Hope for reform in Indonesia

Text size +-

With the July 2014 election of a new president, Joko Widodo, a new mood of confidence and optimism is palpable in Indonesia, the world’s third-largest democracy and most populous majority-Muslim nation. Hopes are high that a new dynamism in Jakarta will see many long-standing challenges addressed. At the same time, the country’s economic expansion is continuing apace, with a large, young population that is eager to take Indonesia to the next level of development.

The new government is well aware of the scale of the task it faces in achieving this aim. Major deficiencies in infrastructure – both social and physical – need to be addressed, as do many bureaucratic obstacles and the long-standing problem of corruption. The uneven distribution of economic development across Indonesia’s 17,500-plus islands also poses major challenges, as does strengthening the capacity of the regions to take full advantage of the country’s decentralisation.

Regional Role

The external challenges are also significant. Disputes over territorial boundaries in the South China Sea continue, requiring effective diplomacy between Indonesia and its friends and allies – some of which find themselves on opposite sides in these territorial disputes. The year 2015 will see ASEAN take a giant leap forward with the implementation of the ASEAN Economic Community (AEC), which is set to take place by the end of December. The AEC offers significant potential for Indonesian companies, but it will also require the effective management of domestic concerns regarding increased competition.

The new president also has to face these challenges with a circumscribed political authority, given that his ruling coalition remains a minority in parliament. Yet, the first few months of his term in office have seen promising moves, with the end of fiscally damaging fuel subsidies a major achievement. Maintaining momentum will be a major task in 2015, with many Indonesians hoping to see rapid changes in the months ahead.


In the aftermath of the Second World War, Sukarno, the young nationalist leader, declared Indonesia’s independence from the Netherlands on August 17, 1945. The Dutch had progressively taken over the islands that were to become Indonesia since their traders first arrived, looking for spices, at the end of the 16th century. Colonial rule followed, with the Dutch East Indies expanding out from Java and Batavia – the city they founded now known as Jakarta.

The Japanese invaded and occupied the country during the Second World War, after which the Dutch fought to re-establish their authority. The Netherlands finally recognised the sovereignty of Indonesia on December 27, 1949, and on August 17, 1950 Sukarno proclaimed the creation of a single unitary republic.

Given its history, Indonesia has inherited a long tradition of maritime power and trading prowess, as well as the scars of a colonial past. The 1945 declaration of independence brought all these historical, cultural and religious threads together into a new republic. Much of the country’s political history since then has been delineated by the interaction of these dynamic, sometimes contradictory, and multi-faceted traditions.


From independence until the late 1990s, Indonesia was shaped by its first two presidents, Sukarno, the leader of the independence movement, and Suharto, a military leader who succeeded him and took on an increasingly authoritarian bent. President Suharto finally stepped down in 1998, in the face of intense economic and political pressure, ushering in the period. Indonesia’s first democratic elections since 1955 were held in 1999, with Abdurrahman Wahid elected president. Wahid took over a country beset with inter-ethnic and inter-religious violence, long suppressed under Sukarno and Suharto. This was particularly acute in Kalimantan, Sulawesi, Aceh and Maluku. Some 10,000 people are thought to have been killed in the violence between 1999 and 2002. Partly to address this tension, the government pushed through a policy of decentralisation and democratisation.

Continuing political instability led Wahid to hand power to his then-vice president, Megawati Sukarnoputri (Sukarno’s daughter), in 2002. She remained president until the elections in 2004, which were won by Susilo Bambang Yudhoyono, who was re-elected to a second term in 2009. Yudhoyono term of office promised much change, yet political deadlocks left reforms unimplemented, even as economic growth accelerated. Fresh presidential elections were held in 2014, with Joko Widodo emerging victorious.

Head of State

Reformasi Indonesia continued with the 1945 constitution, under which the president is head of state, head of the government and commander-in-chief of the military (the Indonesian National Armed Forces). Several key amendments to the constitution were made between 1999 and 2002. One of these was to limit the president to a maximum of two consecutive five-year terms. A second was to change the selection process for president. Previously, he or she had been elected by the People’s Consultative Assembly (MPR) – parliament – while under the new system, the president is now elected by popular vote. In 2004, SBY became the first president elected in this manner.

The president, as head of government, has the power to appoint members of the Cabinet, while as executive, the post-holder has the right to propose bills to the People’s Representative Council (DPR), the lower and more important house of parliament. In emergencies, the president may also issue regulations in lieu of laws. He or she can also sign treaties, appoint ambassadors, issue pardons and make judicial appointments.

Legislative Powers

The MPR is a bi-cameral institution, composed of a lower house, the DPR, and an upper house, the Regional Representative Council (DPD). The DPR has 560 seats, and deputies are elected by a system of open list proportional representation that was introduced in 2009.

Ten political parties are currently represented, out of the 12 declared by the Indonesian Election Commission as eligible to take part in the 2014 ballot. Some 48 parties took part in 1999, with the reduction partly the result of increasingly stiff requirements for eligibility, including having regional chapters in every province (except for parties based in Aceh).

In 2014 the party that emerged with the largest number of seats was the Indonesian Democratic Party-Struggle (PDI-P), which won 109 seats. The PDI-P is headed by Sukarnoputri, while President Widodo was the PDI-P’s candidate for the presidency. The PDI-P heads the ruling government coalition in the DPR, the Outstanding Indonesia Coalition (KIH). The other parties in this are the National Awakening Party, with 47 seats; the United Development Party, with 39 seats; the National Democratic Party, with 36 seats; and the People’s Conscience Party, with 16. This gives the KIH 247 seats, less than the 280 needed for a majority.

After the 2014 elections, the second-largest party to emerge was the Party of the Functional Groups (Golkar), which is Indonesia’s oldest still functioning political party, and was Suharto’s political machine. It has 91 seats and in early 2015 led the opposition group, the Red and White Coalition (KMP).

In April 2015 Golkar was involved in a major rift between supporters and opponents of the government, with the outcome still unclear, though members of the party were reportedly resolving their differences as of mid-May. The KMP also includes the Great Indonesia Movement Party, with 73 seats; the Democratic Party, with 61 seats; the National Mandate Party, with 48 seats; and the Prosperous Justice Party, with 40 seats. This gives the opposition KMP a total of 313 seats – and thus a majority in the DPR.

The DPR has considerable powers to limit presidential action. Proposed laws from the president and the government must be approved by the DPR, which can also propose legislation of its own. Bills from the DPD must also gain DPR approval, although the DPD has no power to revise or reverse DPR decisions.

The DPD consists of 132 seats currently, with the total number limited to not more than one-third of the DPR. This allows some flexibility in the number of provinces, which has grown since 1999 to 34. Elections are held every five years, at the same time as those for the DPR and the local elections. According to the constitution, DPD members must serve as individuals, rather than party members, although they may have some party connections. The DPD has the power to submit bills to the DPR on regional issues and has an oversight function regarding government activities in the regions.

Local Government

Since decentralisation, Indonesia’s 34 provinces have received a much greater degree of control over local affairs and finances. Thirty-three of these provinces have their own Provincial Legislative Assemblies, and these have a total of 2112 elected seats. These provinces then divide into regions or municipalities, with 497 of the 508 of these that currently exist also having their own District Legislative Assemblies. In total, some 16,895 seats in these are elected every five years. At this level, national rules requiring a party to receive at least 3.5% of the national vote to qualify are waived, allowing a much greater range of local and ethnically based parties.

All the local and national assembly and council elections are held at the same time, with the country’s 190m eligible voters then voting again three months later for the president. The regions and municipalities have control over local education, health and infrastructure, with a budget provided partly centrally and partly by local revenue raising.

Law & Order

The highest court in Indonesia is the Supreme Court (SC), which has oversight of 68 high courts, 31 general courts, four military courts and four administrative courts. The SC is the final court of appeal and its chief justice is currently Muhammad Hatti Ali. On constitutional matters, the SC defers to the Constitutional Court (CC), which consists of nine justices. The CC rules on motions to impeach the president, which if passed are then forwarded to the MPR, and it also has the final say in disputes over elections, the dissolution of political parties and conflicts between different government agencies. Another key legal body is the Corruption Eradication Commission. It has scored a number of successes in recent years, although as 2015 got under way, the arrest of its deputy chairman highlighted the scale of the task facing it.


The year ahead will likely be a challenging one for the new Widodo administration, as it attempts to roll out a major programme of public works and regulatory reforms. With a minority position in the DPR, presidential orders and regulations are also likely to be frequent, as President Widodo attempts to circumvent blockages in parliament.

Disputes within parties, both in the opposition and the government, will likely add to the unpredictability, although many are hoping that Widodo will be able to move forward with much-needed reforms and infrastructure initiatives despite this. His popularity may well be crucial in this, along with his undoubted political acumen. Much rides on the new government’s ability to deliver for the country’s future well-being too.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

Cover of The Report: Indonesia 2015

The Report

This article is from the Country Profile chapter of The Report: Indonesia 2015. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart