Indonesia is arguably the country hit hardest by the Asian financial and economic crisis, with a decline in the economy of 13.7% in 1998 (Birol, 1999, p. 143). The economic crisis and the resulting IMF adjustment program have given an impetus to energy market liberalization and subsidy removal. First steps to remove the subsidies on kerosene and diesel oil, however, met with widespread protests and have been partly withdrawn.

Apart from its recent economic crisis, Indonesia has experienced political turmoil as well over the past year, which has had some impacts on the country's energy sector. Following a referendum in August 1999 in which the majority of voters in East Timor chose independence from Indonesia, violence erupted, leading to the introduction of a multinational peacekeeping force to oversee the transition. Among other things, East Timorese independence calls into question the Timor Gap Treaty, under which Indonesia and Australia had agreed to split revenues from oil and gas development in the

Indonesia has 10.5% of the known world tin reserves (Worldmark Encyclopedia of the Nations, 1998, p. 177). A tin-smelting plant began operations in Bangka in 1964, and by 1977, it was able to smelt all domestically produced tin ore. Indonesia possesses large deposits of high-grade bauxite. The bauxite is produced at five mining localities on Sumatra. The output is exported primarily to Japan and the rest to the United States. Nickel is produced on Sulawesi and in the Maluku islands, with some of the largest reserves in the world.

In addition to the proven and probable reserves of petroleum, Indonesia had known reserves of natural gas amounting to 114,200,000m. cubic feet at the end of 1998 (The Far East and Australasia, 2000, p. 461). Most of the country's gas reserves are located near the Arun field in North Sumatra, around the Badak field in East Kalimantan, in smaller fields offshore Java, the Kangean Block offshore East Java, a number of blocks in Irian Jaya, and the Natuna D-Alpha field, the largest in Southeast Asia.

In October 1999, after a 32-year rule of the former president Soeharto ended in May 1998 and followed by a transition era, a general election resulted in Abdurrahman Wahid becoming president of Indonesia, with promises to reform the country's economy. Almost immediately, however, the new administration was confronted by a renewed challenge from a separatist movement in Aceh, an oil and gas rich province in north Sumatra which abuts the strategically important Strait of Malacca. One of the key areas in which energy and politics intersect in Indonesia is the distribution of oil and gas revenues between the central government in Jakarta and regional governments in areas which produce oil and gas. The current Wahid administration has proposed that the share of revenue given to regional governments will be sharply expanded, but no legislation has yet been enacted.

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