lower than 10 percent in 2002; Bank Indonesia's
benchmark interest rate was 8.3 percent (in December 2003), lower than that of 13
percent at the beginning of the year; and international foreign exchange reserve stood at
US$36 billion, sufficient for exports during seven months. Still, in the context of
anticipating the post IMF program, particularly in pursuing the improvement of
investment and exports, the Government formed a National Team for Export and
Investment Improvement assigned with three tasks: to formulate general policy for export
and investment improvement; to determine measures required to improve export and
investment; and to examine and decide settlement for crucial problems when they arise in
the process of export and investment improvement.

The better performance of economic indicators in 2003 should certainly become the
stable basis for more improvement of economy on 2004, of which its recovery
assumptions of the real and macro-economic sectors to be attained have been defined
through the 2004 State Budget. Those assumptions are among other things: economy is
projected to grow at 4.8 percent; investment at 2.8 percent; agricultural sector at 2.3
percent; and manufacturing sector at 3.5 percent.

Rupiah exchange rate was stable with strengthening trend. Export value reached
US$61.02 billion or US$5 billion in average per month, meaning it was returning to the
level reached before the monetary crisis in 1997. Non-oil and gas export value showed an
increase of 5.18 percent compared to that of 2002. More hearteningly, an international
ratings agency, Moody's, has upgraded the country's sovereign rating from CCC-to B+,
boosting foreign trust to invest in Indonesia.

90
In line with the improved macro-economy, the year 2003 also saw the dissolution of the
National Bank Restructuring Agency (BPPN) and the termination of the IMF's Extended
Fund Facility. The Government then issued an economic policy package called the
"White Paper" (Presidential Instruction No. 5 of 2003) on September 2003 with its
principal targets: to build on the macro-economic progress; to further strengthen the
financial sector; and to improve the climate of investment, exports and job opportunities.
Meanwhile, inflation rate is projected to stand at 6.5 percent; Rupiah exchange rate
against one U.S. dollar at Rp 8.500; Bank Indonesia's three month-notes (SBI) at 8.5
percent in average; oil price per barrel at US$22; and crude oil production per day at 1.15
million barrels. In addition, the government debts to gross domestic product (GDP) ratio
is expected to be 60.3 percent, much better than that of 2003 which was 66.4 percent. The
country's foreign exchange reserve is projected to reach US$34.4 billion, lower than that
of 2003, which stood at US$36 billion. The decrease is chiefly due to the payment of
principal and interest of foreign debt.

Economic Prospects

The 2004 General Elections i.e. general elections to elect members of legislative bodies
and the direct Presidential Election, would truly encourage the increase of expense and
demand for goods and services in bulk. Further, the post 2004 general elections is
expected to give contributing achievements as follows: improvement of economic
growth; enhancement of quality of economic growth as the result of political and public
accountability improvement; better economic stability as the national result of better
representation system in national, provincial and district/municipal legislative bodies.

In the context of achieving the matters mentioned above, the Government has determined
economic priority programs for the year 2004, namely: to maintain continuous economic
recovery and reform in the first year after the termination of the IMF's Extended Fund
Facility to nurture external and internal credibility; to execute strategy of growth based
on competitive edge improvement through investment and exports; to boost more growth
of the 2004 Gross Domestic Product for the sake of the people's welfare improvement in
the whole; to continue the strive for poverty eradication and creation of job opportunities
through human resource quality improvement towards Millennium Development Goals,
and better economic development which takes social-welfare into account; to secure the
implementation of the 2004 general elections from the economic point of view, by
maintaining economic activities in order that market of goods and services, capital
market and labor market run normally, and to maintain sufficient supply and distribution
of basic materials throughout the country; to anticipate the possibility of accelerating the
2005 State Budget drafting in connection with the implementation of the 2004 general
elections; and to encourage the application of good corporate governance.

Economic Growth (GDP)

Despite SARS endemic and terrorist attacks, the Bali bombings and the Marriott Hotel
bombing, impeding the country, the economy in 2003 proved tough enough to grow
moderately at 4.1 percent, higher than that of 2002 by 3.7 percent and even higher than

91
global economic growth, which was estimated at 3.2 percent. Economic growth without
oil-and-gas was recorded at 4.6 percent. The value of GDP at 2000 constant prices in
2003 was estimated to reach Rp444.5 trillion, and without oil-and-gas was Rp412.7
trillion. Viewed from economic industrial sectors' contribution to GDP in 2003, some
24.65 percent originated from manufacture, 16.58 percent from agriculture, 16.32 percent
from trade, 10.70 percent from mining, 10.39 percent from services, 6.88 percent from
finance, 6.25 percent from transport and communications, 6.00 percent from
construction, and 2.22 percent from utility.

Economic growth for the first quarter of 2004 was estimated to hover between 4.3
percent and 4.7 percent. The estimated growth was expected to be underpinned by higher
fair growth of exports and consumption. Consumption was expected to grow by between
4.2 percent and 5 percent, and export between 2.5 percent and 3.5 percent.

By sactorial fronts, the biggest contribution to GDP in 2004 is still expected coming from
the sectors of manufacture and agriculture. Manufacture, which is predicted to grow at
only 3.5 percent, is expected to contribute almost a quarter of GDP. Agriculture is
expected to contribute some 16 percent, though predicted to grow by 2.5 percent.

Except mining, other sectors such as electricity, gas and drinking water, construction,
trade, hotel and restaurant as well as transport are expected to post an increasing
contribution.

The country's GDP at current prices in March 2003 was recorded at Rp 451,530.29
billion, and in March 2004 at Rp 551,164.6 billion, meaning an increase of 24.6 percent.
Non-oil and gas GDP in March 2004 grew at about 24.49 percent, to reach Rp 506,265.8
billion compared to that of March 2003. While oil and gas GDP in March 2004 decreased
by 12.36 percent compared to that of March 2003, namely from Rp 51,777.4 billion in
March 2003 going down to Rp 45,376.8 billion in March 2004.

Income per Capita

Parallel with the improved economic situation as macro-economic indicators showed, the
GDP per capita for Indonesians notes an increasing tendency, though has not yet reached
the level before the monetary crisis in 1997.

In 2003 per capita income at current prices grew to 7.1 million rupiahs or about US$968,
from 6.6 million rupiahs in 2002. Based on 2000 constant prices, per capita income in
2003 noted an increase of 2.85 percent and 1.58 percent in 2002.

92
Jakarta International Container Terminal that plays an important role in
importing-exporting activities

Exports

Exports continue to show a heartening development, particularly those of non-oil and gas.
Export value in 2003 reached US$61.023 billion or an increase by 6.76 percent compared
to that of 2002. The value of non-oil and gas exports in 2003 grew by 5.18 percent
surpassing the targeted 5 percent to reach US$47.380 billion. That of oil and gas
increased by 12.63 percent to reach US$13.642 billion.

Dominating exports of non-oil and gas in 2003 were machinery and electric tools. They
accounted for 13.08 percent. Trailing behind was mechanical engines that accounted for
6.18 percent, animal and vegetable oil for 6.05 percent.

Main export destinations of the country's exported commodities in 2003 were the US that
accounted for some 15 percent, Japan for 14 percent, and Singapore for 9.93 percent.

When entering the year 2004, exports continued to indicate an increasing trend: In
January 2004, export value reached US$5.03 billion, compared to that of January 2003,
which stood at US$4.99 billion. In April 2004, export value was recorded at US$5.21
billion, increasing

by 2.68 percent compared to that of March 2004, which reached US$5.07 billion.

The increase of exports in April 2004 was attributed to the growth of non-oil and gas
exports by 3.94 percent from those of March 2004. Export value in May 2004 even
reached US$5.5 billion or an increase of 5.6 percent. Attributable to the increase was the

93
high augment of non-oil and gas exports to China, Japan and South Korea. Thus,
cumulative exports during the period of January-May 2004 reached US$25.71 billion,
meaning an increase of 2.21 percent compared to that of the corresponding period in
2003.

In May 2004 the country's foreign trade surplus was recorded at US$2.28 billion,
compared to US$1.75 billion in April 2004.

Imports

The country's import value in whole in 2003 was US$32.39 billion, or increasing by
some 3.52 percent. In January 2004, import value grew a bit by 0.24 percent, making the
total amount of imports during the said month US$2.76 billion. In March 2004, non-oil
and gas imports reached US$2.18 billion before augmenting by 5 percent to reach
US$2.29 billion in April 2004. During the period of January-April 2004, import value
rose by 10.20 percent compared to that of the corresponding period last year, namely
from US$10.99 billion to US$12.12 billion. The increase was attributed to imports of oil
and gas as much as 35.16 percent, and 3.05 percent of non-oil and gas imports.

Imported commodities comprised machines, organic chemical, electric machines and

equipments. Indonesia imported those commodities mainly from Japan, the US and
China.

In May 2004, import value amounted to US$3.22 billion, decreasing by 6.81 percent
compared to that of April 2004. Cumulatively the country's import value reached
US$16.88 billion or an increase by some 24.38 percent compared to that of the
corresponding period in 2003, which amounted to US$13.57 billion.

Balance of Payment

Balance of payment in the past few years marked positive development. Underpinned by
increasing tendency of exports, the country's balance of payment in 2003 recorded a
surplus of US$4.2 billion, up from US$4.0 billion in 2002.

In the meantime, the country's international foreign exchange reserves at the end of 2003
stood at US$36.3 billion, swelling from US$32.0 billion in 2002. In the second week of
August 2004, international reserves were recorded at US$34.97 billion.

Monetary

Monetary policies remain to be focused on striving to maintain monetary stability. This is

aimed at securing the target of the middle-run inflation by keeping on reinforcing the
process of economic recovery through the promotion of economic growth. In line with
this, interest rate is still made possible to be lowered prudently and consistently by the
achievement of such inflation target. On another side, necessary interventions in foreign
exchange would be done to control excessive volatility of rupiah exchange rate. This

94
would be parallel with the implementation of foreign exchange transactions monitoring
and control against prime doers in markets.

In general, monetary condition during the first quarter of the year 2004 was quite stable,
portraying this was expanded stable and controlled monetary, underpinned by more
favorable domestic economic fundamental factors and controllable inflation expectation.

Inflation

The year-on-year inflation rate in the year 2003 was recorded at 5.1 percent, far lower
than that of 2002 at 10.48 percent.

For the year 2004, inflation rate is expected to be 6.5 percent, and for the year 2005 and
2006 is projected to be 5.5 percent each.

During the first quarter of the year 2004, inflation noted a downward trend, namely 5.11
percent (y.o.y) due to the decrease of inflation rate in foodstuff components, lower impact
of administered prices, and relatively stable of rupiah exchange rate.

In July 2004, inflation recorded a 15-month high of 7.2 percent higher than annual rate
target of 6.5 percent. The rise was mainly due to increasing prices of foods and other
basic commodities.

Interest Rate

The benchmark interest rates of Bank Indonesia (Central Bank) promissory notes (SBI)
have been enjoying a downward trend.

At the end of the year 2003, the 3-month SBI stood at 8.34 percent, down from 13
percent at the beginning of the year 2003, and lower than the target of 10.1 percent.

For the year 2004, the benchmark interest rate of 3-month SBI is projected at 8.5 percent
on average. In April 2004, it was recorded at 7.25 percent.

Following this trend have been credit interest rates, particularly deposit interest rate. In
the first quarter of 2004 the 1-month deposit interest rate was 5.99 percent, and 3-month
deposit interest rate 6.98 percent.

Rupiah Exchange Rate

On average, rupiah exchange rate during the first quarter of the year 2004 was relatively
stable compared to that of the fourth quarter of the year 2003, recorded at Rp8.469 per
US$. The figure is close enough to the previous estimate of Rp8,300 to Rp8,500 per US$
on average. Attributable to the relatively stable rupiah exchange rate were more favorable
domestic economic fundamental factors that promote domestic foreign exchange supply,
positive market expectations towards rupiah value movement, increasing investors'

95
confidence on account of up-grade sovereign rating by Moody's international rating
agency, as well as greater socio-political stability.

Rupiah exchange rate in April 2004 was recorded at Rp8,691 per US$, or declining by
1.48 percent against that of March 2004. This declining trend was attributed chiefly to the
strengthening of US$ against other world's currencies following the improvement of the
US's macro-economic indicators.

Base Money and Economic Liquidity

Base money in April 2004 stood at Rp146.34 trillion. Meanwhile, the total amount of M2
(M1 plus quasi money) reached Rp935.2 trillion, shrinking from Rp935.7 trillion in
March 2004. The declining trend of M2 was largely due to lowering demand deposit
following the decrease of deposit rate.

At the same time, the position of M1 (currency and demand deposit) changed
insignificantly, reaching Rp219.0 trillion.

The relatively unchanged growth of M1 and M2 would hopefully give room to the
improvement of public purchasing power and consumption.

Current State Budget

As of 2002 the Government has been practicing a deficit budget system, replacing the
two-decade standing balanced budget policy. The budget deficit has been consequently
financed from both internal and external sources. In addition, starting in 2005, as
mandated by Law No. 17/2003 on State Finance, the state budget will adopt a new
budgetary system called an integrated or united system, which merges routine and
development expenditures into single expenditure format.

The 2002 budget deficit was recorded at 2.5 percent of the country's GDP, and in 2003 it
stood at 1.9 percent, slightly higher then the expectation of 1.8 percent. For 2004, it is
projected to be 1.2 percent and 0.6 percent of GDP in 2005.

The 2004 State Budget features a continuation of the government's endeavors to attain its
three major economic policy objectives: (1) achieving favorable fiscal condition and
reducing government debt; (2) maintaining sustainable medium-term fiscal policy; and
(3) providing a modest degree of stimulus to the overall economy, within the constraints
set by the government's fiscal year policies.

The 2004 State Budget earmarked government revenue and grants of Rp349.9 trillion or
some 17.5 percent of GDP, and government expenditures of Rp374.4 trillion or some
18.7 percent of GDP. For comparison, budget allocation for government revenue and
grants in 2003 totaled Rp341.1 trillion or 17.3 percent of GDP, and expenditures totaled
Rp 374.8 trillion or 19.1 percent of GDP. It means government expenditures in 2004 are

96
budgeted to shrink to 18.7 percent of GDP from 21.3 percent in 2003; and development
spending are budgeted to decline to 3.5 percent from 3.7 percent in 2003.

The largest shares of the development budget are allotted to education, transportation,
health, social assistance and programs aimed at poverty alleviation.

Of the total government revenues in 2004, tax revenues are projected to reach Rp272.175
trillion or some 13.6 percent of GDP; and non-tax revenues to reach Rp77.124 trillion or
some 3.9 percent of GDP.

97
 STATE BUDGET 2004 & PROPOSED BUDGET 2005

(In billions rupiah)

2004 2005

Items Budget % Proposed %

to GDP Budget to GDP

A. Total Revenue and Grants 349,933.7 17.5 377,886.3 17.2

I. Domestic Revenue 349,299.5 17.5 377,136.3 17.2

1. Tax revenue 272,175.1 13.6 297.510.0 13.6

a. Domestic Taxes 260,223.9 13.0 285,147.3 13.0

i. Income tax 133,967.6 6.7 141,858.5 6.5

1. Oil and Gas 13,132.6 0.7 13,568.6 0.6

2. Non oil & Gas 120,835.0 6.0 128,289.4 5.9

ii. Value-added tax 86,272.7 4.3 98,828.4 4.5

iii. Land and building tax 8,030.7 0.4 10,272.2 0.5

iv. Duties on land and building transfer 2,667.9 0.1 3,214.7 0.1

v. Excises 27,671.0 1.4 28,933.6 1.3 vi. Other taxes 1,614.0 0.1 2,039.9 0.1

b. International trade tax 11,951.2 0.6 12,367.2 0.6

i. Import duties 11,636.0 0.6 12,017.9 0.5

ii. Export tax 315.2 0.0 344.8 0.0

2. Non-tax Revenue 77,124.4 3.9 79,626.3 3.6

a. Natural Resources 47,240.6 2.4 50,941.4 2.3

i. Oil and Gas 44,002.2 2.2 47,121.1 2.2

ii. Non Oil and Gas 3,238.3 0.2 3,820.3 0.2

98
 b. Profit transfer from SOE's 11,454.2 0.6 9,420.0 0.4

c. Other non-tax revenues 18,429.8 0.9 19,260.9 0.9

II. Grants 634.2 0.0 750.0 0.0

B. Expenditures 374,351.3 18.7 394,778.5 18.0

I. Central Government Expenditures 255,309.1 12.8 264,877.3 12.1

1. Personnel expenditures 57,235.2 2.9 62,238.1 2.8

2. Material expenditures 35,639.9 1.8 30,971.8 1.4

3. Capital Expenses 39,775.1 2.0 42,970.0 2.0

4. Interest Payments 65,651.0 3.3 63,986.8 2.9

a. Domestic interest 41,275.9 2.1 38,844.5 1.8

b. External interest 24,375.1 1.2 25.142.4 1.1

5. Subsidies 26.638.1 1.3 33,645.2 1.5

a. SOE's 26,589.5 1.3 33,603.0 1.5

i. Financial Institutions 853.4 0.0 1.153.0 0.1

ii. Non Financial Institutions 25,736.1 1.3 32,450.0 1.5

b. Private entreprises 48.6 0.0 42.2 0.0

6. Grants

7. Social Assistance 14,293.3 0.7 16,268.6 0.7

8. Others 16,078.5 0.8 14,796.8 0.7

II. Regional Transfer 119,042.3 6.0 129,901.2 5.9

1. Balanced Funds 112,186.9 5.6 123,448.2 5.6

a. Revenue Sharing 26,927.8 1.3 31,217.8 1.4

b. General Allocation Fund 82,130.9 4.1 88,130.4 4.0

99
 c. Special Allocation Fund 3,128.1 0.2 4,100.0 0.2

2. Special Autonomy & Adjustment Fund 6,885.4 0.3 6,453.0 0.3

a. Special Autonomy Fund 1,642.6 0.1 1,762.6 0.1

b. Adjustment Fund 5,212.8 0.3 4,690.4 0.2

C. Primary Balance 41,233.4 2.1 47,094.7 2.1

D. Overall Balance (A-B) (24,417.6) (1.2) (16,892.2) (0.8)

E. Financing 24,417.6 1.2 16,892.2 0.8

I. Domestic Financing 40,556.3 2.0 37,085.8 1.7

1. Domestic Bank Financing 19,198.6 1.0 9,000.0 0.4

2. Domestic Non-Bank Financing 21,357.7 1.1 28,085.8 1.3

a. Privatization Proceeds & Assets Recovery 10,000.0 0.5 7,500.0 0.3

b. Government bonds (net) 11,357.7 0.6 20,585.8 0.9

II. Foreign Financing (16,138.7) (0.8) (20,193.6) (0.9)

1. Gross Drawing 28,237.0 1.4 26,642.9 1.2

a. Program Loan 8,500.0 0.4 8,600.0 0.4

b. Project Loan 19,737.0 1.0 18,042.9 0.8

2. Amortization (44,375.7) (2.2) (46,836.5) (2.1)

Pursuant to Law No. 22 of 1999, a significant proportion of central government revenue

goes to provincial and local governments. Revenues apportioned for provincial and local
governments are derived from taxes and natural resource revenues. The 2004 budget
allocates some 31.8 percent of central government expenditures for provincial and local
governments, compared to some 32.2 percent in 2003.

The Proposed 2005 State Budget

The proposed 2005 State Budget portrays key assumptions used to estimate expenditures
and revenues are quite conservative. It estimates a GDP growth of 5.4 percent, an average
rupiah exchange rate of Rp 8,600 to one US dollar, interest rate at 6.5 percent, inflation

100
5.5 percent, and average international oil price at US$24 a barrel. It also predicts a budget
deficit of 0.8 percent, down from 1.2 percent at current year.

The budget envisages higher government's expenditures of Rp 264 trillion than that of
previous year, which amounted to Rp255.3 trillion. Those which would receive larger
proportion are ministries of defense, education, settlement and infrastructure, health, and
the National Police. Of the proposed total government expenditures, some Rp 22 trillion
would go to the Defense Ministry, Rp 21.5 trillion to the Ministry of Education, Rp12.4
trillion to the Ministry of Settlements and Infrastructures, Rp11.2 trillion to the National
police, and some Rp 7.4 trillion to the Ministry of Health.

The budget also envisages tax revenues of Rp297.5 trillion (US$32.11 billion), higher
than the 2004 tax revenues target of Rp 260 trillion.

Taxation

As of 2001 the share of tax receipts to government revenues has been noting an
increasing trend. In 2001, tax revenues accounted for some 61.6 percent of the total
government revenues. The figure then grew to some 70.0 percent in 2002 and 75.6
percent in 2003.

In 2003, realized tax revenues were 97.2 percent of the year's target; domestic tax
revenues were 97.3 percent; and international tax revenues 98.8 percent of the target.

In the context of augmenting the share of tax revenues to the government revenues in
2004, endeavors have been focused on tax and custom administration reform. The reform
includes improved utilization of modern technology, regulatory reform, institutional
developments, and improvement of quality of human resources. Parallel with this, the
scheme to minimize arrears has been more intensified due to increasing tendency of
evading. In 2001, for example, tax arrears amounted to Rp13.3 trillion, and swelled to
Rp17.3 trillion in 2002, before decreasing slightly to Rp17.1 trillion in 2003.

For 2004, tax revenues are projected to amount to Rp272, 2 trillion or growing by 7.1
percent from that of 2003. Of the total tax revenues, some 49.2 percent derives from
income tax and some 31.7 percent from value-added tax as well as tax on luxurious
goods.

By value, realized tax revenues during the first quarter of 2004 amounted to Rp 51.5
trillion or an increase of 15 percent compared to that of the corresponding period in 2003.

Tax ratio in 2003 stood at 13.1 percent of GDP, and for 2004 it is projected to reach 13.6
percent, a slight increase from the target of 13.5 percent, but still below those of
neighboring countries, which ranges between 14 percent and 15 percent.

In helping to improve and boost domestic businesses in order that they enable their
outputs to meet both local and overseas demands, the 10-percent value-added tax on the

101
import of certain capital goods and raw materials by several industries has been waived,
and the luxury tax on 45 products eliminated.

Foreign Debt

It has been a key policy of the Government since 1997, when financial crisis hit the
country as well as other Asian countries, to reduce public debt in percentage of GDP. So
far, the fruit of the policy has been tangible: Its external debts as a percentage of GDP
shrank from a peak of 65.3 percent in 1998 to 49.5 percent in 2000, further to 47.5
percent in 2001, to 43.1 percent in 2002, and to 39.1 percent of GDP in 2003.

The country's total debt repayment is expected to reach US$21.01 billion in 2004, down
from the estimated US$28.31 billion in 2003. Of the total debt repayment, around
US$16.24 billion would be for the payment of principal, and the remaining US$4.77
billion would be the interest.

Up to March 2004, the country's outstanding foreign debt amounted to US$136.10

billion, up from US$134.40 billion during the previous month. Attributable to the
increase was the raise in official foreign debts of US$81.197 billion from US$80.01
billion previously.

On the contrary, the outstanding private debts slightly shrank from US$52.77 billion in
February 2004 to US$52.39 billion in March 2004. The decrease was chiefly due to the
lower outstanding private debt of non-financial institutions, whereas the bank and non-
bank private debt augmented.

Banking

Policies in the banking industry are more focused on various measures to reinforcing the
condition of the national banking industry. This is a continuation of banking
restructurization programs in the context of making the banking industry recover. The
measures put a stress on sustained efforts to recover its intermediary role. They are also
aimed at improving the banking system through among other things enhancement of
banking good corporate governance, and improvement of banking regulations and
control. This includes the betterment of banking services innovations such as mobile
banking services via the growing popular cellular phones.

In line with more favorable monetary condition, some indicators in the banking industry
have shown heartening improvements. Banking intermediary function has slightly
improved further as the growing third party funds and higher credit position reflect, so
this needs to be optimized. Other banking indicators such as net interest margin (NIM)
has been persistently growing; non-performing loans (NPLs) relatively low;

102
BNI branch office in Medan, North Sumatra

banks' capital and profit ratio relatively stable; and capital adequacy ratio (CAR)
improving.

At the first quarter of 2004 (March 2004), banks' total assets amounted to Rp1,150.0
trillion. Meanwhile, third party funds shrank by Rp11.5 trillion to reach Rp877.1 trillion.
At the same time, credit position stood at Rp477.30 trillion. New credit during the first
quarter of 2004 was amounting to Rp4.3 trillion, some 53.9 of which went to small-and-
medium establishments (SMEs). By type of usage, the new credits had been channeled
for working capitals (45.6 percent), investment (24.3 percent) and for consumption (30.1
percent). Loan-to-deposit ratio in March was recorded at 43.7 percent, growing from 42.9
percent in the previous month.

Reflecting improved banking performance had been net interest income that grew from
Rp3.2 trillion in the third quarter of 2003 to Rp5.1 trillion in the first quarter of 2004. The
increase was mainly due to the increase of credits and the declining tendency of credit
interest.

In general, banks' capital adequacy ratio (CAR) in the first quarter of 2004 was well
above the minimum level, namely around 23.2 percent, up from 19.4 percent in the
previous quarter. During the year 2003 the average CAR level was around 23 percent,
higher than that of 2002 at 21 percent. The central bank's minimum requirement was set
at eight (8) percent.

103
Until June 2002, the number of bank offices was recorded at 14,300. The country's major
banks are Bank Mandiri, which in March 2004 had a total asset of Rp239,383 billion;
Bank Central Asia (BCA) which had a total asset of Rp 136,139 billion; Bank Negara
Indonesia (BNI) Rp125,078 billion, Bank Rakyat Indonesia (BRI) with its total asset of
Rp 94,503 billion, Bank Danamon with total asset of 54,887 billion, Bank International
Indonesia (BII) with its total asset of Rp29,769 billion, Lippo Bank Rp 26,090 billion,
Bank Tabungan Negara (BTN) Rp 25,623 billion, Bank Niaga Rp 23,393 billion, and
Citibank with total asset of Rp 23,012 billion.

In addition, there are also several overseas banks' representative offices operating in the
country's major cities. Those banks include Bank of America, Bank of Tokyo, Hong
Kong Bank, Amro Bank, Standard Chartered Bank, Thai Bank, etc.

Bank Indonesia

Previously, Bank Indonesia, the country's central bank, was regulated under Law No. 11
of 1953. However, since the issuance of Law No. 23 of 1999, which has been amended
by Law No. 23 of 2004 on Bank Indonesia, the bank operates under the Law that allows
it the status and position as an independent state institution, free from any interference by
the Government and other external parties. It means that the bank is fully autonomous in
formulating and executing each of its task and authority as the Law regulates.

As it is governed, the Bank Indonesia has one single objective: to achieve and maintain
stability of Rupiah, the country's currency. To pursue the objective the bank has the task:
to formulate and implement monetary policy; regulate and ensure a sound payment
system; and regulate and supervise the national banking system.

The Bank's accountability and transparency take the form of open information pertaining
the evaluation of monetary policies having been executed in the previous year, and
policies being planned for next year as well as their targets for the public. Such
information is also reported to the President and the House of Representatives (DPR).

In relation with the Government, the bank assists the printing and placement of
government securities to finance the State Budget; acts as the cashier to the government
and administrator of government account at the Bank Indonesia, and accepts, upon
request by the Government, foreign loans for and on behalf of the government.

State-owned Enterprises

The meaning of a state-owned enterprise (BUMN) in general term is a corporate body

outside of the Bank Indonesia, with no-less-than-51 percent share of which must be
owned by the government, and a joint-venture in which all shares are owned by the
government together with local governments or other state-owned enterprises without
taking the composition of the government ownership into account.

104
The Office of the Minister of State-owned Enterprises supervises state-owned enterprises,
numbering 160 establishments in 2003. Privatization schemes are still underway to
broaden public ownership, improve their efficiency and productivity, and revive finance
and management in order to augment their outputs and products' competitive edge. Those
160 establishments do businesses in the sectors of manufacturing, trade, construction
services and consultancy, transport, communications, tourism industry, financial services,
agriculture, plantations and forestry as well as public services.

They are grouped into large, medium, and small undertakings. So far, there are four large
state-owned enterprises which possess assets worth over Rp 50 trillion, six enterprises
with assets worth from Rp10 trillion to Rp 50 trillion; while medium enterprises own
assets worth ranging from Rp5 trillion to Rp10 trillion. Among the large enterprises are
PT. Telkom Indonesia Tbk, Bank Rakyat Indonesia, Bank Mandiri, Bank BNI, PT. Pupuk
Kujang, PT Aneka Tambang Tbk, PT. Petrokimia Gresik.

In 2001, the total assets of those state-owned enterprises were estimated to reach
Rp849.19 trillion, and their whole capitals amounted to Rp249.2 trillion. Their net profits
in 2000 were Rp13.3 trillion and in 2001 were estimated at Rp26.9 trillion. In 2003, those
state enterprises were estimated to gain profit of Rp28 trillion. Meanwhile, up to March
2004, gains of BUMN privatization schemes having been deposited to the state treasury
amounted to Rp3.2 trillion out of the targeted Rp5 trillion. Realization of such
privatization schemes in 2002 and 2003 was Rp7.7 trillion and Rp7.3 trillion
respectively.

Insurance

Non-bank financial institutions continuously show an improved performance, particularly

insurance. During the year 2002 and 2003, the number of insurance enterprises remained
73 establishments, consisting of 60 life insurance companies, 140 loss insurance
companies, four reinsurance companies, two social insurance and worker social insurance
companies and three companies running insurance programs for civil-servants and
military personnel. In addition, there were 120 insurance brokers, 20 reinsurance brokers,
25 insurance adjusters, and 21 insurance consultants.

For the past five years, total assets of insurance companies have augmented
meaningfully. The total assets of life insurance companies in September 2003 were
recorded at Rp 31,320.5 billion, up from Rp 26,320.5 billion in 2002. On the contrary,
total assets of reinsurance companies shrank slightly from Rp15,768.2 billion in 2002 to
Rp15,500.5 billion in 2003. However, total assets of companies running insurance
programs for civil servants and military personnel swelled from Rp10,397.1 billion in
2002 to Rp13,323.4 billion in 2003.

Investment gains in the field of insurance have also noted an improved performance.
Investment from insurance companies amounted to Rp 412.4 billion in 2002, before
growing to Rp 442.8 billion in 2003. Insurances' total investment value in September
2003 amounted to Rp 442.8 billion, increasing 7.39 percent from that of 2002.

105
Investment

Domestic investment is regulated under Law No. 6 of 1968 which has been amended by
Law No. 12 of 1970, while direct foreign investment is regulated under Law No. 1 of
1967, as amended by Law No. 11 of 1970.

A government institution that manages investment in Indonesia is the Investment

Coordinating Agency (BKPM), established in 1973. This agency, directly accountable to
the President, is tasked mainly to: formulate and assess national investment policies;
coordinate and perform investment promotion; and coordinate investment development
activities among government institutions.

In provincial level, there is a Provincial Investment Agency, headed by a chairman of the

agency who is accountable to local governor. In giving approvals to direct foreign
investment applications, the country's representative offices such as embassies, consulate-
generals and consulates abroad, are authorized to do that.

Investment trend

Up to 1997 when monetary crisis hit the Asian countries, Indonesia had been one of most
attractive investment destinations in the Southeast Asian region. Attributable to this was
that the country introduced liberal investment policies and regulatory frameworks, and
offered foreign investors good incentives and favorable investment climate.
Unfortunately, the prolonged economic crisis since the middle of 1997, widespread
security problems, and frequent disputes among labor associations and employers have to
some extent withered away foreign investors' interest to invest, and they turn away
looking for other promising countries.

In anticipation of such unfavorable situation, the Government has introduced various

efforts, ranging from the issuance of measures as required by "the White Paper", to
promotional activities such as road-shows to overseas in the context of improving
investment to speed up economic recovery and widen job opportunities. Included in those
measures have been plan to open more sectors for foreigners' ownership, and step to
centralize the authority to license foreign and domestic investment in the Investment
Coordinating Board (BKPM) aimed at relevant ministerial offices and regional
administrations as well as making it easier for investors to get business permits.

Domestic Investment Performance

Approvals on domestic investment during the period of January-June 2004 or the first
semester of 2004 were 72 projects with investment value of Rp15,773.7 billion. In
addition, there were 45 expanded projects with investment value of Rp3,867.3 billion. In
term of number, approved projects during the January-June 2004 noted a substantial
decrease compared to those of the corresponding period in 2003, but in term of
investment value recorded the contrary. Approved projects in the January-June of 2003
numbered 109 projects, with investment value of Rp10, 357.5 billion.

106
At the same time, the most attractive business sector for domestic investment was food-
processing industry (14 projects). Trailing behind were transport, warehouse and
telecommunications (8 projects), machine and electronic industry (7 projects), and rubber
and plastic industry (5 projects).

By term of investment value, the electric, gas and drinking water sector ranked first by
absorbing Rp4,994.3 billion; foodstuffs industry came second with Rp4,591.0 billion, and
transport, warehouse and telecommunications third with Rp1,038.4 billion. By location,
the Province of Central Java ranked first, followed by Riau, the Special Territory of
Jakarta, the Province of West Java, and the Province of Banten.

Direct Foreign Investment

There were 551 approved projects of direct foreign investment worth US$3,049.2 million
during the period of January-June 2004. In addition, there were also 118 expanded
foreign investment projects with investment value of US$1,046.8 million.

Compared to that of the corresponding period of 2003, direct foreign investment in term
of value, in the period of January-June 2004 suffered a decrease, but in term of project
number was increasing. The total investment value during the period of January-June
2003 was US$ 4,649.7 million to finance 510 projects.

The most attractive sector for direct foreign investment during the period of January-June
2004 was metal, machinery and electronic industrial group that absorbed as much as
US$729.8 million; followed by hotel and restaurant with US$536.4 million, textile
industry with US$321.3 million, construction with US$312.2 million, and transport,
warehouse and telecommunications with US$282.4 million.

By location, most investment, namely US$760.3 million, with 85 projects, went to West
Java Province; followed by the Special Territory of Jakarta that absorbed US$590.1
million with 273 projects, Central Java that did US$315 million with three projects, the
province of Banten US$271.9 million with 45 projects, and the province of Lampung
US$256.6 million with two projects.

By country of origin, Japan ranked first with US$882.4 million for 30 projects, the UK
with US$793.4 million for 42 projects, Malaysia with US$321.3 million for 44 projects,
South Korea with US$230.1 million for 107 projects, and Singapore with US$131.8
million for 74 projects.

Cumulatively, there had been 1,597 projects, worth Rp114,831.1 billion, of domestic
investment given permanent business permits from 1997 to June 2004. At the same time,
the cumulative number of direct foreign investment having received permanent business
permits had been 8,626 projects with investment value amounting to US$114,890.1
million.

107
CAPITAL MARKET

The Indonesian capital market during the year of 2003 posted a strong performance.
Improvements to several macroeconomic indicators-economic growth, inflation and
rupiah exchange rate were supported by a stable political situation.

It successfully restored confidence toward the Indonesian capital market and enhanced
improvement in trading activities on the Indonesian stock exchanges-the Jakarta Stock
Exchange (JSX) and the Surabaya Stock Exchange (SSX) in East Java.

As a result, the composite share price index (CPI) during the year reached a higher level.
On the JSX, the highest CPI was noted at 818.159 points on April 27, 2004. This was the
highest level of the index since the revival of the Indonesian capital market.

In the first-five month, from January to May 2004, the index declined solely. It was
752.93 points in January, 761.08 points in February, 735.67 points in March, 783.41
points in April and 732.51 points in May.

In 2003, the highest index was 693.033 points toward the end of the year and closed at
691.895 points on its closing level in 2003, or an increase by 63.08% compared to 2002.

Compared to the development of composite index of other countries in the Southeast

Asian Countries (ASEAN), Indonesian index development ranked second after Thailand,
which recorded an increase by 109.50 pct.

The table below shows the index development in the ASEAN countries:

Countries Dec. 2002 Dec. 2003 %

Thailand 356.48 746.81 109.50

Indonesia 424.945 693.033 63.08

Philippines 1018.41 1450.70 42.45

Hong Kong 9321.29 12464.29 33.72

Taiwan 4452.45 5804.89 30.38

Singapore 1341.07 1741.01 29.82

Dow Jones 8341.63 10450.00 25.28

Japan 8578.95 10500.62 22.40

Malaysia 646.32 787.80 21.89

108
The composite price index development on the JSX was noted at 676.91 points in 1999,
at 416.32 points in 2000, at 392.03 points in 2001, at 424.94 points in 2002, and at 691.90
points in 2003.

The significant increase of index marked an awakening of the securities industries in

Indonesia. This was a reward of hard work by capital market elements to fight for coping
with the crises which had hit the country for several years.

Meanwhile, the Surabaya Stock Exchange (SSX) had posted a slow development. It was
seen from the composite price index, which was at 566.57 points in 1999, at 267.63
points in 2000, at 220.89 points in 2001, and at 252.51 points in 2003.

In the first five months of 2004, it was noted at 410.81 points in January, 414.85 points in
February, 399.61 points in March, 432.81 points in April and 402.24 points in May. The
SSX was mostly known as the second class market as it specialized in bond trading
activities.

Issuers

Up to May 2004, there had been 488 companies issuing stocks and bond while the total
fund mobilization was Rp320,821 trillion. Some 410 companies had launched initial
public offering (IPO) and listed their shares on the stock exchanges. Six companies were
unlisted as they did not carry out IPO.

Meanwhile, 137 companies issued bond, consisting of 127 launched IPO, 2 Syari'ah
Bond (Islamic Concept), 7 Convertible Bond (CB) and 1 Credit Securities (CS). In
addition, two bonds wits the US dollar denomination had also been available in the
Indonesian bourses worth US$ 105 million.

In March 2003, the Indonesian Capital Market Supervisory Agency (Bapepam) promoted
new launch of Syari'ah Capital Market by signing a memorandum of understanding with
concerned institutions.

Market capitalization

Till the end of December 2003, market capitalization on the JSX, the main stock
exchange, was noted at Rp462.578 trillion, or an increase by 72.33% compared to
Rp268.4223 trillion in 2002.

Meanwhile the value of transaction totaled Rp124.55 trillion, or an increase by 3.13%

compared to that in 2002 which was only Rp120.765 trillion. Daily transactions lose by
3.84% from 492.91 billion in 2002 to Rp516.79 billion in 2003.

109
During 2003, nine companies launched IPO. This figure decreased by 60.87%, while the
value of fund mobilization was up 525.0% in 2003, from Rp 1.2 trillion to Rp7.5 trillion
in 2003.

In addition, 11 companies launched rights issue with a value of Rp2.5 trillion, a decrease
by 70% compared to 2002 with a value of Rp8.6 trillion.

The Indonesian Capital Market Supervisory Agency (Bapepam), a government institution

authority, announced that in 2003 there were 54 bonds issued with the total value of Rp
25.2 trillion, or an increase by 306.45% compared to 2002 which was only Rp6.2 trillion.

By that way, all bonds issued in the capital market had reached 254 corporations and 133
companies with a value of Rp62.99 trillion.

In line with the development of securities industry in Indonesia, the Bapepam during
2003 issued 4 licenses to new four securities companies, making a total of 191
companies.

Mutual Funds

In terms of mutual funds as a market instrument of the bourses, its number had also
increased to 182 companies in 2003, up by 38.93% compared to only 131 companies in
2002.

Net Asset Capital (NAB) rose by 56.25% from Rp46.61 trillion in 2002 to Rp 72.83
trillion in 2003. As such, the unit holders also made a significant reward in number, from
125.820 in 2002 to 174.892 in 2003.

Market instruments on the Indonesian stock exchanges consist of 336 stocks, 137 bonds,
convertible bonds, 7 warrants, margin, rights, and 199 mutual funds. They are traded in
regular market, cash market, non-regular market, negotiated market, crossing and others
through main and development boards mechanisms.

Investment Management activities showed an increase by 47.05% as its number increased

from 13 in 2003 to become 98 companies. Fund mobilization from third party was worth
Rp56.9 trillion in 2002 to Rp82.48 trillion in 2003.

To complete the run of the capital market, in 2003 the Bapepam recruited 206
professionals, consisting of 7 appraisals, 96 civil law notaries, 20 legal consultant &
offices, 45 legal advisors, 33 public had accountants (partners) and 17 accountants
(public). Up to 2003, all professionals who had registered in the agency were 105
appraisals, 593 civil law notaries, 242 legal consultants. The government institution also
registered 20 custodian banks and 12 securities administration bureaus.

110
In the sector of regulation, the Bapepam obliges all capital market supporting elements to
improve their synergy. A company which has function as securities underwriter needs to
have paid-up capital Rp50 billion and net adjusted capital of Rp 25 billion.

A company which has function as securities broking and trading with client's account
needs to have paid-up capital of Rp30 billion and net adjusted capital of Rp 25 billion. A
company dealing with broking and trading with client's account needs to have paid-up
capital of Rp 500 million and net adjusted capital of Rp 200 million. A securities
company which has function as investment management is obliged to have paid-up
capital of Rp 5 billion with net adjusted capital of Rp 200 million.

A securities company, which has function as broking and trading activities concurrently
an investment management, is deemed necessary to have paid-up capital of Rp55 billion
with net adjusted capital of Rp25,200 million. A securities company functioning as
broking and trading with client's account and investment management also should come
up with paid-up capital of Rp35 billion and net adjusted capital of Rp25.200 million.

The Bapepam also issued eight regulations in 2003, among others on management system
of securities account in the Indonesian Central Securities Depository (ICSD), client's
principles, bonus shares, futures contract, option, index, accountability of board of
directors of the issuers on financial reports, work of auditory committee, net adjusted
capital, listing procedures, right issue, the use of proceedings from IPO, asset-backed
securities, public accountant and periodical financial reports.

With the issuance of the new regulations, the Bapepam until 2003 had issued 151
regulations on capital market, and revised regulations on script less and remote trading in
the Jakarta Stock Exchange.

To tighten monitoring system in 2003, the institution had posted administrative sanctions
to 83 listed companies, 23 securities companies, six custodian banks, three securities
administration bureaus, 3 trustees, two appraisers and one commissioner of a listed
company, liquidated 17 mutual funds, lifted out licenses on investment management,
frozen one investment management, written warning to nine investment managements,
fines to 23 investment managements and investigated custodian banks.

Crucial to foreign investors, in September 1997, the foreign ownership limitation was
abolished, except for banks (49% of the total listed shares). In May 1999, the maximum
number of listed shares and foreign ownership on Banks Company was set to 99%, based
on the government regulation dated May 7, 1999.

Biggest Market Capitalization

Ten Biggest Market Capitalizations until June 2004 were as follows: 1. Telekomunikasi
Indonesia Tbk (10.079.999.640), 2. Unilever Indonesia Tbk (7,630,000,000), 3. Gudang
Garam Tbk (1,924,088,000), 4. Bank Mandiri Tbk (19,800,000,000), 5. HM Sampoerna
Tbk (4,500,000,000), 6. Bank Central Asia Tbk (12,163,377,060), 7. Astra International

111
Tbk (4,048,355,314), 8. Indosat Tbk (5,177,500,000), 9. Bank Rakyat Indonesia
(11,647,057,950), 10. Bank Negara Indonesia Tbk (13,148,870,526).

Most Active Stocks (volume)

Ten most active stocks until June 2004 on the JSX were as follows: 1. Bank International
Indonesia Tbk, 2. Bumi Resources Tbk, 3. Artha Pacific Securities Tbk, 4. Bakrie &
Brothers Tbk, 5. Energi Mega Persada Tbk, 6. Bank Mandiri Tbk, 7. Kawasan Industri
Jababeka Tbk, 8. Bank Buana Indonesia Tbk, 9. Bank Rakyat Indonesia Tbk, 10. Hortus
Dana vest Tbk.

Most Active Stocks (Value)

Ten most active stocks till June 2004 were 1. Telekomunikasi Indonesia Tbk. 2. Bank
Mandiri Tbk. 3. Astra Argo Lestari Tbk. 4. Bumi Resources Tbk. 5. Astra International
Tbk. 6. Bank Rakyat Indonesia Tbk. 7. Bank Central Asia Tbk. 8. Indosat Tbk. 9. Bank
Buana Indonesia Tbk. 10. HM Sampoerna Tbk.

Most Active Stocks (Frequency)

Ten most active stocks till June 2004 were 1. Energi Mega Persada Tbk. 2. Bumi
Resources Tbk. 3. Artha Pacific Securities Tbk. 4. Asuransi Harta Aman Pratama Tbk. 5.
Telekomunikasi Indonesia Tbk. 6. Hortus Dana vest Tbk. 7. Bank Mandiri Tbk. 8. Bank
Central Asia Tbk. 9. Indosat Tbk. 10. Adhi Karya Tbk.

Top Gainers

Ten top gainers on the JSX till June 2004 were 1. Energi Mega Persada Tbk. 2. Panasia
Filament Inti Tbk. 3. Bank Global Internasional Tbk. 4. Asuransi Jasa Tania Tbk. 5.
Indoexchange Tbk. 6. Palm Asia Corpora Tbk. 7. Danasupra Erapacific Tbk. 8. Surya
Toto Indonesia Tbk. 9. Panca Wiratama Sakti Tbk. 10. Suba Indah Tbk.

Top Losers

Ten top losers in June 2004 were 1. Cipendawa Agroindustri Tbk.2. Hortus Dana vest
Tbk. 3. Asuransi Harta Aman Pratama Tbk. 4. Pelangi

Indah Canindo Tbk. 5. Ryane Adibusana Tbk. 6. Indofarma Tbk. 7. Maskapai Reasuransi
Indonesia Tbk. 8. JAPFA Comfeed Indonesia Tbk. 9. Wicaksana Overseas Int. Tbk. 10.
Sierad Produce Tbk.

Most Active Brokerage (Value)

Ten most active brokerage house in June 2004 were 1. DBS Vickers Securities Indonesia
2. Kim Eng Securities 3. CLSA Indonesia 4. JP Morgan Securities Indonesia 5.

112
Danareksa Sekuritas 6. Artadwipa Persada 7. Semesta Indovest 8. ABN-AMRO Asia
Sec. Indonesia 9. Mandiri Sekuritas 10. Merrill Lynch Indonesia.

Most Active Brokerage (Frequency)

Ten most active brokerage house in June 2004 were 1. Kim Eng Securities 2. Valbury
Asia Securities 3. Trimegah Securities 4. DBS Vickers Sec. Indonesia 5. Sarijaya
Permana Sekuritas 6. Danarreksa Sekuritas 7. CLSA Indonesia 8. GK Goh Indonesia 9.
Ciptadana Sekuritas 10. Dhanawibawa Arta Cemerlang.

MANUFACTURING INDUSTRY AND TRADE

Policy in the sector of manufacturing industry and trade as the 1999-2004 Guidelines of
State Policy underlines is aimed at: developing popular economy based on market
mechanism, fair competition, and non-monopolistic practices; establishing a global-
oriented economy by building competitive edge based on comparative superiority of
being a maritime and agrarian state; empowering small-and medium-scale enterprises
(SMEs) by improving the mastering of science and technology; and promoting bilateral
and multilateral economic cooperation in the framework of augmenting exports.

Pursuant to Law No.25 of 2000, development of manufacturing industry and trade

stresses on the establishment of micro, small, medium and cooperative undertakings, on
the improvement of domestic products' competitive edge, and on the prevention and
control of environments from any destruction and pollution.

In refurbishing the real sector in a short term in a bid to recover economy from crisis the
Government has introduced industrial and trade revitalization scheme, focusing on:
revitalization of various industrial branches; development of various industrial branches;
rearrangement of industrial structure; advancement of industrial technology; and
development of supporting industries.

This sector has in fact played a key and strategic role either in underpinning economic
growth and improving productivity of the people engaged in or in creating job and
business opportunities, in bringing in and saving foreign exchange, boosting regional
developments, and improving the people's earnings as well as in alleviating poverty.

The world's economic order has been undergoing a more rapid and fundamental change
due to mainly more widespread economic globalization practices and fast development of
technology. In one aspect the fast technological advancement has been offering
substantial benefits, but in another aspect it has caused impairment for a country to
compete when the country is heavily relying on comparative superiority based on natural
resources and abundant but unskilled labor.

113
Bontang NGL plant, East Kalimantan

The shorter time cycle of a product indicates the faster technological development, many
technologies being out of date. In the meantime the availability of natural resources in
term of sorts, quantity and quality become rare and dwindle. This situation would make
human resources becoming more-determining factor than other resources. This means
that to have improved competitive edge and industrial competitive superiority based on
skillful and creative human resources, technological and managerial capabilities is
unquestionably-a prerequisite.

The main aims of improving the country's competitive edge are to augment foreign
exchange from non-oil-and-gas exports, including from tourism industry, and to
strengthen the country's economic viability. Short term measures having been taken to
achieve the aims include maximizing the installed capacity of manufacturing industries
by minimizing inefficiency of domestic and overseas trade, and by improving trade
funding. Middle-term measures cover the strengthening of market institutions, and
development of manufacturing industries having competitive edge based on comparative
superiority which is underpinned by the advancement of science ad technology.

114
The period of 2000-2004 saw a less-than-optimum increased utilization of installed
industrial production capacity. In 2000 the utilization of installed production capacity of
manufacturing industries was about 61.7 percent. It grew to 65.3 percent in 2003. Of
chemical, agro-and forestry industrial group the production capacity in 2003 was
recorded at 75.5 percent, or growing on an annual average of 1.9 percent during the last
four years; and of metal, machinery, electronics and multifarious industrial group was
55.2 percent or increasing on an average of 0.4 percent per annum.

Manufacturing Industry

Manufacturing industry has been for the past ten years playing a prime mover of the
country's economy by contributing the biggest share to the gross domestic products
(GDP). For instance in 2002 this sector accounted for some 25.01 percent of the total
GDP, compared to 17.47 percent of agriculture. In 2000 the share of manufacturing
industry to the country's GDP was making up some 24.9 percent, and in 2003 24.7
percent. At the same time that of agriculture was 17.2 percent in 2000 and decreasing to
16.6 percent in 2003. Other sectors accounted for 57.9 percent in 2000 and for 58.8
percent in 2003.

Manufacturing industry is classified into four major groups i.e. large-, medium-, and
small-scale industrial groups in addition to cottage or household industrial group. This
classification is based on the number of workers employed without taking machineries of
production used or capitals invested into account.

The number of large-and medium-scale industrial establishments in the whole indicated a

decreasing tendency from 21,146 in 2002 to 21,126 in 2003 or a decrease of 0.1 percent.
But individually the number of publication, printing and recording industrial group,
rubber and plastic industrial processing group and motorized vehicles assembling group
added by 56 establishments, 50 establishments, and 54 establishments respectively.

Those large- and medium-scale establishments altogether employed 4,364,869 workers in

2002 or a decrease of 0.5 percent from that of previous year. Expenses for those
employees by those establishments in 2002 totaled Rp46 trillion or a decline of 12
percent from those of 2001, or an average of Rp10.6 million per worker per annum. The
number of workers employed by large and medium industrial establishments was
expected to increase quite high in 2002. So were their expenses for workers.

In 2002 the largest decrease of expenses for workers in large and medium industrial
establishments was suffered by food and beverage industrial sub-sector, namely about
Rp 5 trillion. The highest formation of fixed capitals occurred in machinery and its
accessories industry, amounting to Rp5 trillion. Investment of fixed capitals at sub-
sectors of leather and leather goods industry, and of metal goods, except of machinery,
suffered a decrease of almost 50 percent.

Outputs of large and medium industrial establishments in 2002 recorded a rise of more
than 30 percent to reach Rp882 trillion. The increase, however, required 26 percent

115
additional expenses of input. At the same time, on constant market prices, the values of
products made by the establishments grew at more than 21 percent to reach Rp 811
trillion. The increase was followed by the rise of raw materials by 23 percent or
amounting to Rp 468 trillion.

Of the total production value in 2002, the sub-sector of food and beverages accounted for
the biggest proportion of 15.53 percent, and growing to an estimated 16.98 percent in
2003. The sub-sector also earned from its products added value as much as Rp 40.5
trillion in 2000 and the figure was expected to reach Rp46.5 trillion in 2003. Wholly, the
total added value of large and medium scale industrial establishments in 2002 noted a rise
of 16.28 percent.

Dominating the country's industrial structure has been cottage industrial establishments,
accounting for 91.26 percent. In 2002, small-scale and cottage industrial establishments
added by 3.41 percent and 7.91 percent respectively compared to those of 2001. The
number of employees absorbed by small-scale industrial establishments noted an increase
of 0.37 percent, and cottage establishments 10.34 percent. By the increase, small-scale
establishments were assumed to absorb a 4.42 percent additional workers, and cottage
establishments 1.65 percent.

Output of small-scale establishments in 2002 swelled by 20.67 percent from that of 2002
or as much as Rp 7,155.7 billion, and that of cottage establishments by 21.29 percent. For
2003, output of small-scale establishments was expected to grow by 6.54 percent or as
much as Rp2, 733.3 billion, and that of cottage 1.83 percent or as much as Rp720.8
billion.

Parallel with the increase of output value, the cost of input borne by small-scale
establishments raised by 23.47 percent and cottage establishments by 27.69 percent.
Added value of cottage industries in 2002 also noted a rise of 13.64 percent and an
estimated rise of 13.64 percent in 2003. That of small-scale grew at 15.40 percent of Rp1,
850.4 billion in 2002, and an estimated 9.51 percent in 2003.

Promotion of Small- and Medium-Scale Industries

Development policy of small- and medium-scale industries puts priority on the promotion
of small- and medium-scale industrial establishments at outer Java, particularly at rather
isolated and remote areas, areas along borderlines with some neighboring countries and at
the countries eastern part; empowerment of entrepreneurs of the industries and their
institutions; betterment of business climate; improvement of prime services in term of
management, system and supporting facilities; development of innovative and realistic
schemes meeting all market players in real sector.

116
Banana processing middle-scale industry. Banana is basic raw material for pasta

Development vision of small- and medium-scale industries (SMIs) is oriented to

approach the year 2020 for the creation of people's economy-based SMIs that play a
significant role as important mover for manufacturing industries in a whole. The main
aims of the development of SMIs are the formation of modern and viable SMIs that can
offer job and business opportunities as well as better income for SMIs entrepreneurs in a
more equitable fashion; the formation of more viable and stronger industrial structure;
greater number of technology-based SMIs; improvement of exported products made by
SMIs.

By type, there are SMIs engaged in the industries of foodstuffs, in clothes, chemicals of
construction materials, metal and electronics, as well as handicraft. Gross domestic
product (GDP) of SMIs engaged in foodstuffs had amounted to Rp 9.740 trillion in 1998
before shrinking to Rp8.908 trillion in 2001. At the same time that of SMIs dealing in
clothes augmented from more than Rp3.473 trillion in 1998 to more than Rp 5.808
trillion in 2001; of SMIs undertaking in chemicals of construction materials rose slightly
from Rp12.123 trillion to Rp12.592 trillion, that of metal and electronics grew from
Rp4.969 trillion to Rp5.741 trillion, and that of SMIs in handicrafts increased from
Rp2.516 trillion to Rp4.207 trillion.

Production value of SMIs in foodstuffs based on 1993 constant prices suffered a decrease
from Rp 31.793 trillion in 1998 to Rp 27.5589 trillion in 2001. At the same time that of
SMIs in clothes swelled from Rp 9.548 trillion to Rp15.994 trillion; of SMIs in chemical
of construction materials shrank slightly from Rp28.746 trillion to Rp 28.720 trillion; of
SMIs in metal and electronics undertakings swelled from Rp11.711 trillion to Rp15.473
trillion; and that of SMIs in handicrafts undertakings rose from Rp 5.777 to Rp.7.114
trillion.

117
Domestic trade

Trade sector has been playing a substantial role in the country's economy. It supports
greatly the distribution of goods and services, meets the needs of people for staple foods,
and promotes stability of appropriate prices. Trade activities are intertwining and inter-
supporting with other sectors of production such as agriculture, manufacturing industry,
mining, finance, transport and communications. Its practices embrace sheer areas to
include inter-insular migration resettlements areas, areas at or along borderlines, and even
rather isolated and remote areas, thanks to the availabilities of facilities of trading.

Development of domestic trade is very much related to the population growth rate,
change of population age composition, distribution of population (that tends to the
occurrence of urbanization), improvement and distribution of income, technological
advancement, and change of the people's needs, tastes and life style following the
betterment of their living standards.

Trade sector has served a substantial share in economic development as it is proved by

the establishment of more viable trading system, the creation of relatively stable prices,
the formation of job and business opportunities and trade facilities, and the development
of exports as well as imports.

Retail business as part of the trade sector has been also featuring a heartening
development in recent years. It was booming in 1996 or before the monetary crisis hitting
the country. To encourage the business in 1999 the Government lifted the retail business
from the investment negative list, allowing big foreign retailing players such as Sogo,
Macro, Carrefour and Giant, to say some, to operate in Indonesia. How ever, in
protecting local retailing players and traditional markets, the Government limits their
operations to major towns or they are not allowed to operate at district or municipal
towns. In 2002 alone there were 100 convenience stores, 802 supermarkets, including
mini-markets, and 37 hypermarkets.

Loading and unloading activities at Bom Baru riverport in Riau

118
Foreign trade

Overseas trade plays a key role in marketing oil and gas as well as non-oil and gas
commodities. Some kinds of the country's products have proved themselves successful in
competing in and gaining international market to bring in large amount of foreign
exchange. In one hand in fact the country's export commodities destinations have been
expanding, but on another hand large proportion of those exported commodities is still
concentrating to several countries, and though sorts of non-oil and gas commodities have
been growing more varied only some have export basis.

By the improvement of competitive edge of the country's non-oil and gas export
commodities at international marketit is marked by the augment of exports in term of
volume and valueand the betterment of non-oil and gas export structure as well as
expansion of their market, it is expected that Indonesia would turn to be a leading and
viable trade state.

During the period of 2000-2003 non-oil and-gas exports grew at an average of 5.67
percentfar in fact below the target of 11.9 percent. Non-oil and gas export value in 2000
reached US47.76 billion, before decreasing to US$45.1 billion in 2001, and swelling
again to US$47.4 billion in 2002. The target was not attained due to chiefly the global
economic slowdown as a direct effect of the September 11 tragedy, and tighter
competition as well as some domestic unfavorable conditions such as high cost in getting
documents of export and import, labor disputes, insufficient infrastructures and facilities
to help boosting investment in export-oriented manufacturing industries, and the rampant
illegal trade and smuggling practices.

In encouraging non-oil and gas exports in 2001 necessary measures were taken including
the reduction of export tariff of some commodities and the improvement of textile quota
management system. In this context market expansion to countries of non-quota has been
carried out through various activities including selling missions, trade exhibitions, and
trade diplomacy as well as the operation of overseas trade promotional offices in six
cities (one each in Osaka, Los Angeles, Dubai, Budapest, Johannesburg, and Sao Paulo).
For domestic market, centers for trade promotion have been established in Surabaya,
Makassar, and Medan. A similar center is planned to be established at Banjarmasin.

Exports of oil and gas from 2001 to 2003 grew at an annual average rate of 1.2 percent.
During the first five months of 2004 Indonesian crude oil price was averaging at
US$33.3. The increase trend of oil in world market caused unfortunately trade balance
deficit to Indonesia for the Indonesian oil export value was below its oil import value.
Indonesia still records trade balance surplus when export value of gas was counted in.

119
The country's sluggish economy has affected the import of non-oil and gas commodities.
It plunged by 15.8 percent in 2001 before regaining by 0.1 percent in 2002 and 9.4
percent in 2003. At the same time, imports of oil dropped substantially by 17.5 percent in
2002 and 17.4 percent in 2003 due to mainly high degree of oil prices and domestic
needs.

SMALL-MEDIUM ENTERPRISES AND COOPERATIVES

SMEs

The role of small-and medium-scale enterprises (SMEs) in endeavors to recover the

country's prolonged economic crisis happening since 1997, has been significant. So has
their contribution to the country's economic growth and the creation of job opportunities.
Their contribution to the country's GDP during the 2002-2003 period noted an increasing
trend to reach Rp1,013.5 trillion or some 56.7 percent of total GDP, meaning higher than
that of the large enterprises did.

The number of SMEs also recorded an increasing trend; and their kinds of business more
varying. So did their aggregate investment and imports. All of these have helped SMEs,
more viable and strong as the country's economic backbone.

Products' added-value of small enterprises also noted a growing tendency: 39.7 percent in
2000 to 41.1 percent in 2003. At the same time, that of large enterprises on the contrary
dropped from 45.5 percent to 43.3 percent. While that of medium-scale enterprises had
been relatively stable at 15 percent.

Small-scale enterprises have always more advantages in businesses utilizing natural

resources and in tertiary sector such as agricultural crops, plantation or estate, livestock,
and fisheries, trade, hotel and restaurants. In each sub-sector, small-scale enterprises
managed added value more than 75 percent during the 2000-2003 period.

The large-scale enterprises, meanwhile, gained some advantages in the advanced

processing industries, in electricity, urban gas, communications, and mining. The added
value they made in those sub-sectors reached some 60 percent.

The medium-scale enterprises at the same time played a leading role in making higher
added value in the businesses of hotel, finance, leasing, services, and forestry.

In 2000, the growth rate of the middle-scale enterprises stood at 5.1 percent, of small-
scale 4.1 percent, and of large-scale about 5.6 percent. In 2003, the medium-scale
enterprises grew by 5.2 percent, small-scale 43 percent, and large-scale only 3.5 percent.
Even though the growth rate of medium-scale enterprises was relatively higher, their
contribution to the country's economic growth rate had been relatively smaller than that
of other groups due to relatively little added value the group created. Medium scale
enterprises' contribution to the national economic growth of 4.1 percent in 2003

120
accounted for only 0.69 percent, compared to 1.69 percent of small-scale and 1.73
percent of large-scale enterprises.

Business Units, Labors and Productivity

The number of small-scale undertakings in 2003 was 42.4 million units, increasing by 9.5
percent against that of the year 2000. They employed 79 million workers, meaning a rise
of 8.6 percent from the number of workers absorbed in 2000. The number of workers
employed by small-scale undertakings during the period of 2000-2003 grew by 12.2
percent or an average of 4.1 per annum.

Productivity of small-scale enterprises also noted a significant increase from Rp8 million
per worker in 2000 to Rp10.5 million per worker per annum in 2003. Those of medium-
scale and large-scale were respectively Rp24.7 million and Rp1.5 billion in 2000, before
augmenting to Rp31.8 million and Rp1.8 billion respectively in 2003.

The large-scale undertakings group is potential to be a pump-primer of economic growth,

and the small-scale to be a balancing element of income equity and labor-intensive
absorbing.

Exports of SMEs

Exports from products of SMEs reached Rp75.86 trillion or some 19.9 percent of the total
exports in 2003, an increase compared to that of 2000, which accounted for 19.3 percent
of total exports . The increase was attributed to the rise of exports of medium-scale from
13.9 percent in 2000 to 14.53 percent of total exports. There is a tendency that medium-
scale enterprises focus on products of processing industries.

Investment

During the 2000-2003 period, investments in all economic fronts had been almost
stagnant. Small-scale group attracted the least investment i.e. 18.6 percent on average per
annum, compared to medium-scale group that could record at an average of 23 percent
per annum. Combined, small-and medium-scale groups only absorbed investment about
41.6 percent per annum.

Compared to the total number of small-scale undertakings, it proved that small-scale

undertakings are of low or not capital intensive establishments. During the period of
2000-2003, annual average investment in small-scale group amounted to Rp58.9 trillion
and in medium-scale Rp73.2 trillion. It means equivalent to Rp1.5 million per small-scale
establishment. It contrasts with what a large-scale establishment could absorb, namely
Rp91.4 billion annually.

121
 Average Investment by an Establishment

(2000-2003)

Scale Investment Number of Investment per

(billion Rp) Establishments Establishment

Small 58,884 40,138,823 1.51

Medium 73,191 56,709 1,240.69

Large 185,043 2,024 1.51,424.2

Total 317,118 40,197,556 7.9

Small-scale group in 2003 recorded its investment growth at 2.1 percent; and medium-
scale as well as large-scale at 0.01 percent and 2 percent respectively. Economic sub-
sectors that absorbed the greater part of investment in large-scale group were services (35
percent), and electricity, gas and drinking water (18.2 percent). In small-and medium-
scale the sectors were transport (29 percent and 20.4 percent respectively), and trade
(16.5 percent and 15.2 percent respectively).

Small-and medium-scale groups, at the same time, supplied some 43.8 percent of the
national demands for goods and services (small-scale accounting for 30.0 percent, and
medium-scale 13.8 percent); and large-scale accounted for 42.1 percent of the total
national demands, and 14.1 percent of imports.

In producing its goods, the small-scale group's dependency on large-scale enterprises'

products was 14.9 percent, and on imported materials 5.8 percent; and that of medium-
scale groups was 15.0 percent and 9.3 percent respectively. The small-scale group's
output was primarily dedicated to household consumption (61.6 percent), and to exports
(19.5 percent); that of medium-scale about 48.8 percent to household consumption and
30.0 percent to exports; and that of large-scale, the greater part to exports. It means that
SMEs tend to be much more influenced by domestic economic dynamism rather than of
large-scale enterprises.

Cooperatives

Cooperatives, in addition to SMEs, as the people's economic backbone, have been

contributing meaningfully to the national economy. From one year to another the number
of cooperative establishments showed a rising tendency: from 110,658 establishments in
2001 to 117,806 establishments in 2002 or an increase of 6.46 percent. They spread in

122
 Milk cooperative undertaking in Bondowoso, East Java

more than 391 districts and municipalities. At the same time, there were 23,635,088
members of cooperatives in 2001, before increasing to 24,040,448 in 2002. The number
of employees working for cooperatives in 2001 was 202,947, and in 2002 was 209,058 or
growing by 3.01 percent.

On the contrary, paid-up capital of cooperatives suffered a decrease, from Rp 28,038

trillion in 2001 to Rp 23,589 trillion in 2002 or shrank by 15.87 percent. Of Rp 23,589
trillion paid-up capital in 2002, Rp14,257 trillion (63.40 %) were external paid-up capital,
and the remaining Rp8,632 trillion (36.60 percent) were internal paid-up capital.

Saving-Credit Scheme Cooperatives

Saving-credit cooperatives are cooperatives that receive savings from members, and in
return offer credits to their members. The number of saving-credit cooperatives in 2002
was 1,265 or an increase of 1.2 percent compared to that of 2001. Their members totaled
586,207 in 2002 against 576,624 in 2001, meaning an increase of 1.06 percent.

The amount of their paid-up capital in 2002 noted an increase of 0.92 percent compared
to that of 2001. Their internal paid-up capital accounted for some 29.67 percent, and
external paid-up capital for 24.11 percent, and the remaining 46.21 percent were of
members' savings. With the paid-up capital the saving-credit cooperatives owned plus
their members' savings, the amount of credits channeled to their members noted a raise of
1.56 percent to reach Rp642.55 billion in 2002, compared to that of 2001.

Business Development Services (BDS) "Provider"

To improve the performances of SMEs and cooperatives, the Business Development

Services (BDS) "Provider" has been formed and introduced. It functions not only to help
SMEs and cooperatives finding working capital from financial institutions in order to
improve their business activities, but also supervises them to recruit employees, better
their management and help seek market opportunities as well as educate managers of
SMEs and cooperatives to read market demands.

123
Due to the important and strategic role the BDS has played, a number of foreign
institutions such as the Japan International Cooperation Agency (JICA), and some
domestic and overseas business agencies have been invited to improve professionalism of
the BDS.

AGRICULTURE

According to Population Census 2000, some 60 per cent of the country's population
earned their living from agriculture. However, statistics says that in 2003 some 56.5
percent of 25.4 million families of peasants or farmers belonged to the economically-
weak bracket, cultivating land of less than 0.5 ha on average or were merely tenants.

Agriculture grew at 3.39 percent during the period of 1967-1976, and 5.72 percent in the
period of 1976-1986, making these time Indonesia self-sufficient in food. The policy that
stressed more on self-sufficiency in rice during the said periods led to rather unfavorable
impact towards other types of food crops. Even though this sector still proved viable from
the economic crisis the country suffered in the middle of 1997, it grew at only 1.57
percent the lowest rate the country had ever made.

Though almost all regions in the country suffered a rather long drought in 2003,
agriculture was still capable of growing in a heartening trend. Cumulatively this sector
(agriculture, forestry, and fisheries) up to the third quarter of 2003 noted a growing rate
of 2.54 percent. Of the growth rate, foodstuff sub-sector grew on average 2.73 percent per
annum, estate sub-sector 1.65 percent, and animal husbandry 1.40 percent. Thank to
endeavors the Government, the public and business circle made to maintain such growth
rate that the country's stockpile of foodstuffs suffered no shortage.

The country's agricultural performance has been to some extent influenced by the on-
going domestic and global dynamism. The world's economy that grows at a lower rate
would certainly cause an unfavorable impact to the country's economic growth. So would
unfair practices of international trade such as excessive subsidies to agriculture in some
developed countries since it would affect the competitive edge of products from the
developing countries such as Indonesia.

Policies and Strategies

New paradigm has been currently adopted to develop agriculture, namely by developing
a business system from downstream to upstream. Extensive socialization of this system is
required to reach all levels of society, including politicians and legislators, that
agribusiness should be managed not by the Government but by the society itself, to make
it the prime mover of the country's economy.

In empowering peasants or farmers, direct aids for them have been made available. Up to
2003 some two trillion rupiahs had been granted directly to some 25,000 groups of
peasants scattering in some 250 districts throughout the country, to finance their
undertakings, their collective undertakings or cooperatives, the procurement of their tools

124
and development of their skills and knowledge. The aid proved offering the peasants
either positive impacts for the development of agribusiness or a multiplier effect to the
development of the real sector of economy, and simultaneously become a stimulus for
rural economic development. Other stimuli would be among other things increasing
budget allocation either from state budget or regional budget that reflects serious
commitment of the Government for the development of agribusiness, along with
increasing the trend of domestic investment during the last few years.

Policies and programs having been introduced by the Government to encourage

agribusiness include: maintaining sactorial cooperation, including with regional
administrations; introducing various deregulations such as on pesticides, fertilizers, and
agricultural tools and machines; facilitating the cultivation of seedling; encouraging
peasants or farmers at rural areas to have more accesses to financial institutions; helping
peasants or farmers to have more accesses to market and market information; producing
excellent varieties of plants of food, horticultural, and estate crops; speeding up
dissemination of technology; facili

tating the formation of synergic undertakings of agribusiness; protecting domestic

agribusiness undertakings from unfair trade practices by other countries; improving skills
and knowledge of peasants; reinforcing system of quarantine; and maintaining stability of
unhusked rice prices.

Agricultural Products

Food crops

The year 2003 saw in general better performance of agricultural productions than those of
2002, though they were still below the target. Production of rice, for instance, grew 1.14
percent from 51.49 million tons in 2002 to 52.08 million tons in 2003, lower than the
target of 53 million tons. Horticulture products, except of sweet potato, also noted an
increase: production of corn up by 12.08 percent, from 9.65 million tons in 2002 to 10.82
million tons in 2003; soybean by 0.66 percent, from 673,000 tons to 674,000 tons; peanut
by 5.77 percent; green pea by 8.20 percent; and cassava by 4.79 percent. The increase
had in fact improved the country's viability of food supplies.

Horticulture

At the end of 2003, the harvested areas of vegetable consisting of spring onions, shallots,
potatoes, cabbage, mustard green, and carrot, reached 316.7 thousand ha or a rise of 3.99
percent than that of 2002. Vegetable production at the same time amounted to 3.8 million
tons, down by 3.46 percent due to primarily the decline of production of mustard green
and shallot by 16.40 percent and 13.79 percent respectively.

Indonesian main fruit crops are avocado, mango, lanzon, durian, orange, salaks,
pineapple, rambutan, banana, sapodilla, and guava. Java Island is the country's main fruit
producer, except of durian, lanzon, and orange, which the island of Sumatra mainly

125
produces. Within the Java Island, West Java is a major fruit producer, accounting for
33.61 percent of the Island's total production. Of outer Java, East Nusa Tenggara is also
the main fruit producer.

Fruit production in 2003 declined due to chiefly the decrease of lanzon production from
208 thousand tons in 2002 to 116 thousand tons in 2003, down by some 44.2 percent, and
that of avocado which decreased by 33.9 percent.

Plantation Estates

Plantation estates consist of large estates and smallholdings. Large-scale companies

engaged in rubber plantation in 2003 numbered 453 establishments, cultivating a total
planted area of 543.4 thousand ha; in coconut plantation, there were 230 establishments
cultivating some 78.9 thousand ha; in oil palm, there were 882 establishments with total
plantation area of 2,875.3 thousand ha; in coffee plantation 155 establishments tilling
60.7 thousand ha; in cacao plantation 222 establishments with 155.4 thousand ha; in tea
plantation 144 establishments with 84.7 thousand ha; in kapok 25 establishments with 4.7
thousand ha, in quinine 16 establishments with 1.1 thousand ha; in jute, five es

tablishments with 1.3 thousand ha. In addition there were 88 companies engaged in
sugarcane plantation, 19 companies of tobacco estates, and 16 companies of quinine
estates.

Major products of large scale estate companies were palm oil (5,456.7 thousand tons),
palm kernels (1,231.8 thousand tons), rubber (3,325 thousand tons), tea (122.6 thousand
tons) and sugar (1,876.6 thousand tons).

Leading smallholding estates in term of the size of cultivated area in 2003 were
respectively rubber (3,796.9 thousand ha), coconut (3, 803.6 thousand ha), oil palm
(1,810.0 thousand ha), coffee (1,360.8 thousand ha), cacao (817.0 thousand ha), and
cashew nut (604.1 thousand ha). In term of production, they were rubber (1,788.8
thousand tons), coconut (3,141.7 thousand tons), palm oil (3,648.8 thousand tons), coffee
(669.4 thousand tons), and cacao (572.9 thousand tons).

126
Smallholders cabbage plantation in Lembang, West Java

Animal Husbandry

The year of 2003 saw a rise of large livestock population: dairy cow grew at 2.90 percent,
to 368.7 thousand heads; slaughtered cow went up by 0.87 percent to reach 11.4 million
heads, buffalo by 2.18 percent to 2.5 million heads, and horse by 8.06 percent to 452.9
thousand heads.

So did the population of small livestock such as goat that amounted to 13.3 million heads
or a rise of 5.79 percent compared to that of 2002, sheep eight million heads or a rise of
5.04 percent, and pig 6.3 million heads or a rise of 7.05 percent.

Also noting an increase was the population of poultry: native breed chickens in 2003
amounted to 85 million heads or a rise of 8.98 percent, broiler chickens 917.7 million
heads or a rise of 6.08 percent, and ducks 48.1 million heads or a rise of 4.16 percent.

Large scale palm oil estate in North Sumatra Province

127
Exports and Imports

The exports of agricultural commodities (excluding those of fisheries and forestry) went
up substantially by 26 percent in 2003 to a total of US$5.7 billion from US$4.5 billion in
2002.

The year 2003 also saw the net exports of agricultural commodities arising significantly
from mere US$0.8 billion in 2002 to US$1.35 billion, an increase of 225 percent. Of the
amount, the commodities of plantation accounted for US$2.91 billion, horticultures for
US15.3 million, but animal husbandry suffered a decrease to US$139.4 million.

At the same time total imports of agricultural commodities recorded a rise of 4.94 percent
to reach US$4.37 billion in 2003 from US$4.16 billion in 2002.

Exchange Values of Commodities

In general, the exchange values of agricultural commodities in 2003 were better than in
2002. In Java, the value increased between 2.59 percent and 31.11 percent. Of West Java,
a province in Java Island, it grew by 4.84 percent, in Central Java 9.84 percent, in
Yogyakarta 2.57 percent, and in East Java 31.11 percent. Of outer Java except of North
Sulawesi, South Kalimantan and Bali, there was an increase of the agricultural
commodities' exchange value. In West Nusa Tenggara it recorded a rise of 5.77 percent,
in South Sumatra 4.23 percent, in West Sumatra 3.40 percent, and in South Sulawesi 2.27
percent.

Six out of 14 provinces which their agricultural commodities' exchange value was less
than 100 percent were Lampung (74%), South Sumatra (74%), West Sumatra (91%), and
North Sumatra (99%). If this exchange value was a reference of peasants' welfare, it
could be reasonable to say that the peasants' welfare was improving.

Prospects of Agribusiness

Bullfrog farming for export commodity, at Pacitan, East Java

128
Indonesia's economy for the year 2004 is envisaged to grow at 4.8 percent, and during the
first quarter of 2004 it recorded a growth rate of 3.54 percent (based on constant prices).
Recording the highest rate was among other things the agricultural sector (agriculture,
forestry, and fisheries) that grew at 17.07 percent. Attributable to such growth rate in the
sector were the sub-sector of food crops that went up by 54.99 percent and of animal
husbandry by 6.69 percent. On the contrary, other sub-sectors such as plantation grew
minus 22.29 percent, forestry minus 29.83 percent, and fisheries minus 8.92 percent.

The World Bank predicted that estate commodities such as coffee, tea and crude palm oil
would increase. So would the price of rice to return to the level achieved in 2002.
According to the prediction, meanwhile, economies of the developed countries would be
growing at 1.5 percent, and of the developing countries at between 4 percent and 4.9
percent. At the same time the world's trade would go up by an estimated 4 percent.

The said trends would certainly affect economic development in Indonesia. Another
factor that would also influence economy in Indonesia is the recovery of Iraq, for this
country is one of the countries importing Indonesia's commodities. What is more, the
exports of Indonesian coffee, cocoa, and pepper to the US would probably be affected by
the imposition of the Bio Terrorism Act and stricter export procedures by the US. Market
segment of Indonesian traditional export commodities would also probably dwindle by
the admission of 16 East European countries to the European Economic Community.

In general, the exports of Indonesian agricultural products still have promising prospects
in some regions such as the Middle East, South Asia and East Asia, but they will largely
depends on creativities and shrewdness of Indonesian exporters to seek out and manage
the opportunities.

In promoting the agribusiness, the Government has taken measures to among other things
continue augmenting productivity and improving seedling system; to keep on schemes of
direct financial assistance to peasants; to continue modernizing the agribusiness system
and its production marketing as well as agricultural tools particularly in rural areas; and
to continue struggling for fairer trade policy through the World Trade Organization.

Poultry and Bird Influenza Epidemic

The country's large number of population should certainly be a potential market for the
production of chicken eggs and meat. These days the country's per capita egg
consumption is 50-60 eggs annually, and per capita consumption of chicken meat is
ranging from 3.5-4.0 kg per annum.

After being hit by the impact of the monetary crisis in the middle of 1997, the poultry
industry in 2001 started indicating its recovery, and become a substantial economic
mover. The poultry industry involved businesses worth estimated at Rp 50 trillion as it
was reflected in the production of poultry feed of six million tons per annum, with price
assumption of Rp 2000 per kg. In 2002 Indonesia was known as one of eggs-producing
countries with cheapest cost of production and selling prices.

129
During the period of 1974-1986, in which the country's economic growth rate recorded as
high as seven percent per annum, the sub-sector of animal husbandry's GDP once
accounted for some 25 percent of total contribution of agriculture to the country's GDP.

Modernization of animal husbandry in Indonesia began in late 1970s when the breeding
of egg-laying chickens, broilers, and native-breed chickens had been developing rapidly.
The chicken feed industry usually related to foreign investment also flourished.

Of the total 854 million chickens in 2004, broilers accounted for 524 million heads,
native chickens for 263 million heads, and egg-laying chickens for 67 million heads.
They were susceptible to viruses of the so-called "bird influenza" recently attacking
several countries in East Asia. The Government officially admitted that this dangerous
chicken disease attacked some provinces in Indonesia in January 2004. In protecting
chickens and minimizing victims of the disease, the Government helped farmers in
tackling the endemic by providing vaccine (Avian Influenza Vaccine), imposing bio-
security, socializing and disseminating information related to bird influenza, and other
preventive actions.

The number of chickens victimized by either bird influenza or Newcastle Disease (ND)
etc., was 4.7 million heads or 0.05 percent of total population, relatively low indeed.
However, the plague had caused Japan to temporarily stopping of importing chickens
from Indonesia, and domestic consumption declined to the lowest ever of 20 percent of
total supplies, and the prices of chicken meat dropped substantially. The price of feeds on
the contrary soared because some 70 percent of materials were imported. The country's
exports of poultry in 2002 amounted to US$4.8 million.

In tackling and eradicating bird influenza endemic, Indonesia along with other countries
such as Thailand, Vietnam, Laos and Cambodia received emergency financial aid from
the Food and Agricultural Organization (FAO).

Prospect for poultry industry of post-bird flu plague is still promising and its domestic
market is still significant. Technological innovation in poultry industry is indeed required
to improve output qualitatively and quantitatively. Also required is to improve the
production of corn as one of prime raw materials for feed industry.

FORESTRY

The main aims of forestry policy are to maintain the preservation of forests for the
improvement of public welfare; secure the existence of forests, optimize the benefit of
forests; and reinforce forestry institutions. To achieve these aims, with reference to policy
and strategy having been determined, there are five priority schemes put into operation in
addressing the major issues of forestry: Illegal Logging Eradication scheme; Forest Fire
Handling scheme, Forestry Restructurization scheme, Rehabilitation and Conservation
scheme of Forest Resources; and scheme for Decentralization of the Forestry Sector.

130
Illegal Logging Eradication Scheme

The scheme aims to secure and preserve forest resources, in order that forests are
managed in a sustainable fashion. Under the scheme various activities have been done,
including: maintaining close cooperation with the Police and the Navy in intensifying the
operation to fight illegal loggers on the spots (such as under the Waralaga Operation that
enforces a law upon illegal logging including transport and trading of illegal logs, and
under the Operation of Wana Bahari done by the Navy to hunt down the transportation of
illegal log by sea); and to intensify surveillance operations along the northern coast of
Java to prevent smuggling of illegal logs from outer Java. International cooperation has
also been maintained such as with the Governments of the UK and People's Republic of
China in the context of curbing down and fighting the illegal trade of logs, and of
improving law enforcement, as well as intensifying activities towards the establishment
of conserved forests. Similar cooperation has also been organized with the Governments
of Japan, South Korea, and with the Governments of countries joining in the Forum of
Forest Law Enforcement Good Governance (FLEG), etc.

Forest Fire Handling Scheme

Under the scheme it has been and is being strived to prevent and minimize forest fire, and
at the same time to protect people living around fires-prone forest areas. In this frame
work, there have been spotted fire-susceptible areas that should be given high priority in
dealing with forest fire. Those areas include North Sumatra, Riau, Jambi, Central
Kalimantan, and East Kalimantan, with each area has already a Forest Fire Brigade. Early
warning system is given priority to be developed in the context of preventive actions
against forest fire. The early detection system on forest fires is taken from meteorology
data satellite of the US National Oceanic and Atmospheric Administration (NOAA) and
from the Geo-Stationary Meteorological Satellite (GMS-5), and from HIMAWARI of
Japan. Cooperation has been maintained with donor countries in handling forest fires.
The zero burning scheme has been also imposed upon forest concession holding
companies to prevent forest fires.

Forestry Restructurization Scheme

The main aims of the scheme are to preserve forest resources and to manage them in
order to provide socio-economic and ecological benefits for the whole Indonesian people;
and to encourage the establishment of viable wood industries and of efficient wood
industrial structure that can produce products of high quality and having competitive edge
in global market. Execution of the scheme also covers: the implementation of sustainable
production forest management being the manifestation of sustainable forestry
development concept, to manage well the supplies of wood for industrial raw material
and to secure that only legal logs and timber are available in the market; the
implementation of forestry sector soft landing, namely gradual reduction of timber
production from natural forests as an effort to curb down the destruction of forests; and
the establishment of the Forestry Industrial Revitalization Agency to improve
performance of the timber processing industries, which recently tend to decline. The

131
agency is also tasked to endeavor the preservation of forest, explore the possibilities of
employment and business opportunities.

Forest Resources Rehabilitation and Conservation Scheme

The scheme aims to secure and maintain the still unimpaired forests, and to accelerate the
recovery of damaged forests. Through this scheme, economic and ecological values of
forestry are expected to be optimum, and social conditions of the people living around the
forest improve by getting direct benefits from it either as the doers or business partners.

By conserving forest resources it is hoped that the utilization of forest function and status
ecologically, economically and socially can be maintained and even improved, and
simultaneously animal population, types of plant, genetic germs and ecosystems existing
in the conserved forests be protected and preserved.

To make the implementation of the scheme successful, various measures have been, are
being and will be done to include: rehabilitation and reforestation programs of damaged
forests and land of about three million hectares in five years, and 300,000 ha in 27 river
basins;

arrangements of national and regional-scope master plans for forest and land
rehabilitation; improvement of institutions engaged in forest seed under the auspices of
the Indonesian Forest Seed Project (IFST) through maintaining bilateral, multilateral as
well as international cooperation, and the establishments of Forest Plant Seedling Houses
(already available are in Palembang, Bandung, Denpasar, Banjarbaru, Makassar, and
Ambon); promotion of active participation of society in the program of forest and land
rehabilitation, through a scheme known as "seed for people"; the development of social
forestry to improve the management of forest and land preservation, to empower
members of society particularly those who live around forest areas to enhance their
welfare.

In the implementation of the scheme of rehabilitation of damaged forest and land, the
Ministry of Forestry has provided Rp134 billion to 182 district administrations.

Decentralization Scheme of Forestry Sector

The scheme aims to promote the good organization of coordination of decentralization

system in the field of forestry among related agencies and institutions in conforming to
their respective authority and function in order to create harmony in actions to achieve
better performance; and to create common understanding and perception on forestry
decentralization system in implementing sustainable forest management in the context of
regional autonomous system application. Regarding the decentralization system, various
regulations which govern forest management, forest management planning, utilization
and use of forest areas, urban forest, and reforestation fund, have been imposed.

132
Ecology

Indonesia still has many parts of its territory covered by the luxuriant growth of the
characteristic tropical rainforest vegetation, a type of ever-wet vegetation containing a
large number of timber species. What makes the flora of Indonesia completely different
from those of other countries as well as the flora of other tropical areas in the world is
among other thing its high number of genera and species endemic.

As it is recorded, Indonesia has as many as 27,500 species of flowered plants or about 10

percent of the estimated number of flowered plant species in the whole world, and about
40,000 species of plant, or about 10-12 percent of the estimated number of plant species
in the world. About 6,000 species of plants are known to be used directly by the local
people. Indonesia has also some 1,539 species of reptile and amphibians (16 percent of
the world's reptile). While its mammal accounts for 12 percent of the world's mammal;
kinds of fish 25 percent, and kinds of bird 17 percent. Most of these species are found in
forest areas which these days are suffering heavy pressures from different fronts such as
animal smugglings, theft of germ plasma, timber illegal cutting, illegal hunting, illegal
trade of protected species of flora and fauna etc.

Indonesia has a total forest area of about 120.25 million hectares or some 63 percent of
the country's total land area. Of the area about 20.5 million ha constitute parks and
reservation forests, about

33.52 million ha protection forest, 23.06 million ha limited production forest, about 35.2
million ha production forest, and about 8.07 million ha of convertible production forest.

Conservation forest area is divided into national parks (41 areas), nature recreation parks
(89 areas), major forest parks (13 areas), hunting ground (15 areas), nature conservation
(179 areas), and wildlife sanctuaries (51 areas).

Frequent landslide, flood, and pollution, draught, micro-seasonal changes, excessive and
indiscriminative timber cuttings have to some extent degraded, depleted and damaged the
forests. Unfortunately reforestation and land greening have not kept abreast yet during
the past few years.

Forest Social-Economic Function

Numerous people have enjoyed the benefits, socially and economically, forests can offer
directly and indirectly. Forests provide not only its main products such as many kinds of
timber, and by-products such as rattan, resin, aloe wood, sandalwood etc, but also
regulate the supply of water, prevent flood, and offer employment. For instance the total
number of people earning their living directly or indirectly from forests was estimated at
about 30 million. In 1997 employment in forests was estimated at 183 thousand.

133
Forest Concession

Up to December 2002 there were 270 valid forest concessions, exploiting for about 28
million ha of forest. Of the total area, some 22.5 million ha belonging to 182 forest
concession areas were managed by private companies, 339,240 ha belonging to five
forest concession areas were run by state-owned enterprises, and the remaining 5.2
million ha belonging to 83 forest concession areas were administered by Joint-Venture
companies between private and state owned enterprises.

In meeting the supplies of timber as raw materials for industries such as for pulp (for
making paper) and other purposes, scheme of industrial timber concessions has been in
operation for some years covering about 2,867,221 ha (up to the end of 2002) to produce
16,101,614 cubic meters (from 2000 to 2002).

The number of sawmill and wood working, plywood mill, pulp mill was 1,881
establishments with installed capacity of 44.77 million cubic meters far higher than the
18.60 million cubic meters raw materials can supply. In 2003 the Government imposed a
regulation that determines a maximum of about 6.892 million cubic meters of timber per
annum natural forests can supply. This limitation is intended to recover forests
potentiality and to achieve balance between supply and demand of timber logs as raw
material.

The Government revenues from reforestation funds (collected from forest concession
holders) and other taxes and levies during the period of 1999-2002 amounted to Rp13.5
trillion.

An encouraging trend is that the number of people visiting nature tourist objects such as
nature parks and conservation areas has been increasing. In 2001, for instance, there were
741,220 persons visiting nature parks, and 3,344,096 persons touring conservation areas.

TRANSPORT, POSTAL SERVICE AND TELECOMMUNICATIONS

Development of transport means and infrastructure continues taking place to make

services much more efficient, reliable, qualified secure, and affordable, and to realize the
national transport networks in inter-model system, and integrated with the regional
development drive. They are designed to be part of the whole system of distribution,
capable of offering services and benefits for the people, including making the rural and
urban networks function properly.

The main aims of development of transport means and infrastructure are: 1) to

rehabilitate and maintain the existing transport means and infrastructure in order that they
function as they should; 2) to make them meet the standards of transport security services
operation of domestic and international ones; 3) to create a much more favorable, fair and
open business climate in the transport sector so that all business players such as state-run
enterprises, private enterprises, as well as central and regional governments take part

134
actively in providing transport services; and 4) to meet at least the minimum necessities
of transport services in remote or rural areas.

In the context of improving and maintaining transport services, in the period of 2000-
2004 priority was given to the development, rehabilitation and improvement of transport
infrastructure of land transport, including inland waterways (river, lake and ferry
transport), sea, and air transport

In making the traffic of goods and passengers services run more smoothly to reach even
remote areas, and to link the centers of production and their market places, the
Government has offered subsidies for the operation of pioneering transport services, in
addition to the economic-class transport services for people of economically low-and-
middle brackets. Enjoying the subsidy scheme for pioneering bus services, there were 50
pioneering bus routes in 2001, which increased to 92 routes in 2004.

Studies on transport-related measures covering legal aspects, institutional tariff and

subsidy aspects as well as the aspects of human resources, have been and are being done
to improve services. The studies have been so far leading to among other things final
drafting of amendments to the existing laws in the field of transport (Law No. 13 of 1980
on Roads, Law No. 13 of 1992 on Railways, Law No. 14 of 1992 on Road Traffic, Law
No. 15 of 1992 on Civil Aviation, and Law No. 21 of 1992 on Sea Transport). The
amendments to these laws are designed among others things to reposition the real role
and function of the Government in public transport services, to offer the private business
sector and regional administrations more room to take part, and to take measures on tariff
and subsidies more conducive to investment by private and state-owned enterprises, and
competition fairer and healthier.

Road Transportation

Roads play a leading role in passenger and freight traffic. At the end of 2002 there were
22.99 million vehicles licensed for use on the roads in Indonesia, of which 73.97 percent
were passenger cars, 8.12 percent trucks, and 3.10 percent buses. The number included
inter-city buses serving public passenger services, which were numbering 19,370 in 2004,
up from 17,613 in 2001. It is worth noting that the number of vehicles assembled at home
in 2003 was 3.12 million units, an increase of 19.28 percent than that of 2002, of which
motorcycles accounted for 90.21 percent, pick ups and vans 7.03 percent, buses for 1.46
percent, sedans 1.07 percent, trucks 0.28 percent, and jeeps 0.03 percent.

Improvement and repair as well as maintenance, along with new construction of roads,
are continuously being made in the network of roads which are classified into road
networks under the central government's management authority (which form a basic
network linking major cities, industrial areas and ports), those under the management
authority of provincial governments, and those under the authority of district/municipal
administrations. The total length of road networks in 2002 was 368.4 thousand km, of
which some 27.6 thousand km are under the management authority of the central
government, 48.9 thousand km under the authority of provincial administrations, and

135
291.8 thousand km under the authority of district/municipal administrations. Road
widening and reinforcing of their surface structures have been made to some 3,000 km, in
addition to the construction of 2,000 m of bridges along the road networks of Java's
northern coast, Sumatra's eastern coast, Kalimantan routes and Sulawesi routes.

Some 850 km of roads and 1,000 m of bridges have been built to open up residential
areas along and by the country's borderlines with a few neighboring countries, such as
Jayapura-Wamena route, Flores-Seram routes, and road routes along borderlines at West
Kalimantan, East

A bridge over Kahayan River in Central Kalimantan Province

Kalimantan (with Malaysia), at Papua (with Papua New Guinea), and East Nusa
Tenggara (with Timor Leste), in addition to roads in Nias Island, Buru Island, Buton
Island, Sangihe Island and Wetar Island. The road constructions in those places are also
designed to speed up development in the country's less-developed eastern territory, and
improve the role of residential areas along and by borderlines as international gateways.

Some 1,500 km of roads and 1,500 m of bridge were also built at Java's southern coast, at
Sumatra's western coast including Ladia Galaska route (a land route linking Indian
Ocean's coast to coast of Malacca strait via Gayo and Alas mountains) in the Province
Nanggroe Aceh Darussalam. The Suramadu (abbreviation of Surabaya and Madura)
suspension bridge that will link Surabaya and Madura across the Strait of Madura in East
Java is under construction. Also under construction is the 40-km toll road between
Purwakarta and Padalarang (West Java), which will shorten the drive time from Jakarta to
Bandung to only about two hours from about four hours currently.

Road safety and facility

The country's road accident record had been considerable, making accident road traffic
density high enough. To address the issue the Government has managed to construct and
install road safety devices, including the installation of 1,185 traffic lights, 20,976 m of
road safety fence, 11,500 traffic nail marks and road marks of 349,130 m mainly on

136
national road networks. Still to minimize the effect of road accidents, it has been made
compulsory to wear seat belts in the front sears of cars, and wearing helmets for
motorcyclist.

In dealing with overloaded freight by trucks and container trucks, weighing bridge
stations have been put into operation in many places including those having been built in
West Sumatra, Riau and North Sumatra.

In offering the public in Jakarta much more comfortable services with relatively
reasonable price, faster ride, the "Transjakarta" bus services has come into operation
since the beginning of 2004 to serve the main route of Kebayoran Baru (South Jakarta)
Kota (West Jakarta). It is also designed to help easing the city's heavy traffic. Also, in
easing the city's traffic congestion two monorail systems have been planned.

Railways

Railway services in Indonesia are available only in Java Island, and Sumatra Island
(North Sumatra, West Sumatra, and South Sumatra). The island of Kalimantan will have
such services in a few years to come as preparations are being worked on. The state-run
PT Kereta Api Indonesia (The Indonesian Railway Company) manages train services.

Railway facilities and infrastructure continue to be made available and modernized, along
with improved services. This includes the construction of double-track rail and
installation of electronic traffic signs in heavy traffic routes.

Rehabilitation schemes from 2001 to 2004 (up to August) included the betterment of rails
as long as 71.8 km, betterment of rail traffic signs and telecommunication devices, and
repairs of 18 units of diesel trains and three units electric trains, and improvement of a
118.25 km rail track of economy-class trains. In addition, there had been the procurement
of 1,100 km of R-54 rail track, and construction of a 223 km double-track rail of
Cikampek-Cirebon route, Cikampek-Padalarang route, Yogyakarta-Solo route are being
done, and the Kutoarjo-Kroya route double-track rail is being prepared along with the
reconstruction of railway in the Province of Nanggroe Aceh Darussalam.

137
 Pasar Senen train station

Passenger services

The passenger networks consist of inter-city network linking major cities in Java in
particular; local stopping services; and commuter services in and around the large cities,
especially Jakarta and its surroundings such as Bogor, Bekasi and Depok.

The Indonesian Railway Company PT KAI, runs inter-city executive services such as
Argo Bromo train, Argo Bromo Anggrek train, and Bima train that operate on the
Jakarta-Surabaya route, the Gajayana train that operates on the Jakarta-Blitar-Malang
route, Argo Lawu train and Dwipangga train both operate on the Jakarta-Yogyakarta
route, Gumarang train and Kamandadu train both operated on the Jakarta-Semarang
route, Argo Gede train and Parahyangan train both operate on the Jakarta-Bandung route.
The PT KAI also operates electrified services from Jakarta to Bogor, Depok, and Bekasi.

The PT KAI also provides special services for tourists, businessmen, and railway
enthusiasts by operating Nusantara, Bali and Toraja trains, the coaches of which having
facilities and interior decoration of Indonesian cultural nuance, and are equipped with bed
rooms, meeting rooms, dining rooms, mini-bars, audio-videos etc.

In improving railway management, PT KAI started in the period of 2000-2004 adopting a

financial scheme of Public Service Obligation

(PSO) for subsidizing the operation of economy-class passenger train services;

Infrastructure Maintenance and Operation (IMO), and the Track Access-Charges (TAC)
application to fund railways services.

The number of passengers transported by trains services in 2000 totaled 190.7 million,
but in 2003 it dwindled to 150.7 million. The decrease was chiefly due to tighter
competition the services had to face from other modes of transport, especially in inter-

138
city services from air transport. While the number of passenger transported by commuter
trains tend to increase.

On the contrary the total amount of freight handled by cargo trains rose from 16.8 million
tons in 2000 to 17.99 million tons in 2003.

Inland Waterways and Ferry Crossing

The inland waterways, particularly big rivers in Sumatra, Kalimantan and Papua, play an
important part in both passenger-and freight-carrying. Meanwhile ferry crossings play a
key role in transporting passengers and freight from and to adjacent islands such as
between Java and Sumatra, Java and Bali, etc, especially in view of Indonesia being an
archipelago.

Development and rehabilitation of inland waterways and ferry crossings continue to

improve services. In the period of 2000-2004, among other things 13 crossing beacons
and 700 river buoys were installed, four crossing and river wharves rehabilitated, 30
crossing wharves and five river and lake wharves developed. In addition, there were
some 277,529 cubic meters of mud along some shipping courses dredged.

To open up isolated and remote areas, ten vessels have been constructed and made
available for serving pioneer crossing services. Subsidies are also provided for the
operation of pioneer shipping services on 59 crossing routes.

The number of both passengers and freight carried on ferry crossings shows an increasing
tendency. The number of passengers transported

Passenger ship that plies between Palembang and Muntok, both in Southern Sumatra

139
by ferry crossing services in 2000, for instance, totaled 35.94 million, and the number
swelled to 39.36 million in 2003. Total freight handled in 2000 amounted to 13.9 million
tons before increasing to 14.4 million tons in 2003. The number of vehicles ferried in
2000 was 8.712 million units, but the number then shrank to 5.9 million units in 2003.

Sea Transport

Shipping has been playing an important role for so many, many years in transporting
inter-island passengers and freight. So it is very reasonable the Government to always
pay serious attention to the development of shipping facilities and infrastructure as well
as improvement of its management.

Sundakelapa traditional harbor for inter-insular shipping

In the framework of developing sea transport services, marine facilities and infrastructure
have been made available during the past few years, including the construction of a
multipurpose wharf of 237.8 m in length at Kupang (East Nusatenggara), and a container
wharf of 130 m in length in Bitung (North Sulawesi), the dredging of 10.7 million cubic
meters of mud along some shipping routes, the rehabilitation of 101 units of supporting
navigation instruments, the construction of two marine disaster prevention ships and three
passenger ships of 2000 type, the installation of supporting navigation instruments (12
light houses, 22 beacons, and 119 floating beacons).

To make isolated and remote coastal areas and islands better accessible, eight pioneer
vessels have been constructed and handed over to the administrations of North Sulawesi
Province, Papua Province, North Maluku, and East Nusatenggara, and another five still
under construction. In addition, subsidies have been provided for the operation of
pioneer-shipping at 174 routes.

140
In 2002 overseas freight loaded amounted to 163.34 million tons, up 5.76 percent from
that of the previous year, and domestic freight to 139.95 million tons, up 1.96 percent.

Air Transport

Development and improvement of air transport facilities and infrastructure keep on going
to improve services. Those include the maintenance of runways and terminals of 470,920
sq. m and 18,310 sq. m respectively; and expansion of runways and terminals of 431,179
sq. m and 1,811sq.m respectively. The runways and terminals of Manado airport in North
Sulawesi and Ambon (Maluku) airport are among those undergoing expansion, to make
them capable of handling larger aircraft and many more passengers and cargo.
Concerning pioneer-flight, the Government has provided subsidies for some 317 routes.

Garuda aircraft was in the Netherland's Schippol Airport

The number of national fleet in 2003 was 545 aircraft, consisting of 369 fixed-wing
aircraft and 176 rotary wing or helicopters. Of the number, some 185 fixed-wing aircraft
and 13 helicopters belonged to the Government, and the remaining 184 fixed-wing
aircraft and 163 helicopters were owned by private airline companies.

In 2003 a total of some 13,515,866 passengers traveled by air, swelling from 9,354,303
passengers in 2002. At the same time, the amount of cargo carried by air was 154,778
tons in 2002, and 225,450 tons in 2003.

For the year 2004 the Government allotted Rp33 billion for the development of pioneer-
flight routes in Papua or Irian Jaya by the state run airline company PT. Merpati
Nusantara, and Mimika Air.

141
Meteorology

The institutional restructurization of the National Meteorology and Geophysics Agency

took place in 2002 pursuant to Presidential Decisions No. 46 of 2002 and No. 48 of 2002.
The restructurization aimed to allow the Agency function optimally and serve not only
the interest of transport sector, but also those of other strategic elements such as
agriculture, irrigation, forestry, water resources, and the public.

Included in the restructurization scheme is the modernization of the agency's instruments

and their optimum use. Instruments added to the Agency's system comprise one unit of
rain radar, six automatic weather stations (AWS), five automatic port weather devices,
three units of accelerograph digital components, two units of three seismograph
broadband components, three units of lightning detector, and one unit of gravimeter.

For improved meteorological and geophysics telecommunications, the Agency uses

VSAT Link 32 Kbps, VSAT IP, transponder and LC. In addition, the Agency has
developed a center for flight weather information services that meets international
standards, in Soekarno-Hatta Meteorological Station.

Post and Telecommunication

Various efforts have been done to improve the services of Post and Telecommunications,
among other thing through: 1. rehabilitation schemes of post and telecommunications
infrastructures; 2.developments of radio frequency station and procurement of various
devices for controlling illegal radio frequencies; 3. rearrangement of radio FM and
television frequencies; 4. improvement of laboratory for telecommunications tests to help
the supply of telecommunications devices meeting international standards.

The Government, through PT. Telkom, continues to improve telecommunication

services. During the period of 2000-2003, PT. Telkom had added to its system some 1.68
million telephone connections to make the total installed capacity of the company's
telephone centre amounting to 10.15 million telephones lines, with used capacity of 8.73
million of telephone or a 3.5 percent penetrating level.

In 2003, mobile communications or cellular telephone subscribers totaled 11.3 million, a

substantial increase from more than 3.6 million in 2002.

Telecommunications and information are growing rapidly during the past few years. In
anticipating this trend, the Government has enacted Presidential instruction No. 6 of 2001
on the development of telecommunications and information technology in Indonesia.
During the period of 2002-2003, internet subscribers grew by 140 percent to reach 865
thousand, and the users of internet services swelled by 320 percent from 1.9 million in
2002 to eight million in 2003. Currently, fixed line telephone ratio is 3.6 per 100
populations, and that of cellular telephone is 5.5 per 100 populations.

142
In meeting public service obligation (PSO), and universal service obligation (USO) in
field of post and telecommunications, the Government in 2003 provided PT. Pos
Indonesia with compensation fund, and built telecommunications facilities in 3,016
villages, and in 7,500 villages in 2004.

During the period of 2000-2004, the postage consumption for domestic mail and for
overseas mail noted a decreasing tendency: domestic mail in 2002 amounted to 282.6
million pieces, down by 24.6 percent from that in 2001. At the same time overseas mail
amounted to 11.7 million, down by 39.0 percent from that in 2001.

There were 7,147 post offices in 2002 throughout the country, consisting of 207 main
post offices, 2,496 auxiliary village post offices, and 3,544 postal services kiosks.

MINING

Mining sector still plays an import role in economic force, and accounts for a substantial
share in the country's endeavor to recover from its economic crisis. Production of oil and
gas has been always quantitatively influencing the economy because the production
constitutes one of the basic assumptions in planning the annual state budget.

Indonesia is in fact rich in minerals in addition to its oil and gas. Those minerals include
tin, copper, nickel, silver, coal, and gold that spread throughout the country.

Due to the important role the sector does play as foreign exchange earner, measures taken
in this sector give emphasis on the development of its means and infrastructure to make it
self-sufficient in meeting the domestic needs and even exports, as well as in supporting
the efforts of economic recovery.

During the past five years the sector of energy and mineral resources has been growing
averagely at minus 2.9 percent per annum. In 2003, production of oil dwindled to 456.3
million barrels from 474.9 million barrels in 2002. Gas production, on the other hand,
increased slightly to 3,057.8 million Mscf from 3,041.8 million Mscf in 2002.

Government revenues from energy and mineral resources in 2003 amounted to Rp

79,579.4 billion or some 110 percent of the targeted Rp 72,456.2 billion. Of the total
amount in 2003 revenues, oil and gas contributed as much as Rp 78,507.4 billion, and
other minerals resources Rp 1,072 billion.

Oil and Gas

Gross revenues from the selling of crude oil in 2003 reached US$11.508 billion or some
112.85 percent of the amount targeted in the 2003 state budget. Gross revenues of gas at
the same time, amounted to US$8.615 billion or some 108.49 percent of the target. Oil
lifting realization in the year reached 400,621 million barrels or some 84.6 percent of the
targeted 463,556 million barrels and that of gas reached 2.392 million metric british
thermal units (MMBTU) or some 96 percent of the targeted 2.491 billion MMBTU.

143
Average price of Indonesian crude oil in 2003 was US$28.73 per barrel or some 30.6
percent above the price fixed for the 2003 state budget of US$22 per barrel.

In speeding up the economic recovery, the Government in 2003 signed agreements on 15

oil and gas working contracts in land and off-shore areas with total commitment of
US$140.9 million for the period of three years. Investment realization of production
sharing contracts in

2003 amounted to US$3,971 million for exploration, US$2,510 million for production,
and US$329 million for administrative matters.

Investment in the down-stream sub-sector in 2003 took place by the issuance of

approvals for 20 oil refineries, and one LNG refinery and one LPG refinery, as well as 13
principle agreements on oil and gas supply through pipelines.

In 2004, the Government offered working areas in oil and gas through tenders and direct
offers. Cooperation contracts for seven blocks were agreed through direct offer and were
signed in March 2004 and ten other blocks in August 2004. The seven blocks are
Bulungan, Nunukan, Tingau and Ambalat Timur (East Kalimantan), Seruai (Nanggroe
Aceh Darussalam), Lubuk Linggau (South Sumatra), and Boven Digul (Papua or Irian
Jaya).

The Government planned also to invest as much as US$7,482 million in up stream oil
industry, of which US$779 million for exploration activities, US$2,096 million for
development activities, US$3,921 million for production activities, and US$686 million
for administrative matters.

It is predicted that crude oil production in 2004 would reach 1,150 million barrels per
day, up from 1,081 million barrels in 2003; and of gas, it is predicted to increase to 6,58
billion cubic feet (BCF), from 6,28 billion cubic feet in 2003.

The country's current total oil refinery capacity is 987 MBCD or 360 thousand MBBL.
Oil refineries are available in Pangkalan Brandan, Dumai and Plaju (Sumatra), Cilacap,
Cepu and Balongan (Java), and Balikpapan (Kalimantan).

Indonesia, the world's top rank LNG producer, in 2003 exported 35.66 billion cubic
meters; of the amount, 24.05 billion cubic meters were exported to Japan, 6.93 billion
cubic meters to South Korea, and 4.68 billion cubic meters to Taiwan. Its proven gas
deposits are estimated at about 90.3 trillion cubic feet, or accounting for 1.5 percent of
the world's total deposits.

In augmenting foreign exchange earning, in 2003 a working contract of natural gas

supply through piped transmission of 100 million cubic feet a day for a duration of 15
years, was signed by Indonesia and Singapore. The contract is worth US$1.10 billion.

144
For the year 2004, a contract of an additional natural gas supply of 50 million cubic feet
per day through piped transmission to Singapore with selling value of US$0.77 billion,
has been also agreed and signed. The supply will last for 12 years. In addition, Indonesia
signed in 2003 a contract to sell more than three million tons of LNG from the Tangguh
field, Papua, to the US (3 million tons), South Korea (1.15 million tons) and to China (2.6
million tons). Also in 2003, Indonesia exported LNG as much as 1.359 billion MMBTU,
LPG as much as 1,105 MT, and crude oil 59.87 million barrels. For domestic needs, the
total consumption of oil reached 57.40 million kiloliters, of which 26.71 million kiloliters
for need of transportation, 7.58 million kiloliters for industries, and 11.65 million
kiloliters for households.

It is the current Government's commitment to continuously reduce oil subsidy by

increasing retailed oil prices. In 2001 subsidy for oil amounted to Rp36.40 trillion; it
dwindled to Rp32.29 trillion in 2002. In 2003, it reached Rp26.02 trillion, or above the
targeted Rp13.2 trillion.

Coal

Indonesia is one of the world's leading coal producers, ranking third after Australia and
China. The country's estimated coal reserve deposit is 5.22 billion tons, the greater part of
which is available in Sumatra and Kalimantan.

In 2004, coal production is expected to reach 119.7 million metric tons, up from 106.7
million metric tons in 2003 and 100.6 metric tons in 2002.

PT Adaro Mining Company is currently the country's leading coal producer with coal
output of 22 million tons per day. Trailing behind are the mining companies Kaltim
Prima Coal (18 million tons, plans to produce 24 million in the near future), PT Arutmin
(14.5 million tons), PT Kideco (12 million tons), PT Tambang Batubara Bukit Asam (11
million tons), and PT Berau Coal (8 million tons).

The main importers of Indonesian coal are Taiwan, South Korea, Japan, and India.

Parakan special coal pier in Tarahan, South Sumatra in

145
Tin production indicated a declining trend. While its total production still reached 88,142
million metric tons in 2002, in 2003 it could produce only 71,695 million metric tons. So
did its exports. In 2002, the country exported tin as much as 62,031 tons, in 2003 it could
manage only 5,798 tons.

Gold and Silver

Gold and silver reserve deposits are scattering in several sites, among other things in
Papua, North Sulawesi, West Nusatenggara, and West Java. PT. Freeport Indonesia is the
country's largest private gold mining company, with its total selling reached 2.5 million
ounces of gold in 2003 or a raise of eight percent compared to that of 2002 amounting to
2.3 million ounces. The company has an estimated gold reserve deposit of 64.5 million
ounces. With its fixed production assumption, the reserve can last for about 15 years.

The state-owned gold mining company PT Aneka Tambang operation in West Java could
produce gold of 4,176 kg and silver of 28,570 kg in 2003. Private gold mining company
operating in West Nusatenggara could produce gold of 585,000 ounces.

The country's total gold production dwindled to 141,019 kg in 2003 from 142,238 kg in
2002, and that of silver shrank from 288,806 kg in 2002 to 278,986 kg in 2003.

Nickel

Production of nickel ore in 2003 noted a slight increase to 4,395 metric tons in 2003 from
4,366 metric tons in 2002. Part of nickel ore is processed to be ferronickel, the production
of which reached 17,803 metric tons in 2003, declining from 42,306 metric tons in 2002.
In addition, nickel ore is also processed to be nickel matte produced by PT. Inco. In 2003,
total production of nickel matte was 15.5 million pounds, up 18 percent from 13.21
million pounds in 2002.

Copper

In 2003, production of copper concentrate reached 3,238 million metric tons, decreasing
from 3,786 million metric tons in 2002. This concentrate was dug from the Grasberg
copper-pit managed by the PT Freeport Indonesia. This copper-pit has reserve deposit of
an estimated 2,500 metric tons. One ton copper concentrate contains 1.13 percent of
copper, 1.05 percent of gold, and 3.8 percent of silver.

Another copper mining is being worked on in Batu Hijau, Sumbawa Island by PT

Newmont Nusa Tenggara by investing about US$1.9 billion. Reserve deposit of copper in
Batu Hijau is estimated at 1,000 metric tons; one ton of copper concentrate contains 0.52
percent of copper, and 0.4 percent of gold. The reserve deposit can be mined for and
estimated 25 years, with annual production is expected to reach 245,000 tons of copper
concentrate and 18 tons of gold concentrate that are exported to Japan, South Korea,
Spain, India, the Philippines, Germany and Bulgaria.

146
Bauxite

Production of bauxite in 2003 suffered a slight decrease to 1,262 million metric tons from
1,283 million metric tons in previous year. The greater part of bauxite is exported to
China and Japan.

Electricity

There are two main electricity grids in Indonesia: the Java-Bali electricity grid, which is
interconnected by extra-high voltage networks; and the outer Java-Bali electricity grid,
which has not been interconnected yet, using small and medium capacity electricity
generation plants such as diesel-power plants.

The state-owned electricity company Perusahaan Listrik Negara (PLN) supplies most
electricity. It is also responsible for the operation and maintenance of power stations and
the national grid. Not all the country's territory is covered by the national electricity grid
managed by the PLN, so non-PLN bodies such as cooperatives or small private
companies manage the supplies, particularly for remote rural areas.

Eleven area electricity boards and four regional electricity distribution boards of PLN are
responsible for the distribution and for the retail sale of electricity. Installed capacity of
electric power plants in 2002 amounted to 21,114 MW with total production of 108,360
thousand MWh. In 2003, with almost unchanged installed capacity, production was
increasing by 8.53 percent to reach 117,605 thousand MWh. Sales of electricity in 2003
amounted to 89,879 MWh, or 3.20 percent higher than that of 2002.

The state-owned company PLN currently operates 41 hydro-power plants with installed
capacity of 3,266 MW, producing 10,536 gigawatt hours (GWH). The need for electricity
in Java and Bali is supplied by several hydro power plants with total installed capacity of
2,500 MW. Those plants are Area I (33.5 MW), Area II (54.5 MW), Saguling (695 MW),
Cirata (1,000 MW), Area III (124 MW), Mrica (176 MW), Area IV (40 MW), Sutami
(102 MW), Brantas-Non Sutami (125 MW), and Jatiluhur (179 MW).

Out of the total consumption in 1990s, industry took 49.2 percent (13,644 GWH),
commercial 10.3 percent (2,849 GWH), and public 8 percent (2,244 GWH). In 2001,
industry took 41.9 percent, household 33.34 percent, and commercial 13.5 percent. The
number of households using electricity supply in 2001 was 27.9 millions, making the
electricity ratio in Indonesia reach 60.3 percent. The number of villages enjoying
electricity supply, at the same time, was 31.2 thousand or 79.4 percent of the country's
total villages.

In bettering its national grid and in overcoming short supply, the PLN is to invest Rp5.9
trillion in 2004, of which Rp 2.8 trillion for building transmission networks, and Rp3.1
trillion for distribution expansion. The company is also to complete the Java southern
transmission networks to improve the security of electricity supply in Java-Bali

147
interconnection. In addition, the company plans to build two hydro-power plants in Raja
Mandala, West Java, with a capacity of 60 MW.

In augmenting the supply of electricity, small-scale private electric companies are

encouraged to sell their products to the State-owned electric company PLN. Meanwhile,
to make remote villages capable of enjoying the supply of electricity, the Government
encourages companies dealing in the supply of electricity to develop micro hydro-power
plants and sell their production to the PLN.

MARITIME RESOURCES AND FISHERIES

Being an archipelago, Indonesia has a total maritime area of 5.8 million sq km and
coastline of some 81,000 km, and is rich in maritime natural resources which have not
been optimally exploited. Thus this sector is still expected to be a substantial economic
mover in the years to come, particularly to help accelerate economic recovery and
simultaneously improve the people's welfare.

Responsible for policy, development and promotion of maritime resources and fisheries
is the Ministry for Maritime Resources and Fishery.

The main aims of maritime and fisheries policies are the improvement of the welfare of
Indonesian fishermen and fish farmers in particular and the whole Indonesian people in
general, and that the development of maritime resources and fisheries is made in a
sustainable, wise and environment-friendly manners. It means that the development is
based on a sustained development conception, underpinned by development of maritime
and fisheries industries having excellent human resources to produce highly competitive
products.

In advancing the maritime and fisheries sector, some schemes were introduced in 2003.
They include: empowerment scheme of people who are engaged in fish farming and are
living at coastal areas; scheme for improving the growth rate of fishery-based businesses
in the sector of maritime and fisheries; rehabilitation and conservation schemes of marine
natural resources and fisheries and their ecosystems; scheme for enhancing the role of
Indonesian waters as the unifying element of the Indonesian Nation and marine culture;
development scheme of technology and information system of maritime and fisheries
natural resources; and international cooperation development scheme.

As a maritime state Indonesia is rich in fish in term of quantity and variety. The country's
maximum sustainable yield of sea fish is estimated at 6.4 million tons per annum,
spreading in nine major maritime zones. The potency includes demersal and pelagic fish
catch, sea cultured fishery, brackish cultivated fish, marine biotechnological fish as well
as fresh-water cultured fish. Altogether their total potential economic value is estimated
at US$82.06 billion.

During the past three years, the maritime and fisheries sector has developed more rapidly
to offer a meaningful contribution to the country's economy. In 2000 and 2001, the GDP

148
of fisheries sub-sector grew at an average of 15.65 percent per annum. In 2001 GDP of
fisheries sub-sector amounted to about Rp34.67 trillion or accounted for about 2.33
percent of the country's GDP. In 2002, the contribution of the fisheries sub-sector to the
country's GDP amounted to Rp46.61 trillion or constituted about 2.39 percent of the total
GDP. In 2003 it amounted to Rp.44.79 trillion or made up 3.1 percent of the country's
total GDP.

During the period of 2000-2003 fish products noted a rise of about 5.21 percent per
annum from 5.07 million tons in 2000 to 5.94 million tons in 2003.

Fresh water fish farming in Riau

Exports of fish products in 2001 amounted to 0.48 million tons, bringing in a foreign
exchange earning of US$1.63 million. The export value of fish products in 2002 declined
to US$1.57 million with export volume reaching 0.51 million tons, but in 2003 export
value swelled to US$2 billion with export volume of 696 thousand tons.

Of the total fish production, sea fish catch still constituted a dominant proportion. Sea
fish catch grew at an average of 4.58 percent per annum from 4.521 million tons in 2002
to 4.728 million tons in 2003. Contribution of cultured fish to the country's total fish
production reached 19 percent in 2000, and it increased to 21 percent in 2003. That of sea
fish catch, on the contrary, slightly dropped from 81 percent in 2000 to 79.5 percent in
2003. At the same time, the growth rate of cultured fish production was 7.04 percent,
higher than that of sea fish catch production that grew at about 4.76 percent only. Thus it
is reasonable that the development of cultured fish has been given priority in the
development of fisheries.

As cultured fish production has an increasing tendency, so has the area and
establishments of cultured fish. In 1999, the total area of cultured fisheries was 594,176
ha run by 80,919 fish farming establishments. The area and establishments then expanded
to 730,090 ha and 315,000 fish farming establishments respectively in 2003 or growing at
5.3 percent and 43.6 percent respectively. While the growth rate of area for sea cultured
fish, sea caged-fish farming, and floating net caged sea fish farming was 56.9 percent,
35.2 percent, and 28.3 percent respectively.
149
Domestic fish consumption in 2001 reached 4.69 million tons, and 5.30 million tons in
2003. During the period of 2001-2003, domestic fish consumption rose at an average of
6.14 percent per annum.

Attributable to the increased fish production during the last three years had been the
bigger number of fishing vessels and even fishing boats being operated and modern
technology applied to augment productivity. The number of fishing vessels rose by 1.83
percent per annum from 449 thousand in 2000 to 474 thousand in 2003, with composition
of larger-size vessels bettering to make increasing number of employment. In 2003 there
were 3.4 million fishermen and 2.2 million cultured fish farmers.

Various schemes have been introduced to empower fishermen, cultured fish farmers and
communities living at coastal areas. The schemes include: scheme for improving
productivity of economic activities; cultured fish intensification scheme for shrimp,
kerapu, seaweed, and nila fish; rural fish farming development scheme; development
scheme for small-scale sea fish catch undertakings; and promotion for collective fish
farm undertakings.

The scheme for improving productive activities of coastal communities has been
implemented up to 2004 in 527 districts throughout the country.

Illegal Fishing

Having sheer waters territory, Indonesia is faced with rampant illegal fishing within its
seas by foreign fishing vessels, particularly within the country's 200-mile limits of its
Exclusive Economic Zone (EEZ). In 2003 alone the Indonesian Government was
successful in capturing a number of foreign vessels fishing illegally on the country's
waters territory, securing the country of about Rp.1.055 trillion in potential loss.

In minimizing illegal fishing by foreign fishing vessels, the Government has imposed a
decision that allows no more than 900 foreign fishing vessels to operate in the 200-mile
EEZ limits. Before the decision took effect, there were estimated 7,000 foreign vessels
fishing illegally.

Also in overcoming such illegal fishing, the Indonesian Government has taken some
anticipative measures, among other things, encouraging local fishermen to improve their
fleet and fishing equipments, improving licensing system for fishing businesses,
reinforcing law enforcement and the imposition of fish catch control, promoting
coordination among related government agencies such as among the Ministry for
Maritime and Fishery and the Police, the Navy etc. In this context, the Government has
maintained and improved cooperation with the governments of the People's Republic of
China, the Philippines, and Thailand. During the period of 2000-2003 law enforcers had
handled and settled 186 criminal cases in the field of maritime and fisheries.

150
Sea Sand Exploitation

In dealing with the control and surveillance of sea sand exploitation the Government has
issued Presidential Decision No. 33 of 2002 on Control and Surveillance of Sea Sand that
governs the mechanism of control and exploitation of sea sand, and the formation of an
ad hoc institution, the Team for Controlling the Exploitation of Sea Sand. The Team is
tasked to mainly manage and run the mechanism. So far the Team has issued regulation
on quota and zoning areas for the exploitation of sea sand. Meanwhile, the regulation on
exports of sea sand is governed by Decision of the Minister of Industry and Trade No.
598 of 2003. With the imposition of the sea sand exploitation zoning areas, some 50
percent of sea sand exploitation areas are closed.

Marine and Coastal Areas Ecosystem

In pursuing an improved quality of the ecosystem of seas and coastal areas, endeavors
have been made to manage integrally the resources of seas and coastal areas. The main
aims of these endeavors are to improve and preserve sustainable exploitation of natural
resources for the interest of environmental and socio-economic development in helping
governmental decentralization. Activities of these endeavors include: the arrangement of
seas, coastal areas and islets management, of which eight arrangements have been
enacted to be Regional Ordinances, while others are being processed; rehabilitation of
coral reefs in six provinces covering 12 districts; designation of local seas conservation in
four locations; and the national campaign for cleaning the seas and coastal areas from
organic litters.

Regarding the management of islets which are many in number, the Government has
identified their basic data. It has also built some facilities and infrastructure such as
communication devices, solar-system electric power installations, and the construction of
mini ice plants in several islets. Rehabilitation of mangrove forests, along with planting
of coral reefs, and construction of coastal protective structures has also been done to
maintain the ecosystem in a number of islets.

National Campaign

To more advance the maritime and fisheries sector, in October 2003 at the Tomini Bay,
South Sulawesi, President Megawati Soekarnoputri launched the national campaign for
maritime and fisheries development. The major aims of the campaign are to manage and
maximize the exploitation of the sector, and to address all marine problems through
synergic efforts by communities, government, and business circles.

In short-term, the campaign aims to build infrastructures for both sea fish catch landings
and cultured fish farming. The years 2004 and 2005 would be the phase of preparatory to
reinforce the ground of the scheme as the continuity and improvement of the on-going
development. Kinds of fish to be cultured and developed are fish having high economic
values, profitable and much in demand by both domestic and international market.
Infrastructures and facilities to be constructed include industries to process cultured

151
shrimp, seaweed, mollusk, and patin fish as well as sea fish catch. Necessary
infrastructures and facilities are to be made available in some 89 islets along the country's
borderlines, and other islets and islands to control pollution on seas. The same things are
to be developed to promote marine tourist potential at coastal areas and islets, to develop
small-scale fish catch undertakings in all provinces, and to safeguard resources of illegal
fishing, which has an estimated economic value of about US$2-US$4 billion per annum.

Research Center

In 2003 Indonesia initiated the establishment of an ocean research center named the
Southeast Asia Center for Ocean Research and Monitoring, which is located at Perancak,
Bali Island. The construction of the center received financial assistance from several
countries including the US, Germany, France, the UK, and Australia. Indonesia has been
selected as the site of the center due to chiefly to the fact that Indonesia has seas with
highest bio-variety in the world.

The main aims of this center establishment are : to improve marine monitoring and
research in Indonesia and Southeast Asia region; and to run meteorological monitoring
system for monitoring local or sub-regional weather conditions.

The center provides information on various matters, such as fishery, cultured fishery,
satellite monitoring on weather and seasons, transport, marine tourism, sea pollution, and
marine technological innovations. It also serves information on marine resources
management, maintenance of coastal and marine environments, mining at the deep-seas
and coastal areas, and environment-friendly energy.

Joining the center are noted international institutions such as the National Science
Foundation and NOAA of the US, the CSIRO and AIMS of Australia, CLS-Argos and
Spot Image of France, JIFIC, JICA, Chiba University, Restec Mitshubishi Corp of Japan,
Canadian Space Agency, Radarsat International of Canada, BMBF of Germany, Korean
Ocean Research and Development Institute of South Korea.

MANPOWER

Pursuant to the 1945 Constitution, Article 27 clauses (2) the development of manpower
aims to provide jobs and business opportunities for the working population to enable
them to have jobs and earn their proper living. Furthermore, the 1999-2004 Broad
Outlines of State Policy stipulates that the comprehensive and integral development of
manpower aims to improve the competency and self-capacity of manpower, better wage,
secure the welfare of manpower, and to protect manpower and the freedom to associate.
In addition, the Policy also envisages the improvement of quantity and quality of
manpower to work abroad by taking into account their competency, legal protection, and
legal defense which are managed integrally to prevent the emerging of manpower
exploitation.

152
Based on the policy there are various programs introduced, including: expansion and
development of job opportunities scheme; improvement of quality and productivity of
manpower scheme; program of social security system development; and social insurance
program.

Labor Force

The total working population of Indonesia in 2003 was 152.6 million, of which some
60.37 percent of them were in Java Island. Labor force participation rates (LFPRs the
number of population classified as labor force for every 100) of the country in 2003
recorded a decrease to

Women working at a tobacco company

153
65.72 percent from 67.76 percent in 2002. The total number of labor force in 2003 was
100.3 million, of which some 90.50 percent had been working, with lower level of
education (secondary school and under) accounting for 76.78 percent and the remaining
23.22 percent of higher level of education (college and university).

Employees in Indonesia in 2003 numbered 23.8 million or some 26.25 percent of the
country's total working population. Mostly they worked at the service sector,
manufacturing industries, trade sector and agriculture. At the same time the number of
population employed totaled 41.4 million, comprising self employed (40.23 percent), self
employed assisted by temporary employees (53.23 percent), and employers (6.54
percent). Agriculture employed about 42 million people, and some 32.99 percent of them
were unpaid workers.

The unbalanced growth rate of manpower and job and business opportunities as well as
economic growth caused unemployment. Open unemployment in 2002 numbered eight
million people, and the figure increased to 9.5 million people in 2003, with some 59.68
percent of them was of lower level education and the remaining 40.32 percent of higher
level education. The total number of unemployment in 2004 is estimated at 10.8 million
people.

Expansion and Development of Job and Business Opportunities

The main aims of the scheme are: to reduce unemployment and disguised unemployment
through adding working hours in various business fields, both at rural and urban areas;
and augment foreign exchange earnings through the sending of Indonesian workers
abroad. Meanwhile, the goals of the scheme are: to expand job opportunities in various
fields of business; to develop Indonesian workers who are qualified and capable; and to
set up an excellent manpower information system.

The major activities of the scheme include: (1) to improve trainings with curriculum
related to acknowledging efficient technology, entrepreneurship development, and other
supporting skills and expertise in order to make the work force capable of creating job
opportunities; (2) to prepare and disseminate information on job market; (3) to set up
settlements for new inter-island migration to expand job opportunities in agriculture; and
(4) to improve the mechanism of the sending, guidance and selection of Indonesian
workers who want to work abroad, and seek out their protection.

In striving for the expansion and development of job and business opportunities, the
Government in July 2004 launched a National Campaign for the Handling of
Unemployment, which involved leading figures of central, provincial and district
administrations, business representatives and representatives from higher learning
institutions. The campaign aims to nurture sensibility and awareness of government
apparatus and members of society to seek a solution to overcome the growing
unemployment.

154
Under the campaign scheme, in 2003 there were 4,344 job seekers employed under the
placement program of Professional Independent Young Manpower (PIYM)/Volunteer
Manpower (VM), 4,930 job seekers under the placement program of Educated
Independent Manpower (EIM), 4,885 job seekers under the labor-intensive scheme, 8,419
job seekers under Expanded Labor-Intensive scheme, 98,602 job seekers under scheme of
Inter-regional Manpower Placement (IrMP), Local Manpower Placement (LMP), and of
Special Manpower Placement (InMP), as well as another 293,867 workers getting jobs
abroad. The number of job seekers placement in 2003 showed an increasing trend
compared to that of 2002. Up to May 2004, the number of job seekers getting placement
under the scheme of PIYM/VM was 210, under EIM scheme 248, under labor-intensive
scheme 457, under expanded labor-intensive scheme 1,300, and under schemes of IrMP,
LMP and InMP 9,883, and the placement of Indonesian workers abroad totaled 18,753.

Improvement of Quality and Productivity Scheme

The scheme is aimed at encouraging, popularizing, and improving trainings and all
aspects that affect productivity enhancement. The chief target of this scheme is the
availability of work force having good quality, high productivity and high competitive
edge both in domestic and international market.

The main activities under the scheme include: the development of competency
standardization and certification done through the formation of an institution dealing with
competency standardization and certification; the betterment of relevancy, quality, and
efficiency of the job-trainings organized by the Government as well as private
institutions; and the promotion of the system and method of productivity improvement.

Under the scheme, in 2003 there had been 14,800 people consisting of job seekers,
employees, social workers, leading figures of communities and non-government
organizations, attending institutional trainings and 20,485 people of the same professions
attending non-institutional trainings; 1,088 people undergoing training for on-the-job-
training abroad and 2,183 people undergoing apprenticeship abroad; 1,225 people
undergoing training of trainers; 2,764 people taking part in entrepreneurship training. Up
to May 2004, there were 1,993 people undergoing institutional trainings, and 2,521
people undergoing non-institutional trainings; 171 people undergoing job-trainings at
home, and 171 people undergoing on the job-training abroad; 258 undergoing training for
trainers; 820 persons attending entrepreneurship trainings and 123 persons attending
training on institutional productivity development.

Up to April 2004 there had been 167 institutions organizing training for workers who
wanted to work overseas. The number of Indonesian workers who had overseas
placement from January up to May 2004 was 106,499. During the past three years the
number of Indonesian workers who had been placed overseas totaled 1,069,406, some
75.38 percent of them working in non-formal sector and the remaining in formal
economic activities. The sending of Indonesian workers to the Middle East countries had
been handled by 171 service companies and to Asia-Pacific region by 233 service
companies.

155
Industrial Relations

There is a program designed to maintain a working and business tranquility in order to

create harmonious relations between employees and employers that in turn will improve
the welfare of employees and their families. This program is aimed at improving labor
institutions in companies, enhancing working conditions, and healthy vocational security.

The main activities of the program are: to promote industrial relations and labor
protection in order to encourage the formation of labor institutions in companies; to
improve vocational safety and health, and social security for improvement of labors
welfare; to enhance protection, control, and law enforcement of regulations imposed on
labors; to improve obedience over the implementation of regulations on labors; to follow
up various regulations of the ILO Convention on Labor Protection, which has been
ratified.

Under this scheme, in 2003 there were 14,630 persons attending training courses on
Communications, Information and Education (CIE), 3,200 persons taking trainings on
Manpower Institutional Development (MID), 22,530 persons having guidance on Job
Requirements and Labor Welfare (JRLW), 1,745 persons on Employment Protection and
Industrial Relations Control (EPIRC). In addition, some 160 cases of industrial disputes
and lay-off were settled; company regulations for 36,210 enterprises were drawn; and
9,102 cooperation agreements were made. Also done under the scheme were the 14.76-
percent increase of regional minimum wages and provision of Employees Social Security
(locally known as Jamsostek) to 20.16 million workers working in 102,821 companies.

In 2004 (up to May 2004) there were 866 persons attending training courses on CIE;
1,876 persons taking training courses on MID, along with the settlement of industrial
disputes and lay-off for 1,207 workers; the settlement of 63 cases of labor strikes and
protests; the arrangements of company regulations for 36,269 enterprises; the
composition of 9,118 joint cooperation agreements; and the 10.8-percent increase of
regional minimum wages.

In the context of dealing with all matters of Indonesians working abroad particularly in
Malaysia and Saudi Arabia, and in helping them when they have problems involving
legal cases, three Government Officials (attaches) have been currently commissioned and
posted in those countries. More similar attaches will be commissioned and posted in other
countries such as Singapore, Hong Kong, South Korea, Kuwait, and Taiwan.

So far memorandums of understanding (MoU) on the placement of Indonesian workers

have been agreed and signed with Jordan (in 1996) and with Malaysia (in 2004). Similar
MoUs with other countries such as Syria, Qatar, South Korea, Brunei Darussalam, and
Taiwan are still under preparation.

156
Social Security

Social security, as stipulated by the nation's Constitution, Article 28H clause (2), is the
citizen's basic right. Further, the Constitution, through Article 34 clause (2), states that
"the State shall develop a social security system for the whole Indonesian people…"
Meanwhile, the International Labor Organization's Convention No. 102 of 1952
recommends all countries to provide protection to every worker. Parallel with this, the
People's Consultative Assembly of the Republic of Indonesia, during its 2001 Annual
Session commissioned the President of the Republic of Indonesia to establish a National
Social Security System in the framework of granting the labor force a comprehensive and
integrated social security.

This social security is necessary in protecting individual workers, their family members,
as well as the communities from emergency conditions caused by among other things
famine, natural disaster, accidents and social unrest that might disturb the people's
earnings and supplies of foods.

Although still short of covering the communities, there has been a scheme locally known
as Jamsostek. It is a social security scheme for employed workers. The operator of this
social security scheme has been asked to expand its services, such as to provide its
members with down-payment for credit of house mortgage, to build public facilities for
religious houses of worship, for sports etc, and allowances for celebrating religious
commemorations.

Social Insurance Scheme

Scheme of social insurance, which are funded by individuals and companies, are
designed to protect members and their families from unfavorable situations such as lay-
off, work accidents, sick, and death. The schemes are also aimed at covering more and
more number of people being protected by social insurance schemes.

In dealing with all social risks arising during the employment of Indonesian workers
overseas or during preparation for the overseas placement at home, there has been
arranged a scheme that will protect Indonesian workers working abroad through an
insurance scheme pursuant to Decision of Minister for Manpower and Transmigration
No. 157 of 2003. The insurance scheme consists of three kinds of programs such as : a)
pre-placement program that secures insurance on death, maximum treatment, permanent
deformity, and accident; b) on-going placement program that covers insurance on out-
and in-work accident, sick treatment, death due to accident or sick, including the cost of
burial/sending a corpse to his/her native hometown, unpaid wage, and lay-off ; and c)
post-placement program that embraces insurance on death due to accident, and total
paralysis caused by accident.

157
Global Trend

Liberalization of global trade will pose a tight competition among workers of all
countries since it allows the traffic of workers from one country to another much more
rapidly. It also will require professional workers, the criteria of which are set forth by
developed countries. In facing this situation, it is time for Indonesian workers to adjust
themselves to the criteria on each profession to be able to compete with professionals
from other countries to fill in vacancies at domestic and international market. This is in
line with Law No.13 of 2003, which stipulates among other things the improvement of
Indonesian worker's ability and self-capacity to compete, and the utilization of
expatriates.

Some professions the Indonesian workers have claimed international reputation for are
among other things accountancy, oil drilling, construction, seamanship, nursing, and
midwifery.

TOURISM

Tourism industry in Indonesia has placed itself as an important economic sector in

speeding up the national sustainable development, though this sector was in fact put into
the Guidelines of State Policy only in 1978 or during the implementation of the Second
Five-Year Development Plan. Foreign exchange the industry had brought in proved
swelling from one year to another to turn much more significant contribution to the
economy. This has been in parallel with the industry's expanding contribution to the
opening of business opportunities to accommodate more and more labors to work in.

In dealing with such tourist industrial development, various policies, measures and steps
necessary have been introduced, put into practice and implemented appropriately to the
developments of the industry. Having been regarded as a cultural based development
activity during its initial stage, the industry later on has turned to be one of important
economic sectors of foreign exchange earner.

However, it has been proved that the policy which stresses more on foreign exchange
drive has gained, in one hand, much more foreign exchange earnings, but on the other
hand has caused rather unfavorable impact to natural resources and culture. Thus, as of
1999 tourism concept has been regarded as part of socio-cultural development program.
The 1999-2004 Guidelines of State Policy affirms that tourism industry needs to be
developed through a comprehensive and integrated approach system, inter-discipline and
participative in character, by using economic, technical, agronomic, socio-cultural,
energy thrifty, natural resource preservative and environment friendly criteria.
Furthermore, relevant regulations ascertain that tourism development should be based on
the potency of socio-cultural diversity, arts, and natural beauties. The development
should certainly take into account the aspects of good governance, decentralization,
human resources and community-based tourism development.

158
Matras beach in Bangka Island, Bangka-Belitung Province

The long-term goals of tourism development are: sustainable development of national

tourism industry; and Indonesia as a comfortable, attractive tourist destination having
high competitive edge, with its natural beauties and culture to rely on. While the short-
term target is the recovery of the country's tourism image in international market. The
country's image was plunged to negative due to terrorist attacks in Kuta, Bali, and to the
J.M. Marriott, as well as the latest attack in Kuningan area both in Jakarta.

Targets to be achieved in the field of tourism industry in 2004 are, among other things,
the 7-percent to 10-percent growth of foreign arrivals and the 1.9 percent growth of
domestic tourists; foreign exchange earning of US$7.6 billion at the end of 2004, and
domestic tourists' expenses of Rp16.97 trillion.

In relation with the targets to achieve, it certainly should strive to make the products of
tourism industry more improved, both in term of quality and quantity, that in turn they
would offer more contribution to the expansion of job opportunities and improvement of
community's income. In addition, it also strives to lure more domestic as well as foreign
tourists to outer islands of Java and Bali.

In connection with efforts to lure more tourists, domestic and foreign ones, promotional
schemes and marketing's have been launched. To encourage domestic tourism promotion
it has been launched the "Gebyar Wisata Nusantara" (Archipelago Tourism Glitter)
scheme with the theme: "Come on Exploring the Archipelago". For overseas promotional
scheme, the new theme is: "Indonesia, Ultimate in Diversity", by promoting Indonesia as
the most varied destination anywhere'. Promotional marketing has been done not only
through participation in various tourism bourses at home and overseas (the International
Tourism-Milan Bourse, the International Tourism Bourse-ITB Berlin, etc), but also
through advertisement via mass-media, including world's well known TV stations such as
CNN, CNBC, and BBC and world's leading magazines such as the Time Asia, TTG Asia,
Travel Weekly East etc., and other promotional forms.

159
Visa Policy

As of February 1, 2004 Indonesia has started implementing the Visa-on-Arrival (VoA)

policy. The Pay-on-Arrival Visa is required of visitors from 21 countries. These countries
are the United States, Argentina, Australia, Brazil, Britain, Canada, Denmark, Finland,
France, Germany, Hungary, Italy, Japan, New Zealand, Norway, Poland, South Africa,
South Korea, Switzerland, the United Arab Emirate, and Taiwan. While tourists from
countries offering visa-free facilities to Indonesians, such as Thailand, Malaysia,
Singapore, Brunei Darussalam, the Philippines, Hong Kong Special Administrative
Region, Macao Special Administrative Region, Chile, Morocco, Peru, and Vietnam,
remain to enjoy a reciprocal policy by the Indonesian Government.

The new policy also shortens the length of stay of tourists able to continue availing of the
free-visa facility from 60 days to 30 days. The new pay-on-arrival visa allows visitors to
stay for 30 days. A foreign tourist has to pay US$25 for a 30-day visit and just US$10 for
a three-day visit.

Overseas Cooperation

In promoting tourism industry, the Government has endeavored various efforts, including
maintaining cooperation with other governments such as in sub-regional cooperation,
namely the Indonesia-Malaysia Singapore Growth Triangle (IM-GT), the Indonesia
Malaysia-Thailand Growth Triangle (IMT-GT), Brunei Darussalam-Indonesia Malaysia-
the Philippine-East ASEAN Growth Area, and bilateral cooperation among other things
with Japan, Thailand, Algeria, Tajikistan, and Poland, as well as with world organizations
such as the UN-ESCAP, WTO, UNICEF, UNESCO, ASEAN and APEC, Tourism
Working Group and Japan ASEAN Centre.

In its role within the international fora, Indonesia has been appointed as member of
Executive Council of the World's Tourism Organization (WTO) for the period of 2003-
2007, and member of Committee for the WTO's 2003-2005 Program. The appointment
was made during the 15th WTO Meeting held in Beijing in October 2003. During the
meeting it was also designated Prof DR. Emil Salim of Indonesia as member of the world
committee on Tourism Ethics.

Foreign Arrivals

The number of foreign tourists visiting Indonesia in 2003 was only 4.428 million,
decreasing by 12.02 percent from that of 2002, which totaled 5.03 million. The decrease
of the number was followed by the reduce of their length of stay from 9.79 days in 2002
to 9.69 days in 2003. The shrink of tourists' number and their length of stay had in fact
diminished the earning of foreign exchange from US$4.3 billion in 2002 to US$4.0
billion in 2003.

In June 2004 the number of foreign arrivals reached 407.9 thousand, growing by 10.51
percent compared to that of previous month, which numbered 369.1 thousand. At the

160
same time, the number of foreign tourists visiting Bali noted a growing trend from 123.0
thousand in May 2004 to 137.3 thousand in June 2004. Cumulatively, the number of
foreign tourists visiting Indonesia during the first quarter of 2004 was 2.13 million,
increasing by 34.64 percent compared to that of the corresponding period in 2003.

CULTURE

Policy

Policy in the field of culture aims to among other things enhance the people's awareness
on the importance of preserving each local culture, within the frame of national unity, in
the form of national culture suitable with the motto `Unity in Diversity'. It is also
designed to more preserve the national cultural values through efforts of revelation,
study, and nurture of traditional values, customs, and believe in One and Only God
existing and developing in respective tribes or ethnic groups, so that they can be a
reference in the life of society, nation and state, particularly for younger generation
through the channel of non-formal (family and community) education, formal education,
and mass-media. Besides, pride and respect towards our national cultural nobility be
more nurtured to strengthen the nation's self esteem.

Various measures have been taken in the context of among other things improving the
performance of national film industry as part of culture, and enhancing the community's
appreciation to the national film products; developing the national Indonesian language
and local languages and promoting the use of the Indonesian language and local
languages properly and well; writing and nurturing historical values and heroism to build
nationality and spirit of patriotism, particularly for younger generation; and protecting,
safeguarding, caring, conserving and renovating historical sites and objects spread
throughout the country, including that of underwater archaeology, etc.

Cultural remains

The country is stunningly rich in kinds of arts and craft. Skill and creativity of Balinese
artisans have been popular worldwide. So have craftsmen and artisans of woodcarving
from Jepara, Central Java and West Sumatra, cloth weaving from East Nusa Tenggara
and Palembang, batik cloth from Solo (Central Java), Yogyakarta, Cirebon (West Java),
Pekalongan (Central Java), Madura (East Java) etc. In many places in the country, artistry
has been a daily life. For instance, a mere simplest household item, usually made of
bamboo or rattan, is plaited artistically and decorated with patterns inherited from one
generation to another.

Music

Gamelan is a music instrument having been so popular and reaching a sublime degree in
Java and Bali. Nowadays, this kind of music has been well known in almost entire
Indonesia. Word of Gamelan is derived from Javanese word `gamel' meaning "to beat."
The gamelan orchestra generally composes of xylophones of bronze or copper bars

161
suspended over bamboo, wood or metal resonators. A complete gamelan outfit consists of
two sets of ensembles, each tuned to a different tone system.

In addition to gamelan there are gambus, a music instrument in the form of guitar but
more narrowed; kecapi, Indonesian style zitar, popular among Sundanese (West Java).
Usually this kecapi is accompanied by bamboo flute, to make kecapi-suling with rather
melancholic resonance; angklung, traditional music instrument made of bamboo popular
in many places in the country.

Puppet show

The word wayang derives from the Javanese word meaning bayangan in the Indonesia
language or shadow in English. In Central and East Java and Bali, puppet show is a
shadow show to which onlookers watch the shadow of puppets, made of leather,
manipulated by a narrator while narrating a story. In West Java, puppets are made of
wood, and the local people name them "golek," "golek" show.

Puppet show is usually played during the night, almost the whole night. Through TV,
puppet show time usually is shortened to a half to one hour only. The story of the show is
usually culled from Hindu epics Ramayana and Mahabrata. In addition to these puppet
shows, there is also wayang wong which is played by a number of dancers.

Indonesians were puffed up with pride when in November 2003 the UNESCO, one of the
UN organizations, recognized and appointed puppet show as the World Master Piece of
Oral and Intangible Heritage of Humanity.

Dances

Many regions of the country have their own dances. The dances are believed to originate
from either religious rituals or have been developed for presentation at special occasions,
such as in welcoming guests or visitors. Among those dances acclaiming popularity
among the people are: tanggai dance of South Sumatra, mask dance of Jakarta and
Cirebon (West Java), remong dance of East Java, saman dance of Aceh, piring dance of
West Sumatra, etc. Meanwhile, the best known war dances include baris dance from
Bali, beksa lawung dance from Yogyakarta, negejiak and kantet from Kalimantan,
seudati agam from Aceh, and cakalele from North Sulawesi.

162
 Betawi modern dance

Carvings

Using various materials such as wood, ivory, and bone, the art of carving and sculpting
has always been the artistic heritage of Indonesians. Jepara (Central Java) and Bali are
the hubs of the woodcarver's art. However, unlike Jepara's art, which typically adopts
rather traditional patterns for the ornamentation of objects, Balinese carvers and sculptors
often tend to follow innovative and creative spirit of the people. Less popular but not of
mediocre degree are the carvings of some regions including West Sumatra and Tana
Toraja (South Sulawesi). While rather "primitive" art pattern of Asmat people in Papua
have been famous the world over. The centers of leather art are Solo (Central Java) and
Yogyakarta.

Traditional Weaving

Indonesia is one of the world's leading traditional textiles producers. The skills to
produce the traditional textiles have been going down from one generation to another
within thousands of years. Some of the most beautiful and highly artistic cloths are the
work of even simple village throughout the country.

In the past, many of the traditional cloths were attributed to magical properties and in
some occasions still are and were used in the various rites related to the important
milestones in the human life cycle, such as birth, adulthood and death.

Of the country's best known traditional textiles are the ikat cloths of several regions, the
batik of Java, the songket or Saji textiles of South Sumatra, ulos cloths of Batak, North
Sumatra, and lurik of Solo (Central Java) and Yogyakarta.

163
Producing exquisite "songket" cloth in South Sumatra

POLITICAL AFFAIRS

DOMESTIC AFFAIRS

Pursuant to the 1999-2004 Guidelines of State Policy and the National Development
Programs in the field of Domestic Politics, development of domestic politics aims to
strengthen and maintain the existence of the unitary state of the Republic of Indonesia
based on the motto of unity in diversity; to perfect the 1945 Constitution to keep abreast
with the needs of the nation, dynamism and reformation by remaining to nurture the
national unity and integrity in accordance with the soul and spirit imbued in the Preamble
to the 1945 Constitution; to improve the role of legislative bodies and higher state
institutions by asserting each function, authorities, responsibilities which refer to
separation of power and clear relationship order among executive, legislative and
judicative bodies; and to promote national political system that is more open and
democratic, maximize control over the performance of state institutions, improve
effectiveness, function, and participation of social organizations, professional groups, and
NGOs in the state life. To that end there have been four major schemes to be and to some
extent have been implemented, namely the Political Structure Improvement Scheme, the
Political Process Quality Improvement Scheme, and the Political Culture Development
Scheme.

Political Structure Improvement Scheme

The main aims of this scheme are: to make the Constitution comply with the dynamism
of the national political life and aspirations of the public as well as development of
international environments; to encourage political institutions to practice democratic

164
principles; and to encourage the neutrality of civil servants and personnel of the Armed
Forces (TNI) and the Police, and to make the sound application of it.

The scheme is also designed for the formation of a democratic political structure, which
separates power of state, and the creation of improved capacity of state institutions in
executing their respective role, and task as well as the mechanism of check-and-balance.
But the ultimate goal of this scheme is the strengthening and maintenance of the Unitary
State of the Republic of Indonesia.

Major changes the nation has had currently are marked by: amendments of the
Constitution that changes substantially some previous consensuses in governing the
nation and state life; formation of new political format with the operation of new law on
political matters, general elections and composition and status of the People' Consultative
Assembly and the House of Representatives; the formation of new format of relationship
between central and regional and local administrations, which is based on new regional
autonomous law; the agreed consensus on new format on civil-military relationship, and
relation between the Armed Forces and the Police based on decrees of the Assembly and
laws on defense and security; the implementation of direct elections for president and
vice-president as the Constitution mandates and relevant laws ask for; the agreement that
ends the existence of appointed representatives from the Armed Forces and the Police in
legislative bodies; national consensus on neutral stance of state institutions and the
Armed Forces and the Police as regard political affairs; and agreed consensus on the need
for a special and independent institutional umbrella in eradicating corruption.

An important development worth noting in political life is the organization of general

elections by an independent institution, the General Elections Commission (KPU) that
more or less has proved itself capable of organizing the 2004 general elections on the
principles of honesty, independency, freedom and fairness

Also worth noting is the formation of Constitutional Court, an important legal institution
functioning to do judicial reviews on legal products against the Constitution. The Court is
expected to produce a breakthrough in legal affairs, capable of reforming political life,
including things that promote the development of civil society which is tolerant and anti-
discrimination.

The introduction of bicameral system in the nation's parliament it certainly requires

appropriate adjustment itself is to create a parliament that can accommodate more
balanced political aspirations and representation between those of national and local
levels, and maintain internal check-and-balance system to avoid excessive hegemony in
the parliament. In this context it is understandable that all aspects related to the check-
and-balance among state institutions, are improved, stressing on the empowerment of the
role and position of the Regional Representatives Council.

Appropriate attention has been given to regional autonomy and the institutionalization of
the National Reconciliation and Truth Commission (NRTC) for the creation of a more

165
peaceful and just political culture to reinforce the foundation of national unity and
integrity.

Regarding the NRTC, the institutionalized reconciliation underlines the settlement of

political bickering and conflicts in the past with the main aim to create a peaceful and
sound political climate in order that the nation's energy is concentrating on building the
nation a better future.

Political Process Quality Improvement Scheme

The main aims of the scheme are to develop national political system which is democratic
and open; to build the life of political parties, which respect differences of political
aspirations and notions; and to promote a democratic system of general elections and the
application of it by improving related statutory regulations. The scheme is directed
towards political parties' improved independency, particularly in struggling for popular
aspirations and interests, and political parties' function to control effectively the
performance of state institutions as well as to promote effectiveness, function and
participation of social organizations, professional groups, and non-governmental
organizations in the life of state. It is also the ideal of the scheme to organize general
elections in a more well-organized fashion with maximum participation of eligible voters,
and in democratic, direct, general, free, secret, honest, fair and civilized ways, by an
independent and non-partisan organizing body.

In consequence of the effective laws on general elections, political parties and

recruitment of state officials, political process in quality term has undergone relatively
drastic changes. In the year 2004 the Indonesian nation for the first time elected directly
its President and Vice-President, as well as all members of legislature (the People's
Consultative Assembly, House of Representatives, and Regional Houses of
Representatives). The nation may claim having organized the most complicated general
elections system with numerous eligible voters scattering at a very large territory
consisting of thousands of islands and islets, to elect members of the regional or local
Houses of Representatives, members of the national House of Representatives and
members of the Regional Representatives Council in a single year. Members of the
House of Representatives and the Regional Representatives Council constitute members
of the People's Consultative Assembly that has become being a bicameral. Another
important change in the membership of legislature worth noting is the exclusion of
appointed representatives from the Armed Forces and the Police as of 2004.

The multiparty system regained in 1999, and new, well-rooted political parties adopting
fairly modern conceptions emerged to compete with primordial parties which in the
future are expected to be no more dominating the country's political spectrum. The life of
political parties, including the process of their alliance, coalition, compromise and
consensus among them, has been apparently undergoing the process of rationalization.
Parallel with the growing critical and intelligent people, the relation between political
parties and the mass has been apparently oriented to the implementation of vision and
mission as well as programs, and less focusing on ism, religion and ideology.

166
Institutions having been established to improve the political process such as the
Constitutional Court, the Judicial Commission, the General Elections Commission, and
the General Elections Supervision have already played their respective roles in preparing
general elections, settling disputes on the result of votes counting, and supervising the
implementation of the general elections. At the grassroots level a number of
organizations came into being as the watchdogs over the political process occurring so
intense particularly in 2004. All of them have reduced substantially the role of
Government participation in preparing, executing and supervising the 2004 general
elections.

Hard work by those institutions and active participation of the public in making the
general elections successful have been good signs that political reform has been in the
right track. The process of political recruitment tends to be on rational considerations
rather than on emotional ones. Thus, in encouraging this tendency a mechanism of public
debates is in fact imperative to be given ample room and promoted to allow the public to
know more and even examine critically the eligibility of the vision, mission, and
programs a candidate of public leader or parliamentarian can envisage and offer. The fit
and proper test method practiced currently by the House of Representatives to select a
candidate nominated to hold an important public post has been a good way to gauge a
credible leader; and it needs to be applied more widely to candidates for secondary and
even tertiary posts, in a more credible and transparent ways.

Promoting civic education containing modern political education along with improving
schooling curriculum containing cultural matters, including cultural values, the values of
democracy, human rights and political ethics are imperative to be sought out to educate
Indonesians of younger age to understand and respect the high values of political ethics
and egalitarianism, things that democracy nurtures.

Things still need to be promoted; encouraged and facilitated are the holding of socio-
political forums and discussions for which the mass-media can play a key role, the
cultivation of the importance of respecting differences of opinions, and simultaneously
discouraging discrimination. Freedom of the press in this matter is decisive to nurture
more sound and democratic political process.

Political Culture Development Scheme

The scheme is aimed at improving political education in more intense and comprehensive
ways to make political culture more democratic, the differences of opinion respected,
legal supremacy and human rights upheld pursuant to what the 1945 Constitution
stipulates; popularizing and practicing the principles of equality and anti-discrimination
in the life of society, nation and state; promoting nation-and-character building towards a
more modern, unified, peaceful, democratic, dynamic, tolerant, prosperous and just
Indonesian nation.

Amendments to the 1945 Constitution, the effectiveness of new laws on political field, no
more appointed representatives from the Armed Forces and the Police in legislative

167
bodies, and the implementation of regional autonomy or decentralization have been the
real evidences of the reform of the country's political culture through democratic
processes. More over, the public have been apparently more mature and critical in
understanding the existing political conditions and in controlling the management of the
state administration.

Those encouraging trends are hopefully leading to the materialization of social

transformation that preserves noble values of tolerant behavior, national unity, anti-
discrimination, and human rights.

Foreign AFFAIRS

As the 1945 Constitution stipulates, the aim of the country's foreign policy is to strive for
a meaningful contribution for the creation of the world that is peaceful, free, and socially
just. For this, it is Indonesia's commitment and principle to continuously improve
multilateralism, particularly by reinforcing and improving the system of the United
Nations Organization.

In diplomatic front, Indonesia has tried hard to revive its foreign politics by remaining to
adopt a free and active foreign policy. This is pursuant to what the 1999-2004 Guidelines
of State Policy says, among other things that: the direction of foreign politics, which is
free and active, is national interest orienting; stressing solidarity among developing
countries; helping the nations' struggles for their independence; refusing colonialism in
its all forms; improving the nations' help-capacity, and maintaining international
cooperation's for the people's welfare.

It is also stated by the state policy that the quality of diplomacy should be more improved
in order to help speed up economic recovery and development activities, through regional
and international economic cooperation in the context of improving regional stability,
cooperation and development drives. It is also underlined that the country's preparations
in all fields boosted to face the world free trade, particularly in approaching the working
of the AFTA, APEC and WTO. In addition, it is also sought out to broaden agreement of
extradition with friendly countries, and to enhance cooperation in all fields with some
neighboring countries, and cooperation under the ASEAN region to maintain regional
stability, development, and improve welfare.

Policy

The country's free and active foreign policy aims to bilateral, regional and international
levels, in the context of speeding up the recovery of the nation's and country's dignity and
trust of foreign governments, including institutional creditors and investors towards the
Indonesian Government. Policy of bilateral relations covers the fields such as political
security, economy, trade, tourism, socio-culture, and inter-community.

Bilateral relations in political and security fields focus on matters of protecting

Indonesians citizens and workers abroad under the umbrella of law and diplomacy; on

168
fencing the whole territory of Indonesia in the legal and political sense through border
diplomatic activities (the implementation of foreign policy) in the context of settling any
borderline dispute and the management of state borders with all participation of the
people living near the border lines; guarding the territory from any foreign interference
that can worsen the tendency of disintegration; fighting inter-state crimes through among
other things agreements of extradition with various countries such as what the country
has done with Australia, the Philippines, and with Malaysia; improving bilateral military
cooperation with several countries in the context of modernizing the country's military
might, transferring of technology, diversifying armor system; enhancing law enforcement
to help overcome national security problems particularly on separatist movement and
terrorism such as that has done with Sweden on separatism of Aceh, and cooperation on
the handling of related trans-national crimes.

Bilateral measures in the field of economy and trade aim to enhance bilateral relations in
investment and trade between Indonesia and some key countries such as the US,
concerning improvement of non-oil and gas export segment and investment in various
sectors; with the European Union (EU), concerning the improvement of various programs
pertaining to economic cooperation and technical assistance for trading activities; with
Japan, regarding developments of various bilateral forums and agreements among other
things Agreement on Investment Improvement; with Russia, on among other things the
establishment and implementation of MOU on banking cooperation among commercial
and central banks; and with East European countries on intensive trade diplomacy
followed by efforts to build new agreements on economic and technical cooperation; with
India, on balance-trade system and improvement of function of the two-country
commissions; with the Central Asia on preliminary attempts on the application of
balance-trade system to improve trade relations with countries of this region; and with
Afghanistan on the reactivating of Indonesian representative office; as well as with the
Middle East countries on the enhancement of economic relations, particularly expansion
of market access to this region, simultaneously the improvement of investment of those
countries to Indonesia,

Bilateral cooperation in tourism covers among other things the implementation of visa-
free for short visits for 11 countries on reciprocal basis, with Chile and Peru for instance,
and the visa-on-arrival constitutes efforts to combine tourism promotional interest and
interest of national security, particularly in strengthening efforts to prevent and fight
inter-state crime. The cooperation also embraces development of bilateral cooperation
with several countries where the tourists come from, and provision of inputs periodically
on security condition in Indonesia in order that the countries where tourists come from,
particularly the US, Britain, and Australia, review their travel warning.

In socio-cultural front, the policy covers: improvement of educational and scientific

cooperation with various friendly countries such as Australia, Japan, the US etc, through
the establishment of joint-working groups; organization of cultural and tourism road-
shows in a more integrated and well-planned ways in several countries; provision of
facilities for international conventions and visiting-exchange programs for foreign editors
ad chief-editors of noted newspapers to boost mass-media promotion in the context of

169
maintaining the nation's positive image. It also includes the offering of one-year-non-
degree travel scholarships to post-graduate scholarships, and the sending of Islamic
preachers and Qoranic recites in the context of providing clear and true description on
Islamic development in Indonesia.

Regional policy covers measures on the ASEAN, APEC, the Pacific Island Forum (PIF),
the Southwest Pacific Dialogue (SwPD), the Indian Ocean Rim Association for Regional
Cooperation (IOR-ARC), and on Middle East.

Regarding the ASEAN, Indonesia, among other things, directs ASEAN cooperation to
the establishment of an ASEAN Community consisting of the ASEAN Security
Community, the ASEAN Economic Community, and the ASEAN Socio-Cultural
Community to create a peaceful, stable and prosperous Southeast Asian region. Indonesia
also promotes ASEAN cooperation improvement in fighting against inter-state crime,
handling natural calamity and infectious diseases as the implementation of the ASEAN
Security Community. At the regional level, Indonesia acts as the coordinator for the
ASEAN Disease Surveillance Net. Indonesia continues endeavoring the achievement of
ASEAN economic integration (by realizing the sole market and production base as
contained in the ASEAN's Vision 2020) going towards the ASEAN Economic
Community. The country also makes efforts to improve ASEAN relations with dialogue
partners such as ASEAN-China, ASEAN-Japan, ASEAN-Republic of Korea, ASEAN+3,
ASEAN-the US, ASEAN-Australia, ASEAN-India etc. In addition, Indonesia underpins
the building process of a mechanism of the regional ASEAN Human Right based on step
by step building blocks approach.

During the 37th ASEAN Ministerial Meeting held in July 2004, Indonesia received a
mandate to formulate a plan of action for the ASEAN Security Community that will be
put forward in the ASEAN Summit in November 2004.

Concerning its policy in the APEC, Indonesia continuously pursues the creation of a
more fair multilateral trade system and a more open economic regionalism. The same
effort has been sought to make the APEC remain paying more attention on the permanent
institution and programs focusing on economic issues by offering fair balance between:
Liberalization and Trade Facilities; Liberalization and Investment Facilities; and
Technical Cooperation and Economy.

On account of the European Community, Indonesia keeps endeavoring that the expansion
of the European Community does offer opportunities for political, economic, and socio-
cultural relations improvement to both parties.

Various measures covering efforts to improve participation, cooperation, and support in,
by and for various regional organizations and fora such as the Pacific Islands Forum, the
Southwest Pacific Dialogue, Indian Ocean Rim Association for Regional Cooperation
(LOR-ARC), AASROC, etc, continues to be sought for by Indonesia for common interest
in various fields.

170
In Palestine issue, Indonesia keeps on supporting the struggle of the Palestine nation as
what the UN-Security Council's Resolution No. 242 (1967) and No, 338 (1973) demand
unconditional return of all Arab territories occupied by Israel, and recognition over the
rights of the Palestine people to determine their own fate to establish their state on their
own land, and the principle of land for peace. Indonesia also supports peace initiatives
under the Madrid Peace Conference (1991), Oslo Peace Conference (1993), Sham Al
Sheikh Peace Conference (1999), and the latest Road Map, which has been initiated by
the US, Russia, the UN and the European Union.

On Iraq issue, Indonesia gives support to the leading role by the UN in the process of
reconstruction, security recovery, and the promotion of a new legitimated representative
administration in Iraq.

While concerning its multilateral policy, Indonesia has a strong commitment to improve
multilateral cooperation in responding to global opportunities and hurdles in political,
economic, developmental, environmental, and socio-cultural fields. This is based on a
reality that multilateral cooperation places all nations as equal by still respecting their
sovereignty, and decision making process that involves participation of all members.

General policy of the Republic of Indonesia on its membership in multilateral

organizations is among other things: to make its membership advantages in multilateral
organizations optimum for the interest of national development, through technical
assistance and cooperation, including financial assistance; to step up, in quality and
quantity, Indonesia's representatives in various committees and commissions as well as
other international agencies in order to struggle for national interest, and at the same time
to encourage active participation of Indonesia in various multilateral fora. It is worth
noting that Indonesia is a member of multilateral fora such as the UN, WTO, Non-Align
Movement, Group 77, OIC, etc.

Regarding the UN, Indonesia keeps on pursuing for restructurization of system and
function of the UN's main bodies such as the General Assembly, the Security Council,
and the International Court, the Economic, Socio-Cultural Council, Secretary-General
and other organizations of the UN. Indonesia seeks out expansion of permanent and non-
permanent members of the Security Council, and proposes that the use of veto rights to
be completely abolished.

On the WTO, Indonesia is eager that the trade liberalization process accommodates fairly
the interests of developing countries and developed countries, particularly on access for
products of the developing countries to the developed countries. Together with other
developing countries, Indonesia strives for food security and rural development interests
being accommodated through, among other things, the receipt of Special Product (SP)
and Special Safeguard Mechanism (SSM) concepts as an integral part of agricultural
advanced liberalization.

Concerning the Non-Aligned Movement, Indonesia makes efforts, among other things,
that through this Movement various problems faced by the developing countries can be

171
settled. Those problems include international trade, finance, investment and monetary,
foreign debt, and food security.

The country's policy on the Group-77 is to endeavor that the group capable of improving
its members' bargaining position in dealing with the developed countries upon economic,
social, and developmental issues, particularly in the frame work of the UN.

In relation with the OIC, Indonesia tries among other things to enhance the organization's
performance to make it a relevant and effective means to contribute to the settlement of
problems faced by its members, and to seek for improvement of economic and financial
cooperation as well as of trade among the organization's member countries.

The country's policy on the Group-15 is among other things to try to manage, through
this Group, economic and technical cooperation such as in investment, trade and human
resources development.

While on the Developing-8, Indonesia strives to make cooperation among member

countries of the Group improving more through exchange of experience schemes, and
inter-D8 trade cooperation.

The Bali Concord II

During the 9th ASEAN Summit meeting held in Bali, Indonesia, on October 7-8, 2003,
the leaders of the 10-member grouping signed the Declaration of the Bali Concord II, to
reaffirm that ASEAN is the

grouping of the Asian Southeast nations, bonded together in partnership in dynamic

development and in a Community of Caring Societies Committed to upholding cultural
diversity and social harmony.

By the Concord II it is agreed that in achieving the ASEAN community objective before
2020, it should be supported by three pillars of cooperation, namely political and security
cooperation, economic cooperation, and socio-cultural cooperation that are closely
intertwined and mutually reinforcing for ensuring lasting peace, stability and shared
prosperity in the region

For that purpose, it is also agreed to adopt frameworks for the establishment of the
ASEAN Security Community (ASC), the ASEAN Economic Community (AEC) and the
ASEAN Socio-Cultural Community (ASCC).

The leaders of the ASEAN unanimously agreed the ASEAN Security Community for the
concept is envisaged to be able to bring ASEAN's political and security cooperation to a
higher plane to ensure that countries in the region live at peace with one another in a just,
democratic and harmonious environment. They agreed that they regard their security as
fundamentally linked to that of other members and bound by geographic location,
common vision and objectives.

172
It is stressed that the ASC subscribes to the principle of comprehensive security as having
broad political, economic, social and cultural aspects in consonance with the ASEAN
Vision 2020, rather than to a defense pact, military alliance or a joint foreign policy. It
recognizes the sovereign right of the member countries to pursue their individual foreign
policies and defense arrangements and taking into account the strong interconnections
among political, economic and social realities.

The ASC has a view to reinforce national and regional capacities to flight against and
deter terrorism and transnational crime. In addition, the ASC shall work to ensure that the
Southeast Asian region shall remain free of all weapons of mass destruction. The ASEAN
leaders affirmed the importance of the ASC to have capacities and responsibilities as the
key mover of the ASEAN Regional Forum (ARF).

INFORMATION, COMMUNICTIONS AND MASS-MEDIA

The 1999-2004 Guidelines of State Policy underlines that the development of

information, communications and the mass-media should focus on the improved use of
information through modern and traditional mass media to educate the people, on the
strengthening of unity and integrity of the nation, cultivating national identity and
secured right to use information and communications means and infrastructures,
improved quality of communications in various fields through the mastering and
application of information and communications technology in order to strengthen the
nation's competitive edge in facing global challenges, the enhanced role of the press in
line with the improvement of the journalists' welfare, legal supremacy, and human rights.

Communications, information and the mass-media have been playing an important role
either in determining possible success of the democratic political system or in advancing
the intellectual life of the nation. Therefore, in relation with this, various action plans
have been made and carried out to develop, promote and advance the communications-
information-mass media-related matters. They include the introduction of: information,
communications and mass-media development program; program for improving
infrastructures of broadcasting, information, communications and the mass media; and
improved quality of development information services program.

Information, Communications, and Mass Media Development program

The main aims of the program are to encourage and improve information exchanges, and
communications among individuals and community groups and between the government
institutions and the communities in conformities with their respective role and function.
What the program does want to achieve are the creation of the public's political
awareness and maturity through the formation of information flows and exchanges in free
and transparent ways, and the availability of more open political control.

Current trends of information and communications technological advancements have

indeed brought about on one hand significant changes in the lives of the public in
political, economic, socio-cultural and defense and security aspects. Mass media

173
industries, electronic and printed ones, on another hand have already got improved and
ample freedom to perform their social and political control. However, the industries as a
matter of fact still need to better their professionalism. The mixture of the advancement
of information technology and freedom of the press has in turn a great potentiality to
encourage firmly the process of democratization.

The developments which have already encouraged the function of the mass media run as
they should are the introduction of related regulations that secure legal basis for the
operation of the mass media, and simultaneously protect the public from any negative
impacts the mass media might cause. The regulations concerned include Law No.32 of
2002 on Broadcasting, and even the Bill on the Freedom of Access to Obtain Public
Information. The expected outcomes from the secured legal certainty are the guarantees
that the public have the right to get information they wish to know or more popularly
known as the right to know, and the Government's obligation to disseminate information
the public may want to know or more popularly as known as the obligation to tell, in
conformity with the development of democratic life of the state and nation.

More encouraging are the issuances of directives on Broadcasting Ethical Conducts and
Standards of Broadcasting Materials or Contents by the Indonesian Broadcasting
Commission, and of the manual on Indonesian Television Ethical Conducts covering
Television Broadcasting Ethical Standards and Broadcasting Business Standards prepared
by the Indonesian Television Broadcasting Association. No less important is the
establishment of such institutions such as the Television Watch that reflect the public
concern over television programs in particular.

Developmental concepts of the community media empowerment have been made

available in the context of realizing nation-wide networking of information,
communications and the mass media. By the networks, the community media offer the
public greater access to any information sources. Opportunities the communities may get
to determine public tastes and demands are made much more ample by granting the
communities chances to disseminating information considered important. Thanks to
community media, all members of society may share equal access to information.

It is under the program that relevant studies have been taking place to produce data and
information on overseas information system and on the utilization of new media
communications or internet as new means of communications. The results of the studies
constitute inputs for policy decision-making in developing overseas information service
system and in utilizing new media as telecommunications means to disseminate
information on government policies and measures.

Improved capacity and capability of the national information services in supplying and
catering to information are indeed directed towards efforts to reduce disparity of
information among the public. To this end a series of actions have been undertaken,
including the arrangements of central-regional information model, inventories of
community media, composing developmental concepts for media watch institutions,
socialization of formulations of community media development, and composing concepts

174
of professional rating standards for mass media contents. Along with them, it has been
sought out to expand information and communication networks even up to remote areas,
under the framework of improving infrastructures of information and
telecommunications, and of the mass media, by providing the application of documentary
management and data reporting, and guidance for government information service
mapping.

Students seeking information via internet

Besides, there have been also related activities that put emphasis on the encouragement of
the communication media to fulfill the needs for information, to endeavor equitable
dissemination of information to all layers of society, and to build and develop institutions
of information, communications, and the mass media. The activities constitute among
other things increased studies on statutory regulations to promote the utilization of
communications and information technology, to improve participation of government
institutions, business circles, and the public in composing measures on the networks of
communications and information technology to stimulate participation of the said
elements in arranging policies on social-communications networking in the public, to
encourage stakeholders in developing infrastructures of communications and information,
and to set up communications forums of mass media watch organizations.

The arrangements of development plans of overseas information service system and the
provision of information on public opinions concerning governmental policies and
performance are aimed at promoting studies and development of communication and
information.

It is realized that economic and social disparity which causes information deficiency has
in turn caused wider a gap between the rich and the poor information society and this has

175
been one of the main problems the nation has to face. Parallel with this, a foundation
having been established in advancing information, communications and the mass media
still requires follow-up actions to maintain the continuity of the goals and targets of
related development programs. Following steps need to be taken into considerations are
among other things: more intensive socialization of the Bill on Freedom of Access to
Obtain Public Information, and promotion of independency and maturity of the press; the
need of synergic works among institutions of information, communications and the mass
media in composing minimum service standards as one of the measures on the utilization
of information technology; the required efforts to facilitate cooperation forums between
governmental institutions and the public in the context of nurturing understanding of the
people to improve the participation and investment in the use of information services.

Other steps need to be more seriously facilitated and promoted are the role the
community media should play, public understanding on the importance of mass media
watch institutions, the relevant studies and researches in the framework of bettering mass
media professionalism with characteristics among other things capable of cultivating
excellent tradition of the press that adopts the principles of precision journalism (based
on investigative reporting).

Still in this context, efforts are required to facilitate judicial reviews over socio-political
aspects against the Law on Broadcasting and the press and media-related statutory
regulations, particularly with regards to the formulations being considered controversial
for the freedom of the press and for the process of democracy. It is unquestionable that
the press here is a significant institution capable of maintaining and protecting political
transparency and in safeguarding the very right of the society to get information related to
the living needs of the people at large. Thus, it is the common concern of the people at
large to maintain together the freedom and independency

Infrastructure Improvement Scheme

The main aim of the communications, information and mass media infrastructures
improvement scheme is to improve the quality of information in all fields through the
mastering and application of information and communications technology in a bid to
better the nation's competitive edge in facing global competition.

Under the Broadcasting, Information-Telecommunication and Mass Media Development

scheme some things worth noting are the establishment of information and
communications networks between central and regional areas and among regional areas
themselves in mutually promoting national development. It is under the scheme the ware
house data are developed and to be the basis application of the system for the
governmental information inflow order, and centers for the data interconnection on
services and regulations of state institutions, serious preparations for the formation of
centers for governmental information services, and preparation for communications and
information network between the central and regional governments, and to overseas to
struggle for the national interests.

176
Following suit is the establishment of government and private websites to further
disseminate information on government policies and measures by on-line. The
availability of websites has, to some great extent, helped reduce the hindrances in
disseminating information on government policies in a quicker way. For the future,
websites may be used nation-wide. Its improved capacity may enable it to cater to varied
and increased kinds of services. For the reason, broadcasting, information-
telecommunication and mass media infrastructures have been developed and improved to
make the flow of information and communications between the central and regional
administrations smooth to underpin the national development programs and to strengthen
the unity and integrity of the nation. Improving the quality of developmental information
services has been undertaken place by among other things: the provision of information
on regional potentialities in the form of chart, information concepts on the fields of
economy, industry, socio-culture, politics, security and defense; the provision of public
service advertisements; and the improvement of studies on the utilization of information-
telecommunications technology at central and regional governmental agencies and
institutions.

However, it is realized that what the nation needs now to further promote society-based
independent information and communications establishments is the formulation of a
grand design as the basis for the development of the Indonesian Society Electronic
Infrastructure Network (ISEIN).

Quality Improvement of Services scheme

The scheme is more directed towards the development of information and

communications networks between central and regional areas and among regional areas
to mutually support national development activities and to improve their institutions,
human resources, and information means and infrastructures, particularly in relation with
that for overseas services in the framework of struggling for the national interests in the
international forums.

So far, the scheme has been bringing about increased availability of information, and
disseminated information, particularly for areas where private and public media hardly
cover them, and improved capacity of governmental websites on the aspect of content, as
well as the improved inter-institutional cooperation. It is also in the context of the scheme
that a manual for governmental information services map has been made available to help
governmental institutions and agencies or bodies in arranging their respective information
services map, including regional administrations in composing their respective maps of
their own potentialities.

Presidential Instruction No.3 of 2003 constitutes a legal basis for the development of e-
government in Indonesia. In materializing the instruction a number of action plans have
been introduced and carried out, including the so called Inter-Governmental Access Share
Information system or Governmental Data and Information Exchange system prepared by
the Ministry of Communications and Information, which will be tried out at the office of

177
the Coordinating Body for Family Planning Program, the office of Ministry of
Communications and Information, and the office of the Ministry of Agriculture.

Parallel with the introduction of the system mentioned above, manuals on the operation
of e-government have been made available, including manual for the establishment and
organization of regional governmental websites, of governmental websites infrastructure
development, governmental electronic documentation management system, and
institutional e-government development plan directive, and e-government human
resources education and training directive.

In the context of promoting and popularizing the use of e-government by which people,
particularly students, living in rural areas and even at rather remote areas may have
greater access to information at local, national, regional as well as international levels, the
Government, in this case the Ministry of Communications and Information, and Lembaga
Informasi nasional (LIN)—the National Information Agency, in cooperation with local
administrations have been trying to introduce an electronic network system called the
Indonesian Society Electronic Infrastructure Network Scheme (ISEINS). Under the
scheme, electronic infrastructures are installed at designated locations such as campuses
of high schools and premises of local administrations or even premises of small-scale
internet business undertakings locally known as "warnet", internet shops, to make more
and more people get used to or familiar with internet, by which one can explore the
information domain.

SOCIAL AFFAIRS

Social Welfare

Development in social welfare was held in cooperation among the government, business
world, and the people, based on global, regional, and national commitment. The national
commitment, as Articles of 27 and 34 of the 1945 Constitution state that every citizen has
the rights to gain worthy livelihood and means of living and welfare.

Development policy in social welfare is directed to develop social resilience, improve

appreciation to elderly citizens and veterans, step up concern to the people suffering from
some social problems (PMKS), and improve physical and non-physical accessibility for
disabled persons.

Pursuant to the policy in social welfare, the Government has arranged four programs:

1. Program for the Development of Social Welfare Potential, that is aimed at developing
people's awareness, ability, responsibility, and active roles in coping with social
problems in their neighborhood, and improving life's quality and welfare of people
who have problems in social welfare.

178
2. Social Welfare Services Professionalism and Management Quality Improvement
Program, that is aimed at improving the quality and professionalism of social welfare
services through development of alternatives for intervention in the fields of social
welfare, improving the ability and competency of social welfare and social workers,
and arranging social welfare standardization and legislation.

3. Public Policy Suitability Development Program in Coping With Social Problems, that
is aimed at realizing public policy suitability in coping with social problems towards
the realization of people's social resilience and people's protection from the effects of
the fast development and social changes through employment network.

4. Social Problems Information System Development Program, that is aimed at

identifying the kinds of data and information needed for decision making in social
problems policy, developing information system needed as an early warning device,
and developing the function and coordination of institutional information network to
form an integrated social problems control.

In the period of 2001-2004 in the social welfare development, the Government has
undertaken social welfare efforts to the PMKS. In poor family empowerment, the
Government has given social guidance, motivation, and business guidance with business
capital assistance to about 371.1 thousand heads of families, including women with
unstable social-economic condition and in isolated customary communities (KAT).

About 9.3 thousand of poor families living in the slums have received assistance in the
form of housing materials and tools to renovate their houses. Domestic refugee problems
have been controlled by giving them assistance to overcome emergency condition and
returning them back to their home, or relocating those who cannot be returned. Destitute
and street children are helped through empowerment schemes. Until 2003, about 192
thousand destitute children and 143.3 thousand street children had received social
empowerment services.

Rehabilitation services have also been given to disabled persons, juveniles and drugs
victims, prostitutes, the homeless, beggars, and ex-prisoners. Besides, about 30 thousand
elder lies have received social assistance.

Poverty and Unemployment

For the years of 2000 through 2003, poverty rates were 19.14 percent, 18.41 percent,
18.20 percent, and 17.42 percent. For 2004, data from the Central Bureau of Statistics
(BPS) until February 2004 showed that there was 36.1 million out of 217 million people
of Indonesia still living under the poverty line, or about 16.6 percent. From that sum,
about 11.5 million people (12.6 percent) were living in urban areas, and 24.6 million
people (19.5 percent) living in rural areas.

Meant by poor people is a person who consumes less than 2,100 calories of food per
capita per day and cannot fulfill his/her basic non-food need.

179
For the year of 2000 through 2003, the rates of open unemployment were 4.33 percent,
5.15 percent, 6.98 percent, and 6.96 percent.

In the even of the launching of Indonesia Country Assistance Strategy (CAS) for 2004-
2007, it is stated that the efforts to decrease poverty rate in Indonesia which reached 20
percent in the crisis era, has still been stagnant at 16 percent. This is due to the low
investment growth and lack of public facility in Indonesia.

INDONESIA'S POVERTY TREND

1999-2002 (in thousand people)

1999 2000 2001 2002 Annual average

growth(%)

Urban 15,643 12.312 8.599 13.319 1,15

Rural 32.332 26.431 29.268 25.075 -7,28

Total 47.975 38.753 37.867 38.394 -6,70

Source: BPS, 2003

In that event, representative head of the World Bank in Indonesia said that the World
Bank has prepared four business platforms, namely the development platform for
businesses activated by the people up to about 25 percent total loan, of about US$200
million per year; the local services platform about 20 percent, and the national loan
platform about 20 percent of the loan. Through this new strategy, the World Bank has
prepared loans of US$450-850 millions annually for Indonesia.

180
 TOTAL OF INDONESIAN POOR PEOPLE

BY EMPLOYMENT

1999-2002 (in thousand people)

Head of Household 1999 2000 2001 2002

Unemployed 4.063 3.560 2.349 3.072

Agriculture 25.997 20.109 23.375 20.605

Industry 6.069 5.380 4.401 4.471

Services 11.840 9.784 6.984 7.571

Total 47.969 38.833 37.109 35.719

Source: BPS, 2003

Program for Compensation of Fuel Oil Subsidy Reduction

In the effort to improving food sustainability and giving protection to poor families and
empowering the people, since 2004 the Government has continued the Program of Rice
Ceiling for Poor People (Raskin Program) and the Program for Compensation of Fuel
Subsidy Reduction for Social Welfare (PKPS-BBM Program). For 2004, the raskin has
reached 2,061,793 tons and has been distributed to 30 provinces, bigger than that of 2003
allocation of 2,048,390 tons. This program is implemented by distribution to poor
families of 20 kg per family per month at the ceiling price of Rp. 1000 per kg.

The raskin and PKPS-BBM in the field of food is decided based on subsidy provided by
the Government. In 2004, there were 15,746,843 poor families, whereas the budget
plafond provided by the Government was only for 8,590,843 families (2,061,793 tons of
rice).

RELIGIOUS AFFAIRS

There are six religions officially recognized by the Government, namely Islamism,
Catholicism, Protestantism, Buddhism, Hinduism and Confucianism.

During the period of 1999-2004 the development in the field of religious affairs
underlines the schemes of: Improvement of Religious Life Services, the Enhancement of
Understanding and Application of Religious Teachings and Harmonious Life among
Religious Followers, Religious Schooling Improvement, and Promotion of Religious
Socio-Institutions and Religious Traditional Schooling.

181
Responsible for policy, promotion, guidance, and development related to religious
matters is the Ministry of Religious Affairs. During the period of 1999-2004 the Ministry
has introduced and carried out many activities under the schemes mentioned above.

Improvement of Religious Life Service Scheme

The scheme aims to facilitate religious adherents to worship in accordance with their
respective belief and religion. The scheme has been manifested through development and
rehabilitation and maintenance of religious houses of worship (Islam mosques,
Catholic/Protestant churches, Buddhist viharas, Hindus temples etc), hajj transit boarding
houses, Islamic Marriage Halls or Religious Marriage offices, and improvement of hajj
pilgrimage management, optimum use of houses of worship, provision of holy books etc.

Under the scheme, the Government and the communities have been striving for religious
adherents to have ample facilities to do religious worship by building more houses of
worship. In this context the Government either allots a sum of money or gives financial
assistance to build or rehabilitate the houses. During the period of 2001-2003 the
cumulative number of houses of worship having been rehabilitated was 5,187 units.

Regarding the enhancement of Religious Understanding and Application and the

broadening of religious knowledge of religious adherents, the Government has helped
them by offering religious holy books including their translations and interpretations, and
other books related to religious teachings. The translations and interpretations of those
holy books give boost to experts in this field to develop interpretations on holy books in
accordance with temporal needs and developmental course. The number of holy books
and their translations and interpretations of different religions procured per annum from
2000 to 2003 was 2,000,000 copies.

In improving services on marriage affairs, there are the Marriage Halls and Marriage
Consulting Institutions. Each institution has been also tasked to promote household's
welfare, and motivate households to practice family planning program. In addition to the
institution, there are also the sub-district-based Offices for Marriage Affairs that also deal
with remarriage and divorce. In 2002, the Offices of Marriage Affairs throughout the
country handled 1,799,174 cases of marriage, 143,886 cases of divorce and separation,
and 2,126 cases of remarriage. In handling marriage affairs those institutions need about
4,000,000 copies of marriage guidance books and marriage certificates per annum.

Promotion of religious institutions such as religious alms, contribution, donation,

charities, and the like continues to be intensified to improve the people's welfare and to
alleviate poverty. To deal with this promotion, a number of institutions have been
established and made available in every province. For this purpose, more than thousands
of people have attended upgrading courses.

In securing the use of plots of land used for religious interests such as plots of land
donated for mosques, churches, temples, viharas, etc., 1,971 plots of land were
certificated in 2001, some 2,193 plots in 2002, and 5,930 plots in 2003. Other action

182
plans included the organizations of upgrading short courses for 1,057 persons to manage
Islamic religious donations and other religious donations as well as the distribution of
69,483 copies of guidance books on management of socio-religious funds.

To promote the hajj pilgrimage management, various measures have been introduced and
done to include the construction of new hajj boarding houses and rehabilitation of rather
old hajj boarding houses, courses for officials who cater hajj pilgrimage affairs, and
provision of books related to hajj pilgrimage codes and services. During the period of
2001-2003, there were accumulatively 255 groups of hajj pilgrims attending guidance
courses.

The growing number of hajj pilgrimages has been to some extent due to better
management of the services by the Ministry of Religious Affairs that is responsible for
the services. The total number of Indonesians doing hajj pilgrimage in 2002 was 182,062
persons, and the number increased to 201,319 persons in 2003. Of the total number of
persons who did hajj service in 2003 some 46.78 percent came from Java Island, some
15.14 percent from Sumatra Island and the remaining from other islands.

Scheme of Harmonious Life among Religious Adherents

The main aims of the scheme are: (1) the improvement of understanding and application
of religious teachings by any individual, family, and community; (2) the reinforcement of
foundation of harmonious life among the same religious adherents, and among different
religious adherents; and (3) the establishment of social and national harmonies. In
seeking out the aims, various activities have been taking place, including the formation of
inter-religious adherents' cooperation networks, consultations and dialogues among
religious leaders of different religions, the accelerated finalization of the Bill on
Harmonious Life among Religious Adherents, etc. During the period of 2001-2003,
thousands of people groups attended guidance courses on harmonious life among
different religious adherents.

Still in the context of deepening religious understanding and application, Qur'an Recital
competitions are always organized from local to national and even international level. So
are of Christian "Pesparawi", Hindus "Utsawa Dharma Gita", and Buddhist Tripitaka Art
Recital festival.

Religious-related conflicts are a potential to disintegrate this nation. In addressing this

issue, various efforts have been sought out by prominent leaders of each religion through
dialogues, meetings and forums to find out preventive and deterrent ways or peaceful
solutions. These included the organization of Islam-Christian International Conference in
Jakarta attended by a number of representatives from 18 countries, to study the historical
relations between Islam and Christianity and discuss religious, socio-political and
economic dimensions, as well as socio-reconciliations of Malindo I and II Declarations
(declarations of reconciliation between hostile parties in Maluku), to say but some.

183
The formation of the Institute for Studies on Harmonious Life of Religious Followers in
Jogyakarta and its branch offices in Medan and Ambon, is expected to play an important
means for religious intellectuals to jointly study and examine histories of plural
communities to find out peaceful solutions when religious-related conflicts arise.

Having demonstrated an important role in appeasing religious-related conflicts are

religious organizations such as the Indonesian Ulemas Council (MUI), the Indonesian
Churches Association (PGI), the Indonesian Catholic Churches Conference (KWI), the
Indonesian Hindu Dharma Parisada (PHDI), the Indonesian Buddhist Association
(Walubi) and the Indonesian Confucian High Council (Matakin).

Improvement of Religious Schooling Quality scheme

The 1945 Constitution underlines that education sector shall have first priority of
development. In addition, nine-year schooling is compulsory. Pursuant to what the
Constitution stipulates and the compulsory nine-year schooling, the Ministry of Religious
Affairs has taken necessary measures to improve religious curriculum, arrange
competency standards for religious teachers, better Islamic boarding school and public
school buildings, organize regular, model and integrated Islamic boarding schools, and
equip those schools with better teaching aid devices and equipment, etc.

Under the scheme a large number of religious teachers and lecturers have had chances to
attend up-grading courses, workshops, seminars, and even colleges and other higher
learning institutions at home and abroad. Students are at the same time encouraged to
attend not only curricula but also extra-curricula activities. Reference books of various
disciplines in large number are also made available to allow students to enrich their
knowledge.

Promotion of Traditional Religious Schooling scheme

This scheme is aimed at: (1) empowering and improving the capacity and quality of
socio-religious institutions, and (2) serving educational services for the public,
particularly for villagers of economically-weak bracket.

Under the scheme, various action plans have been undertaken, including the provision of
reference books (numbering 542,000 copies in 2003 alone), training/guiding courses on
religious affairs attended by many people, and development of socio-religious
institutions, which in turn are expected to be able to organize trainings on empowering
people's economy. Also under the scheme are the improvement of means and
infrastructures of schooling by providing teaching aid devices and equipment, and the
development of a number of workshops for students to do practical teaching system.

Regarding the development of traditional Islamic boarding schools, particularly their

schooling quality, the Ministry of Religious Affairs, together with other governmental
agencies and non-governmental institutions, gives priority to the promotion of the schools
by, for instance, installing websites, sending religious teachers/lecturers to Yemen and

184
the Middle East countries and other countries, encouraging the establishment of model
Islamic boarding schools, providing scholarships

to students from rather remote and isolated areas with the hope that they would later set
up similar schoolings at their native villages or hometowns, and helping the development
of agro-businesses at 60 Islamic boarding schools.

Education

The 1999-2004 Guidelines of State Policy states that education development policy is
directed to extend and equalize the chance to reach high quality education to all
Indonesian people.

The main agenda of education development in Indonesia is to develop and stabilize the
national education system based on decentralization, scientific autonomy, and
management principles as education development direction in Indonesia. In 2003, the
Government enacted Law No. 20 of 2003 on National Education System to replace Law
No. 2 of 1989 on National Education System, to be followed by preparation of 14
Government Regulation bills as materialization of said law.

Reformation of the national education system, as entrusted by the amended 1945

Constitution, Article 31 directs the Government to allocate education budget up to 20
percent of the National Budget and the Regional Budget. Due to the Government's budget
limitation, however, that allocation has not been fulfilled, and will be fulfilled by stages.

Based on Law Number 20 of 2003 on National Education System, the strategy of national
education shall consist of implementation of religious teaching and good behavior,
development and implementation of competency-oriented curriculum; educative and
dialogic learning process; empowering educational evaluation, accreditation, and
certification; enhancing the professionalism of teachers and educational manpower;
supplying educational facilities; educational expenditures that is in accordance with the
principles of justice and equality; organizing open and equitable education; implementing
compulsory education; implementing autonomous educational management; empowering
people's participation; and implementing supervision of the national education system.

In accordance with Law Number 20 of 2003 on National Education System, schooling in

Indonesia shall begin from kindergarten in two years; followed by next higher
educational level called primary school in six years. After graduating from primary
school, pupils can continue to next higher level that is called junior secondary school in
three years, and after graduating from junior secondary in three years or to vocational
senior secondary school in three or four years. Graduates from general senior secondary
schools can continue to diploma or graduate programs or other types of higher education,
such as university, institute, graduate school, academy, or polytechnique. If they choose
graduate program, they can continue to post-graduate study and if they choose diploma
program, they can continue to specialist program.

185
Pre-school and Basic Education

Basic education is general education of nine years, i.e. six years of primary school and
three years of junior secondary school. The goal of basic education is to develop student
as individuals, members of society, citizens and members of humankind, as well as to
prepare them to pursue studies in senior secondary education. Basic education provides
the learners with basic knowledge and skills. Included in Basic Education are Islamic
general primary school called Madrasah Ibtidaiyah, equivalent to primary school and
Islamic general secondary school called Madrasah Tsanawiyah, equivalent to general
junior secondary school, managed and supervised by the Ministry of Religious Affairs.

Pre-school education aims at stimulating physical and mental growth of children outside
of the family circle before entering primary education that can be held in formal school
system or informal education. Among the types of pre-school education available are
kindergartens at the formal schools and playgroups and day-care centers at the out-of-
school form. Kindergarten is provided for children for one to two years of education,
while playgroups and day-care centers are attended by children of at least three years old.

Primary School

In 2002/2003 academic year, the total of private and state-run primary schools was
169,147, showing a decrease from the previous academic year's 171,315. The total pupil
in 2002/2003 was 29,050,834 showing an increase from the previous academic year's
28,926,377. On the other hand, total of teachers in 2002/2003 was 1,234,927, showing an
increase over the previous academic year's 1,164,808.

Primary school students, the hope of future generation

186
Junior Secondary School

The number of private and state-run junior secondary schools in 2002/2003 academic
year was 32,322, showing an increase over the previous academic year's 31,626. In
addition, total of pupils in the academic year of 2002/2003 was 9,936,647, an increase
over previous academic year's 9,757,123. On the other hand, total of teachers on the
academic year rose to 376,512 from the previous academic year's 384,843.

Senior Secondary Education

The program for the development of senior secondary education includes general
secondary schools, vocational secondary schools and religious secondary schools that
aims at extending the scope and accommodation capacity of the schools, improving
educational quality as a basis for the pupils to continue their studies to a higher level of
education or the preparation of student to enter the work market.

Secondary education is made available to graduates of basic education. Secondary

education consists of general secondary schools, vocational secondary schools, and
religious secondary schools. Secondary education gives priority to continue and expand
the basic education and prepare students to become members of society with knowledge
and skills to make relations with social environment, culture, and natural environment
and to develop further skills to enter the work market, or to continue their studies to a
higher level of education. The length of secondary education is three years for general
secondary schools and four years for vocational education.

The number of general senior secondary schools in 2001/2002 academic year totaled
7,785 and 8,036 in 2002/2003 academic year. The number of teachers in 2001/2002
academic year was 252,682, and 261,089 in 2002/2003 academic year. An increase was
also shown in the number of pupils i.e. 3,024,176 pupils in 2001/2002 academic year and
3,143,730 pupils in 2002/2003 academic year.

The number of vocational secondary schools in 2001/2002 academic year was 4,522, and
4,943 in 2002/2003 academic year. The number of teachers in 2001/2002 academic year
was 90,806 and 96,672 in 2002/2003 academic year. An increase was also shown in the
number of pupils i.e. 2,027,464 pupils in 2001/2002 academic year and 2,099,753 pupils
in 2002/2003 academic year.

Higher Education

The national development program for higher education is aimed at developing the higher
education system, increasing the quality and relevance of higher education with the job
market, and enhancing an equitable opportunity to continue studies to the higher level
education, particularly to students with excellent achievements but coming from poor
families. The goal of the program is to realize autonomous management to four state-run
higher learning institutions, i.e. the Bandung Institute of Technology (ITB) in West Java,

187
the Bogor Institute of Agriculture (IPB), also in West Java, the University of Indonesian
in Jakarta, and Gadjah Mada University in Yogyakarta, and to do pioneering work

for its implementation of other state-run higher learning to increase the number of
graduates absorbed in employment and to increase the crude participation rate (APK).

Higher education is an extension of the senior secondary education, consisting of

academic and professional education. Higher education is made available to prepare the
students to become members of society with academic and/or professional skills, who
have ability of education that holds higher education is called the higher learning
institutions in the form of academies, polytechnics, schools of higher learning, institutes,
or universities. The length of higher education is called the higher learning institutes, or
universities. The length of higher education is three years for diploma program, and four
years for undergraduate studies and finally to post-graduate program for three more
years.

Higher Learning Institutions

In 2004, the number of state-run universities was 81 and private universities 2,399. The
number of students studying in state-run universities in 2002/2003 academic year was
2,935,848 and the number of lecturers was 143,096.

In 2003/2004 academic year, all of Indonesia's 81 state-run universities admission of new

entrants showed a decrease from 82,969 in 2002/2003 academic year to 82,190 seats for
new entrants in 1,615 study programs. In the year of 2003/2004 the participants of State
University Admission Test (SPMB) who passed it were 78,829 from 350,306 who had
registered for the test. The number of SPMB participants who passed the admission test
in 2002/2003 academic year was 78,829, showing a decrease 3.24 percent compared to
471 in 2001/2002 academic year.

In 2003/2004 academic year, the status of six leading State Higher Learning Institutions
(PTN) has been changed to be State-Owned Higher Learning Corporate Body (PT-
BHMN). They are the Bandung Institute of Technology (ITB), the Bogor Institute of
Agriculture (IPB), the University of Indonesia (UI), the Gadjah Mada University (UGM),
the North Sumatra University (USU), and the Indonesian Education University (UPI) in
Bandung, West Java. The establishment of State Higher Learning Institutions with the
status of State-Owned Higher Learning Corporate Body (BHMN) is aimed at decreasing
government financial burden in financing the education sector, in addition to the
autonomous implementation of Higher Learning Institutions and the application of
Government Regulation No. 61 of 1999 on Implementation of Indonesia's State Higher
Institutions as State-Owned Higher Learning Corporate Body.

Research University

With a status of State Owned Higher Learning Corporate Body (BHMN), the University
of Indonesia (UI) has targeted its program to become a research university in 2010, but it

188
needs government support especially through laws and regulations. According to the
Rector of UI, Usman Chatib Warsa, actually UI has taken action as a research university,
by establishing a noble industry, namely the Institute of Human Virology and Cancer
Biology (HIVCB), which involves a world expert, Professor Robert Gallo of University
of Maryland, United States.

The IHVCB laboratory has started its activity since August 2004, together with physical
facility building in the UI Campus of Salemba, Jakarta.

Informal Education

Development for informal education (PLS) is aimed at providing services to the people
who do not receive or have not received a formal education to develop their selves,
behavior, knowledge, and skills, self-potential, and developing productive efforts to
increase their welfare. In addition, the PLS Program is directed to give basic knowledge
on professional entrepreneurship and skills for themselves and their families. The goal of
PLS program is to enable people or students who do not receive or have not received
formal education. They consist of people who have not yet finished nine-year compulsory
basic education. The program is also directed to empower centers or workshop of
people's learning activities.

The main agenda of the PLS Program is to accelerate illiteracy eradication through the
development of functional literacy, especially to people of 10-44 years old. The existence
and usage of book centers shall be developed and increased to make people love to read.
The efforts to eradicate three-old illiteracy (the Latin words and number illiteracy,
Bahasa Indonesia illiteracy, and basic education illiteracy) are developed by their types to
accommodate drop-out students from various paths, kinds and levels of education
services and quality and quantity of student of Package A Learning Group (equivalent to
primary school), Package B Learning Group (equivalent to junior secondary school) to
support nine-year basic education, and to develop learning model for sustainable
education program with skill and entrepreneurship orientation. Types of informal
education may include courses, education and training, group learning, centers for group
community education; and religious education.

In line with this development, the rate of literacy people by the age of 15 years off and up
increased to 89.8 percent in 2003.

International Olympic

In 2003, Indonesia participated in Natural Sciences and Mathematics Olympics, both in

national and ASEAN level followed by ten nations and won gold medals, one silver and
two bronze medals. In 2004's, representatives from Indonesia followed the Asian Physics
Olympic, and they gained six gold medals. In the 2004's XXXV International Physics
Olympiad in Pohang, South Korea, Indonesia gained one gold medal, one silver medal,
and one honorable mention.

189
SCIENCE AND TECHNOLOGY

One of the duties of the Ministry of Research and Technology is to assist the President of
the Republic of Indonesia to formulate policies to be implemented by the Indonesian
Government specifically in utilizing, developing and mastering science and technology
for the national development. The implementation of these policies are based on several
regulations: the 1945 Constitution, the Guidelines of State Policy (GBHN),

National Development Programs (Propenas), Law No. 18 of 2002 on National System of

Research, Development and Application of Science and Technology, and Development
Programs of National Strategic Policy of Science and Technology (JAKSTRANAS
IPTEK).

Article 31 clauses 5 of the Amended 1945 Constitution stipulates that the Government
shall develop science and technology based on religious values and unity of nation for the
development of human dignity and welfare. This is further emphasized in Decree No.
IV/MPR/1999 of the People's Consultative Assembly concerning the Guidelines of State
Policy (GBHN), which states that Indonesia shall improve her ability in mastering,
enhancing and utilizing science and technology, including the capability of Indonesian
people and business players, especially Small and Medium Enterprises (SMEs) and
cooperatives, in order to increase product competitiveness based on local resources. This
also means that technology shall be able to carry out activities in increasing health,
education, food fulfilment, industry and others, to meet self sufficiency and improvement
of the nation's competitiveness.

In parallel, the National Development Programs (Propenas) 2000-2004 emphasizes that

science and technology (S&T) is expected to take part in the acceleration of the economic
recovery, the strengthening of the foundation of sustainable and equitable development,
as well as the development of cultural resilience and social welfare.

To develop science and technology effectively, oriented to people's need, promoting the
real benefits, and fulfilling the whole regions, in 2002 the Government ratified Law
No.18/2002 on National System of Research, Development and Application of Science
and Technology. This law forms a guideline to the formulation of the National Science
network system. Hence, the role of the central government, regional governments and
society, especially business players, can be in synergy in the development of the national
science and technology.

With determined policies, therefore, the implementation of various programs is related

with the mastery of science and technology in the frame of strengthening national
economy and developing social life. To materialize such contribution, the Ministry of
Research and Technology implements the Strategic Policy of National Science and
Technology Development 2000-2004 (JAKSTRA IPTEKNAS).

190
Achievement

To increase the science and technology capability and culture, the Ministry has carried
out some priority research programs such as the Integrated Priority Research Scheme
Program (Riset Unggulan Terpadu), the International Integrated Priority Research
Scheme (Riset Unggulan Terpadu Internasional), the Partnership Priority Research
Scheme (Riset Unggulan Kemitraan), and the Selective Research Scheme for Social
Sciences and Humanities (Riset Unggulan Kemasyarakatan dan Kemanusiaaan). In these
research schemes, participants initiate research topics and plans of proposed activities.
Another priority research scheme program is the National Strategic Priority Research
Program (Riset Unggulan Strategis Nasional). In this top-down research, the Ministry
initiates plans and ideas of intended activities for research and technology.

The Integrated Priority Research scheme is designed, among others, to orient the ability
of human resources of research institutions, be they in central and regional governments,
universities or industries, toward the creation of an integrated network to improve their
ability in enhancing basic and applied science and technology.

The International Integrated Priority Research scheme has carried out international joint
research and development among Indonesian researchers and international research
institutions/universities in various fields, such as with CSIRO-Australia and University of
Twente in the Netherlands (marine), Oregon State University-USA (agriculture and
food), Katolieke Universiteit Leuven, Belgium (environment), and Shinshu University of
Japan (health).

The Selective Research Scheme Program for Social Sciences and Humanities is designed
to bridge the gap between social sciences and humanities with other sciences and to
develop theories and new concepts in this field. In 2003, this program conducted applied
research and science development researches.

The implementation of the national strategic research scheme program covers six
activities of enhancement in the fields of: (1) Information technology and
microelectronics that produces gateway media prototype, antenna planner array
prototype, IP Core video transcoder; (2) priority fruits pineapple, banana, mangosteen for
consumption and raw material for industry; (3) group fish cultivation; (4) diversification
of corn-based stapple food; (5) light Aluminium Engine for various transportation
modality; and (6) oil-palm downstream industry to lengthen its value-added chain.

The Partnership Priority Research scheme is one of the Ministry's policies in utilizing
science and technology in industrial sector through research cooperation between
research institutions and industries. The Government, together with industries, funds this
research in the form of cost sharing. In 2003 this program financed 35 research activities.

Start-Up Capital. This program is designed to bridging the S&T activities, done by
research institutions and universities, with business activities. In 2003, this program
executed research activities in the fields of health, agriculture and food,

191
telecommunication and information, manufacturing laboratory facilities for education,
chemical and post harvest.

The Advancement of Regional Innovation through Business Technology Center

(BTC). The concept of BTC is the strategy of the Ministry to accelerate the process of
interaction between business world and technology suppliers in regional areas of which
their activities will very much depend on the market and industrial need. In 2003, the
BTC had been established in Batam, Yogyakarta, and Jakarta. To internationally broaden
the market, in term of science, technology and industry, the government of Germany also
supports this program through training and networking channeling.

Incentives for Strengthening Technology and Management (SIPTEKMan). This

scheme is aimed at encouraging technology-based small-medium-scale industries (UKM)
to increase their productivity, product diversification, enhance marketing network and
simultaneously absorb numbers of manpower.

Information Technology Kiosk (WARINTEK) is a program aimed at cultivating and

utilizing S&T information in society. This program is adopted from UNESCO's
"Information for All Program". Warintek is equipped with a data base in the form of an
"Educating Nation" CD-ROM, comprising of Appropriate Technology, Medicinal Crops
and Food Diversification Information. To further improve society knowledge, the
Ministry has distributed computers to some education institutions, non-government
organizations, and regional governments such as Malang, Jambi, Purbalingga,
Yogyakarta, Garut, Magelang, Bandung, Riau, Bengkulu.

Other incentive programs conducted by the Ministry of Research and Technology are
among others: Center for Intellectual Property Right (Sentra HKI), OLEH Paten, Center
of Technology Promotion and Marketing (Sentra Promptek).

To promote the socialization and utilization of S&T, several programs have been
executed, such as the enhancement of S&T information system, covering the
development of Digital Library, the promotion of Laboratory Accreditation, the
development of S&T activities using multimedia information system, as well as the
promotion of regional S&T.

Along with the incentive scheme programs, the Ministry of Research and Technology has
also executed some specific or thematic programs, such as Bioisland and
Agrotechnopark. To increase the added value of biological resources in Indonesia, the
Ministry has carried out Bioisland planning and development in Rempang, Batam Island.
Bioisland is an integrated research and development area for commercialisation of
biotechnology. The objectives of Bioisland development are to increase the
biotechnology role in the global economic and human welfare, to strengthen the synergy
of biotechnology-based industries and to provide an integrated infrastructure for
biotechnology research and development. The Bio-island's field of works covers
agricultural and food biotechnology, medical and pharmaceutical biotechnology,
industrial and environment biotechnology as well as marine biotechnology.

192
Agrotechnopark, located in Muara Enim, South Sumatra, is the development of an
integrated agro system emphasized on technology transfer. Involved in this program are
Regional Government, Universities and industry. The main duty of Agrotechnopark is to
develop human resources through agribusiness application in the field of agricultural
(corn and peanut) cultivation, animal husbandry (laying pullets, cows, ducks, shrimps and
sheep) and post-harvest process. In 2003, this program built some physical constructions
such as clearing of soil, corn plantation, construction of post-harvest processing, hatchery
and shrimp pond, and animal provision.

In order to strengthen the basis and sharpen the direction and priority of S&T
development, the Ministry is dedicated to formulate four Government Regulations as the
implementation of Law No.18/2002. The four regulations are: Government Regulation on
Technology Transfer by Research Institution, Government Regulation on Research
Permit for Foreigners residing outside Indonesia, Government Regulation on the Permit
of Hazardous Research, Development and Application of S&T, Government Regulation
on Allocating part of enterprise earning. In 2003 the Ministry accomplished the
examination of the two drafts of those regulations, namely Government Regulation on
Technology Transfer by Research Institution, and Government Regulation on Research
Permit for Foreigners residing outside Indonesia.

The Ministry of Research and Technology also conducts some programs related to
guidance and strengthening the S&T Institutions. Included in this program are the
development of Eijkman Institution, PUSPIPTEK and PP Iptek. The Eijkman institution
has conducted some researches and developments in health and medication. PUSPIPTEK
development program is another priority program, which is expected to support the
growth of technology-based industry. In the frame of S&T socialization, the Ministry has
introduced and facilitated S&T to the people of the early age. This effort is implemented
through the development of Center for S&T Visual Display (PP IPTEK) located at the
Beautiful Indonesia in Miniature Park (TMII) and in several other regions.

To enlarge productivity and competitiveness for the national utilization and development,
the Ministry has also set up coordination with its LPNDs (Non Departmental Government
Agencies), namely the Agency for the Assessment and Application of Technology
(BPPT), Agency for National Nuclear Energy (BATAN), Indonesian Institute of Sciences
(LIPI), National Institute of Aeronautics and Space (LAPAN), BAKOSURTANAL
(National Coordination Agency for Survey and Mapping), BSN (Agency for National
Standardization), and BAPETEN (Nuclear Control Board). Furthermore, the ministry has
also promoted cooperation with Regional Research and Development Institutions, Higher
Education Institutions, Board of National Research Development and other stakeholders
through among others developing Regional Research Development Boards and fostering
S&T cooperation.

In order to build national superiority and competitiveness, the Ministry of Research and
Technology steps up partnership and networking between S&T institutions, and business
society be they in domestic or international scope. Some of the cooperation, for instance,

193
include the ASEAN COST (Committee on Science and Technology) which is held twice
a year, and bilateral relations with India, the Republic of China, and Germany.

Total budget for executing those all mentioned programs amounts to Rp 172,18 billion
(routine and development additional budget), some 85% of which is allocated to fund
"policy instrument" programs, such as incentive scheme, and priority research scheme
programs. Meanwhile, the remaining 15% of budget is allocated to fund "policy study"
program, that is the study of S&T Development.

Health

In building health for the people, the Government has determined Healthy Indonesia
Vision 2010, with its four missions, namely, health development should be able to: 1)
motivate national development with health outlook; 2) urge people's independence to live
healthily; 3) keep and improve qualified, commonly prevalent, and attainable health
service; 4) improve individual, family, people, and neighborhood health.

This Healthy Indonesia Vision 2010 is also aimed at improving 16 health indicators, as
mentioned in this table:

HEALTHY INDONESIA VISION 2010

Health Indicators Target

Life Expectancy at Birth 70

Infant Deaths per 1,000 Live Births 40

Childhood Deaths per 1,000 Live Births 58

Childhood Pneumonia Deaths per 1,000 Children 2

Childhood Diarrhea Deaths per 1,000 Children 1

Maternal Deaths during Childbirth

per 100,000 Live Births 150

Dengue Fever Infections per 100,000 People <1

Malaria Infections per 1,000 People 0.5

Recovery Percentage from Tuberculosis of the Lungs >85

Percentage of HIV/AIDS Carriers to Risk Population <1

194
Acute Flaccid Paralysis (AFP),

Children Under 15 Years per 100,000 People <1

Percentage of Infants with Low Birth Weights 5

Percentage of Children With Sufficient Nutrition 80

Percentage of Pregnant Women With Malnutrition -induced Anemia 45

Prevalence of Disorders due to Iodine Deficiency 6

Percentage of Women of Child Bearing Age

With Chronic Energy Deficiency Syndrome 10

Source: Department of Health (2002)

In building health for the people, the result of health development implementation can be
seen at among others in people's health and nutrition and illness pattern. The status of
people's health and nutrition can be seen among others from infants death rate, death rate
of children under five years age, maternal death rate during childbirth; life expectancy at
birth; and the status of people's nutrition. Infants death rate (AKB) has declined from 46
per 1.000 live births (Indonesia Demographic and Health Survey SDKI 1997) to become
35 per 1,000 live births (SDKI 2003). Children Under Five Years of Age death rate has
decreased from 79 per 1,000 live births (SDKI 1997) to 46 per 1,000 live births (SDKI
2003). Meanwhile, Maternal Death during Childbirth (AKI) has gone down from 334 per
100,000 live births (SDKI 1997) to 307 per 100,000 live births (SDKI 2003). Along with
the decline of Infants Death rate, Life Expectancy has increased from 63 years (1990) to
become 66 years (2002-2003). Meanwhile, Children Under Five Years Old with Lack of
Nutrition rate has declined from 30 percent in 1998 to 27.5 percent in 2003.

The National Development Programs (PROPENAS) 2002-2004 has determined six

health programs. Following are the programs, their aims, and the results based on the
performance indicators of the PROPENAS:

1) Healthy Environment, Healthy Behavior and Community Empowerment

Program is aimed at promoting the quality of healthy living environment that
supports the growth of children and youth, fulfills basic needs to live healthily and
enhances social interactions, and keeps the community out of threats coming from the
neighborhood, empowers individual, family and community health in the frame of
keeping, improving, and protecting their health and environment towards the
development of a healthy, self-supporting and productive community through
improvement of knowledge, development of positive behavior, attitude, and active
participation of individuals, families, and the communities in line with local socio-
culture. In general, the results of this program show an increasing trend, among others

195
 an increase of families using healthy toilet from 61.5 percent in 2001 to 68 percent in
2003; rising percentage of families using clean water in urban and rural area from
77.2 percent in 2001 to 80 percent in 2003.

2) Health Efforts Program is aimed at promoting equitable distribution and the quality
of effective and efficient health efforts and their affordability by the community.

The result of this program in 2001 and 2003 included: the scope of Universal Child
Immunization (UCI) reaching 72.9 and 80 percent respectively; and the scope of
medical treatment at childbirth by health workers reaching 68 percent and 70 percent
respectively.

3) Improvement of Community Nutrition Program is aimed at improving the

intellectuality and productivity of human resources through the improvement of
family self-supporting efforts to improve nutrition, improvement in nutrition services
to reach good nutrition, and improvement of quality food diversification to strengthen
household food reinforcement.

The results of the program reached in 2001 and 2003 included: prevalence of
malnutrition to children under five years old reaching 26.1 percent and 27.5 percent
respectively; prevalence of chronic lack of energy (KEK) among pregnant women
reaching 20.1 and 16.7 percent respectively; iron anemia (AGB) of pregnant women
reaching 40.1 and 45 percent respectively; lack of Vitamin A (KVA) among children
under five years old reaching 0.33 percent; households consuming iodized salt
reaching 64 percent and 78.5 percent respectively; and exclusive breast feeding (ASI
Exclusive) to infants of 0-4 months old reaching 52 percent and 53 percent
respectively.

4) Health Resources Program is aimed at stepping up the number, quality, and

distribution of health workers, improving the number, quality, effectivity and
efficiency of health budgeting and improving the availability of facilities,
infrastructures, and logistic support to health services, which is equitably distributed,
affordable and usable by the community.

The results of the program reached in 2001 and 2003 among others were: people
following the financing system of pre-efforts 20 percent and 21.8 percent
respectively; and ratio of health workers compared with the number of people
reaching 85.64 per 100,000 people and 120,46 per 100,000 people.

5) Drugs, Food and Hazardous Material Program is aimed at protecting people from
the dangerous effect of the abuses of drugs, narcotics, psychotropic, and addictive
substance (NAPZA), protecting people from usage of pharmaceutical, food, health
equipments which do not meet the requirements of quality and safety, securing the
availability and equitable-distribution of quality medicine needed by the people, and
improving pharmaceutical industries competitive power potential based on domestic
natural resources.

196
 The results of the program are among others: protecting people from the dangerous
effect of the abuses of drugs, narcotics, psychotropic, and addictive substance
(NAPZA), reaching 100 percent of the processed cases in 2003; control upon 65
percent of production and distribution of health pharmaceutical in the frame of Good
Management Practice (GMP) in 2003; introduction of the concept of essential drugs
of the National Essential Drugs List (DOEN) as an instrument of rational drugs
consumption and cost effective; determining drugs list and drugs price standard
ceiling of basic health drugs as a guide for district/city in connection with natural
disaster, social riots, epidemic, etc. In 2003, through the Program for compensation of
Oil Fuel Subsidy Reduction (PKPS BBM), the Government distributed drugs for the
community.

6) Health Development Policy and Management Program is aimed at facilitating

health efforts implementation through an efficient and effective policy and
management and supported by science and technology.

The results of the program reached in 2003 were among others: determining 56 laws
and regulations to become health program policies; making 199 research works that
covered policy studies, health technology services, contagious diseases eradication,
ecology, pharmacy and traditional medicine, operational research for intensification
of contagious diseases eradication; health fostering research, and publishing of 174
articles on scientific researches.

AIDS Carriers in Indonesia

The first AIDS case in Indonesia was diagnosed in 1987, only six years after the first in
the U.S. Drug use by injection and commercial sex have been fueling the epidemic, at the
rates reported by the United Nations Program on HIV/AIDS (UNAIDS) as high as 26.4
percent among sex workers in Papua and 47 percent among drug users in Jakarta.

Most HIV-infected are males (77 percent) while the most-affected age group are those
between 20 years and 29 years old (41.7 percent).

The Government provided 30 percent of the total budget spent on the anti HIV/AIDS
movement, with the rest provided by foreign donors.

Indonesia also allocated US$5.7 million from its 2003 fiscal budget for the fight against
the virus, up from US$3.25 million in the previous year. Separately, foreign donations
increased to US$19.9 in 2004, from US$9.3 million last year.

In Indonesia, drugs for AIDS, widely known as the antiretroviral (ARV) treatment,
remains big concern due to its unaffordable cost. Generic ARV has been available in this
country since September 2001, imported from Thailand and India.

197
 AIDS Carriers in Indonesia

(90,000-130,000)

43,000 injecting drug users

10,000 gays

8,000 sex workers and 6,000 of their customers

1,500 transvestites and 6,000 of their customers

24,000 couples from the above mentioned groups

Source: Department of Health, 2002

Since August 2004, the Government has provided free AIDS medicines in nine hospitals
in Jakarta, namely: Cipto Mangunkusumo Hospital, Dharmais Hospital, Sulanti Saroso
Hospital, Persahabatan Hospital, Duren Sawit Hospital, Mintoharjo Hospital, Gatot
Subroto Hospital, Polri Hospital, and Fatmawati Drugs Dependency Hospital.

Demography and Family Planning

The policy in the field of demography and family planning is to improve the quality of
people through birth control, decrease death rate, improve the quality of the Family
Planning Program, as well as develop and harmonize the policy of demography by noting
the aspects of demography and environment as the center of development.

The number of Indonesian people has been increasing yearly, although the growth rate
tends to decrease. Based on Population Censuses (SP) of 1990 and 2000, the number of
Indonesian population was 179.4 million people and 202.2 million people, with
population growth reaching 1.49 percent in the period of 1990-2000, or lower than that of
previous period of 1980-1990 (1.97 percent). Success in controlling population showed in
the significant decline of birth rate. In 1997, the Total Fertility Rate (TFR) of
reproduction age women reached 2.8 children, but decreased to 2.6 children in 2002
(Indonesia Demographic and Health Survey SDKI 2002). The decrease of the TFR was a
consequence of increased contraceptive devices (prevalence) of fertile age spouses.
Prevalence rate increased from 57 percent in 1997 to 60 percent in 2002 (SDKI 2002-
2003). To develop the information system, demography administration tryouts had been
implemented in 13 districts in 6 provinces (Banten, West Java, Central Java, Special
Territory of Yogyakarta, Bali, and North Sulawesi). Besides, the Government had
arranged legal support for the waiting of the Bill on Demography Administration and
academic draft on population data protection.

For demography and Family Planning, the Government has setup some programs, as
follows:

198
1. Demography Policy Appropriateness and Development Program, which is aimed
at realizing appropriateness of demography policies in all aspects of development.

The results reached until 2004 are among others: formularization of demography
administration system and policy, population numbering system, demography effect
analysis and indicators, bill on Demography Administration and Family Development
as the amendment to Law Number 10 of 1992. Meanwhile the programs relating to
children development are among others: Master Plan of Children Welfare and
Protection (KPA); National Campaign on Free Birth Certificates; document on
National Program for Children Protection (PNBAI) 2015 which is children program
in national scope covering the fields of education, health, children protection, and
HIV/AIDS controlling, and the establishment of the Indonesia Children Protection
Commission in 2003 through Presidential Decree Number 77 of 2003.

2. Family Empowerment Program is aimed at improving family welfare and resilience

as the smallest unit in community, marked by among others increase of family
awareness and empowerment in fulfilling basic, social, and psychological needs.

In 2004 (until March 2004) Prosperous Family Income Improvement Effort (UPPKS)
groups were still recorded at 342.2 thousand groups, covering about 7.8 million of
families primarily from Pre-Prosperous Family (KPS) and Prosperous Family I (KS-
I). Prosperous Family Undertaking Credit (Kukesra) reached 50.9 of the total UPPKS
members.

3. Youth Reproduction Health Program is aimed at improving knowledge, behavior

and positive attitude of youths on reproduction health in the form of improving their
reproduction health degree to prepare family living to support the improvement of
efforts for the development of future generation.

During the period of 2000-2004 the Government has established the Youth
Consultation and Information Center (PIK) for 662 groups. Besides, there were also
established the Concern-for-Youth Family Groups (KKPR) for 21.1 thousand groups,
developed the Ceria (happy) Internet Website, and training for promotion force for
Youth Reproduction Health for 15.3 thousand people.

4. Family Planning Program is aimed at fulfilling the need for qualified Family
Planning and reproductive health services, and controlling the birth rate that in turn
improving qualified small families.

The results of the program include the capability to ask Fertile Age Spouses (PUS) to
become new family planning participants at the average of 3.9 million for the past
five years (2000-2004 until April 2004), while active family planning participants in
2004 reached about 27.2 million.

199
 The SDKI has also showed increase of family planning participation for the past five
years. In SDKI 1997, the participatory rate of family planning reached 57.4 percent,
and increased to 60.3 percent in SDKI 2002-2003.

The family planning participation has successfully decreased the birth rate, that is the
number of children per reproductive age woman (15-49 years) or the Total Fertility
Rate (TFR) had decreased from 5.6 children per women in 1970-s to 3.0 in SDKI
1991, and become 2.8 in SDKI 1997, and at last to 2.6 children per woman in SDKI
2002-2003.

The relationship between the Family Planning Program and the population number is
shown from the efforts above. In line with the increase of people's socio-economic
degree, the family planning program has taken part to decrease the population growth
rate in the past three decades. Based on Population Censuses (SP) 1990 and 2000, the
number of Indonesian population was 179.4 million and 206.2 million respectively,
with population growth rate of 1.48 percent in the period of 1990-2000, or lower than
that of in the period of 1970-1980 (2.32 percent) and the period of 1980-1990 (1.97
percent).

5. Family Planning Network and Institutional Strengthening Program is aimed at

improving self-support as well as the scope and quality of Family Planning and
reproductive health , primarily those undertaken by the community.

In early 2004 there were recorded Rural/Urban Community Institutions (IMP) as

follows: 80,533 Village Family Planning Assistant Supervisors (PPKBD), 363,066
Sub-PPKBD and 749.034 Family Planning Groups having participated in as the
spearhead of Family Planning in the field.

The efforts to improve the Private Family Planning Network that consists of Family
Planning Clinics, doctors and private midwives giving family planning services to
community were recorded at 51,470, consisting 2,920 Private Family Planning
Clinics, 10,195 Private Doctors, and 35,478 Private Midwives. The proportion of the
patients serviced by this private services had been increasing from 41.9 percent in
SDKI 1997 to 62.5 percent in SDKI 2002-2003, and the majority of them were held
by private midwives.

Housing

Housing development constitutes a major concern of the Government to improve the

people's living standard, particularly of economically low income bracket, by owning
proper and healthy houses. Under the 1999-2004 National Development Plan, housing
policy aims to: (1) meet demand for appropriate and affordable houses, particularly by
people of low income bracket; (2) encourage the development of large-scale residential
areas through schemes of ready-to-be built housing areas, and of separate unit of ready-
to-be built environment; (3) promote the development of simple high-rise apartments for
people of low income bracket at urban areas with high population density, industrial areas

200
and trading areas; (4) promote sound environment at residential areas; and (5) help
recover the living of refugees, and victims of natural disasters or calamites through the
establishment and rehabilitation of damaged houses and their environmental
infrastructures and facilities.

During the period 2000-2004, there were 378,297 homes built for people of low-income
bracket under a mortgage, which is a system of installment purchase through loans from
some sources (banks etc); 474,602 homes constructed under micro-mortgage scheme;
66,573 homes erected by home owners. In addition there were a number of simple
apartments having 6,114 units of homes constructed at urban areas; slum clearance of
3,742 ha through the supply of micro-mortgage for 6,000 units; and renovation of
191,968 homes having historical values or traditional styles covering 641 ha in 145 areas.

The number of owner-occupied homes keeps growing, and so does the number of rented
dwellings. However, there are problems to face in addressing the housing supply and
conditions, among other things: about six million heads of families still do not own
homes, about 800,000 homes need to be built to keep pace with the country's population
growth, limited economic capacity of the said families (some 70 percent of them earn less
than Rp1.5 million per month), the increase of slum dwellers to about 17.2 million
persons in 10,000 locations, and not-healthy-for-occupation homes numbering about 14.5
million (28.22 percent of the total)

In tackling the short supply of housing, the central Government strives to improve the
effectiveness of housing development programs and maintain synergy with regional
administrations, business circles and the communities, to utilize efficiently and
effectively plots owned by regional administrations (provinces, districts and
municipalities) to be used for simple but healthy homes and high-rise rented apartments;
to simplify procedures to get permits; help to make access to financial institutions to
obtain low-interest credits through a mortgage; and utilize foreign loans efficiently and
effectively.

Scheme of Building One Million Homes

In supporting the scheme of building one million homes per annum during the period of
2004-2020, which was launched in October 2003, subsidies have been made available.
Those homes, and high-rise apartments, simple but healthy to be occupied, are for people
who still do not have their own homes or apartments with low income or unfixed
earnings. The homes are of the sizes from 21 sq. meters to 36 sq. meters worth ranging
from Rp21 million to Rp36 million per house.

For 2004, there are 27 banks ready to provide subsidies to finance the construction of
112,000 homes out of 200,000 homes being the target to be built in the year. In this
context the Government allots Rp420 billion to subsidize the disparity of bank interest
those banks should bear for the construction of 150,000 homes. The subsidies, provided
under a mortgage system, are given to people with earning less than Rp1.5 million per

201
month. It means they each get financial aid ranging from Rp2.4 million to Rp3.5 million,
and credit interest of six percent to ten percent.

Also in 2004 the Government built 160,000 homes for civil servants, personnel of the
Indonesian Armed Forces (TNI), and members of the Police to improve their living
standard. Cross-subsidies along with their housing savings managed by a Housing
Savings Supervision Agency will help finance the construction cost.

So far there are 101 district/municipal administrations willing to build homes for civil
servants in their respective areas, of which 27 administrations have signed agreements
with developers.

To pay the down payment of the housing construction, the agency earmarks about Rp 2.2
trillion. A 11-percent interest per annum is offered by the agency to housing developers.
Every civil servant has the right to get a subsidized home credit on condition he or she
has been a civil servant for five years and his or her age no more than 50 years.

The agency has set a target to set up 100,000 homes for civil servants, by maintaining
cooperation with regional administrations and developers. During the past ten years, the
agency has financed the construction of only 752,128 homes or averaging 75,000 homes
per annum. To accelerate the supply of housing since 2002 the agency has offered
housing builders loans under the Home Construction Loan Scheme, and the Home Down-
Payment Loan Scheme for first-time home buyers. The total number of civil servants is
3.5 million, of whom 1.5 million have no homes of their own yet.

Development of Property

The past few years have seen a substantial growth in the property sector. In 2000,
capitalization of national property projects swelled by 83.15 percent, from Rp5.58 trillion
to Rp10.22 trillion. This sector was suffering a great loss when the country was hit by
monetary crisis in the middle of 1997.

The trend of property business in 2003 was astonishing: it grew by 87 percent from
Rp25.79 trillion in 2002 to Rp45.90 trillion in 2003. In the same year property business'
contribution to the country's GDP was 2.34 percent. Following suit was the number of
housing developers that increased from 1,000 establishments in 2002 to 1,300
establishments in 2003, or a rise of 30 percent.

Demand for property during the first quarter of 2004 showed a rise in many sectors.
Demand for office space noted a rise of 160 percent or 220 sq. meters from 8,600 sq.
meters during the final quarter of 2003 to 10,500 sq. meters in the first quarter of 2004.

The same trend occurred in rented apartment new-occupation when the number increased
to 243 units during the first quarter of 2004, from 176 in the previous year. Cumulatively
the number of rented apartments was 14,936 units. Condominium occupation grew at
83.1 percent, to reach 22,753 units out of 27,368 units having been constructed.

202
Stimulating the rapid growth of property in 2003 was the decline of the SBI interest rate
from 13.2 percent in 2002 to 10.3 percent at the beginning of 2003, making housing loan
interest relatively lower or cheaper. It was followed suits by Bank Tabungan Negara
(BTN-the State Savings Bank) that lowered its housing loan interest to 15 percent from
previously 18 percent.

Women Empowerment

The government has arranged three programs on the position and role of women; they
are:

• Women Life Quality Improvement Program, that is aimed at improving the position
and roles of women as individuals, both as development human being and sources; as
part of family setting up recent and future generations; as social being acting as agent
of social change in all aspects of life and development.

• Women Empowerment Policy Suitability and Development Program that is aimed at

realizing suitability in all policies of women empowerment in all fields of
development.

• Empowerment of People's Role and Gender Mainstreaming Institutions Capability

Program, that is aimed at improving the role and independency of institutions having
the vision of women empowerment especially that of women organizations;
strengthening active roles of the people in the efforts of enhancing women
empowerment; developing the capacity and ability of government institutions in
Improving gender mainstreaming in all phases of development process.

Some results of the programs of women life quality improvement in 2001-2004 include:

The Gender-related Development Index (GDI), which measures the quality of human
development related to gender showing increased rank from 92 out 162 countries with
index of values of 0.671 in 2001 to become rank of 91 out of 175 countries with index
values of 0.678 in 2003.

In health development, the Government has increased the efforts to improve the quality
and scope of health service to reduce high mortality rate of women delivering babies,
especially in rural areas and slums in urban areas, through Love Mother Movement
(GSI), Love Mother District, Love Mother Hospital, and Husbands Readiness-to-help
Campaign. Other supporting programs are Developing Family of Children under Five
years, Youth of Girl Movement, Working of Women Movement, and Breast Feeding
Care Movement.

Through Family Planning Program, the exiting policy is directed to increase service of
men to be able to actively participate in Family Planning Program, improving male
contraceptive services, and developing family development approach with emphasis on
health and reproduction rights.

203
In education development, scholarship grant for girl students has decreased the number of
drop-out girl students. The data from the National Socio-Economic Survey (SUSENAS)
show that the percentage of literate women had increase from 91.4 percent in 2000 to
become 92.9 percent in 2003.

Women's role in economic development showed the increase of women's work

participation rate (TPAK) from 42.83 percent in 2001 to 44.81 percent in 2003
(SUSENAS 2001 and BPS 2003).

Some programs implemented to increase women empowerment in the economic sector

are among others: Family Empowerment Program (PPK) with activities including
productive economic business and infrastructures development that have been
implemented in 20,000 villages, 187 districts, and 26 provinces (year of 2003). The
efforts to improve women economic well-being has also involved the banking system, by
establishing special working unit to handle credit for small and medium enterprises
empowerment of the real sector of businesswomen, mapping of business, potential
partnership, and financial relation facility (credit and saving) between businesswomen
and banking.

In political development, a women caucus in parliament has been established to express

women issues, and improve women involvement and awareness to participate in political
activities. Law No.12 of 2003 concerning General Elections to Elect Members of the
House of Representatives, the Regional Representatives Council, and the Regional
Houses of representatives has given opportunity for women to participate more actively
in political sector. The result of the 2004 General Election shows that women
representation in the House of Representatives has reached 11 percent or an increase
compared with 9 percent in previous General Election. In Regional Representatives,
women politicians are about 19.8 percent. In executive institution, women in First and
Second Echelon posts had increased from 9.9 percent in 2001 to become 13.25 percent in
2003.

To support public policy backing up gender mainstreaming, in the period of 2001-2004

the Government has conducted some studies concerning implementation of leave for
women who deliver babies for women workers in the formal sector, opportunity to
continue study for pregnant girl students, social insurance for women workers informal
sector, and fight against people trafficking especially women and children.

In the field of women protection, the Government has implemented coordination and
cooperation with related parties in arranging policy on women worker protection,
including women migrant workers, protection to women trafficking victims, and
protections to women as victims of household violence. To protect Indonesian workers,
especially women workers who work abroad, some efforts have been implemented, such
as establishment of services of Indonesian workers in receiving countries, improvement
in protections agreement for Indonesian workers in receiving countries, improvement of
recruitment process until departure, and preparation of bill on Indonesian Workers
Placement Abroad.

204
In relation with the effort to improve health, the Government has improved policies to
expand and revitalize Love Mother Movement Plus, which includes health of new born
babies and improvement of breast feeding, institutional management and network of the
Love Mother Movement, public education on reproductions health, including HIV/AIDS,
and development of gender equality and fairness in the field of reproductions health in
family.

To cope with violence against women, in 2001 the Government together with people has
built commitment through Declaration of Joint Commitment of Indonesian Country and
People for Eradication for Violence against Women. Nowadays the Bill on Anti-Violence
against Women that initiated by the House of Representatives has been passed.

The effort was followed by arrangement and implementation of the National Action Plan
of Eradication of Violence against Women (RAN PKTP). To give protection and service
to the victims of violence against women, the Government has established One-Stop
Crisis Center in some big hospitals in 10 provinces. Since 2002 the efforts were extended
by building crisis centers in some districts and 163 Specials Services Rooms in 19
Regional Police and Resort Police in some districts in Indonesia. Besides, the
Government also held women detective training to cope with victims of violence against
women involving policewoman from 21 Regional Police Commands in Indonesia.

To prevent and cope with the problems of trafficking in women and children, the
Government has issued Presidential Decree Number 88 of 2002 on National Action Plan
on Eradication of Trafficking in Women and Children and Presidential Decree Number
87 of 2002 on National Action Plan on Eradication of Commercial Sexual Exploitation of
Children.

In the efforts to strengthen regional, provincial, and district/city institutions, the

Government has established some working units dealing with women empowerment. To
institutionalize the gender mainstreaming, the government has established the Forum of
Gender Equality and Fairness (KKG) in national level, women empowerment institutions
in all provinces and its initiative in 235 districts, focal points in 37 ministries and non-
ministerial institutions, the Attorney General Office and Indonesian Police Headquarters.
A number of 123 institutional networking of Women Study Centers (PSW) have been
established to be able to actively participate in giving inputs to regional governments.

People participation in coping with the problems of women and children in refugee sites
has proved to be helpful for victims of social conflicts. It was realized by establishing the
Integrated Service Centers of Women Empowerment (P2TP2), which until 2003 stood in
7 provinces. To cope with pornography and porno action, the Government has drawn a
Bill on Anti Pornography and Porno Actions.

205
Youth, Sport, and Drugs Abuse Control

Taufik Hidayat, the only Indonesian athlete who grabs gold medal in Athens Olympic
Games

Sports

In accordance with the direction of the Guidelines of State Policy and National
Development Program 2000-2004, the development of sport is aimed to realize sports
policy harmonization in various fields of development, to improve physical fitness of the
people, and to improve the efforts to foster and guide prospective athletes since the early
age.

The National Sports Committee of Indonesia (KONI) consists of members from various
branches of sport divisions, of about 33 sports committee members at the provincial
level.

In general, the national sports development policy is marked by some priority themes,
that is that sports is an instrument of nation's integrity, vehicle for the process of value
transformation of national culture, mastering the competency of social skills, and human
intelligent forming in macro meaning, and creativity, and self confidence.

The XXIXth National Special Conference of KONI in Jakarta in 2004 has declared
important pointers through its Work Programs, as follows:

• To make sports a means of national cohesion and unity in upholding national values and
dignity in international fora.

• To support the birth of the Sport Act.

• To improve potential/talented young athletes development.

• To prepare the best Athletes in taking part in the 2004 Olympic Games in Athens.

206
• To prepare the best Athletes to the event of the 2006 Asian Games.

• To prepare implementation of the 2004's XVI PON National Sport Games in

Palembang, South Sumatra Province, and the 2008's XVII PON in East Kalimantan
Province.

The "Indonesia Bangkit" Program

In line with the long-term development series of "Garuda Emas" (Golden Eagle), the
Achievement Development Program of the Central KONI is focused on the successful
implementation of the "Indonesia Bangkit" (Indonesia Rises) Program, especially in
facing some international events namely the 2004 Olympic Games in Athens, the 2004
Paralympic Games in Greece, the 2005 Solidarity Games in Saudi Arabia, the 2005 First
Indoor Asian Games in Bangkok, the 2005 Arafura Games 2005 in Darwin, Australia, the
XXIII SEA Games 2005 in the Philippines and the 2006 ASIAN Games in Qatar.

The "Indonesia Bangkit" Program is a short-term program of the Central KONI in

preparing Indonesian athletes contingent in some sports branches which has been
predicted and evaluated to have potential to win gold medals in the 2004 Olympic Games
in Athens, the 2005 SEA Games in the Philippines, and the 2006 Asian Games Qatar,
namely the priority sports development in: badminton, archery, lawn tennis, athletics,
cycling, chess, karate, sailing, beach volley, taekwondo, and weight lifting.

Training Center for Student Sportsmen (PPLP): These centers are located in 30
provinces, namely training center for 16 sports branches for regional, national, and
international level. The sports branches are: fencing, pencak silat (martial arts), athletics,
football, takraw, lawn tennis, archery, wrestling, rowing, table tennis, cycling, volley ball,
diving, swimming, and boxing, and some of which are prepared for international level,
namely fencing, athletics, football, takraw, archery, wrestling, diving, and boxing.

Training Center for Higher Learning Student Sportsmen (PPLM): These centers are
located in seven provinces, namely in DKI Jakarta, West Java, Central Java, Special
Territory of Yogyakarta, East Java, North Sumatra, and South Sulawesi. The centers are
for sports development for regional and national level for athletics.

Anti-Doping Agency

As an effort to keep sportsmanship and values of sports out of bad actions damaging
sports images, the Ministry of National Education has established the Indonesian Anti-
Doping Agency (LADI) on August 6, 2004 in Jakarta, which consists of professionals,
medical doctors and lawyers.

The LADI, was established as follow-up action of the anti-doping in sports declaration on
March 3-5 2003, in Copenhagen, Denmark, as obliged by the World Anti-Doping
Agency (WADA) established by the Montreal-based (Canada) International Olympic
Committee (IOC) in 1999.

207
For the short term, the LADI will socialize the existence of this agency and act as an
official agency for the 2004's XVI PON in South Sumatra. And for the long term, the
LADI will organize education for medical doctors in monitoring doping application.

Drugs Abuse Control

The rising trend of drug abuse, illicit production and trafficking remains one of
Indonesia's serious problems and has become a national concern. Indonesia is indicated
as one of the destinations for illicit drugs and producer of synthetic drugs, and facing
much more serious illicit drugs and organized crime problems then ever before. In fact,
within the past five years, the most serious aspects has been the rapidly rising incidence
of HIV/AIDS among injecting drug users.

The Government focal point in Indonesia is The National Narcotics Board of Indonesia
(NNB). As stipulated in Article 1 of Presidential Decision No. 17/2002, the NNB is
directly under the President of the Republic of Indonesia, with the National Police Chief
as the NNB Chairperson. It is supported by 25 government ministries and agencies. The
NNB has the tasks to formulate and implement policies related to drug demand and
supply reduction, at the same time to implement preventive and control measures and
activities to prevent and eradicate the abuse of illicit trafficking in drugs through its Task
Forces/TF composed of relevant government agencies. There are four TF's Centers of
Prevention, Law Enforcement, Treatment & Rehabilitation, and Research &
Development.

Non-Government Sector- "Badan Kerjasama Sosial Usaha Pembinaan Wargatama",

known as BERSAMA is the Organization of Indonesia's Focal Point of Non-Government
Agencies. As a coordinator agency, BERSAMA is an umbrella of all Indoensian non-
government organizations/NGOs related or the agencies which have activities in drug
abuse prevention, treatment facilities, rehabilitation centers and guidance & consultation
programs. BERSAMA has also a special coordination forum in regional and international
level.

On the other side, the Government has also revised Law Number 5 of 1997 on
Psychotropic Substances and Law Number 22 of 1997 on Narcotics, and is expected to
give firm and comprehensive law enforcement in facing drug problems in the country.

The facts above, however, do not and will not stop or discourage the Government of
Indonesia in continuing to pursue its strong commitment in fighting against drug abuse,
especially in implementation of DRUGS FREE ASEAN in the year of 2015.

208
ENVIRONMENT

Development in the field of environment as it is envisaged in the 1999-2004 National

Development Programs aims to exploit wisely and prudently natural resources for the
benefits of the people by improving equitable and sustainable people's welfare in term of
improved and healthy quality of environment.

It is realized that pressure against the environment is mounting up chiefly due to varied
and different causes and interests. Excessive timber cutting and slash-and-burn farming
system for instance have been bringing about high degree of forest destruction, making
critical lands enlarge almost uncontrollably. Almost a similar situation happens at sea and
under the sea. Reckless and irresponsible disposals of industrial and mining wastes to the
sea in many places have already polluted those places, resulting in the destruction of
coral reefs and other marine biota including fish species. A number of rivers and creeks
or inlets particularly at urban areas are being polluted because of waste disposals from
industries and households which have not yet been treated well by using modern method
and sophisticated technology. High degree of pollution is also happening particularly at
big cities due to primarily gas emission from motorized vehicles.

In addressing the problems, the Government, hand-in-hand with NGOs concerned with
the issue, has made short-and long-term action plans and development schemes.

For long-term, relevant action plans have been formulated to include the arrangement of
natural resources and environments balance sheet, studies on `green gross domestic
products", studies on the application of green tax model, making draft of bill on natural
resources management, studies on funding scheme through debt-for-nature swap (DNS)
and clean development mechanism (CDM), and promotion of the role of communities in
managing, controlling and monitoring natural resources.

For short-term environmental development, action plans are focused on schemes of:
development and improvement of access to information on natural resources and
environments; enhancement of effective natural resources management, conservation,
and rehabilitation; protection and control of environments against destruction and
pollution; institutional management and environmental preservation; and improvement of
the role of community in natural resources management and environmental preservation.

Access to Information scheme

The scheme is aimed at disseminating complete and comprehensive information on

potentiality and productivity of natural resources and environments after being
inventoried and assessed and evaluated. By the scheme the public may have ample access
to get information on natural resources and environments in form of spatial data, value
and balance of natural resources and environments. The ideas of the scheme are that
natural resources and environments as well as their supporting forces to be managed well
and preserved for the benefits of the people's welfare from one generation to another, and
that the country's economy to be developed on its comparative superiority as a maritime

209
and agrarian state capable of producing superior products as output of every region
within this country.

Under the scheme, it is sought out to improve information technology, one of the major
lacks to intensify the implementation of action plans, to make all available resources,
including those of maritime with its limited infrastructures and facilities as well as
accessible data, identified properly.

As of 2001 a system of management information on environmental impact analysis has

been put into operation, and its data are accessible to the public in the provinces of West
Java, Central Java, Bali, Southeast Sulawesi, Papua, West Kalimantan, Central
Kalimantan, and South Kalimantan. The establishment of website, which also caters
public complains, and the publication of magazine "SERASI" both dealing chiefly with
issues on environments, have been part of the scheme, and the implementation of Agenda
21. In addition, the 2000 State of Environment Report featured environmental situation
and status in Indonesia.

There are also accessible data on evaluation of potentialities of forest resources, fresh
water, sea waters, and minerals. Besides doing geological mapping and studies,
inventories of mineral resources have also been done by composing or drawing varied
maps, including geological and geophysical maps, composing data base of mineral and
coal resources.

For 2002, various environment-related activities were carried out to make among other
things data on non-informal mining undertakings and unlicensed mining undertakings,
inventories on fresh water resources, and arrangements of maps of land water curves as a
basis for of socio- economy, and natural resources spatial management. In attempts to
protect national biological varieties, a concept of biological variety clearance house
mechanism has been composed. The counting of natural resource balance has been
conducted by doing experiments on benefits they can offer, and arranging balance of
mineral and coal resources. Other activities included doing advanced inventories on
mineral resources by systemic ocean geological mapping, examining South Sumatra and
Kutai curves, making inventories on metal and non metal minerals, and inventories of
coal and peat moss potentialities.

In 2003, data on natural resources and environments were updated. It included additional
inventories of wild animals, data on sea sand at Riau Islands, data on potentialities of
geothermal and renewable energies, environmental geological mapping and land water
conservation.

Related activities worth recording in 2004 included the finding of several places
identified as important habitats for protected species; the making available information
on fertile fishing grounds for fishermen and cooperatives as well as fishing enterprises on
regular basis; promotion of information system on integrated marine and fish farming
developments; survey on marine geology at the Sunda Shelf, at part of the Malacca Strait,
and at the seas of Riau, West Kalimantan and East Kalimantan; dissemination of

210
information on potentialities of mineral resources, coal, peat moss, solid bitumen,
geothermal, volcano, and underground waters; completion of geological and geophysical
mappings, and geological and geophysical research and development in the field of
geological catastrophes or calamities; improvement of volcano monitoring technology;
arrangement of blue print of volcano catastrophic mitigation as the foundation for
planning of national volcano mitigation system; and socialization of policies on
geological calamity and potential geological calamity in Indonesia.

Management Effectiveness Scheme

This scheme underlines the urgent need for maintaining the balanced proportion between
the utilization and preservation of natural resources and environment, with the aim of
utilizing natural resources in efficient and sustainable way to meet the needs of industries
for raw materials. The scheme is also sought out to make conservation areas being
protected from any destruction as a consequence of excessive and uncontrolled
exploitation. And improved utilization of natural resources and environment through
natural resources conservation and rehabilitation by using environment-friendly
technology has been what the scheme does require.

Meanwhile lingering unfavorable conditions to be addressed in implementing the scheme

are among other things: the public's poor understanding on the importance and beneficial
values of marine resources and sea fish species; lackluster law enforcement against
offenses occurring in exploiting resources of sea fish, forestry, mining; unsmooth
implementation of spatial management, and control of environmental pollution at marine
and coastal ecosystem, forest areas, and mining areas; unbalanced proportion of fish
stock distribution; and the yet-to-be optimum development of cultured fish farming and
development of islets.

In cultivating and managing sea weed, cooperation with foreign institutions concerned
with marine development continues to be maintained and promoted, such as those with
the BILB of Germany and the CEVA of France, and with related organizations in the
People's Republic of China, Thailand, and the Philippines in fish catching.

Under the conservation and rehabilitation scheme, reforestation areas have been
expanded along with recovery of coral reef at several locations. In addition some
preparation works have been going on for the designation of Kakaban Island in East
Kalimantan as area of marine conservation, and Banda Island as the world's heritage site.
Studies on environments and marine geological calamity at coastal areas and seas have
been and are being conducted.

In the context of preventing and reducing the area of critical land, a 1,125 ha mangrove
reforestation program has been carried out at Segara Anakan region, and regreening at
Cikawung and Cimeneg river banks. The Government has also launched campaign
scheme for reforestation of national forest and rehabilitation of critical lands covering a
total area of 300,000 ha.

211
In improving and maintaining marine biota, it has been endeavored to rehabilitate
damaged coral reefs and implant artificial coral reefs, to develop national marine parks
and marine conservation areas, conduct inventory on newly designated marine
conservation areas by using marine ecosystem unit approaches, promotion of
environment-friendly cultural system at damaged green areas through mangrove-fish
farming, development of communal-based management of coastal areas and islets, and
designation of geological protected areas and mining areas.

Prevention and Control Scheme

The scheme of Prevention and Control over environmental destruction and pollution aims
to improve the quality of environments in a bid to prevent environmental pollution, and
to recover spoiled environments due to excessive exploitation of natural resources and
environment-unfriendly activities of industries and transport, to make the environment
healthy, clean and fresh. It underlines the application of indicators enabling the
preservation of renewable natural resources to avoid unrecoverable damages.

Attainable achievements made under the scheme have included investment in equipments
to support preventive efforts of environmental pollution, provision of soft-loans to a
number of companies to encourage them to use environment-friendly technology, the
making of master plans for cleaner river program, socialization of environment-friendly
technology for small-scale industrial undertakings, provision of designs for small-scale
waste water disposal treatment installation rehabilitation, publication of directives to treat
waste of oil and gas products, manuals to handle waste of chemical industries, of hotels
and hospitals and many others.

Scheme for Institutional Arrangement and Law Enforcement

The main concern of this scheme are the development of environmental institutions, the
arrangement of legal system and law enforcement to secure, preserve natural resources
and environments and protect them from illegal practices or exploitation.

Pursuant to the 2000-2004 National Development Programs, the scheme stresses on

gradual transfer of authority from central to regional administrations in managing natural
resources and environments.

Achievements made under the scheme included the reviews and recomposing of various
regulations and bills related to matters of natural resources and environments, the
maintenance of cooperation between the government institutions concerned with
environmental issues and non-government environmental organizations, domestic and
overseas, in promoting the preservation of environments, promotion of status for a
number of technical executing units under the Directorate for Forest Protection and
Nature Conservation, the Ministry of Forestry, to be Natural Resources Conservation
Offices and Offices of National Parks, and recomposing directives for the management of
lakes, manuals for the management of land rehabilitation and land conservation,

212
economic evaluation models for natural resources and environment, the documentation of
fauna and flora identities per district and municipality, etc.

Improvement of Communal Role Scheme

The scheme aims to improve the role and awareness of parties concerned with prudent
and wise management of natural resources and efficient and effective preservation of
environment. The scheme gives emphasis on the greater utilization of natural resources
and environments for the broadest possible benefits to the people without neglecting the
preservation of function and balance they should hold.

In empowering members of the communities, training and up-grading courses have been
organized, such as training to prevent and control destruction of mangrove forests,
trainings for cultured mangrove-fish farming to develop a system of communal mangrove
preservation. In addition, it has been sought out to involve members of the community in
establishing partnership mode at river basins, partnership with gold miners at Gunung
Pongkor, forum for ecosystem-based environmental management and many others.

DEFENCE AND SECURITY

Policy in the development of defense and security, as the 1999-2004 Guidelines of State
Policy outlines, is more directed towards: (1) restructurization of the Indonesian Military
pursuant consistently to its new paradigm through reposition, redefinition, and
reactualization of the role the Military should play as the tool of the state to protect,
maintain, and defend the unitary state of the Republic of Indonesia against any treat from
within and outside by respecting human rights; (2) capability enhancement of the people's
total defense and security system based on the might composing the society, military and
police as the main elements, which is supported by other components to improve state
defense; (3) the military professionalism improvement, and development of state defense
and security might which is supported by appropriate facilities, infrastructures and
budget; (4) expansion and intensification of bilateral cooperation in the field of defense
and security in a bid to maintain regional defense and security stability, and to participate
actively in maintaining the world's peace and order; (5) completing separation scheme of
the Police from the Indonesian Defense Forces (TNI) and improvement of
professionalism of the Police as the state instrument tasked to enforce law and order, to
protect and guard the public.

Improvement schemes have been taking place at all components of the state defense
might, with the defense forces and the police as its core, to strengthen the might and
capability of defense and security.

Initiating systematic and well planned development of the defense and security
components have been the arrangement and improvement of all related statutory
regulations as the manifestation of the People's Consultative Assembly's Decree No.
VI/MPR/2000 of 2000 on the separation of the Police from the Indonesian Defense
Forces, Decree No. VIII/MPR/2000 of 2000 on the role of the Indonesian Defense Forces

213
and the Police, Law No. 2 of 2002 on the Police of the R.I, and Law No. 3 of 2002 on
State Defense.

Ever since the reformation era taking place, the country's defense and security system has
undergone a substantial transformation. So have basic paradigms of the Indonesian
Defense Forces as the mighty pillar in the defense system, and of the Police as the
element to maintain security and order. The Military and the Police do not play their
dual-function role (defense-security and social functions) any more. As of 2004, they
cease their political role, and will have no more appointed representatives sitting at
legislative bodies, but striving to be professional in their respective field and being
credible.

With the country's very vast and rough geographical condition under its protection and
surveillance while its personnel have to readjust their behavior-and mentality to the new
paradigms, the TNI has been continuously repositioning its stand in shouldering the task
and responsibility to defend the country and the nation. So do the Police to maintain
security and order, to enforce law, and to give the public appropriate protection and
services. By taking each role as the national defense guard and security guard the TNI
and the Police are expected to be able to play a role in maintaining the nation's unity and
integrity.

In developing and maintaining defense and security there have been adopted a number of
development schemes grouped into main development schemes of state defense;
supporting defense, public security and order maintenance, and domestic security
promotion. To manage the schemes defense budget allocation for the year 2004 saw a 15
percent rise compared to that of 2003, namely from Rp11.536 trillion to Rp13,266
trillion. Of the total budget in 2004, Rp10.721 trillion were mostly allocated to finance
the operational units and procurement and maintenance of defense equipment.

State Defense Development Scheme

The scheme is designed to build the might of state defense in proportional and gradual
way in the context of establishing the mighty

President Megawati Soekarnoputri inspects parade during a commemoration of the State

Defence anniversary day
214
state defense which is professional, efficient, effective, and modern with high quality and
mobility so that it can be deployed in a relatively short time to all corners of the country.
It aims to maintain the capabilities and might of the Defense Forces, and improve the
operations of their existing prime aims system to create a complete and credible might.

The country's defense policy covers the developments of system, personnel, equipment,
and facilities materialized through development of the army, navy, and air force
dimensions. The Government attaches high priority to making the most effective use of
defense personnel and equipment to be capable of deterring enemies, rebels, and
separatists.

The Army

As the defense might at land, the Army in 2004 (up to first quarter) had personnel
totaling 274,061, consisting of 29,963 commissioned officers, 114,486 noncommissioned
officers, and 129,612 lower noncommissioned officers.

To improve its military equipment, the Army has procured transport-combat MI-35
helicopters and personnel transport MI-17 helicopters, communication services night
vision goggles (NVG), in addition to maintaining services of aircraft, combat vehicles,
and artilleries. Besides, it has also pursued to retrofitting combat vehicles, and
repowering canon dragging vehicles, as well as aircraft maintenance services to prolong
their operational services.

The Navy

Commissioned to protect the country's waters, the Navy is developed to have mighty
marine equipment and marine corps. The total number of the Navy's personnel up to first
quarter of 2004 was 55,541, consisting of 7,567 commissioned officers, 23,356
noncommissioned officers, and 24,528 lower noncommissioned officers.

In improving its defense power, the Navy has procured KAL-12M type warships, and
KAL-28M warships. It also plans to add its might by purchasing four corvettes from the
Netherlands, and four landing platform deck (LPD) warships from South Korea.

Naval forces, while capable of operating through the country's territorial waters as
required, are concentrating their operations around the Malacca Strait to the Natuna Sea.
Naval operations are classified into: the prioritized operations safeguarding the Natuna
Islands and the Sangihe-Talaud Islands; selected operations, protecting vital objects, and
maintaining coordinative patrols with neighboring countries such as Malaysia, the
Philippines, Singapore, and India; and preventive operations, deploying intelligent
operations and clandestine operations; repressive operations, to launch anti-terror
operation; Naval military supporting operations to support shifting of naval personnel
deployment; and Police supporting operations, supporting operations at Maluku and
Papua.

215
The Air Force

With total personnel of 25,732 consisting of 6,548 commissioned officers, 11,871

noncommissioned officers and 7,313 lower noncommissioned officers and a number of
combat and non-combat aircraft as well as other supporting equipment the Indonesian Air
Force fulfils various operational roles to protect and secure air defense.

The Indonesian Air Force' might consists of 15 air squadrons, three training squadrons,
16 radar squadrons, six "Special Force" squadrons, seven technical squadrons, and seven
maintenance depo squadrons.

In improving its might, the Air Force continues to procure new aircraft to enhance air
defense including the introduction into service of 16 Hawk 2000 aircraft, four Sukhoi
(two SU-30 and two SU-27) combat aircraft, and 16 NAS-332 aircraft and three CN-235
KPA aircraft, 12 Colebri EC-120 trainer helicopters, and seven KT-1 trainer aircraft. It is
also continuing the repair program of F-16 aircraft, and overhauls of Puma SA-330
helicopters.

Supporting Defense Scheme

The scheme is designed to make the use of modern management more professional, and
to improve the capabilities of promoting and utilizing state territory, conducting national
surveys and mapping, and maintaining international cooperation in the field of defense.

The scheme underlines the importance of good management of human resources, natural
resources, and artificial resources to help the organization of state defense. Parallel with
the organization of state defense, promotion and nurturing awareness of any Indonesian
citizen's responsibility to participate actively in state defense have been conducted by
empowering social organizations.

In maintaining the unity of the Republic, various activities have taken place, including
surveys on and determination of borderlines with Malaysia (at Kalimantan-Sabah
border), with Papua New Guinea, and with Timor Leste, and international military
cooperation with members of ASEAN, and countries at the Asia-Pacific region in the
context of maintaining regional as well as international security stability.

Scheme of Security and Order Maintenance

The main aim of this scheme is to realize the organization of security and order system to
enable the system to protect the public from any disorder and disturbances, pursuant to
the operative statutory regulations. Under the scheme, it has been always pursuing the
improved professionalism and readiness of the police to uncover any case, and the
developed might of the Police, including the ratio between the number of the police
personnel and the number of the public to serve.
216
In promoting the Police might seven basic conceptions have been introduced to promote
the Police's self-reliance. The conceptions are on the Police doctrine and ethics, logistics,
personnel and training operation, management, budget, and on legal affairs and statutory
regulations.

Various trainings continue to be organized for the Police personnel, either at home or
abroad, to improve their professionalism, in addition to tightening the control and
upholding discipline of the personnel in doing their jobs as well as to impose reward-and-
punishment system.

It has been always pursued to maintain the operative quality of their rather out-of-date
equipment, such as communications devices, motorized vehicles, aircraft and helicopters,
etc.

Pursuant to Presidential Decree No. 70 of 2002, the Police have set up a Security
Intelligence Agency tasked to deal with state security and safety and to give input to the
State Intelligence Agency that handles any threat from inside and outside.

It is the priority concern of the Police to maintain and restore security and order in some
conflict-torn areas such as in Aceh, Papua, and Maluku, and to hunt down and arrest the
doers and masterminds of bomb attacks.

In fighting against drugs, including drugs trafficking, the Police established in 2002 the
National Drugs Agency with the authorities to formulate policies, strategies on the
eradication of drugs trafficking, and to carry out programs of preventive actions therapies
and law enforcement against drug users and traffickers. Under the drugs operations
launched during the first quarter of 2004 the Police had succeeded in uncovering 795
cases of illegal use and trafficking of drugs that involved 1,077 suspects including 14
foreigners. Some 2,293,460 grams of narcotic substance, 862,671.5 tablets and 488 bars
were seized.

Domestic Security Development Scheme

Improved capability in safeguarding the national legal territory, and in handling domestic
security disturbances by deploying all components of the state security might is the main
aim of the scheme. The scheme is also directed towards the creation of a system that
promotes cooperation between the Police and the Indonesian Defense Forces as well as
related bodies in facing security troubles threatening the unity and integrity of the nation.
Steps taken under the scheme are to uphold and maintain law enforcement, and take strict
actions against rioters, including bomb attackers in the Kuta-Bali, J.W. Marriot Hotel,
Kuningan (in front of the Australian Embassy) bloody incidents.

217
Security Problems

The most serious problems in the field of security the Indonesian Government is
currently coping with are the armed separatist movement in parts of the Provinces of
Papua and Nanggroe Aceh Darussalam, and terrorism.

Aceh

In dealing with the issue of Aceh, the government has exerted every effort to settle the
issue through a peaceful way by holding dialogues and negotiations with the Aceh armed
separatist movement. These included endeavors to hold the Joint Council Meeting (JCM),
which was properly speaking to be held in Geneve, Switzerland, on April 25, 2003.

The meeting failed to be held, but then another could be convened on May 18, 2003 in
Tokyo, but only to come to a deadlock.

The failure to reach an agreement with the separatist movement led to the issuance of
Presidential Instruction No. 28 of 2003 concerning the State of Emergency with the
Status of Material Law in the Province of Nanggroe Aceh Darussalam.

This military emergency measure has been the last choice after exhausting a series of
peace efforts by the government, be it through the granting the province with the status of
special autonomy, concerted approaches in more comprehensive development plans, or
dialogues held abroad. But neither could halt the intention and action of the Aceh armed
separatist movement to secede from the Unitary State of the Republic of Indonesia.

The implementation of the status of martial law takes in the form of a concerted approach
by carrying out humanitarian operation, law enforcement and empowerment of the public
administration, in addition to a security restoration operation.

The implementation of the status of martial law has been viewed successful since it has
succeeded in reducing room for action of the armed separatist movement, and granting
the majority of Aceh people an improved feeling of security and protection.

Papua

Law No. 21 of 2001 on Special Autonomy Status for Papua constitutes the best
compromise for a peaceful, modern and civilized life in the Province within the Unitary
State of the Republic of Indonesia. Substantially the law governs almost all life aspects of
the local communities, allows ample room to actualize political life and economic growth
and others related to the principles of justice and rights of the local people.

In early 2003, there was issued Presidential Instruction No. 1 of 2003 on the acceleration
of the implementation of Law No. 45 of 1999 on Formation of the Province of Central
Irian Jaya, the Province of West Irian Jaya, and the Districts of Paniai, Mimika, Puncak

218
Jaya, and Sorong. The instruction is the policy to improve the management of
administrative affairs and public services.

Terrorism

The tragedy of Bali bombings on October 12, 2002, not to mention a string of bombings
in other sites including the J.W. Marriott Hotel in Jakarta, claimed not only hundreds of
lives and untold material damage but also brought about negative impacts to either the
Bali Island's and Indonesia's tourism industries or the country's economic development.
This tragedy was noted in the Agenda of the UN Security Council in Resolution No. 1438
dated October 14, 2002, as an international terrorist action.

Aware of the terrorist actions of having always caused horrible consequences, major
casualties and indiscriminate destruction, there are no other ways then to condemn them
and at the same time to fight against and eradicate them. In line with this, the Indonesian
government among other things has issued Government Regulation in lieu of Law No. 1
of 2002 concerning Eradication of the Crimes of Terrorism and Government Regulation
in lieu of Law No. 2 of 2002 on the application of Government Regulation in lieu of Law
No. 1 of 2002 on the Bali bombings. In their later development the two regulations have
been adopted and promulgated as Law No. 15 of 2003 and Law No. 16 of 2003, which
give strong legal foundation to fight against terrorism. The issuance of Law No. 15 of
2003 and Law No. 16 of 2003 (though it was then nullified through a judicial review by
the Constitutional Court) showed that the Government and the Indonesian nation have a
strong commitment to persistently fight against terrorism, and will never surrender. For
that, the government is going to maintain close cooperation with other countries in the
fight against terrorism, both in bilateral and multilateral framework.

In addition, the government keeps on improving the mechanism of terrorism eradication,

and intensifying early detection efforts and deterrent actions.

Meanwhile, the Indonesian Police deserve to be given thumbs up for their successes to
uncover, capture and detain terrorist suspects, who had waged a series of terrors,
including the Bali blasts, in a relatively short time. Now some have even been sentenced
to death and life imprisonment.

The trial process of the Bali blasts, for instance, has been an indication to some extent of
the success of the government in coping with anarchies committed by a group of people
suspected of having connection with international terrorist networks.

219