Acting presidency of Suharto

The 1966 MPRS General Session passed a resolution calling for legislative elections to be held no later than 5 July 1968[5] and this became one of the first matters that Suharto attempted to address during his acting presidency. In doing this, he would have to deal with political parties.[6]

For the political parties, the main point of contention was whether the Legislative Election would use the district system or proportional representation.[7] In the previous year, ABRI had expressed interest in the district system and as such handed to the DPR an election bill which favors the district system. The bill was successfully blocked in the DPR as the list of parties not wanting change to the district system included the Indonesian National Party (PNI) and Nahdlatul Ulama (NU). With time running out until the 1968 Legislative Elections, Suharto needed to hammer out a compromise.

Suharto held a series of meetings during the first three months of his acting presidency with the leadership of the political parties. To accommodate the political parties, Suharto backed out of the notion of a district system and began supporting proportional representation; the trade-off being that the Government would be able to appoint some of the DPR members.[8] The breakthrough was made on 25 July 1967 when the political parties agreed that the Legislative Elections will be held using proportional representation, that the Government will appoint 100 MPs out of the 460 in the DPR, and that the Government will appoint 1/3 of the deputies of the new People's Consultative Assembly (MPR).

Despite the breakthrough it quickly became clear that it would be difficult to meet the deadline set by the MPRS. The bill would have to be rewritten and would have to go through the proper procedures before it could be passed. The bill was resubmitted to the DPR on 16 December 1967 but by January 1968, Suharto reported to the Chairman and Vice-Chairmen of the MPRS that it would be impossible to hold a Legislative Election in 1968.[9]

The MPRS Resolution which appointed Suharto to the acting presidency also gave him the power to take legal action against Sukarno. Suharto chose not to take any legal action and instead, Sukarno was still allowed to reside at the Presidential Palace and enjoy his freedom. Suharto also continued to insist that Sukarno was still the Head of State. Speaking on 13 March 1967, Suharto insisted that Sukarno was still President and Head of State, although without the political power that came with the office. This state of affairs did not last long. By May, Suharto decided that Sukarno was no longer allowed to use the title of President of the Republic of Indonesia and placed the former President under house arrest at Bogor Palace.[10]

During the course of 1967, Suharto confirmed that West Papua would be given a plebiscite concerning the matter of integration with Indonesia.[11]

On 12 September 1967, he signed a bill into a law which approved the formation of Bengkulu Province[12]

By the end of 1967, the Suharto Government had been able to reduce inflation from 650% at the end of the previous year to 120%.[27]

With regards to the budget, Suharto undertook a policy of a balanced budget and the Sukarno-era practice of printing extra money to raise funds when the budget runs short was discontinued. Technically speaking, however, Suharto's budgets ran deficits because foreign aid and external borrowing are not supposed to be counted as revenue.[28]

The new Government also undertook a reform of the tax system. On 26 August 1967, the DPR passed the Amendment and Revision of Collection Methods for Income, Wealth, and Corporate Taxes Law with Suharto smoothing out the details through a Government Regulation (Peraturan Pemerintah).[29][30] Under the new tax system, the taxpayer has two methods by which they can pay tax. The first method is the individual tax counting (menghitung pajak sendiri) method. Using this method it was up for the individual to count the amount of tax they are to pay and to hand the tax in to tax offices. The second method is the non-individual tax counting (menghitung pajak orang lain) method. In this method an individual was appointed by the Head of the Tax Inspection to count and pay the taxes of other individuals. If the individual counting the tax abused their position, they could be subject to a fine of paying 100% tax . Under this system, the roles of a tax officials are reduced to giving information and making sure that the amount of tax that has been paid is accurate.

In terms of monetary policy, interest rates were kept between 6 and 9%.[27] Steps were also taken to reform the exchange rate system by the abolition of the multiple exchange rate of the Sukarno system in July 1967.[31]

In May 1967, the liberalization of the banking sector was continued. ten foreign-owned banks and a joint venture bank were allowed to open. For the foreign-owned banks, the catch was that they were only allowed to operate in Jakarta.[32] On 30 December 1967, the DPR passed the Fundamentals of Banking Law.[33] It was a law that categorized banks, their functions, and the guidelines for establishing banks. Further regulations were expounded by Suharto in February 1968.[34]

With agricultural production still not functioning at maximum capacity, Suharto had to make do with ensuring that the supply of rice and the stability of price was guaranteed. On 10 May 1967, Suharto formed the Logistics Affairs Agency (Bulog), to look after these matters.[35] Its position was further strengthened when Suharto named it as the single purchasing agency for rice with Bank Indonesia as the single financing agency. Bulog immediately set a target of purchasing 597,000 tonnes of rice for the year but would delay when it comes to purchasing rice, preferring instead to wait until harvest season to make their purchase.[36] However the year's harvest was bad and from September 1967 onwards there was a shortage of rice. Although the bad harvest meant that Bulog was unable to fulfill its target purchase, it had 280,000 tonnes of rice under its control. Nevertheless, instead of sending its supply of rice to the market, Bulog focused instead on distributing rice to members of ABRI and the civil service. With high demand and no step being taken on the supply side, the price of rice had nowhere to go but up, its high price causing discontent within the population towards the end of the year.

On 8 July 1967, the DPR passed the Guidelines for Animal Husbandry and Health Law.[37] The law called for setting aside land to grow animal food and for vaccination against animal diseases as well as categorizing the different kinds of Farming Enterprises and calling on the Government to invest capital in animal husbandry.

In July 1967, the Government simplified export import procedures in addition to taking a step back and giving as well as assisting the private sector an opportunity to conduct trade.[38][39] For the year 1967, Indonesia was able to earn $770 million from its exports although it would spend $805 million from its imports and thus, running a trade deficit.

In earning $770 million from exports, $244 million was earned from exporting petroleum whilst $526 million was earned from non-petroleum exports. These non-petroleum exports included timber, rubber, coffee, tin, palm oil, tea, tobacco, pepper, copra, and palm seeds. Timber was the highest non-petroleum export, raking in $227.8 million. In spending $805 million on imports, $68 million was spent on petroleum whilst $737 million was spent on non-petroleum imports. Some of the non-petroleum imports included rice, flour, fertilizers, cement, paper, iron, steel, tractors, and aircraft. For the most part, the imports were raw materials which constituted 36.6% of the imports followed by consumption goods on 35.8% and capital goods on 27.6%.

Mining, both for oil and mineral resources alike, received legal recognition under the Guidelines of Mining Law.[40] It gave guidelines for mining processes as well as giving private enterprise the opportunity to do business in the mining sector. Under this law, the private enterprises are to pay fees for the contract, exploration, and exploitation to the Government who in turn will hand it over to the Provincial and Regency Governments to be used for development. The importance of petroleum quickly become apparent by the fact that it was Indonesia's top export earner for the year 1967, bringing in $770 million's worth of revenue.

In the field of forestry, the DPR passed the Guidelines of Forestry Law on 24 May 1967.[41] The law outlines the categories of forests, from protected forests, which exists for the purpose of preventing floods and erosions to production forests, from which timber are cut down to be exported. It also set provision for nature reserves and forests set aside for the purpose of tourism.

In December 1967, Suharto issued regulations for private enterprises wishing to exploit Indonesian forests.[42] Suharto set down the conditions for the private enterprises; first was that they would have to pay license fees and secondly, they would have to pay royalties to the Government based on the amount of forest that they intended to make a profit from. As part of the policy, Suharto regulated that the region from which the forest was exploited will have first priority in receiving the money made from the two fees for the purpose of regional development.

At the beginning of 1967, the Government passed the Foreign Investment Law. By the end of 1967, 23 projects with the backing of foreign capital was approved: 14 direct investments, 8 joint ventures, and 1 working contract.[43] Another investment law, this time directed towards domestic investors, was also in the process of being formulated.

Starting from February 1967, the Government began receiving aid from a group of donor nations and or organizations called the Inter-Governmental Group on Indonesia (IGGI). IGGI consisted of Australia, Belgium, Britain, Canada, France, Japan, New Zealand, Switzerland, the United States, Asian Development Bank (ADB), the International Monetary Fund (IMF), the United Nations Development Program, and the World Bank. In 1967, the Government received $675.4 million in aid; comprising credit, food aid, infrastructural aid, and technical aid.[39] With regards to the Communist Bloc, the nations from which Sukarno had already borrowed heavily during his presidency, Suharto wanted Indonesia to settle all of its debts plus interest although debts would still be rescheduled. Starting from mid September to early October 1967, protocols on debt rescheduling were agreed upon and signed between Indonesia and the Governments of East Germany, Czechoslovakia, and Hungary.[44][45][46] In November 1967 it was the Soviet Union's turn to sign a similar protocol with Indonesia.[47]

In July 1967, the Government completed the Jatiluhur Dam in West Java. The Government saw the dam as a multipurpose infrastructure; expecting it to supply water to Jakarta and West Java, generate electricity, stop floods at Citarum, increase fishing production, and as a place for tourists to recreate.[48]

Throughout the course of the acting presidency, the Suharto government did some work with regards to state-owned enterprises. The government established new state-owned enterprises in the fields of the textile industry and urban planning.[49][50] Similar to parallel regulations regarding the ABRI and the bureaucracy, the government also issued regulations regarding pay and allowances regarding those who work in state-owned enterprises.[51]

On 18 December 1967, the DPR passed the Basics of Cooperatives Law.[52] Although the previous Government already had its own Cooperatives Law which was passed in 1965, the Suharto Government viewed it as a law that politicized cooperatives. By requirement of the Sukarno-era legislation, a cooperative had to represent nationalist, religious, and communist elements in the adoption of Sukarno's Nationalism, Religion, and Communism (Nasakom) concept and cooperatives was required to view itself as an equipment of the revolution. The new law placed cooperatives back as a purely economic institution and to undo the previous cooperatives law, does not approve of discrimination based on political beliefs amongst its leadership. The new law also called for the Government to guide, assist, supervise and protect cooperatives in its policies. This in effect, gives the Government authority over cooperatives although considerable autonomy was still given to the cooperatives.

As acting president, Suharto had already begun to take steps to show that he wanted to adopt family planning as Government policy on a national scale.[53] In 1967, he signed the UN Declaration on Population and had already taken steps to implement family planning.[54] By the end of 1967, 6,456 people had participated in the family planning program (KB) with the infrastructural backing of 116 KB clinics.[55]

The Ministry of Manpower experimented with a social security system in 1967. Through a Ministerial Regulation, a Social Security Fund was established by the Department of Manpower.[56] Under this fund, all costs for illnesses, pregnancy, giving birth, and deaths were covered by the Ministry. Only employees of private enterprises are eligible for this entitlement and it was not compulsory.

On 7 August 1967, the DPR passed the Veterans of the Republic of Indonesia Law. The law outlines not only the criteria for being a veteran but also their privileges; including receiving preference should a veteran apply to be a civil servant in government, being allowed to go back to their old civilian jobs after they finished their service, and to receive skills education from the Government before they return to full civilian life. The law also called on the Government to ensure the veterans’ social security through grants. The law granted the Veterans’ Legion of Indonesia, the national organization for veterans' affairs established in 1957, its own charter and a revised organization and leadership.[57]

In religious affairs, Suharto adopted a stance of supporting religious tolerance and was against forced religious conversion.[58] As will be seen however, this tolerance does not extend to Confucianism.

By the end of the acting presidency, the Suharto Government had taken measures to suppress the cultural life of its Chinese Indonesian citizens. The policies that were adopted include the non-recognition of Confucianism as a religion, banning Chinese holidays such as the Chinese New Year, banning Chinese newspapers, banning Chinese schools, and banning the usage and teaching of Mandarin.[59]