Statement by H.E. Mr. Ali Alatas Minister for Foreign Affairs Republic of Indonesia

Before the American Indonesian Chamber of Commerce (AICC)

New York, 30 September 1999

Mr. President,

I am greatly honored and deeply grateful to the Board of Directors and Members of the American-Indonesian Chamber of Commerce for presenting me with this award for "Distinguished Leadership in Foreign Affairs.

I accept this honor as a recognition not so much of any personal achievement but rather of the vital cause to which I have given the best years of my life and the best efforts I am capable of. This is the cause of peace-globally, in the Asia Pacific region and in Southeast Asia.

In working for this cause, I have had many collaborators and I shall indeed keep this award in trust for all of them. Many of them are diplomats and public servants. Many of them, too, are private organizations and individuals. Among these fellow workers for the cause of peace must be counted the distinguished members of this Chamber, both the living and those who have already passed away. In this regard, it is fitting that we remember the pioneers of this Chamber as we observe the 50^th Anniversary of American-Indonesian relations.

For the United States has distinctly contributed to peace and stability in the Asia-Pacific, including Southeast Asia, and I am pleased to note that a sizeable part of that contribution has been made in the course of its cooperation with Indonesia. This Chamber played an important role in the initiation and growth of that partnership.

Five and a half decades ago when Indonesia was still fighting a revolutionary war to defend and preserve its proclamation of independence, eminent individuals, who would later become the founding members of this Chamber, actively supported the Indonesian struggle. Since that critical struggle until today, the Chamber has constantly nurtured that partnership through initiatives that have vigorously promoted economic cooperation between our two countries.

Today Indonesia is severely challenged again. It is struggling to recover from a devastating crisis that struck the most dynamic East Asian and Southeast Asian economies in the middle of 1997. That crisis cut down Indonesia's GDP growth, which had been averaging seven percent during the previous decade to minus 13 percent in 1988. Indonesia has also suffered hyperinflation which reached 77.6 percent in 1998, food shortages in several parts of the country, the loss of millions of jobs in the industrial and corporate sectors, a decline in the quality of life of thousands of Indonesian families, social unrest and political tension. Sporadic internecine strife has been breaking out in some provinces.

The ferocity of the crisis could have thrust Indonesia deeper into chaos had not the present Government, under President B.J. Habibie, launched a wide-ranging program of direly needed reforms.

The Government fully restored freedom of the press and pardoned a large number of individuals who had been detained because of their political beliefs. It launched a National Action Program on Human Rights and, soon after, ratified the UN Convention against Torture as well as the InternationalConvention on the Elimination of All Forms of RacialDiscrimination. It has also ratified important ILO conventions protecting the rights of workers and the welfare of children.

During the Special Session of the People's Consultative Assembly in November 1998, 11 new Assembly Decisions aimed at extensively improving the nation's governance were passed. These include the trimming of the powers of the presidency to adjust to more democratic processes; a limit on the tenure of the President and Vice-President to two five-year terms, measures that would address the persistent problem of corruption, collusion and nepotism, and the promotion and protection of human rights.

These were followed by two more laws of fundamental import to the country's political structure: a law providing wide-ranging autonomy to the provinces, and a law establishing a more equitable balance in revenue sharing between the provinces and the central government. We have repealed the Anti-subversion Law, which in the past was often misused to suppress political dissent.

Indonesia's drive towards democratization reached a new level with the successful holding last June of general elections that were deemed even by the most critical foreign observers as peaceful, free and fair. This was made possible by the passage early last year of three fundamental political laws governing the conduct of elections, the formation of political parties and the composition and functions of our legislative chambers. The electoral process will culminate a month from now with the election by the People's Consultative Assembly of a President and Vice-President who will lead us into a new century and millennium.

We have had three Presidents so far: the first, former President Sukarno, gave us an awareness of ourselves as history has shaped us and forged a strong sense of national unity and national destiny; the second, former President Soeharto, put us on the road to development and showed that, although difficult and distant, the conquest of poverty is possible in Indonesia; and the third, President Habibie, initiated an era of reform to address the national inequities and weaknesses in our national life that make us vulnerable to crises. The next President, whoever he or she will be, will have the task of building on the reforms that have just been instituted, and leading the country to sustained development in a regime of greater democracy.

It was in this spirit of reform that the Government, earlier this year, decided to take a bold new course toward a comprehensive, just and internationally acceptable solution to the persistent East Timor issue. The Government gave the people of the province the opportunity to decide on their political future-whether to accept Indonesia's offer of wide-ranging autonomy and special status within the Republic of Indonesia or to reject it, in which case it would open the possibility of a peaceful parting of ways with Indonesia and of eventual independence. On 30 August 1999, through a direct and democratic ballot organized and supervised by the United Nations in accordance with the New York Agreements of 5 May 1999, the people of East Timor made their choice, and that is to reject the offer of wide-ranging autonomy and special status and, in effect, to reach out for eventual independence.

Since then a number of violent incidents have erupted and marred this historic political process, prompting the Indonesian Government to declare martial law in East Timor and, in view of the escalation of violence, to invite a UN peacekeeping force to East Timor. Through all these challenges, the Government will abide by its responsibility and commitment to see to it that the choice taken by the East Timorese is respected and that their separation from Indonesia is carried out in an orderly, peaceful and dignified manner.

In the economic sphere, we continue to carry out a reform and stabilization program in close cooperation with the IMF, the World Bank and the Asian Development Bank. The Government is striving hard to cleanse itself of the blight of graft and corruption, to level the economic playing fields, and to empower the vulnerable sectors of society. We aim to eliminate all monopolies and all subsidies except those that directly help the poor.

We realize that a major weakness of the Indonesian economy lies in the heavily leveraged financial and corporate sectors. We are therefore building a sturdily capitalized and prudently managed banking system. Thus the Government has merged four government banks into one, foreclosed 38 private banks, taken over seven private banks, and required nine to recapitalize. We still have 73 banks in good financial shape.

We have established the Indonesian Bank Restructuring Agency (IBRA) to manage the restructuring of the banking system by rehabilitating troubled banks and supervising the demise of those beyond repair. A new Central Bank Law ensures the independence of the central bank, Bank Indonesia, so that it can concentrate on supervising our monetary system with full transparency. We have created the Indonesian Debt Restructuring Agency (INDRA) to guarantee the payment of the restructured foreign debts of Indonesian corporations as long as the debtors continue to repay the debts in local currency. It also helps smaller firms renegotiate their debts through the Jakarta Initiative.

We now have a Law against Monopoly and Unsound Business Practices, a Consumers Protection Law and a new Bankruptcy Law to ensure the swift settlement of claims against corporations unable to weather the crisis.

To cushion the impact of the crisis on the vulnerable segments of society, we are strengthening, in consultation with The World Bank, social safety net programs, especially in the key areas of food security, health, education and employment creation. Parts of Indonesia, like Sulawesi, Sumatra and other regions that export primary commodities have been largely spared the devastation of the social impact of the crisis. But the impact on the rest of the country, especially Java, was severe. In our commitments with the IMF, therefore, we sought and obtained flexibility to be able to subsidize essential household commodities within the purview of the social safety net.

Earlier this year, improvements were noted in the country's economic situation that brought about a rise in confidence. The main macroeconomic targets for 1998-99 were all met. For several months the rupiah had remained stable at between Rp 7,000 and Rp 8,000 against the US dollar, compared to Rp 16,000 at the height of the crisis. The real GDP rose 1.3 percent in the first quarter, buoying hopes for a zero-to-two percent growth for 1999/2000. In spite of setbacks in the effort to reform the banking system and the furor over East Timor, the positive trend, though slowed down, has continued in the second half of this year. The monthly consumer price index continues to decline and we are confident the 12-month inflation rate will fall below ten percent towards the end of FY 1999/2000. Interest rates have stayed down. The privatization program is proceeding steadily.

We also hope to benefit from the common endeavors of ASEAN countries, including Indonesia, to make Southeast Asia an integrated free trade and investment area that offers economies of scale, plus bold incentives, to attract investors and trading partners. Far from turning inward, we are accelerating the drive to achieve the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA). We have also established a surveillance system to monitor economic indicators in all ASEAN countries, especially financial flows and conditions, as an early warning system against a recurrence of the crisis.

Moreover, we expect to maintain a vigorous working relationship with our traditional economic partners, including fellow members of the Asia-Pacific Economic Cooperation (APEC) forum, and especially the world's strongest and most globally-engaged economy, that of the United States.

In 1998 total bilateral trade between the United States and Indonesia stood at $11.628 billion, slightly down, because of the Asian crisis, from $13.7 billion the previous year. The United States is Indonesia's second largest export market while Indonesia ranks 28" among US export markets.

The cumulative investment of the United States in Indonesia amounted to $15.2 billion, making the United State s the fourth largest investor. However, if investments in oil and gas were included, the United States would easily be the top foreign investor, followed by Japan. Obviously, there is a great deal of room for growth. And by helping bring about that growth, American business plays an important role in Indonesia's recovery so that Indonesia can become an even more effective economic partner of the United States.

That is why I am greatly reassured by your presence here tonight together with such staunch friends as the Asia Society, the United States-Indonesia Society, the US-ASEAN Business Council and AMCHAM Indonesia. To my mind, all of you represent the American commitment to firm engagement with the developing world, especially with Southeast Asia. The businessmen among you are not fair-weather investors who spirit away your money at the first bad news, but long-time reliable partners. You are aware of our problems but you also have a realistic appraisal of the long-term prospects and are not blind to the many positive developments that have taken place in Indonesia since we instituted far-reaching reforms.

And you know that though we have just gone through a harrowing experience, we also derived many valuable lessons from this crisis. One precious lesson is that people do matter. We will therefore continue to build social safety nets to protect and empower the vulnerable groups within society even during times of prosperity.

We now realize as never before that prudential safeguards must be in place if liberalization, especially in our financial and banking system, is to work for us. But these prudential measures can only be effective if they are based on rules perceived as equitable and reasonable. And they can be perceived as equitable only in the intense light of public scrutiny, in a regime of transparency. This means continuing political and legal reforms.

And, finally, we have been reminded to value as we always did the role of peace, security and stability in economic development. The three decades of unprecedented growth in Asia and the Pacific that preceded the crisis were attended by relative peace. To be sure, there were tensions and unresolved disputes. But the guns were mostly silent and all of us could concentrate on making socioeconomic progress.

Because of that continuing peace, we are today able to concentrate on the requirements of recovery from the crisis.

This is the peace that American business, through its initiatives and its engagement with Southeast Asia, have contributed to and helped nurture. This is the peace to which I have devoted a lifetime of work, and for which you have so generously conferred a great honor on me tonight.