Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 00074910802001629
Bulletin of Indonesian Economic Studies
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BOOK REVIEWS
To cite this article: (2008) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 44:1,
157-168, DOI: 10.1080/00074910802001629
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Bulletin of Indonesian Economic Studies, Vol. 44, No. 1, 2008: 157–68
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Louis T. Wells and Rafiq Ahmed (2006) Making Foreign Investment Safe:
Property Rights and National Sovereignty, Oxford University Press,
New York NY, pp. 378 + xi. US$49.95.
This fine volume employs Indonesia as a case study of how developing countries manage—or mismanage—foreign direct investment (FDI), especially in
large infrastructure projects. The central analytical issue is how to make FDI in
developing countries work for both parties. For foreign investors, this means a
predictable and secure commercial environment in which to achieve a reasonable
risk-adjusted return on investment. For host countries, it requires foreign investors to play by agreed rules and to be ‘good corporate citizens’. When project and
investor are small, the activity is located in a competitive, export-oriented sector,
and no project-specific fiscal arrangements have to be negotiated, FDI is unlikely
to be controversial. When the foreign investor is a US-based multinational enterprise (MNE), investing large-scale in a non-tradable sector—part of the ‘commanding heights’ of an economy in the view of some—with the requisite local
partner a state-owned enterprise (SOE) or known for corrupt deals, and the regulatory and fiscal regime ill defined, the possibility of conflict between the foreign
investor and the host government and local partners rises significantly.
Wells and Ahmed address these questions through a close study of Indonesia’s
sometimes unhappy history of foreign investment in large infrastructure projects,
arguing persuasively for detailed business case studies to flesh out the issues.
They choose a case from either end of the spectrum: the generally satisfactory and
the awful.
In 1967 a young, commercially inexperienced Soeharto regime invited one of
the world’s largest MNEs, ITT (International Telephone and Telegraph), to build
Indonesia’s new international telecommunications satellite link—a high-risk
investment for ITT that proved highly profitable. In 1980, the government sought
to nationalise the project in a low-key, negotiated arrangement that satisfied both
parties. In their evaluation of this episode, the authors draw on their analytical
framework, in particular the ‘obsolescing bargain’: Indonesia was able to acquire
Indosat forcibly not only because of nationalist sentiment and its increased oil
wealth by 1980, but also because the technology ITT had to offer had matured and
there were more alternative suppliers in the market.
In the 1990s, the government negotiated 27 electricity-generation projects with a
range of international investors pledging a total of $13–18 billion, under the supervision of the vast, inefficient and ‘leaking’ state-owned electricity company, PLN.
The backdrop to these agreements was global sentiment in the 1980s that favoured
privatisation. The deals took the form of ‘power purchase agreements’, under which
PLN would buy electricity from private generators at pre-determined prices.
ISSN 0007-4918 print/ISSN 1472-7234 online/08/010157-12
DOI: 10.1080/00074910802001629
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The most controversial of the projects was Paiton I, a huge electricity generation facility in East Java, approved in principle by Soeharto in April 1990. PLN
was to chair the supervisory board that oversaw technical and commercial details.
But many other agencies and individuals became involved, all with their own
domestic and international advisers. The project became embroiled in the broader
policy tug-of-war between the technocrats and the ‘engineers’ and ‘nationalists’,
and the Soeharto children were deeply involved.
Three issues dogged the project from the outset: high-level political interference and blatant corruption; pricing issues, for both power and inputs; and, particularly for the Japanese investors, government guarantees beyond PLN’s shaky
commitment. The final funding package, announced in July 1995, involved two
coordinating banks, eight ‘lead arrangers’, 28 ‘arrangers’, nine ‘lead managers’,
and four ‘agency lenders/guarantors/insurers’.
Although full commercial information was not available, the authors note that
‘everything was pricey’ about Paiton I, and poignantly comment that ‘managers and lenders appeared to care little and to understand even less’ about such
obvious anomalies. Paiton I had not commenced production when the Asian
economic crisis wrought havoc with all these agreements. Demand for electricity
collapsed. PLN’s debts ballooned, with unhedged dollar debts mismatched with
rupiah-denominated revenues and price caps. The freeze on major infrastructure
projects from September 1997 further complicated outcomes. PLN was technically
bankrupt, and could not meet its payment obligations. Paiton I seemed doomed,
but political and administrative paralysis and the complexity of the project led the
negotiations to drag on for five years before final resolution.
The experience of the other 26 power agreements varied considerably (for more
detail see Wells 2007). The aggressive US partners of the Karaha Bodas Company
opted for arbitration, and costly and bitter legal cases were fought around the
world for almost a decade. CalEnergy, the foreign partner in another agreement,
apparently chose arbitration because of the presence of the US government’s
agency, the Overseas Private Investment Corporation (OPIC). Lengthy proceedings in various international settings were complicated by official US involvement
in the case. On the other hand, Sumitomo, the Japanese partner in the Tanjung
Jati B plant, knew Indonesia deeply, and the approach was always one of negotiation. The Japanese government did not insist on sanctity of contract, and eventually intervened with a low-cost loan bailout. In surveying the dispute resolution
processes, the authors note that if the foreign party was Japanese, had other significant interests in the country, or wanted to remain in the developing world
power business, it was more likely to favour negotiation.
In the final chapter on ‘reforming for profits and development’, the authors
distil some broader lessons, focusing on who should build and own infrastructure
in emerging markets, and how to reform the international system of property
rights. One conclusion is that ‘the fundamental assumption made by enthusiasts
for privatisation [that governments should get out of infrastructure] was … dead
wrong’. Most infrastructure involves some degree of natural monopoly, and governments must be present, if only as regulators.
The book points to deficiencies in the current international system of property
rights, which satisfies neither party. Developing countries argue that arbitration
under the International Centre for the Settlement of Investment Disputes is too
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legalistic, especially in light of recent economic crises. The process should not
just rigidly enforce contractual provisions, but should consider the special circumstances of creditor and debtor. Broader foreign policy issues also follow from
Indonesia’s key strategic importance in the post-9/11 world.
The authors conclude by articulating some key elements of a ‘lasting system’
of dispute resolution, one that mixes law, economics and international relations.
Their recommendations are persuasive: a less rigid and more economic view of
property rights and contracts; and standards that consider national goals, encourage negotiation, increase the symmetry of rights granted to foreign and domestic
firms, and restrain home governments from aggressive intervention on behalf of
individual investors. They note that ‘the wisest … foreign investors cannot rely
entirely on external guarantees of property rights’.
This may well be ‘worst-case scenario analysis’. Crises like that of 1997–98 in
Indonesia are rare occurrences. There are many successful privatisations involving foreign investors, and projects with SOEs in non-tradable sectors are invariably the most complex. But this is a highly informative business case study, with
special reference to public policy processes in Soeharto’s Indonesia, to the challenges associated with foreign investors in large infrastructure projects, and to the
impact of a deep economic and political crisis.
The authors combine high-level analytics with general accessibility. The volume is comprehensively referenced and documented, with almost 1,000 footnotes
extending over 60 pages. It is highly recommended for a diverse audience, ranging from Indonesia specialists to those in the overlapping fields of international
business, law and political economy in the developing world. Sadly, Oxford is not
distributing this book in Indonesia, where it would be most useful.
Hal Hill
ANU
© 2008 Hal Hill
Reference
Wells, Louis T. (2007) ‘Private power in Indonesia’, Bulletin of Indonesian Economic Studies
43 (3): 341–63.
World Bank (2006) Making the New Indonesia Work for the Poor,
World Bank, Washington DC, pp. xxxvii + 318.*
The Asian economic crisis of 1997 brought the issue of poverty in Indonesia into
sharper focus than ever before, resulting in considerable research and scholarly
attention. This report, prepared by a team at the World Bank’s Jakarta office and supported by a large number of external advisers, has drawn on much of that work.
As the title suggests, the report is directed at the policy debate about poverty
within contemporary Indonesia. It comes at a critical moment in Indonesia’s history when the establishment of a democratic system of government and a radical
* Available for download at
.
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decentralisation of power and authority have dramatically changed the political
landscape in potentially positive though still by no means certain directions.
The first substantial chapter, ‘A history of growth and poverty reduction’,
draws out some lessons from Indonesia’s experience with reducing poverty during the New Order years, and gives an overview of the impact of the financial
crisis and the post-crisis stabilisation measures. The following chapter, ‘Understanding poverty in Indonesia’, offers an insightful analysis of the most significant
elements of Indonesian poverty, and discusses its measurement and its causes.
The World Bank claims that Indonesia has now rejoined the category of ‘emergent middle-income countries’ as a result of careful macroeconomic management
following the crisis. However, this report demonstrates that even though poverty levels have returned to pre-crisis dimensions, over 35 million Indonesians
remain trapped in dire poverty and another 90 million people—or around 40%
of the population—are in the vulnerable near-poor category. In addition, when
a broader multi-dimensional definition of poverty is used—as against a narrow
income-based definition—almost half the country’s population is touched by poverty of some kind. In this multi-dimensional sense, poverty affects all Indonesians
without access to essential government services such as health and education,
and those unable to achieve acceptable human development outcomes as basic
as adequate nutrition, clean water and sanitation. In addition, the study demonstrates how poverty in Indonesia exhibits considerable regional variation, with
marked disparities in poverty levels across the archipelago.
The next four chapters address key areas for action if poverty is to be tackled
systematically throughout the country. There is some evident overlap and repetition within the detailed analysis of these sections of the report, as many of the
key themes that emerge are inter-related. The importance of maintaining growth
through macroeconomic stability is emphasised, albeit growth that is also pro-poor.
The report’s authors propose finding pathways to help the poor take advantage
of growth that will allow them to emerge from poverty with increased incomes,
especially through greater agricultural productivity, improved education and vocational training, and access to financial services. Such growth patterns, the following
chapter explains, should be reflected in reforms that will make public spending
work for the poor, especially through investment in pro-poor education and health
initiatives, and in long-neglected infrastructure sectors, particularly water and sanitation services and a rural road improvement and maintenance program.
The report also suggests innovative ways to make social protection serve the
interests of the poor, especially in minimising risks and vulnerability during periods of unexpected shocks or further economic crises. Such social protection measures should be based on better targeting and the application of poverty mapping,
and should be delivered through direct conditional cash transfers and more effective social and health insurance programs.
Finally, chapter 7 considers how the operations of government and public
administration might be made to serve the interests of the poorest sections of
the community. The specific measures described include ways to ensure greater
levels of accountability, a stronger voice for citizens and local communities, and
closer and more effective monitoring and assessment of government and civil
service performance, to minimise inefficiencies and ‘leakage’ and to achieve satisfactory outcomes for the poor.
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In support of the report’s aim of contributing to the policy debate within Indonesia, the concluding section presents 16 specific policy recommendations for
immediate action. These items are further summarised and ranked as to their
importance in an accompanying ‘poverty reduction matrix’ (pp. 270–7). Readers
will draw their own conclusions about the relative merits of the items on this list,
but several accorded the highest ranking strike me as especially important. These
include measures to ensure continued macroeconomic stability; the removal of
the ban on rice imports; investment in rural road construction, potable water supplies and adequate sanitation services; and the elimination of fuel subsidies in
favour of targeted social protection. Steps to reduce maternal mortality rates and
promote secondary school enrolment among the poor are also high on the list of
suggested priorities.
The complete list of potential reforms is long and daunting. A careful reading
of the four action chapters of the report demonstrates how little real progress
has been made and how intractable the problems are. Admittedly, some specific
reforms have been carried out at the national level and in a small number of districts where there has been a willingness to tackle poverty. Examples of these
innovations are described throughout the report. However, it remains to be seen
whether progressive and reform-minded leaders will be able to marshal the political resources to overcome entrenched vested interests and navigate the shoals of
Indonesia’s complex political system to achieve substantial progress. The issue of
corruption is given some attention in the report, but not nearly as much as it warrants. Technocratic solutions such as training programs in planning and budgeting
seem unlikely to solve the problem of endemic corruption unless accompanied by
powerful sanctions reinforced by a reliable and credible judicial system.
Despite the large team of contributing writers who worked on the report, the
World Bank editors have managed to produce an attractive volume and a readable
text. The main chapters are supplemented with short essays on relevant themes
and with boxes and ‘focus’ and ‘spotlight’ sections on specific issues. Charts, tables
and illustrative photos appear throughout the text, with further supporting statistical material available in annexes, as well as a bibliography. Although there is no
index, the detailed table of contents is a useful guide for those who want to dip
into the book’s material. This report is an extremely useful tool for anyone interested in understanding the nature of poverty in Indonesia and the approaches
that might be taken to improve the lot of those below the official poverty line, as
well as those likely to fall into poverty whenever adverse circumstances emerge.
John Maxwell
ANU
© 2008 John Maxwell
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Michael Faure and Nicole Niessen (eds) (2006) Environmental Law
in Development: Lessons from the Indonesian Experience, Edward Elgar
Press, Cheltenham, pp. 360. £75.00 (on-line discount £67.50).
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This collection of 11 essays is a cooperative effort by Dutch and Indonesian legal
scholars aimed at presenting ideas for the revision of Indonesia’s Environmental Management Act (EMA) No. 23/1997. The EMA—Indonesia’s ‘framework’
environmental legislation—was originally enacted in 1982 and was subsequently revised and re-enacted in 1997. Since then, it has been criticised for being
inadequate, lacking in detail and overtaken by developments, particularly with
the advent of Indonesia’s ‘regional autonomy’ or decentralisation movement in
the late 1990s. The authors came together in a workshop held in 2004 to discuss
the EMA’s reform, and this book is a collection of edited papers arising from that
workshop.
The authors adopt what they term a ‘legal multi-disciplinary’ approach, combining perspectives from diverse areas such as constitutional law and human
rights, environmental law, international law, administrative law and criminal
law. A comparative approach is also used, with the Dutch contributors examining
experiences from the Netherlands, in particular. The first substantive chapter is
on human rights and how its general principles can be related to environmental
law, as illustrated by cases from the European Court of Human Rights. This is followed by a chapter on the polluter-pays, preventive and precautionary principles
of environmental law, and how these could be better reflected in the EMA. The
next chapter emphasises the importance of transnational environmental issues
for Indonesia, and proposes that important principles from several international
environmental law conventions be reflected in a revised EMA.
The next three chapters introduce the reader to the specific details of
environmental legislation in Indonesia, beginning with a chapter on the need
for ‘integration’ in the environmental legislative framework. The next chapter
discusses the prevailing problems with Indonesian environmental legislation and
institutions, highlighting the excessively ’sectoral’ approach that currently exists
and the lack of coherence among the various legislative instruments. A chapter
on regional autonomy follows, providing an instructive snapshot of the problems
that have arisen following the transfer of authority to district and city governments
that have insufficient capacity or incentives for environmental management. At
the same time, the inconsistencies between the EMA and the regional autonomy
laws of 1999 are highlighted.1 The final chapters delve into the supervision and
enforcement of the EMA, the criminalisation of environmental pollution and the
suitability of economic instruments for environmental management in developing
countries. A concluding chapter then summarises the discussion.
1 In October 2004, the regional autonomy laws were revised and re-enacted as Law
32/2004 on Regional Governance and Law 33/2004 on Fiscal Balancing. Observers generally agree that the revised laws of 2004 effect some degree of re-centralisation of powers
into the hands of the central government. How this is to be reconciled with environmental
and natural resource management in the regions is not covered by this book, and is an
important subject for future research.
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Overall, the book is very useful in highlighting the problems of environmental
law and management in Indonesia, and the need for an integrated approach to
resolving these problems. It focuses heavily on pollution (‘brown’) issues, and
much less on natural resource (‘green’) issues. Hence, there is lengthy discussion
of licences for polluting activities, for instance, but little on forestry or protected
area management. In the concluding chapter, the editors point out that ‘the
enactment of distinct laws for brown and green issues [is] the most likely outcome’
for Indonesia, and that there are no compelling reasons to treat brown and green
issues in a single law.
Be that as it may, it would have added to the depth of the book if it had considered
the ‘green’ issues in greater detail, given that natural resource extraction concerns
pertaining to the forestry, fishery and mining industries are highly controversial
issues in contemporary Indonesia. In any event, an integrated approach would
have required an analysis of how the laws and institutions governing ‘brown’
and ‘green’ issues intersect, even if the EMA should itself be limited to pollution.
As the editors point out, it is important to put in place effective mechanisms for
coordinating planning, licensing and enforcement between these two domains of
the environment.
The chapters relating to criminal provisions and economic instruments are highly
relevant, given that Indonesian environmental laws are lacking in detail in these
respects. On criminalisation, discussion of the position taken by the courts would
have been particularly instructive. In some cases involving the use of fire to clear
land, for instance, the courts have been reluctant to use criminal law provisions
against the perpetrators. In this regard, some analysis of the role of the Indonesian
judiciary (and the frequent allegations of corruption made against them) would
have been helpful in completing the picture on effective and integrated environmental management. Elsewhere, the analysis that the book provides of institutions
such as the Office of the State Minister for the Environment (and the serious challenges it faces as a non-departmental agency) is particularly enlightening.
On the whole, one can conclude that this book is a valuable aid for all scholars
of Indonesian environmental law.
Alan Khee-Jin Tan
National University of Singapore
© 2008 Alan Khee-Jin Tan
Ross H. McLeod and Andrew MacIntyre (eds) (2007) Indonesia: Democracy
and the Promise of Good Governance, Institute of Southeast Asian Studies (ISEAS),
Singapore. pp. xvi + 208. Paper: S$29.90/US$19.90; Cloth: S$49.90/US$29.90.
In their introduction to this latest volume in the Australian National University’s annual Indonesia Update series, the editors assert that analysts of Indonesian
democratisation can make two distinctive contributions: ‘to help establish realistic expectations … and to highlight areas where governance arrangements are not
working well …’ (p. 1). The context is a political science literature that is excessively pessimistic about the prospects for democracy in developing countries
and an Indonesian politics literature that sets too high a standard for democratic
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performance. The editors’ own claim is that the major threat to democratic stability is poor governance. Especially when people have become accustomed to rapid
and sustained growth under a dictatorship like Soeharto’s New Order, discontent
with slow growth under a democratic government can turn into opposition to
democracy itself.
How well do the editors achieve their goals? Very well indeed. This is a collection of almost uniformly high-quality essays that speak directly to the issues.
It should be required reading for policy practitioners and analysts. Three essays
in particular impressed me in terms of the importance of the topic, the quality of
analysis and the originality and value of the proffered solution. Natasha HamiltonHart makes a useful distinction between personal and collective business influence in politics. She argues that the latter is more likely to be compatible with the
public interest in general and thus should be encouraged, but only in the context
of governmental, including party and parliamentary, reform. Staffan Synnerstrom
argues persuasively for a position-based civil service system and for implementation of Law 17/2003 on State Finance to achieve budgetary reform. I hope that
this chapter will give new life to Jakarta advocates of a special unit within the
presidential office to plan and implement further civil service reform. Simon Butt
offers an original and balanced account of the Constitutional Court’s important
2006 decision, which preserved the independence of Supreme Court justices but
simultaneously disappointed those who place a higher value on judicial accountability. By implication, Butt points a way for future reformers. Indonesia’s judicial
system now contains three institutions, the Judicial Commission, the Supreme
Court and the Constitutional Court, with separate but intertwined interests, powers and responsibilities. In given circumstances, reformers may choose to work
through one institution rather than another, or alternatively to use one of them,
particularly the Constitutional Court (which has the power to determine the constitutionality of legislation), as a means to gain leverage over the others.
The chapter by Ron Duncan and Ross McLeod provides a useful analytic frame
in which to look at the specifics of business politics, civil service reform and judicial reform. Drawing on an earlier article by McLeod (2005), they explain persuasively how Soeharto’s political order, or ‘franchise’, though highly corrupt,
nonetheless provided security to the dynamic modern sector of the Indonesian
economy. This was the key to a sustained relatively high rate of economic growth
for more than a quarter-century. The authors criticise reformers for focusing
mainly on the presidency, Golkar, the parliament and the military, while largely
neglecting the other crucially important institutions: the bureaucracy, the judiciary and the state-owned enterprises.
Duncan and McLeod recommend a number of valuable institutional and policy
reforms in each of these areas, including some like (carefully targeted) income
redistribution and protection of the physical environment that are not normally
associated with free-market economists. One of the biggest obstacles to instituting
these reforms, they believe, is a ‘predominant belief system’ or political culture
that remains strongly anti-market. While I agree that this is a major obstacle to
reform, I am more optimistic than they that it can be overcome through political
action. After all, it is not so long ago that many analysts blamed the prevailing
anti-democratic political culture for Indonesia’s long history, under both Soekarno
and Soeharto, of authoritarian politics.
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The most disappointing chapter is Benjamin Reilly’s ‘Electoral and political
party reform’. Reilly claims that politicians across East Asia have ‘sought to engineer more consolidated, aggregative and stable democratic systems ...’ (p. 42). He
admits that despite reforms Indonesia’s party system fragmented further between
1999 and 2004, yet offers no analysis of why this happened or how to remedy it.
If Indonesian politicians genuinely want a party system with a few large parties,
why have they not shifted from proportional representation to a single-member
plurality or a mixed system? Further, why have they not instituted a threshold for
parliamentary seats, like Turkey or Germany, where only parties winning above a
certain percentage of the national vote are represented in parliament? The current
electoral threshold (under which parties that fail to reach a certain percentage of
the vote may not compete under the same name in the next national election) has
had a negligible effect on the number of parties in parliament.
Finally, the editors should be thanked for prevailing upon Andrew Ellis to
write a summary essay on constitutional change. From the beginning of the
reformasi era, Ellis has been the best informed and most insightful analyst of the
1999–2002 process that produced four packages of amendments to the 1945 constitution. What accounts for the success of these reforms, and are there lessons for
today’s analysts and practitioners? Ellis highlights the agency of four leaders of
Ad Hoc Committee No. I (PAH I) of the People’s Consultative Assembly (MPR),
in particular its chair, Jakob Tobing. Despite partisan and other differences, the
four developed early and maintained for over three years a substantive vision (a
presidential constitution with full separation of powers) and a strong collective
identity and loyalty. While their ideas were radical, their strategy was incorporative and their style low-key—disarming, demobilising and in the end defeating
their opponents. Ellis’s analysis reminds us that leadership, often disdained by
social scientists as too idiosyncratic for systematic study, remains a critical variable in the study of political change.
R. William Liddle
The Ohio State University, Columbus, Ohio
© 2008 R. William Liddle
Reference
McLeod, Ross H. (2005) ‘The struggle to regain effective government under democracy in
Indonesia’, Bulletin of Indonesian Economic Studies 41 (3): 367–86.
Institute of Southeast Asian Studies (2007) Energy Perspectives on Singapore and the
Region, ISEAS Publishing, Singapore, pp. xxiii + 372. Cloth: S$59.90/US$39.90.
This useful book contains selected papers presented at the Institute of Southeast
Asian Studies (ISEAS) ‘Energy Forum 2005/2006’. The book is divided into two
sections, one on energy issues in Singapore and another on the international and
regional context. There are 11 chapters on Singapore’s energy issues, while the
remaining chapters relate to ASEAN, Australia, China, India, Japan, the Middle East and Russia. Discussion focuses mainly on fossil fuels, and there is little
mention of renewable energy sources or the environment. Given that 80% of the
world’s energy needs are fulfilled by fossil fuels, these are of greatest concern.
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The book begins with an overview of Singapore’s energy situation, before
delving into specific energy issues such as the oil rig industry. Despite its limited resources, Singapore has become an important player in the energy market,
mainly by acting as a hub for the oil trade and as the regional oil storage and
refining centre. Future concerns for Singapore include natural gas and alternative
energy solutions such as fuel cell technology, although oil will remain its predominant energy policy concern.
Of greater interest are the chapters on regional energy issues, most prominent
of which is China’s insatiable demand for energy, particularly oil and natural gas.
China’s and, to a lesser extent, India’s economic growth and structural reform
are recognised as the main factors driving surging oil prices. This is exacerbated
by the fact that global oil production capacity has been constrained by a lack of
investment, further intensifying the competition to secure available energy.
Parts of the book address energy issues in Southeast Asia, although generalisations about the region cannot be drawn from these. Brunei and Malaysia are likely
to benefit from China’s growing demand for oil, while Myanmar and Thailand
can benefit by building more infrastructure, particularly pipelines and tunnels, as
China continues to explore alternative routes to import oil from the Middle East.
As for Indonesia, historically, low energy demand and relatively abundant
resources made it an important energy producer in the world. By the 1900s, oil
was being produced in Sumatra and Borneo. In the 1970s, Indonesia became one
of the world’s first exporters of liquefied natural gas (LNG), and by the late 1980s
and early 1990s, a major exporter of coal. Nowadays, OPEC’s only member in
Southeast Asia is at the crossroads: it stands to gain from coal and natural gas
exports, but oil imports offset these gains. Since 2002, Indonesia has become a net
oil importer, and imports are growing. Unless it can attract foreign investors to its
sizable oil reserves in the eastern frontier and deep-sea areas, Indonesia’s energy
outlook seems bleak. Regulatory improvements and infrastructure development
are needed to solve this problem.
Overall, this book is a good starting point for gaining an overview of energyrelated issues in the Asia Pacific region. Despite focusing heavily on fossil fuels
and putting much less emphasis on renewable energy and the environment, the
book provides a comprehensive ‘birds-eye’ view of regional energy issues. This
reviewer recommends the book for its generality; however, for countries other
than Singapore and China, additional reading is recommended for an understanding of more country-specific issues.
Ditya Agung Nurdianto
ANU
© 2008 Ditya Agung Nurdianto
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Caroline Brassard and Sarthi Acharya (eds) (2006) Labour Market Regulation
and Deregulation in Asia: Experiences in Recent Decades, Academic
Foundation, New Delhi, pp. 229. Rs 595.00; US $39.95.
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This useful collection of papers on labour markets in several Asian countries
examines the world of work, earnings, social security, gender equity and work
conditions. Each paper explicitly links labour market trends to local regulatory
regimes, and discusses the impact of globalisation, the Asian financial crisis and
deregulation. Most provide considerable country detail on recent regulatory
changes resulting from these ‘megatrends’. Arising from a 2004 conference on
‘Regulation, Deregulation and Reregulation in Globalising Asia’ at the National
University of Singapore, this readable and informative collection will become a
valuable reference.
The book’s nine chapters fall into three sections: introductory overview; labour
market regulation’s impact on employment, wages and economic growth; and the
social impacts of labour regulation. The editors’ introduction discusses the recent
history of deregulation and the rationale and theory underlying it. The evidence
on links between economic growth, regulation and workers’ well-being is summarised, and judged insufficient to confirm a relationship between rapid growth,
quick adjustment and a deregulated labour market. Labour is only one possible
contributor to growth in specific settings.
Sean Cooney’s chapter 2 analyses regulation of employment relations and work
conditions in the public and private sectors across Asia. He shows that the formal
regulatory framework varies considerably with political and economic context,
and is often ineffective. Moreover, the formal labour law framework affects few
Asian workers. Cooney makes useful suggestions on what would make labour
regulation in the region more effective.
Sarthi Acharya (chapter 3) examines the impact on India’s growth, labour and
employment of gradual deregulation beginning in the 1980s. India has a substantial body of labour laws, which will require modification as the structure of industry changes and increasing labour flexibility is needed. The complex laws have
hindered investment and employment, although employers have devised ways
around them. Beginning with Vietnam’s 1986 transition from a centrally planned
to a market economy, Caroline Brassard (chapter 4) examines how far wage and
labour regulation can help reduce poverty. Using data from 120 rural communes
on wage differences between sectors, she highlights important sectoral, regional
(especially south–north) and gender differences that need to be considered in
implementing wage regulation.
Chris Manning’s chapter identifies potential winners and losers from major
labour regulation changes in Indonesia’s formal sector since Soeharto’s fall in
1998. He documents three laws that have massively changed labour standards and
rights—areas neglected by the previous regime—and shows how the challenging
effects of the financial crisis have mediated the impact of these changes. He points
to the potential for conflict in Indonesia’s dual goals of creating employment
and regulating workers’ security and survival rights. Though far-reaching and
detailed, the new regulations influence only a minority of Indonesian workers,
and Manning stresses the need to provide basic social protection for the majority.
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The first chapter on social aspects of labour regulation analyses severance
pay policies in India and Sri Lanka. Mukul Asher and Pundarik Mukhopadhaya
argue that both countries face a pressing need to realign labour market policies
with economic growth strategies. Their severance pay policies are designed to
provide short-term income support to retrenched workers, and to facilitate
enterprise restructuring. The authors conclude that existing regulations neither
protect workers adequately nor promote job creation. Moreover, ministries and
organised labour are strongly resistant to change. Suzanne Jamieson (chapter
7) assesses health and safety regulation from a gender perspective, focusing on
Australia, Singapore, Taiwan and Vietnam. Presenting a research agenda for this
area, Jamieson argues that women workers have different needs from their male
counterparts, and that the responses of legal cultures and policy makers have
been inadequate.
Most chapters focus on the formal sector of Asia’s economies, yet a majority
of people work in the informal sector and are reached by few elements of labour
regulation. Chapter 8 by Lucita Lazo discusses the policy implications of labour
regulation for the informal sector, and whether the state should regulate matters
such as credit, training, technology and markets for informal sector workers and
enterprises. The final chapter by Haruka Urata and Noriyuki Takayama details
changes in pension regulation and deregulation in Japan.
Asian nations face a major labour market challenge: how to create a context in
which good, sustainable jobs are generated, while preserving existing jobs and
protecting workers. The case studies demonstrate that in some contexts labour
market regulation hampers employment creation. However, all papers reflect a
pressing need for effective regulation to protect workers’ welfare. The editors conclude (p. 31) that the question is not whether there should be more or less regulation, but rather ‘what should be the forms of regulation, in which geographic
context, what is the coverage, and what are the instruments of compliance?’.
Graeme Hugo
University of Adelaide
© 2008 Graeme Hugo
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ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
BOOK REVIEWS
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157-168, DOI: 10.1080/00074910802001629
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Louis T. Wells and Rafiq Ahmed (2006) Making Foreign Investment Safe:
Property Rights and National Sovereignty, Oxford University Press,
New York NY, pp. 378 + xi. US$49.95.
This fine volume employs Indonesia as a case study of how developing countries manage—or mismanage—foreign direct investment (FDI), especially in
large infrastructure projects. The central analytical issue is how to make FDI in
developing countries work for both parties. For foreign investors, this means a
predictable and secure commercial environment in which to achieve a reasonable
risk-adjusted return on investment. For host countries, it requires foreign investors to play by agreed rules and to be ‘good corporate citizens’. When project and
investor are small, the activity is located in a competitive, export-oriented sector,
and no project-specific fiscal arrangements have to be negotiated, FDI is unlikely
to be controversial. When the foreign investor is a US-based multinational enterprise (MNE), investing large-scale in a non-tradable sector—part of the ‘commanding heights’ of an economy in the view of some—with the requisite local
partner a state-owned enterprise (SOE) or known for corrupt deals, and the regulatory and fiscal regime ill defined, the possibility of conflict between the foreign
investor and the host government and local partners rises significantly.
Wells and Ahmed address these questions through a close study of Indonesia’s
sometimes unhappy history of foreign investment in large infrastructure projects,
arguing persuasively for detailed business case studies to flesh out the issues.
They choose a case from either end of the spectrum: the generally satisfactory and
the awful.
In 1967 a young, commercially inexperienced Soeharto regime invited one of
the world’s largest MNEs, ITT (International Telephone and Telegraph), to build
Indonesia’s new international telecommunications satellite link—a high-risk
investment for ITT that proved highly profitable. In 1980, the government sought
to nationalise the project in a low-key, negotiated arrangement that satisfied both
parties. In their evaluation of this episode, the authors draw on their analytical
framework, in particular the ‘obsolescing bargain’: Indonesia was able to acquire
Indosat forcibly not only because of nationalist sentiment and its increased oil
wealth by 1980, but also because the technology ITT had to offer had matured and
there were more alternative suppliers in the market.
In the 1990s, the government negotiated 27 electricity-generation projects with a
range of international investors pledging a total of $13–18 billion, under the supervision of the vast, inefficient and ‘leaking’ state-owned electricity company, PLN.
The backdrop to these agreements was global sentiment in the 1980s that favoured
privatisation. The deals took the form of ‘power purchase agreements’, under which
PLN would buy electricity from private generators at pre-determined prices.
ISSN 0007-4918 print/ISSN 1472-7234 online/08/010157-12
DOI: 10.1080/00074910802001629
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The most controversial of the projects was Paiton I, a huge electricity generation facility in East Java, approved in principle by Soeharto in April 1990. PLN
was to chair the supervisory board that oversaw technical and commercial details.
But many other agencies and individuals became involved, all with their own
domestic and international advisers. The project became embroiled in the broader
policy tug-of-war between the technocrats and the ‘engineers’ and ‘nationalists’,
and the Soeharto children were deeply involved.
Three issues dogged the project from the outset: high-level political interference and blatant corruption; pricing issues, for both power and inputs; and, particularly for the Japanese investors, government guarantees beyond PLN’s shaky
commitment. The final funding package, announced in July 1995, involved two
coordinating banks, eight ‘lead arrangers’, 28 ‘arrangers’, nine ‘lead managers’,
and four ‘agency lenders/guarantors/insurers’.
Although full commercial information was not available, the authors note that
‘everything was pricey’ about Paiton I, and poignantly comment that ‘managers and lenders appeared to care little and to understand even less’ about such
obvious anomalies. Paiton I had not commenced production when the Asian
economic crisis wrought havoc with all these agreements. Demand for electricity
collapsed. PLN’s debts ballooned, with unhedged dollar debts mismatched with
rupiah-denominated revenues and price caps. The freeze on major infrastructure
projects from September 1997 further complicated outcomes. PLN was technically
bankrupt, and could not meet its payment obligations. Paiton I seemed doomed,
but political and administrative paralysis and the complexity of the project led the
negotiations to drag on for five years before final resolution.
The experience of the other 26 power agreements varied considerably (for more
detail see Wells 2007). The aggressive US partners of the Karaha Bodas Company
opted for arbitration, and costly and bitter legal cases were fought around the
world for almost a decade. CalEnergy, the foreign partner in another agreement,
apparently chose arbitration because of the presence of the US government’s
agency, the Overseas Private Investment Corporation (OPIC). Lengthy proceedings in various international settings were complicated by official US involvement
in the case. On the other hand, Sumitomo, the Japanese partner in the Tanjung
Jati B plant, knew Indonesia deeply, and the approach was always one of negotiation. The Japanese government did not insist on sanctity of contract, and eventually intervened with a low-cost loan bailout. In surveying the dispute resolution
processes, the authors note that if the foreign party was Japanese, had other significant interests in the country, or wanted to remain in the developing world
power business, it was more likely to favour negotiation.
In the final chapter on ‘reforming for profits and development’, the authors
distil some broader lessons, focusing on who should build and own infrastructure
in emerging markets, and how to reform the international system of property
rights. One conclusion is that ‘the fundamental assumption made by enthusiasts
for privatisation [that governments should get out of infrastructure] was … dead
wrong’. Most infrastructure involves some degree of natural monopoly, and governments must be present, if only as regulators.
The book points to deficiencies in the current international system of property
rights, which satisfies neither party. Developing countries argue that arbitration
under the International Centre for the Settlement of Investment Disputes is too
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legalistic, especially in light of recent economic crises. The process should not
just rigidly enforce contractual provisions, but should consider the special circumstances of creditor and debtor. Broader foreign policy issues also follow from
Indonesia’s key strategic importance in the post-9/11 world.
The authors conclude by articulating some key elements of a ‘lasting system’
of dispute resolution, one that mixes law, economics and international relations.
Their recommendations are persuasive: a less rigid and more economic view of
property rights and contracts; and standards that consider national goals, encourage negotiation, increase the symmetry of rights granted to foreign and domestic
firms, and restrain home governments from aggressive intervention on behalf of
individual investors. They note that ‘the wisest … foreign investors cannot rely
entirely on external guarantees of property rights’.
This may well be ‘worst-case scenario analysis’. Crises like that of 1997–98 in
Indonesia are rare occurrences. There are many successful privatisations involving foreign investors, and projects with SOEs in non-tradable sectors are invariably the most complex. But this is a highly informative business case study, with
special reference to public policy processes in Soeharto’s Indonesia, to the challenges associated with foreign investors in large infrastructure projects, and to the
impact of a deep economic and political crisis.
The authors combine high-level analytics with general accessibility. The volume is comprehensively referenced and documented, with almost 1,000 footnotes
extending over 60 pages. It is highly recommended for a diverse audience, ranging from Indonesia specialists to those in the overlapping fields of international
business, law and political economy in the developing world. Sadly, Oxford is not
distributing this book in Indonesia, where it would be most useful.
Hal Hill
ANU
© 2008 Hal Hill
Reference
Wells, Louis T. (2007) ‘Private power in Indonesia’, Bulletin of Indonesian Economic Studies
43 (3): 341–63.
World Bank (2006) Making the New Indonesia Work for the Poor,
World Bank, Washington DC, pp. xxxvii + 318.*
The Asian economic crisis of 1997 brought the issue of poverty in Indonesia into
sharper focus than ever before, resulting in considerable research and scholarly
attention. This report, prepared by a team at the World Bank’s Jakarta office and supported by a large number of external advisers, has drawn on much of that work.
As the title suggests, the report is directed at the policy debate about poverty
within contemporary Indonesia. It comes at a critical moment in Indonesia’s history when the establishment of a democratic system of government and a radical
* Available for download at
.
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decentralisation of power and authority have dramatically changed the political
landscape in potentially positive though still by no means certain directions.
The first substantial chapter, ‘A history of growth and poverty reduction’,
draws out some lessons from Indonesia’s experience with reducing poverty during the New Order years, and gives an overview of the impact of the financial
crisis and the post-crisis stabilisation measures. The following chapter, ‘Understanding poverty in Indonesia’, offers an insightful analysis of the most significant
elements of Indonesian poverty, and discusses its measurement and its causes.
The World Bank claims that Indonesia has now rejoined the category of ‘emergent middle-income countries’ as a result of careful macroeconomic management
following the crisis. However, this report demonstrates that even though poverty levels have returned to pre-crisis dimensions, over 35 million Indonesians
remain trapped in dire poverty and another 90 million people—or around 40%
of the population—are in the vulnerable near-poor category. In addition, when
a broader multi-dimensional definition of poverty is used—as against a narrow
income-based definition—almost half the country’s population is touched by poverty of some kind. In this multi-dimensional sense, poverty affects all Indonesians
without access to essential government services such as health and education,
and those unable to achieve acceptable human development outcomes as basic
as adequate nutrition, clean water and sanitation. In addition, the study demonstrates how poverty in Indonesia exhibits considerable regional variation, with
marked disparities in poverty levels across the archipelago.
The next four chapters address key areas for action if poverty is to be tackled
systematically throughout the country. There is some evident overlap and repetition within the detailed analysis of these sections of the report, as many of the
key themes that emerge are inter-related. The importance of maintaining growth
through macroeconomic stability is emphasised, albeit growth that is also pro-poor.
The report’s authors propose finding pathways to help the poor take advantage
of growth that will allow them to emerge from poverty with increased incomes,
especially through greater agricultural productivity, improved education and vocational training, and access to financial services. Such growth patterns, the following
chapter explains, should be reflected in reforms that will make public spending
work for the poor, especially through investment in pro-poor education and health
initiatives, and in long-neglected infrastructure sectors, particularly water and sanitation services and a rural road improvement and maintenance program.
The report also suggests innovative ways to make social protection serve the
interests of the poor, especially in minimising risks and vulnerability during periods of unexpected shocks or further economic crises. Such social protection measures should be based on better targeting and the application of poverty mapping,
and should be delivered through direct conditional cash transfers and more effective social and health insurance programs.
Finally, chapter 7 considers how the operations of government and public
administration might be made to serve the interests of the poorest sections of
the community. The specific measures described include ways to ensure greater
levels of accountability, a stronger voice for citizens and local communities, and
closer and more effective monitoring and assessment of government and civil
service performance, to minimise inefficiencies and ‘leakage’ and to achieve satisfactory outcomes for the poor.
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In support of the report’s aim of contributing to the policy debate within Indonesia, the concluding section presents 16 specific policy recommendations for
immediate action. These items are further summarised and ranked as to their
importance in an accompanying ‘poverty reduction matrix’ (pp. 270–7). Readers
will draw their own conclusions about the relative merits of the items on this list,
but several accorded the highest ranking strike me as especially important. These
include measures to ensure continued macroeconomic stability; the removal of
the ban on rice imports; investment in rural road construction, potable water supplies and adequate sanitation services; and the elimination of fuel subsidies in
favour of targeted social protection. Steps to reduce maternal mortality rates and
promote secondary school enrolment among the poor are also high on the list of
suggested priorities.
The complete list of potential reforms is long and daunting. A careful reading
of the four action chapters of the report demonstrates how little real progress
has been made and how intractable the problems are. Admittedly, some specific
reforms have been carried out at the national level and in a small number of districts where there has been a willingness to tackle poverty. Examples of these
innovations are described throughout the report. However, it remains to be seen
whether progressive and reform-minded leaders will be able to marshal the political resources to overcome entrenched vested interests and navigate the shoals of
Indonesia’s complex political system to achieve substantial progress. The issue of
corruption is given some attention in the report, but not nearly as much as it warrants. Technocratic solutions such as training programs in planning and budgeting
seem unlikely to solve the problem of endemic corruption unless accompanied by
powerful sanctions reinforced by a reliable and credible judicial system.
Despite the large team of contributing writers who worked on the report, the
World Bank editors have managed to produce an attractive volume and a readable
text. The main chapters are supplemented with short essays on relevant themes
and with boxes and ‘focus’ and ‘spotlight’ sections on specific issues. Charts, tables
and illustrative photos appear throughout the text, with further supporting statistical material available in annexes, as well as a bibliography. Although there is no
index, the detailed table of contents is a useful guide for those who want to dip
into the book’s material. This report is an extremely useful tool for anyone interested in understanding the nature of poverty in Indonesia and the approaches
that might be taken to improve the lot of those below the official poverty line, as
well as those likely to fall into poverty whenever adverse circumstances emerge.
John Maxwell
ANU
© 2008 John Maxwell
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Michael Faure and Nicole Niessen (eds) (2006) Environmental Law
in Development: Lessons from the Indonesian Experience, Edward Elgar
Press, Cheltenham, pp. 360. £75.00 (on-line discount £67.50).
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This collection of 11 essays is a cooperative effort by Dutch and Indonesian legal
scholars aimed at presenting ideas for the revision of Indonesia’s Environmental Management Act (EMA) No. 23/1997. The EMA—Indonesia’s ‘framework’
environmental legislation—was originally enacted in 1982 and was subsequently revised and re-enacted in 1997. Since then, it has been criticised for being
inadequate, lacking in detail and overtaken by developments, particularly with
the advent of Indonesia’s ‘regional autonomy’ or decentralisation movement in
the late 1990s. The authors came together in a workshop held in 2004 to discuss
the EMA’s reform, and this book is a collection of edited papers arising from that
workshop.
The authors adopt what they term a ‘legal multi-disciplinary’ approach, combining perspectives from diverse areas such as constitutional law and human
rights, environmental law, international law, administrative law and criminal
law. A comparative approach is also used, with the Dutch contributors examining
experiences from the Netherlands, in particular. The first substantive chapter is
on human rights and how its general principles can be related to environmental
law, as illustrated by cases from the European Court of Human Rights. This is followed by a chapter on the polluter-pays, preventive and precautionary principles
of environmental law, and how these could be better reflected in the EMA. The
next chapter emphasises the importance of transnational environmental issues
for Indonesia, and proposes that important principles from several international
environmental law conventions be reflected in a revised EMA.
The next three chapters introduce the reader to the specific details of
environmental legislation in Indonesia, beginning with a chapter on the need
for ‘integration’ in the environmental legislative framework. The next chapter
discusses the prevailing problems with Indonesian environmental legislation and
institutions, highlighting the excessively ’sectoral’ approach that currently exists
and the lack of coherence among the various legislative instruments. A chapter
on regional autonomy follows, providing an instructive snapshot of the problems
that have arisen following the transfer of authority to district and city governments
that have insufficient capacity or incentives for environmental management. At
the same time, the inconsistencies between the EMA and the regional autonomy
laws of 1999 are highlighted.1 The final chapters delve into the supervision and
enforcement of the EMA, the criminalisation of environmental pollution and the
suitability of economic instruments for environmental management in developing
countries. A concluding chapter then summarises the discussion.
1 In October 2004, the regional autonomy laws were revised and re-enacted as Law
32/2004 on Regional Governance and Law 33/2004 on Fiscal Balancing. Observers generally agree that the revised laws of 2004 effect some degree of re-centralisation of powers
into the hands of the central government. How this is to be reconciled with environmental
and natural resource management in the regions is not covered by this book, and is an
important subject for future research.
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Overall, the book is very useful in highlighting the problems of environmental
law and management in Indonesia, and the need for an integrated approach to
resolving these problems. It focuses heavily on pollution (‘brown’) issues, and
much less on natural resource (‘green’) issues. Hence, there is lengthy discussion
of licences for polluting activities, for instance, but little on forestry or protected
area management. In the concluding chapter, the editors point out that ‘the
enactment of distinct laws for brown and green issues [is] the most likely outcome’
for Indonesia, and that there are no compelling reasons to treat brown and green
issues in a single law.
Be that as it may, it would have added to the depth of the book if it had considered
the ‘green’ issues in greater detail, given that natural resource extraction concerns
pertaining to the forestry, fishery and mining industries are highly controversial
issues in contemporary Indonesia. In any event, an integrated approach would
have required an analysis of how the laws and institutions governing ‘brown’
and ‘green’ issues intersect, even if the EMA should itself be limited to pollution.
As the editors point out, it is important to put in place effective mechanisms for
coordinating planning, licensing and enforcement between these two domains of
the environment.
The chapters relating to criminal provisions and economic instruments are highly
relevant, given that Indonesian environmental laws are lacking in detail in these
respects. On criminalisation, discussion of the position taken by the courts would
have been particularly instructive. In some cases involving the use of fire to clear
land, for instance, the courts have been reluctant to use criminal law provisions
against the perpetrators. In this regard, some analysis of the role of the Indonesian
judiciary (and the frequent allegations of corruption made against them) would
have been helpful in completing the picture on effective and integrated environmental management. Elsewhere, the analysis that the book provides of institutions
such as the Office of the State Minister for the Environment (and the serious challenges it faces as a non-departmental agency) is particularly enlightening.
On the whole, one can conclude that this book is a valuable aid for all scholars
of Indonesian environmental law.
Alan Khee-Jin Tan
National University of Singapore
© 2008 Alan Khee-Jin Tan
Ross H. McLeod and Andrew MacIntyre (eds) (2007) Indonesia: Democracy
and the Promise of Good Governance, Institute of Southeast Asian Studies (ISEAS),
Singapore. pp. xvi + 208. Paper: S$29.90/US$19.90; Cloth: S$49.90/US$29.90.
In their introduction to this latest volume in the Australian National University’s annual Indonesia Update series, the editors assert that analysts of Indonesian
democratisation can make two distinctive contributions: ‘to help establish realistic expectations … and to highlight areas where governance arrangements are not
working well …’ (p. 1). The context is a political science literature that is excessively pessimistic about the prospects for democracy in developing countries
and an Indonesian politics literature that sets too high a standard for democratic
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performance. The editors’ own claim is that the major threat to democratic stability is poor governance. Especially when people have become accustomed to rapid
and sustained growth under a dictatorship like Soeharto’s New Order, discontent
with slow growth under a democratic government can turn into opposition to
democracy itself.
How well do the editors achieve their goals? Very well indeed. This is a collection of almost uniformly high-quality essays that speak directly to the issues.
It should be required reading for policy practitioners and analysts. Three essays
in particular impressed me in terms of the importance of the topic, the quality of
analysis and the originality and value of the proffered solution. Natasha HamiltonHart makes a useful distinction between personal and collective business influence in politics. She argues that the latter is more likely to be compatible with the
public interest in general and thus should be encouraged, but only in the context
of governmental, including party and parliamentary, reform. Staffan Synnerstrom
argues persuasively for a position-based civil service system and for implementation of Law 17/2003 on State Finance to achieve budgetary reform. I hope that
this chapter will give new life to Jakarta advocates of a special unit within the
presidential office to plan and implement further civil service reform. Simon Butt
offers an original and balanced account of the Constitutional Court’s important
2006 decision, which preserved the independence of Supreme Court justices but
simultaneously disappointed those who place a higher value on judicial accountability. By implication, Butt points a way for future reformers. Indonesia’s judicial
system now contains three institutions, the Judicial Commission, the Supreme
Court and the Constitutional Court, with separate but intertwined interests, powers and responsibilities. In given circumstances, reformers may choose to work
through one institution rather than another, or alternatively to use one of them,
particularly the Constitutional Court (which has the power to determine the constitutionality of legislation), as a means to gain leverage over the others.
The chapter by Ron Duncan and Ross McLeod provides a useful analytic frame
in which to look at the specifics of business politics, civil service reform and judicial reform. Drawing on an earlier article by McLeod (2005), they explain persuasively how Soeharto’s political order, or ‘franchise’, though highly corrupt,
nonetheless provided security to the dynamic modern sector of the Indonesian
economy. This was the key to a sustained relatively high rate of economic growth
for more than a quarter-century. The authors criticise reformers for focusing
mainly on the presidency, Golkar, the parliament and the military, while largely
neglecting the other crucially important institutions: the bureaucracy, the judiciary and the state-owned enterprises.
Duncan and McLeod recommend a number of valuable institutional and policy
reforms in each of these areas, including some like (carefully targeted) income
redistribution and protection of the physical environment that are not normally
associated with free-market economists. One of the biggest obstacles to instituting
these reforms, they believe, is a ‘predominant belief system’ or political culture
that remains strongly anti-market. While I agree that this is a major obstacle to
reform, I am more optimistic than they that it can be overcome through political
action. After all, it is not so long ago that many analysts blamed the prevailing
anti-democratic political culture for Indonesia’s long history, under both Soekarno
and Soeharto, of authoritarian politics.
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The most disappointing chapter is Benjamin Reilly’s ‘Electoral and political
party reform’. Reilly claims that politicians across East Asia have ‘sought to engineer more consolidated, aggregative and stable democratic systems ...’ (p. 42). He
admits that despite reforms Indonesia’s party system fragmented further between
1999 and 2004, yet offers no analysis of why this happened or how to remedy it.
If Indonesian politicians genuinely want a party system with a few large parties,
why have they not shifted from proportional representation to a single-member
plurality or a mixed system? Further, why have they not instituted a threshold for
parliamentary seats, like Turkey or Germany, where only parties winning above a
certain percentage of the national vote are represented in parliament? The current
electoral threshold (under which parties that fail to reach a certain percentage of
the vote may not compete under the same name in the next national election) has
had a negligible effect on the number of parties in parliament.
Finally, the editors should be thanked for prevailing upon Andrew Ellis to
write a summary essay on constitutional change. From the beginning of the
reformasi era, Ellis has been the best informed and most insightful analyst of the
1999–2002 process that produced four packages of amendments to the 1945 constitution. What accounts for the success of these reforms, and are there lessons for
today’s analysts and practitioners? Ellis highlights the agency of four leaders of
Ad Hoc Committee No. I (PAH I) of the People’s Consultative Assembly (MPR),
in particular its chair, Jakob Tobing. Despite partisan and other differences, the
four developed early and maintained for over three years a substantive vision (a
presidential constitution with full separation of powers) and a strong collective
identity and loyalty. While their ideas were radical, their strategy was incorporative and their style low-key—disarming, demobilising and in the end defeating
their opponents. Ellis’s analysis reminds us that leadership, often disdained by
social scientists as too idiosyncratic for systematic study, remains a critical variable in the study of political change.
R. William Liddle
The Ohio State University, Columbus, Ohio
© 2008 R. William Liddle
Reference
McLeod, Ross H. (2005) ‘The struggle to regain effective government under democracy in
Indonesia’, Bulletin of Indonesian Economic Studies 41 (3): 367–86.
Institute of Southeast Asian Studies (2007) Energy Perspectives on Singapore and the
Region, ISEAS Publishing, Singapore, pp. xxiii + 372. Cloth: S$59.90/US$39.90.
This useful book contains selected papers presented at the Institute of Southeast
Asian Studies (ISEAS) ‘Energy Forum 2005/2006’. The book is divided into two
sections, one on energy issues in Singapore and another on the international and
regional context. There are 11 chapters on Singapore’s energy issues, while the
remaining chapters relate to ASEAN, Australia, China, India, Japan, the Middle East and Russia. Discussion focuses mainly on fossil fuels, and there is little
mention of renewable energy sources or the environment. Given that 80% of the
world’s energy needs are fulfilled by fossil fuels, these are of greatest concern.
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The book begins with an overview of Singapore’s energy situation, before
delving into specific energy issues such as the oil rig industry. Despite its limited resources, Singapore has become an important player in the energy market,
mainly by acting as a hub for the oil trade and as the regional oil storage and
refining centre. Future concerns for Singapore include natural gas and alternative
energy solutions such as fuel cell technology, although oil will remain its predominant energy policy concern.
Of greater interest are the chapters on regional energy issues, most prominent
of which is China’s insatiable demand for energy, particularly oil and natural gas.
China’s and, to a lesser extent, India’s economic growth and structural reform
are recognised as the main factors driving surging oil prices. This is exacerbated
by the fact that global oil production capacity has been constrained by a lack of
investment, further intensifying the competition to secure available energy.
Parts of the book address energy issues in Southeast Asia, although generalisations about the region cannot be drawn from these. Brunei and Malaysia are likely
to benefit from China’s growing demand for oil, while Myanmar and Thailand
can benefit by building more infrastructure, particularly pipelines and tunnels, as
China continues to explore alternative routes to import oil from the Middle East.
As for Indonesia, historically, low energy demand and relatively abundant
resources made it an important energy producer in the world. By the 1900s, oil
was being produced in Sumatra and Borneo. In the 1970s, Indonesia became one
of the world’s first exporters of liquefied natural gas (LNG), and by the late 1980s
and early 1990s, a major exporter of coal. Nowadays, OPEC’s only member in
Southeast Asia is at the crossroads: it stands to gain from coal and natural gas
exports, but oil imports offset these gains. Since 2002, Indonesia has become a net
oil importer, and imports are growing. Unless it can attract foreign investors to its
sizable oil reserves in the eastern frontier and deep-sea areas, Indonesia’s energy
outlook seems bleak. Regulatory improvements and infrastructure development
are needed to solve this problem.
Overall, this book is a good starting point for gaining an overview of energyrelated issues in the Asia Pacific region. Despite focusing heavily on fossil fuels
and putting much less emphasis on renewable energy and the environment, the
book provides a comprehensive ‘birds-eye’ view of regional energy issues. This
reviewer recommends the book for its generality; however, for countries other
than Singapore and China, additional reading is recommended for an understanding of more country-specific issues.
Ditya Agung Nurdianto
ANU
© 2008 Ditya Agung Nurdianto
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Book reviews
167
Caroline Brassard and Sarthi Acharya (eds) (2006) Labour Market Regulation
and Deregulation in Asia: Experiences in Recent Decades, Academic
Foundation, New Delhi, pp. 229. Rs 595.00; US $39.95.
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This useful collection of papers on labour markets in several Asian countries
examines the world of work, earnings, social security, gender equity and work
conditions. Each paper explicitly links labour market trends to local regulatory
regimes, and discusses the impact of globalisation, the Asian financial crisis and
deregulation. Most provide considerable country detail on recent regulatory
changes resulting from these ‘megatrends’. Arising from a 2004 conference on
‘Regulation, Deregulation and Reregulation in Globalising Asia’ at the National
University of Singapore, this readable and informative collection will become a
valuable reference.
The book’s nine chapters fall into three sections: introductory overview; labour
market regulation’s impact on employment, wages and economic growth; and the
social impacts of labour regulation. The editors’ introduction discusses the recent
history of deregulation and the rationale and theory underlying it. The evidence
on links between economic growth, regulation and workers’ well-being is summarised, and judged insufficient to confirm a relationship between rapid growth,
quick adjustment and a deregulated labour market. Labour is only one possible
contributor to growth in specific settings.
Sean Cooney’s chapter 2 analyses regulation of employment relations and work
conditions in the public and private sectors across Asia. He shows that the formal
regulatory framework varies considerably with political and economic context,
and is often ineffective. Moreover, the formal labour law framework affects few
Asian workers. Cooney makes useful suggestions on what would make labour
regulation in the region more effective.
Sarthi Acharya (chapter 3) examines the impact on India’s growth, labour and
employment of gradual deregulation beginning in the 1980s. India has a substantial body of labour laws, which will require modification as the structure of industry changes and increasing labour flexibility is needed. The complex laws have
hindered investment and employment, although employers have devised ways
around them. Beginning with Vietnam’s 1986 transition from a centrally planned
to a market economy, Caroline Brassard (chapter 4) examines how far wage and
labour regulation can help reduce poverty. Using data from 120 rural communes
on wage differences between sectors, she highlights important sectoral, regional
(especially south–north) and gender differences that need to be considered in
implementing wage regulation.
Chris Manning’s chapter identifies potential winners and losers from major
labour regulation changes in Indonesia’s formal sector since Soeharto’s fall in
1998. He documents three laws that have massively changed labour standards and
rights—areas neglected by the previous regime—and shows how the challenging
effects of the financial crisis have mediated the impact of these changes. He points
to the potential for conflict in Indonesia’s dual goals of creating employment
and regulating workers’ security and survival rights. Though far-reaching and
detailed, the new regulations influence only a minority of Indonesian workers,
and Manning stresses the need to provide basic social protection for the majority.
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The first chapter on social aspects of labour regulation analyses severance
pay policies in India and Sri Lanka. Mukul Asher and Pundarik Mukhopadhaya
argue that both countries face a pressing need to realign labour market policies
with economic growth strategies. Their severance pay policies are designed to
provide short-term income support to retrenched workers, and to facilitate
enterprise restructuring. The authors conclude that existing regulations neither
protect workers adequately nor promote job creation. Moreover, ministries and
organised labour are strongly resistant to change. Suzanne Jamieson (chapter
7) assesses health and safety regulation from a gender perspective, focusing on
Australia, Singapore, Taiwan and Vietnam. Presenting a research agenda for this
area, Jamieson argues that women workers have different needs from their male
counterparts, and that the responses of legal cultures and policy makers have
been inadequate.
Most chapters focus on the formal sector of Asia’s economies, yet a majority
of people work in the informal sector and are reached by few elements of labour
regulation. Chapter 8 by Lucita Lazo discusses the policy implications of labour
regulation for the informal sector, and whether the state should regulate matters
such as credit, training, technology and markets for informal sector workers and
enterprises. The final chapter by Haruka Urata and Noriyuki Takayama details
changes in pension regulation and deregulation in Japan.
Asian nations face a major labour market challenge: how to create a context in
which good, sustainable jobs are generated, while preserving existing jobs and
protecting workers. The case studies demonstrate that in some contexts labour
market regulation hampers employment creation. However, all papers reflect a
pressing need for effective regulation to protect workers’ welfare. The editors conclude (p. 31) that the question is not whether there should be more or less regulation, but rather ‘what should be the forms of regulation, in which geographic
context, what is the coverage, and what are the instruments of compliance?’.
Graeme Hugo
University of Adelaide
© 2008 Graeme Hugo
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