The Indonesian government's transfer of jailed East Timorese leader Xanana Gusmao to a form of house arrest this week is another indication of an unstable and unravelling political situation in Indonesia, as well as intense international manoeuvres over the future of East Timor itself. It also points to the trajectory of Fretilin, the Timorese secessionist movement.

Until recently, the military regime in Indonesia continued to refer to Gusmao, sentenced to life imprisonment (later commuted to 20 years' jail) in 1993 for leading guerilla resistance to Indonesian troops, as a "criminal". This Wednesday, in personally welcoming Gusmao to his new specially furnished prison house, Justice Minister Muladi praised Gusmao as "very moderate and co-operative".

Muladi expressed the hope that Gusmao's removal from Jakarta's maximum-security Cipinang prison would enable him to "work and participate" more actively in finding a solution for the former Portuguese colony, militarily annexed by Indonesia in 1975. "He is one of the key figures," Muladi said. In the same breath, he said Indonesia maintained its opposition to demands for a referendum on the status of the half island.

Muladi also signalled that a ban on another key Fretilin leader, Jose Ramos Horta, barred from entering the country for the past two decades, could be revoked to enable him to join talks. In the past the Indonesian regime has labelled Horta, Fretilin's foreign spokesman, as a supporter of "terrorism".

With Horta as his vice-president, Gusmao is the president (formally referred to as "lider maximo" or supreme leader) of the National Council of Timorese Resistance (CNRT) established in Portugal last year as a government-in-exile. Its chief components are Fretilin and the Timor Democratic Union. By acclaiming Gusmao as a "moderate" and renouncing its ban on Horta, Jakarta is looking to them to secure a deal that will uphold Indonesian interests in East Timor.

Speaking from New York, where UN talks on East Timor's status broke down, Indonesian Foreign Minister Ali Alatas suggested that expanded consultations with East Timorese leaders--such as Gusmao and Horta--could be a substitute for a ballot on the territory's future.

Both Gusmao and Horta have in recent days said they will do everything in their power to protect Indonesian and pro-Indonesian elements in the event of autonomy or independence. Horta said any transitional government formed in East Timor must represent "various sectors" of the population, including those supporting integration into Indonesia.

The shaky Indonesian administration of B.J. Habibie, installed when General Suharto resigned as president last May, has been under mounting pressure from the major powers, particularly the United States and the European Union, to release Gusmao in order to negotiate a settlement with the East Timorese leadership. This pressure had taken the form of resolutions by the US Congress, the award of the 1996 Nobel Peace Prize to Horta and Roman Catholic bishop Carlos Belo, and European Union support for Portugal's claims over its old colony.

At stake are multinational investments in Timor, notably in its offshore oil and gas fields, and the potentially destabilising effect that the ongoing East Timorese dispute could have on the rest of the far-flung Indonesian archipelago, where far larger investments are at stake.

Reflecting these interests, the Western media and governments hailed Gusmao's transfer. In a dispatch that was echoed in all the media, Reuters news agency lauded Gusmao as "one of the voices of reason in the debate over the future of East Timor". A frequent visitor to Gusmao's prison cell over the past few years, Stanley Roth, the US Assistant Secretary of State for East Asian and Pacific Affairs, said: "I have been working on East Timorese issues for 19 years. This is the first time in that 19-year period that I am optimistic that there is a basis for a political settlement."

In recent years, Gusmao has received a constant stream of high-profile visitors, including South African President Nelson Mandela and Jamsheed Marker, the UN Secretary-General's Personal Representative on East Timor. The international media labelled him the "Mandela of Timor". Just as Mandela was released from prison to serve a critical role in preserving the interests of South African and international business with the dismantling of apartheid, so Gusmao is being groomed to play a similar part in East Timor.

For all the previous Indonesian demonisation of Gusmao, his actual record has been one of seeking to reconcile the interests of the Indonesian ruling elite and the Western powers with those of an aspiring East Timorese capitalist layer. As early as 1983 he initiated a three-month ceasefire with the Suharto regime, provoking a schism within Fretilin's ranks. Later he conceived a "Policy of National Unity" that embraced the Catholic Church and forged links with pro-Portuguese and pro-Indonesian figures within East Timor.

Together with Horta, he was the architect of a 1992 "Peace Plan" that urged the UN, the European Parliament and the US to adopt a protracted three-phase timetable for "self-determination" in East Timor:

1. Preparation (1 - 2 years)

2. Autonomy under Indonesian sovereignty (5 - 10 years)

3. A UN-supervised referendum with three options: independence; association with Portugal; integration into Indonesia.

In May 1998 Gusmao and Horta were instrumental in the formation of the CNRT, joining forces with pro-Portuguese layers. One of its first acts was to publish a statement pledging to provide Australian and international oil companies with a more secure and predictable environment for their operations in the Timor Gap oil and gas fields. "The National Council of Timorese Resistance will endeavour to show the Australian government and the Timor Gap contractors that their commercial interests will not be adversely affected by East Timorese self-determination," the statement said.

Together with Horta, one of the signatories to the statement was Joao Carrascalao, the third-ranking member of the CNRT's National Political Commission. Carrascalao epitomises the economic interests represented by the CNRT. Under Portuguese rule, his family ran a lucrative coffee-exporting business, while most of the population languished in poverty. After 1975 such businesses were taken over by the Indonesian military or were suppressed to make way for rice-growing and other activities required by the army.

The aim of an East Timorese statelet would be to re-establish these businesses, together with new ones, such as tourism and providing services to the oil and mining companies. With half an island and 800,000 people, this mini-state would have no independent existence but would provide a platform for a thin privileged layer to become minor partners in the operations of the multinationals.

Significantly, Portugal endorsed the 1992 peace plan, as a means of reestablishing its presence. This plan remains the essential policy of the CNRT today. For several months, Horta has been engaged in intensive discussions with UN officials and others on the formation of a UN-approved administration to implement the plan.

The proposal forms the core of the autonomy package that was discussed by the UN envoy Marker, Portuguese Foreign Minister Jaime Gama and his Indonesian counterpart Alatas in New York this week. The talks were set to meet a UN deadline for a settlement but were adjourned until next month.

Indonesian opposition

The UN negotiations failed to reach an agreement after the Indonesian regime remained adamantly opposed to any referendum or ballot on ultimate independence. "Voting is out," Alatas told the media in New York, repudiating claims by Gama that agreement had been reached on a form of "popular consultation".

Alatas has reportedly hammered out a nearly-completed autonomy package with the Portuguese government but Jakarta demands that this be accepted by Portugal, the UN and the East Timorese representatives as a final solution, in return for international recognition of Indonesian sovereignty. If this "take-it-or-leave-it" offer is not accepted, the Habibie government has threatened to quickly pull out of the territory, leaving it in a state of financial collapse and civil war.

The Indonesian military is continuing to arm pro-Indonesian elements and unemployed youth as a para-military force, which is terrorising the population. The military commander in East Timor, Colonel Supadi, has publicly defended the arming of the militia, claiming it is necessary to protect those who want to remain part of Indonesia. "If we don't arm them, there will be more victims on our side. It is better for there to be victims on their side," he told Australian Associated Press. According to a report in the February 1 Java Post, one pro-integrationist leader, Basilio de Arujo, who heads a group called Forum for Unity, Democracy and Justice, has boasted that pro-integrationist groups have 10,000 weapons.

Prominent Indonesian opposition figures have condemned the Habibie regime for even broaching the question of withdrawing from East Timor at all. Megawati Sukarnoputri, hailed in the Western media as a "pro-democracy" figure, was particularly scathing. She declared that the Habibie administration was a "transitional government" that was not authorised to make a decision that would fundamentally affect the unity of Indonesia.

While criticising the Habibie regime for not being democratically elected, her statement legitimised the political structures of the Suharto dictatorship and the annexation of East Timor. "The integration of East Timor into the state and nation of Indonesia is politically and constitutionally legal in accordance to the will of the people of East Timor. It has been approved by the House of Representatives in 1976 and the People's Supreme Assembly in 1987," she said.

Megawati, the daughter of former president Sukarno, speaks on behalf of the Indonesian Democratic Party (Struggle), which could lead the next government, following elections scheduled for June. Her party's congress in Bali last year elected as its deputy chairman, a prominent retired general, Theo Syafei, who commanded the military forces in East Timor when Gusmao was captured.

Megawati is a mouthpiece for key sections of the Indonesian ruling class that reject any relinquishment of East Timor and fear that secession would encourage similar moves in Aceh, the Moluccas, West Papua (Irian Jaya) and other resource-rich provinces. Similar sentiments were voiced by Abdurrahman Wahid, the chairman of the 30-million strong Nahdlatul Ulama organisation, the country's largest Islamic group, who has become a close ally of Megawati's.

Under the autonomy plan being thrashed out at the UN, Portugal--still recognised by the UN as the legitimate ruler of the territory--hopes to resume formal sovereignty under a UN Mandate for a decade or so, before a referendum on independence or continued Portuguese control. In this period, the people of East Timor would be policed by a substantial UN military force, led by Portugal with the possible participation of other countries, such as Australia with strategic interests involved or whose companies have investments in the region.

The various proposals being mooted for East Timor have a common perspective: the protection of profit interests. The haggling and conflicts centre on which sections of business will dominate and who will supervise their requirements: the Indonesian regime or the Portuguese, or the East Timorese leaders, in league with one or more of the major powers.