Jakarta – The future of post-Suharto Indonesia hinges on how the nation handles its military, according to a report by the International Institute of Strategic Studies (IISS) released Thursday.

In its annual report the London-based IISS said Indonesia's two main problems now were safeguarding its drive towards full democracy and cementing its territorial and national integrity.

"Yet, while the future and durability of Indonesian democracy is less assured than the [1999] election results seemed to promise, the country's integrity is less imperilled than some pessimists believed," the institute said.

The IISS was referring to the country's freest and fairest elections since 1955, which culminated in the election of Muslim scholar Abudrrahman Wahid as the country's fourth president in October.

The 1999 poll organizers, the government of former president B.J. Habibie who was handpicked by Suharto to succeed him after more than three decades in power, had already begun the process of reform and democratization picked up and amplified by Wahid.

One of the key reforms taken up by the new president has been to wean the military away from Indonesia's political life and return them to the barracks.

"The success that Wahid has achieved in his slow and careful campaign to put the military back in the barracks needs to be followed up before Indonesia can be certain that its transition to electoral democracy has been completed," the IISS report said.

It warned that the military, which under Wahid has begun to relinquish its long-held influential role in politics, could still step in and reclaim its earlier position.

"At worst, it [Indonesia] could fall apart into mutually hostile nation states, destabilizing the entire region, or to prevent that outcome the army might reassert the dictatorship it seemed to have relinquished so recently," the institute said. But it also said that any such move by the military would create a resistance by large numbers of Indonesians against such "a retrograde lurch."

"At best, it could still become a vibrant pluralist country with far more power devolved from the centre in Java."