Historic Moment

Indonesia

Economic News

22 Jul 2010
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This month marks a historical rapprochement between the Indonesian government and dissonant voices in Aceh province. Now the hope is that the deal will allow for speedier economic recovery in the once restive region.



The passing of the Aceh Governance Bill into law by the Indonesian parliament cements an earlier peace agreement, and is expected to strengthen stability in Aceh - although some disagreement still remains. Five months of deliberations and political bickering preceded the decision, and several parties voiced worries over the unity of the Indonesian state during the final debate. The law was, however, passed with the support of all the groups in parliament.



The Aceh region was seriously hit by the 2004 earthquake and tsunami, which killed more than 126,000 people and left thousands missing.



The province has long been the stage of a fierce separatist struggle, first against the Dutch colonial power and later, after Indonesia gained its independence, against the central government in Jakarta.



This struggle has claimed thousands of lives over the years and has paralysed Aceh's economy. Before the 2004 tsunami, more than 40% of the 4m inhabitants lived in poverty, despite the economic potential of the area. The tsunami paralysed the economy even more, with the World Bank estimating rebuilding needs at $6.1bn.



Aceh has enormous potential for the exploitation of natural resources such as oil, gas and minerals, such as coal and gold. Favourable climatic conditions have furthermore created significant agricultural opportunities in the cultivation of valuable commodities such as palm oil, rubber, coffee, tobacco and cloves.



The arrival in office of President Susilo Bambang Yudhoyono, and, ironically, the destruction that the 2004 tsunami caused in the region, paved the way for a climate in which both parties could finally come to an agreement. In August 2005, the former rebel movement, the Free Aceh Movement (GAM), signed a peace accord with the Indonesian government in Helsinki.



The recently approved bill is a formalisation of the stipulations as agreed in Helsinki, and has drawn mixed reactions.



Several former GAM members have voiced objections to the new law, claiming that the text falls short of the agreed provisions in the accord. In Aceh, the passing of the bill led to a one-day general strike. Some in GAM feel too little authority has been handed over to the regional administration, especially with regards to the management of natural resources.



This is a significant complaint as besides the cultural and religious differences between Aceh and the rest of Indonesia, the crux of the conflict has always been the division of revenues coming from Aceh's rich natural resources, most of which went straight to the central government.



"We are still not very satisfied with the content of the new bill," GAM spokesman Bakhtiar Abdullah told Deutsche Presse-Agentur recently. He said that the revenue-sharing agreement was flawed because the new law gave Jakarta a say in the way the Aceh administration would spend its 70% of natural resource revenues.



The new law indeed states that the management of oil and gas will be undertaken in co-operation with the central government. Aceh can also keep 70% of revenues derived from these natural resources. The law stipulates furthermore that Aceh will receive 2% every year from the national General Allocation budget for the coming 15 years, and 1% in the subsequent five years.



The law furthermore entails the establishment of an ad-hoc tribunal, a Truth and Reconciliation Commission and a special council for Islamic scholars, or ulama. It also allows Acehnese to set up political parties, even though during the upcoming local and regional elections scheduled for September, Acehnese can only participate as independent candidates.



Other complaints include the lack of retroactivity in the envisaged ad-hoc tribunal and the clause that future laws and regulations in Aceh have to be in line with national norms and standards, leaving room for the central government to influence the process in Aceh.



Despite these critical reactions, overall sentiment is optimistic on the new law. The Jakarta Post in its editorial of 13 July observed that the government also had to "satisfy the interests of major political players, including the Indonesian military and major political parties", and that "the law itself is only one part of a long journey".



Pieter Feith, head of the EU-ASEAN Aceh Monitoring Mission (AMM) assigned to oversee the implementation of the Helsinki Agreement, described the law as accommodating the stipulations of the accord.



With reconstruction efforts well underway and disbursements reaching $200m a month, it is unlikely that any of the parties involved will now reject the law and break out of the peace process, thereby disturbing Aceh's newfound stability.



Aceh needs this stability in order to attract new investment. The enormous potential of the region, especially in oil, gas and mining, but also in commodities such as palm oil, is waiting to be exploited. Many years of fighting have prevented most foreign companies from investing in the region, thereby blocking economic development. Companies that have been actively investing in the region, such as Manulife Financial Corporation, Lafarge, Exxon Mobil and Holland Coffee, have been profitable over the years. Acceptance of the new bill, which can be amended following regular legislative procedures, would pave the way for new investment in the region, which is necessary for sustainable future development after the donor money dries up.



It would also allow the government to shift more of its attention to the management of other disasters that hit the country, such as last week's mini-tsunami in Java. The fates have not been kind to Indonesia in recent years - the hope is now that the new law will, however, provide a framework for future hope.

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