The Henry L. Stimson Center [Washington DC]
Thursday, June 24, 2010

By: Timothy Hamlin

A short drive through Banda Aceh, the capital city of Aceh Province, finds a society recovering from thirty years’ conflict and the most devastating tsunami in modern history. In many ways Aceh appears to be a great success story – a Memorandum of Understanding (MOU) signed in 2005 brought peace to a society that fought for independence from the Republic of Indonesia for over three decades. An unprecedented international aid response has rebuilt the city that was largely destroyed by the December 2004 tsunami. As the province continues to normalize and the pace of economic development quickens, sustainability must be a priority not only for environmental reasons, but also to maintain the fragile peace now enjoyed by its citizens.

Aceh enjoys a level of autonomy unique within the Indonesian Republic. As set out in the 2005 Helsinki MOU, the province has special rights to self governance. These are best described in Article 1.1.2, Section A of the MOU which states: “Aceh will exercise authority within all sectors of public affairs…except in the fields of foreign affairs, external defense, national security, monetary and fiscal matters, justice and freedom of religion, the policies of which belong to the Government of the Republic of Indonesia in conformity with the Constitution.”

The MOU laid the groundwork for a new Law on Governing Aceh (LoGA). Its promulgation in 2006 fell short of expectations in Aceh for several reasons. These include the role of Indonesian military forces stationed in the province and the management of natural resources revenues, as well as more unrealistic expectations such as Aceh’s right to represent itself in international fora. Despite these contested points, the LoGA provides Aceh with an unprecedented level of autonomy within the highly centralized Indonesian state.

So far Aceh has benefited from a peace dividend that includes:

* a reintegration fund established by the Helsinki MOU of approximately US$150 million, financed by Jakarta and managed by Aceh,

* the influx of international donations and domestic reconstruction funds following the 2004 tsunami, notably the US$500 million Multi-Donor Fund,

* the newly acquired ability to retain 70% of the province’s oil and gas revenues,

* and a slight increase in the annual discretionary block grants allocated by Jakarta to regions throughout the country.

Former combatants are now in leadership positions throughout the government and are enjoying these economic benefits, as well as the prestige that comes with control over their disbursement. In order for the wider population to benefit from peace these economic benefits must not only trickle down but also be used as an opportunity to create new industries and jobs.

Economic grievances and disputes over the distribution of natural resource wealth were two (of several) important factors that fed Achenese separatism. The reintegration fund is limited, as is international tsunami aid. As oil and gas reserves dwindle, the end of that steady income source is in sight. New sources of future economic growth and employment are necessary, and the sooner they can be identified, the better.

Acehnese officials’ focus on the immediate needs of a post-conflict society is understandable, but also short sighted. Development organizations are urging local, district, and provincial authorities to begin identifying and preparing for the longer-term economic future, as this is fundamentally important to ensuring that peace continues.

Aceh has a wealth of natural resources, whose exploitation is likely only a matter of time. Some meaningful preparation for the inevitable could spell the difference between destabilizing development based upon large scale natural resource exploitation, or a paradigm defined by sustainable investment in natural resource industries that raises local incomes with minimum disruption to social cohesion. Several NGO and donor driven initiatives are working towards this end, but government adoption and enforcement is always the lynchpin of success for sustainable development plans.

The foundation of Aceh’s economy is agriculture. Currently there exists great scope for improving efficiency and output while also creating value-added industries, such as food processing and packaging. Fortuitously, decades of conflict have also had the unintentional consequence of protecting the province’s vast forest resources, whose responsible, sustainable, and equitable development could prove a positive source of jobs and income. These are two promising sectors that could help maintain Aceh’s positive trajectory if appropriately managed.

Aceh’s economic rights are loosely outlined in the 2005 MOU, and it is this framework that should provide for an active trade policy that seeks investment from within Indonesia and beyond. Fundamentally though, the proper safeguards and laws must be in place to guide that investment. An influx of environmentally damaging mining operations, unsustainable forestry practices, or monoculture plantations could prove more destabilizing than the absence of such investment.

As Aceh increasingly moves towards a more “normal” state of affairs, long-term policies and priorities will be necessary to capitalize upon its hard fought special autonomy status. The Government of Indonesia should support policies that promote economic growth and opportunity, as peace is very much in Jakarta’s interest as well. The Republic of Indonesia is increasingly regarded as a rising star in both economic and geopolitical terms. A state of peaceful cohesion at home is fundamental to both of those goals.

Timothy Hamlin is an Associate at the Stimson Center in the Southeast Asia regional security program.