00074910012331337853
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Book Reviews
Pierre van der Eng , Hall Hill , Patrick Walters , Andrew MacIntyre ,
Christopher Findlay , Robert Albon , Armida S. Alisjahbana & Ross H. McLeod
To cite this article: Pierre van der Eng , Hall Hill , Patrick Walters , Andrew MacIntyre ,
Christopher Findlay , Robert Albon , Armida S. Alisjahbana & Ross H. McLeod
(2000) Book Reviews, Bulletin of Indonesian Economic Studies, 36:1, 243-260, DOI:
10.1080/00074910012331337853
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Bulletin of Indonesian Economic Studies
Vol 36 No 1, April 2000, pp. 243–60
BOOK REVIEWS
Anne Booth (1998), The Indonesian Economy in the Nineteenth and Twentieth
Centuries: A History of Missed Opportunities, Macmillan, London, and St
Martin’s Press, New York, pp. xvi + 377. Paper: US$ 19.95; cloth: US$ 79.95.
This book is the first monograph on Indonesia’s economic history since
Burger’s Sociologisch-Economische Geschiedenis van Indonesië (originally
published in Bahasa Indonesia in 1957) and the last edition of Gonggrijp’s
Schets ener Economische Geschiedenis van Indonesië (1957). It is also the first
monograph since the revival of academic interest in Indonesia’s economic
history in the 1970s. One of the stated aims of the book is therefore ‘to
present a stocktaking of what has become a fast-growing field of study’
(p. xv).
It is also a very timely book, as Indonesia is poised to enter a new
period of economic change. Professor Booth believes that the past can
provide lessons for the present and the future. An important aim of her
book is to answer the questions: ‘Why at the close of the twentieth century
is the country still relatively poor and underdeveloped? What were the
major policy errors of both colonial and post-colonial governments which
have produced this state of affairs?’ (p. xv). Answers to these questions
may help Indonesia to map a path for the future.
The book contains five thematic core chapters. Chapter 2 traces the
broad outlines of economic growth and structural change. Chapter 3
discusses the statistical evidence for long-term changes in living standards
and the distribution of income, or rather the absence thereof until the
New Order regime. Chapter 4 tracks the role of government in economic
change, while chapter 5 investigates the impact of international trade.
Chapter 6 traces the role of investment in capital stock and human capital,
and of technological change. The last core chapter discusses the
development of markets and entrepreneurs.
This thematic approach may be appropriate for drawing lessons from
Indonesia’s past. Unfortunately, the country’s history is characterised by
political discontinuity, which had major repercussions for economic
change. One consequence of the thematic approach is that the author has
to refer to this discontinuity in each chapter, leading to duplication.
Another is that, to understand a period well, the reader is required to
read parts of different chapters. For instance, foreign exchange policy in
the 1950s is best understood by reading both pp. 169–70 and 222–24.
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The book takes stock of some of the recent literature, but almost
exclusively that published in English. Consequently, it ignores several
recent studies in Dutch and Bahasa Indonesia, such as à Campo (1992) on
the KPM and transport development; Potting (1997) on the development
of money and finance in Sumatra; Meijer (1994) on Dutch–Indonesian
relations in the 1950s; Masyhuri (1995) on fisheries; and a host of studies
on regional development (e.g. Clemens and Lindblad 1989).
It is likely that the book will be most appreciated by economists with
enthusiasm for the fact that history presents so many opportunities to
test the validity of current economic theory. The author indeed makes
inventive use of such theory in order to understand Indonesia’s past.
Some historians may not feel comfortable with this use of theory and
therefore with the book. They may also feel uncomfortable with the
author’s answer to the question why Indonesia is still a poor country.
Her answer, as the title of the book suggests, is that past governments
have missed opportunities to spur development, and made ‘policy errors’.
These ‘errors’ are not all clearly spelt out, but included are: the lack of
public investment in education; the failure to achieve economic
diversification (i.e. industrialisation) at earlier stages of development;
the concomitant high dependence on primary exports; the consequences
of the pursuit of conservative fiscal, monetary and foreign exchange
policies; the failure to nurture a ‘class’ of indigenous entrepreneurs; the
longevity of inefficient institutions.
It is interesting to speculate how different Indonesia’s economy would
be today if these ‘errors’ had not been made. However, before readers
can accept past decisions as ‘errors’, they have to understand that
governments indeed had different options and had compelling reasons
to choose the ‘wrong’ ones. They also require the counterfactual scenarios
that demonstrate that the ‘right’ decisions would have led to a better
result. For instance, the suggestion that past governments should have
invested more in the development of a system of mass education (pp.
289, 328) leaves several questions unasked. Were public revenues
sufficient to do that? If not, could more revenues have been raised for
that purpose? Was education in the past regarded as a prerequisite for
economic development, or perhaps for cultural and political
advancement? Was there sufficient demand for mass education?
Unfortunately, the actual policy options and counterfactuals are rarely
discussed in detail.
The reader is told that past ‘policy errors’ put the Indonesian economy
on a path from which it could not easily deviate (p. 12). Path dependence
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may be useful in explaining the direction of short-term decisions.
However, the concept is difficult to use when analysing a trajectory
spanning 170 years (1820–1990). Numerous decisions were made along
the way, not just by governments, but also by private enterprise and
individuals. With hindsight, they may not have been the best decisions.
The problem with hindsight, however, is that it was not available to those
who made the decisions, and is therefore of little use when trying to
understand why governments made the decisions they did.
At times the author reveals that she is ill at ease with history. For
instance, she suggests that the use of Dutch as the official language during
the colonial era was a trade barrier that benefited trade with the
Netherlands (p. 216) and advantaged Dutch investors (p. 257). This
ignores the fact that, for instance, British companies operated, often
successfully, in many non-English speaking countries, including the
Netherlands, and that non-Dutch companies in Indonesia were able to
use local agents with knowledge of Dutch. It is surprising to read (p. 6)
that Indonesian nationalists were concerned about the widening gap in
GDP between the Netherlands and Indonesia well before the first
estimates of GDP were available for either country. Or that Sumitro was
a ‘technocrat’ in the 1950s (p. 222) before the term had been invented.
The repeated use of the phrase ‘there can be little doubt that ...’ is certain
to irritate some. If there is no doubt, there is no need for the phrase. Lastly,
the listing of Achmad Sukarno (rather than President Sukarno) and
General Soeharto (rather than President Soeharto) in the index (p. 375)
seems ominous.
The sections on economic development after full independence in
1949 are the strongest. The author provides valuable observations about
developments during the years 1950–65, about which not enough is
known at present. She gives due credit to the achievements of former
President Soeharto’s regime, but is frank about the collusive,
patrimonialist character of the ‘predatory state’ he created (p. 336).
Despite the concerns raised here, this is an important book that meets
a widely felt need for an overview of Indonesia’s modern economic
history. It may not please all readers, but it challenges economists and
historians alike to take note of its arguments. The book deserves to be
read widely.
Pierre van der Eng
ANU
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J. Thomas Lindblad (1998), Foreign Investment in Southeast Asia in the
Twentieth Century, Macmillan, London, and St Martin’s Press, New
York, pp. xiii + 240. Paper: £49.95.
There is a gap in the literature on foreign direct investment (FDI) in
Southeast Asia. From the late colonial era, covered admirably in the
standard reference by H.G. Callis (Foreign Capital in Southeast Asia, Institute
of Pacific Relations, New York, 1942) to the 1970s, when a burgeoning
literature becomes available, there is very little in the way of synthesis
and systematic analysis. Nor, by extension, is there a volume that
examines FDI into the region throughout the century in an integrated
fashion. This volume by Thomas Lindblad of Leiden University is
therefore very much to be welcomed.
A product of the ANU’s Modern Economic History of Southeast Asia
Project, the book offers a concise yet comprehensive assessment of FDI
during the first nine decades of the century. It reminds readers without a
historical perspective that large equity capital inflows to the region are
by no means a new phenomenon. Moreover, although the colonial and
independence eras are not directly comparable, many of the analytical
issues associated with FDI are remarkably similar.
A short introductory chapter identifies the key themes, emphasises
the diversity of country experiences, sets aside some definitional issues
(one in particular, how to treat ‘overseas Chinese’ investment, recurs
frequently) and mentions the thorny issue of data quality and sources.
These topics are examined in greater depth in a useful overview chapter
entitled ‘The Historical Perspective’. Then, in ‘Pioneers and Profits’, we
are given a close-up picture of the colonial period, with informative case
studies of banking and manufacturing in the Philippines, timber and
trading in Burma and Thailand, and rubber and the management agencies
in Malaya and Indonesia.
Chapter 4 switches to a home country perspective, with a fascinating
analysis of the various policy regimes during the colonial period. The
differences were greater than is often realised. The French in Indochina
intervened intensively, and sought to exclude other investors: ‘An
independent colonial economy was the aim but it should serve the
interests of France only’ (p. 68). The Dutch policy towards Indonesia is
examined in some detail (pp. 68–83), as the pendulum swung from the
Cultivation System to the Ethical Policy, and a fairly open policy towards
FDI. The British in Malaya/Singapore differed again, with their ‘stubborn
insistence on classical liberalism’ (p. 84). Then there was the US regime
in the Philippines, quite unique in the region with its ‘strong current of
anti-imperialism’.
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247
The story then moves forward to the transitional period of
independence and beyond. Here the country differences become more
pronounced, of course, ranging from fierce nationalist pressures in
Indochina, Burma and Indonesia, to the consistently open regimes of
Malaysia and Singapore. The Philippines and the special case of Thailand
adopted intermediate positions. (The sometimes strident opposition to
foreign ownership in the former is not always easy to understand, given
its relatively painless 20th century colonial experience.) Following this
transition, there is something of a turning point during the 1960s, in that
all five original ASEAN member states began to adopt more liberal FDI
policy regimes.
A contemporary readership will be much better acquainted with the
analysis of the last two major chapters. From a home country perspective,
covered mainly in chapter 6, there is the rise of the new investors—Japan,
then the NIEs, and finally a European ‘rediscovery’ of Southeast Asia.
Differences among these investors are also assessed. Next there is a
competent description of the host country experiences and policy regimes
of the ‘ASEAN Five’ from the 1970s to the early 1990s. The author’s brave
attempt to summarise these approaches—’self-assertive Singaporeans,
technology-minded Malaysians, growth-obsessed Thais, restructuring
Indonesians, and optimistic Filipinos’ (p. 203)—gives something of the
flavour of the chapter.
The volume was completed just before the onset of the region’s
economic crisis, and released at its low point. However, in contrast with
contemporary economic analyses published over this period, history has
not been unkind to the author. Except in the case of Indonesia, FDI flows
were little affected by these events, and in most countries they actually
increased. The debate over capital controls in Malaysia and elsewhere
never extended to FDI. Indeed, most countries in the region now have a
more liberal FDI policy regime, either by choice (attracted by FDI’s greater
sense of permanence) or dictate (IMF packages).
The topic is so vast that choices have had to be made in compressing
a large amount of analytics, data, literature, country nuances and firmlevel information into a single volume. This sort of book could have been
written in a dozen different ways. My judgment is that the author has
got the mix about right. He brings the painstaking skills of an economic
historian to bear in analysing long-term trends. But this is no archival
piece of research. Thomas Lindblad has clearly got on the road too, with
research trips (visiting research institutes, factories, etc.) to many of the
major cities in the home and host economies. An extensive 21-page
bibliography will be invaluable for future researchers delving into more
specialised aspects of the subject.
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There is nothing especially original in the volume, nor is there any
fresh rigorous empirical analysis. There could be major debates about
the data base used, and some readers might have wanted stronger
guidance on the overall costs and benefits of FDI to the region. This should
not be construed as criticism: choices have to be made to fit the story into
a little over 200 pages of text. The author has done an admirable job, and
produced a book that all those with an interest in FDI and long-term
Southeast Asian development will want to have on their shelves.
Hal Hill
ANU
Adam Schwarz and Jonathan Paris (eds) (1999), The Politics of Post-Suharto
Indonesia, Council on Foreign Relations Press, New York, pp. 150. Paper:
US$17.95.
This slim 120-page volume offers an important historical snapshot of
Indonesian politics in mid 1998, just after the dramatic fall of President
Soeharto. With chapters by five of the best known international specialists
on Indonesian politics, including Bill Liddle, John Bresnan and Adam
Schwarz, it illuminates some pathways for further work on the
extraordinary story of the sudden collapse in May 1998 of Soeharto’s
New Order regime. Since its publication, the steady course of political
democratisation in Indonesia has continued to confound political
observers. Successful general elections were held in mid 1999. A more
dynamic political environment has seen the demise of President Habibie,
and the surprise elevation of Nahdlatul Ulama (NU) leader, Abdurrahman
Wahid, to the presidency in October.
The military’s grip on national politics has been greatly weakened,
and former armed forces chief General Wiranto has been forced to step
down from the cabinet. For the first time in Indonesian history the armed
forces commander is a navy admiral rather than an army general. The
police no longer form part of the armed forces (TNI). East Timor has
been lost and the territory is set to become an independent nation within
the next few years.
After the disastrous slump in 1998–99 the economy has returned to
positive growth, but significant structural adjustment challenges lie
ahead, notably in the banking sector and in resolving the corporate debt
overhang. Across the archipelago the secessionist movement in Aceh and
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the sectarian violence in Maluku province remain a critical problem for
the Abdurrahman government.
In his chapter on the demise of Soeharto, Bill Liddle shows how the
ex-President’s desire to protect his own family fiefdoms, ignoring the
letter of successive IMF bailout agreements, contributed to the collapse
of confidence in his leadership by early 1998. The economic success of
the New Order was an essential underpinning of Soeharto’s rule, and
when the economy faltered in late 1997 opposition forces began to
mobilise. ‘In the final analysis’, argues Liddle, ‘what is perhaps the most
important is that from 1997 to mid 1998 the balance of political initiative
shifted from the Soeharto-dominated armed forces to political activists
outside the state.’ He correctly asserts that the army without Soeharto
was thrown off its guard, with civilians moving into the vacuum created
by the military’s lack of vision and initiative.
Robert Hefner contributes a valuable chapter on Islamic politics,
charting Indonesia’s Islamic revival in the 1980s and the political tensions
between leading Muslim organisations including the Soeharto-sponsored
ICMI and Wahid’s NU. Hefner argues the most significant ‘clash of
cultures’ today is not that between distinct civilisations but, as in Iran,
Algeria and elsewhere, between rival political traditions within the same
country. The Islamic resurgence has not produced a Muslim political
consensus, but Hefner affirms the mainstream’s continuing commitment
to democracy and peaceful change. ‘Despite the bitter legacy of the
Soeharto regime and despite deep divides among Indonesian Muslims,
the balance of forces in this country still favours the development of a
civil and democratic Islam’, he concludes.
Takashi Shiraishi reviews the tensions between the top military
leadership at the time of Soeharto’s downfall, particularly the strained
relationship between General Wiranto and Soeharto’s ambitious son-inlaw Prabowo Subianto. His analysis of the complex manoeuvrings in
early 1998 points to the need for a fuller study of the military’s role in
Soeharto’s demise. Tactical alliances between Wiranto and other senior
officers at ABRI headquarters in early 1998, including Generals Susilo
Bambang Yudhoyono and Agus Wirahadikusuma, did not endure beyond
the fall of Soeharto. Shiraishi argues that despite the dramatic erosion of
the military’s prestige the army still retains significant structural power,
particularly through its territorial apparatus, which extends right down
to village level across the archipelago.
A concluding chapter by John Bresnan examines the role of the United
States in the financial crisis that engulfed Indonesia in late 1997. Bresnan
is critical of the Clinton administration’s initial response to the crisis,
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and the lack of cohesion between the White House and key government
agencies in Washington, including the State Department and the
Pentagon. Bresnan argues that the Clinton administration was ill-favoured
to play a strategic role with regard to Indonesia, with no senior
administration officials having lived or worked in Indonesia. He also
asserts the need for the US and the international community to develop
new approaches to deal with global capital movements.
Patrick Walters
The Australian Newspaper, Canberra
Arief Budiman, Barbara Hatley and Damien Kingsbury (eds) (1999),
Reformasi: Crisis and Change in Indonesia, Monash Asia Institute,
Melbourne, pp. 402. A$24.95.
This is a major multi-author collection arising from a conference in
Melbourne at the end of 1998 that attempts to make sense of the stunning
changes that unfolded in Indonesia in the year and a half following the
onset of the Asian economic crisis. There are 19 chapters, organised into
three sections dealing with economic, political, and social and legal
dimensions of the crisis and the struggle for reform. The contributors,
Indonesian and Australian, are from across academic disciplines and
professional backgrounds. The book is not so much an edited volume as
a collection of essays. There is no real attempt to impose an integrated
framework or set of common questions, and there are surprising
typographical and production blemishes (e.g. pages out of order) But
given that the organisers were seeking to bring together a rich and varied
line-up and, above all, to respond in a timely fashion to rapidly changing
current events of great moment, this is understandable. More to the point,
it should not distract from the main judgment, namely that this will
probably prove to be the key book on this dramatic phase of Indonesia’s
development. No doubt more careful, focused and rigorous studies will
follow, but none is likely to capture the breadth and depth of the drama
as fully as this one.
The great strength of this volume is the impressive spectrum of
authors and the richness of the individual papers. In the relatively short
economics section, a chapter by McGillivray and Morrissey provides a
sensible broadbrush overview of Indonesian development and a
thoughtful discussion of the IMF’s intervention; it endorses key
stabilisation elements of the program but argues for greater attention to
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poverty and social dimensions of the crisis. A short chapter by Basri
provides a clever and interesting analysis of some political economy
dynamics of the crisis, but is suggestive rather than definitive. Although
both these chapters are good and add value, BIES readers will not turn
to this volume for its economic analysis.
The second section is the core of the book and presents 11 chapters on
political dimensions. Again, all add real value. Budiman provides a
thoughtful and academically grounded discussion of the dynamics of
democratic transitions, locating Indonesia within the broader context of
transitions elsewhere. For my money, this is the best chapter in the book.
Of course there are issues to argue over, but more than any other chapter
it has wider value beyond the empirical record it provides. Chapters by
van Klinken, Young, and Hadiz also explore different dimensions of this
theme. Two chapters by Crouch and Bourchier dissect the dynamics of
the declining fortunes of the military. Both are good, with the Bourchier
chapter having a little less analytical edge but a more comprehensive
empirical coverage. I found the chapters by Meitzner and Falaakh on
Islamic groups in reformasi politics to be particularly illuminating. In
different ways, both carefully map the competing currents and factions
of Islamic politics in the lead-up to and wake of Soeharto’s fall. Then
follow chapters by Aspinall, Lane and Sumartana on students, social
movements, and interreligious tensions. I especially enjoyed Lane’s
chapter: along with his trademark scorn of mainstream (read, nearly all)
politicians and academics, he provides a hard-headed analysis of winners
and losers and the prospects for major improvement in the lives of
ordinary Indonesians. The absence of dewy-eyed liberal romanticism
about democratisation is both biting and revealing.
The third section of the book is more eclectic, but no less illuminating.
Chapters by Hatley and Halim trace the way cultural forms give
expression to the currents of political change. Heryanto and Kolibsono
focus on gender dimensions, with subtle yet powerful analyses of the
infamous rape of Chinese-Indonesian women at the height of the political
crisis. Finally, a chapter by Lubis and Santosa, and another by Lindsey,
explore the dynamics of legal reform and the prospects for democratic
governance. Of the papers in this section, I found those by Hatley,
Heryanto, and Lubis and Santoso to be particularly informative.
Overall, this is an extraordinarily rich volume. To be sure, there are
aspects of the book that could have been stronger. For instance, there
could have been a more complete treatment of the economic dimensions
of the crisis and why these were so politically consequential. Also, very
many of the papers focused narrowly on their particular subject but did
not explain how this connected to other dimensions of the crisis, with
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the result that nowhere do we really get an explanation of how the various
pieces were all related. But this is probably inescapable in a volume that
is striving for timeliness and to present a snapshot of all that was taking
place. Overall, the volume provides powerful insight into many
dimensions of the tumultuous changes in Indonesia and the way in which
a range of scholars and professionals viewed these changes at the time.
Anyone wanting a window into the drama of 1997 and 1998 should buy it.
Andrew MacIntyre
University of California, San Diego
Hal Hill (1999), The Indonesian Economy in Crisis: Causes, Consequences and
Lessons, Institute of South East Asian Studies, Singapore, pp. 150. S$22.50;
US$14.90.
Hal Hill has written a fine account of the Indonesian crisis. In this book,
he makes brief reference to the prelude to the crisis, then provides a
detailed account of its course, examines its impacts, reviews its causes,
and talks about the way ahead. He finishes with some notes on a few big
analytical questions.
Hill stresses the interaction between factors that made Indonesia
vulnerable to a crisis and the way the crisis was managed. This
conjunction of factors is the basis of an explanation for the relative severity
of the crisis in Indonesia. He makes a distinction between triggers that
set off a crisis and factors that determine its severity. Hill also works to
reconcile the longer-run growth performance of the Indonesian economy
and its experience of a crisis of this depth.
The vulnerability factors include the extent and nature of external
debt in an environment of more mobile international capital, poor
macroeconomic management, poor financial market regulation, and
corruption, as well as problems of governance. In these areas, Hill tells
familiar stories. But it is his commentary on the management of the crisis
that is especially interesting. He talks about three things—policy errors,
the contribution of corruption and the role of the IMF.
Of those mentioned by Hill, the most important policy error was the
loss of monetary control. This was set off by a flawed decision to close a
large number of banks, weakening confidence in the banking system and
leading to bailouts, prompted in part by a desire to protect particular
interests, and funded by injecting liquidity into the system. The
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consequence was increasing inflation, further loss of confidence, and more
rapid flight of capital, which then undermined the value of the rupiah.
Also particularly interesting is Hill’s discussion of the impact of
corruption. In his view it is difficult to mount a case that corruption
precipitated the crisis; the important contribution of corruption to the
depth of the crisis was that it incapacitated the Soeharto regime as it
tried to respond to the triggers. ‘Corruption’ is used here to denote a
bigger problem than taking bribes or distorting tendering processes—
those things are the instruments of the corrupt. It refers to the capture
and control of the political system by one dominant group which over
time worked more and more for its own benefit. This undermined public
support for the regime, and weakened community expectations of its
capacity to manage the crisis. The community’s doubts were then
vindicated, especially when the President faltered in some early responses
to the crisis, and when there was no effective countervailing force in
policy making.
Hill reviews some of the prescriptions of the IMF, for example, the
pressure for bank closures and the tight fiscal policy early in the crisis.
He criticises the IMF for tackling too wide a set of policy issues. While in
the end he says it is not a major villain, his assessment implies the IMF’s
early interventions made the situation worse. Clearly, however, the IMF
has learnt from this experience. Hill points out that some people think
the risk is now in the other direction, of excessive flexibility by the IMF
undermining the coherence of its policy advice. This experience of the
IMF in Indonesia will bolster the work in progress on building regional
institutions that can complement and deepen its monitoring and review
functions and provide some sort of peer review mechanism, in ASEAN
in particular.
The final chapter includes a review of the way ahead. Lots of things
need to be done, according to Hill. The list includes redefining the targets
of monetary and fiscal policy; banking reform; corporate debt
restructuring; microeconomic reform; a new social policy. The list is
exhaustive (and exhausting!): it includes every aspect of economic policy.
Making up the list is difficult enough. Even harder is to explain how
to implement it. Part of the problem is that many technical problems
have to be solved and institutional and capacity building has to be
undertaken. How do you set up and manage a bankruptcy system, a
competition policy process? But there is plenty of capacity building on
the supply side from multilateral agencies and regional partners,
including through institutions of regional cooperation such as APEC. The
demand side is the critical constraint.
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The adoption of the reform agenda and its implementation depend
on the political process. That is the weak point. Hill identifies the capacity
of the political system to deliver effective economic policy making as a
critical condition for his reform agenda to be met. He also presents a
gloomy story about new political processes in which the players lack the
skill and capacity to deliver coherent policy. These arise from the
difficulties of coalition government, a weakened bureaucracy and the
emergence of new sets of interests demanding to be accommodated,
including those associated with different regions or ethnic groups. In
addition to the factors he mentions, private interests at the industry or
enterprise level will also be quick to perceive new opportunities as
institutions are reformed or transitions occur. They are likely to distort
the reform process as they plead special cases, demand protection, and
threaten further disruption. Managing these interests has also been made
more complicated by the consolidation of the private sector’s assets in
the hands of the government as a consequence of the bank restructuring
process.
A key to the resolution of these domestic political constraints will be
the capacity to bring to bear the countervailing forces that also promote
growth. In that context, Indonesia’s commitments to the international
institutions, both global and regional, with respect to trade policy and to
capital market openness will be critical.
At the start of his chapter on the way ahead for Indonesia, Hill presents
three scenarios, one a quick return to high growth, another in which the
economic decline is halted but political instability and lack of policy
coherence deny a return to sustained growth at high rates, and a third,
more awful, scenario of collapse. Hill rejects the first and third of these
and says the middle or ‘Aquino’ scenario is more plausible. A push
towards a return to high growth, or the ‘Mexico’ scenario, will depend
on the second precondition for reform that Hill identifies—a favourable
international environment. He characterises this condition as the support
provided by the international market, in terms of export access, and by
the donor community. More important, and a greater force for increasing
the chances of moving out of the Aquino scenario, will be Indonesia’s
own commitments to openness in goods, services and capital markets.
Christopher Findlay
ANU
y [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RAJA ALI HAJI TANJUNGPINANG, KEPULAUAN RIAU] at 22:04 19
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255
Terry Dwyer (ed.) and Barry Reece and Craig Emerson (contributors)
(1999), Resource Tax Policy in Countries of the Asia Pacific Region, Asia Pacific
Press, The Australian National University, Canberra. A$20.00; US$20.00.
This is a rather odd little book. The title does not sit easily with the
contents, since only about half of the book is about what most readers
would understand as ‘resource tax policy in countries of the Asia Pacific
region’. The half that does reflect the title is contributed by Craig Emerson,
a member of parliament with a long history of interest and research in
the area of resource tax policy, including an ANU PhD. Emerson’s chapters
cover the principles of efficient mineral taxation and look at the tax policies
applied in four countries in the region (including Indonesia). The editor,
Terry Dwyer, contributes a preface and a short introduction that provide
a succinct summary of resource tax policy issues in the Asia Pacific area.
But the other half of the book, contributed by Barry Reece, seems
somewhat out of place.
Reece, who, to my knowledge, has not previously contributed to the
resource tax literature, arguably does not actually enter this field with
his contribution to this book. Apart from the chapter on ‘trends in world
tax systems’, his contribution is about urban land taxes in general and as
applied in three countries in the region, particularly heavily urbanised
Australia. The content of these chapters reflects the contributor’s long
interest in these taxes—there is nearly a page of Reece references dating
from 1975—and this is useful if that is what the reader is looking for.
However, I do not think the kinds of property tax issues covered are
likely to coincide with the interests of Indonesian (or other Asia Pacific
developing country) analysts and policy makers.
Emerson’s chapters provide a quite nice account of the fundamentals
of efficient mineral taxation revolving around the key ideas of the resource
rent tax and the Brown tax (a tax assessed on actual net cash flows); a
discussion of various suboptimal mineral taxes (royalties, higher-thannormal company income tax and progressive profits tax); and some
sensible notes on how and how not to assess the benefits of mineral
exploitation and processing. This is not cutting-edge material, but it does
provide a good introduction to the main ideas in a reader-friendly manner.
These theoretical ideas are applied to a consideration of the mineral
tax policies of four countries in the region: Papua New Guinea, Indonesia,
Thailand and the Philippines. Indonesia’s policies are described as
displaying ‘inherent instability’, and are criticised on a number of other
grounds. While not superficial, the four case study chapters are not
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Book Reviews
particularly detailed, nor are they supported by sufficient references—
an important shortcoming in a book that aims to introduce readers to its
subject matter.
The editor’s preface and introduction provide a good summary of
the issues of resource tax policy in the Asia Pacific area, including a
discussion of the contentious issue of international tax competition.
Dwyer argues that competition leads to greater efficiency because it results
in more of the tax burden falling on the internationally immobile
(‘inelastic’) factor of production, labour, and is therefore consistent with
the Ramsey principle of efficient revenue raising. (This principle requires
the tax rate applied to be positively related to the inelasticity of supply of
the factor in question–or ‘thumping the one that can’t get away’.) On the
other hand, he noticeably struggles to justify inclusion of the material on
urban property taxes, and it would have been better if his two short
contributions had been combined into one and considerably extended.
Indeed, I do not think it is unfair to sum up the entire book by stating
that it is far too sparing on the subject matter promised in the title.
Robert Albon
ANU
Januar Achmad (1999), Hollow Development: The Politics of Health in
Soeharto’s Indonesia, Coombs Academic Publishing, Research School of
Pacific and Asian Studies, The Australian National University, Canberra,
pp. viii + 220. A$15.00 plus postage.
This book, the author’s doctoral dissertation, contributes greatly to an
understanding of the strengths and weaknesses of the Indonesian health
system, and of how health policy was formulated and implemented from
the national level down to the community level, during the Soeharto era.
The strength of the study lies in its presentation of ideas and information
derived from the author’s observations and research while implementing
public health and development programs in Central Java between 1980
and 1998, during which period he served 10 years as head of a government
rural health centre.
Indonesia’s achievements in health include an increase in life
expectancy from 41 years in 1960 to 63 in 1993, and a sharp reduction in
infant mortality from 139 per thousand live births in 1960 to about 56 in
1993 (p. 5). However, when compared with those of other countries in
the Southeast Asian region, these achievements are less impressive. Of
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257
particular concern is maternal mortality, a sensitive measure of the quality
of health care, which is much higher in Indonesia than in various countries
with similar or even lower levels of economic development.
The author focuses on factors that determine the government’s
capacity to influence health sector performance, as measured by its
effectiveness in reducing maternal mortality—especially maternal
emergency care in rural areas. He explores the determinants of health
sector performance within the health system itself, as well as in the
broader socio-political context. In addition to chapters on the political
setting and Islamic organisations as they relate to health programs, four
major themes elaborated elsewhere include the role of the medical
profession; the weak demand for health services; public administration
and the financing of local government; and the low priority given to the
health sector at the highest levels of government.
One of the most interesting points concerns the relationship between
public administration, together with the local government financing
system, and the performance of local health services. Although the
Ministry of Health set policies, it had no control over their implementation
at regional and local levels; district hospitals, health centres and health
workers were supervised by the Ministry of the Interior, through local
governments (p. 171). The implication for health services, according to
the author, was that there was no incentive to improve them, since local
government was accountable only to the Ministry of the Interior.
Moreover, until 1998 only 25% of health service revenues could be retained
by the health centres that generated them; the rest was used by local
governments for non-health-related spending. The health sector thus
came to be regarded as an income generating institution, rather than one
for providing health care.
The author has done well in describing the political setting under the
New Order and its ramifications for health sector performance. He
describes how rivalry between the two Muslim organisations, Nahdlatul
Ulama and Muhammadiyah, disrupted implementation of a particular
health program. He also argues that, as with other sectors, restrictions
on the flow of information, the lack of critical health research, and the
low priority accorded to the health sector made former President Soeharto
unaware of the extent of this sector’s problems.
Dr Januar argues that effective health programs could be implemented
by relying on community participation, local area monitoring of output
indicators, and strong supervision of health workers. If the health centres
were given greater control, health programs could be developed on the
basis of the community’s felt needs, with all revenues generated by the
health service retained by the centres. He also proposes that local
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Book Reviews
government should provide extra funding to subsidise the health centres.
Because of persistent maternal emergency problems in rural areas, he
suggests that the government should train and equip general practitioners
with relevant surgical and obstetrical skills.
Much of the discussion relates to the supply side of health services.
Although the book’s title foreshadows an emphasis on the politics of
health, important demand side issues deserve more emphasis than the
author has given them (pp. 73–6). He briefly explains that underutilisation
of health centres results not only from economic factors (including being
poor and having to travel long distances), but in many cases involves
cultural factors as well. In principle, poor people can request a
recommendation letter from their village head allowing them to receive
free medical service at health centres. However, no one ever asked for
such a letter in the author’s area of research, and some even hid their
illness in the absence of any intervention. Nevertheless, the author makes
no attempt to analyse empowerment issues, whether they relate to the
household economy, to education, or to more general questions of social
welfare, that could increase health care utilisation by the public.
It is still unclear how the new decentralisation law will delegate health
sector authority to the district level, and what roles the central and
provincial governments will play in this new setting. Exactly how the
new law will affect local utilisation and provision of health services, and
how local government should prepare itself for its new role in the health
sector, are just two of the questions needing immediate answers. Future
health policy formulation in a decentralised Indonesia will undoubtedly
benefit from the lessons described in this book.
Armida S. Alisjahbana
Padjadjaran University, Bandung
Terence H. Hull, Endang Sulistyaningsih and Gavin W. Jones (1999),
Prostitution in Indonesia: Its History and Evolution, Pustaka Sinar Harapan,
Jakarta, pp. 161. A$10.00.
This study, first published in Indonesian in 1997, is a preliminary attempt
to provide a comprehensive picture of prostitution in Indonesia. In
qualitative terms it succeeds admirably, although the lack of reliable data
makes quantitative assessment extremely difficult. Nevertheless, the
industry is found to be large, with the number of sex workers estimated
by the authors at 140,000 to 230,000, and its contribution to economic
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259
output at 0.8 to 2.4% of GDP, in 1996. (Whether the Central Statistics
Agency makes its own estimates of the industry’s output is not revealed.)
The number of customers is estimated at 5 to 8% of Indonesian males
aged between 15 and 64. These are drawn from all levels of society;
correspondingly, there are enormous variations in the circumstances in
which commercial sex encounters take place and in the prices paid.
The authors trace the history of Indonesia’s commercial sex industry
from the time of the Javanese kingdoms up to the present. An interesting
observation is that certain areas came to be known as sources of beautiful
and alluring women for the Javanese courts. Many of these were lower
class women sold or given over by their families to take minor positions
in the royal household, who could achieve higher status by producing
children for the king. In a superficial sense, not much has changed in
relation to the ‘commoditisation of women’. Today these same areas serve
as disproportionately significant sources of urban prostitutes, in the same
way that other locations have become known as suppliers of, say, building
labourers and vendors of traditional medicines. Moreover, it is still not
uncommon for families to seek material advancement by selling their
daughters, though now into prostitution rather than into royal
households. Although there are also instances of recruitment through
force or deceit, the majority of sex workers—typically poorly educated,
unskilled girls and young divorced women—appear to be in the industry
by their own choice, since much higher incomes can be earned than in
the other occupations available to them.
Devising official policy towards the commercial sex industry—like
devising policy towards the recreational use of drugs—is surely one of
the most intractable problems that governments face. On the one hand, a
significant proportion of the population not only regards commercial sex
as morally repugnant, but also asserts that the behaviour of others should
be made to conform to this view. On the other, it is clearly impossible to
eradicate any activity for which there is strong demand if, as is the case
with prostitution in Indonesia, many have a tolerant attitude to it.
Attempts to do so drive the activity underground, with a variety of
undesirable side effects. What should motivate policy? The moralistic
view that sex should not be provided on a commercial basis? The
paternalistic view that regulation is needed for the protection of sex
workers (especially children), their customers, and ‘innocent bystanders’?
The pragmatic view that the industry can be a valuable source of revenue?
The authors show that governments in Indonesia, both before and
after independence, have been unable convincingly to resolve these
conflicting views. Successive governments have sensibly avoided the
moralistic approach of simply trying to ban prostitution, and it remains
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legal for one to sell one’s own sexual services; living off the earnings of
prostitution is not, but this goes on nevertheless. From time to time this
leads residents to take matters into their own hands and try to force the
closure of brothels and prostitution-linked entertainment venues in their
neighbourhood. Such pressure is partly defused by occasional police raids
and closures, but the impact is never more than temporary.
In recent years different departments have adopted conflicting stances.
For example, the Department of Manpower refuses to acknowledge
prostitution as an occupational category, effectively precluding sex
workers from receiving any protection that might otherwise be available
through labour laws and regulatory structures. Likewise, the Department
of Women’s Roles promotes marital fidelity and opposes prostitution.
On the other hand, local government authorities and the military gain
substantial revenue from operating brothel complexes, giving them an
incentive to ensure their continued existence. Between these extremes,
the Department of Health acknowledges the existence of prostitution in
order to run health programs intended to prevent sexually transmitted
diseases, while the Department of Social Affairs runs half-hearted
‘rehabilitation’ programs for sex workers, paying lip service to the notion
that the industry can be made to disappear if only the women involved
can be given other occupational options—a view that the authors show
to be naive.
Perhaps the greatest problem facing the industry, and the greatest
danger it
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Book Reviews
Pierre van der Eng , Hall Hill , Patrick Walters , Andrew MacIntyre ,
Christopher Findlay , Robert Albon , Armida S. Alisjahbana & Ross H. McLeod
To cite this article: Pierre van der Eng , Hall Hill , Patrick Walters , Andrew MacIntyre ,
Christopher Findlay , Robert Albon , Armida S. Alisjahbana & Ross H. McLeod
(2000) Book Reviews, Bulletin of Indonesian Economic Studies, 36:1, 243-260, DOI:
10.1080/00074910012331337853
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Bulletin of Indonesian Economic Studies
Vol 36 No 1, April 2000, pp. 243–60
BOOK REVIEWS
Anne Booth (1998), The Indonesian Economy in the Nineteenth and Twentieth
Centuries: A History of Missed Opportunities, Macmillan, London, and St
Martin’s Press, New York, pp. xvi + 377. Paper: US$ 19.95; cloth: US$ 79.95.
This book is the first monograph on Indonesia’s economic history since
Burger’s Sociologisch-Economische Geschiedenis van Indonesië (originally
published in Bahasa Indonesia in 1957) and the last edition of Gonggrijp’s
Schets ener Economische Geschiedenis van Indonesië (1957). It is also the first
monograph since the revival of academic interest in Indonesia’s economic
history in the 1970s. One of the stated aims of the book is therefore ‘to
present a stocktaking of what has become a fast-growing field of study’
(p. xv).
It is also a very timely book, as Indonesia is poised to enter a new
period of economic change. Professor Booth believes that the past can
provide lessons for the present and the future. An important aim of her
book is to answer the questions: ‘Why at the close of the twentieth century
is the country still relatively poor and underdeveloped? What were the
major policy errors of both colonial and post-colonial governments which
have produced this state of affairs?’ (p. xv). Answers to these questions
may help Indonesia to map a path for the future.
The book contains five thematic core chapters. Chapter 2 traces the
broad outlines of economic growth and structural change. Chapter 3
discusses the statistical evidence for long-term changes in living standards
and the distribution of income, or rather the absence thereof until the
New Order regime. Chapter 4 tracks the role of government in economic
change, while chapter 5 investigates the impact of international trade.
Chapter 6 traces the role of investment in capital stock and human capital,
and of technological change. The last core chapter discusses the
development of markets and entrepreneurs.
This thematic approach may be appropriate for drawing lessons from
Indonesia’s past. Unfortunately, the country’s history is characterised by
political discontinuity, which had major repercussions for economic
change. One consequence of the thematic approach is that the author has
to refer to this discontinuity in each chapter, leading to duplication.
Another is that, to understand a period well, the reader is required to
read parts of different chapters. For instance, foreign exchange policy in
the 1950s is best understood by reading both pp. 169–70 and 222–24.
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Book Reviews
The book takes stock of some of the recent literature, but almost
exclusively that published in English. Consequently, it ignores several
recent studies in Dutch and Bahasa Indonesia, such as à Campo (1992) on
the KPM and transport development; Potting (1997) on the development
of money and finance in Sumatra; Meijer (1994) on Dutch–Indonesian
relations in the 1950s; Masyhuri (1995) on fisheries; and a host of studies
on regional development (e.g. Clemens and Lindblad 1989).
It is likely that the book will be most appreciated by economists with
enthusiasm for the fact that history presents so many opportunities to
test the validity of current economic theory. The author indeed makes
inventive use of such theory in order to understand Indonesia’s past.
Some historians may not feel comfortable with this use of theory and
therefore with the book. They may also feel uncomfortable with the
author’s answer to the question why Indonesia is still a poor country.
Her answer, as the title of the book suggests, is that past governments
have missed opportunities to spur development, and made ‘policy errors’.
These ‘errors’ are not all clearly spelt out, but included are: the lack of
public investment in education; the failure to achieve economic
diversification (i.e. industrialisation) at earlier stages of development;
the concomitant high dependence on primary exports; the consequences
of the pursuit of conservative fiscal, monetary and foreign exchange
policies; the failure to nurture a ‘class’ of indigenous entrepreneurs; the
longevity of inefficient institutions.
It is interesting to speculate how different Indonesia’s economy would
be today if these ‘errors’ had not been made. However, before readers
can accept past decisions as ‘errors’, they have to understand that
governments indeed had different options and had compelling reasons
to choose the ‘wrong’ ones. They also require the counterfactual scenarios
that demonstrate that the ‘right’ decisions would have led to a better
result. For instance, the suggestion that past governments should have
invested more in the development of a system of mass education (pp.
289, 328) leaves several questions unasked. Were public revenues
sufficient to do that? If not, could more revenues have been raised for
that purpose? Was education in the past regarded as a prerequisite for
economic development, or perhaps for cultural and political
advancement? Was there sufficient demand for mass education?
Unfortunately, the actual policy options and counterfactuals are rarely
discussed in detail.
The reader is told that past ‘policy errors’ put the Indonesian economy
on a path from which it could not easily deviate (p. 12). Path dependence
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245
may be useful in explaining the direction of short-term decisions.
However, the concept is difficult to use when analysing a trajectory
spanning 170 years (1820–1990). Numerous decisions were made along
the way, not just by governments, but also by private enterprise and
individuals. With hindsight, they may not have been the best decisions.
The problem with hindsight, however, is that it was not available to those
who made the decisions, and is therefore of little use when trying to
understand why governments made the decisions they did.
At times the author reveals that she is ill at ease with history. For
instance, she suggests that the use of Dutch as the official language during
the colonial era was a trade barrier that benefited trade with the
Netherlands (p. 216) and advantaged Dutch investors (p. 257). This
ignores the fact that, for instance, British companies operated, often
successfully, in many non-English speaking countries, including the
Netherlands, and that non-Dutch companies in Indonesia were able to
use local agents with knowledge of Dutch. It is surprising to read (p. 6)
that Indonesian nationalists were concerned about the widening gap in
GDP between the Netherlands and Indonesia well before the first
estimates of GDP were available for either country. Or that Sumitro was
a ‘technocrat’ in the 1950s (p. 222) before the term had been invented.
The repeated use of the phrase ‘there can be little doubt that ...’ is certain
to irritate some. If there is no doubt, there is no need for the phrase. Lastly,
the listing of Achmad Sukarno (rather than President Sukarno) and
General Soeharto (rather than President Soeharto) in the index (p. 375)
seems ominous.
The sections on economic development after full independence in
1949 are the strongest. The author provides valuable observations about
developments during the years 1950–65, about which not enough is
known at present. She gives due credit to the achievements of former
President Soeharto’s regime, but is frank about the collusive,
patrimonialist character of the ‘predatory state’ he created (p. 336).
Despite the concerns raised here, this is an important book that meets
a widely felt need for an overview of Indonesia’s modern economic
history. It may not please all readers, but it challenges economists and
historians alike to take note of its arguments. The book deserves to be
read widely.
Pierre van der Eng
ANU
y [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RAJA ALI HAJI TANJUNGPINANG, KEPULAUAN RIAU] at 22:04 19
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J. Thomas Lindblad (1998), Foreign Investment in Southeast Asia in the
Twentieth Century, Macmillan, London, and St Martin’s Press, New
York, pp. xiii + 240. Paper: £49.95.
There is a gap in the literature on foreign direct investment (FDI) in
Southeast Asia. From the late colonial era, covered admirably in the
standard reference by H.G. Callis (Foreign Capital in Southeast Asia, Institute
of Pacific Relations, New York, 1942) to the 1970s, when a burgeoning
literature becomes available, there is very little in the way of synthesis
and systematic analysis. Nor, by extension, is there a volume that
examines FDI into the region throughout the century in an integrated
fashion. This volume by Thomas Lindblad of Leiden University is
therefore very much to be welcomed.
A product of the ANU’s Modern Economic History of Southeast Asia
Project, the book offers a concise yet comprehensive assessment of FDI
during the first nine decades of the century. It reminds readers without a
historical perspective that large equity capital inflows to the region are
by no means a new phenomenon. Moreover, although the colonial and
independence eras are not directly comparable, many of the analytical
issues associated with FDI are remarkably similar.
A short introductory chapter identifies the key themes, emphasises
the diversity of country experiences, sets aside some definitional issues
(one in particular, how to treat ‘overseas Chinese’ investment, recurs
frequently) and mentions the thorny issue of data quality and sources.
These topics are examined in greater depth in a useful overview chapter
entitled ‘The Historical Perspective’. Then, in ‘Pioneers and Profits’, we
are given a close-up picture of the colonial period, with informative case
studies of banking and manufacturing in the Philippines, timber and
trading in Burma and Thailand, and rubber and the management agencies
in Malaya and Indonesia.
Chapter 4 switches to a home country perspective, with a fascinating
analysis of the various policy regimes during the colonial period. The
differences were greater than is often realised. The French in Indochina
intervened intensively, and sought to exclude other investors: ‘An
independent colonial economy was the aim but it should serve the
interests of France only’ (p. 68). The Dutch policy towards Indonesia is
examined in some detail (pp. 68–83), as the pendulum swung from the
Cultivation System to the Ethical Policy, and a fairly open policy towards
FDI. The British in Malaya/Singapore differed again, with their ‘stubborn
insistence on classical liberalism’ (p. 84). Then there was the US regime
in the Philippines, quite unique in the region with its ‘strong current of
anti-imperialism’.
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247
The story then moves forward to the transitional period of
independence and beyond. Here the country differences become more
pronounced, of course, ranging from fierce nationalist pressures in
Indochina, Burma and Indonesia, to the consistently open regimes of
Malaysia and Singapore. The Philippines and the special case of Thailand
adopted intermediate positions. (The sometimes strident opposition to
foreign ownership in the former is not always easy to understand, given
its relatively painless 20th century colonial experience.) Following this
transition, there is something of a turning point during the 1960s, in that
all five original ASEAN member states began to adopt more liberal FDI
policy regimes.
A contemporary readership will be much better acquainted with the
analysis of the last two major chapters. From a home country perspective,
covered mainly in chapter 6, there is the rise of the new investors—Japan,
then the NIEs, and finally a European ‘rediscovery’ of Southeast Asia.
Differences among these investors are also assessed. Next there is a
competent description of the host country experiences and policy regimes
of the ‘ASEAN Five’ from the 1970s to the early 1990s. The author’s brave
attempt to summarise these approaches—’self-assertive Singaporeans,
technology-minded Malaysians, growth-obsessed Thais, restructuring
Indonesians, and optimistic Filipinos’ (p. 203)—gives something of the
flavour of the chapter.
The volume was completed just before the onset of the region’s
economic crisis, and released at its low point. However, in contrast with
contemporary economic analyses published over this period, history has
not been unkind to the author. Except in the case of Indonesia, FDI flows
were little affected by these events, and in most countries they actually
increased. The debate over capital controls in Malaysia and elsewhere
never extended to FDI. Indeed, most countries in the region now have a
more liberal FDI policy regime, either by choice (attracted by FDI’s greater
sense of permanence) or dictate (IMF packages).
The topic is so vast that choices have had to be made in compressing
a large amount of analytics, data, literature, country nuances and firmlevel information into a single volume. This sort of book could have been
written in a dozen different ways. My judgment is that the author has
got the mix about right. He brings the painstaking skills of an economic
historian to bear in analysing long-term trends. But this is no archival
piece of research. Thomas Lindblad has clearly got on the road too, with
research trips (visiting research institutes, factories, etc.) to many of the
major cities in the home and host economies. An extensive 21-page
bibliography will be invaluable for future researchers delving into more
specialised aspects of the subject.
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There is nothing especially original in the volume, nor is there any
fresh rigorous empirical analysis. There could be major debates about
the data base used, and some readers might have wanted stronger
guidance on the overall costs and benefits of FDI to the region. This should
not be construed as criticism: choices have to be made to fit the story into
a little over 200 pages of text. The author has done an admirable job, and
produced a book that all those with an interest in FDI and long-term
Southeast Asian development will want to have on their shelves.
Hal Hill
ANU
Adam Schwarz and Jonathan Paris (eds) (1999), The Politics of Post-Suharto
Indonesia, Council on Foreign Relations Press, New York, pp. 150. Paper:
US$17.95.
This slim 120-page volume offers an important historical snapshot of
Indonesian politics in mid 1998, just after the dramatic fall of President
Soeharto. With chapters by five of the best known international specialists
on Indonesian politics, including Bill Liddle, John Bresnan and Adam
Schwarz, it illuminates some pathways for further work on the
extraordinary story of the sudden collapse in May 1998 of Soeharto’s
New Order regime. Since its publication, the steady course of political
democratisation in Indonesia has continued to confound political
observers. Successful general elections were held in mid 1999. A more
dynamic political environment has seen the demise of President Habibie,
and the surprise elevation of Nahdlatul Ulama (NU) leader, Abdurrahman
Wahid, to the presidency in October.
The military’s grip on national politics has been greatly weakened,
and former armed forces chief General Wiranto has been forced to step
down from the cabinet. For the first time in Indonesian history the armed
forces commander is a navy admiral rather than an army general. The
police no longer form part of the armed forces (TNI). East Timor has
been lost and the territory is set to become an independent nation within
the next few years.
After the disastrous slump in 1998–99 the economy has returned to
positive growth, but significant structural adjustment challenges lie
ahead, notably in the banking sector and in resolving the corporate debt
overhang. Across the archipelago the secessionist movement in Aceh and
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the sectarian violence in Maluku province remain a critical problem for
the Abdurrahman government.
In his chapter on the demise of Soeharto, Bill Liddle shows how the
ex-President’s desire to protect his own family fiefdoms, ignoring the
letter of successive IMF bailout agreements, contributed to the collapse
of confidence in his leadership by early 1998. The economic success of
the New Order was an essential underpinning of Soeharto’s rule, and
when the economy faltered in late 1997 opposition forces began to
mobilise. ‘In the final analysis’, argues Liddle, ‘what is perhaps the most
important is that from 1997 to mid 1998 the balance of political initiative
shifted from the Soeharto-dominated armed forces to political activists
outside the state.’ He correctly asserts that the army without Soeharto
was thrown off its guard, with civilians moving into the vacuum created
by the military’s lack of vision and initiative.
Robert Hefner contributes a valuable chapter on Islamic politics,
charting Indonesia’s Islamic revival in the 1980s and the political tensions
between leading Muslim organisations including the Soeharto-sponsored
ICMI and Wahid’s NU. Hefner argues the most significant ‘clash of
cultures’ today is not that between distinct civilisations but, as in Iran,
Algeria and elsewhere, between rival political traditions within the same
country. The Islamic resurgence has not produced a Muslim political
consensus, but Hefner affirms the mainstream’s continuing commitment
to democracy and peaceful change. ‘Despite the bitter legacy of the
Soeharto regime and despite deep divides among Indonesian Muslims,
the balance of forces in this country still favours the development of a
civil and democratic Islam’, he concludes.
Takashi Shiraishi reviews the tensions between the top military
leadership at the time of Soeharto’s downfall, particularly the strained
relationship between General Wiranto and Soeharto’s ambitious son-inlaw Prabowo Subianto. His analysis of the complex manoeuvrings in
early 1998 points to the need for a fuller study of the military’s role in
Soeharto’s demise. Tactical alliances between Wiranto and other senior
officers at ABRI headquarters in early 1998, including Generals Susilo
Bambang Yudhoyono and Agus Wirahadikusuma, did not endure beyond
the fall of Soeharto. Shiraishi argues that despite the dramatic erosion of
the military’s prestige the army still retains significant structural power,
particularly through its territorial apparatus, which extends right down
to village level across the archipelago.
A concluding chapter by John Bresnan examines the role of the United
States in the financial crisis that engulfed Indonesia in late 1997. Bresnan
is critical of the Clinton administration’s initial response to the crisis,
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and the lack of cohesion between the White House and key government
agencies in Washington, including the State Department and the
Pentagon. Bresnan argues that the Clinton administration was ill-favoured
to play a strategic role with regard to Indonesia, with no senior
administration officials having lived or worked in Indonesia. He also
asserts the need for the US and the international community to develop
new approaches to deal with global capital movements.
Patrick Walters
The Australian Newspaper, Canberra
Arief Budiman, Barbara Hatley and Damien Kingsbury (eds) (1999),
Reformasi: Crisis and Change in Indonesia, Monash Asia Institute,
Melbourne, pp. 402. A$24.95.
This is a major multi-author collection arising from a conference in
Melbourne at the end of 1998 that attempts to make sense of the stunning
changes that unfolded in Indonesia in the year and a half following the
onset of the Asian economic crisis. There are 19 chapters, organised into
three sections dealing with economic, political, and social and legal
dimensions of the crisis and the struggle for reform. The contributors,
Indonesian and Australian, are from across academic disciplines and
professional backgrounds. The book is not so much an edited volume as
a collection of essays. There is no real attempt to impose an integrated
framework or set of common questions, and there are surprising
typographical and production blemishes (e.g. pages out of order) But
given that the organisers were seeking to bring together a rich and varied
line-up and, above all, to respond in a timely fashion to rapidly changing
current events of great moment, this is understandable. More to the point,
it should not distract from the main judgment, namely that this will
probably prove to be the key book on this dramatic phase of Indonesia’s
development. No doubt more careful, focused and rigorous studies will
follow, but none is likely to capture the breadth and depth of the drama
as fully as this one.
The great strength of this volume is the impressive spectrum of
authors and the richness of the individual papers. In the relatively short
economics section, a chapter by McGillivray and Morrissey provides a
sensible broadbrush overview of Indonesian development and a
thoughtful discussion of the IMF’s intervention; it endorses key
stabilisation elements of the program but argues for greater attention to
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poverty and social dimensions of the crisis. A short chapter by Basri
provides a clever and interesting analysis of some political economy
dynamics of the crisis, but is suggestive rather than definitive. Although
both these chapters are good and add value, BIES readers will not turn
to this volume for its economic analysis.
The second section is the core of the book and presents 11 chapters on
political dimensions. Again, all add real value. Budiman provides a
thoughtful and academically grounded discussion of the dynamics of
democratic transitions, locating Indonesia within the broader context of
transitions elsewhere. For my money, this is the best chapter in the book.
Of course there are issues to argue over, but more than any other chapter
it has wider value beyond the empirical record it provides. Chapters by
van Klinken, Young, and Hadiz also explore different dimensions of this
theme. Two chapters by Crouch and Bourchier dissect the dynamics of
the declining fortunes of the military. Both are good, with the Bourchier
chapter having a little less analytical edge but a more comprehensive
empirical coverage. I found the chapters by Meitzner and Falaakh on
Islamic groups in reformasi politics to be particularly illuminating. In
different ways, both carefully map the competing currents and factions
of Islamic politics in the lead-up to and wake of Soeharto’s fall. Then
follow chapters by Aspinall, Lane and Sumartana on students, social
movements, and interreligious tensions. I especially enjoyed Lane’s
chapter: along with his trademark scorn of mainstream (read, nearly all)
politicians and academics, he provides a hard-headed analysis of winners
and losers and the prospects for major improvement in the lives of
ordinary Indonesians. The absence of dewy-eyed liberal romanticism
about democratisation is both biting and revealing.
The third section of the book is more eclectic, but no less illuminating.
Chapters by Hatley and Halim trace the way cultural forms give
expression to the currents of political change. Heryanto and Kolibsono
focus on gender dimensions, with subtle yet powerful analyses of the
infamous rape of Chinese-Indonesian women at the height of the political
crisis. Finally, a chapter by Lubis and Santosa, and another by Lindsey,
explore the dynamics of legal reform and the prospects for democratic
governance. Of the papers in this section, I found those by Hatley,
Heryanto, and Lubis and Santoso to be particularly informative.
Overall, this is an extraordinarily rich volume. To be sure, there are
aspects of the book that could have been stronger. For instance, there
could have been a more complete treatment of the economic dimensions
of the crisis and why these were so politically consequential. Also, very
many of the papers focused narrowly on their particular subject but did
not explain how this connected to other dimensions of the crisis, with
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the result that nowhere do we really get an explanation of how the various
pieces were all related. But this is probably inescapable in a volume that
is striving for timeliness and to present a snapshot of all that was taking
place. Overall, the volume provides powerful insight into many
dimensions of the tumultuous changes in Indonesia and the way in which
a range of scholars and professionals viewed these changes at the time.
Anyone wanting a window into the drama of 1997 and 1998 should buy it.
Andrew MacIntyre
University of California, San Diego
Hal Hill (1999), The Indonesian Economy in Crisis: Causes, Consequences and
Lessons, Institute of South East Asian Studies, Singapore, pp. 150. S$22.50;
US$14.90.
Hal Hill has written a fine account of the Indonesian crisis. In this book,
he makes brief reference to the prelude to the crisis, then provides a
detailed account of its course, examines its impacts, reviews its causes,
and talks about the way ahead. He finishes with some notes on a few big
analytical questions.
Hill stresses the interaction between factors that made Indonesia
vulnerable to a crisis and the way the crisis was managed. This
conjunction of factors is the basis of an explanation for the relative severity
of the crisis in Indonesia. He makes a distinction between triggers that
set off a crisis and factors that determine its severity. Hill also works to
reconcile the longer-run growth performance of the Indonesian economy
and its experience of a crisis of this depth.
The vulnerability factors include the extent and nature of external
debt in an environment of more mobile international capital, poor
macroeconomic management, poor financial market regulation, and
corruption, as well as problems of governance. In these areas, Hill tells
familiar stories. But it is his commentary on the management of the crisis
that is especially interesting. He talks about three things—policy errors,
the contribution of corruption and the role of the IMF.
Of those mentioned by Hill, the most important policy error was the
loss of monetary control. This was set off by a flawed decision to close a
large number of banks, weakening confidence in the banking system and
leading to bailouts, prompted in part by a desire to protect particular
interests, and funded by injecting liquidity into the system. The
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consequence was increasing inflation, further loss of confidence, and more
rapid flight of capital, which then undermined the value of the rupiah.
Also particularly interesting is Hill’s discussion of the impact of
corruption. In his view it is difficult to mount a case that corruption
precipitated the crisis; the important contribution of corruption to the
depth of the crisis was that it incapacitated the Soeharto regime as it
tried to respond to the triggers. ‘Corruption’ is used here to denote a
bigger problem than taking bribes or distorting tendering processes—
those things are the instruments of the corrupt. It refers to the capture
and control of the political system by one dominant group which over
time worked more and more for its own benefit. This undermined public
support for the regime, and weakened community expectations of its
capacity to manage the crisis. The community’s doubts were then
vindicated, especially when the President faltered in some early responses
to the crisis, and when there was no effective countervailing force in
policy making.
Hill reviews some of the prescriptions of the IMF, for example, the
pressure for bank closures and the tight fiscal policy early in the crisis.
He criticises the IMF for tackling too wide a set of policy issues. While in
the end he says it is not a major villain, his assessment implies the IMF’s
early interventions made the situation worse. Clearly, however, the IMF
has learnt from this experience. Hill points out that some people think
the risk is now in the other direction, of excessive flexibility by the IMF
undermining the coherence of its policy advice. This experience of the
IMF in Indonesia will bolster the work in progress on building regional
institutions that can complement and deepen its monitoring and review
functions and provide some sort of peer review mechanism, in ASEAN
in particular.
The final chapter includes a review of the way ahead. Lots of things
need to be done, according to Hill. The list includes redefining the targets
of monetary and fiscal policy; banking reform; corporate debt
restructuring; microeconomic reform; a new social policy. The list is
exhaustive (and exhausting!): it includes every aspect of economic policy.
Making up the list is difficult enough. Even harder is to explain how
to implement it. Part of the problem is that many technical problems
have to be solved and institutional and capacity building has to be
undertaken. How do you set up and manage a bankruptcy system, a
competition policy process? But there is plenty of capacity building on
the supply side from multilateral agencies and regional partners,
including through institutions of regional cooperation such as APEC. The
demand side is the critical constraint.
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The adoption of the reform agenda and its implementation depend
on the political process. That is the weak point. Hill identifies the capacity
of the political system to deliver effective economic policy making as a
critical condition for his reform agenda to be met. He also presents a
gloomy story about new political processes in which the players lack the
skill and capacity to deliver coherent policy. These arise from the
difficulties of coalition government, a weakened bureaucracy and the
emergence of new sets of interests demanding to be accommodated,
including those associated with different regions or ethnic groups. In
addition to the factors he mentions, private interests at the industry or
enterprise level will also be quick to perceive new opportunities as
institutions are reformed or transitions occur. They are likely to distort
the reform process as they plead special cases, demand protection, and
threaten further disruption. Managing these interests has also been made
more complicated by the consolidation of the private sector’s assets in
the hands of the government as a consequence of the bank restructuring
process.
A key to the resolution of these domestic political constraints will be
the capacity to bring to bear the countervailing forces that also promote
growth. In that context, Indonesia’s commitments to the international
institutions, both global and regional, with respect to trade policy and to
capital market openness will be critical.
At the start of his chapter on the way ahead for Indonesia, Hill presents
three scenarios, one a quick return to high growth, another in which the
economic decline is halted but political instability and lack of policy
coherence deny a return to sustained growth at high rates, and a third,
more awful, scenario of collapse. Hill rejects the first and third of these
and says the middle or ‘Aquino’ scenario is more plausible. A push
towards a return to high growth, or the ‘Mexico’ scenario, will depend
on the second precondition for reform that Hill identifies—a favourable
international environment. He characterises this condition as the support
provided by the international market, in terms of export access, and by
the donor community. More important, and a greater force for increasing
the chances of moving out of the Aquino scenario, will be Indonesia’s
own commitments to openness in goods, services and capital markets.
Christopher Findlay
ANU
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Terry Dwyer (ed.) and Barry Reece and Craig Emerson (contributors)
(1999), Resource Tax Policy in Countries of the Asia Pacific Region, Asia Pacific
Press, The Australian National University, Canberra. A$20.00; US$20.00.
This is a rather odd little book. The title does not sit easily with the
contents, since only about half of the book is about what most readers
would understand as ‘resource tax policy in countries of the Asia Pacific
region’. The half that does reflect the title is contributed by Craig Emerson,
a member of parliament with a long history of interest and research in
the area of resource tax policy, including an ANU PhD. Emerson’s chapters
cover the principles of efficient mineral taxation and look at the tax policies
applied in four countries in the region (including Indonesia). The editor,
Terry Dwyer, contributes a preface and a short introduction that provide
a succinct summary of resource tax policy issues in the Asia Pacific area.
But the other half of the book, contributed by Barry Reece, seems
somewhat out of place.
Reece, who, to my knowledge, has not previously contributed to the
resource tax literature, arguably does not actually enter this field with
his contribution to this book. Apart from the chapter on ‘trends in world
tax systems’, his contribution is about urban land taxes in general and as
applied in three countries in the region, particularly heavily urbanised
Australia. The content of these chapters reflects the contributor’s long
interest in these taxes—there is nearly a page of Reece references dating
from 1975—and this is useful if that is what the reader is looking for.
However, I do not think the kinds of property tax issues covered are
likely to coincide with the interests of Indonesian (or other Asia Pacific
developing country) analysts and policy makers.
Emerson’s chapters provide a quite nice account of the fundamentals
of efficient mineral taxation revolving around the key ideas of the resource
rent tax and the Brown tax (a tax assessed on actual net cash flows); a
discussion of various suboptimal mineral taxes (royalties, higher-thannormal company income tax and progressive profits tax); and some
sensible notes on how and how not to assess the benefits of mineral
exploitation and processing. This is not cutting-edge material, but it does
provide a good introduction to the main ideas in a reader-friendly manner.
These theoretical ideas are applied to a consideration of the mineral
tax policies of four countries in the region: Papua New Guinea, Indonesia,
Thailand and the Philippines. Indonesia’s policies are described as
displaying ‘inherent instability’, and are criticised on a number of other
grounds. While not superficial, the four case study chapters are not
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particularly detailed, nor are they supported by sufficient references—
an important shortcoming in a book that aims to introduce readers to its
subject matter.
The editor’s preface and introduction provide a good summary of
the issues of resource tax policy in the Asia Pacific area, including a
discussion of the contentious issue of international tax competition.
Dwyer argues that competition leads to greater efficiency because it results
in more of the tax burden falling on the internationally immobile
(‘inelastic’) factor of production, labour, and is therefore consistent with
the Ramsey principle of efficient revenue raising. (This principle requires
the tax rate applied to be positively related to the inelasticity of supply of
the factor in question–or ‘thumping the one that can’t get away’.) On the
other hand, he noticeably struggles to justify inclusion of the material on
urban property taxes, and it would have been better if his two short
contributions had been combined into one and considerably extended.
Indeed, I do not think it is unfair to sum up the entire book by stating
that it is far too sparing on the subject matter promised in the title.
Robert Albon
ANU
Januar Achmad (1999), Hollow Development: The Politics of Health in
Soeharto’s Indonesia, Coombs Academic Publishing, Research School of
Pacific and Asian Studies, The Australian National University, Canberra,
pp. viii + 220. A$15.00 plus postage.
This book, the author’s doctoral dissertation, contributes greatly to an
understanding of the strengths and weaknesses of the Indonesian health
system, and of how health policy was formulated and implemented from
the national level down to the community level, during the Soeharto era.
The strength of the study lies in its presentation of ideas and information
derived from the author’s observations and research while implementing
public health and development programs in Central Java between 1980
and 1998, during which period he served 10 years as head of a government
rural health centre.
Indonesia’s achievements in health include an increase in life
expectancy from 41 years in 1960 to 63 in 1993, and a sharp reduction in
infant mortality from 139 per thousand live births in 1960 to about 56 in
1993 (p. 5). However, when compared with those of other countries in
the Southeast Asian region, these achievements are less impressive. Of
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particular concern is maternal mortality, a sensitive measure of the quality
of health care, which is much higher in Indonesia than in various countries
with similar or even lower levels of economic development.
The author focuses on factors that determine the government’s
capacity to influence health sector performance, as measured by its
effectiveness in reducing maternal mortality—especially maternal
emergency care in rural areas. He explores the determinants of health
sector performance within the health system itself, as well as in the
broader socio-political context. In addition to chapters on the political
setting and Islamic organisations as they relate to health programs, four
major themes elaborated elsewhere include the role of the medical
profession; the weak demand for health services; public administration
and the financing of local government; and the low priority given to the
health sector at the highest levels of government.
One of the most interesting points concerns the relationship between
public administration, together with the local government financing
system, and the performance of local health services. Although the
Ministry of Health set policies, it had no control over their implementation
at regional and local levels; district hospitals, health centres and health
workers were supervised by the Ministry of the Interior, through local
governments (p. 171). The implication for health services, according to
the author, was that there was no incentive to improve them, since local
government was accountable only to the Ministry of the Interior.
Moreover, until 1998 only 25% of health service revenues could be retained
by the health centres that generated them; the rest was used by local
governments for non-health-related spending. The health sector thus
came to be regarded as an income generating institution, rather than one
for providing health care.
The author has done well in describing the political setting under the
New Order and its ramifications for health sector performance. He
describes how rivalry between the two Muslim organisations, Nahdlatul
Ulama and Muhammadiyah, disrupted implementation of a particular
health program. He also argues that, as with other sectors, restrictions
on the flow of information, the lack of critical health research, and the
low priority accorded to the health sector made former President Soeharto
unaware of the extent of this sector’s problems.
Dr Januar argues that effective health programs could be implemented
by relying on community participation, local area monitoring of output
indicators, and strong supervision of health workers. If the health centres
were given greater control, health programs could be developed on the
basis of the community’s felt needs, with all revenues generated by the
health service retained by the centres. He also proposes that local
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government should provide extra funding to subsidise the health centres.
Because of persistent maternal emergency problems in rural areas, he
suggests that the government should train and equip general practitioners
with relevant surgical and obstetrical skills.
Much of the discussion relates to the supply side of health services.
Although the book’s title foreshadows an emphasis on the politics of
health, important demand side issues deserve more emphasis than the
author has given them (pp. 73–6). He briefly explains that underutilisation
of health centres results not only from economic factors (including being
poor and having to travel long distances), but in many cases involves
cultural factors as well. In principle, poor people can request a
recommendation letter from their village head allowing them to receive
free medical service at health centres. However, no one ever asked for
such a letter in the author’s area of research, and some even hid their
illness in the absence of any intervention. Nevertheless, the author makes
no attempt to analyse empowerment issues, whether they relate to the
household economy, to education, or to more general questions of social
welfare, that could increase health care utilisation by the public.
It is still unclear how the new decentralisation law will delegate health
sector authority to the district level, and what roles the central and
provincial governments will play in this new setting. Exactly how the
new law will affect local utilisation and provision of health services, and
how local government should prepare itself for its new role in the health
sector, are just two of the questions needing immediate answers. Future
health policy formulation in a decentralised Indonesia will undoubtedly
benefit from the lessons described in this book.
Armida S. Alisjahbana
Padjadjaran University, Bandung
Terence H. Hull, Endang Sulistyaningsih and Gavin W. Jones (1999),
Prostitution in Indonesia: Its History and Evolution, Pustaka Sinar Harapan,
Jakarta, pp. 161. A$10.00.
This study, first published in Indonesian in 1997, is a preliminary attempt
to provide a comprehensive picture of prostitution in Indonesia. In
qualitative terms it succeeds admirably, although the lack of reliable data
makes quantitative assessment extremely difficult. Nevertheless, the
industry is found to be large, with the number of sex workers estimated
by the authors at 140,000 to 230,000, and its contribution to economic
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259
output at 0.8 to 2.4% of GDP, in 1996. (Whether the Central Statistics
Agency makes its own estimates of the industry’s output is not revealed.)
The number of customers is estimated at 5 to 8% of Indonesian males
aged between 15 and 64. These are drawn from all levels of society;
correspondingly, there are enormous variations in the circumstances in
which commercial sex encounters take place and in the prices paid.
The authors trace the history of Indonesia’s commercial sex industry
from the time of the Javanese kingdoms up to the present. An interesting
observation is that certain areas came to be known as sources of beautiful
and alluring women for the Javanese courts. Many of these were lower
class women sold or given over by their families to take minor positions
in the royal household, who could achieve higher status by producing
children for the king. In a superficial sense, not much has changed in
relation to the ‘commoditisation of women’. Today these same areas serve
as disproportionately significant sources of urban prostitutes, in the same
way that other locations have become known as suppliers of, say, building
labourers and vendors of traditional medicines. Moreover, it is still not
uncommon for families to seek material advancement by selling their
daughters, though now into prostitution rather than into royal
households. Although there are also instances of recruitment through
force or deceit, the majority of sex workers—typically poorly educated,
unskilled girls and young divorced women—appear to be in the industry
by their own choice, since much higher incomes can be earned than in
the other occupations available to them.
Devising official policy towards the commercial sex industry—like
devising policy towards the recreational use of drugs—is surely one of
the most intractable problems that governments face. On the one hand, a
significant proportion of the population not only regards commercial sex
as morally repugnant, but also asserts that the behaviour of others should
be made to conform to this view. On the other, it is clearly impossible to
eradicate any activity for which there is strong demand if, as is the case
with prostitution in Indonesia, many have a tolerant attitude to it.
Attempts to do so drive the activity underground, with a variety of
undesirable side effects. What should motivate policy? The moralistic
view that sex should not be provided on a commercial basis? The
paternalistic view that regulation is needed for the protection of sex
workers (especially children), their customers, and ‘innocent bystanders’?
The pragmatic view that the industry can be a valuable source of revenue?
The authors show that governments in Indonesia, both before and
after independence, have been unable convincingly to resolve these
conflicting views. Successive governments have sensibly avoided the
moralistic approach of simply trying to ban prostitution, and it remains
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legal for one to sell one’s own sexual services; living off the earnings of
prostitution is not, but this goes on nevertheless. From time to time this
leads residents to take matters into their own hands and try to force the
closure of brothels and prostitution-linked entertainment venues in their
neighbourhood. Such pressure is partly defused by occasional police raids
and closures, but the impact is never more than temporary.
In recent years different departments have adopted conflicting stances.
For example, the Department of Manpower refuses to acknowledge
prostitution as an occupational category, effectively precluding sex
workers from receiving any protection that might otherwise be available
through labour laws and regulatory structures. Likewise, the Department
of Women’s Roles promotes marital fidelity and opposes prostitution.
On the other hand, local government authorities and the military gain
substantial revenue from operating brothel complexes, giving them an
incentive to ensure their continued existence. Between these extremes,
the Department of Health acknowledges the existence of prostitution in
order to run health programs intended to prevent sexually transmitted
diseases, while the Department of Social Affairs runs half-hearted
‘rehabilitation’ programs for sex workers, paying lip service to the notion
that the industry can be made to disappear if only the women involved
can be given other occupational options—a view that the authors show
to be naive.
Perhaps the greatest problem facing the industry, and the greatest
danger it