Global Governance in a Globalizing World Do Globalization and Global Governance Erode National Sovereignty

  GLOBAL GOVERNANCE IN A GLOBALIZING WORLD: DO GLOBALIZATION AND GLOBAL

Frassminggi Kamasa

  

Abstrak

Tulisan ini membahas mengenai hubungan antara globalisasi dan

pemerintahan global dan efeknya terhadap kedaulatan bangsa dan

negara. Secara khusus, tulisan ini akan mengkaji secara empiris proses

globalisasi dan pemerintahan global yang telah mengakibatkan erosi

terhadap kedaulatan negara yang bersumber dari ide Westphalia.

Berbeda dengan kajian-kajan yang lain, tulisan ini mempertimbangkan

apakah pemerintahan nasional yang lemah, berbagai tekanan dalam

proses globalisasi, dan kompleksitas pemerintahan global dapat

menjelaskan fenomena kedaulatan bangsa dan negara yang mulai

terkikis. Perkembangan yang demikian akan mengurangi kapasitas

negara dan konsolidasi nasional dalam mengatur urusan dalam dan

luar negeri. Sebagai tambahan, akan dianalisa apakah proses dan

interaksi globalisasi dan pemerintahan global bersifat otonom atau

justru merupakan ekspresi dari hegemoni Barat. Dengan menggunakan

analisis studi kasus tunggal mengenai globalisasi dan pemerintahan

  —2007, ditemukan global yang terjadi di Indonesia dari tahun 1997

asosiasi antara globalisasi, pemerintahan global, dan kompleksitas

pemerintahan global. Selanjutnya juga akan dibuktikan bahwa

interaksi antara berbagai tekanan dalam proses globalisasi dan

kompleksitas pemerintahan global menghambat kepentingan

pemerintah untuk mengembangkan ketahanan nasional dan

pembangunan bangsa dan negara.

  

Kata kunci: kedaulatan bangsa dan negara, globalisasi, pemerintahan

global, pembangunan.

  

Abstract

This paper discusses the relationship between globalization and global governance and its effect on the nation’s sovereignty. Particularly, this paper will empirically examine the process of globalization and global governance that has resulted in the erosion of national sovereignty that comes from the idea of Westphalia. In contrast to other studies, this paper considers whether the national governments are weak, the pressures of globalization processes, and the complexity of global governance may explain the dawn of the erosion of the sovereignty of the nation and the state. Such developments will reduce the capacity of the state and national consolidation in regulating domestic and foreign affairs. In addition, it will be analyzed whether the process and the interaction of globalization and global governance are autonomous or even an expression of Western hegemony. By using a single case study analysis on globalization and global governance that occurred in Indonesia from 1997- 2007, we found relationship between globalization, global governance, and the complexity of global governance. Furthermore it will be proved that the interaction between the various pressures in the process of globalization and global governance complexity hamper the interests of the government to develop a national security and nation building .

  Keywords: state sovereignty, globalization, global governance, development.

Introduction

  This study investigates Indonesia from 1997-2007. In this study I will discuss the question about whether globalization and global governance erodes Indone sia’s national sovereignty. I will divide this essay into three sections. The first section analyzes the cause-and-effect relationships between a weak national government, globalization, and global governance that erode national sovereignty. The second section investigates how globalization pressure is likely to have the effect of eroding national sovereignty. The third section examines how the global governance complex explains the erosion of national sovereignty.

My research question is: “Does globalization and global governance erode national sovereignty?” The study’s hypotheses may include the

  following: (1) state being weakened by the process of globalization and global governance. A weak national government will lead to an erosionin national sovereignty. (2) globalization and global governance is less an autonomous process, and more of an expression of United States hegemony, this coupled with an economic downturn will lead to erode national sovereignty.

  My first hypothesis, as pointed out by Freiden (2006:471) and Griffiths (2008:132), is that globalization and global governance weaken national government and state capacity. In the complex multidimensional processes of globalization and global governance, the state’s capacity for independent political action is weakened. My second hypothesis as outlined by Gilpin (1987:45) and critical theorists, is that regimes, values, and agenda setting in globalization and global governance are skewed.

  Partisan processes of globalization and global governance have significant effects on the erosion of state sovereignty.

  The debates in International Relations (IR) about global governance are extensive and voluminous. One of the debates on global governance is

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  focused on “whether national sovereignty is being eroded.”

  129 Quoted in Farrington, J. (2002, October). Sovereignty and Global Governance.

  Retrieved July 27, 2012, from Department for International Development:

  Sovereignty is defined as supreme authority over a given territory

  130 withthe authority to make laws and regulations for that society.

  Globalizationis“a trend of increasing transnational flows and increasingly

  131

  The Functional paradigm views thick networks of interdependence.”

  132

  global governance as universal liberal democracy. According to Pattberg, “in simple terms, global governance means to steer the process

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  of globalization.” Many scholars pointed out that global governance in the form of thick globalism and liberal international economic institutions represented only the interests of industrial countries and northern corporations, which ruled in a way that was autocratic, deceptive, exploitative, hypocritical,

  134

  and imperialistic. Thus, from the ideological point of view, the project

  130

  Krasner, S. (2001). Rethinking the sovereign state model. Review of International

  Studies (27, 17-42) , pp. 19-29 131 Quoted in Keohane, R. (2002).Power and Governance in a Partially Globalized World.

  London: Routledge, p. 15.

  132 Ardalan, K. (2011). Globalization and Democracy: Four Paradigmatic Views.

  

Transcience Journal , Vol. 2, No 1 (2011), 30-31. Available at

  133

  Quoted in Patberg, P. (2006). Global Governance: Reconstructing a Contested Social Science Concept. Garnett Working Paper ,

  13. Available at

  134 Balaam, D., & Veseth, M. (1996). Introduction to International Political Economy.

  New Jersey: Prentice Hall, pp. 221-223; Barry Buzan&Ole Wæver. (2003). Regions and

  

Powers: The Structure of International Security. Cambridge: Cambridge University

  Press, p. 10; Eayrs, J. (1992). The Outlook of Statehood. In H. Levine, World Politics

  

Debate: a Reader in Contemporary Issues (pp. 16-23). New York: McGraw-Hill, Inc;

  Frieden, J. (2006). Global Capitalism: Its Fall and Rise in the Twentieth Century. New York: W.W. Norton & Company, p. 469; Perkins, J. (2009); Hoodwinked. An Economic of liberalism is, among other things, about building a sense of uniformity and the incorporation of all mankind into a single idea free from

  

135

restrictions of political boundaries.

  The sovereign state’s capacity for independent political action is weakened by globalization, especially in

  136 the area of economic policy.

  “ National governments had ceded power to the WTO and the IMF or had this power seized from them by

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  According to critical theorists, such as Cox, international markets.” Rosenberg, and Cutler, the emergence of the modern states system is actually the development of a new form of imperial power, and hegemony, in which the growing influence of private actors has blurred the boundaries between private and public authority in the global

  138

  realm. In each of these analyses, it is clear that there is some erosion of

  

Hit Man Reveals Why the World Financial Markets Imploded and What We Need to Do

to Remake Them. New York: Broadway Books, pp. 101, 134; Rais, A. (2008). Agenda

Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of the Nation: Save

Indonesia!).

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  Gilpin, R. (1987). The Political Economy of International Relations. New Jersey: Princeton University Press, pp. 45-46; Perkins, J. (2004). Confessions of an Economic Hit

Man. California: Berret-Koehler Publishers, Inc; pp. 8-10, 15-17, 120-129; Rais, A.

  (2008). Agenda Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of the Nation:

  

Save Indonesia!). Yogyakarta: PPSK Press, pp. 11-18; Thirkell-White, B., Grugel, J., &

  Riggirozzi, P. (2008). Beyond the Washington Consensus? Asia and Latin America in search of more autonomous development. International Affairs (84:3) , pp. 501-504.

  136

  Griffiths, M., O'Callaghan, T., & Roach, S. (2008). International Relations: The Key Concepts. New York: Routledge, p. 132.

  137

  Quoted in Frieden, J. (2006).Global Capitalism: Its Fall and Rise in the Twentieth Century. New York: W.W. Norton & Company, p. 471.

  138

  Roach, S. (2007). Critical Theory and International Relations: a Reader. London: Routledge, pp. 267-283. national sovereignty by the processes of globalization and global governance. It also suggests that the process is less autonomous.

A case study of Indonesia a. Weak national government

  The Republic of Indonesia is the world’s largest archipelago with 13,487 islands and anarea of 5,193,250 km².

  It is a “fragile” country with a population of 240 million people occupying 400 ethnicities and speaking 583 local languages. Indonesian society is united in one principle, which is

  (five principles), and has a national motto Bhineka Tunggal Ika

  Pancasila

  (unity in diversity). Indonesia also has the world’s largest Muslim population. Given this background, there is no wonder that governance is a delicate action for the national government. With increasing global political interdependence and integration, Indonesian national sovereigntymay have become vulnerable and weakened by less autonomous processes of globalization and global governance.

  A weak government can be measured from three principles of poor governance. Poor governance can be defined simply as the contrary of

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  good governance. In my view, a weak national government is the

  139

  Nasution, A. (2009, February 13).

  http://www.bpk.go.id/web/files/2009/02/corruption2009-vienna-11-13-feb-2009.pdf .

  Retrieved August 15, 2012, from BPK: Force, P. T. (2002, June). Ensuring Good Governance for Poverty Reduction. Retrieved condition of lacking political power, social power and lack of influence of the leadership or elites in running the state. It is manifest in the lack of capability or poor management of the governing body to run the system, take action, control, or regulatethe stateorganization and the people. This can be seen from the poor governance indicators such as the high level of national debt, the high level of corruption, and income inequality.

  The first principle of poor governance is a high level of national debt. Debt plus lots of interest leads to disappearing freedom. Since the Cold War, globalization agencies were using loans as a main instrument of hegemony by justifying huge international loans that would funnel back to the hegemony through massive engineering project and bankrupt the countries that received these loans so they would be forever beholden to

  140 their creditors.

  This system has been called a “Marshall Plan in reverse” where “payments on Third World debt require more than $375 billion a year, twenty times the amount of foreign aid that Third World countries August 27, 2012, from World Bank: pp. 2;Koh, T. (2009, October 7); Lecture on The Principles of Good

  

Governance . Retrieved 13 August, 2012, from National University Singapore:

  Khemani, M. (2008, March 6). Combating corruption in the

  

Commonwealth . Retrieved Auguts 20, 2012, from Commonwealth Quarterly:

  140

  Rais, A. (2008). Agenda Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of

the Nation: Save Indonesia!). Yogyakarta: PPSK Press, pp. 1-2, 23-24; Perkins, J. (2004).

  

Confessions of an Economic Hit Man. California: Berret-Koehler Publishers, Inc, pp. 15, 203-205. receive with the countries of the Global South subsidizing the wealthy

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  North, even as half the world’s population lives on less than $2 a day.” Chronic indebtedness in Indonesia from 1997-2007 has seriously constrained the governme nt’s ability to advance general prosperity. The

  Indonesian reliance for external debt from a cartel of international creditors, known as the Paris Club, had even started before the onset of 1997 financial crisis. In 1996, Indonesia’s external debt amounted to US$127.4 billion or 54.5 per cent of GDP, in 1997 it amounted to US$135.0 billion or 163.1 per cent of GDP, in 1998, it amounted to US$149.9 billion or 129.0 per cent of GDP, in 1999 amounted to US$ 147.6 billion or 91.0 per cent of her GDP, and in 2000 amounted to US$ 149.1 billion or 86.9 per

  142

  cent of her GDP. The data presented here are a conservative figure and therefore it is reasonable to assume that Indonesia is in a state of bankruptcy in 1996-2000 because of its debt burden reached absolute levels.

  Besides its false recipe to force Bank Indonesia (BI) to close sixteen banks on November 1997 that created the banking debacle, the IMF also contributed to a huge Indonesia’s debt. As we can see from the table

  141

  Hiatt, S. (2007). A Game As Old As Empire: The Secret World of Economic Hit Men

and the Web of Global Corruption. San Fransisco: Berrett-Koehler Publishers, Inc, p. 19.

  142

  IMF. (2000, June). Recovery from the Asian Crisis and the Role of the IMF. Retrieved August 8, 2012, from International Monetary Fund: Febriaty, H. (2010).

  

Analisis Determinan Cadangan Devisi di Indonesia (Analysis of the Determinants of Foreign Exchange Resreves in Indonesia). Medan: Universitas Sumatra Utara, pp. 1-7. below, it would be reasonable to assume that continued high indebtedness may have contributed to destabilization in Indonesia from 1997 until it was able to repay enough debt by 2006. Huge debt and social inequality factors created political turbulence and resulted in the fall of the government in May 1998 and the disintegration of East Timor.

Indonesia Debts to the IMF 1997-2006 Year US$ (in billions) SDR (in billions)

  1997 2.92 2.202 1998 5.64 4.254 1999 1.34 1.001 2000-2003 5 3.638 2002 4.5 3.638 2006 (outstanding)

  3.2

  2.2 Source William Cline in International Debts Reexamined argues that the government that spends over 4 per cent of GDP to pay debts will be

  143 unable to undertake its duty to maintain complete political stability.

  The condition in Indonesia is much worse than 4 per cent. Globalization

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  Cline, W. (1995). International Debt Reexamined. Washington DC: Institute for International Economics, pp. 1-3, 155. seems malign for Indonesia from 1997-2007. The government cannot escape from a seeming addiction to interest-bearing debt. As a result, the government is unable to undertake its duty to maintain political stability because it spends over 100 per cent of GDP to pay its debts to the major multinational banks, many corporations, and foreign aid missions from a multitude of countries. The nation becomes bankrupt because of interest- bearing debt. This indebtedness, coupled with the Asian financial crisis, may better explain the cause-and-effect relationship between a weak national government, globalization and global governance eroding national sovereignty.

  The second principle of poor governance is white-collar crime in the form of corruption. Transparency International defines corruption as “the abuse of entrusted power for private gain. This can mean not only

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  financial gain but also non- financial advantages.” I think corruption in Indonesia can be seen from three perspectives. Systemic corruption, corruption by necessity, and by needs. All these categories are mutually connected in a globalized world in such a way that if the core system of today’s capitalism is driven by unfairness, consumerism, hedonism, and

  145

  individualism, the others are also affected. With this framework,

  144

  Compact, U. N. (2011). Global Compact Principle 10. Retrieved August 31, 2012, from The UN Global Compact:

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  Katz, C. (2011, January-February). Interpretations of the economic crisis. Retrieved August 31, 2012, from International Socialist Review: everything is not enough and there is likely to be a need for more resources to be exploited. The present capitalist system lacks built-in systems that respect the harmony between the human and the Supreme Being, harmony between human beings, and harmony with nature. In this regard, corruption is a systemic and chronic disorder that exists in today’s capitalist system. This can be seen from the inequitable distribution of the world’s income that I will present in the next variable.

  From micro-analysis, Indonesia also is unable to escape from this tendency. Corruption has become a chronic problem in Indonesia from 1997-2007. Based on Political and Economic Risk Consultancy (PERC) and Transparency International survey, from 1997-2006 the level of corruption

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  in Indonesia has not significantly improved. On average, Indonesia isusually at the top ranking in corruption practices. And because corruption is a ‘cancer’ sweeping across Indonesia, the public trust in politicians is low. Perkins, J. (2004). Confessions of an

Economic Hit Man. California: Berret-Koehler Publishers, Inc, p. 206; Perkins, J. (2009).

  Hoodwinked. New York: Broadway Books, pp.61-71.

  146

  Quah, J. (2011). Curbing Corruptions in Asian Countries: An Impossible Dream? Bingley: Emerald Group Publishing Limited, pp. 388; LAN. (2007).

  

StrategiPenangananKorupsi di Negara-Negara Asia Pasifik (Strategy of Curbing

Corruption in Asia-Pacific States ), Lembaga Administrasi Negara, Pusat

  KajianAdministrasiInternasional, 2007, p. 20.

  

Indonesia’s Level of Corruption according CPI and PERC

Year CPI Rank and

Score* PERC Rank and Score**

  1997 46th (2.72) 12th (8.67) 1998 80th (2.0) 12th (8.95) 1999 96th (1.7) 12th (9.91) 2000 85th (1.7) 12th (9.88) 2001 88th (1.9) 11th (9.67) 2002 96th (1.9) 12th (9.92) 2003 122nd (2.9) 12th (9.33) 2004 133rd (2.0) 12th (9.25) 2005 137th (2.2) 13th (9.10) 2006 130th (2.4) 13th (8.16) 2007 143rd (2.3) 11th (8.03)

  Source: Jon S.T. Quah (2011). Curbing Corruption in Asian Countries: An Impossible

  Dream? (Emerald: Bingley) pp. 388. *The Corruption Perception Index by Transparency International score ranges from 0 (most corrupt) to 10 (least corrupt).

• The Political and Economic Risk Consultancy, Ltd (PERC) score ranges from 0

  (least corrupt) to 10 (most corrupt) From the table above we can infer that corruption in Indonesia from

  1997-2007 increased. From 1999-2002, corruption in Indonesia almost reached the absolute level. This is the period when Indonesian banks were insolvent because of their imprudent use of fractional reserve banking without any regulation or enforcement to stop this devastating practice. At this time also, Indonesia came under the auspices of the IMF and

  147 the World Bank to escape from the devastating financial crisis of 1997.

  Without integrity in the system and transparency when using its interest- bearing loans, it would be reasonable to assume that the practice of corruption likely happened by taking advantage of a weak national government that cannot dodge from dependency and must get interest- bearing debts from the creditors.

  The third principle of poor governance is income inequality. Income inequality is the condition where income distribution does not circulate evenly. There are domestic and international factors that cause income inequality. For the sake of this study, I argue that ‘the rules of the game’ of capitalism which include a usurious economic system, money market system (stocks and bonds), and fiat monetary system has made wealth no longer circulate in the economy. The consequence is that the rich get richer and the poor get poorer.

  The result is catastrophic. The gap between the ‘haves’ and ‘have-nots’ is a world-wide phenomenon. According to the 2007 Human Development Report, the poorest 40 per cent of the world’s population

  147

  Quah, J. (2011). Curbing Corruptions in Asian Countries: An Impossible Dream? Bingley: Emerald Group Publishing Limited, pp. 388; Bank, T. W. (2007, July 24);

  

Hutang Indonesia dan Bantuan Bank Dunia (Indonesian Debts and the World Bank

Assistance) . Retrieved August 11, 2012, from The World Bank:

   accounts for 5 per centof global income, the richest 20 per cent accounts

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  for three-quarters of world income. From this macro analysis, it is reasonable to assume that rich people are getting greedy at the expense of others.

  The ‘rules of the game’ in the name of financial globalization also manifested itself in numerous economic and financial crises due to

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  usurious-based economic and financial globalization. What is its relationship with income inequality? As I have mentioned in the previous analysis, globalization regimes sustain interest-bearing debt and breed corruption. Corruption affects income inequality.

  According to the UN- HABITAT “empirical research into causal relationship between corruption and income inequality suggests that it would take only a 10 per cent decrease in corruption to increase GDP

  150

  growth by 1.7 percent in Asian countries.” Income inequality has a strong impact in weakening the state by magnifying social inequality and feeding corruption.

  148

  UNDP. (2007). Human Development Report 2007/2008.New York: Palgrave Macmillan, p. 25; Perkins, J. (2004); Confessions of an Economic Hit Man. California: Berret-Koehler Publishers, Inc, pp. xii, 206.

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  The savings and loan crisis in the 1990s, Asian and Russian monetary crisis in 1997, Enron accounting fraud in 2001, Argentine, Zimbabwe, and Turkey currencies and debt crises respectively in 2002, 2003, 2004, Bernard Madoff investment scandal in 2005, and the subprime mortgage crisis in 2007.

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  Programme, U. N. (2008). State of the World's Cities 2010/2011: Bridging the Urban Divide. New York: Earth Scan, p. 81. On a micro-analysis, it creates social inequalities, instability, and the degradation of national confidence. To be specific, when the economic and financial crisis hit Indonesia, ordinary people became vulnerable because they lost their jobs, and even if they retained a job, wages decreased because of a massive rupiah devaluation. No matter how hard Indonesian people worked, they were still poor because corruption prompted by the system had shackled them.

  The level of trust and national integration ebbed away. The national government was helpless in providing basic necessities for the people. Thisrocked the very foundation of national sovereignty. People became desperate to find any job; most were informal or dirty, difficult, and dangerous jobs. With less pay than they were used to, corruption became short-cut to sustain their life, families, and dependents. The gap between rich and poor became wider.

Year Gini Ratio in Indonesia

  1996 0.356 1997 0.560 1998 0.370 1999 0.311 2002 0.343 2005 0.343 2006 0.357 2007 0.376 Source: Collected from various sources and Indonesian National Agency of Statistics

  151 (BPS), Analysis of poverty conditions in Indonesia.

  From the table above , Indonesia’s Gini index (a measure of the inequality of income distribution, in which a lower index indicates better equality) rose to 0.376 in 2007 from 0.356 in 1996. It reached peak value in 1997. From this fact, I can infer that inequality has been increasing in Indonesia for a decade. The economic growth ‘cake’ is not distributed evenly.The concentration of wealth became more exclusive as the gap between rich and the poor widened. Too much reliance on economic globalization in the form of debts and foreign capital flows created vulnerabilities for long-term state economy planning.

  The conditions attached to debts was too controlling and did not give national freedom to do things based on local conditions. This may have dampened national sovereignty, created political turmoil, and social

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  Statistik, B. P. (2008). Analisis dan Penghitungan Tingkat Kemiskinan Tahun 2008

  

(Analysis of Poverty Rate in 2008). Jakarta: Badan Pusat Statistik, available at

   pp. 30-35; ADB. (2012); From Poverty to Prosperity:A Country Poverty Analysis for Indonesia. Retrieved August 7, 2012, from Asian Development Bank: Maulia, E. (2008, December 17). Income gap widens in Indonesia, most other countries: ILO. Retrieved August 10, 2012, from The Jakarta Post: Sinaga, A. (2012, June 5). Income, a perilously widening gap. Retrieved

  15 August, 2012, from The Jakarta Post: problems. The positive economic growth in Indonesia was yet to trickle-

  152 down for the welfare and prosperity of the people.

  Globalization pressure is the use of persuasion, influence, intervention or even intimidation to make states lose their autonomous economic and political decision making power. Economic and political globalization as a pressure from the Western world to the non-Western world is explained by the concept of hegemony. The new liberal cosmopolitan ideal is emerging and being accepted as the dominant ideology. There is substantial pressure from globalization agents such as the IMF, World Bank, and MNCs to follow homogenous, hegemonic, and imperialistic

  153 democratization processes coupled with liberal development strategies.

  With her strategic location and rich natural resources, Indonesia has attracted states and transnational actors to impose three strands of

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  Wijayanto. (2011, April 28). Income, a perilously widening gap. Retrieved August 8, 2012, from Globe Asia:

  153 Ardalan, K. (2011). Globalization and Democracy: Four Paradigmatic Views.

  

Transcience Journal , Vol. 2, No 1 (2011), pp. 30-31; Febriaty, H. (2010).Analisis

Determinan Cadangan Devisi di Indonesia (Analysis of the Determinants of Foreign

Exchange Resreves in Indonesia). Medan: Universitas Sumatra Utara, pp. 1-7; Hobson, J.

  (2000). The State and International Relations. Cambridge: Cambridge University Press, pp. 130-136;Perkins, J. (2004). Confessions of an Economic Hit Man. California: Berret- Koehler Publishers, Inc; pp. 8-10, 15-17, 120-129; Perkins, J. (2009). Hoodwinked. An

  

Economic Hit Man Reveals Why the World Financial Markets Imploded and What We Need to Do to Remake Them. New York: Broadway Books, p. 141. liberalism. Commercial liberalism promotes the idea of free trade and economic interdependence, republican liberalism endorses the spread of democracy, and institutional liberalism promotes the development of international institutions.

  For Indonesia, globalization pressure from 1997-2007 can be divided into three components. First, the component of economic policy resulted from the imposition of Washington Consensus mantras, which are privatization, deregulation, and liberalization to escape from the Asian financial crisis 1997. Second, the spread of an American political model via globalization agents required Indonesia to undertaken overhaul of political organization based on liberal values. Third, the war on terror included pressure to eradicate so- called “Islamic terrorism” in Indonesia and prevent the country from becoming Southeast Asia’s terrorism hotspot. In this analysis, I focus on the first aspect.

  Indonesia’s national sovereignty was at low ebb from 1997-2007. The government was weak because of its ailing internal affairs and reliance on globalization regimes. Indonesia was basically bankrupt because of a debt trap. International interest-bearing loans bound Indonesia to its creditors. Fundamental economic integration and interest-seeking rules nourish rent-seeking behavior in tod ay’s capitalism.

  Indonesia’s decaying sovereignty can be clearly seen from the conditional aid found in the Letter of Intent (LoI) and Memorandum of Economic and Financial Policies (MEFP) of the government of Indonesia from 1998-2006. This basically required the Indonesian government to undertake privatization, deregulation, and liberalization of its strategic

  154 state-owned enterprises (SOEs).

  The IMF has given a false recipe to Indonesia, which must follow the LoI in order to basically liberalize, deregulate, and privatize its economy and become a model of Washington Consensus policies. The LoI sets out

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  the conditions for Indonesia to get funds from the IMF. Jonathan Stevenson describes this shocking pressure “the IMF offered help in the form of confidential agreement on 31 October 1997. The letter of intent required that 16 banks be closed in November 1997, which prompted a

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  The pressure was getting high run even on relatively healthy banks.” when the IMF threatened to withhold further bailout funds if the government did not following its instruction. Furthermore, on January 9, 1998, US President Bill Clinton called President Suharto to insist that IMF

  157 program must be followed.

  154

  IMF. (2012, July 18). Indonesia and the IMF. Retrieved August 23, 2012, from International Monetary Fund:

  155

  IMF. (2002, November 20). Indonesia

  —Letter of Intent. Retrieved August 10, 2012,

  from International Monetary Fund:

  156

  Quoted in Stevenson, J. (2000).Preventing Conflict: The Role of the Bretton Woods Institute. New York: Oxford University Press, p.18.

  157

  Kutan, A., Sudjana, B., & Moradoglu, G. (2012). IMF Programs, financial and real

  

sector performance, and the Asian Crisis. Retrieved August 31, 2012, from City

  University of Hongkong: http://www.cb.cityu.edu.hk/CONFERENCE/EMRM2012/doc/KUTAN%20Ali.pdf, pp. 25-49.

  On February 4, 2000, the IMF approved a three-year term loan to support the program of structural reforms in Indonesia. When Indonesia

  158 asked for financial assistance, the IMF provided a variety of conditions.

  Sometimes these requirements actually increased the financial crisis on borrowing countries, as well as what happened in Indonesia during the 1997 economic crisis. The policy of the Fund is used to force, among other things, privatization, removal of subsidies and deregulation. After the 1997 crisis, on March 26, 1998, the US$40 billion rescue package organized by the IMF fail ed in the goal of reviving Indonesia’s economy. In fact, it increased the country’s debt burden dramatically, while simultaneously

  159 exacerbating Indonesia’s economic crisis.

  The hegemonic dominance of the economic and political globalization contracts affected national sovereignty, capacity, and capability to create independent political-economic decisionsat critical times. These sets of

  160

  regimes were retained by the IMF via post-program monitoring. With

  158

  Baswir, R. (2005, December 06). Tim Ekuin 'Boediono'? (Economic Team of

  

'Boediono')? Retrieved August 12, 2012, from Gadjah Mada University:

  Tri. (2003, July 31). Pasca-IMF, Dikeluarkan Buku Putih (Post-IMF, White Book been Released). Retrieved August 30, 2012, from Suara Merdeka:

  159

  Kamasa, F. (2011). What China's and India's Economic Development Can Bring to ASEAN? Jurnal Diplomasi, Vol. 3, No. 1, March 2011, p. 112.

  160

  Regimes defined as implicit or explicit principles, norms, rules, and decision-making procedures. IMF (2005, March). Indonesia: Post-Program Monitoring Discussions. Retrieved August 28, 2012, from International Monetary Fund: IMF. (2001, December 13); high interdependence, caused by the lack of political will creating a basis for the large-scale economies, Indonesia could not resist globalization pressures, could not secure enough freedom to do things, was, and still is, trapped in a huge debt.

  When Indonesia signed the conditions of the loans, its national sovereignty basically eroded for five reasons. First, the Indonesian government was required to make an autonomous Banking Law. From here emerges Act No.23/1999 on Bank Indonesia that separates state

  161

  authority from the central bank of the Republic of Indonesia. The puzzle is, if the state is sovereign, why does it have to stipulate a law that is so important, being imposed by non-state organization (INGOs)? Furthermore, BI cannot be separated from the effects of having to submit tothe IMF Articles of Agreement, that is, to be regulated, and in some instances (as per the following articles: article IV section 2, article IV section 3.a, article V section 1, and article VIII section 5), this involves the state losing control of its central bank to the IMF, and only the central

  

Indonesia —Letter of Intent,Memorandum of Economic and Financial Policies, and

Technical Memorandum of Understanding,. Retrieved August 14, 2012, from

  International Monetary Fund

  161

  Indonesia, R. o. (1999). Act of the Republic of Indonesia No. 23 of 1999 Concerning

  

Bank Indonesia. Retrieved August 23, 2012, from Bank Indonesia:

  

  162

  bank, not government, is to have the relationship with the IMF. The bank is the backbone of national economy and if the central bank cannot escape being ruled by the non-state organization then logically the IMF is controlling Indonesia and the economic sovereignty of Indonesian is being eroded.

  Second, under the LoI requirements for restructuring the banking system, the government had to amend the Act of the Republic of Indonesia concerning Banking by Act No. 10 of 1998 and create Government Regulation No. 29 of 1999 concerning Purchase of Shares in Commercial Banks, which allowed total foreign ownership to 99 per cent

  163

  of the commercial bank. This high threshold was dictated by the IMF in the conditionsassociated with its loansin an effort to spur growth in the immediate aftermath of the 1997 monetary crisis.

  Third, under the LoI on privatization of the SOEs, the government should increase the shares of SOEs released to the public. At least, this should be done for companies engaged in domestic and international

  162 IMF. (1944, July 22). Articles of Agreement of the International Monetary Fund.

  Retrieved August 18, 2012, from International Monetary Fund:

  163

  Heriani, F. N., & Arkyasa, M. (2012, July 23). BI Should Regulate Foreign Ownership

  

of National Banks . Retrieved August 20, 2012, from Hukum Online.com:

  Indonesia, R. o. (1998). Act of the Republic of Indonesia Number 7 of

  

1992 Concerning Banking as Amended by Act Number 10 of 1998. Retrieved August 18,

  2012, from Bank Indones

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  telecommunications sectors. Because of this commitment, in less than five years, the Indonesian government lost the ownership of its telecommunications company Indosat which is strategically important. Because of this commitment, SOEs became purely business-oriented, which is to seek profit and sacrifice the welfare of the people.

  The economic and financial globalization that took place towards the end of the twentieth century is characterized by the liberalization ofall sectors imposed through structural adjustment programs (SAP) by global financial institutions. Globalization comes with policy conditions.

  According to the IMF, the prime goals of SAP are to improve a country’s balance of payments, and to promote sustainable long-term growth. In reality, it is not transparent and can be seen as a major cause of poverty in Indonesia.

  IMF’s SAP is intended to assist Indonesia tomeet its debt-bearing loans provided by the IMF to Indonesia to address fiscal issues, monetary, inflation, financial deregulation, trade liberalization, and privatization of public-sector enterprises. The assistance has become counterproductive

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  Online, H. (2000, September 21). Privatisasi Indosat Diundur Sampai 2003 (Indosat

  

Privatization Postpones untill 2003) . Retrieved August 20, 2012, from Hukum

  Online.com: Ritonga, U. (2002, Juni 18). Kesepakatan Ekonomi sebagai

  

Pengganti LoI IMF (Economic Agreement as a Substitute of IMF's LoI) . Retrieved

  August 20, 2012, from Tempo Interaktif: and was often criticized as the crisis became deeper, longer, and harder.

  165 We can see this course from table below.

  

Level of Unemployment, Level of GDP, Level of Trade, Inflation Rate,

and Interest Rate in Indonesia 1997-2007 (in percentage)

Year Level of Unemployment Level of GDP Level of Economic Growth Inflation Rate Interest Rate

  5.00

  10.27

  9.86

  5.0

  5.03

  6.40

  6.4 2005

  10.26

  5.7

  5.69

  17.11

  12.75 2006

  5.5

  5.06

  5.50

  6.60

  9.75 2007

  9.11

  6.3

  6.35

  6.59

  8.00 Sources: Data processed from various sources, Indonesian National Agency of Statistics (BPS), 1997-2007, Statistical Yearbook of Indonesia (various years);

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  Naqvi, N. (2012, August 26). The IMF and Us. Retrieved September 4, 2012, from The Express Tribun

  10.85 2004

  4.78

  4.7

  4.90 9.35 -1.65 2001

  5.00

  11.05

  8.21 1998 5.46 -13.3 -15.0 77.63 -24.6 1999

  6.36

  0.3

  0.79

  2.01

  11.83 2000

  6.08

  4.8

  8.01

  1997

  3.4

  3.64

  12.55

  3.72 2002

  9.06

  3.7

  4.50

  10.03

  12.32 2003

  9.51

  4.8 What assumptions can be made with the above data? Five salient observations can be drawn from these economic downturn indicators. First, by any standards, Indonesia had high unemployment rates from 1997-2007. From 1999-2007, the growth of the economy was relatively low, at just about 3.9 percent. Second, the high rates of unemployment, inflation rates, and interest rates contributed to the onset of a weak national government in Indonesia handling macro and micro economic indicators. Unemployment grew and the number of poor people increased sharply. The difference between the highest and the lowest of the unemployment levels are double and inflation rates twelve-fold.

  Third, the double digits of unemployment rates, interest rates, and inflation rates in Indonesia may have contributed to destabilization in socio-economic conditions in Indonesia. Such high destabilization affects societal economy activities. Fourth, in Indonesia from 1997-2007, the unemployment, inflation rates, and interest rates were relatively stable at high levels of 10 per cent, 17 per cent, and 20 per cent for a decade. Fifth, these indicators coupled with other variables may better explain the onset of weak national government and economic downturn in Indonesia over a period of ten years. Economic downturn is even harder when we look at the effects of the economic crisis as a result of the US sub-prime mortgage crisis in 2008 and the series of bubbles from then until now.