June 26, 2015
Indonesia: Background and U.S. Relations
Overview
With a population of 253 million, Indonesia is the largest
country in Southeast Asia, the world’s most populous
Muslim-majority nation, and the world’s third largest
democracy (after India and the United States). Its size,
economic vibrancy, and democratic development have led
many observers to consider it an emerging power, whose
voice is increasingly influential on many global and
regional issues. Indonesia is an active member in regional
diplomatic institutions, and the de facto leader of the
Association of Southeast Asian Nations (ASEAN). It
straddles important sea lanes, bordering the Strait of
Malacca, one of the world’s busiest trade routes.
In 2014, the U.S. provided Indonesia with over $250
million in assistance, most of it going to health,
environmental, and educational initiatives. After the 2004
Indian Ocean tsunami, which devastated parts of Indonesia,
USAID spent $400 million on reconstruction projects in the
country, and the United States extended military assistance
including 12,600 military personnel to affected areas.
The United States maintains close relations with Indonesia,
and the bilateral relationship has broadened considerably
over the past decade, with closer military and counterterror
cooperation and a range of new educational, environmental,
and energy initiatives. Indonesian trade and economic
regulations, however, are a growing U.S. concern, and
corruption remains widespread.
Political Background
Indonesia has undergone a significant transformation since
1998 when a devastating financial crisis and widespread
riots led to the downfall of its longtime authoritarian leader,
President Suharto. Since then, the country has held three
direct presidential elections, each considered largely free
and fair. The most recent, in July 2014, installed Joko
Widodo as president, marking the first time one directly
elected Indonesian president succeeded another.
A former businessman and mayor, Widodo is Indonesia’s
first president not to have emerged from either the military
or an elite business family. He also is the first Indonesian
president whose political coalition does not hold a majority
in Indonesia’s Parliament. Rivalries between parties, and
even within Widodo’s PDI-P party, may complicate
governance in Indonesia over his five-year term.
U.S. Engagement with Indonesia
Over the past decade, the United States has broadened its
ties with Indonesia. The United States encourages Indonesia
to combat terrorism and to develop a more liberal trade and
investment climate, and it has tried to promote Indonesia’s
democratic development, religious tolerance, and rule of
law. In November 2010, the United States and Indonesia
initiated the U.S.-Indonesia Comprehensive Partnership,
with bilateral working groups on a range of issues,
including democracy and civil society, security,
environment and climate, energy, and education.
Source: Graphic created by CRS. Fact information from CIA World
Factbook, 2015 (2014 est. unless indicated otherwise).
Economic Issues
Indonesia is the world’s 10th largest economy in terms of
purchasing power parity. Its economy regularly posts
growth of more than 5%-6% annually, buoyed in part by its
favorable demographics, as 66% of its population is of
working age. It is the world’s leading exporter of palm oil
and tin and the second largest rubber exporter. Still, about
half of Indonesian households are around the national
poverty line of $24.40 per month.
Indonesia is the 28th largest U.S. trading partner. According
to some analysts, U.S.-Indonesia economic relations are
lagging. Indonesia recently imposed several policies
criticized by foreign investors, including new foreign
ownership restrictions in the mining and finance sectors and
the renegotiation of contracts for some energy and mining
projects. At the same time, President Widodo has actively
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Indonesia: Background and U.S. Relations
courted more foreign investment, particularly in the
infrastructure sector.
The United States and Indonesia meet regularly under the
auspices of a 1996 Trade and Investment Framework
Agreement (TIFA), under which the two sides have
discussed issues including strengthening Indonesia’s
intellectual property rights protections and promoting new
Indonesian investments in U.S. clean energy technology.
Security and Counterterrorism
U.S.-Indonesia security cooperation has deepened over the
past decade. Each year, the two militaries conduct over 200
joint military engagements. Counterterrorism cooperation is
close; the United States and Australia helped to create
Indonesia’s elite counterterrorism unit, Densus-88, which
has weakened militant groups such as Jemaah Islamiyah
(JI), an al-Qaeda affiliate. JI was responsible for the Bali
bombings in 2002, which killed 202 people including seven
Americans. The Islamic State does not have a widespread
presence in Indonesia, but up to 200 Indonesians are
believed to be currently fighting with the group.
Military sales have grown with Indonesia’s efforts to
modernize its forces. In 2012, the U.S. provided Foreign
Military Financing (FMF) to upgrade aging Indonesian
C-130 cargo planes, and sold two dozen refurbished F-16s
and eight Apache helicopters to the country. Widodo’s
government has announced plans to increase military
spending to 1.5% of GDP, from levels below 1%, focusing
particularly on maritime capabilities.
Indonesia’s government has worked to moderate territorial
disputes over the South China Sea between China and other
Southeast Asian countries. Indonesia does not have formal
disputes with Beijing in the heavily contested waters.
However, China’s maritime claims, as outlined by a
vaguely defined nine-dash line covering 90% of the South
China Sea, do overlap with Indonesia’s Exclusive
Economic Zone (EEZ), the coastal area over which a state
has the right to regulate economic activity. Indonesian
officials regularly voice concerns about maritime behavior
that is seen as overly aggressive. They have sought to forge
a consistent Southeast Asian stance in discussions with
China on a Code of Conduct in the South China Sea.
Human Rights Issues
Human rights abuses by the military have been a
longstanding congressional concern. Following TimorLeste’s vote to pursue independence from Indonesia in
1999, Indonesia’s military and its militia proxies killed over
1,000 East Timorese. Congress, in response, suspended all
International Military Education and Training (IMET)
programs with Indonesia until 2002 when they were
restarted on a limited basis. From 2005 to 2010, the United
States largely normalized military relations with Indonesia,
bringing professionalization and human-rights training to a
broad part of the Indonesian military. In 2010, it also
resumed limited IMET programs with Indonesia’s specialforces unit, Kopassus.
Indonesian human rights protections have generally
improved over the past 15 years. However, abuses still
occur, particularly in areas with simmering secessionist
movements, such as Papua, Aceh, Maluku, and Timor.
Tensions also exist between the central government and
outlying provinces where some minority groups resent the
perceived dominance of the Javanese, the country’s largest
ethnic group. According to some, religious intolerance is
rising in Indonesia. Islamist organizations have harassed
and attacked minority religious groups, including Christians
and other Islamic sects, such as the Shia and Ahmadiyya.
Oftentimes, the government is reluctant to punish the
perpetrators. Islamic parties participate in coalition
governments, and those parties do not want to risk
ostracizing their co-religionists.
Corruption is widespread. Transparency International (TI)
ranked Indonesia 107th out of 174 nations in its 2014
Corruption Perceptions Index, below other Asian nations
such as China and the Philippines. Also, after Suharto fell
from power, Indonesia’s government became more
decentralized. District governments gained more control
over their budgets, and corruption and patronage reportedly
became more common. Despite these concerns, many
observers believe that Indonesia’s democratic development
and the rapid growth of its civil society have created a more
accountable system, in which people have more freedom to
choose their leaders and to participate in policymaking
through community or non-governmental organizations.
Environmental Issues
Environmental cooperation is another focus of the bilateral
relationship. Indonesia is one of the world’s most biodiverse regions. Yet its record of environmental
preservation is constrained by poor rule of law and poor
land management. Because of deforestation, Indonesia is a
major greenhouse gas emitter, the world’s third or fourth
largest when emissions from deforestation are taken into
account. Despite an MOU signed with the United States in
2006, illegal logging remains rampant, and rainforest cover
has steadily declined. In the 1960s, forests covered 82% of
the country. Today, they cover only 49%.
Indonesia signed the Reducing Emissions from
Deforestation and Forest Degradation (REDD+) Agreement
in 2010. It stipulates that, over the course of 7-8 years,
Indonesia will reduce greenhouse gas emissions from
deforestation. In return, it will receive $1 billion from
Norway. The United States also has devoted considerable
resources to environmental and clean energy programs in
Indonesia. In 2011, Indonesia signed a $600 million
Millennium Challenge Corporation (MCC) compact. Over
half of the MCC-provided funds—about $332 million—are
devoted to a “Green Prosperity” program that will provide
technical and financial assistance to renewable energy and
land management projects.
Ben Dolven, bdolven@crs.loc.gov, 7-7626
Wil Mackey, wmackey@crs.loc.gov, 7-5050
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