INDONESIA: INSTABILITY INDICATORS DELETED

Created: 7/22/1997

OCR scan of the original document, errors are possible

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Intelligence Report

Office of Asian Pacific and Latin American Analysis

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Instability Indicato

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clashes between political opponents and authorities during rke recent parliamentary election campaign, though not regime threatening, highlighted public grievances and the government's unwillingness to redress them. The economy continued to performGDP still projected to growo ft percent annuaUy-bul there is mounting concern about "pohcy drift" within ihe Indonesian Government, especially in the area uf deregulation. '

Political DevetepmeniJ

The landslide victory by Golkar, ihe ruling parry, in goverrunem-orchesuasrd pubimentary elections onay did not enhance ihc lepumacy of President Soehano or his government:

Sat attended the

campaign--the worst in Ihrte CWaaeVand plausible postelection charges of vote fraud as signs of iipuTicint public alienation.

Jakarta did not use the campaign to address longstanding etiuiic. religious. sepuatKL and economic tensions. Additional venting of pubbc fnmrauon is hxdy in the runup lo Soehano's expected pro forma appoinraemeventh terra neuyearbyOO-pcrion People's Consultative Assembly.

Regime criucs. however, lack the cohesion and leadership necessary to challengePressthe President retains the support of

the mililary. Soehano'i publicly expressed lausfiicoon with the election results and dismissive comments toward his opponents indicate he is unlikely to respond with more than gescures to their concerns.

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APPfcOVED FOSATE: 6

Economic Developments

Indonesian currency and equity markets rebounded solidly following the turbulent electionir one indication of the business community's unwavering confidence over near-term economic prospects. Economic fundamentals remain strong and second-quaricr macroeconomic data indicate buoyant growth and moderating inflation. The health of tbe domestic economy continues to underpin the support the government enjoys from most organized interests.

Nonoil exports, however, registeredercent gain on an annual basis, and analysts remain divided over whether the shortfallyclical problemore serious structural deficiency in economic competitiveness. Questions are also being raised about what appears to be complacency among senior officials on the need to move ahead with much needed restructuring of the country's financial and industrial sectors. P

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