Elmar 7b

Elmar Bouma: A Guide to Doing Business in Indonesia 2016

Highlight on Indonesia Today by Elmar Bouma: Indonesia is today a country in the process of building an effective government and society structures in a democracy. On paper, Indonesia is about as democratic as it gets.

As one of the world’s largest countries. It has more than 17,000 islands, a land area of 1.9 million square kilometres spread out over an area as vast as the United States. It is also the world’s fourth most populous country, with more than 240 million inhabitants.

Indonesia is now the world’s 15th largest economy. Various studies by authoritative institutions put Indonesia in the top ten of the largest economies in the world from 2030 onwards, even in the top 5 in 2050. This presumes a continuously high economic growth, and as this booklet will show, this will still require overcoming many challenges.

This makes it a country of strategic importance, for governments and for companies. After years of political turmoil following the fall of president Soeharto in 1998, Indonesia now enjoys much interest from many internationally operating companies in the world.

Doing business in Indonesia can be rewarding, but requires a thorough understanding of this large country with its very diverse culture and complicated legal and administrative system. No guidebook on Indonesia can claim to be complete. This business guidebook aims at increasing especially foreign entrepreneurs’ and managers’ understanding of Indonesia and it is includes the experiences of investors, and views of scholars and other observers of business in Indonesia. The guide book aims to provide both practical information and, where necessary, background information, that is useful for investors and managers.

The adaptive and persistent entrepreneurs are almost all successful. Also, almost all foreigners who come to Indonesia are captured by the friendliness and hospitality of the people. It is especially the Indonesian people that make Indonesia not just a challenging, but in most cases also a pleasant place to do business.

A Brief History
1.1. Introduction
Indonesia has a long history. It is home to one of the oldest traces of human settlement, the Solo man, a dark-skinned and hairyHomo erectus.It is believed to have lived therefrom around 500,000years ago, in what were then the open grasslands of central Java. With climate change, the landscape became covered with tropical rainforest, and Homo erectus made place for modern day Homo sapiens.

The first kingdoms date back to the earliest centuries AD and the oldest are believed to have been based in East Kalimantan. From at least the 7th century AD onwards, kingdoms, and empires based in Sumatra and Java expanded their influence to other islands. These empires, such as the South-Sumatra based Srivijaya and the Java based Mataram and Majapahit empires, were the oldest topographical resemblances of what is today Indonesia. The most impressive architectural remains that can still be seen today, such as the world-renowned temples of Borobodur and Prambanan, also date back to these earliest kingdoms. Hinduism and Buddhism, which had spread from South and Southeast Asia, were the main religions in this era. It is believed that many important archaeological discoveries shedding more light on the earliest empires are still to be made.

1.2. Srivijaya
The Srivijaya Empire existed from the 7th century until the 13th century. Stone inscriptions indicate that its power base was near present-day Palembang on the Musi River in South Sumatra. Maharaja Jayanasa launched a major maritime conquest in 684 and integrated rival kingdoms, such as the gold-rich kingdom of Malayu in Jambi into the Srivijaya Empire.

The empire then expanded its control to the remainder of Sumatra, West Java (where it displaced the Tarumanagara Kingdom) as well as the Malay Peninsula. It controlled trade in the Strait of Malacca, the Sunda Strait, the Java Sea, the Karimata Strait, and the South China Sea.

As a maritime empire, Sriwijaya flourished on the trade between India, China and current-day Indonesia, and attempted to control rivalling ports. Maharaja Dharmasetu launched various raids against the coastal cities of the Champa Empire in Indochina and briefly controlled the area of present-day Cambodia. The founder of the Khmer Empire, Jayavarman II however cut off the link of the Srivijayans to this area in the eight century.

Maharaja Samaratungga reigned as ruler from 792 to 835. He did not undertake major military expansion but preferred to strengthen the Srivijayan hold of Java. He personally oversaw the construction of Borobudur; the temple was completed in 825, during his reign.

It was during the Srivijaya era, that the Malay language spread around the archipelago. Settlers from the Srivijaya Empireare also thought to have been the earliest in inhabitants of Madagascar, bringing Malay DNA and words to this island.

Sailendra Dynasty
The Sailendra dynasty rose to power in the 8th century in central Java and created a maritime trading empire in Southeast Asia. The dynasty promoted Mahayana Buddhism and constructed the Borobudur temple. It had close relationships with the Srivijaya empire, and frequent intermarriages among the ruling families.

By the mid-eleventh century, the Srivijaya Empirewas weakened by attacks from Tamil Nadu on its possessions on the Malay Peninsula.

1.3. Medang (Mataram)
In the early eighth century, the Medang (or Mataram) empire was founded in central Java and rose in power in the archipelago in the following decades. According to some historians the empire was ruled by the Buddhist Sailendra dynasty, and the Shaivist Sanjaya dynasty.Relations between the two dynasties however deteriorated and after Sailendra king Balaputra was defeated by the Shaivist king Pikatan, he retreated to the Srivijaya Empire on Sumatra.

Under Shaivist king Pikatan and the later king Balitung, the royal Hindu temple of Prambanan was built and expanded in the Medang kingdom’s capital Mataram, near present-day Yogyakarta.

Around 930, the centre of the kingdom was moved from Central Java to East Java. The move may have followed a devastating eruption of the Merapi volcano. Another consideration could have been the need to be closer to the sea to be able to counter the Srivijaya’s maritime power and to increase control of the spice trade with the Moluccas.

Around the end of the eleventh century, several clashes took place between the Medang and Srivijaya empires, with the latter emerging victoriously after the failed attempt of Sailendra king Dharmawangsa to invade the Srivijayan capital Palembang. King Dharmawangsa was killed in a revolt that was supported by the Srivijaya Empire. His nephew Airlangga later reunited the remnants of the Mataram Empire to form the Kediri Empire.

1.4. Kediri
The Hindu empire of Kediri was based in East Java from 1042 to around 1222. All Kediri kings associated themselves strongly with Hindu gods. The prophetic book Prelambang Joyoboyo, which is ascribed to King Jayabhaya (1130-1160), is well known among Javanese. It predicted that the archipelago would be ruled by a white race for a long time, then a yellow race for a short time, and would then rise to glory. In later centuries, many people associated this prophecy with the rule of the Dutch and the Japanese.

Kediri was initially more agriculture than trade based, but in later years, it controlled the spice trade with the Moluccas and, according to Chinese sources, had colonized many parts of the eastern archipelago. Its trade routes extended into the Indian Ocean, taking spices to the Middle East. In the eleventh century, it was the most powerful kingdom in the Indonesian archipelago, next to the Srivijaya Empire to its west.

The last king of Kediri was Kertajaya (1200–1222). When he lost the battle of Ganter, he had to hand over the sovereignty of the kingdom to Singosari.

1.5. Singosari
Ken Arok, a man from a common family, established the Singosari Empire in 1222. In 1275, King Kertanegara carried out naval campaigns to drive Malay kingdoms out of the already weakened Srivijaya Empire and to protect the Malacca Straits against possible advances of the Mongols. He also expanded the influence of the empire to Bali, Borneo and the islands to the east and established relations with the Champa in Vietnam. Kertanegara refused to pay tribute to Mongol Kublai Khan, which provoked a punitive attack by the Mongols in 1293. At the same time however, rebels from the Kediri lineage took the Singosari capital Kutaraja. Kertanegara was killed, but his son-in-law Raden Wijaya settled in the vicinity.

When the Mongols arrived, Raden Wijaya allied with them to overthrow the Kediri rebels. After this was accomplished, he managed to drive out the Mongol forces by attacking them and creating panic. In the same year, he established the kingdom of Majapahit and became its first king.

1.6. Majapahit
After Raden Wijaya’s successor Jayanegara was murdered, his stepmother put her daughter Tribhuwana on the throne as queen. Tribhuwana appointed Gajah Mada as Prime Minister in 1336. Her son Hayam Wuruk succeeded her in 1350, and under his leadership together with Gajah Mada, Majapahit grew to the greatest empire in Indonesian history. Together with its tributaries, Majapahit extended a measure of control over almost all of present-day Indonesia and the Malay Peninsula and parts of the southern Philippines. It held diplomatic relations with the Champa Kingdom in Vietnam, and with Siam, southern Burma and China. The Sunda Kingdom was subjected when the Sunda royal family was murdered in 1357 after arriving in the Majapahit Empire for a wedding of the Sunda princess to Hayam Wuruk. A punitive expedition to Palembang finished off the remains of the Srivijayan Empire.Gajah Mada is said to have sworn an oath, referring to the palapa, the meat of the young coconut, to secure the boundaries of his kingdom. This oath still supports the current territorial limits of Indonesia. The kings of Majapahit claimed mystical powers and incarnations of Hindu gods, behaved with refinement (halus) and
surrounded themselves with relics(pusaka) to demonstrate their supernatural status. However, if a king had failed in his responsibility for his subjects, the divine legitimacy (wahyu) could shift at any time and a new just (adil) prince might take over.

After Hayam Wuruk’s death in 1389, succession fights weakened the empire during the next century. The Muslim Chinese admiral Zheng He visited the empire and helped establish Muslim communities in Java’s northern coastal cities such as Semarang, Demak, and Tuban. Majapahit lost control in the west to the emerging Sultanate of Malacca. The first Islamic Sultanate on Java, Demak, defeated the remaining descendants of the Kediri rulers in 1527, and the Hindu royalty, courtiers, artisans, and priests retreated to mountain ranges (where descendants still live in the Tengger mountains today) and to Bali.

Majapahit’s capital was Trowulan, near present-day Surabaya. Today, the remains of the typical architecture of red brick masonry, pavilions (pendopo) and split gates can still be seen here but also on Bali. Clay pottery, such as a terracotta piggy bank, is still on display in the National Museum. Irrigated rice fields in the north-eastern plains of Java, and the strategically located ports on Java’s north coast on the trade routes to the Moluccas, were important sources of prosperity for Majapahit. The techniques of maintaining power included the appropriation of the rights to local leaders to levy taxes on trade.

1.7. Arrival and Spread of Islam
Arab traders must have arrived in the archipelago as early as the 7th century, on the way to China. The oldest evidence of Islamic settlements in the area, on the north coast Sumatra in an area called Pasai in present-day Aceh, and in Ternate in the northern Moluccas, however dates from the late 13th century. Islam spread south over Sumatra. In 1568, at the request of the sultan of Aceh, the Ottoman sultan sent a fleet against the Portuguese who grew stronger in the area. From that time, until the late 18th century, Aceh remained an Ottoman protectorate.

The earliest evidence of Islamisation on Java dates back to 1369. The traditional view that the egalitarian message of Islam appealed to the common people, has been challenged by some evidence that members of the royalty were among the first to be interested in the Sufi mysticism of Islamic teachers.The connection to the vast Islamic trading network was also an important consideration.

Sunan Gunungjati established the sultanate of Cirebon in 1445 and later also the Sultanate of Banten. The sultanates expanded at the expense of the ancient Hindu kingdom of Sunda. Sunda King Prabu Surawisesa Jayaperkosa had allowed the Portuguese to establish a fortress and a trading post for pepper at Sunda Kelapa in return for support against the advancing sultanates of Cirebon and Demak. The troops of the sultanates led by Fatahillah however defeated the Portuguese and renamed Sunda Kelapa into Jayakarta in 1527. Good relations with the Ming emperor led to one of the earliest Chinese settlements in Indonesia.

1.8. Sultanate of Mataram
The sultanate of Mataram emerged in Central Java in the mid-16th century to displace the Sultanate of Demak. It expanded especially under Sultan Agung from 1613 to 1648, but failed to defeat the Sultanate of Banten and failed to drive the Dutch, who had arrived in the archipelago in 1596, from their new establishment Batavia.

Following an internal power struggle, the Dutch helped king Amangkurat II to the throne in 1677, in order to ensure a stable Mataram Sultanate with a king indebted to the Dutch. The king remained apprehensive of the growing Dutch influence on Java’s coastline, and the relationship remained uneasy. After Amangkurat II’s death, the Dutch therefore supported not his son, but another relative, Pakubuwana I to become king in 1704. This king paid the VOC tributes and granted it many trading privileges. He also allowed the VOC to build fortresses in Java. Resentment against the king erupted in the following years, and the regents in Surabaya challenged the power of Mataram in East Java. The VOC captured Surabaya in 1718. His sons contested the succession of Pakubuwana I after his death, but the VOC intervened again to put Amangkurat IV on the throne. The other contestants were exiled to Ceylon.

1.9. Portuguese
Portuguese traders started to arrive in the archipelago in the early 16th century, after having found the sea route to the precious spices that had so far been the monopoly of Arab traders. After the Portuguese took Malacca in 1511, they arrived in the north Moluccas in 1512. They set up trading posts, missionaries and forts on Ternate, Halmahera, Ambon and Solor. As Portuguese attention then shifted to China, Japan and Brazil, their control of the spices trade in the Moluccas remained limited, and the Dutch drove out them by the mid-17th century. The Portuguese legacy in Indonesia consists of the roots of Christianity and a number of family names in eastern Indonesia, as well as a fair amount of current-day vocabularies.

1.10. Dutch
In 1596, the first Dutch expedition arrived in the archipelago and brought a very profitable load of spices back to the Netherlands. The trading companies of the various Dutch trading cities joined forces in 1602 with the establishment of the United East India Company (VOC). The Dutch States-General subsequently gave the VOC a trading monopoly as well as the power to wage wars, negotiate treaties, establish colonies and coin money to secure its trading might. The VOC set up its headquarters in Ambon in 1610, but started to look for a more centrally located place to support its trade with other parts of East Asia. It established trading posts in Banten. In 1619, VOC Governor General Jan Pieterszoon Coen drove the Bantenese forces out of the town of Jayakarta, and established Batavia as the centre of the VOC’s Asian trading activities.

The VOC expanded its network of trading posts around the archipelago and East Asia, aiming to monopolize the trade in spices. Although its aim was not to occupy land, it did get involved in numerous local power struggles that helped it to expand its trading privileges.

Resentment against the growing presence of Chinese on Java and the falling sugar prices, contributed to heavy riots and a massacre of most of the Chinese population in Batavia in 1740. In the following years, the Dutch colonizers managed to further strengthen their grip on Java as they defeated Chinese rebellion groups and the army of Mataram that secretly sided with them.

When the VOC went bankrupt at the end of the 18th century, the Dutch government took over its trading posts in the East Indies. When the Netherlands were under Napoleon’s rule, British forces occupied the Dutch trading posts in 1811 and Thomas Stamford Raffles was the lieutenant governor until the posts were handed back to the Dutch in 1816. Under the Anglo-Dutch treaty of 1824, the British exchanged the port of Bengkulu for the remaining Dutch possessions in India and Malaya.

Prince Diponegoro of the Hamengkubowono dynasty, one of the dynasties in Yogyakarta succeeding the Mataram Sultanate, led an uprising against the return of the Dutch. This led to the Java War of 1825 to 1830. Diponegoro was lured into arrest and subsequently exiled to Sulawesi.

The Dutch government then systematically started to increase yields from the land. Emphasis was placed onthe compulsory growing of cash crops like sugar, tea, coffee, rubber and tobacco in the infamous Cultuurstelsel. During the 19th and early 20th century, the Dutch East Indies became world leader in the production in these and other commodities, substantially propping up Dutch government finances and funding for industrialization in the Netherlands. It came however at the expense of considerable hardship of the people in the archipelago. Following the publication of Max Havelaar, the Cultuurstelselwas replaced by a more liberal policy. This allowed foreigners to lease land, and the number of European residents increased sharply.

The Dutch ruthlessly suppressed many uprisings, or neutralized them through coalitions with local leaders. Control over the archipelago was expanded in a series of colonial wars during the 19th and well into the 20th century.

The country’s first nationalist movements started to surface in the first decade of the 20th century. The Dutch government largely declined to negotiate with these movements, but did start to pay more attention to public education and health care in the Ethische Politiek (Ethical Policy) in 1901. A young woman of the aristocracy, Raden Ajeng Kartini, expressed the aspirations for better education of the Indonesian people in a series of letters that were published after her death.

A largely symbolic advisory body to the governor-general was appointed, called the Volksraad, to represent the European, Chinese and native Inlanders. In 1920, the name Indonesia came into use. In 1928, young members of various cultural and political associations met in Batavia to declare the Sumpah Pemuda (Pledge of the Youth) for one fatherland, one nation, and one language.

When the Japanese occupied the Dutch East Indies in early 1942, they were initially hailed as liberators. Japanese rule soon turned out to be much harsher than the Dutch colonial government. Two days after Japan surrendered in 1945, Indonesian nationalist leader Soekarno proclaimed Indonesia’s independence.

1.11. Independence and Nation Building
The Dutch tried to regain control over their colony, fearing serious financial problems in its post-war reconstruction. Under international pressure, the Dutch were forced to formally recognize Indonesian independence in 1949.

President Soekarno struggled to unite the various ideological and regional groupings that each had different ideas about Indonesia’s future. His concept of Nasakom, a composition of nationalist, religious and communist ideologies did not provide a workable basis for the country’s government.The economy suffered from political instability and lack of management skills. In 1953, the Acehnese ulama (Islamic scholar) Daud Beureu’eh launched a jihad to create a Negara Islam Indonesia, and linked up with similar Islamists in West Java and South Sulawesi to challenge the unitary secular state.

In 1965, GeneralSoeharto took over the power. After a bloody chaos in 1965 and 1966 in which hundreds of thousands alleged communists were killed, the Orde Baru (New Order) a three-decade era of authoritarian rule and general economic improvement began. National systems of basic health care and education were created and the,albeit repressive, political stability heralded a long period of relatively high economic growth. Soeharto’s relatives, his business allies from his time as army commander in Semarang, and the army itself benefited with generous business privileges. These included the granting of clove imports and of flour milling and wholesaling in Java, as well as capital injections by state-banks, to Chinese businessman Liem Sioe Liong. Similar dealings between army commanders and, mostly ethnic Chinese, entrepreneurs became common.

The collapse of the oil prices in the eighties, gave more room to technocrats to roll back some of the most unscrupulous monopolies. In 1998 however, the people had seen enough of the corruption, collusion and nepotism that had started to plague the later years of Soeharto’s rule. Massive street protests led Soeharto to resign. His successor and protégé Habibie organized free elections, which were held in 1999. Many political parties were established, reflecting the country’s ideological and cultural diversity. The party of Soekarno’s daughter Megawati, the PDI-P,  won most of the votes, but the Islamic parties in parliament worked together to make Abdurrahman Wahid, the leader of one of the country’s largest religious organizations, the first democratically elected president.

His rule, from 1999 to 2001,was characterized by inclusiveness, reconciliation and religious tolerance. His top-down leadership style, by some observers considered erratic, however, he started to clash with a self-confident parliament, and eventually led to his impeachment. In 2001, Parliament appointed Megawati as president.

President Megawati was especially popular among the country’s many poor, but her relationship with religious leaders remained uneasy. Her image as an indecisive leader was aggravated by her failure to deliver economic improvements to her constituency, and by several serious terrorist attacks that had started to unsettle the country in 2002.

At the second round of national elections, in 2004, the people voted for the co-ordinating minister for political affairs and security, Susilo Bambang Yudhoyono, an army general who was perceived as being more effective in fighting terrorism and out-of-control corruption. His election was followed by a crackdown on terrorist groups, a campaign against corruption, a return to political stability and a revival of domestic and foreign investment.

For his policy and for the fact that he had proven to be a clean and moderate leader, he was soundly re-elected in 2009, even though the economic expectations of many people were not met. His second tenure was complicated by a troubled relationship with his most important coalition party, Golkar. This party of former president Soeharto, continues to wield significant influence through its wide network of rich businesspeople. The party forced the president to compromise on his reform policy. The president’s second administration had trouble delivering on badly needed infrastructure improvementand was reluctant to take action against increasing religious intolerance in some parts of the country.In the last days of his presidency, the president’s Democratic Party abstained from voting on the abolishment of the direct regency and provincial elections. This allowed a coalition of parties who had pledged their support to presidential candidate Prabowo Subianto to abolish these direct elections. Most Indonesians were angered by this partial reversal of democracy. Prabowo at that time had lost the presidential race against the newlyelected president Joko Widodo.

Joko Widodo, or Jokowi as he is commonly known, won the presidential elections in 2014, together with the pragmatic businessman Jusuf Kalla as his vice-presidential candidate. Both have demonstrated their ability to solve complicated problems in their previous government positions. Jokowi has a very wide popular appeal with his direct approach, humble appearance and rigorous integrity. His government’s policy prioritizes inclusive economic growth, and improving public services and is characterized by pragmatism and nationalism.

The Jokowi-Kalla cabinet will however face stiff opposition of the parties supporting Prabowo, former chief commander of the Indonesia’s Special Forces Kopassus, who favours a strong and not necessarily very democratic leadership. The Prabowo coalition has secured all key positions in the Parliament, and is intent on doing the same in local parliaments. This would give it much opposition power. President Jokowi also needs to deal with the interference of Megawati, the chairwoman of his party PDI-P. She is trying to extend the political dynasty of her father, Soekarno.

1.12. Indonesia Today
Having stood the serious test of social and political upheaval at the end of the last century, Indonesia is today a country in the process of building an effective government and society structures in a democracy. On paper, Indonesia is about as democratic as it gets, with almost all public officials, from community heads to the president, elected in often fiercely contested elections. In reality, many parts of the government are still functioning with the same top-down approach and eagerness to direct society, as they always have. Transparency has however been a big achievement of the developments since 1998, and public scrutiny has helped to reduce excesses of power abuse. Eliminating corruption has been a top priority for the government and a major desire of the people. There have been clear improvements, as a growing number of government services are now functioning well and relatively corruption-free. The task is
however far from fully accomplished.

At the same time, the system of organizing the roles and responsibilities of different parts of the government and parliament, is effectively still under development. This is hampering the effectiveness of the government especially in constructive areas, such as infrastructure and modernizing the country’s industrial base.

2. The Indonesian Culture
Indonesia is home to a myriad of cultures, of which some common traits belie a very wide variety of norms, community structures and customs.Yet, some of these cultures have gained an importance exceeding regional boundaries in Indonesia, and a short description of these can be helpful in understanding the Indonesian business environment.

2.1. Aspects of Indonesian Culture
2.1.1. Javanese Culture
Around 60% of Indonesia’s population lives on the island of Java and there are communities of Javanese people throughout the country. Also, the influence of kingdoms based in central and east Java extended over large parts of the archipelago during Indonesia’s history. The culture that developed in these kingdoms is what is commonly referred to as Javanese culture.

Unity, harmony,and a stable hierarchy in the group have a higher priority than establishing who is right and who is wrong. Accepting a leader to ensure social order is more important than evaluating his personal qualities. Discomfort in communities with new philosophies or with new forms of religion also appears to be explained by the striving for unity and harmony.

Panutan refers to the role that each member of the society, or of an organization, has, and the respect for patrons that comes with it. This respect for patrons is central in Javanese culture. For families it is the oldest family member, for employees in an organization the patron is the director, for the larger society it is the king. Respect for age transgresses the formal hierarchy, so even the formal leaders are expected to show respect for people who are older than they are.

The patron is expected to know best and make the wisest decisions and to take into account the interests of the group and its members. The members of his, or in some cases her, groupare not expected to give their opinion unless they are asked for it. The patron is expected to understand what the real meaning is of the opinions that are being expressed to him, depending on the way they are formulated. Unsolicited opinions or initiatives may be seenby other group membersand by the patron, as an attempt to undermine the patron’s position. Javanese therefore await orders from their superiors. The superior is expected to initiate action, not the subordinates. Saying nothing or taking no action sends an equally clear message as expressing an opinion.

Whilst the members of a group in Javanese culture accept the decisions taken by the patron, they are convinced that fate or the Hinduismnotion of karma, and God, will ultimately lead to the best, and also a just, outcome. Legowo is the acceptance of the result of an effort. Kualat is an improper behaviour that will certainly be met with the karma that it is bound to happen.

All of these lead to a reluctance to take risks and a limited propensity to entrepreneurism. Decisions to be taken are discussed extensively in the group. Outsiders may get frustrated at the apparently slow decision making process. However, once decisions are taken, they are carried out consistently.

Tepo seliro is an important aspect of Javanese culture. It refers to the mutual respect for each other’s feelings. It makes Javanese people very careful in expressing opinions, as they may disappoint others. Outsiders often have difficulties with this, and perceive Javanese to be insincere or even unreliable. In reality, the Javanese person expects the receiver of the message to understand that tepo seliro is applied.

Society is very much seen as it is experienced, which makes it difficult for political ideologies to thrive. This still makes it difficult to label political parties in terms of liberalism, socialism, or even religion. Voters sympathize with a party figurehead and his or her perceived character and behaviour. Parties make little or no effort to write, let alone explain, their philosophy or a consistent program.

Contents and form are closely linked. Good and beautiful belong together. Important events are meticulously planned and lavishly decorated.

2.1.2. Hinduism
Hinduism and Buddhism were the major religions of the kingdoms in Java and Sumatra before the arrival of Islam.In Indonesian Hinduism, the belief in Brahma (the creator), Vishnu (preserver), and Shiva (the destroyer) as well as in all of the other Hindu Gods and Goddesses have remained central. In Bali, the Gods have also come to represent spirits and ancestors, that can do good or evil and that must be pleased in extensive rituals marking important events in people’s daily lives. In Bali, even a kind of social stratification system reminiscent of the Indian caste system is still in place.

Many traits of Hinduism are also still visible today on Java and on Kalimantan. The lessons and characters of the Mahabarata epos are still part of people’s education and form an integral part of the Javanese view of the world. Characterizing people by one of the characters of the Mahabarata and seeing a strong link between people’s appearance and their character are part of the way in which people view each other. This view on people is still very visible in the wayang (puppet) plays that remain an important form of entertainment, education and political debate to this day.

A higher level of consciousness and wisdom is sometimes sought by kebatinan, a mysticism with meditation, self-denial, and ascetic practices.

2.1.3. Islam
Islam arrived in Indonesia before the arrival of Europeans,and after native religions and the local versions of Hinduism and Buddhism were already firmly established. Most Indonesians are Muslims and many observe and practice the five pillars of Islam with varying degrees of strictness, but their beliefs and traditions are still very much shapedby the pre-Islamic culture.

The five pillars of Islam
1. Shahadah: declaring there is no god except God, and Muhammad is God’s Messenger
2. Salat: the ritual prayer five times a day
3. Sawm: fasting and self-control during the blessed month of Ramadan
4. Zakat: giving 2.5% of one’s savings to the poor and needy
5. Hajj: pilgrimage to Mecca at least once in a lifetime if a person is able to do so

Strict interpretations of Islam are advocated by relatively small parts of the population,often in response to deprivation and perceived abuse of power. Administrators in some regencies have issued regulations based on Islamic law (sharia), even though Islamic fundamentalism has very little support among the public. Pesantrens(Islamic boarding schools) and Madrasahs (Islamic schools) often offer poor children the only possibility for a good level of education.

As Muslims during Dutch colonial era established contacts with the Middle East, they learned of the Wahhabism, who wanted to return Islam to its origins, but also with streams to modernize Islam. The Sarekat Islam, established in 1912 was an early nationalist organization. The apolitical Muhammadiyah was established to teach followers in its network of schools and local branches, the importance of keeping the faith pure, but also to observe proper behaviour and to be pragmatic and use logic.  TheMuslims who were more traditional Javanese tended to be more oriented to inner religious experience, more ceremonial and were more open to other beliefs and practices. They would feel more at home in the Nahdlatul Ulama (NU), established in 1926, which is known to be more pluralistic.

In explaining how the Javanese culture has mixed with Islam, the American anthropologist Clifford Geertz distinguished three streams of Muslims: santri (devout Muslims), abangan (moderate Muslims who also practice many pre-Islamic rites), and the Javanese aristocracy who could be quite overtly Hindu.

2.1.4. Importance of the Group
Indonesians belong to a group. An individual is defined by the group of which he or she belongs to. Group culture is an essential aspect of Indonesian society. The group provides the much needed close relationships to other people, and a set of norms and values for decisions. The group also provides more practical but equally essential things like social security and help in undertaking life’s big tasks such as organizing wedding, building home, and finding work. Indonesians will not do anything that would alienate them from the groups to which they belong, which means anything that would go against the expectations that the other group members have with regard to that person’s loyalty, respect for hierarchy and especially seniority, and the obligations to help and return favours to other group members.

The most important of these groups, is the family. Relationships with relatives that are often more distant in western cultures, such as uncles, aunts, and cousins, are usually almost as close as with a person’s own parents, brothers, sisters and children.Other important groups are the local community, clans of families,the work organization and associations of alumni.

Differences within groups tend to be resolved within the group by applying the rules of the group, which commonly known as custom law. Each group has their own custom law, established and incorporated based on the tradition and culture within the group itself. Despite the variety of custom laws in Indonesia, the core concept of dispute settlement, either within or between group, is the principle of consensus (musyawarah mufakat). Failures to reach settlement in the consensus will be followed with dispute settlement mechanism in accordance with the prevailing laws of Indonesia. To note, certain disputes can be brought before the international dispute settlement body (eg. international arbitration) which will be further elaborated in the chapter 8.

2.1.5. Nationalism
The importance of belonging to a group has been used by the nation’s independence leaders in creating a national identity. The government has been successful in this by introducing the use of one language throughout the country, and by trying to capture the common denominators of the religions and cultures in Indonesia into five basic national values, the Pancasila.

Pancasila
Formulated in the process of Indonesia’s independence and nation building, the state ideology Pancasila consists of five principles that seek to integrate the diverse beliefs that existed (and to some extent continue to exist today) and to support national, social and political cohesion.

1. Belief in the divinity of God, (Ketuhanan Yang Maha Esa)
2. Just and civilized humanity, (Kemanusiaan Yang Adil dan Beradab)
3. The unity of Indonesia, (Persatuan Indonesia)
4. Democracy guided by the inner wisdom in the unanimity arising out of deliberations amongst representatives (Kerakyatan Yang Dipimpin oleh Hikmat Kebijaksanaan, dalam Permusyawaratan dan Perwakilan)
5. Social justice for all of the people of Indonesia (Keadilan Sosial bagi Seluruh Rakyat Indonesia)

Even though since the reforms of the turn of the century, the Pancasila has been dismissed as a tool of authoritarian rule, it continues to be one of the most important binding forces of national unity, and has maintained much of its relevance in easing tensions between religions and social groups and in the push for a socially responsible government.

With belonging to a group, comes respect for the hierarchy.

2.1.6. Importance of Hierarchy
Indonesia’s group culture gives every person a place, each with its own rights and obligations. It provides stability and certainty in an unruly world, but this requires that each person torespect other people that are higher up in the organization. This respect needs to be shown, and is underlined in meticulous symbols and ceremonies.

Hierarchy is not only defined in formal positions. Age, seniority in school, and descent can all be sources of a higher hierarchical position that are often only visible to the group members.

Being the formal leader of a group implies responsibility for the group members. Leaders are expected to treat each group member with respect and to ensure that the group member can keep his or her place, no matter how lowly that person’s position is. A group member is expected to show their respect to the group leader. Frank feedback is therefore often difficult to get for a group leader; the group leader is expected to know what is on the subordinates’ minds.

2.1.7 Importance of Religion
Indonesians generally have strong faith. Religion plays an important role in organizing the hopes, concerns, confidence, and passions in the psyche of most Indonesians and is a non-negotiable part of a person’s set of beliefs. More than 70% of Indonesians indicate they regularly visit places of worship, much higher than the levels in Europe or Australia, but a similar level as in the US.

Religion for the large majority of Muslims and small minority of Christians means the belief in one God. Most Indonesians are both devout in the rituals and traditions of their own religion as well as tolerant to other religions. Adherers to different religions in an organization work together without friction and give each other full room to carry out their religious duties.

In local communities, religious tolerance is however less normal. Religion has been, and still is, an important factor in defining communities and binding members to the group. If expressions of other faiths show up in a community, these are often seen as the starting point of a possible disintegration of the community. This would, in the minds of many people, threaten the foundation of their lives. This therefore explains the violent backlashes in some places against religious minorities, such as Christians and Ahmadiyah that have established themselves in a number of communities on Java.

Religious activists have been grouping themselves at supra-community level to press for religious unity, often deploying street violence.

Religion also means the belief in mystical forces that shape events, especially in Indonesia. For most Indonesians, the forces of spirits are very real, and need to be managed in order to keep them favourable. Purist Muslims, a minority in Indonesia, often rally against the mix of Muslim and traditional beliefs that make up the religion of most Indonesians and that cause Indonesia to be seen as a moderate Islamic country.

The strong foundation in religion and the importance of the group culture, create an acceptance of fate and, some would argue, a rather weak drive to take control of destiny.

Muslim Organizations
Nahdlatul Ulama (NU,www.nu.or.id)
NU is the Indonesian Organization of the Islamic Movement that was founded in 1926 by. K.H. Hasyim Ashari to strengthen traditional Islam and unify Indonesian Muslims. NU, meaning ‘the awakening of the ulama’, represents a more liberal, tolerant Sunni Islam in Indonesia.

NU reformed the education in pesantren (boarding schools), whose students along with the kyai (teachers) are the backbone of the NU. They also introduced the education of girls and established a women’s organisation (Muslimat).

To affirm the basic principle of this organisation, K.H. Hasyim Ashari wrote the books Rights Qanun (basic principles) and Wal Jamaat Ahl I’tiqad. Both books were then embodied in Khittah NU, which is used as the basis and reference of NU members in thought and action in the social, religious, and political sphere.

Muhammadiyah(www.muhammadiyah.or.id)
Muhammadiyah is an Islamic organization that was founded in 1912 by K.H. Ahmad Dahlan in Yogyakarta as a reformist socio-religious movement. Muhammadiyah is the second largest Islamic organization in Indonesia with 29 million members and regarded as more conservative than the NU. Although often actively involved in shaping the politics in Indonesia, Muhammadiyah is not a political party. Instead, it has devoted itself to social and educational activities for which it maintains both modern secular co-educational institutions and segregationally religious institutions.

Ikatan Cendekiawan Muslim Indonesia(ICMI, www.icmi.or.id)
The Association of Indonesian Muslim Intellectuals abbreviated ICMI is an organization of Muslim scholars in Indonesia.At the outset of its establishment, in 1990, Prof. Dr. B.J. Habibie, as the Minister of State for Research and Technology, chaired ICMI. ICMI’s purpose is to improve the ability of Muslims in the field of science and technology. Although it does not have the same grassroots network nor the connections that NU and Muhammadiyah have, ICMI has served as a springboard for political careers, and ICMI connections remain a widespread and influential network.

Front Pembela Islam (Islam Defenders Front)
The Front Pembela Islam (Islamic Defenders Front) was established in 1998 in Jakarta. It is estimated to have around 50,000 followers. Although their street protests and raids by their paramilitary wing called Laskar Pembela Islam on entertainment spots around the country are the most visible, the group actually lobbies at a political level for more influence. The group has been openly defiant of the government in advocating action against other religions. Representatives of the national and local governments have often tended to yield to FPI’s threats of violence. Despite many people refuse the presence and
activities of FPI, the organization is not yet officially disbanded. Leaders of both NU and Muhammadiyah have openly condemned the FPI at several occassions.

When the strong leadership of PresidentSoeharto fell away in 1998, many people felt unsettled by a loss of group coherence and the related norms and values. This has contributed to a rising visibility of religious expressions, such as the jilbab, worn by women, and rallies of religious activist groups.

2.1.8. Modernization
Like in most societies, traditional values are under pressure. Democratization over the last fifteen years has certainly given an impetus to this process in Indonesia. Young people are becoming more individualistic. Disagreements are more openly discussed. Law is becoming more important in regulating the interactions between individuals. Much of this is a reaction to the abuses of the traditional values in the form of corruption, collusion and nepotism, jointly referred to by the Indonesian acronym KKN that had become pervasive during the Soeharto dictatorship regime.

2.2. The Main Population Groups
Apart from the Javanese, some population groups are large and have spread from their region of origin across islands in the archipelago. Some features by which they are known in Indonesia are given below, although of course any attempt to describe each group of course would require much more than a few lines.

2.2.1. Acehnese
On the northern tip of Sumatra and at a crossroads of international trade, Aceh has been an independent sultanate for centuries. The Dutch initially left the powerful sultanate to be a buffer between the Dutch and British settlements, until oil was discovered in the region. It took a particularly fierce struggle to conquer the sultanate of Aceh, and the Acehnese have long been ambivalent to becoming a part of Indonesia after the independence. Decades of long struggle by the Free Aceh Movement (Gerakan Aceh Merdeka) only ended after the devastating 2004 tsunami.

Often referred to as the verandah of Mecca in Southeast Asia, Aceh was the first areas in Indonesia that fell under Islamic influence. The province is still the most Islamic part of Indonesia, and sharia has been introduced in the province based on Law Number 18 of 2001.

2.2.2. Bataks
The Bataks hail from the province of North Sumatra. They are divided into clans, which can be distinguished by their surnames. Examples of clan names are Tarigan, Nasution, Hutabarat, and Pakpahan. Known to be very outspoken, on the verge of being rude, they have reached prominent positions in the national government, but are also strongly represented in professions like accounting and law.

2.2.3. Minangkabau
The people from West-Sumatra are the Minangkabau, deriving their name (meaning ‘victory of the buffalo’) from a legendary buffalo fight that safeguarded their independence. The most prominent feature of the Minangkabau culture, is the matrilineal family structure, in which the female bloodlines determine family structures and inheritance. Business people from the coastal Padang area have a reputation for being good traders and tough negotiators.

2.2.4. Sundanese
Sundanese are the people of West Java. Traces of the Hinduism origins of the Sundanese kingdoms, which long withstood the advances of the empires of central and eastern Java, can still be found all over West Java. Sundanese are often seen as easy going and cheerful, although many communities in the rural areas are staunchly conservative.

2.2.5. Javanese
The Javanese are the people from Central Java, the cultural heartland of the kingdoms based in Yogyakarta and Solo. With many beliefs and traditions still firmly rooted in the former Javanese kingdoms, the culture of the Javanese is probably Indonesia’s strongest example of a hierarchical society. Different levels of the Javanese language are used, depending on the person addressed, and it is rare in Javanese culture to express opinions in a straightforward manner.

2.2.6. Chinese
Chinese settlement in Indonesia goes back to at least the time of the arrival of the Chinese fleet under Admiral Zheng He in the early 15th century. Under Dutch colonial rule, many Chinese migrated from mainland China not only as traders, but also as labourers. These immigrants have been assimilating strongly over time, intermarrying with Indonesians, and speaking the local language more fluently than their ancestral Chinese dialects. They were called the peranakan Chinese, and they developed a distinct mix of Chinese and local cultures.

The 1920s and 1930s saw a new wave of Chinese settlers, mostly from the coastal province of Fujian. They were referred to as totoks, or full-blooded, Chinese. Most of Indonesia’s successful Chinese businessmen are from this group of Chinese, or their direct descendants. Some of them owe their fortune to the political privileges they earned in return for their role in supplying the Indonesian independence fighters with goods.Generally however, Indonesians have long regarded the ethnic Chinese, as well as the children of European-Indonesian marriages, as political fence-sitters. Especially the Chinese have been the target of large-scale riots that have burst out every few decades since their arrival in Indonesia.

After the fall of Soeharto, the regulations restricting the cultural expressions by the Chinese have been lifted. The appointment of ethnic Chinese as ministers, and last year also as Governor of Jakarta, can be seen as important milestones in the emancipation of the Chinese.

The importance of the Chinese to the Indonesian economy now appears to be fully appreciated. Dozens of billions of US dollarare still held in Singapore by the Chinese, and they are seen to be instrumental in strengthening the relations with China.

2.2.7. Other Groups
In contrast to the Javanese from Central Java, the East Javanese and Madurese are known to be outspoken and direct. Their conversations often sound noisy, and feelings are often expressed openly.

The Balinese have a very strong culture that, in the island of Bali, transpires into the Balinese’s daily lives. Their Hindu beliefs determine their religious ceremonies, art, and society stratification, which still sets the pace of life in Bali. Balinese kingdoms have survived to this day and the royalty holds a position of authority comparable to that of the families of the sultans in Yogyakarta and Solo.

The Manadonese are from North Sulawesi. They were among the first Indonesian cultures to have direct contacts with Europeans and maintain a
strong Christian culture to this day.

Spices, which were long an important commodity in world trade, have given the Moluccasan important place in Indonesian history. Moluccans have long aspired to independence for their vast but remote and thinly populated islands that cover much of the eastern territory of Indonesia.

Although small in numbers, the Papuans living very thinly spread across the vast and inaccessible landmass of Papua, are an astonishingly diverse group tribes, with a variation of physical features, cultures and languages that is greater than the rest of Indonesia.

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About Mr. Elmar Bouma
Mr. Elmar Bouma shares his long time exciting experiences working in Indonesia as part of his book of “A Guide to Doing Business in Indonesia 2016”. In this article, he shares “A Brief History and Indonesian Culture”. His book is available now. Email: elmarbouma@hotmail.com

For over 18 years, he was a Director of Indonesian-Netherlands Association (INA). Visit http:  http://www.ina.or.id/ and http://indonesia-now.com/career/gelukkig-nieuwjaar-welkom-bij-indonesie-5

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