W9 - Indonesia Flashcards
What was the consensus opinion of SE Asia until the 1980s and 90s?
Many political scientists considered Indonesia a failed state until the 80s and 90s
Who was Indonesia’s first president after independence?
President Sukarno (1948-1965)
Who was the leader of Indonesia for most of the 20th century after independence?
President Soeharto
When was President Soeharto in power?
1966-1999
What happened in Indonesia in 1999?
Democracy began
What is the story of Indonesia generally?
A country rich in natural resources but underperforming relative to EA, an OPEC member.
How was Indonesia affected by the AFC?
Indonesia’s GDP per capita fell by more than 20% during the AFC in one year
Why is Indonesia hard to govern?
There is large cultural, ethnic, religious and linguistic variations
What were the big issues in Indonesia?
Huge levels of corruption so much so they even hired foreigners to run their customs office as they could not trust their own people due to huge bureaucracy around imports
What is the economic story of Indonesia since the 1970s?
Did very well in the 1970s and 80s thanks to their oil boom. When the oil boom ended in the 1980s, Indonesia suffered as they hadn’t adapted to the global economy. Showed a strong recovery in the 80s and grew even faster until 1996, the average growth rate of around 6% under Soeharto. The AFC in 1998 caused Indonesian GDP per capita to fall more than 15% in real terms and then it recovered from 2003 and then was hit hard by COVID
What was Indonesia like in the 1960s?
Very high infant mortality rates, closed economy with low trade and life expectancy
What is Indonesia now considered economically?
A middle income economy
What are the 4 major events since the 1960s in Indonesia?
1960s: Military coup
1980s: Few developing country oil exporters to avoid a debt crisis from effective domestic reform
1997-98: AFC/ Krimson
2008-09: GFC - navigated effectively using the lessons from Krimson with good policy and some luck
Why has manufacturing growth slowed down sharply since the 1990s?
1) Commodity boom, squeezing non-commodity sectors, both in statistical and Dutch Disease sense (But need to explain why no manufacturing slowdown since the 1970s)
2) The global general equilibrium consequences of China’s rise as the factory of the world, lowering general manufacturing prices
3) Aspects of the Indonesian policy regime have hindered the competitiveness of internationally-oriented manufacturing. Missing out on global production networks
What has been Indonesia’s stance on globalisation?
To be part of global production networks, you must allow foreign direct investment, allow foreign companies to come in and give them tax incentives but Indonesia did not do this so missed out on global production network. Indonesian government policy was also not always consistent and moved from one policy to another without any clear consistency or certainty. Indonesia was born a free trader but is consistently reluctant to accept globalisation despite the benefits it experienced from minimal opening
Why has Indonesia been reluctant to adopt globalisation?
Acemoglu and Robinson suggest that it comes from Dutch Colonial history that made Indonesia turn inwards
What is the macroeconomic management story of Indonesia?
Generally a success with prudent fiscal policy from balanced budgets under Soeharto and fiscal law in the democratic era.
They did pretty well in not having huge government deficits and had an open current account and have central bank independence.
What was the issue with policy surrounding the 1997-8 AFC in Indonesia?
Domestic policy settings - fixed/adjustable exchange rates and limited financial supervision failed to adjust to the new international environment of high capital mobility
Was the IMF bailout good for Indonesia?
The IMF misdiagnosed the crisis. Their policy prescriptions were not very good as they give the same standard policy prescriptions ignoring domestic conditions but Indonesia had not choice but to take the IMF bailout package without any negotiating power
How has inequality in Indonesia changed since the AFC?
The Gini Index has increased since the Asian financial crisis, was at it’s lowest in the late 80s and 90s when there had been strong economic growth
What are the reasons for the large increases in inequality?
- Labour market: end of labour intensive growth
- Commodity boom
- Decentralisation
- Little tax progressivity
How did the labour market change during the Soeharto era?
There was rapid structural transformation from A to M to S. There was somewhat of a labour intensive growth path but didn’t grow as much as they intended and real wages in the formal sector were rising strongly. They had a large informal sector and given that it was an authoritarian government, they restricted economic freedoms (such as trade unions)
What have been the results of a free-er labour market in Indonesia during the democratic era?
Weaker formal sector employment growth, increased labour productivity dualism and rising unit labour costs which has resulted in weaker formal sector employment growth; increased labour market dualism and rising unit labour costs
How did absolute poverty change in Indonesia during the Soeharto era?
70 mil in 1970
27 mil in 1990
Who were the main policy advisors during the Soeharto era?
Ali Wardhana - Berkely Mafia
- Their recommendations were to enter light manufacturing and export led-growth
BJ Habibie - Another advisor to Soeharto
He advised entering heavy manufacturing
What was the impact of the 1970s oil boom on Indonesia?
Led to an overvaluation of the Indonesian Rupiah which led to a decline in the manufacturing and export sectors. This conflicted with the devaluation policy of Wardhana
What was the advice of Bj Habibe?
He though they should invest in heavy chemical industry like SK and ignored the Berkeley mafia and tried to invest in heavy and chemical industry. However investing in heavy industry requires a lot of co-ordination for technology transfers, you need lots of scientists and large investment project. Indonesia failed to do this which led to a large debt crisis in the 1980s when the oil boom ended.
What did Indonesia try to tackle during the Soeharto era?
KKN (Corruption, collusion and nepotism)
Who was Soeharto’s son and why is he significant?
Tommy Soeharto and ‘cronies’ were given monopoly rights on most industries in the country
What are the mediating factors of corruption?
Regulatory complexity, economic openness, civil service renumeration, likelihood of detection, role of the media, lifestyles of the politically powerful
What was the issue with taking conflicting advice from BJ Habibie and Wardhana’s Berkley mafia?
Never picked a winner, let these two compete leading to no consistency. He always shifted from one policy to another policy. When you fail to create consistency, the development processes get stalled all the time.
What was the difference in policy between Soeharto and democratic eras?
Soeharto was the institution
During democracy major macro refomrs took place but micro reform is much slower
