"We Need Shock Therapy"

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ning Indonesia—a fractious nation of 240 million people from more than 350 ethnic groups spread over some 17,500 islands—is a tough job at the best of times. But the country's new President, Susilo Bambang Yudhoyono, is taking over at a particularly difficult juncture. Terrorism is a constant threat. Among Asia's major developing economies, Indonesia's is growing the slowest. Recent years have witnessed a net outflow of foreign capital, frightened off not just by bomb blasts but corruption, red tape and a capricious legal system. The authorities have yet to resolve the stubborn separatist insurgency in the province of Aceh, and clashes between Muslims and Christians erupt periodically. When Yudhoyono, a 55-year-old ex-general, met with Time's Simon Elegant and Jason Tedjasukmana last week in his first interview since taking office, he appeared relaxed and confident, undaunted by the enormous challenges he faces. Excerpts:

TIME: What will you do to fight terrorism in Indonesia?
YUDHOYONO: We will improve the capabilities of our intelligence, police and immigration officers to detect terrorist activities. I'll ask the provincial governments to do the same, so terrorist movements will not have a chance to grow.

TIME: How will you deal with Jemaah Islamiah, the network of Islamic militants blamed for bombings in Bali and Jakarta, and the radical religious schools linked to those found responsible?
YUDHOYONO: This will require communication and the right approach, so that law enforcement will not be misunderstood [by the Indonesian public] as the government's doing something unfair toward certain individuals or religious schools. I will review the steps being taken to deal with terrorism by the judicial, intelligence and police bodies to determine what actions need to be taken to eliminate terrorism, including the position of Jemaah Islamiah and places suspected of having ties to terrorism. After the review, if there's proof that Jemaah Islamiah as an organization does exist in Indonesia and that its members are involved in terrorist activities, then it will be declared a banned organization. We will use the legal process, so that this is a law-enforcement issue, not a political one.

TIME: Indonesia ranks as one of the world's most corrupt countries, and one of the most difficult places to do business. How will you tackle these problems?
YUDHOYONO: We have to eradicate corruption structurally and culturally. I've told the police and the Attorney General that any corruption cases once held up should be started again. My own office and those of the Vice President, the ministers and the provincial governors need to be seen as clean and corruption-free. I've asked that the same steps be taken at the provincial-government level. I've also asked the Attorney General to take legal action against any banks that are unhealthy, or where there are indications of corruption, regardless of who is behind them. This country will be destroyed if we do not stop the growth of corruption. There needs to be some shock therapy so that the people know that this government is serious about corruption ... We want to improve the investment climate, starting with political stability, improved security, good taxation and economic policies, and legal certainty—sanctity of contracts, and that all dispute-settlement systems are fair.

TIME: Five executives of the local subsidiary of the U.S. company Newmont Mining Group were jailed for a month because of alleged environmental violations. Will such actions hurt foreign investment in Indonesia?
YUDHOYONO: The chief of police reported to me about the Newmont case. I asked that the legal process be carried out fairly. If the case is handled fairly, without any political interference, it will be good for business and investment. I have asked that all the evidence be presented in court. We don't want any deviation in the legal process. We want all the involved parties to be able to follow the proceedings transparently.

TIME: Some say the military is too independent and powerful. Should it be placed under the Defense Ministry to ensure greater civilian control?
YUDHOYONO: This is a time of political transition. At the right time, the military has to be placed under the Defense Ministry to ensure that politicians are the policymakers. But we have to make sure that a civilian Defense Minister knows how to separate military and political matters. [In the interim,] I will make sure that communication and coordination are solid between the Defense Minister and the military, and that it is the Defense Minister who determines policy and budget. What we don't want is for the military to be used for any political purposes. This will be counterproductive to the growth of democracy in Indonesia.

TIME: You still often hear about human-rights violations by the military, especially in Aceh. What can be done to stop the abuses?
YUDHOYONO: The military's respect for human rights is getting better. The number of cases of human-rights abuses in conflict areas is much less now. If there's still violation in places like Aceh and Papua, we will hold military trials. None of these cases will be delayed or suspended just because they're in operational areas.

TIME: Will you restart peace negotiations with the separatist rebels of the Free Aceh Movement?
YUDHOYONO: The current military operation under way in Aceh must be maintained; if there were to be a power vacuum, a new threat to security could arise. But there should also be a new approach to finding a peaceful solution. There is an opportunity for us to end the conflict in Aceh with a new policy. I appeal to the leaders of the separatists to reunite [with Indonesia], and to their soldiers to come out [from hiding] and disarm. That would be the end of the armed struggle, and would allow for special autonomy to be carried out. I will consult with parliament about granting amnesty to those who voluntarily surrender.

TIME: The government has long subsidized fuel. But oil costs are rising, and the subsidies are straining the budget. Yet if you remove them, the price hikes could set off riots, as they have in the past. What will you do?
YUDHOYONO: I've asked the relevant ministers to conduct an analysis of the impact of higher fuel costs on the subsidy policy and the 2005 budget. If the subsidies seriously burden the budget, then I will set new policies that might affect the price of certain fuels, particularly those not consumed by the poor. Kerosene and diesel would still be subsidized, while premium gasoline would no longer be subsidized. Clearly our budget has to be fiscally sustainable, but the poor also need to be protected. Whatever the policy taken, the poor will be protected.

TIME: Are you enjoying being President?
YUDHOYONO: Oh, yes, of course. But for me it's not a matter of fun but of responsibility. A challenge, a mission and, of course, an education. There are so many fundamental issues that I have to face.