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  In 2012, veterans of the first class to graduate from the Magelang defense force academy (in 1970) reflected ruefully on their careers, which were largely spent trying to quell resistance in Timor and to defend the New Order, only to end in retreat from both. Their book of reminiscences is bittersweet. “It’s an irony that the involvement of East Timor in the history of Indonesia began and ended with a failure of intelligence,” the authors wrote, referring to the assurances that their invasion of Timor in 1975 would meet no significant resistance and that the grateful Timorese would vote in 1999 to stay in Indonesia.

  They also made a more general point: “The question that always crops up among us is that the 1945 Constitution never mandated the Dual Function, never mandated the integration of the police as a part of the armed forces, or the formation of civilian groups as part of the armed forces as well as the formation of armed civilian groups.” The latter was the result of the “romanticism” that lingered from the last years of the 1940s in wujud kelaskaran (the formation of volunteer irregular soldiers).

  Outside the military, the territorial doctrine also has many critics. Regarding the military business divestment, according to a leaked US embassy cable, the financial expert Erry Riyana Hardjapamekas privately expressed his belief that it was inevitably linked to the illegal side of moneymaking, including fishing, logging, the misuse of military assets, prostitution, and gambling. He rated these as more significant in their value and in their impact on morale than the legal activities and more widespread across the archipelago through the territorial commands. “Hardjapamekas sees the territorial administration as a legacy of the past which needs to disappear in order for a modern military to emerge,” the embassy reported. “Curtailing the illegal lifeline would hasten the transition, he believes. This would go hand-in-hand with troop reductions to pare the TNI down to a leaner force commensurate with Indonesia’s defence needs.” Hardjapamekas saw extensive support within the TNI for such a move, as most of the illegal activities were in the hands of senior officers. The more junior officers and the rank-and-file soldiers either were not able to benefit or rejected the activity in principle, due to their exposure to democratic values. An order from the top could set this process in motion.

  That order has not yet been given. The Indonesian army still has thousands of officers living and operating among the civilian population, carrying loaded sidearms. At their best, the territorial officers act as advocates and defenders of the powerless citizens, where the police are often more closely linked to local power groups and mafias. At their worst, they are oppressive and extortive. At the end of Yudhoyono’s two terms, the armed forces remain in an awkward halfway position, stuck between being the pervasive political and social institution they were during the Suharto era, and developing as a modern fighting force that is capable of beating off external attacks.

  7

  Supreme Commodity

  There is a fascination in coal, the supreme commodity of the age in which we are camped like bewildered travellers in a garish, unrestful hotel.

  —Joseph Conrad, Victory (1915)

  On the bank of a wide, deep river little known to the outside world, three gantries deposit plumes of coal into huge square barges. Behind them, front loaders shuttle around piles of coal in a vast stockyard, loading it onto conveyor belts. Farther back, a straight dirt highway stretches thirty kilometers into the hinterland. On either side lie marshes, drainage canals, and rows of newly planted oil palms. Every hundred meters, a laden dump truck is heading toward the river port and then returning to unseen coal mines. A passing storm whips up clouds of black dust. The loading goes on. When each barge is heaped with 8,000 tons of coal, tugboats nudge it out into the current and guide it downstream to the sea.

  The jetty at Sungai Puting, in the south of Kalimantan, as Indonesia calls its majority share of the vast island of Borneo, and many others like it tell part of the good luck story that arrived in Indonesia after the hard times and turmoil of the five years of reformasi. If Yudhoyono and Kalla created political-strategic luck out of the Aceh calamity, their economic luck was a windfall, coming out of the commodity boom set off by runaway growth in China and India. The two rising Asian giants sucked in everything from gold and copper to timber, palm oil, and spices. In particular, their demand for thermal coal, used to generate electricity, seemed insatiable.

  Indonesia was primed to take advantage. The main coal mines run by the Dutch, in Sumatra, had been taken over by a new state company in 1950. But since colonial times, coal had taken second place to petroleum, and there was little or no export trade. At the end of the 1970s, the Suharto government created a “master plan” for developing Kalimantan, and some of the big international mining and energy companies obtained leases.

  As part of its acquisition of the American mining giant Utah, Australia’s BHP gained an 80 percent share of a venture called Arutmin, with its 20 percent partner, the group owned by the rising business and political figure Aburizal Bakrie. The British-Australian firm Rio Tinto and oil giant BP found extensive coal reserves and got their Kaltim Prima Coal (KPC) mine into production in 1991. An Australian-born entrepreneur in Jakarta, Graeme Robertson, led a group of well-connected investors in a third very large thermal coal producer, Adaro. All these ownerships got a profound shake-up when the 1997–98 plunge in the rupiah raised the effective cost of debt financing, at a time when coal prices were in a long slump. The older foreign-owned ventures were also approaching the deadlines set in their contracts with the government for divestment of foreign ownership down to 49 percent. They wanted out.

  By 2002, confidence had improved enough in Indonesia for Bakrie’s Bumi Resources to buy out BHP’s 80 percent stake in Arutmin and to acquire the KPC venture from Rio Tinto and BP. Control of the Adaro mine was snapped up by the Jakarta businessman Edwin Soeryadjaya, son of the ethnic Chinese founder of the Toyota distributor Astra, when a foreign bank gained a large block of shares as a result of a loan default. Robertson’s group sold their remaining stake three years later, amid threats that forced him to move to Singapore for his safety. With this leg up from Australian and British investors, who opted out just as the coal market was about to turn around in the first years of the new century, Bakrie and Soeryadjaya had control of some of the world’s biggest producers of high-calorie, low-sulfur, and low-ash thermal coal, which conveniently were located between China and India. The revaluation of the coal assets turned both men into billionaires. For Soeryadjaya, it restored the family fortune that had been shattered in the mid-1990s when a bank in his father’s conglomerate had collapsed and he had lost control of Astra.

  Meanwhile, the devolution of powers to Indonesia’s kabupaten (regencies, or large subprovincial districts) took effect in 2001. The bupati (regents) now had the power to issue and regulate mining licenses. This set off a frenzied scramble for coal licenses across Kalimantan and parts of Sumatra. From the existing 850 or so mining leases issued in 2001, the bupati added another 11,000 over the next decade.

  No previous experience was required for new small-scale miners. The level coal seams lay just under a moderate layer of overburden in the flatlands of southern and eastern Kalimantan; it only took bulldozer work to expose them. The wide rivers, such as the Puting, were natural infrastructure: no expensive railways were required, as in Australia or North America. Many local governments either failed to stipulate remediation of the land afterward or did not enforce any requirements. Parts of East Kalimantan now look like the aftermath of some nuclear exchange: they are dotted with vast excavations filled with water, which is too acidic for fish life.

  The coal boom made millionaires of dozens of new entrepreneurs. Some were well connected, like the former Kopassus officer and general Luhut Panjaitan, who had been trade minister during Abdurrahman Wahid’s presidency. At the other extreme were figures like the former truck and taxi drivers Aman Jagau, Abdurrahman Midi, and Andi Syamsudi
n Arsyad, who built up large coal mines from very small beginnings. All now wield significant clout: the last of the trio, known as Hajji Isan, owns a small airline connecting the provincial capital of South Kalimantan, Banjarmasin, to a town near his mines on the island of Pulau Laut. He became noted nationally for a feud with another new coal magnate, a former schoolteacher named Jahrian, over payment for a new access road to a loading jetty.

  Another coal miner and part owner of the Sungai Puting jetty, Hajji Sulaiman, became the richest man in Banjarmasin. His father had been a small trader in timber and rattan. His son Hasnuryadi married the daughter of former vice president Jusuf Kalla and won a seat in the national parliament in 2014 as a Golkar candidate.

  The yellow Golkar flag flies outside the palatial homes of wealthy hajji citizens in small towns like Binuang. In many cases, their pilgrimages to Mecca have not abated their propensity to spend on ostentatious luxury. Some build shopping malls and big hotels in their hometowns. Bentleys, Rolls-Royces, and Hummers trundle the streets of Kalimantan cities. One hajji is reputed to have lost $15 million on two occasions in the casinos of Singapore and has set up his own small (and illegal) casino on a leased island off the Kalimantan coastline. Hajji Sulaiman bought a football team, and he’s planting huge palm-oil estates for when the coal runs out.

  Getting a coal concession was the start. No further capital outlay was necessarily required. The operating rights could be hired out, and cash would roll in. Miners without any political clout or startup capital could dig a few hectares on the fringes of big concessions like Arutmin or Adaro to get some cash flow—not that anyone had much idea who had the rights to what. A review of five districts by one nongovernment organization found up to forty overlapping concessions on one piece of land. In another, successive bupati had issued coal leases that totaled three times the area of their kabupaten. Local elections became fights for the right to hand out mining licenses to cronies. The bupati became wealthy enough to bribe the judges in the inevitable appeals and to head off any move in the national parliament to curtail their powers.

  The manager of one medium-sized mine has called the organization of coal loading at one river jetty as “organized crime.” A “horror story” is how a cargo superintendent describes the same one. “The barges queue up, and you pay to jump the queue,” he says. “The police and local authorities do everything they can to stop you loading. You pay $1 a tonne the first day, $1.50 the second day, or they might take your barge away. There’s nothing you can do about it. It would take years to [get] settlement in court.” At one jetty, thirteen officials in the customs office require payments, made through a colleague who issues receipts for all desks. Small miners demand cash from buyers: 50 percent down, 40 percent when the barge is loaded, and the final 10 percent with a certificate of analysis about the coal quality—the certificate being negotiable.

  When the barges reach the coast, ships from China sometimes arrive without paperwork, load up, and sail off, relying on bribery if they’re intercepted by the Indonesian navy. It’s a similar story with those metal ores available by surface digging—notably nickel and manganese, which are found across the eastern islands of Indonesia. With or without licenses from local governments, small miners make direct cash sales and delivery, mostly to Chinese ships. Up to 3 million Indonesians are also active in informal sluicing for gold, from the hills of West Java, just outside Jakarta, to the inland jungles of Kalimantan (which are inhabited by the Dayak, former headhunters), to the waste dumps of the giant Freeport mine in Papua.

  These exports are not always captured in official data, nor are royalties and other taxes paid on production and sales, but somehow it was calculated in 2011 that Indonesia had become the world’s biggest coal exporter, shipping out 295 million tons, which pushed Australia into second place. Enough money flowed into the Indonesian economy to keep the trade balance in surplus through the 2000s and to drive 6.5 percent annual growth in gross national product. By 2008 Indonesia had moved out of the World Bank’s category of poor nations into the “lower middle income” group, with a per capita income of $2,254.

  The revenue flow and foreign reserve buildup allowed Yudhoyono in 2006 to make the grand gesture of repaying Indonesia’s last debt to the IMF from the 1997–98 rescue package, a $7.8-billion reserve loan, three years ahead of schedule. He also dissolved the Consultative Group on Indonesia, the consortium of foreign aid donors who had met annually since the start of the New Order to coordinate their programs.

  Indonesia’s wealthy and powerful certainly did not feel their country was an aid case. The cities were awash with consumption. Land prices spiraled. The number of shopping malls in Jakarta reached 173 by 2013, outdoing one another in displays of luxury brands; one offered a $1.2-million Lamborghini as the prize in a lottery, which shoppers who spent a certain amount could enter. Similarly high-end cars lined the streets outside fashionable nightspots, like Tomy Winata’s Bengkel (Repair Shop), where socialites thronged, wearing brand-name fashion and expensive jewels.

  A much more modest economy prevailed in the village of Srihardjo, an hour’s drive southeast of Yogyakarta, where the natural resources are just land and water. This was the site of a famous study of rural poverty in the early 1970s, by Masri Singarimbun and David Penny, which shattered complacency in Jakarta about Indonesia’s happy peasantry. The researchers found that a typical household could get by if it had a hectare of land, 70 percent of it for rice growing and the rest for a vegetable garden and productive trees: this was cukupan (enough). But two-thirds of Srihardjo’s people did not have enough.

  The most important cash earner in the village was palm sugar, obtained by climbing a palm tree and cutting its flower so that the sweet sap flowed into a container over several hours. Four out of five villagers had never even been into Yogyakarta. No one had radios. These days, a sixty-two-year-old man, Sugarti, is the only one still engaged in the physically demanding work of tapping palm sugar. The village has developed some recognition across Java for a specialty snack known as peyek, a peanut-studded biscuit, made entirely from ingredients bought from outside. Farmers now use more machines in rice growing.

  Few young people want to work on the land anymore, says village secretary Sunardi. Most go to high schools or vocational colleges before seeking work in cities. Family size has come down to two children on average, and several primary schools are close to being merged with others. Everyone has mobile phones, and there are 150 cars and many more motorbikes. The range of hills to the east, the Gunung Kidul, was once worn bare by poverty-stricken villagers grazing their animals. Now, the hills are covered by teak trees. The region is by no means prosperous, but it’s resilient enough to have recovered from the big earthquake in 2006 that damaged most of the houses and killed eighty-nine of its 10,000 people.

  Such progress had steadily reduced the proportion of Indonesians living in absolute poverty from about half the population when the Srihardjo study was made, to around 17 percent by 1996, just before the economic collapse of 1997–98. By the start of Yudhoyono’s presidency in 2004, the poverty that had ballooned again during the crisis had been brought back to the same level. Then the rapid growth of the economy enabled further progress on poverty reduction, to just under 12 percent by 2011. This is based on a calculation of needs for bare existence: the number of food calories, shelter, and other necessities that are roughly attainable on $1.25 a day. Above that still hover about 40 percent of the population in a precarious, very low-income strata.

  As Yudhoyono’s presidency moved into its second term (2009–14), the top and bottom income earners diverged. The bottom 40 percent of the population saw their consumption grow by around 2 percent a year. But the top 10 percent enjoyed rises of 8 to 9 percent. The country’s Gini coefficient (a widely used measure of income distribution, named after the Italian statistician who developed it) had been just 0.29 in 1959 in the meagre last period of the Sukarno era, which indicated
a sharing of scarcity. Then it had fluctuated between 0.33 and 0.36 during the New Order, showing more divergence in wealth. Over the first decade or so of the new century, inequality jumped sharply, with the Gini measure going from 0.32 in 2001 to 0.41 in 2011. Although the income spread is nowhere as wide as in several other rising economies in Asia (China, Malaysia, and Singapore are in the range 0.46 to 0.48, and Thailand a sharper 0.54), “this is new territory for Indonesia,” says Asep Suryahadi, the director of Jakarta’s respected SMERU Research Institute.

  The economic crisis of the late 1990s brought emergency measures to assist poor households, either with rations of subsidized rice or cash handouts. President Wahid started planning for a more concerted, long-term approach, and Megawati’s government passed a law mandating a national social protection system, although it lacked practical detail. During Yudhoyono’s presidency these efforts burgeoned into a more permanent set of social welfare programs aimed at direct support for the poor.

  The most prominent of these was known as the Raskin program, which aimed to supply fifteen kilograms of subsidized rice each month to 17.5 million poor and near-poor households. Another program set aside fees at government public health clinics and hospitals for 18.2 million families, while another gave cash to nearly 5 million families to help with school fees (which were still levied above the eight years of compulsory primary and middle schooling) and other educational expenses. There were also periodic cash handouts at times of “macroeconomic shock,” such as price increases caused by the lowering of subsidies on fuel.