Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 00074910701408099
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
BOOK REVIEWS
To cite this article: (2007) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 43:2,
265-278, DOI: 10.1080/00074910701408099
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Bulletin of Indonesian Economic Studies, Vol. 43, No. 2, 2007: 265–78
BOOK REVIEWS
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Eric D. Ramstetter and Fredrik Sjöholm (eds) (2006) Multinational
Corporations in Indonesia and Thailand: Wages, Productivity and Exports,
Palgrave Macmillan, Basingstoke, pp. 248. Cloth: £55.00.
In only 229 pages, this volume packs an abundance of information on multinational activity in Indonesia and Thailand. Drawing together essays from several
experts, the book carefully analyses establishment-level data from manufacturing surveys in both countries to address three main questions. First, do multinationals pay higher wages than their host-economy counterparts and does
multinational entry raise wages for all workers? Second, do multinationals have
higher productivity and does their presence affect the productivity of domestic
firms? And, third, are multinationals more prone to export than host-economy
firms? The answers are all broadly yes. Although caveats apply and the results
are not without contradictions, the overall evidence that foreign direct investment (FDI) has been good for Indonesia and Thailand, at least for the outcomes
studied, is compelling.
The discussion of the questions will interest two groups of readers even before
they get to the answers. First, those with a particular interest in Southeast Asia
will find a rich description of the policy and institutional changes affecting FDI
in the region. This context overview is accompanied by detailed descriptive statistics that characterise FDI patterns in the 1990s. Second, those with an interest
in FDI more generally will appreciate the discussion of theory that motivates the
analysis in each chapter. The editors’ introductory chapter is especially useful in
thoroughly yet succinctly laying out the theoretical issues, the conflicting points
of view and the policy implications of the questions.
Putting aside one exception discussed below, the book follows a simple organisation. After an introduction by the editors, two chapters discuss each of the three
questions mentioned above, first for Indonesia and then for Thailand. Although
written by a variety of authors, the essays all have a common feel and order. Each
outlines the relevant theory, introduces the institutional context for Indonesia or
Thailand, reviews and discusses the data and then presents results. The essays all
share a common heritage as part of a coordinated project sponsored by Japan’s
International Centre for the Study of East Asian Development, which hosted several conferences that brought the authors together. This arrangement is probably
what produced the frequent cross-referencing between chapters, a welcome change
from many edited collections. When results from one essay differ from or concur
with those of another, the authors mention this and discuss possible explanations.
The editors write in the foreword that the book is accessible to academics,
policy makers and business leaders, and the essays indeed make good on this
ISSN 0007-4918 print/ISSN 1472-7234 online/07/020265-14
DOI: 10.1080/00074910701408099
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claim. The analysis is careful to control for confounding factors that might produce misleading results. Further, the discussion takes care to distinguish causation from correlation to the extent possible. Despite this analytical thoroughness
that will please academics, the book is devoid of even a single equation and
mentions no econometric terms other than regression. Instead, the book emphasises the intuition behind the equations and econometric robustness checks.
Academics working in the field will connect the discussion to the econometric
tools used, even where they are not explicitly codified, and policy makers and
business leaders will understand the bottom-line implications. Owing to better
data quality, the results from Indonesia are generally more convincing. That
said, the chapters on Thailand are forthcoming in noting the limitations of their
data.
Despite the book’s accessibility to business leaders, its main audience will probably be academics and policy makers. The sheer dizzying volume of data—nearly
60 tables of descriptive statistics and regression results—may be too great to capture the focus of busy executives. However, they would be well advised to ask
their research departments to summarise the results relevant to their firm.
An essay notably different from the others is a short case study of the automobile industry in both countries. This chapter is especially useful because it shows
examples of the mechanisms by which multinationals interact with the host economy. By depicting the details of one industry, the chapter provides some insight
into the context underlying the broader analysis in the other chapters.
Because of their increasing FDI flows and their establishment-level manufacturing data, Indonesia and Thailand are the subject of a growing literature on
multinational activity. By pulling together many of the key results in a single volume accessible to a wide audience, the editors have created a public good for
anyone with an interest in these economies in particular, or in FDI in general.
Further, by including copious endnotes referencing academic journal articles and
primary sources, the volume is a terrific starting point for those wishing to dive
into this literature.
Garrick Blalock
Cornell University, Ithaca NY
© Garrick Blalock
John F. McCarthy (2006) The Fourth Circle: A Political Ecology
of Sumatra’s Rainforest Frontier, Stanford University Press,
Stanford, pp. xxx + 353. Paper: US$27.95; Cloth: US$70.00.
This book analyses the political, legal and economic dynamics shaping forestrelated environmental outcomes in southern Aceh, an area with substantial
remaining tropical rainforest. It examines how adat (traditional law) practices,
district authority and the state together create the particular institutional arrangements that govern resource use at three sites. The central theme is that the area’s
ecological decline can be understood in terms of the institutional patterns operating at the district level.
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To analyse these complex institutional arrangements, the author draws on several theoretical perspectives—institutional economics, political science, political
ecology and legal anthropology. As the title suggests, the research attempts to
understand an ecological problem from a political ecology perspective. It examines how local agro-ecological systems and adat regimes have adjusted to political and economic change and uncertainty at the three sites. It looks at the effects
of various project and policy approaches to environmental problems, including
reforming the state apparatus, incorporating local communities in resource governance and revitalising adat. The study observes two areas where high-profile
biodiversity conservation projects exist alongside widespread illegal logging
activities, examining both the dynamics driving resource degradation in rural
areas and the complex challenges facing biodiversity conservation projects. The
book has six chapters: an introduction, three substantive chapters, a conclusion
and an epilogue.
Chapter 2 focuses on how adat arrangements concerning forests and agriculture in the Sama Dua area have adapted to successive political circumstances
from colonial times to the present. Despite the different character of state and adat
institutional arrangements, there have been mutual adjustments between them.
The adat regime in Sama Dua has not been inimical to commercial and economic
development, and has not necessarily supported sustainable forest use.
Chapter 3 describes the rapid and continuous transformation of the landscape
and local patterns of resource use in Menggamat, with its many actors all pursuing their own interests. Illegal logging has involved a system of accommodation and exchange of gifts and favours among a multitude of state and non-state
actors—entrepreneurs, forestry staff, army personnel, district-level bureaucrats,
adat figures and village heads. Actors must conform to this system to remain in the
logging business. The pattern of exchange accommodates adat and official authority structures, and the locus of control over access to and use of forest resources
has shifted from village and adat leaders to bureaucrats formally responsible for
implementing regulations.
This chapter also discusses the challenges faced by an NGO-led, communitybased conservation project, the World Wide Fund for Nature – Leuser Project
(WWF–LP), in attempting to combine community development and incomegenerating activities, and to build upon forest-related features of adat. Reiterating
Eghenter (2000), who warned against simplifying adat’s role in the conservation of
forests in East Kalimantan, the author shows that to assume a direct correspondence between adat and sustainable management in southern Aceh is to misread
adat: patterns of unsustainable resource use are complex and multi-dimensional,
and the scale of change needed to alter the dynamics driving them is beyond the
reach of community-based intervention.
Chapter 4 analyses the emergence of shifting, unstable institutional arrangements governing access to and use of natural resources in Badar in the Alas valley,
in the Leuser National Park region. It traces the process of environmental regime
formation from the colonial administration to the post-independent state, describing the parallel evolution of village institutional order and adat rules as the latter were changed, renegotiated, and influenced by social and economic forces. It
analyses the interactions of timber entrepreneurs and brokers, village figures, pioneer agriculturalists and local state agents. As in chapter 3, these actors entered
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into exchanges and reached accommodations that established the institutional
arrangements determining access to and use of forest resources.
This chapter also illustrates the problems encountered by another internationally led conservation project, the Leuser Development Program. Applying
the Integrated Conservation and Development Program (ICDP) approach, the
program encountered problems similar to those found in the WWF–LP intervention in Menggamat: the initiatives could not provide stable livelihoods and
viable alternatives to logging. The outcome was a continuing struggle over forest resource access and use. The lack of any clear authority structures that could
consistently govern access and use, and the intertwining of local government,
adat, state forestry institutions and international conservationist agencies, created
a complex and dynamic situation with no clear winners.
The author concludes (chapter 5) that adat institutional arrangements in southern Aceh have adapted to local agro-ecological and socio-economic circumstances,
and have been significantly affected by state attempts to remake local institutions.
The pattern of exchange and accommodation among various actors at the district
level has established the institutional patterns driving unsustainable resource
extraction. Over time, the author says, actors can interpret these parallel normative systems differently. In situations where competing and overlapping arrangements exist, a new institutional order will tend to emerge. Where the interests of
actors working across these parallel arrangements pertain to resource extraction,
this emergent order will lead to resource depletion.
In the epilogue (chapter 6), McCarthy presents alternative policy models for
natural resource management. He outlines ways to improve the interventions
of the two conservation approaches operating in the research area at the time,
the Community-based Natural Resource Management (CBNRM) and ICDP
approaches. He then summarises the possibilities offered by decentralisation measures introduced after completion of the fieldwork on which the study was based.
This is an important book for those interested in institutions, resource governance and forestry issues. Its contribution lies in its rich detail on the local dynamics of the three study areas, in the use of various analytical approaches, and in
the ways the analysis links theoretical perspectives with empirical observations.
While the author’s warning against taking the role of adat in conservation at face
value is not new, the meticulous documentation of the features of adat pertaining
to natural resources in southern Aceh and their evolution is itself a valuable contribution. Moreover, the account of events derived from 12 months of visits during
1996–99 provides a valuable insight into local dynamics in a period of important
political, social and economic change that has affected patterns of resource use
and outcomes in the area.
Ida Aju Pradnja Resosudarmo
Center for International Forestry Research, Bogor, and ANU
© Ida Aju Pradnja Resosudarmo
References
Eghenter, C. (2000) ‘What is Tana Ulen good for? Considerations on indigenous forest
management, conservation, and research in the interior of Indonesian Borneo’, Human
Ecology 28 (3): 331–57.
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Yasuyuki Matsumoto (2006) Financial Fragility and Instability in Indonesia,
Routledge, London and New York, pp. xxv + 258. Cloth: £65.00.
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This book, based on the author’s PhD thesis, attempts to explain Indonesia’s financial meltdown in 1997–98 using Hyman Minsky’s model, in which firms experiencing good times become over-confident and increase their levels of investment
rapidly, largely on the basis of borrowed funds. Institutions lend heavily to seemingly successful firms, ignoring the probability that their current performance
will not be able to be sustained. When the boom evaporates, lenders demand
repayment rather than making new loans; firms then try to conserve cash by laying off workers and reducing purchases. Thus capitalist economies are doomed
to repeated booms and busts, with a resulting need for preventive and corrective
action by governments.
Minsky’s published work on this topic seems to have dried up in the mid-1980s,
and his model has not made a lasting impression on the literature—perhaps because
it implies that financial institutions never learn from past experience. Economists
prefer to assume that human beings are rational—especially those making decisions about the deployment of billions of dollars worth of savings—which may
explain why none of the working papers from the early 1990s referred to in this
book was published before Minsky died in 1996. Yet we still hear warnings about
‘irrational exuberance’ from prominent central bankers, and the ‘dot com’ crash
is still fairly fresh in the memory. Banks paid dearly for rapidly expanding their
exposure to Latin America in the 1980s, only to do so again in the early 1990s, and
the huge flow of private capital into East Asia in the mid-1990s—and to Indonesia
in particular—does seem to fit the Minsky model rather well.
Matsumoto writes with the benefit of inside experience, having worked for a
foreign joint-venture bank in Indonesia during the mid-1990s. He presents a set
of case studies dealing with four of the biggest conglomerates in Indonesia at the
time the crisis broke: the Salim, Sinar Mas, Gajah Tunggal and Lippo groups. In
each instance these family-owned conglomerates tapped heavily into the foreign
and domestic financial community, and the author describes how global institutions, besotted with the so-called ‘emerging markets’, rushed to provide them
with new equity and loans, although less so with Lippo. The fact that foreign
institutions regarded Lippo as being too risky meant that this group suffered
much less during the crisis—and somewhat weakens the empirical support for
the Minsky model. Aside from this, however, Matsumoto’s revelation of the ease
with which the conglomerates manipulated ‘irrational exuberance’ to their own
advantage truly makes these institutions look like babies in charge of a candy jar.
Nearly all of the analysis presented in the case studies is in terms of financial
ratios such as debt relative to equity and debt repayments relative to cash inflows.
No indicators of exchange rate risk are presented, however, despite the important
role claimed for such exposure. The proportions of foreign and domestic debt and
of foreign currency and domestic currency debt of the corporate sector as a whole
are presented but, although the foreign components increased relatively during
the period in question in both cases, the increases were actually moderate. Thus
the author’s emphasis on his extension of Minsky’s model to an open economy
seems somewhat over-sold.
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Other than for the Lippo group, most of the financial ratios deteriorated significantly through 1996—without raising too much concern in the financial community—but the author makes no attempt to measure the growth rate of total
assets of each group. Surely, however, it is the fact that firms grow too rapidly
that typically leads them to disaster. Inevitably they find themselves trying to do
things they have not done before and, even if imprudent and gullible lenders and
investors enable them greatly to expand their balance sheets, they cannot expand
their management capacity commensurately. In this sense, it is not high leverage
that brings the enterprise undone, since a huge increase in assets financed with
equity would be likely to end in failure as well.
The author portrays the collapse of the economy as being generated in the private sector, from which he argues for the imposition of controls on capital flows by
governments. It can be argued, however, that the government itself contributed
strongly to Indonesia’s crisis. One aspect of this is the poor quality of Indonesia’s
accounting practices and legal system, which left overseas capital, in particular,
highly vulnerable (p. 102). More important, the central bank encouraged heavy
exposure of the private sector to exchange rate risk through its own policies before
the crisis, under which it purchased dollars at artificially high prices (to prevent
rupiah appreciation) and borrowed domestically at artificially high interest rates
to finance these purchases (to prevent inflation). As a result, the aggregate balance
sheet of all other entities combined, domestic and foreign, became unnecessarily
exposed to the rupiah; it was precisely this exposure that the author and others
have blamed for its strong contribution to the crisis. But if Bank Indonesia’s policies were counter-productive in the period to mid-1997, they were disastrous after
the crisis struck. The exchange rate was abandoned as the nominal anchor for
monetary stability, but nothing was put in its place. The lender of last resort facility championed by Minsky was then so ineptly handled that the money supply,
the exchange rate and inflation all surged out of control for about nine months
before stability could be re-established under incoming President Habibie.
In summary, this book is useful for the evidence it presents on the role played
by irrational exuberance in Indonesia’s crisis of the late 1990s, but it misleadingly
ignores the contribution of government policy to the collapse. Moreover, the story
could have been told much more simply and concisely in terms of a number of
large business empires trying to grow much too rapidly, and the failure of global
financial institutions to check this growth by withholding the funding necessary
for expansion. The endless mentions of the Minsky hypothesis (about 250!), and
the over-use of terms such as ‘aggressive’ (134 instances) and ‘enthusiastic’ (39) to
describe the behaviour of the conglomerates and the global financial community
make the book a somewhat tedious read. It is a pity that the publisher did not
adopt a tougher stance during the editing process, for the case studies that form
the core of the book are of considerable interest and importance.
Ross H. McLeod
ANU
© Ross H. McLeod
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Tulus T.H. Tambunan (2006), Development of Small and Medium Enterprises
in Indonesia from the Asia-Pacific Perspective, Lembaga Penerbit Fakultas Ekonomi Universitas Trisakti [Publications Institute of the Faculty of
Economics, Trisakti University], Jakarta, pp. 311. Paper: US$30.00.
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This book compares the role of small and medium enterprises (SMEs) in employment creation, industrial development and manufactured export promotion
in Indonesia and other Asia Pacific countries. SME entities range from selfemployed businesses in Indonesia to electronics manufacturers with hundreds
of employees.
The first two chapters warn of the ever-changing definition of SMEs in countries
such as the Philippines and Korea, and discuss theoretical considerations in SME
development. Chapter 3 compares the contributions to Indonesia’s development
of SMEs and larger firms, and chapter 4 assesses SME performance in selected
Asia Pacific countries. While useful, much of the information is out-dated: 2001 is
the latest year of Indonesian data; data for other countries in the region reach only
to 1997, not covering the impact of the Asian financial crisis.
The remaining chapters cover strategic development issues for SMEs. Chapter 5
compares SME cluster development in Indonesia and countries such as Japan, Canada, Thailand and Malaysia. Indonesia’s successful cluster development is due
partly to government intervention—a necessary though not sufficient condition.
Among other factors are the role of trading houses in brokering and organising
exports. Success stories include SME wood furniture cluster development in Jepara
and a wooden, rattan and metal furniture cluster in Sukoharjo near Surabaya.
In some cases, government support is unnecessary: two large leather goods
and traditional handicraft SME clusters near Yogyakarta are driven by tourist
demand. Other examples, in East Jakarta and Ceper, rely on sub-contracting linkages to urban machinery industries in Jakarta and Surabaya. Market diversification, sub-contracting linkages and the increasing trend towards marketing of
products by buyers contribute to cluster development.
Discussion of cluster failures balances the picture, as does evidence from around
the region. However, the comparative discussion emphasises Japanese case studies,
with scant discussion of others. The chapter concludes that inter-country differences
in cluster development are related to degree of overall development in industry,
technology, financial resources, human capital and government regulation.
Chapter 6 offers comparative perspectives on Indonesian SMEs’ export potential and ability to penetrate export markets. SME exports just before the crisis represented under 10% of Indonesia’s exports, a share believed to have changed little,
and to be low relative to other countries in the region. Despite the wealth of data,
this chapter’s analysis is somewhat incoherent and does not provide a clear picture
of factors contributing to success and failure in SME export development.
The last chapter cites considerable literature on the strategic alliance relationships of SMEs—financing, marketing, technology acquisition and production alliances with more developed companies. The evidence for Indonesia draws heavily
on the author’s Asia Foundation-funded 1997 survey. There is scant discussion of
the information’s current relevance, and this chapter has little comparative information for the Asia Pacific region.
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Many of the data for the book come from two studies, one published in 2000
when Indonesia’s economy was still reeling from the effects of the crisis, the
other published in 1994 and based on even older (1992) data. The author should
at least have explored whether either source reflects Indonesian SMEs’ export
potential and challenges 15 years later. Despite these problems, students of SME
development should appreciate the wealth of information on the role of SMEs in
employment creation, industrial development and manufactured export growth
in Indonesia, and the Asia Pacific comparative perspective.
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Armida S. Alisjahbana
Padjadjaran University, Bandung
© Armida S. Alisjahbana
Peter Coleman, Selwyn Cornish and Peter Drake (2007)
Arndt’s Story: The Life of an Australian Economist,
Australian National University (ANU) E-Press and
Asia Pacific Press, ANU, Canberra, and Institute of Southeast Asian
Studies (ISEAS), Singapore, pp. xviii + 338. Paper: A$45.00. Available for
download or order from .
For somebody who has known Professor Heinz Arndt well, this book makes
delightful and informative reading. It contains 316 well written pages of text, 22
chapters, many photographs and a long list of references. The first two parts of
the book, by Peter Coleman and Selwyn Cornish, tell of Arndt’s youth in Europe,
his study and early academic work in the United Kingdom, and his move to Australia with his wife, Ruth, and their first child, to teach university economics first
in Sydney and then in Canberra.
For those interested mainly in Indonesia and in Arndt’s work in development
economics, part 3 by Peter Drake may be of most relevance: chapter 17, ‘Economic
development in practice: it all began in Jakarta’, is actually about his time in India;
chapter 18, ‘The Department of Economics, RSPS, 1963–1980‘, relates how his work
on Indonesia’s economy began; and chapters 19, ‘Sukarno’s Indonesia’, and 20,
‘Suharto’s Indonesia’, continue the story.
Two things are revealed in these chapters: the work of a little group of government economists led by Professor Widjojo Nitisastro, and Professor Arndt’s
endeavours on the Indonesian economy.
The new regime [i.e. Soeharto’s] promptly made two remarkable policy decisions:
economic development must have priority over all else, and civilian experts (rather
than the military) would be put in charge of this goal. Indonesian academic economists thus attained great influence with, and indeed within, the Soeharto government (p. 265).
This group had a profound and far-reaching influence. Indonesia’s remarkable economic growth under Soeharto owed a great deal to the group’s development priorities and policy of liberalisation. Heinz Arndt was lavish in praising its members:
‘their record of day-to-day co-operation, practical wisdom, technical competence
and personal integrity, over a period of fifteen years, without a power base other
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than the confidence of the President and in circumstances, particularly in the early
years, of appalling difficulty, has few if any parallels’ (Arndt 1985: 55, cited p. 265).
The views and priorities of these ‘economic technocrats’ quite closely matched
Arndt’s own at that stage of his life. ‘As he grew older, Heinz’s economic philosophy moved from Fabian socialist beginnings, through Keynesianism, to the
Friedmanite position of ”free to choose”. In the 1980s, Heinz declared, in expressing enthusiasm for Henri Lepage’s Tomorrow, Capitalism (1982), “I am now a liberal if not indeed a libertarian”. This philosophic shift coincided with the Suharto
administration’s gradual acceptance of comparable advice from American free
marketeers. Heinz found this acceptance increasingly congenial, and he had little
difficulty in commending the Suharto era’s economic policies’ (p. 265).
As head of the economics department in the Research School of Pacific Studies
at the Australian National University (ANU), Heinz established a major research
project on the Indonesian economy, a central part of which was the Bulletin of Indonesian Economic Studies. From the mid-1960s, he built up ANU interest in East and
Southeast Asia, and made frequent and extensive trips to the region. Indonesia
seemed to have a special place in his heart, because he always stopped there when
going abroad. Peter Drake relates: ‘the work of Heinz and the project in Indonesia
was aligned with that going on in Canberra. From that base, staff and research students pursued empirical studies of the Indonesian economy, which were of analytical interest and were relevant to policy formation. No other centre in the world was
doing this kind of work, intended for publication, on Indonesia’ (p. 270–1). Heinz
‘never gave up on the country’ (p. 273): ‘[he] found himself a prominent defender
of Suharto’s regime in Indonesia, but by no means an uncritical one; he always
acknowledged that corruption and authoritarianism existed in Indonesia’ (p. 271).
The group of economists working for Soeharto must at times have had their
own doubts and uncertainties. They also came from a liberal background but had
to work within a military-dominated regime. On the other hand, such an environment made an effective working place to implement reform. Nowadays, in
a much more democratic political climate, the economic ministers under President Susilo Bambang Yudhoyono can barely achieve 6% economic growth, while
under Soeharto an average of 7% per year was attained for three decades.
Heinz Arndt, through his frequent visits to Jakarta, did not have direct influence on national policy making. The Widjojo group had great self-confidence, but
regarded Heinz as a congenial intellectual sparring partner. Heinz made frequent
trips to provincial cities and often held seminars in local universities. He thus had a
considerable impact on the quality of economic thinking among the faculty of those
regional universities which, in turn, produced the local professional elite. Through
these visits, through his training of experts on the Indonesian economy and through
his own research and collaboration with Indonesian researchers, Heinz Arndt made
a large contribution to economic thinking and policy in Indonesia. This account of
his life and work helps us to understand how this came about.
Mohammad Sadli
Jakarta
© Mohammad Sadli
Reference
Arndt, H.W. (1985) A Course through Life: Memoirs of an Australian Economist, National Centre for Development Studies, Australian National University, Canberra.
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Rodd McGibbon (2006) Pitfalls of Papua: Understanding the Conflict
and Its Place in Australia–Indonesia Relations, Lowy Institute Paper 13,
Lowy Institute for International Policy, Sydney, pp. xvii + 152.
Available for order or download from .
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Since the Dutch left in 1963, reliable information on political, social and economic
developments in Papua (often referred to as ‘West’ Papua in international discussions)1 has been very limited. Self-serving Indonesian government reports
provide little information on state-directed conflict, social tensions or economic
backwardness. International literature has been dominated by journalists and
some academics with limited knowledge of Indonesia, disturbed by human rights
abuse in the province and wedded to the cause of Papuan independence. Not surprisingly, little of this gives attention to presenting the ‘facts’ on subjects central
to welfare in Papua: the number of deaths due to armed conflict; human rights
abuse; in-migration; and the role of Papuans and non-Papuans in government,
politics and the economy.
For McGibbon, several myths have arisen about Papua that are accepted by
many international observers: ‘genocide’; Papua–East Timor parallels; and the
impossibility of Melanesian Christians and Muslim Malay–Polynesian peoples
coexisting peacefully. His book sets out to dispel these myths. It is the most
informed and balanced recent account, for the general reader, of the complicated
politics of Papua and its relations with Jakarta, Canberra and the world. While
not purporting to be an ‘academic’ treatment, it is well researched and written.2
It should be standard reading for students and observers of Indonesia, the Pacific
and Australia’s relations with the region, and especially for Australian officials
handling our complicated relations with Papua, which impinge on broader
Australia–Indonesia relations.
The book has six chapters, an executive summary and a set of recommendations. Chapters 1–2 provide a backdrop to developments after the granting of
special autonomy in 2001, offering a brief look at the Dutch colonial period, incorporation into Indonesia in 1963, the Act of ‘Free’ Choice in 1969, and the period of
centralised rule under Soeharto through to 1998, including the problematic ‘management’ of the huge Freeport copper and gold mine. While it covers all the major
1 The naming of this region, colonised as part of the Dutch East Indies and incorporated
into Indonesia in 1963, is complicated. Officially named Irian Jaya under Soeharto, it was
renamed Papua by Abdurrahman Wahid’s government in 2000 and divided in 2004 into
two provinces: Papua with its capital in Jayapura and Irian Jaya Barat with its capital in
Manokwari. The latter was recently renamed Papua Barat, the English equivalent of which
(West Papua) outsiders often use for the entire former Dutch colony. Here the designation
‘Papua’ is adopted to cover the region once called Irian Jaya, and the term‘West’ Papua is
used for references to the region in international contexts.
2 Richard Chauvel (Constructing Papuan Nationalism: History, Ethnicity and Adaptation,
Policy Studies 14, East-West Center, Washington DC, 2005) provides a more academic and
historical treatment of the Papuan nationalist movement in recent times. McGibbon has
written a valuable complementary account of recent demographic and economic change
(Plural Society in Peril: Migration, Economic Change and the Papua Conflict, Policy Studies 13,
East-West Center, Washington DC, 2004).
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events, for this reviewer the background treatment could have provided deeper
insights into present-day challenges, through reference to the unique dilemmas
for government and economic and social change posed by ‘Melanesian’ patterns
of fragmented human settlement and the daunting physical environment. In particular, more attention might have been given to fundamental fissures between
the northern and western coastal regions (with long historical links to Eastern
Indonesia), and the highland and southern areas isolated from major centres of
contemporary Papuan political authority and economic opportunity.
Chapters 3–4, perhaps the most interesting part of the book, give a readable
account of debates over the special autonomy law under Megawati, and relations
between Papua and Jakarta under President Yudhoyono through to mid-2006.
McGibbon discusses the election of Bas Suebo as governor of Papua and Abraham Atururi as governor of Papua Barat. While painting a complex picture of the
opportunity for independent and creative Papuan solutions, he also emphasises
the potential for conflict as a result of ‘resentment’, and recent (2006) unorganised and sporadic violent opposition, which could lead to a ‘… cycle of rebellion
and repression [such as] marked the early years of Indonesian rule in the territory’ (p. 70).
However, implicit in McGibbon’s story are rather different, more startling
conclusions, requiring reassessment of the dynamics of the relationship between
Indonesia, Papua and Australia. Despite considerable challenges of governance,
two seemingly viable provinces have recently been formed with popularly elected
provincial leaders and district heads. Following years of tension and political
horse-trading, this may offer Papuan peoples their best chance yet for improved
development and human rights outcomes. The relationship between political
leaders and the populace is now potentially closer than at any time in the modern
history of ‘external’ control of Papua.
Further, the notion of a ‘West’ Papuan–Indonesian conflict no longer accurately
characterises emerging political relationships. The possibility of an independent
‘West’ Papuan state, alive for over 40 years, seems all but dead. Instead, the conflicts that McGibbon discusses are increasingly likely to involve leaders and peoples
with political affiliations and economic attachment to smaller administrative units,
both new provinces and cashed-up districts. Local rather than ‘Papuan’ forces will
find themselves in conflict with economic interests and security forces from Jakarta.
Such conflicts are likely to represent power struggles largely unrelated to issues of
sovereignty—increasingly indistinguishable qualitatively from those in other areas
of Indonesia, such as Poso in Central Sulawesi or Ambon in Maluku.
This has implications for Australia’s relationship with Indonesia and Papua—
themes dealt with in the final two chapters (which also cover the ‘West’ Papuan
constituency in Australia). Three topics are emphasised: the ambivalent Australian government attitude to Papua’s incorporation within Indonesia; the widespread acceptance in some political and intellectual circles internationally (and
especially within Australia) of the possibility of an independent ‘West’ Papuan
state; and, in contrast, the idea of an independent ‘West’ Papua as fundamentally out of step with almost all of Australia’s other international interests. The
developments outlined in the book suggest that the Australian government and
knowledgeable voices on the bilateral relationship need to bring the Australian
public and political figures up to date with the fundamentally different set of
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political relationships emerging in Papua within the democratic polity of Indonesia in recent years.
Finally, a point on presentation. In this reviewer’s opinion, the dot-point executive summary and policy recommendations are out of step with the otherwise
nuanced discussion in this book. Eye-catching yet simplistic summaries under
headings such as ‘A complex long-term challenge’ and ‘Indonesian democracy
offers new opportunities’ (pp. x–xii) detract from the treatment of complex, interrelated issues elsewhere in the book. A conventional introduction and conclusion
highlighting challenges, opportunities and policy options would have sufficed.
But in this age of pre-packaged information, perhaps this is too much to wish for.
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Chris Manning
ANU
© Chris Manning
Daniel Dhakidae (2003) Cendekiawan dan Kekuasaan dalam Negara
Orde Baru [Intellectuals and Power in the New Order State], Gramedia Pustaka Utama, Jakarta, pp. 828. Rp 150,000; US$17.50.
This study of Indonesia’s emergent intellectual class is based largely on the
author’s experience with Prisma, Indonesia’s most influential social science journal for over a quarter-century. As editor for a decade from the late 1970s (and an
active contributor both before and after), Dhakidae oversaw the journal’s evolution into an influential forum for policy debate. (For a number of years Prisma’s
publishers also marketed a local reprint of BIES). In its heyday Prisma was read
by much of the political public; such was its popularity that even street cigarette
stalls sold it (p. xiv).
This book gives us a special insight into the critical culture (budaya wacana kritis)
established during the period of Prisma’s influence. The author comes from that
small but influential group of thinkers educated in the Catholic seminaries of
Flores; he later studied political science at Gajah Mada and Cornell universities.
And he has drawn upon both European and Indonesian intellectual traditions to
produce a sophisticated historical analysis.
In chapter 1 he draws on Foucault’s Archaeology of Knowledge to relate Indonesia’s intellectual history to its changing social context. Asking why the New
Order survived so long despite growing public distaste for the regime, Dhakidae
suggests that the answer must be found in the power relations that sustained it.
He highlights two critical problems faced by Indonesia’s intellectual class: its lack
of awareness of itself as an independent entity, and its inability to break free of the
state in open political discourse.
The following six chapters apply this approach to different aspects of Indonesia’s
intellectual discourse, in roughly chronological order. Chapter 2 describes how
many contemporary themes originated in the colonial period. For example, the Ethical Policy implemented from the end of the 19th century unwittingly created conditions that allowed a nationalist discourse to flourish. And in chapter 3 the author
suggests that colonial controls were extended by the authoritarian New Order state
into the management of ideas, creating a form of ‘military neo-fascism’.
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Chapter 4 moves to an analysis of the specific intellectual traditions that legitimised the power of the regime. Under the New Order, state-supported academic
organisations such as ISEI (for economists) and HIPPIS (for the humanities)
served to channel and constrain public discourse. Chapter 5 turns to the media
and the socio-linguistics of power. Dhakidae suggests that control of the media
allowed the New Order to influence everyday language greatly, thereby limiting
the means by which public protest was possible.
For this reviewer, the most interesting and challenging chapter is the long chapter 6, focusing on the politics of religion and exposing a major internal contradiction in the state attempt to control social organisations. Before the de-politicisation
of religion in the 1980s, important intellectual changes were taking place in various
religious communities. Within Indonesian Islam, a vigorous debate had arisen in
the 1970s about the separation of religion and politics, and by the 1980s new ideas
led to the alliances with leftist social activists that have become so evident today.
Similarly, Indonesian Catholicism was deeply influenced in the 1970s and 1980s
by liberation theology and feminist politics. By the 1990s religious ideas were thus
evolving beyond the purview of state control, and Dhakidae provides a fascinating example to illustrate the limits to state power. Detailing policy debates and
processes within the Ministry of Religion, he describes how the state eventually
decided not to forbid students to wear the veil and other explicitly Muslim items
of clothing, thereby giving tacit recognition to the autonomy of religious thought
and behaviour. By the late 1990s it was thus society rather than the state that
shaped political discourse. The concluding chapter shows how state attempts to
coopt intellectuals and religious figures to support the regime further weakened
its legitimacy and actually hastened its demise.
Dhakidae has produced a provocative and challenging work, one that will be
a valuable historical resource; a good index lists names of individuals, organisations and important topics. Some may quibble with the choice of subject matter.
For example, the analysis would have been strengthened if it had described the
Centre for Strategic and International Studies (CSIS) not only as an instrument of
the New Order but also as an institution that gradually became more critical of
the regime. Others may feel that the New Order era has now passed, and that we
need to develop fresh analytical approaches. Yet a particular strength of this book
is that its historical approach makes it relevant to the post-Soeharto era. With the
end of the New Order, Indonesia’s intellectuals must come to terms with the same
historical dilemma that has so constrained their influence. ‘Intellectuals and the
critical culture that they have nurtured can never again be neutral, for they will be
tossed back and forth between autonomy and manipulation: being manipulated
before seizing autonomy, becoming autonomous so as to be manipulated once
more’ (p. 741).
Ian Chalmers
Curtin University, Perth, Western Australia
© Ian Chalmers
Note
Ian Chalmers served as editor of the English version of Prisma from 1989 to 1991. The translation in the text is his.
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BRIEFLY NOTED
Ernani Lubis, Anwar Bey Pane, Yeyen Kurniawan, Jean Chaussade,
Christine Lamberts and Patrick Pottier (2005) Atlas Perikanan Tangkap
dan Pelabuhan Perikanan di Pulau Jawa: Suatu Pendekatan Geografi
Perikanan Tangkap Indonesia [Atlas of Fisheries and Fishing Ports in Java:
A Geographical Approach to Indonesian Fisheries], PK2PTM LP-IPB
Bogor, and Géolittomer - LETG UMR 6554 CNRS, Nantes, pp. 120. €50.
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This publication describes marine capture fishing activities in Indonesia, and the
activities of several major fishing ports in Java. Although the emphasis is on providing a solid picture of fish production and international and domestic fishery
trading, the book also presents data on fish consumption and on fishing technology and culture in Indonesia. The first part of the volume (chapters 1 and 2)
describes Indonesia’s fisheries sector, and the second part (chapters 3 and 4) concerns fisheries in Java. The book ends with conclusions and recommendations
on the future path of fisheries development. Its main strength is its comprehensive data on Indonesia’s fish production and trade, presented through colourful
graphics. Two minor weaknesses were noted, however. First, the book does not
cover the institutional aspects of the fisheries sector. Second, in several cases the
sources of the data are not very clear: for example, the figure on page 22 gives the
source as ‘Direktorat Jenderal Perikanan, 2000 (Directorate General of Fisheries)’,
but by 2000 this body no longer existed; it had been divided into several directorates general under the Ministry of Marine Affairs and Fisheries. Despite these
minor flaws, those working on Indonesia’s natural resources and environment
should welcome this book as one of the few good resources on the Indonesian
fisheries sector.
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ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
BOOK REVIEWS
To cite this article: (2007) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 43:2,
265-278, DOI: 10.1080/00074910701408099
To link to this article: http://dx.doi.org/10.1080/00074910701408099
Published online: 10 Apr 2008.
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Bulletin of Indonesian Economic Studies, Vol. 43, No. 2, 2007: 265–78
BOOK REVIEWS
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Eric D. Ramstetter and Fredrik Sjöholm (eds) (2006) Multinational
Corporations in Indonesia and Thailand: Wages, Productivity and Exports,
Palgrave Macmillan, Basingstoke, pp. 248. Cloth: £55.00.
In only 229 pages, this volume packs an abundance of information on multinational activity in Indonesia and Thailand. Drawing together essays from several
experts, the book carefully analyses establishment-level data from manufacturing surveys in both countries to address three main questions. First, do multinationals pay higher wages than their host-economy counterparts and does
multinational entry raise wages for all workers? Second, do multinationals have
higher productivity and does their presence affect the productivity of domestic
firms? And, third, are multinationals more prone to export than host-economy
firms? The answers are all broadly yes. Although caveats apply and the results
are not without contradictions, the overall evidence that foreign direct investment (FDI) has been good for Indonesia and Thailand, at least for the outcomes
studied, is compelling.
The discussion of the questions will interest two groups of readers even before
they get to the answers. First, those with a particular interest in Southeast Asia
will find a rich description of the policy and institutional changes affecting FDI
in the region. This context overview is accompanied by detailed descriptive statistics that characterise FDI patterns in the 1990s. Second, those with an interest
in FDI more generally will appreciate the discussion of theory that motivates the
analysis in each chapter. The editors’ introductory chapter is especially useful in
thoroughly yet succinctly laying out the theoretical issues, the conflicting points
of view and the policy implications of the questions.
Putting aside one exception discussed below, the book follows a simple organisation. After an introduction by the editors, two chapters discuss each of the three
questions mentioned above, first for Indonesia and then for Thailand. Although
written by a variety of authors, the essays all have a common feel and order. Each
outlines the relevant theory, introduces the institutional context for Indonesia or
Thailand, reviews and discusses the data and then presents results. The essays all
share a common heritage as part of a coordinated project sponsored by Japan’s
International Centre for the Study of East Asian Development, which hosted several conferences that brought the authors together. This arrangement is probably
what produced the frequent cross-referencing between chapters, a welcome change
from many edited collections. When results from one essay differ from or concur
with those of another, the authors mention this and discuss possible explanations.
The editors write in the foreword that the book is accessible to academics,
policy makers and business leaders, and the essays indeed make good on this
ISSN 0007-4918 print/ISSN 1472-7234 online/07/020265-14
DOI: 10.1080/00074910701408099
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claim. The analysis is careful to control for confounding factors that might produce misleading results. Further, the discussion takes care to distinguish causation from correlation to the extent possible. Despite this analytical thoroughness
that will please academics, the book is devoid of even a single equation and
mentions no econometric terms other than regression. Instead, the book emphasises the intuition behind the equations and econometric robustness checks.
Academics working in the field will connect the discussion to the econometric
tools used, even where they are not explicitly codified, and policy makers and
business leaders will understand the bottom-line implications. Owing to better
data quality, the results from Indonesia are generally more convincing. That
said, the chapters on Thailand are forthcoming in noting the limitations of their
data.
Despite the book’s accessibility to business leaders, its main audience will probably be academics and policy makers. The sheer dizzying volume of data—nearly
60 tables of descriptive statistics and regression results—may be too great to capture the focus of busy executives. However, they would be well advised to ask
their research departments to summarise the results relevant to their firm.
An essay notably different from the others is a short case study of the automobile industry in both countries. This chapter is especially useful because it shows
examples of the mechanisms by which multinationals interact with the host economy. By depicting the details of one industry, the chapter provides some insight
into the context underlying the broader analysis in the other chapters.
Because of their increasing FDI flows and their establishment-level manufacturing data, Indonesia and Thailand are the subject of a growing literature on
multinational activity. By pulling together many of the key results in a single volume accessible to a wide audience, the editors have created a public good for
anyone with an interest in these economies in particular, or in FDI in general.
Further, by including copious endnotes referencing academic journal articles and
primary sources, the volume is a terrific starting point for those wishing to dive
into this literature.
Garrick Blalock
Cornell University, Ithaca NY
© Garrick Blalock
John F. McCarthy (2006) The Fourth Circle: A Political Ecology
of Sumatra’s Rainforest Frontier, Stanford University Press,
Stanford, pp. xxx + 353. Paper: US$27.95; Cloth: US$70.00.
This book analyses the political, legal and economic dynamics shaping forestrelated environmental outcomes in southern Aceh, an area with substantial
remaining tropical rainforest. It examines how adat (traditional law) practices,
district authority and the state together create the particular institutional arrangements that govern resource use at three sites. The central theme is that the area’s
ecological decline can be understood in terms of the institutional patterns operating at the district level.
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To analyse these complex institutional arrangements, the author draws on several theoretical perspectives—institutional economics, political science, political
ecology and legal anthropology. As the title suggests, the research attempts to
understand an ecological problem from a political ecology perspective. It examines how local agro-ecological systems and adat regimes have adjusted to political and economic change and uncertainty at the three sites. It looks at the effects
of various project and policy approaches to environmental problems, including
reforming the state apparatus, incorporating local communities in resource governance and revitalising adat. The study observes two areas where high-profile
biodiversity conservation projects exist alongside widespread illegal logging
activities, examining both the dynamics driving resource degradation in rural
areas and the complex challenges facing biodiversity conservation projects. The
book has six chapters: an introduction, three substantive chapters, a conclusion
and an epilogue.
Chapter 2 focuses on how adat arrangements concerning forests and agriculture in the Sama Dua area have adapted to successive political circumstances
from colonial times to the present. Despite the different character of state and adat
institutional arrangements, there have been mutual adjustments between them.
The adat regime in Sama Dua has not been inimical to commercial and economic
development, and has not necessarily supported sustainable forest use.
Chapter 3 describes the rapid and continuous transformation of the landscape
and local patterns of resource use in Menggamat, with its many actors all pursuing their own interests. Illegal logging has involved a system of accommodation and exchange of gifts and favours among a multitude of state and non-state
actors—entrepreneurs, forestry staff, army personnel, district-level bureaucrats,
adat figures and village heads. Actors must conform to this system to remain in the
logging business. The pattern of exchange accommodates adat and official authority structures, and the locus of control over access to and use of forest resources
has shifted from village and adat leaders to bureaucrats formally responsible for
implementing regulations.
This chapter also discusses the challenges faced by an NGO-led, communitybased conservation project, the World Wide Fund for Nature – Leuser Project
(WWF–LP), in attempting to combine community development and incomegenerating activities, and to build upon forest-related features of adat. Reiterating
Eghenter (2000), who warned against simplifying adat’s role in the conservation of
forests in East Kalimantan, the author shows that to assume a direct correspondence between adat and sustainable management in southern Aceh is to misread
adat: patterns of unsustainable resource use are complex and multi-dimensional,
and the scale of change needed to alter the dynamics driving them is beyond the
reach of community-based intervention.
Chapter 4 analyses the emergence of shifting, unstable institutional arrangements governing access to and use of natural resources in Badar in the Alas valley,
in the Leuser National Park region. It traces the process of environmental regime
formation from the colonial administration to the post-independent state, describing the parallel evolution of village institutional order and adat rules as the latter were changed, renegotiated, and influenced by social and economic forces. It
analyses the interactions of timber entrepreneurs and brokers, village figures, pioneer agriculturalists and local state agents. As in chapter 3, these actors entered
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into exchanges and reached accommodations that established the institutional
arrangements determining access to and use of forest resources.
This chapter also illustrates the problems encountered by another internationally led conservation project, the Leuser Development Program. Applying
the Integrated Conservation and Development Program (ICDP) approach, the
program encountered problems similar to those found in the WWF–LP intervention in Menggamat: the initiatives could not provide stable livelihoods and
viable alternatives to logging. The outcome was a continuing struggle over forest resource access and use. The lack of any clear authority structures that could
consistently govern access and use, and the intertwining of local government,
adat, state forestry institutions and international conservationist agencies, created
a complex and dynamic situation with no clear winners.
The author concludes (chapter 5) that adat institutional arrangements in southern Aceh have adapted to local agro-ecological and socio-economic circumstances,
and have been significantly affected by state attempts to remake local institutions.
The pattern of exchange and accommodation among various actors at the district
level has established the institutional patterns driving unsustainable resource
extraction. Over time, the author says, actors can interpret these parallel normative systems differently. In situations where competing and overlapping arrangements exist, a new institutional order will tend to emerge. Where the interests of
actors working across these parallel arrangements pertain to resource extraction,
this emergent order will lead to resource depletion.
In the epilogue (chapter 6), McCarthy presents alternative policy models for
natural resource management. He outlines ways to improve the interventions
of the two conservation approaches operating in the research area at the time,
the Community-based Natural Resource Management (CBNRM) and ICDP
approaches. He then summarises the possibilities offered by decentralisation measures introduced after completion of the fieldwork on which the study was based.
This is an important book for those interested in institutions, resource governance and forestry issues. Its contribution lies in its rich detail on the local dynamics of the three study areas, in the use of various analytical approaches, and in
the ways the analysis links theoretical perspectives with empirical observations.
While the author’s warning against taking the role of adat in conservation at face
value is not new, the meticulous documentation of the features of adat pertaining
to natural resources in southern Aceh and their evolution is itself a valuable contribution. Moreover, the account of events derived from 12 months of visits during
1996–99 provides a valuable insight into local dynamics in a period of important
political, social and economic change that has affected patterns of resource use
and outcomes in the area.
Ida Aju Pradnja Resosudarmo
Center for International Forestry Research, Bogor, and ANU
© Ida Aju Pradnja Resosudarmo
References
Eghenter, C. (2000) ‘What is Tana Ulen good for? Considerations on indigenous forest
management, conservation, and research in the interior of Indonesian Borneo’, Human
Ecology 28 (3): 331–57.
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269
Yasuyuki Matsumoto (2006) Financial Fragility and Instability in Indonesia,
Routledge, London and New York, pp. xxv + 258. Cloth: £65.00.
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This book, based on the author’s PhD thesis, attempts to explain Indonesia’s financial meltdown in 1997–98 using Hyman Minsky’s model, in which firms experiencing good times become over-confident and increase their levels of investment
rapidly, largely on the basis of borrowed funds. Institutions lend heavily to seemingly successful firms, ignoring the probability that their current performance
will not be able to be sustained. When the boom evaporates, lenders demand
repayment rather than making new loans; firms then try to conserve cash by laying off workers and reducing purchases. Thus capitalist economies are doomed
to repeated booms and busts, with a resulting need for preventive and corrective
action by governments.
Minsky’s published work on this topic seems to have dried up in the mid-1980s,
and his model has not made a lasting impression on the literature—perhaps because
it implies that financial institutions never learn from past experience. Economists
prefer to assume that human beings are rational—especially those making decisions about the deployment of billions of dollars worth of savings—which may
explain why none of the working papers from the early 1990s referred to in this
book was published before Minsky died in 1996. Yet we still hear warnings about
‘irrational exuberance’ from prominent central bankers, and the ‘dot com’ crash
is still fairly fresh in the memory. Banks paid dearly for rapidly expanding their
exposure to Latin America in the 1980s, only to do so again in the early 1990s, and
the huge flow of private capital into East Asia in the mid-1990s—and to Indonesia
in particular—does seem to fit the Minsky model rather well.
Matsumoto writes with the benefit of inside experience, having worked for a
foreign joint-venture bank in Indonesia during the mid-1990s. He presents a set
of case studies dealing with four of the biggest conglomerates in Indonesia at the
time the crisis broke: the Salim, Sinar Mas, Gajah Tunggal and Lippo groups. In
each instance these family-owned conglomerates tapped heavily into the foreign
and domestic financial community, and the author describes how global institutions, besotted with the so-called ‘emerging markets’, rushed to provide them
with new equity and loans, although less so with Lippo. The fact that foreign
institutions regarded Lippo as being too risky meant that this group suffered
much less during the crisis—and somewhat weakens the empirical support for
the Minsky model. Aside from this, however, Matsumoto’s revelation of the ease
with which the conglomerates manipulated ‘irrational exuberance’ to their own
advantage truly makes these institutions look like babies in charge of a candy jar.
Nearly all of the analysis presented in the case studies is in terms of financial
ratios such as debt relative to equity and debt repayments relative to cash inflows.
No indicators of exchange rate risk are presented, however, despite the important
role claimed for such exposure. The proportions of foreign and domestic debt and
of foreign currency and domestic currency debt of the corporate sector as a whole
are presented but, although the foreign components increased relatively during
the period in question in both cases, the increases were actually moderate. Thus
the author’s emphasis on his extension of Minsky’s model to an open economy
seems somewhat over-sold.
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Other than for the Lippo group, most of the financial ratios deteriorated significantly through 1996—without raising too much concern in the financial community—but the author makes no attempt to measure the growth rate of total
assets of each group. Surely, however, it is the fact that firms grow too rapidly
that typically leads them to disaster. Inevitably they find themselves trying to do
things they have not done before and, even if imprudent and gullible lenders and
investors enable them greatly to expand their balance sheets, they cannot expand
their management capacity commensurately. In this sense, it is not high leverage
that brings the enterprise undone, since a huge increase in assets financed with
equity would be likely to end in failure as well.
The author portrays the collapse of the economy as being generated in the private sector, from which he argues for the imposition of controls on capital flows by
governments. It can be argued, however, that the government itself contributed
strongly to Indonesia’s crisis. One aspect of this is the poor quality of Indonesia’s
accounting practices and legal system, which left overseas capital, in particular,
highly vulnerable (p. 102). More important, the central bank encouraged heavy
exposure of the private sector to exchange rate risk through its own policies before
the crisis, under which it purchased dollars at artificially high prices (to prevent
rupiah appreciation) and borrowed domestically at artificially high interest rates
to finance these purchases (to prevent inflation). As a result, the aggregate balance
sheet of all other entities combined, domestic and foreign, became unnecessarily
exposed to the rupiah; it was precisely this exposure that the author and others
have blamed for its strong contribution to the crisis. But if Bank Indonesia’s policies were counter-productive in the period to mid-1997, they were disastrous after
the crisis struck. The exchange rate was abandoned as the nominal anchor for
monetary stability, but nothing was put in its place. The lender of last resort facility championed by Minsky was then so ineptly handled that the money supply,
the exchange rate and inflation all surged out of control for about nine months
before stability could be re-established under incoming President Habibie.
In summary, this book is useful for the evidence it presents on the role played
by irrational exuberance in Indonesia’s crisis of the late 1990s, but it misleadingly
ignores the contribution of government policy to the collapse. Moreover, the story
could have been told much more simply and concisely in terms of a number of
large business empires trying to grow much too rapidly, and the failure of global
financial institutions to check this growth by withholding the funding necessary
for expansion. The endless mentions of the Minsky hypothesis (about 250!), and
the over-use of terms such as ‘aggressive’ (134 instances) and ‘enthusiastic’ (39) to
describe the behaviour of the conglomerates and the global financial community
make the book a somewhat tedious read. It is a pity that the publisher did not
adopt a tougher stance during the editing process, for the case studies that form
the core of the book are of considerable interest and importance.
Ross H. McLeod
ANU
© Ross H. McLeod
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Tulus T.H. Tambunan (2006), Development of Small and Medium Enterprises
in Indonesia from the Asia-Pacific Perspective, Lembaga Penerbit Fakultas Ekonomi Universitas Trisakti [Publications Institute of the Faculty of
Economics, Trisakti University], Jakarta, pp. 311. Paper: US$30.00.
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This book compares the role of small and medium enterprises (SMEs) in employment creation, industrial development and manufactured export promotion
in Indonesia and other Asia Pacific countries. SME entities range from selfemployed businesses in Indonesia to electronics manufacturers with hundreds
of employees.
The first two chapters warn of the ever-changing definition of SMEs in countries
such as the Philippines and Korea, and discuss theoretical considerations in SME
development. Chapter 3 compares the contributions to Indonesia’s development
of SMEs and larger firms, and chapter 4 assesses SME performance in selected
Asia Pacific countries. While useful, much of the information is out-dated: 2001 is
the latest year of Indonesian data; data for other countries in the region reach only
to 1997, not covering the impact of the Asian financial crisis.
The remaining chapters cover strategic development issues for SMEs. Chapter 5
compares SME cluster development in Indonesia and countries such as Japan, Canada, Thailand and Malaysia. Indonesia’s successful cluster development is due
partly to government intervention—a necessary though not sufficient condition.
Among other factors are the role of trading houses in brokering and organising
exports. Success stories include SME wood furniture cluster development in Jepara
and a wooden, rattan and metal furniture cluster in Sukoharjo near Surabaya.
In some cases, government support is unnecessary: two large leather goods
and traditional handicraft SME clusters near Yogyakarta are driven by tourist
demand. Other examples, in East Jakarta and Ceper, rely on sub-contracting linkages to urban machinery industries in Jakarta and Surabaya. Market diversification, sub-contracting linkages and the increasing trend towards marketing of
products by buyers contribute to cluster development.
Discussion of cluster failures balances the picture, as does evidence from around
the region. However, the comparative discussion emphasises Japanese case studies,
with scant discussion of others. The chapter concludes that inter-country differences
in cluster development are related to degree of overall development in industry,
technology, financial resources, human capital and government regulation.
Chapter 6 offers comparative perspectives on Indonesian SMEs’ export potential and ability to penetrate export markets. SME exports just before the crisis represented under 10% of Indonesia’s exports, a share believed to have changed little,
and to be low relative to other countries in the region. Despite the wealth of data,
this chapter’s analysis is somewhat incoherent and does not provide a clear picture
of factors contributing to success and failure in SME export development.
The last chapter cites considerable literature on the strategic alliance relationships of SMEs—financing, marketing, technology acquisition and production alliances with more developed companies. The evidence for Indonesia draws heavily
on the author’s Asia Foundation-funded 1997 survey. There is scant discussion of
the information’s current relevance, and this chapter has little comparative information for the Asia Pacific region.
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Many of the data for the book come from two studies, one published in 2000
when Indonesia’s economy was still reeling from the effects of the crisis, the
other published in 1994 and based on even older (1992) data. The author should
at least have explored whether either source reflects Indonesian SMEs’ export
potential and challenges 15 years later. Despite these problems, students of SME
development should appreciate the wealth of information on the role of SMEs in
employment creation, industrial development and manufactured export growth
in Indonesia, and the Asia Pacific comparative perspective.
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Armida S. Alisjahbana
Padjadjaran University, Bandung
© Armida S. Alisjahbana
Peter Coleman, Selwyn Cornish and Peter Drake (2007)
Arndt’s Story: The Life of an Australian Economist,
Australian National University (ANU) E-Press and
Asia Pacific Press, ANU, Canberra, and Institute of Southeast Asian
Studies (ISEAS), Singapore, pp. xviii + 338. Paper: A$45.00. Available for
download or order from .
For somebody who has known Professor Heinz Arndt well, this book makes
delightful and informative reading. It contains 316 well written pages of text, 22
chapters, many photographs and a long list of references. The first two parts of
the book, by Peter Coleman and Selwyn Cornish, tell of Arndt’s youth in Europe,
his study and early academic work in the United Kingdom, and his move to Australia with his wife, Ruth, and their first child, to teach university economics first
in Sydney and then in Canberra.
For those interested mainly in Indonesia and in Arndt’s work in development
economics, part 3 by Peter Drake may be of most relevance: chapter 17, ‘Economic
development in practice: it all began in Jakarta’, is actually about his time in India;
chapter 18, ‘The Department of Economics, RSPS, 1963–1980‘, relates how his work
on Indonesia’s economy began; and chapters 19, ‘Sukarno’s Indonesia’, and 20,
‘Suharto’s Indonesia’, continue the story.
Two things are revealed in these chapters: the work of a little group of government economists led by Professor Widjojo Nitisastro, and Professor Arndt’s
endeavours on the Indonesian economy.
The new regime [i.e. Soeharto’s] promptly made two remarkable policy decisions:
economic development must have priority over all else, and civilian experts (rather
than the military) would be put in charge of this goal. Indonesian academic economists thus attained great influence with, and indeed within, the Soeharto government (p. 265).
This group had a profound and far-reaching influence. Indonesia’s remarkable economic growth under Soeharto owed a great deal to the group’s development priorities and policy of liberalisation. Heinz Arndt was lavish in praising its members:
‘their record of day-to-day co-operation, practical wisdom, technical competence
and personal integrity, over a period of fifteen years, without a power base other
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than the confidence of the President and in circumstances, particularly in the early
years, of appalling difficulty, has few if any parallels’ (Arndt 1985: 55, cited p. 265).
The views and priorities of these ‘economic technocrats’ quite closely matched
Arndt’s own at that stage of his life. ‘As he grew older, Heinz’s economic philosophy moved from Fabian socialist beginnings, through Keynesianism, to the
Friedmanite position of ”free to choose”. In the 1980s, Heinz declared, in expressing enthusiasm for Henri Lepage’s Tomorrow, Capitalism (1982), “I am now a liberal if not indeed a libertarian”. This philosophic shift coincided with the Suharto
administration’s gradual acceptance of comparable advice from American free
marketeers. Heinz found this acceptance increasingly congenial, and he had little
difficulty in commending the Suharto era’s economic policies’ (p. 265).
As head of the economics department in the Research School of Pacific Studies
at the Australian National University (ANU), Heinz established a major research
project on the Indonesian economy, a central part of which was the Bulletin of Indonesian Economic Studies. From the mid-1960s, he built up ANU interest in East and
Southeast Asia, and made frequent and extensive trips to the region. Indonesia
seemed to have a special place in his heart, because he always stopped there when
going abroad. Peter Drake relates: ‘the work of Heinz and the project in Indonesia
was aligned with that going on in Canberra. From that base, staff and research students pursued empirical studies of the Indonesian economy, which were of analytical interest and were relevant to policy formation. No other centre in the world was
doing this kind of work, intended for publication, on Indonesia’ (p. 270–1). Heinz
‘never gave up on the country’ (p. 273): ‘[he] found himself a prominent defender
of Suharto’s regime in Indonesia, but by no means an uncritical one; he always
acknowledged that corruption and authoritarianism existed in Indonesia’ (p. 271).
The group of economists working for Soeharto must at times have had their
own doubts and uncertainties. They also came from a liberal background but had
to work within a military-dominated regime. On the other hand, such an environment made an effective working place to implement reform. Nowadays, in
a much more democratic political climate, the economic ministers under President Susilo Bambang Yudhoyono can barely achieve 6% economic growth, while
under Soeharto an average of 7% per year was attained for three decades.
Heinz Arndt, through his frequent visits to Jakarta, did not have direct influence on national policy making. The Widjojo group had great self-confidence, but
regarded Heinz as a congenial intellectual sparring partner. Heinz made frequent
trips to provincial cities and often held seminars in local universities. He thus had a
considerable impact on the quality of economic thinking among the faculty of those
regional universities which, in turn, produced the local professional elite. Through
these visits, through his training of experts on the Indonesian economy and through
his own research and collaboration with Indonesian researchers, Heinz Arndt made
a large contribution to economic thinking and policy in Indonesia. This account of
his life and work helps us to understand how this came about.
Mohammad Sadli
Jakarta
© Mohammad Sadli
Reference
Arndt, H.W. (1985) A Course through Life: Memoirs of an Australian Economist, National Centre for Development Studies, Australian National University, Canberra.
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Rodd McGibbon (2006) Pitfalls of Papua: Understanding the Conflict
and Its Place in Australia–Indonesia Relations, Lowy Institute Paper 13,
Lowy Institute for International Policy, Sydney, pp. xvii + 152.
Available for order or download from .
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Since the Dutch left in 1963, reliable information on political, social and economic
developments in Papua (often referred to as ‘West’ Papua in international discussions)1 has been very limited. Self-serving Indonesian government reports
provide little information on state-directed conflict, social tensions or economic
backwardness. International literature has been dominated by journalists and
some academics with limited knowledge of Indonesia, disturbed by human rights
abuse in the province and wedded to the cause of Papuan independence. Not surprisingly, little of this gives attention to presenting the ‘facts’ on subjects central
to welfare in Papua: the number of deaths due to armed conflict; human rights
abuse; in-migration; and the role of Papuans and non-Papuans in government,
politics and the economy.
For McGibbon, several myths have arisen about Papua that are accepted by
many international observers: ‘genocide’; Papua–East Timor parallels; and the
impossibility of Melanesian Christians and Muslim Malay–Polynesian peoples
coexisting peacefully. His book sets out to dispel these myths. It is the most
informed and balanced recent account, for the general reader, of the complicated
politics of Papua and its relations with Jakarta, Canberra and the world. While
not purporting to be an ‘academic’ treatment, it is well researched and written.2
It should be standard reading for students and observers of Indonesia, the Pacific
and Australia’s relations with the region, and especially for Australian officials
handling our complicated relations with Papua, which impinge on broader
Australia–Indonesia relations.
The book has six chapters, an executive summary and a set of recommendations. Chapters 1–2 provide a backdrop to developments after the granting of
special autonomy in 2001, offering a brief look at the Dutch colonial period, incorporation into Indonesia in 1963, the Act of ‘Free’ Choice in 1969, and the period of
centralised rule under Soeharto through to 1998, including the problematic ‘management’ of the huge Freeport copper and gold mine. While it covers all the major
1 The naming of this region, colonised as part of the Dutch East Indies and incorporated
into Indonesia in 1963, is complicated. Officially named Irian Jaya under Soeharto, it was
renamed Papua by Abdurrahman Wahid’s government in 2000 and divided in 2004 into
two provinces: Papua with its capital in Jayapura and Irian Jaya Barat with its capital in
Manokwari. The latter was recently renamed Papua Barat, the English equivalent of which
(West Papua) outsiders often use for the entire former Dutch colony. Here the designation
‘Papua’ is adopted to cover the region once called Irian Jaya, and the term‘West’ Papua is
used for references to the region in international contexts.
2 Richard Chauvel (Constructing Papuan Nationalism: History, Ethnicity and Adaptation,
Policy Studies 14, East-West Center, Washington DC, 2005) provides a more academic and
historical treatment of the Papuan nationalist movement in recent times. McGibbon has
written a valuable complementary account of recent demographic and economic change
(Plural Society in Peril: Migration, Economic Change and the Papua Conflict, Policy Studies 13,
East-West Center, Washington DC, 2004).
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events, for this reviewer the background treatment could have provided deeper
insights into present-day challenges, through reference to the unique dilemmas
for government and economic and social change posed by ‘Melanesian’ patterns
of fragmented human settlement and the daunting physical environment. In particular, more attention might have been given to fundamental fissures between
the northern and western coastal regions (with long historical links to Eastern
Indonesia), and the highland and southern areas isolated from major centres of
contemporary Papuan political authority and economic opportunity.
Chapters 3–4, perhaps the most interesting part of the book, give a readable
account of debates over the special autonomy law under Megawati, and relations
between Papua and Jakarta under President Yudhoyono through to mid-2006.
McGibbon discusses the election of Bas Suebo as governor of Papua and Abraham Atururi as governor of Papua Barat. While painting a complex picture of the
opportunity for independent and creative Papuan solutions, he also emphasises
the potential for conflict as a result of ‘resentment’, and recent (2006) unorganised and sporadic violent opposition, which could lead to a ‘… cycle of rebellion
and repression [such as] marked the early years of Indonesian rule in the territory’ (p. 70).
However, implicit in McGibbon’s story are rather different, more startling
conclusions, requiring reassessment of the dynamics of the relationship between
Indonesia, Papua and Australia. Despite considerable challenges of governance,
two seemingly viable provinces have recently been formed with popularly elected
provincial leaders and district heads. Following years of tension and political
horse-trading, this may offer Papuan peoples their best chance yet for improved
development and human rights outcomes. The relationship between political
leaders and the populace is now potentially closer than at any time in the modern
history of ‘external’ control of Papua.
Further, the notion of a ‘West’ Papuan–Indonesian conflict no longer accurately
characterises emerging political relationships. The possibility of an independent
‘West’ Papuan state, alive for over 40 years, seems all but dead. Instead, the conflicts that McGibbon discusses are increasingly likely to involve leaders and peoples
with political affiliations and economic attachment to smaller administrative units,
both new provinces and cashed-up districts. Local rather than ‘Papuan’ forces will
find themselves in conflict with economic interests and security forces from Jakarta.
Such conflicts are likely to represent power struggles largely unrelated to issues of
sovereignty—increasingly indistinguishable qualitatively from those in other areas
of Indonesia, such as Poso in Central Sulawesi or Ambon in Maluku.
This has implications for Australia’s relationship with Indonesia and Papua—
themes dealt with in the final two chapters (which also cover the ‘West’ Papuan
constituency in Australia). Three topics are emphasised: the ambivalent Australian government attitude to Papua’s incorporation within Indonesia; the widespread acceptance in some political and intellectual circles internationally (and
especially within Australia) of the possibility of an independent ‘West’ Papuan
state; and, in contrast, the idea of an independent ‘West’ Papua as fundamentally out of step with almost all of Australia’s other international interests. The
developments outlined in the book suggest that the Australian government and
knowledgeable voices on the bilateral relationship need to bring the Australian
public and political figures up to date with the fundamentally different set of
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political relationships emerging in Papua within the democratic polity of Indonesia in recent years.
Finally, a point on presentation. In this reviewer’s opinion, the dot-point executive summary and policy recommendations are out of step with the otherwise
nuanced discussion in this book. Eye-catching yet simplistic summaries under
headings such as ‘A complex long-term challenge’ and ‘Indonesian democracy
offers new opportunities’ (pp. x–xii) detract from the treatment of complex, interrelated issues elsewhere in the book. A conventional introduction and conclusion
highlighting challenges, opportunities and policy options would have sufficed.
But in this age of pre-packaged information, perhaps this is too much to wish for.
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Chris Manning
ANU
© Chris Manning
Daniel Dhakidae (2003) Cendekiawan dan Kekuasaan dalam Negara
Orde Baru [Intellectuals and Power in the New Order State], Gramedia Pustaka Utama, Jakarta, pp. 828. Rp 150,000; US$17.50.
This study of Indonesia’s emergent intellectual class is based largely on the
author’s experience with Prisma, Indonesia’s most influential social science journal for over a quarter-century. As editor for a decade from the late 1970s (and an
active contributor both before and after), Dhakidae oversaw the journal’s evolution into an influential forum for policy debate. (For a number of years Prisma’s
publishers also marketed a local reprint of BIES). In its heyday Prisma was read
by much of the political public; such was its popularity that even street cigarette
stalls sold it (p. xiv).
This book gives us a special insight into the critical culture (budaya wacana kritis)
established during the period of Prisma’s influence. The author comes from that
small but influential group of thinkers educated in the Catholic seminaries of
Flores; he later studied political science at Gajah Mada and Cornell universities.
And he has drawn upon both European and Indonesian intellectual traditions to
produce a sophisticated historical analysis.
In chapter 1 he draws on Foucault’s Archaeology of Knowledge to relate Indonesia’s intellectual history to its changing social context. Asking why the New
Order survived so long despite growing public distaste for the regime, Dhakidae
suggests that the answer must be found in the power relations that sustained it.
He highlights two critical problems faced by Indonesia’s intellectual class: its lack
of awareness of itself as an independent entity, and its inability to break free of the
state in open political discourse.
The following six chapters apply this approach to different aspects of Indonesia’s
intellectual discourse, in roughly chronological order. Chapter 2 describes how
many contemporary themes originated in the colonial period. For example, the Ethical Policy implemented from the end of the 19th century unwittingly created conditions that allowed a nationalist discourse to flourish. And in chapter 3 the author
suggests that colonial controls were extended by the authoritarian New Order state
into the management of ideas, creating a form of ‘military neo-fascism’.
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Chapter 4 moves to an analysis of the specific intellectual traditions that legitimised the power of the regime. Under the New Order, state-supported academic
organisations such as ISEI (for economists) and HIPPIS (for the humanities)
served to channel and constrain public discourse. Chapter 5 turns to the media
and the socio-linguistics of power. Dhakidae suggests that control of the media
allowed the New Order to influence everyday language greatly, thereby limiting
the means by which public protest was possible.
For this reviewer, the most interesting and challenging chapter is the long chapter 6, focusing on the politics of religion and exposing a major internal contradiction in the state attempt to control social organisations. Before the de-politicisation
of religion in the 1980s, important intellectual changes were taking place in various
religious communities. Within Indonesian Islam, a vigorous debate had arisen in
the 1970s about the separation of religion and politics, and by the 1980s new ideas
led to the alliances with leftist social activists that have become so evident today.
Similarly, Indonesian Catholicism was deeply influenced in the 1970s and 1980s
by liberation theology and feminist politics. By the 1990s religious ideas were thus
evolving beyond the purview of state control, and Dhakidae provides a fascinating example to illustrate the limits to state power. Detailing policy debates and
processes within the Ministry of Religion, he describes how the state eventually
decided not to forbid students to wear the veil and other explicitly Muslim items
of clothing, thereby giving tacit recognition to the autonomy of religious thought
and behaviour. By the late 1990s it was thus society rather than the state that
shaped political discourse. The concluding chapter shows how state attempts to
coopt intellectuals and religious figures to support the regime further weakened
its legitimacy and actually hastened its demise.
Dhakidae has produced a provocative and challenging work, one that will be
a valuable historical resource; a good index lists names of individuals, organisations and important topics. Some may quibble with the choice of subject matter.
For example, the analysis would have been strengthened if it had described the
Centre for Strategic and International Studies (CSIS) not only as an instrument of
the New Order but also as an institution that gradually became more critical of
the regime. Others may feel that the New Order era has now passed, and that we
need to develop fresh analytical approaches. Yet a particular strength of this book
is that its historical approach makes it relevant to the post-Soeharto era. With the
end of the New Order, Indonesia’s intellectuals must come to terms with the same
historical dilemma that has so constrained their influence. ‘Intellectuals and the
critical culture that they have nurtured can never again be neutral, for they will be
tossed back and forth between autonomy and manipulation: being manipulated
before seizing autonomy, becoming autonomous so as to be manipulated once
more’ (p. 741).
Ian Chalmers
Curtin University, Perth, Western Australia
© Ian Chalmers
Note
Ian Chalmers served as editor of the English version of Prisma from 1989 to 1991. The translation in the text is his.
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BRIEFLY NOTED
Ernani Lubis, Anwar Bey Pane, Yeyen Kurniawan, Jean Chaussade,
Christine Lamberts and Patrick Pottier (2005) Atlas Perikanan Tangkap
dan Pelabuhan Perikanan di Pulau Jawa: Suatu Pendekatan Geografi
Perikanan Tangkap Indonesia [Atlas of Fisheries and Fishing Ports in Java:
A Geographical Approach to Indonesian Fisheries], PK2PTM LP-IPB
Bogor, and Géolittomer - LETG UMR 6554 CNRS, Nantes, pp. 120. €50.
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This publication describes marine capture fishing activities in Indonesia, and the
activities of several major fishing ports in Java. Although the emphasis is on providing a solid picture of fish production and international and domestic fishery
trading, the book also presents data on fish consumption and on fishing technology and culture in Indonesia. The first part of the volume (chapters 1 and 2)
describes Indonesia’s fisheries sector, and the second part (chapters 3 and 4) concerns fisheries in Java. The book ends with conclusions and recommendations
on the future path of fisheries development. Its main strength is its comprehensive data on Indonesia’s fish production and trade, presented through colourful
graphics. Two minor weaknesses were noted, however. First, the book does not
cover the institutional aspects of the fisheries sector. Second, in several cases the
sources of the data are not very clear: for example, the figure on page 22 gives the
source as ‘Direktorat Jenderal Perikanan, 2000 (Directorate General of Fisheries)’,
but by 2000 this body no longer existed; it had been divided into several directorates general under the Ministry of Marine Affairs and Fisheries. Despite these
minor flaws, those working on Indonesia’s natural resources and environment
should welcome this book as one of the few good resources on the Indonesian
fisheries sector.
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