Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 00074911003642286
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Book reviews
Suahasil Nazara , Shaianne T. Osterreich , Meryl J. Williams , Arief
Ramayandi , Thee Kian Wie , Akiko Morishita & Michele Ford
To cite this article: Suahasil Nazara , Shaianne T. Osterreich , Meryl J. Williams , Arief
Ramayandi , Thee Kian Wie , Akiko Morishita & Michele Ford (2010) Book reviews, Bulletin of
Indonesian Economic Studies, 46:1, 115-126, DOI: 10.1080/00074911003642286
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Published online: 17 Mar 2010.
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Bulletin of Indonesian Economic Studies, Vol. 46, No. 1, 2010: 115–26
BOOK REVIEWS
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Shafiq Dhanani, Iyanatul Islam and Anis Chowdhury (2009)
The Indonesian Labour Market: Changes and Challenges, Routledge
Studies in the Modern World Economy, London, pp. 256. Cloth: $150.00.
This is an important book. The labour market is a key determinant of a country’s competitiveness. President Yudhoyono has listed unemployment as one
of the indicators in his National Medium-term Development Plan targets. And
Indonesia’s labour market has undergone important transformations in the last
decade. The 1998 crisis changed the way Indonesia is governed, including relationships and regulation in the labour market. It is timely that such a book should
appear about a decade after the last comprehensive assessment in 1998 (Chris
Manning, Indonesian Labour in Transition: An Indonesian Success Story?, Cambridge
University Press).
This new book discusses the role of the labour market in Indonesian economic
policy making, elaborating how debates have evolved over time. The introduction briefly surveys Indonesian politics as far back (perhaps unnecessarily) as the
1950s. The next chapter analyses the employment implications of macroeconomic
policy. These are elaborated further in two subsequent chapters on unemployment and under-employment (ch. 3) and wages and productivity (ch. 4). Chapter
5 starts with a discussion of poverty and inequality, and relates this to labour market indicators, especially wages. Chapter 6 examines labour regulations and the
business climate. Chapter 7 concludes with several policy recommendations.
The book primarily covers the labour market before and after the Asian financial crisis of the late 1990s. Most of the data presented are from the mid-1980s
onward, with a few tables containing data from the 1970s. This is no surprise.
Reliable data became available only in the mid-1970s.
The macroeconomic analysis in chapter 2 takes a rather pessimistic view of
Indonesia’s economic standing. It says ‘the country was hit hard by the global
financial crisis in the last quarter of 2008 … The global economic slowdown will
likely dampen the demand for commodities and exports from Indonesia …’ (p.
51). We now know, however, that Indonesia is one of the few economies in Asia
to have survived the global financial crisis with positive economic growth for
2008 and 2009, trailing only China and India. The outcome was due partly to
a decade of relatively low inflation – which the authors appear to deem of little importance. Low inflation contributed to the wealth accumulation process,
which enhanced the domestic demand, replacing the demand for exports during
the most recent crisis. Of course, several other coincidences helped. The direct
cash transfer program, launched in 2008, quickly put money in the hands of poor
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DOI: 10.1080/00074911003642286
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families. Together with expenditure in the prolonged 2008–09 political campaign
periods, this money all ended up as consumption.
The authors correctly point out the importance of looking beyond open unemployment rates. Examining these rates over a two-decade period, the analysis
shows that most of the increases in the official rates ‘from 2–3 per cent in the
1970s and 1980 to around 10 per cent in the late 2000s … were due [merely] to
definitional changes’ (p. 79, words in square brackets added). Despite low open
unemployment, under-employment is high. It represents the under-utilisation of
labour.
There are two connections that one may expect to be made at this point. The
first is a link between low open unemployment and high under-employment,
with increasing informality in labour status. While the latter is examined at length
in chapter 2, its link to low open unemployment and high under-employment is
only briefly recounted in this chapter (p. 79). More could have been said about
this. The second connection relates to discussion of the notion of employability. It
is important at this juncture to address issues such as employment elasticity, an
essential link between macroeconomic conditions and labour absorption.
On real wages, chapter 4 outlines how real wages grew alongside labour productivity. Long-term public investment in education and health also helps boost
productivity. That was the case until 1997. The next decade was a lost decade for
Indonesian workers. The authors state in the introductory chapter: ‘By 2007, real
wages were no higher than the 1997 level’ (p. 16).
In examining poverty and inequality in Indonesia (ch. 5), the authors rightly
touch upon issues of vulnerability, the Millennium Development Goals targets,
and non-income poverty, as well as the functional distribution of income. The
chapter does not, however, explore fully the regional dimensions of poverty and
inequality, saying only that ‘regional inequality in Indonesia was moderate relative to other large regionally diverse economies’ and that ‘regional inequality in
terms of human development indicators reflects a complex picture, rising in some
cases but declining in others’. There really is more to that issue.
This chapter also points to the different direction of unemployment and poverty trends (figure 5.6). Between 1999 and 2005 the poverty rate declined while the
unemployment rate rose. The authors argue that the best route to policy-relevant
knowledge is to focus on the ‘working poor’ (p. 138). However, if one extended
the series to the most recent data available (say 2009), one may find that since 2006
the two rates have been on a similar declining trend. Would we conclude that ‘a
one-to-one mapping between the unemployment rate and the poverty rate’ (p.
138) is now the case in Indonesia? I would argue negatively. The fact that the two
rates can flip from contradictory to similar trends without a clear reason simply
strengthens the need to go beyond the aggregates. In the light of what is known
about the ‘working poor’, policy may need to address the poverty–productivity
nexus in poverty alleviation programs.
Chapter 6 on labour regulations and the business climate asserts that although
the ‘regulatory environment governing the labour market altered dramatically in
the first half of the 2000s’, the ‘evidence ... cannot show that labour market outcomes deteriorated in the 2000s as a result’ (p. 175). The authors do not ‘endorse
a “minimal regulation” approach, but neither does [this] mean … endorsement of
a “business as usual“ scenario’ (p. 181). Although rapid economic growth ‘more
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than compensated’ for job losses arising from compliance with the labour law,
‘employment creation would have been higher in the absence of higher wages
and inflexible labour arrangements’ (p. 175).
What more would I have liked to see in this book? There are at least two issues.
The first is labour migration, both domestic and international. Inter-provincial
(as well as rural–urban) labour migration has been a crucial element of long-term
economic development, particularly during periods of economic turmoil. Working abroad has been pivotal to the welfare of many workers, and the remittances
from it are of great significance to the economy (national and provincial alike).
The other factor that has changed the landscape of the Indonesian labour market
is the labour union. Following the end-1990s crisis, Indonesia moved peacefully
from a single-union to a multi-union system. Unions constitute a challenge for
the labour market of the future. It is crucial to define precisely the role of the
union in an economy where 70% of workers are in the informal sector. Perhaps
the next book in this field could be titled The Political Economy of the Indonesian
Labour Market.
Suahasil Nazara
University of Indonesia, Jakarta
© 2010 Suahasil Nazara
Teri L. Caraway (2007) Assembling Women: The Feminization of Global
Manufacturing, Cornell University Press, Ithaca NY, pp. 224.
Paper: US$18.95; Cloth: US$60.95.
In her first book, Assembling Women: The Feminization of Global Manufacturing, Teri
Caraway explores some of the causes of the dramatic increase in industrial female
labour force participation that began in the mid-1970s. With a close look at the
Indonesian case she demonstrates the complicated decisions that export-oriented
manufacturing firms faced as they chose the role that female labour was going to
play in their success in the global economy.
Although Caraway attempts to forge new paths in gender and globalisation
theory, the strongest part of the book is its detailed and comprehensive telling
of the economics, politics, and gender relations stories of late 20th century Indonesian industry. This book makes a significant contribution to several lines of
existing literature, including the economic history of Indonesian industrialisation;
gender and globalisation; labour and international trade; and market structure
and export orientation.
The most interesting of Caraway’s claims centres on why Indonesian exporters hired (or did not hire) women in the 1980s and 1990s. Looking at garments,
textiles, plywood and automobiles, she combined primary evidence from interviews, secondary firm-level data and political history to explain the trends in hiring women. By looking at firms with varied export orientation, market structure,
labour intensity, and trends in male and female labour recruitment, she was able
to determine what types of firms hired women and for what reasons.
She argues that by the mid-1970s Indonesian women were ready to go to work.
Owing to a variety of conditions, which she terms gender mediating institutions,
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education levels were relatively high and increasing, fertility levels were low, and
political parties and labour unions (primarily male) had been demobilised. These
state policies created a scenario ripe for change in the labour force. First in textiles
(a generally female-intensive sector), then later in plywood and garments, and
finally in the 1990s in electronics, women’s employment was on a steady rise.
It is not enough, Caraway argues, for women to accept lower wages for firms to
decide to hire them over men, or worse, to fire men and replace them with women.
With commendable clarity, Caraway delineates how firms responded. With stickiness – that is, in fits and starts – they experimented with hiring women, they
considered the hiring practices of competitor firms, and sometimes they decided
it was not going to work. At other times they learned from other sectors that had
already employed women how they could increase productivity while improving
the bottom line; this she calls ‘spillover’. Lastly, the term ‘snowballing’ captures
the experience of export-oriented firms that grew and were able to add assembly
lines and hence hire women for new jobs without having to displace men.
Caraway concludes that there were two indicators that a firm would feminise:
if it faced a price-competitive market structure (and one likely to be labour intensive) and if it already had some women employees. Though gender wage differentials were much wider in capital-intensive firms, where the cost savings would
be much higher if they replaced men with women, that they had not already done
so was a key determinant of their not doing so in the future. Further, since they
were less focused on keeping prices low, these firms were less concerned about
the wage bill at the margin.
Caraway’s major theoretical contribution is that feminisation in global manufacturing is due to labour intensity rather than export orientation. This is not
entirely the outcome of her own study, but rather a response to the general trend
that there are industrial sectors that resisted feminisation (despite being export
oriented) and that many countries experienced a de-feminisation upon industrial
upgrading. While some of the evidence she points to is widely agreed upon, it is
not altogether compelling with regard to her own thesis. There is a dynamic in
export-led growth that leads to both price competition and labour intensity that
is not fully captured in the argument presented. Further, some parts of the book
read as ungenerous and incomplete reflections of the current literature.
What is of real value is the detailed look at the way firms actually make decisions about how and when to hire women. When we make claims about how
firms behave in the global economy, we must remember that different histories,
cultures and habits create these scenarios and although phenomena may appear
similar the world over, in practice things play out differently. This exploration of
Indonesia reminds the interested scholar of this, very acutely.
Shaianne T. Osterreich
Ithaca College, Ithaca NY
© 2010 Shaianne T. Osterreich
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Budy P. Resosudarmo and Frank Jotzo (eds) (2009) Working with Nature against
Poverty: Development, Resources and the Environment in Eastern Indonesia,
Institute of Southeast Asian Studies, Singapore, pp. 384. Paper: S$39.90/US$29.90.
Indonesia has a large territory comprised of over 17,000 islands, is the world’s
fourth most populous nation and is one of the most complex countries in terms
of its geography, ethnicities, cultures, politics, languages, bio-diversity and many
other dimensions. Not surprisingly, knowledge of this diverse country is uneven,
and the eastern provinces are the least understood. This excellent book takes the
three least well-known provinces, East Nusa Tenggara, Maluku and the now further partitioned Papua, and provides a wealth of detailed statistics and analysis on the people, politics, economics and resources of each. The trade-offs and
synergies between natural resource exploitation and development are explored
across the range of natural resources – watersheds, minerals, forestry, agriculture
and fisheries – and in relation to the factors that underpin the development of
local economies. Thus, the book also explores eastern Indonesia with respect to
government capacity, governance performance and corruption, links to the wider
Indonesian economy and international markets, and the delivery of public sector
services such as health, education and infrastructure.
The editors and authors have undertaken a mammoth task in mining the available statistics and, in some cases, providing critical commentary on the challenges
of collecting and using these data. Of particular interest is appendix A2.1 (by
Bambang Heru), written by a senior member of the central statistics agency (BPS),
outlining the challenges of obtaining accurate statistics on Papua in the national
system. Many of the book’s statistics are disaggregated to the sub-provincial level,
to show the granularity within each province and illustrate the difficulty of generalising causes and solutions. At the other end, many comparisons are made
with other provinces of Indonesia and, in the case of Papua province, with several
Pacific island, African and South American countries.
The book is based on sound knowledge of eastern Indonesia. All 31 authors
are from Indonesia and/or are long-time researchers on Indonesia, and thus have
excellent language fluency and access to first-hand research materials. The chapters deal effectively with the major shift that has occurred in Indonesia through
the decentralisation law of 1999 and the ongoing challenges of its implementation.
Decentralisation has opened up opportunities for greater provincial and district/
municipality responsibility and control. But it has also created tensions, for example, over how revenues are allocated from exploitation of natural resources; how
funds are devolved to sub-national governments for the operation and delivery
of services; and what are the respective powers and capacities of different levels
of government to issue permits and licences to exploit resources.
Who should read this book? My answer is that it should be read by every development assistance worker interested in Indonesia, every student studying Indonesia and every environmentalist working in the Coral Triangle that comprises
the marine area of eastern Indonesia, the Philippines, eastern Malaysia, Papua
New Guinea, the Solomon Islands and Timor Leste. Many others interested in the
nexus between resources and development will also find the book of great interest. It deserves wide distribution and use.
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While strong on statistics and descriptive analysis, complemented by a very
useful overview chapter (by Resosudarmo and Jotzo), the book does display some
unevenness in the quality and tone of individual chapters. For example, some
chapters, such as that by Ballard and Banks on the Freeport mine, voice strong
opinions that tend to weaken their objectivity. The book would have benefited
from a more unified structure for chapters and a stronger conclusion on development and resource sustainability challenges. Indeed, the content of the chapters
lends itself to further overviews and derived analyses, should the authors and
others wish to draw further from the rich material within the book.
Finally, here is a small sample of the insights to be found in this volume.
Taken together, the book reflects a complex of factors that combine to explain the
low development levels of the three eastern Indonesian provinces. Rich resource
endowments such as those of Papua may create relatively high GDP growth,
but the resulting wealth can be diluted by high population growth (Papua) and
diminished by conflict (Papua and Maluku). All three provinces are hampered
by remoteness and poor infrastructure, only some of which disadvantage can be
overcome.
The chapter by Dutton et al. provides useful reviews of four marine conservation initiatives in the general eastern Indonesia area – Lore Lindu National Park
in Sulawesi; marine protected areas in Sulawesi; and Komodo National Park and
Bintuni Bay integrated watershed management in Papua – and offers conclusions
on what works. The authors conclude that bio-diversity conservation has to be
made meaningful to the lives of local people; conservation actions need to be
owned by people, governments and the private sector, and not just by conservation organisations; only the local people can sustain conservation; and projects
must be learning experiments from the outset.
Different types of natural resources generate very different interactions between
the exploiters, the local people and governments. In eastern Indonesia the patterns range from large mineral deposits with a single exploiter to resources with
competing but unequal exploiters at large and small scales. Huge corporate and
therefore political and strategic power is wielded by the owners of massive operations such as the Freeport mine in Papua, which provides 50% of provincial GDP
and 90% of provincial exports (Ballard and Banks). The operations of this mine,
one of the largest in the world, have proven highly resistant to the so-called ‘green
disciplining of capital’, and its management seems adept at maintaining the freedom to operate in the face of changes in political parties and political and environmental protests. Forest concessions granted to large companies have diverted
resources previously accessible to local communities (Hidayat, Kanowski and Ballard). Small-scale fishers, beholden to onshore owners and capital providers, are
in a constant struggle to make ends meet, facing declining catches, often involved
in illegal fishing (for example, in Australian waters), and subject to global market
shifts (such as in the price of shark fin) and competing economic opportunities
and risks, including inter-island trade and people smuggling (Fox et al.).
Meryl J. Williams
Brisbane
© 2010 Meryl J. Williams
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Aulia Pohan (2008) Potret Kebijakan Moneter Indonesia [A Portrait of Monetary
Policy in Indonesia], PT RajaGrafindo Persada, Jakarta, pp. xxii + 314. Rp. 90.000.
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Aulia Pohan (2008) Kerangka Kebijakan Moneter dan Implementasinya
di Indonesia [The Monetary Policy Framework and Its Implementation in
Indonesia], PT RajaGrafindo Persada, Jakarta, pp. xiv + 260. Rp 65.000.
Monetary policy plays a key role in the management of economic fluctuations,
so understanding how it is conducted has long been of interest to scholars. The
conduct of monetary policy is an intricate process whereby a monetary authority gathers an extensive set of relevant information before delivering its policy
action. This complicates the effort to understand monetary policy making in
many countries.
Indonesia is no different, particularly because there have been a number of
changes of policy regime in the country’s history. The titles of these two books
by Aulia Pohan promise to shed light on the issue, and no student of monetary
policy in Indonesia would want to miss the opportunity to read them.
The first book, A Portrait of Monetary Policy in Indonesia, is divided into four
parts. The first two provide some preliminary discussion of the effectiveness of
monetary policy and its impact on the economy. The author lays down some basic
concepts and definitions that do not go beyond the level of an undergraduate
course in monetary economics. This feature is useful for general readers, but perhaps not sufficient to fulfil the needs of more advanced readers.
Part 3 contains the main thrust of the book, providing a comprehensive summary of monetary policy development in Indonesia. Its five chapters discuss various issues related to monetary policy – overall monetary policy development,
developments in banking and credit policies, and the conduct of monetary policy
in the 1997–98 crisis. The author has provided a good, concise summary of the
development of monetary policy and the banking sector in Indonesia, giving
readers adequate historical information to understand the way monetary policy
has evolved in the country. Unfortunately, this section is not well connected with
the theoretical foundations offered by the preceding sections. As a result, it fails to
provide a theoretical explanation of why the development of monetary policy and
the banking sector has followed this particular historical path.
In part 4, the book offers a simplified discussion of the current and future challenges faced by monetary policy in Indonesia. Although this section lists some
factors that need to be anticipated and addressed by the monetary authority in
Indonesia, its simplistic discussion fails to provide a satisfactory explanation of
the real challenges faced and possible ways to deal with them. Readers are left
with a big question about what the author is actually suggesting for the improvement of Indonesia’s monetary policy making in the future.
The limitations in the depth of analysis found in the last two parts of this book
seem to be due to the inadequacy of the discussion provided in the first two parts,
which are supposed to lay the foundation for a more thorough discussion. In
short, the book does offer a portrait of the country’s monetary policy, but it fails to
provide a satisfactory explanation for why the picture looks as it does.
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Unlike the first book, the second, The Monetary Policy Framework and Its Implementation in Indonesia, is not divided into parts. But it can be viewed as consisting
of three broad sections: general theoretical foundations (covered in the first three
chapters); monetary policy planning and framework in Indonesia during the transition period (chs 4 and 5); and the inflation targeting framework (the rest of the
book).
The first part is mainly a repetition of material found in the first book. It is
shorter and does not cover the more specific theoretical background that is needed
for the discussion in the subsequent chapters. As expected, this book presents
similar problems to those found in the first book. Its first part limits the depth of
analysis that can occur in the subsequent chapters.
The second part of the book provides a concise discussion of the monetary
policy planning done by Bank Indonesia, and of its monetary policy framework
during the transitional period following the financial crisis of 1997–98. This part
makes a contribution to the literature on the monetary policy making process in
Indonesia.
The third part covers the inflation targeting framework pursued by Bank
Indonesia after the transitional period of monetary policy. It provides a lengthy
discussion of the issues, but unfortunately with relatively little reference to the
framework adopted by Indonesia. The book’s contribution would have been
greater if it had extended the explanation of why Bank Indonesia decided to
adopt such a framework, and how the framework was being assimilated into the
conduct of macroeconomic policy in Indonesia more generally.
Editorial input into the two books is also rather unsatisfactory, particularly in
regard to referencing. Some references mentioned in the text do not appear in the
reference lists.
The target audience for the books is not very clear. The discussion is too simplistic to be used for deepening understanding of the conduct of monetary policy
in Indonesia, but it also covers issues that are too technical to be useful to the
general public. The books may at best be helpful as references for those who need
some preliminary information about how monetary policy has been conducted in
Indonesia.
Arief Ramayandi
Padjadjaran University, Bandung
© 2010 Arief Ramayandi
Ross Garnaut with David Llewellyn-Smith (2009) The Great Crash of 2008,
Melbourne University Press, Melbourne, pp. xv + 256. Paper: A$24.99.
This book, by one of Australia’s most eminent economists, Ross Garnaut, together
with David Llewellyn-Smith, is a veritable tour de force. It was written in only six
months, just after Professor Garnaut had finished the comprehensive Garnaut Climate Change Review, a gruelling 18-month project for the Australian government.
The year 2008 witnessed several serious crises. First, there was a food crisis,
which hurt the poor, particularly in the least developed countries. It was followed
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by a steep increase in oil prices which hurt all the oil-importing countries. Somewhat later the world experienced the global financial crisis (GFC) and the subsequent world-wide recession. This turned out to be the most serious global
economic crisis since the Great Depression of the 1930s.
There are several aspects to a global economic crisis as serious, damaging and
complex as the GFC. This book has succeeded in describing and analysing the
crisis in a comprehensible and concise way. The book is divided into three parts:
part I describes the boom conditions that preceded the bust described in part II;
part III analyses the aftermath of the Great Crash.
In the first part the authors observe that since the early 21st century the world
has achieved the most widely based, rapid and sustained economic growth ever
experienced. The strong growth in their economies spurred people in what the
authors term the Anglosphere (the US, the UK and Australia) to spend more than
they earned. When America’s Federal Reserve and other western central banks
recognised that the boom was getting out of control, they raised short-term interest rates from 2004. However, long-term real interest rates remained low because
of the stream of money pouring into US bond markets from surplus economies,
notably China, Japan and the resource-exporting countries. The availability of
abundant funds from the surplus economies allowed high spending in the deficit
countries, particularly the US, to continue without constraint. Low real interest
rates provided a strong boost to housing in the United States, where most mortgage lending is based on long-term loans at fixed interest rates.
High immigration levels and population growth in the US, the UK and Australia also contributed to the strong demand for housing, which led to rising
house prices. After the mid-1990s the housing market received an even stronger
boost through a shift in perception of home ownership away from dwellings and
towards investment. As the housing bubble emerged in the US, credit was made
available from the late 1990s to a new class of borrowers, through a loosening
of credit standards for low-income people. By 2004 the ratio of these sub-prime
loans to new loans was 21%, up from 9% in the 1990s. Although sub-prime loans
were also introduced in the UK and Australia, they were less extensive than in
the US.
Part 2 discusses the conditions that led to the bust. The US Federal Reserve
has recorded the first salient date of the Great Crash as 7 February 2007, when
the government-sponsored enterprise Freddie Mac stated that it would no longer
buy sub-prime mortgages from mortgage originators. Higher interest rates in
response to inflation concerns triggered asset deflation, and the circulatory system of the boom failed, when the ‘shadow banking’ system (investment banks,
hedge funds, mortgage originators and non-bank lenders), which had transferred
capital around the world, collapsed.
The collapse of the global financial system became more serious when Lehman
Brothers filed for bankruptcy in mid-September 2008; this turned out to be the
largest bankruptcy in US history. The following day American Insurance Group
(AIG), shadow banking’s greatest risk-taking insurance firm, also collapsed, leading the Federal Reserve to bail it out several times before nationalising it.
The collapse in trust in the shadow banking system adversely affected the basic
financial operations of the entire global economy. It subsequently led to a recession in world output and trade, as trade finance collapsed.
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Part 3 explores the aftermath of the Great Crash, and the acceleration of ongoing
trends. Although it is likely that the world economy will resume strong growth,
the authors argue that the distribution of that growth will be radically different,
and heavily concentrated in the successful developing countries, particularly
China, India and Indonesia.
The authors have produced an eminently readable and informative book on a
very complicated phenomenon that has adversely affected the welfare of many
the world over. It should be required reading for anyone interested in the origins,
course, impact and possible outcomes of the global financial crisis of 2008. The
only issue on which I question the authors’ conclusions is their optimistic assessment of the economic prospects of Indonesia, one of only three Asian countries
(with China and India) that managed to achieve positive growth following the
GFC.
There are three reasons why Indonesia was less vulnerable to the transmission of the GFC than most of its East Asian neighbours. The first is the relatively
low share of manufactures in its total exports. Since manufactured exports have
much higher income elasticities than primary exports, the external demand for
manufactured exports fell sharply during the GFC. The second reason is the relatively low share of inter-regional trade – specifically in regional product-fragmentation industries – in Indonesia’s total trade. The third is Indonesia’s relatively
low degree of ‘export-led’ growth. Hence, the contribution of domestic expenditures, particularly consumption (both government and household) to growth for
Indonesia was larger than for its more export-oriented neighbours. Indonesia was
also less vulnerable to the transmission of the GFC because it benefited from not
having increased its exposure (relative to GDP) to banks in the US and the EU in
the decade preceding the crisis. It can therefore be argued that Indonesia’s better
performance during the GFC was to some extent more a matter of default than
design. However, the Indonesian government’s speedy and skilful response to
the crisis, including fiscal stimulus measures, prudent monetary policy and direct
cash transfers to the poor, also softened the adverse impact of the GFC.
Although Indonesia’s economic performance during the GFC has been better than that of its East Asian neighbours, there is no reason for complacency. A
worrisome feature of Indonesia’s growth after the Asian financial crisis is that its
non-tradable sectors have on the whole been growing more than twice as rapidly
as its tradable sectors, including the manufacturing sector. Since the manufacturing sector is crucial to fuelling rapid growth, generating employment and reducing poverty, as China’s recent experience has shown, the lacklustre performance
of Indonesia’s manufacturing sector does not bode well for its future.
Thee Kian Wie
Indonesian Institute of Sciences (LIPI), Jakarta
© 2010 Thee Kian Wie
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Maribeth Erb and Priyambudi Sulistiyanto (eds) (2009)
Deepening Democracy in Indonesia? Direct Elections for Local Leaders (Pilkada),
Institute of Southeast Asian Studies, Singapore, pp. xxv + 392.
Paper: S$42.90/US$34.90; Cloth: S$69.90/US$59.90.
The Indonesian government held direct elections for local government heads
(pilkada) in 2005 as part of the process of democratisation and decentralisation
after the dramatic fall of Soeharto’s New Order in 1998. Since then many scholars
both inside and outside the country have paid close attention to how direct elections are affecting the deepening of Indonesian democracy at the ground level.
Perceptions of the relationship between pilkada and democracy differ among
scholars, however. In this book, readers will find three types of arguments, which
sometimes overlap and sometimes contrast with each other.
The first argument – articulated in the introduction by Sulistiyanto and Erb,
and in the essays of Hidayat and Subianto – asserts that although direct elections
certainly promoted more popular political participation, actual pilkada practices
demonstrate ‘potential democratic failure’ (p. 9), owing to rampant money politics, corruption and the continuing dominance of New Order elites. Their view
is that Indonesia still falls far short of substantive democracy, and that voters are
irrational, with ‘the majority of constituents not yet understanding the importance of political participation in the pilkada’ (p. 142).
The second argument – in the essays of Choi, Buehler and (in part) Hidayat –
comments on the same drawbacks of the pilkada as the first, but arrives at different
conclusions. These authors question the very assumption, commonly accepted,
that the pilkada ultimately promote further democratisation by improving the
equity, responsiveness and accountability of local governance. Choi argues that
direct local elections ‘have ... contributed to the repositioning of long-established
and well-resourced local elites in local political institutions and governance’
(p. 90), rather than enhanced the democratic quality of local politics. Buehler, on
the other hand, argues that even entrenched political elites have had a hard time
winning elections without strong personal networks at the sub-district level, but
leaves aside arguments about whether this will promote democratic politics.
The last argument – in the essays of Schiller, Ratnawati, Sulistiyanto, Hill,
Erb, Anggal, Smith and (in part) Subianto – delves deeper into local perspectives, analysing how elites, the middle classes and the media view voters and the
pilkada, and how ordinary voters access candidates. It notes that, contrary to the
prevailing belief of many elites and the media that voters are irrational and easily subject to money politics and patron–client ties, field evidence indicates that
voters are actually motivated by factors other than money politics. The authors
show that local cultural factors and a candidate’s leadership style, populist policies, local personal networks and media image are instrumental in shaping voting behaviour.
Mboi and Mietzner highlight other aspects of the pilkada, and differ in their
arguments from the standard views on Indonesian democracy. Mboi, the former
governor of Nusa Tenggara Timur, sharply criticises not pilkada practices per se
but the decentralisation laws themselves. He makes the cutting remark that the
decentralisation policies were ‘piecemeal political action[s]’ rather than parts of
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the ‘grand design of a government system’ (p. 43), because the original decentralisation law (Law 22/1999) and the amended law (Law 32/2004) reflect completely
different conceptions of a local government system. Mietzner examines the role of
the pilkada in relation to the Papuan separatist movement. He argues that electoral
competition ‘has exposed internal divisions within Papuan society that, in the
long term, could weaken the drive for secession of the province’ (p. 260), whereas
direct central intervention against Papuan separatism in the end strengthened
Papuan solidarity against the centre. He concludes that the most effective way to
keep Papua in the Indonesian union is ‘to expand democratic liberties and economic opportunities in the province’ (p. 279).
Among the 16 chapters, I particularly recommend the essays of Schiller, Ratnawati, Sulistiyanto, Hill, Erb, Anggal, Smith, Subianto, Mboi and Mietzner to readers interested in Indonesian politics, society, history and culture rather than in
political science theory. These authors provide profound insights into the role and
significance of the Indonesian pilkada in local socio-political and cultural arenas,
rather than simply evaluating the pilkada in relation to general theoretical arguments about democracy.
Akiko Morishita
Kyoto University
© 2010 Akiko Morishita
Iem Brown (ed.) (2009) The Territories of Indonesia, Routledge,
London and New York, pp. x + 346. US$265.00.
The Territories of Indonesia promises the reader a ‘complete guide’ to the archipelago’s many regions, and in particular their geography, politics and economics. An
introductory chapter provides an overview of the country’s population, religious
and ethnic profile, economy and political history, and is accompanied by an outline of Indonesia’s government, a timeline that spans around 1,600 years of Indonesian history and a statistical summary of Indonesia’s area, population and basic
economic data by province. Each of the provincial surveys that follow consists of
a map, a summary of that province’s geographic and demographic features, and
overviews of its history and the structure of its economy.
A survey volume of this kind necessarily has limitations, particularly when
dealing with a country as vast and diverse as Indonesia. The historical overviews are the strongest aspect of this work, while its weakest feature is clearly its
handling of contemporary politics and government – topics that are dealt with
briefly in the introductory chapter, but which receive little mention in the chapters
that follow. The economic sections of the survey chapters (which vary in length
and level of detail) are of little utility for those seeking an up-to-date snapshot
of a particular province, as most of the data provided pertains to 2007 or earlier,
but they do provide readers with a digestible historical overview of the diverse
economic structures found in Indonesia’s regions.
Michele Ford
University of Sydney
© 2010 Michele Ford
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Book reviews
Suahasil Nazara , Shaianne T. Osterreich , Meryl J. Williams , Arief
Ramayandi , Thee Kian Wie , Akiko Morishita & Michele Ford
To cite this article: Suahasil Nazara , Shaianne T. Osterreich , Meryl J. Williams , Arief
Ramayandi , Thee Kian Wie , Akiko Morishita & Michele Ford (2010) Book reviews, Bulletin of
Indonesian Economic Studies, 46:1, 115-126, DOI: 10.1080/00074911003642286
To link to this article: http://dx.doi.org/10.1080/00074911003642286
Published online: 17 Mar 2010.
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Bulletin of Indonesian Economic Studies, Vol. 46, No. 1, 2010: 115–26
BOOK REVIEWS
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Shafiq Dhanani, Iyanatul Islam and Anis Chowdhury (2009)
The Indonesian Labour Market: Changes and Challenges, Routledge
Studies in the Modern World Economy, London, pp. 256. Cloth: $150.00.
This is an important book. The labour market is a key determinant of a country’s competitiveness. President Yudhoyono has listed unemployment as one
of the indicators in his National Medium-term Development Plan targets. And
Indonesia’s labour market has undergone important transformations in the last
decade. The 1998 crisis changed the way Indonesia is governed, including relationships and regulation in the labour market. It is timely that such a book should
appear about a decade after the last comprehensive assessment in 1998 (Chris
Manning, Indonesian Labour in Transition: An Indonesian Success Story?, Cambridge
University Press).
This new book discusses the role of the labour market in Indonesian economic
policy making, elaborating how debates have evolved over time. The introduction briefly surveys Indonesian politics as far back (perhaps unnecessarily) as the
1950s. The next chapter analyses the employment implications of macroeconomic
policy. These are elaborated further in two subsequent chapters on unemployment and under-employment (ch. 3) and wages and productivity (ch. 4). Chapter
5 starts with a discussion of poverty and inequality, and relates this to labour market indicators, especially wages. Chapter 6 examines labour regulations and the
business climate. Chapter 7 concludes with several policy recommendations.
The book primarily covers the labour market before and after the Asian financial crisis of the late 1990s. Most of the data presented are from the mid-1980s
onward, with a few tables containing data from the 1970s. This is no surprise.
Reliable data became available only in the mid-1970s.
The macroeconomic analysis in chapter 2 takes a rather pessimistic view of
Indonesia’s economic standing. It says ‘the country was hit hard by the global
financial crisis in the last quarter of 2008 … The global economic slowdown will
likely dampen the demand for commodities and exports from Indonesia …’ (p.
51). We now know, however, that Indonesia is one of the few economies in Asia
to have survived the global financial crisis with positive economic growth for
2008 and 2009, trailing only China and India. The outcome was due partly to
a decade of relatively low inflation – which the authors appear to deem of little importance. Low inflation contributed to the wealth accumulation process,
which enhanced the domestic demand, replacing the demand for exports during
the most recent crisis. Of course, several other coincidences helped. The direct
cash transfer program, launched in 2008, quickly put money in the hands of poor
ISSN 0007-4918 print/ISSN 1472-7234 online/10/010115-12
DOI: 10.1080/00074911003642286
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families. Together with expenditure in the prolonged 2008–09 political campaign
periods, this money all ended up as consumption.
The authors correctly point out the importance of looking beyond open unemployment rates. Examining these rates over a two-decade period, the analysis
shows that most of the increases in the official rates ‘from 2–3 per cent in the
1970s and 1980 to around 10 per cent in the late 2000s … were due [merely] to
definitional changes’ (p. 79, words in square brackets added). Despite low open
unemployment, under-employment is high. It represents the under-utilisation of
labour.
There are two connections that one may expect to be made at this point. The
first is a link between low open unemployment and high under-employment,
with increasing informality in labour status. While the latter is examined at length
in chapter 2, its link to low open unemployment and high under-employment is
only briefly recounted in this chapter (p. 79). More could have been said about
this. The second connection relates to discussion of the notion of employability. It
is important at this juncture to address issues such as employment elasticity, an
essential link between macroeconomic conditions and labour absorption.
On real wages, chapter 4 outlines how real wages grew alongside labour productivity. Long-term public investment in education and health also helps boost
productivity. That was the case until 1997. The next decade was a lost decade for
Indonesian workers. The authors state in the introductory chapter: ‘By 2007, real
wages were no higher than the 1997 level’ (p. 16).
In examining poverty and inequality in Indonesia (ch. 5), the authors rightly
touch upon issues of vulnerability, the Millennium Development Goals targets,
and non-income poverty, as well as the functional distribution of income. The
chapter does not, however, explore fully the regional dimensions of poverty and
inequality, saying only that ‘regional inequality in Indonesia was moderate relative to other large regionally diverse economies’ and that ‘regional inequality in
terms of human development indicators reflects a complex picture, rising in some
cases but declining in others’. There really is more to that issue.
This chapter also points to the different direction of unemployment and poverty trends (figure 5.6). Between 1999 and 2005 the poverty rate declined while the
unemployment rate rose. The authors argue that the best route to policy-relevant
knowledge is to focus on the ‘working poor’ (p. 138). However, if one extended
the series to the most recent data available (say 2009), one may find that since 2006
the two rates have been on a similar declining trend. Would we conclude that ‘a
one-to-one mapping between the unemployment rate and the poverty rate’ (p.
138) is now the case in Indonesia? I would argue negatively. The fact that the two
rates can flip from contradictory to similar trends without a clear reason simply
strengthens the need to go beyond the aggregates. In the light of what is known
about the ‘working poor’, policy may need to address the poverty–productivity
nexus in poverty alleviation programs.
Chapter 6 on labour regulations and the business climate asserts that although
the ‘regulatory environment governing the labour market altered dramatically in
the first half of the 2000s’, the ‘evidence ... cannot show that labour market outcomes deteriorated in the 2000s as a result’ (p. 175). The authors do not ‘endorse
a “minimal regulation” approach, but neither does [this] mean … endorsement of
a “business as usual“ scenario’ (p. 181). Although rapid economic growth ‘more
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than compensated’ for job losses arising from compliance with the labour law,
‘employment creation would have been higher in the absence of higher wages
and inflexible labour arrangements’ (p. 175).
What more would I have liked to see in this book? There are at least two issues.
The first is labour migration, both domestic and international. Inter-provincial
(as well as rural–urban) labour migration has been a crucial element of long-term
economic development, particularly during periods of economic turmoil. Working abroad has been pivotal to the welfare of many workers, and the remittances
from it are of great significance to the economy (national and provincial alike).
The other factor that has changed the landscape of the Indonesian labour market
is the labour union. Following the end-1990s crisis, Indonesia moved peacefully
from a single-union to a multi-union system. Unions constitute a challenge for
the labour market of the future. It is crucial to define precisely the role of the
union in an economy where 70% of workers are in the informal sector. Perhaps
the next book in this field could be titled The Political Economy of the Indonesian
Labour Market.
Suahasil Nazara
University of Indonesia, Jakarta
© 2010 Suahasil Nazara
Teri L. Caraway (2007) Assembling Women: The Feminization of Global
Manufacturing, Cornell University Press, Ithaca NY, pp. 224.
Paper: US$18.95; Cloth: US$60.95.
In her first book, Assembling Women: The Feminization of Global Manufacturing, Teri
Caraway explores some of the causes of the dramatic increase in industrial female
labour force participation that began in the mid-1970s. With a close look at the
Indonesian case she demonstrates the complicated decisions that export-oriented
manufacturing firms faced as they chose the role that female labour was going to
play in their success in the global economy.
Although Caraway attempts to forge new paths in gender and globalisation
theory, the strongest part of the book is its detailed and comprehensive telling
of the economics, politics, and gender relations stories of late 20th century Indonesian industry. This book makes a significant contribution to several lines of
existing literature, including the economic history of Indonesian industrialisation;
gender and globalisation; labour and international trade; and market structure
and export orientation.
The most interesting of Caraway’s claims centres on why Indonesian exporters hired (or did not hire) women in the 1980s and 1990s. Looking at garments,
textiles, plywood and automobiles, she combined primary evidence from interviews, secondary firm-level data and political history to explain the trends in hiring women. By looking at firms with varied export orientation, market structure,
labour intensity, and trends in male and female labour recruitment, she was able
to determine what types of firms hired women and for what reasons.
She argues that by the mid-1970s Indonesian women were ready to go to work.
Owing to a variety of conditions, which she terms gender mediating institutions,
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education levels were relatively high and increasing, fertility levels were low, and
political parties and labour unions (primarily male) had been demobilised. These
state policies created a scenario ripe for change in the labour force. First in textiles
(a generally female-intensive sector), then later in plywood and garments, and
finally in the 1990s in electronics, women’s employment was on a steady rise.
It is not enough, Caraway argues, for women to accept lower wages for firms to
decide to hire them over men, or worse, to fire men and replace them with women.
With commendable clarity, Caraway delineates how firms responded. With stickiness – that is, in fits and starts – they experimented with hiring women, they
considered the hiring practices of competitor firms, and sometimes they decided
it was not going to work. At other times they learned from other sectors that had
already employed women how they could increase productivity while improving
the bottom line; this she calls ‘spillover’. Lastly, the term ‘snowballing’ captures
the experience of export-oriented firms that grew and were able to add assembly
lines and hence hire women for new jobs without having to displace men.
Caraway concludes that there were two indicators that a firm would feminise:
if it faced a price-competitive market structure (and one likely to be labour intensive) and if it already had some women employees. Though gender wage differentials were much wider in capital-intensive firms, where the cost savings would
be much higher if they replaced men with women, that they had not already done
so was a key determinant of their not doing so in the future. Further, since they
were less focused on keeping prices low, these firms were less concerned about
the wage bill at the margin.
Caraway’s major theoretical contribution is that feminisation in global manufacturing is due to labour intensity rather than export orientation. This is not
entirely the outcome of her own study, but rather a response to the general trend
that there are industrial sectors that resisted feminisation (despite being export
oriented) and that many countries experienced a de-feminisation upon industrial
upgrading. While some of the evidence she points to is widely agreed upon, it is
not altogether compelling with regard to her own thesis. There is a dynamic in
export-led growth that leads to both price competition and labour intensity that
is not fully captured in the argument presented. Further, some parts of the book
read as ungenerous and incomplete reflections of the current literature.
What is of real value is the detailed look at the way firms actually make decisions about how and when to hire women. When we make claims about how
firms behave in the global economy, we must remember that different histories,
cultures and habits create these scenarios and although phenomena may appear
similar the world over, in practice things play out differently. This exploration of
Indonesia reminds the interested scholar of this, very acutely.
Shaianne T. Osterreich
Ithaca College, Ithaca NY
© 2010 Shaianne T. Osterreich
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Budy P. Resosudarmo and Frank Jotzo (eds) (2009) Working with Nature against
Poverty: Development, Resources and the Environment in Eastern Indonesia,
Institute of Southeast Asian Studies, Singapore, pp. 384. Paper: S$39.90/US$29.90.
Indonesia has a large territory comprised of over 17,000 islands, is the world’s
fourth most populous nation and is one of the most complex countries in terms
of its geography, ethnicities, cultures, politics, languages, bio-diversity and many
other dimensions. Not surprisingly, knowledge of this diverse country is uneven,
and the eastern provinces are the least understood. This excellent book takes the
three least well-known provinces, East Nusa Tenggara, Maluku and the now further partitioned Papua, and provides a wealth of detailed statistics and analysis on the people, politics, economics and resources of each. The trade-offs and
synergies between natural resource exploitation and development are explored
across the range of natural resources – watersheds, minerals, forestry, agriculture
and fisheries – and in relation to the factors that underpin the development of
local economies. Thus, the book also explores eastern Indonesia with respect to
government capacity, governance performance and corruption, links to the wider
Indonesian economy and international markets, and the delivery of public sector
services such as health, education and infrastructure.
The editors and authors have undertaken a mammoth task in mining the available statistics and, in some cases, providing critical commentary on the challenges
of collecting and using these data. Of particular interest is appendix A2.1 (by
Bambang Heru), written by a senior member of the central statistics agency (BPS),
outlining the challenges of obtaining accurate statistics on Papua in the national
system. Many of the book’s statistics are disaggregated to the sub-provincial level,
to show the granularity within each province and illustrate the difficulty of generalising causes and solutions. At the other end, many comparisons are made
with other provinces of Indonesia and, in the case of Papua province, with several
Pacific island, African and South American countries.
The book is based on sound knowledge of eastern Indonesia. All 31 authors
are from Indonesia and/or are long-time researchers on Indonesia, and thus have
excellent language fluency and access to first-hand research materials. The chapters deal effectively with the major shift that has occurred in Indonesia through
the decentralisation law of 1999 and the ongoing challenges of its implementation.
Decentralisation has opened up opportunities for greater provincial and district/
municipality responsibility and control. But it has also created tensions, for example, over how revenues are allocated from exploitation of natural resources; how
funds are devolved to sub-national governments for the operation and delivery
of services; and what are the respective powers and capacities of different levels
of government to issue permits and licences to exploit resources.
Who should read this book? My answer is that it should be read by every development assistance worker interested in Indonesia, every student studying Indonesia and every environmentalist working in the Coral Triangle that comprises
the marine area of eastern Indonesia, the Philippines, eastern Malaysia, Papua
New Guinea, the Solomon Islands and Timor Leste. Many others interested in the
nexus between resources and development will also find the book of great interest. It deserves wide distribution and use.
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While strong on statistics and descriptive analysis, complemented by a very
useful overview chapter (by Resosudarmo and Jotzo), the book does display some
unevenness in the quality and tone of individual chapters. For example, some
chapters, such as that by Ballard and Banks on the Freeport mine, voice strong
opinions that tend to weaken their objectivity. The book would have benefited
from a more unified structure for chapters and a stronger conclusion on development and resource sustainability challenges. Indeed, the content of the chapters
lends itself to further overviews and derived analyses, should the authors and
others wish to draw further from the rich material within the book.
Finally, here is a small sample of the insights to be found in this volume.
Taken together, the book reflects a complex of factors that combine to explain the
low development levels of the three eastern Indonesian provinces. Rich resource
endowments such as those of Papua may create relatively high GDP growth,
but the resulting wealth can be diluted by high population growth (Papua) and
diminished by conflict (Papua and Maluku). All three provinces are hampered
by remoteness and poor infrastructure, only some of which disadvantage can be
overcome.
The chapter by Dutton et al. provides useful reviews of four marine conservation initiatives in the general eastern Indonesia area – Lore Lindu National Park
in Sulawesi; marine protected areas in Sulawesi; and Komodo National Park and
Bintuni Bay integrated watershed management in Papua – and offers conclusions
on what works. The authors conclude that bio-diversity conservation has to be
made meaningful to the lives of local people; conservation actions need to be
owned by people, governments and the private sector, and not just by conservation organisations; only the local people can sustain conservation; and projects
must be learning experiments from the outset.
Different types of natural resources generate very different interactions between
the exploiters, the local people and governments. In eastern Indonesia the patterns range from large mineral deposits with a single exploiter to resources with
competing but unequal exploiters at large and small scales. Huge corporate and
therefore political and strategic power is wielded by the owners of massive operations such as the Freeport mine in Papua, which provides 50% of provincial GDP
and 90% of provincial exports (Ballard and Banks). The operations of this mine,
one of the largest in the world, have proven highly resistant to the so-called ‘green
disciplining of capital’, and its management seems adept at maintaining the freedom to operate in the face of changes in political parties and political and environmental protests. Forest concessions granted to large companies have diverted
resources previously accessible to local communities (Hidayat, Kanowski and Ballard). Small-scale fishers, beholden to onshore owners and capital providers, are
in a constant struggle to make ends meet, facing declining catches, often involved
in illegal fishing (for example, in Australian waters), and subject to global market
shifts (such as in the price of shark fin) and competing economic opportunities
and risks, including inter-island trade and people smuggling (Fox et al.).
Meryl J. Williams
Brisbane
© 2010 Meryl J. Williams
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Aulia Pohan (2008) Potret Kebijakan Moneter Indonesia [A Portrait of Monetary
Policy in Indonesia], PT RajaGrafindo Persada, Jakarta, pp. xxii + 314. Rp. 90.000.
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Aulia Pohan (2008) Kerangka Kebijakan Moneter dan Implementasinya
di Indonesia [The Monetary Policy Framework and Its Implementation in
Indonesia], PT RajaGrafindo Persada, Jakarta, pp. xiv + 260. Rp 65.000.
Monetary policy plays a key role in the management of economic fluctuations,
so understanding how it is conducted has long been of interest to scholars. The
conduct of monetary policy is an intricate process whereby a monetary authority gathers an extensive set of relevant information before delivering its policy
action. This complicates the effort to understand monetary policy making in
many countries.
Indonesia is no different, particularly because there have been a number of
changes of policy regime in the country’s history. The titles of these two books
by Aulia Pohan promise to shed light on the issue, and no student of monetary
policy in Indonesia would want to miss the opportunity to read them.
The first book, A Portrait of Monetary Policy in Indonesia, is divided into four
parts. The first two provide some preliminary discussion of the effectiveness of
monetary policy and its impact on the economy. The author lays down some basic
concepts and definitions that do not go beyond the level of an undergraduate
course in monetary economics. This feature is useful for general readers, but perhaps not sufficient to fulfil the needs of more advanced readers.
Part 3 contains the main thrust of the book, providing a comprehensive summary of monetary policy development in Indonesia. Its five chapters discuss various issues related to monetary policy – overall monetary policy development,
developments in banking and credit policies, and the conduct of monetary policy
in the 1997–98 crisis. The author has provided a good, concise summary of the
development of monetary policy and the banking sector in Indonesia, giving
readers adequate historical information to understand the way monetary policy
has evolved in the country. Unfortunately, this section is not well connected with
the theoretical foundations offered by the preceding sections. As a result, it fails to
provide a theoretical explanation of why the development of monetary policy and
the banking sector has followed this particular historical path.
In part 4, the book offers a simplified discussion of the current and future challenges faced by monetary policy in Indonesia. Although this section lists some
factors that need to be anticipated and addressed by the monetary authority in
Indonesia, its simplistic discussion fails to provide a satisfactory explanation of
the real challenges faced and possible ways to deal with them. Readers are left
with a big question about what the author is actually suggesting for the improvement of Indonesia’s monetary policy making in the future.
The limitations in the depth of analysis found in the last two parts of this book
seem to be due to the inadequacy of the discussion provided in the first two parts,
which are supposed to lay the foundation for a more thorough discussion. In
short, the book does offer a portrait of the country’s monetary policy, but it fails to
provide a satisfactory explanation for why the picture looks as it does.
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Unlike the first book, the second, The Monetary Policy Framework and Its Implementation in Indonesia, is not divided into parts. But it can be viewed as consisting
of three broad sections: general theoretical foundations (covered in the first three
chapters); monetary policy planning and framework in Indonesia during the transition period (chs 4 and 5); and the inflation targeting framework (the rest of the
book).
The first part is mainly a repetition of material found in the first book. It is
shorter and does not cover the more specific theoretical background that is needed
for the discussion in the subsequent chapters. As expected, this book presents
similar problems to those found in the first book. Its first part limits the depth of
analysis that can occur in the subsequent chapters.
The second part of the book provides a concise discussion of the monetary
policy planning done by Bank Indonesia, and of its monetary policy framework
during the transitional period following the financial crisis of 1997–98. This part
makes a contribution to the literature on the monetary policy making process in
Indonesia.
The third part covers the inflation targeting framework pursued by Bank
Indonesia after the transitional period of monetary policy. It provides a lengthy
discussion of the issues, but unfortunately with relatively little reference to the
framework adopted by Indonesia. The book’s contribution would have been
greater if it had extended the explanation of why Bank Indonesia decided to
adopt such a framework, and how the framework was being assimilated into the
conduct of macroeconomic policy in Indonesia more generally.
Editorial input into the two books is also rather unsatisfactory, particularly in
regard to referencing. Some references mentioned in the text do not appear in the
reference lists.
The target audience for the books is not very clear. The discussion is too simplistic to be used for deepening understanding of the conduct of monetary policy
in Indonesia, but it also covers issues that are too technical to be useful to the
general public. The books may at best be helpful as references for those who need
some preliminary information about how monetary policy has been conducted in
Indonesia.
Arief Ramayandi
Padjadjaran University, Bandung
© 2010 Arief Ramayandi
Ross Garnaut with David Llewellyn-Smith (2009) The Great Crash of 2008,
Melbourne University Press, Melbourne, pp. xv + 256. Paper: A$24.99.
This book, by one of Australia’s most eminent economists, Ross Garnaut, together
with David Llewellyn-Smith, is a veritable tour de force. It was written in only six
months, just after Professor Garnaut had finished the comprehensive Garnaut Climate Change Review, a gruelling 18-month project for the Australian government.
The year 2008 witnessed several serious crises. First, there was a food crisis,
which hurt the poor, particularly in the least developed countries. It was followed
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by a steep increase in oil prices which hurt all the oil-importing countries. Somewhat later the world experienced the global financial crisis (GFC) and the subsequent world-wide recession. This turned out to be the most serious global
economic crisis since the Great Depression of the 1930s.
There are several aspects to a global economic crisis as serious, damaging and
complex as the GFC. This book has succeeded in describing and analysing the
crisis in a comprehensible and concise way. The book is divided into three parts:
part I describes the boom conditions that preceded the bust described in part II;
part III analyses the aftermath of the Great Crash.
In the first part the authors observe that since the early 21st century the world
has achieved the most widely based, rapid and sustained economic growth ever
experienced. The strong growth in their economies spurred people in what the
authors term the Anglosphere (the US, the UK and Australia) to spend more than
they earned. When America’s Federal Reserve and other western central banks
recognised that the boom was getting out of control, they raised short-term interest rates from 2004. However, long-term real interest rates remained low because
of the stream of money pouring into US bond markets from surplus economies,
notably China, Japan and the resource-exporting countries. The availability of
abundant funds from the surplus economies allowed high spending in the deficit
countries, particularly the US, to continue without constraint. Low real interest
rates provided a strong boost to housing in the United States, where most mortgage lending is based on long-term loans at fixed interest rates.
High immigration levels and population growth in the US, the UK and Australia also contributed to the strong demand for housing, which led to rising
house prices. After the mid-1990s the housing market received an even stronger
boost through a shift in perception of home ownership away from dwellings and
towards investment. As the housing bubble emerged in the US, credit was made
available from the late 1990s to a new class of borrowers, through a loosening
of credit standards for low-income people. By 2004 the ratio of these sub-prime
loans to new loans was 21%, up from 9% in the 1990s. Although sub-prime loans
were also introduced in the UK and Australia, they were less extensive than in
the US.
Part 2 discusses the conditions that led to the bust. The US Federal Reserve
has recorded the first salient date of the Great Crash as 7 February 2007, when
the government-sponsored enterprise Freddie Mac stated that it would no longer
buy sub-prime mortgages from mortgage originators. Higher interest rates in
response to inflation concerns triggered asset deflation, and the circulatory system of the boom failed, when the ‘shadow banking’ system (investment banks,
hedge funds, mortgage originators and non-bank lenders), which had transferred
capital around the world, collapsed.
The collapse of the global financial system became more serious when Lehman
Brothers filed for bankruptcy in mid-September 2008; this turned out to be the
largest bankruptcy in US history. The following day American Insurance Group
(AIG), shadow banking’s greatest risk-taking insurance firm, also collapsed, leading the Federal Reserve to bail it out several times before nationalising it.
The collapse in trust in the shadow banking system adversely affected the basic
financial operations of the entire global economy. It subsequently led to a recession in world output and trade, as trade finance collapsed.
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Part 3 explores the aftermath of the Great Crash, and the acceleration of ongoing
trends. Although it is likely that the world economy will resume strong growth,
the authors argue that the distribution of that growth will be radically different,
and heavily concentrated in the successful developing countries, particularly
China, India and Indonesia.
The authors have produced an eminently readable and informative book on a
very complicated phenomenon that has adversely affected the welfare of many
the world over. It should be required reading for anyone interested in the origins,
course, impact and possible outcomes of the global financial crisis of 2008. The
only issue on which I question the authors’ conclusions is their optimistic assessment of the economic prospects of Indonesia, one of only three Asian countries
(with China and India) that managed to achieve positive growth following the
GFC.
There are three reasons why Indonesia was less vulnerable to the transmission of the GFC than most of its East Asian neighbours. The first is the relatively
low share of manufactures in its total exports. Since manufactured exports have
much higher income elasticities than primary exports, the external demand for
manufactured exports fell sharply during the GFC. The second reason is the relatively low share of inter-regional trade – specifically in regional product-fragmentation industries – in Indonesia’s total trade. The third is Indonesia’s relatively
low degree of ‘export-led’ growth. Hence, the contribution of domestic expenditures, particularly consumption (both government and household) to growth for
Indonesia was larger than for its more export-oriented neighbours. Indonesia was
also less vulnerable to the transmission of the GFC because it benefited from not
having increased its exposure (relative to GDP) to banks in the US and the EU in
the decade preceding the crisis. It can therefore be argued that Indonesia’s better
performance during the GFC was to some extent more a matter of default than
design. However, the Indonesian government’s speedy and skilful response to
the crisis, including fiscal stimulus measures, prudent monetary policy and direct
cash transfers to the poor, also softened the adverse impact of the GFC.
Although Indonesia’s economic performance during the GFC has been better than that of its East Asian neighbours, there is no reason for complacency. A
worrisome feature of Indonesia’s growth after the Asian financial crisis is that its
non-tradable sectors have on the whole been growing more than twice as rapidly
as its tradable sectors, including the manufacturing sector. Since the manufacturing sector is crucial to fuelling rapid growth, generating employment and reducing poverty, as China’s recent experience has shown, the lacklustre performance
of Indonesia’s manufacturing sector does not bode well for its future.
Thee Kian Wie
Indonesian Institute of Sciences (LIPI), Jakarta
© 2010 Thee Kian Wie
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Maribeth Erb and Priyambudi Sulistiyanto (eds) (2009)
Deepening Democracy in Indonesia? Direct Elections for Local Leaders (Pilkada),
Institute of Southeast Asian Studies, Singapore, pp. xxv + 392.
Paper: S$42.90/US$34.90; Cloth: S$69.90/US$59.90.
The Indonesian government held direct elections for local government heads
(pilkada) in 2005 as part of the process of democratisation and decentralisation
after the dramatic fall of Soeharto’s New Order in 1998. Since then many scholars
both inside and outside the country have paid close attention to how direct elections are affecting the deepening of Indonesian democracy at the ground level.
Perceptions of the relationship between pilkada and democracy differ among
scholars, however. In this book, readers will find three types of arguments, which
sometimes overlap and sometimes contrast with each other.
The first argument – articulated in the introduction by Sulistiyanto and Erb,
and in the essays of Hidayat and Subianto – asserts that although direct elections
certainly promoted more popular political participation, actual pilkada practices
demonstrate ‘potential democratic failure’ (p. 9), owing to rampant money politics, corruption and the continuing dominance of New Order elites. Their view
is that Indonesia still falls far short of substantive democracy, and that voters are
irrational, with ‘the majority of constituents not yet understanding the importance of political participation in the pilkada’ (p. 142).
The second argument – in the essays of Choi, Buehler and (in part) Hidayat –
comments on the same drawbacks of the pilkada as the first, but arrives at different
conclusions. These authors question the very assumption, commonly accepted,
that the pilkada ultimately promote further democratisation by improving the
equity, responsiveness and accountability of local governance. Choi argues that
direct local elections ‘have ... contributed to the repositioning of long-established
and well-resourced local elites in local political institutions and governance’
(p. 90), rather than enhanced the democratic quality of local politics. Buehler, on
the other hand, argues that even entrenched political elites have had a hard time
winning elections without strong personal networks at the sub-district level, but
leaves aside arguments about whether this will promote democratic politics.
The last argument – in the essays of Schiller, Ratnawati, Sulistiyanto, Hill,
Erb, Anggal, Smith and (in part) Subianto – delves deeper into local perspectives, analysing how elites, the middle classes and the media view voters and the
pilkada, and how ordinary voters access candidates. It notes that, contrary to the
prevailing belief of many elites and the media that voters are irrational and easily subject to money politics and patron–client ties, field evidence indicates that
voters are actually motivated by factors other than money politics. The authors
show that local cultural factors and a candidate’s leadership style, populist policies, local personal networks and media image are instrumental in shaping voting behaviour.
Mboi and Mietzner highlight other aspects of the pilkada, and differ in their
arguments from the standard views on Indonesian democracy. Mboi, the former
governor of Nusa Tenggara Timur, sharply criticises not pilkada practices per se
but the decentralisation laws themselves. He makes the cutting remark that the
decentralisation policies were ‘piecemeal political action[s]’ rather than parts of
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the ‘grand design of a government system’ (p. 43), because the original decentralisation law (Law 22/1999) and the amended law (Law 32/2004) reflect completely
different conceptions of a local government system. Mietzner examines the role of
the pilkada in relation to the Papuan separatist movement. He argues that electoral
competition ‘has exposed internal divisions within Papuan society that, in the
long term, could weaken the drive for secession of the province’ (p. 260), whereas
direct central intervention against Papuan separatism in the end strengthened
Papuan solidarity against the centre. He concludes that the most effective way to
keep Papua in the Indonesian union is ‘to expand democratic liberties and economic opportunities in the province’ (p. 279).
Among the 16 chapters, I particularly recommend the essays of Schiller, Ratnawati, Sulistiyanto, Hill, Erb, Anggal, Smith, Subianto, Mboi and Mietzner to readers interested in Indonesian politics, society, history and culture rather than in
political science theory. These authors provide profound insights into the role and
significance of the Indonesian pilkada in local socio-political and cultural arenas,
rather than simply evaluating the pilkada in relation to general theoretical arguments about democracy.
Akiko Morishita
Kyoto University
© 2010 Akiko Morishita
Iem Brown (ed.) (2009) The Territories of Indonesia, Routledge,
London and New York, pp. x + 346. US$265.00.
The Territories of Indonesia promises the reader a ‘complete guide’ to the archipelago’s many regions, and in particular their geography, politics and economics. An
introductory chapter provides an overview of the country’s population, religious
and ethnic profile, economy and political history, and is accompanied by an outline of Indonesia’s government, a timeline that spans around 1,600 years of Indonesian history and a statistical summary of Indonesia’s area, population and basic
economic data by province. Each of the provincial surveys that follow consists of
a map, a summary of that province’s geographic and demographic features, and
overviews of its history and the structure of its economy.
A survey volume of this kind necessarily has limitations, particularly when
dealing with a country as vast and diverse as Indonesia. The historical overviews are the strongest aspect of this work, while its weakest feature is clearly its
handling of contemporary politics and government – topics that are dealt with
briefly in the introductory chapter, but which receive little mention in the chapters
that follow. The economic sections of the survey chapters (which vary in length
and level of detail) are of little utility for those seeking an up-to-date snapshot
of a particular province, as most of the data provided pertains to 2007 or earlier,
but they do provide readers with a digestible historical overview of the diverse
economic structures found in Indonesia’s regions.
Michele Ford
University of Sydney
© 2010 Michele Ford