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Bulletin of Indonesian Economic Studies
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BOOK REVIEWS
To cite this article: (2002) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 38:1,
119-131, DOI: 10.1080/000749102753620310
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Bulletin of Indonesian Economic Studies, Vol. 38, No. 1, 2002: 119–31
BOOK REVIEWS
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Iyanatul Islam and Anis Chowdhury (2001), The Political Economy of East Asia: Post
Crisis Debates, Oxford University Press, Melbourne, pp. 288. Paper: £17.99; A$39.95.
This volume offers an overview of the
political economy of development in
East Asia, reviewing both the empirical
record and theoretical and policy debates
in the wake of the 1997–98 regional economic crisis. It is self-consciously synthetic: rather than presenting novel ideas
or evidence, the authors’ contribution is
to bring a synoptic but analytically sharp
perspective to bear on material currently
on the table. Another defining feature of
the volume is its genuine effort to integrate the general theoretical analyses of
both economists and political scientists,
as well as the more empirically based
work of regional specialists of both varieties. In this the authors reflect a now
rapidly spreading awareness that most
of the big questions outstanding in the
field of development lie at the interstices
of the study of government and markets,
and thus require serious intellectual
cross-fertilisation.
The authors lead with two large chapters reviewing first the evolution of the
literature on development up until the
mid 1990s, and then the debates that
have evolved in the wake of the economic crisis. These are thorough and
crisply done, but particularly in the first
there is much that is familiar. The second chapter, with its focus on debates
about the crisis, total factor productivity, and governance and institutional reform, has greater edge. Then follow four
subs tantive c hapters o n particular
themes : ca pital flo ws an d m acr o economic management; financial liberalisation and prudential regulation;
labour relations; and poverty and inequality. Running through all of these
chapters is a critical evaluation of theoretical literature pertaining to these various subfields, and a discussion of the
policy records in particular countries.
Although the book is primarily a survey of the state of the field, woven
throughout is the idea that the Asian crisis has exposed important problems in
the neoclassically inspired mainstream
of development economics. It comes to
a head in the final chapter that reflects
on the emergence a of ‘post-Washington’
consensus for development theory and
praxis in Asia. This is not so much an
ex-cathedra critique as one that draws
on Stiglitz, Krugman, Sachs and, more
distantly, Romer, as well, of course, as
the new drumbeat for good governance.
Echoing and extending the work of
others, Islam and Chowdhury strike a
number of important critical notes, but
there is also something not quite satisfying about the supposed new agenda.
Pointing vaguely to the need for reform
of the international financial architecture
and the importance of allowing developing countries sovereignty over their
own macroeconomic policy (and in particular, the option of Keynesian countercyclical spending) is not rea lly an
agenda for action—even if such senti-
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© 2002 Indonesia Project ANU
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120
ments are now widely held in Asia.
There is much that needs to be pinned
down here. A surprising omission in the
discussion about a renewal of Keynesian
principles is any examination of Japan’s
extended crisis through the 1990s and
into the new century.
More broadly, although the authors
do indeed speak for a growing number
of observers, I found myself uneasy with
the finger-pointing at a Wall Street–US
Treasury–IMF complex (even when the
fingers borrowed for the purpose are
Stiglitz’s). Yes, it is assuredly the case
that US financial interests are forcefully
represented in the IMF, and that we can
see this shaping aspects of the ‘rescue’
operation of 1997–98, particularly in
Korea. It is a truism that powerful states
get to advance their interests at the expense of others. But international political economy is also much more complex
than this. Let us not forget that in much
of Asia it was primarily Japanese and
European banks, followed by their Korean and Singaporean counterparts, that
were doing the big lending in liberalised,
pre-crisis Asia. In this respect, the ‘Washington consensus’ label conceals as
much as it reveals. Undoubtedly, Washington is the single biggest force behind
the policies of the Fund and the Bank.
But during the 1980s and 1990s, these
broad ideas were also shared by economic thinkers and economic policy
elites across much of the OECD and indeed much (if not all) of Asia.
Islam and Chowdhury are to be congratulated particularly for incorporating
a wide reading of political science contributions to the debate. This adds considerable value. But I make two modest
qualifications. First, as with economists,
Book Reviews
there is considerable theoretical and
ideological variation among political
scientists. By no means did all political
scientists who wrote about states and
state capacity subscribe to deeply
dirigiste policy preferences (see for example Haggard vs Wade). Secondly,
largely overlooked is a more recent body
of literature focusing on the incentives
for different categories of policy makers
embedded in different institutional
structures. (San Diego reviewers must
be excused for mentioning this, since a
goodly portion of that literature comes
from UCSD.) This is important for a
number of the governance debates, and
it moves us well beyond the earlier statecapacity literature.
Overall, Islam and Chowdhury do
what no one else has yet done, or at least
done so effectively —provide a comprehensive, analytically sharp and highly
readable overview of the big debates
about development in Asia, before and
especially after the regional crisis. If
there is something indeterminate and
not entirely satisfying about the prescriptions they briefly sketch, I suspect
this reflects more the genuine uncertainty and even consternation that currently prevails in the field, rather than
any serious shortcoming on the part of
the authors. There is a powerful sense
in which important components of the
theory and praxis of the 1980s and 1990s
are indeed now subject to critical scrutiny, and there is certainly a new interest in equity and governance issues, but
we are still far from seeing the outlines
of any new ‘consensus’ emerging
Andrew MacIntyre
University of California,San Diego (UCSD)
Book Reviews
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Peter Boomgaard and Ian Brown (eds) (2000), Weathering the Storm: The Economies
of Southeast Asia in the 1930s Depression, ISEAS, Singapore, pp. xii + 332. Paper:
S$45.90/US$29.90; Cloth: S$65.90/US$39.90.
A book on the economic crisis of the 1930s
is very timely, given that many casual
parallels have been drawn between the
1997–98 crisis and past experience. However, this book may disappoint a reader
in search of more substantive parallels.
First, only the introduction presents a
cursory exploration of the similarities
between the early 1930s and the late 1990s
(pp. 12–16), suggesting that the differences exceed the similarities. If the 1930s
hold any lesson for the future it is that
‘the people’ are resilient, and that remedies prescribed from ‘outside’ (i.e. in the
1930s by colonial masters and in the 1990s
by the IMF) are not necessarily the best.
Secondly, as the editors underline in the
introduction, the emphasis of the book is
on the human suffering that the depression caused. Consequently most contributions are rather descriptive and devoid
of analytical economics. A last general
complaint is that the essays are not placed
in the context of the international literature on the 1930s depression. For instance, there is no discussion of the
monetary aspects of the depression in
Southeast Asia.
Still, historians of Southeast Asia will
appreciate this book, which for the first
time pulls together research on different
countries that had hitherto been done in
isolation. Rather than discussing each of
the 14 contributions, this review will
highlight the findings of those involving Indonesia, which dominate the book.
Boomgaard finds little evidence for
the suggestion that the depression was
a period of great suffering for Indonesians, particularly in Java. Lindblad de-
scribes trends in Indonesia’s foreign
trade and points to the consequences of
falling export revenues and reduced job
opportunities in export production. He
concludes that the depression marked
the beginning of a structural shift from
dependence on primary exports towards
industrialisation, even though this took
until the 1970s to materialise in full.
Touwen focuses on the strategies that
smallholders in the Outer Islands employed to combat falling commodity
prices. The main reaction was to increase
output rather than to diversify or stop
export production. Touwen offers three
explanations: supply was price-inelastic,
marginal costs of production were low,
and cash crop production was not the
main means of subsistence. Nawiyanto
points out that farmers in Besuki (Java)
increased the production of rice and
smallholder tobacco for domestic consumption after tobacco plantations cancelled land leases. Clarence-Smith gives
a fascinating but inconclusive glimpse
of the hitherto neglected world o f
Hadhrami Arab entrepreneurs in colonial Indonesia. Generally active in trade,
some were wiped out by the depression,
but others diversified activities to take
advantage of new opportunities in domestic shipping, manufacturing and real
estate.
Booth’s analysis of the different foreign trade and exchange policies in the
Philippines, Indonesia and Indochina
goes well beyond the recession of the
1930s, covering 1900–40. She poses the
challenging question whether trade protection and currency depreciation would
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122
have encouraged industrialisation earlier beyond the basic processing of commodities for export, perhaps reducing
the impact of the depression. Her answer is that alternative policies could
have made a difference. But would they?
Counterfactuals like this help to focus
on the questions that matter. However,
the longer the time period to which they
are applied, the greater the number of
affected variables, thus clouding the
analysis. For instance, a depreciating
and variable exchange rate of the Indonesian guilder relative to gold and the
Book Reviews
Dutch guilder may have reduced ready
access of business and government in
colonial Indonesia to the Dutch capital
market, and the exchange risk may have
increased the cost of finance. How to
factor that into a counterfactual?
This book is a significant contribution
to the historiography of a defining moment in Southeast Asia’s economic development. Anyone interested in further
research will draw inspiration from it.
Pierre van der Eng
ANU
Hotbin Sigalingging (ed.) (2001), Profil Pinjaman Luar Negeri Indonesia dan
Permasalahannya [The Profile and Problems of Indonesia’s Foreign Debt], Pusat
Pendidikan dan Studi Kebanksentralan [Center for Training and Central Banking
Studies], Bank Indonesia, Jakarta, pp. xiii + 254.
This is the first major publication of Bank
Indonesia’s Center for Training and Central Banking Studies since its establishment in June 2000. It comprises seven
chapters on Indonesia’s foreign debt,
including debt management policies,
implications for the monetary sector and
fiscal management, and alternative foreign debt management policies through
various debt conversion schemes. It
offers in one volume a comprehensive
overview of the topic, along with useful
data that are difficult to obtain elsewhere.
The book begins with a history of foreign debt management, although for the
most part this deals only with procedural issues. There are helpful descriptions of the types of foreign loans, based
on source and time-frame, and whether
they are government or private, concessional or semi-concessional. Less clear,
however, are the reasons for the government obtaining foreign loans, and how
it determines their amounts. The need
for foreign loans in the context of a general savings–investment gap framework
is described only briefly, without any
real focus on the more specific Indonesian context.
Chapter 3, on foreign debt, profiles
offers some of the book’s most interesting and useful insights, especially the
profiles for 1996–2000 of selected debt
indicators and the underlying problems
debt causes for Indonesia. The 1996 data
on the Debt Service Ratio (DSR) pointed
to potential debt problems, as the ratio
was already in excess of the 25% level
conventionally considered safe. The
problem can be traced to the alarmingly
rapid increase of private debt over several years prior to the crisis, much of it
unrecorded and unknown officially until 1998, when the government made reporting compulsory. A shortcoming of
this chapter is the inclusion of subtopics
on debt monitoring and management
policies, which would have been better
suited to the previous chapter.
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Book Reviews
Chapter 4 on private foreign debt
management provides an outline of successive government policies from the
onset of the crisis to the dissolution of
the Team to Overcome Private Debt
Problems. Aside from a chronological
listing of summaries of these policies,
however, it fails to offer details of the
causes and consequences of the huge
private foreign debt or to discuss the effects of these measures on the economy.
In other words, chapter 4 deals too superficially with private debt management policies, without any attempt at a
more in-depth analysis.
The author explains the implications
of foreign debt for the monetary and
banking sector by focusing on the balance of payments mechanism. He sees
the culprit as being the excessive growth
in foreign private sector debt—aided by
the absence of any hedging protection
and the virtually non-existent monitoring system—which had increased the
economy’s vulnerability to any change
in exchange rate expectations. This is
exactly what happened in 1997 and 1998,
resulting in sudden and large capital
outflow, and a corresponding drastic
devaluation of the currency.
The impact of all this on import and
export performance is interesting. While
the current account has been in surplus
since 1998, this has been due mainly to
a sharp contraction in imports. Exports
of goods and services did not increase
as expected, and the latter still register a
deficit at the time of writing. However,
a sharp improvement in merchandise
exports was recorded in 2000, when their
value jumped by about 25% from the
previous year.
The surplus on the current account
has lessened the impact of the capital
account deficit on the balance of payments. Several factors are cited for the
persistence of private capital outflow:
socio-political and security conditions,
123
poor overall macroeconomic performance, the downgrading of Indonesia’s
credit rating, and the economic downturn in several major western countries,
as well as Japan—Indonesia’s main trading partner and investor. Lacking from
the analysis, however, are the problems
of the banking sector that contributed to
the worsening of the crisis. Conspicuously absent, too, are the effects of the
scandal-ridden Bank Indonesia Liquidity Support program, introduced in response to the late 1997 and early 1998
bank rush. Failure to sterilise the monetary impact of this program amounted
to financing speculation against the
rupiah while also fuelling inflationary
pressures, with drastic consequences for
both the ba nkin g secto r and price
stability.
Readers may be disappointed by the
chapter on foreign debt implications for
fiscal management, as the subject is dealt
with rather superficially. While foreign
debt and its effect on the fiscal sustainability of the central government budget are described, no mention is made
of another aspect that directly determines the government’s fiscal position:
the growing burden of domestic debt
since the crisis. There are lengthy discussions on several aspects of regional
economic matters—Gross Domestic Regional Product, regional income inequality, and the amount and composition of
domestic revenues going to regional
governments —but overall this analysis
lacks any clear link to the role of foreign
debt.
In the final chapter, after briefly discussing debt restructuring, debt relief
and the possibility of a debt moratorium,
the author focuses on the debt conversion mechanism as the preferred debt
management policy. Although its use in
Indonesia is still limited, with more
widespread use it may have positive
side-effects on the economy through
124
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various programs, such as debt for nature swaps or debt reductions in return
for anti-poverty programs. The big question posed is how to make these mechanisms more attractive and applicable to
Book Reviews
Indonesian circumstances —a question
to which the author provides no answer.
Armida S. Alisjahbana
Padjadjaran University, Bandung
Hal Hill and João Saldanha (eds) (2001), East Timor: Development Challenges for the
World’s Newest Nation, Institute of Southeast Asian Studies, Singapore, and Asia
Pacific Press, ANU, Canberra, pp. xxv + 381. Paper: S$39.90/US$24.90; A$50.00;
Cloth:S$59.90/US$36.90.
In March 2001 a group of development
analysts, mainly economists, met in Dili
with East Timorese policy makers and
academics to discuss ways to achieve
rapid, broadly-based, sustained economic growth. The resulting volume’s
21 chapters, drawing on extensive
knowledge of development elsewhere,
cover macroeconomics, international
relations, agriculture, institutions (property rights to land, and political structures), banking and finance, social
policy, and lessons from international
experience.
This review considers answers the
participants gave to questions raised in
Xanana Gusmao’s preface, and which
concerned the National Council of
Timorese Resistance/National Council
(CNRT/CN) August 2000 Congress:
what development strategy to pursue;
which currency to adopt; whether to follow a balanced budget policy; whether
to offer fiscal incentives to investment;
how to manage the revenues to come
from the Timor Gap; whether to develop
other resources; whether to establish free
economic zones, or offshore financial
centres; and how best to provide farmers with access to markets and credit.
De Brouwer (chapter 2) sets out East
Timor ’s currency options in choosing
whether to have its own currency or to
use that of another country, and argues
that, while the Australian dollar would
be equally appropriate for economic
management purposes, the US dollar
option avoids risks to Australia–Indonesia relations. It seems odd to base a currency choice on relations between two
other countries, and since the Australian dollar is much more a ‘commodity
currency’ than the US dollar, its use
would place less pressure on other prices
in East Timor, particularly wages, in
ma na gi ng a d jus tm en t to ex te rn a l
shocks.
A ‘bottom-up’ strategy of agricultural
development is strongly preferred to a
‘top-down’ strategy of industrial development. With most East Timorese living
in rural areas, Timmer (chapter 6) and
Booth (chapter 15) urge that public investment focus on raising agricultural
productivity through research and development; improving infrastructure,
particularly road and sea transport; and
strengthening primary and secondary
education and primary preventative
health care. It is essential that most of
the aid and expected Timor Gap oil and
gas revenues be channelled to the rural
rather than the urban sector, to prevent
development of a dual economy—with
wide urban–rural income inequalities
and high urban unemployment, crime,
corruption and social dysfunction —as
has occurred in other countries experi-
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Book Reviews
encin g large aid and resource rent
windfalls.
Da Costa (chapter 9) shows how the
‘booming sector ’ implications of large
oil and gas revenue inflows may compromise exploitation of East Timor ’s
apparent comparative advantage in agriculture, and suggests developing a
com pa rative advanta ge in labourintensive activities. This does not seem
feasible in low-cost, standard-technology manufacturing, however, given alread y high wage le vels and wa ge
pressures from aid and oil and gas revenues, especially in the urban sector.
Instead, as in Mauritius and some Caribbean states, the emphasis should be
on education, to move the economy
into hig h-skill industrial and services activities.
On promoting agricultural productivity through research and extension,
Barlow (chapter 7) presents a strategy
that takes good account of social relationships within East Timor’s rural communities. Fox (chapter 10) describes
challenges to agricultural development
in the region bordering West Timor, because of its population loss through
deportations by the Indonesian military
and the militia in 1999. Western region
politicians have lost credibility, and Fox
sees politics being dominated by people
from the east, creating a bias against government service provision and investment in the west. If the western region
is to develop agriculturally, East Timor
and West Timor need to collaborate on
trade and labour movements, and particularly on sharing rights to water.
Several authors recognise the need to
resolve land disputes and create secure
individual title to land if development
is not to be retarded by sub-optimal levels of credit, investment and productivity. But Fitzpatrick (chapter 11) predicts
this process will be drawn out and costly.
A likely tendency to revert to traditional
125
clan titles, rather than move towards
individual title, will impede agricultural
development, and most alienated land
available around urban centres will
probably be used for high-cost industrial
development.
Without secure individual land title,
the credit market will remain immature,
but McLeod (chapter 13) warns against
government responding to perceived
credit shortages by involving itself in
lending. Government credit rarely goes
to those best able to use it, is prone to
‘capture’, and creates a contingent budget liability. Failing resolution of land
titles and development of a strong, independent judiciary, McLeod recommends that East Timor move slowly on
developing formal financial institutions,
relying instead on foreign financial bodies. Some NGOs have begun to provide
micro-credit but, as Barlow notes, it
would be a pity if traditional rural revolving community funds were to be
crowded out by subsidised foreign
micro-credit schemes.
On macroeconomic management,
Rosengard (chapter 3) and authors
grouped under ‘Lessons from International Experience’ provide good advice
on taxation regimes; managing aid flows
and resource rents; civil service functions and salary levels; and fiscal decentralisation. Authors discuss lessons
learned from the management of small
countries (Saldanha and Tavares, chapter 17); of war-torn countries (Haughton,
chapter 18); of the small Pacific island
economies and Papua New Guinea
(Chand, chapter 19, and Elek, chapter 20,
respectively); and of the small subSaharan African countries (Collier,
chapter 21).
Rosengard says running a fiscal deficit should not cause concern in the short
to medium term—provided the money
is spent on important things like infrastructure, health and education—since
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126
it can be financed through aid. International experience suggests a focus on
creation of an enabling environment for
private sector development (good infrastructure, secure land title, low-cost utilities and policy stability, rather than
investment incentives), and a small but
high quality and well paid civil service.
Collier gives useful advice on informed
public involvement in managing aid and
resource revenues. Well managed small
countries grow faster on average than
larger ones, so East Timor has nothing
to fear from being small. But small countries are forced to be more open than
large ones and are, for this reason and
because they are not highly diversified,
more prone to external shocks. Hence,
good management is critical. Located
near large countries and with a long land
border with Indonesia, East Timor is
‘born to trade’ (Hill, chapter 4). It should
not need to consider free economic
zones—it should be one.
One may quibble with a few recommendations. Hill argues for removing
the low tariffs and shifting to a turnover
tax. But with a poor administrative and
physical infrastructure and most of its
consumer goods imported, compliance
with a value added tax regime will
Book Reviews
probably be poor and costly, and retaining a low ‘revenue’ tariff may be a
better option at present. The book recommends that East Timor join the South
Pacific Forum (SPF) as well as ASEAN
(and AFTA). But it has nothing to gain
from joining the SPF, whose members
have together embarked on a preferential trade arrangement involving an agonisingly slow process of tariff reduction.
Booth (chapter 15) has some worrying
recommendations for social policy, including fertility control programs, a national food storage policy, and income
transfers as a social safety net. Raising
income levels is the best means of achieving reduced fertility, and it is preferable
for government to avoid both crowding
out of private storage and assumption of
family welfare responsibilities.
The volume has good answers to all
of Xanana Gusmao’s questions. Being a
latecomer, East Timor can benefit from
other countries’ experience, and this
book is full of excellent advice, not just
for East Timor but for the many small
countries in the region. Let us hope it is
followed.
Ron Duncan
ANU
Jeroen Touwen (2001), Extremes in the Archipelago: Trade and Economic Development
in the Outer Islands of Indonesia, 1900–1942, KITLV Press, Leiden, pp. xvii + 459.
31.76.
The historiography of economic change
in Indonesia has long been dominated
by Java. Slowly but steadily, the Outer
Islands and their specific development
problems are receiving greater attention.
This book is a milestone in that process,
because it seeks to describe and generalise the prewar development experience of all parts of the Outer Islands.
Even its title indicates that this is not
easy, as the experiences diverge considerably. Touwen solves this issue in
chapter 2 by identifying four clusters
of regions, using foreign and interregional trade as a yardstick. This explains the year the book begins: export
production by foreign-owned plantatio ns , m in ing v entu res and s m a ll
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Book Reviews
farmers increased significantly only
after 1900.
The first two clusters contain regions
where plantations (East Sumatra, Palembang, Southeast Kalimantan) and mining companies (Bangka, Belitung and
Riau) generate products for export. In
chapter 3 (‘European Dynamics’), Touwen describes the organisation and financing of production and trade, and
the recruitment of labour. He concludes
that the growth of exports in the regions
was generally high, but that the ventures
generated few backward linkages and
no forward linkages that could have
benefited the local economies. These regions generated trade surpluses, indicating that foreign companies used
part of their export revenues for foreign remittances, particularly to overseas shareholders, which constituted
a ‘drain’ of funds.
This contrasts with chapter 4 (‘Asian
Dynamics’), which generalises the experience of a third cluster of regions
where exports were generated mainly
by smallholders (Aceh, West Sumatra,
Jambi, Lampung, West Kalimantan,
South Sulawesi, Manado). Exports were
largely used to finance imports of consumption goods. Touwen details this by
discussing the production, financing,
transport and marketing of four smallholder products: pepper, coffee, copra
and, particularly, rubber. This is possibly the most innovative chapter of the
study, because it elaborates the considerable dynamics of smallholder agriculture, which have eluded many students
of economic change in Indonesia. Touwen emphasises the importance of Chinese traders who organised trade,
financing and transport, often to and
from Singapore.
The last cluster contains largely selfsufficient areas, where foreign trade
played a marginal role (Tapanuli, Bengkulu, Bali, Maluku and [West] Timor).
127
Chapter 5 (‘In the Periphery’) explains
that economic change was prevented by
the absence of a major dynamic sector,
by low investment in infrastructure and
social overheads, and by isolation arising from a lack of regular and cheap
shipping contacts.
The last chapter analyses the impact
of government policy on the development of the Outer Islands. Touwen concludes that the ‘Ethical Policy’ targeted
Java and largely bypassed the rest of the
country. This was not a matter of outright neglect. Implementation of policies
in the Outer Islands was hampered by
the very gradual development of the
colonial presence, with officials overwhelmed by the task of developing often va st regions without adequate
manpower and financial resources
(pp. 293–4). Secondly, the colonial government found it difficult to formulate
a consistent set of policies for the very
heterogeneous Outer Islands, most of
which were in a state of flux (pp. 264–6).
An interesting finding is that per capita
public expenditure was more evenly distributed across the regions than were per
capita exports. If regional income and
public revenue both depended on export
revenues, this means that the government redistributed income (pp. 272–4).
It is not possible to highlight all the
significant details that Touwen unearthed. Perhaps a few minor criticisms
can be mentioned. Touwen readily regards the growth of commodity exports
as a proxy for economic growth, which
is not necessarily the case. He discusses
commodity trade only, not the trade in
services. This is relevant, because he associates a commodity trade surplus with
a ‘drain’ of funds. Such a surplus may
simply reflect a deficit in the trade in
services. Touw en extensively us es
Hirschman’s linkages concept, which
was actually developed to analyse the
impact of industrialisation on a closed
128
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economy, rather than to examine the impact of export production, for which the
concept of comparative advantage may
well have been more important. Lastly,
an explicit discussion of the development of the domestic shipping network
is missing.
Book Reviews
These comments aside, the book is a
major contribution to the historiography
of economic change in Indonesia, and
deserves to be widely read.
Pierre van der Eng
ANU
Mohamed Ariff and Ahmed M. Khalid (2000), Liberalization, Growth and the Asian
Financial Crisis, Edward Elgar, Cheltenham, pp. 544. Cloth: £75.00.
This is an insightful, important, and
good book.
The book is insightful because it critically examines the process of growth in
13 diverse economies in developing Asia
—the early market-oriented reformers of
Indo nesia, South Korea , M alaysia ,
Singapore, Taiwan and Thailand, the
hesitant mixed-economy reformers of
Bangladesh, India, Pakistan, the Philippines and Sri Lanka, and the transitional
centralised economies of China and Vietnam. It considers three models of development and explicitly looks through
political and ideological rhetoric to identify the forces underpinning sustainable
economic growth and development.
It argues that a market-based liberal
policy regime, as opposed to mixed or
controlled policy regimes, is the most
likely to secure economic development.
After examining the economic performance of the economies under review, the
authors identify two preconditions for
development and seven elements of a
successful liberal policy regime.
The first precondition is the absence
of war; the second is institution building to strengthen private-sector initiativ es thro ugh pro perty ri ghts , a n
independent judiciary, effective bankruptcy laws and low taxation.
The elements of a liberal policy mixture include promoting competition in
the real and financial sectors (through
international openness and low tariffs);
an open capital account (although there
may be a role for selective capital controls); an open current account; fiscal
prudence; solid prudential supervision
of financial institutions; and an independent central bank. The arguments
are made persuasively, with reference to
a practical analysis of policy regimes and
economic outcomes in the 13 economies
studied, and supported by many other
studies.
The book is important because it
stands against revisionism in the postcrisis period. It provides a well balanced and non-strident argument for
one of the world’s most dynamic regions to maintain its commitment to
market-based liberal econom ics. It
highlights the gains from open competitive markets and resists the calls
of the Sirens to national and regional
insularity and economic demagoguery. The authors recognise the fragility of the market economy: they argue
the need for market discipline, well
functioning public institutions, and effective financial supervision and regulation. But they contend that this is not
a time for retreat from financial development and sophistication. To support
their argument they provide econometric evidence of the importance of
financial development in growing savings, investment and output.
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Book Reviews
The book is also important because it
puts the Asian financial crises of 1997
and 1998 in context. The vulnerabilities
that were exposed by the crises were
serious, but this does not mean that Asia
should be written off by the rest of the
world. It is still a dynamic region, the
more so if deals with its financial and
governance weaknesses.
The book is good because, while it is
a little folksy at times (especially in the
footnotes), it is well structured, well
written, and accessible to the nontechnical and economist reader alike. It
is set out in five parts. Chapters 1 and 2
provide an overview of the arguments
and an interpretation of the financial
crisis. Chapters 3 to 8 provide a detailed
analysis of economic, financial and
policy developments in six early reforming economies of Asia. Chapters 9 and
10 look at developments in the command economies of China and Vietnam,
and the core role that adopting market
policies has played in economic and social progress. Chapters 11 to 15 assess
129
the mixed performance of the mixed
market–state economies. Chapters 16
and 17 analyse the economic effects of
financial liberalisation and draw lessons
about policy frameworks. The material
is well indexed. It looks comprehensively at developing Asia, rather than
just focusing on east or south Asia.
I have very few complaints about
the book. At times the authors signal
important issues, such as speculation,
but do not analyse them, which I think
is an important omission. And at times
they overgeneralise: Hong Kong and
Singapore may have had open international financial markets for a long
tim e, but they have o nly recently
opened their domestic financial systems to international competition. But
these are quibbles. The book is a valuable addition to the debate on policy
makin g and structures in Asia and
will, I hope, be an influential one.
Gordon de Brouwer
ANU
George Junus Aditjondro (2000), Cahaya Bintang Kejora: Papua Barat dalam Kajian
Sejarah, Budaya, Ekonomi dan Hak Asasi Manusia [The Beam of the Morning Star:
West Papuan Studies in History, Culture, Economics and Human Rights], Elsham,
Jakarta, pp. 318. A$38.00; Rp 16,000.
A Papuan, in a traditional headdress
with clenched fist holding the Morning
Sta r Flag (Bendera Bintang Kejora)
proudly aloof, graces the cover o f
George Aditjondro’s book. It is one of
the images that best reflects the assertion of Papuan political and cultural
values during the ‘Papuan Spring’.
The cover is misleading. The book
does not discuss the events, values or
conflicts of the post-Soeharto revival of
Papuan nationalism. Although it was
published in mid 2000, at the time of the
Kongres Papua, which, in retrospect,
seems to mark the high point of proindependence political activity, the book
is a collection of writings about the
1980s. Aditjondro lived and worked in
Papua for five years in the 1980s, and
much of the material dates from that
time or discusses the developments that
Aditjondro participated in and witnessed. These are the writings of a sympathetic and scho la rly participant
observer.
The collection covers a diverse range
of aspects of Papua’s history and society, including the neglect of Papuan
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130
nationalism in Indonesian historiogra phy, the composition of Papuan society,
the cultural and artistic revival initiated
by Arnold Ap, human rights abuses and
transmigration. The publisher notes in
the introduction that the collection
might give the impression of gado gado
(an Indonesian dish of mixed vegetables
and salad), but there was a coherent focus around the problematic of Papua.
Indeed, issues such as human rights and
transmigration are as relevant for an
understanding of contemporary developments as they were in the 1980s. As
someone interested in both political
change in the Dutch colonial period and
contemporary developments, Aditjondro’s writings help fill some of the many
gaps in my understanding.
Section 2 discusses cultural issues and
human rights. Aditjondro makes the connection between the Papuan cultural and
artistic revival in which Arnold Ap was
a leading figure, his murder and the
emergence of human rights as a political
issue. The latter is an important historical discussion and he notes the roles
played by Mulya Lubis, Phil Erari, Agus
Rumansara, Michael Manufandu and
Aristides Katoppo as editor of the Jakarta
daily Sinar Harapan. The abuse of human
rights in Indonesian Irian Barat/Irian
Jaya has become central to the Papuan
political struggle against Jakarta’s authority over the province. The common experience of human rights abuse in most
sections of Papuan society is part of the
reason independence activists were able
to mobilis e support so quickly and
broadly. As useful as Aditjondro’s discussion of the 1980s is, it is a pity that it could
not be extended to incorporate the role
of the churches in the mid 1990s and the
centrality of Elsham (the Institute for
Human Rights Study and Advocacy) in
Papuan politics today.
Chapter 7 discusses transmigration
and is a reprint of a 1985 article in the
Book Reviews
journal Prisma. Transmigration—and
the resulting demographic transformation of the province’s population—is
one of the structural features without
which no understanding of political,
cultural and economic conflict in Papua
is possible. The scale of the Indonesian
settler community and its domination of
the economy have increased markedly
since 1985. There has also been considerable research undertaken by both
Papuan demographers and outsiders.
Aditjondro’s insights into the colonial
relationship are of particular value.
Scattered throughout the book are observations and analysis about how Indonesians interact with Papuans and
how Indonesian conceptualisation and
stereotyping of Papuan society has developed. For example, he associates the
prevalence of human rights abuses
against Papuans with the conception
many Indonesians hold of them as not
really being human in some sort of ‘hierarchy of civilisations’. Aditjondro notes
the similarity with the way many Australians have rationalised the treatment
of Aborigines at the hands of European
settlers. In a similar vein, the Javanese,
Buginese and Moluccan soldiers stationed in Papua for six month periods
of duty tend to become ‘trigger happy’
not so much through bravado, but rather
as a result of the fear and suspicion in
which they come to hold Papuans. Aditjondro compares the attitude of the Indonesian soldiers to that of European
settlers in north America: ‘There is no
good Indian except a dead Indian’ (sic).
In a more analytic mode, Aditjondro
examines Indonesian perceptions in the
context of Papua’s heterogeneous ethnic
composition. The artistic and material
culture of the Dani and the Asmat have
sha ped Indo nesian co nceptio ns of
Papuan culture. North coast and island
Papuans (Biak and Serui) are well
known for their sporting prowess. The
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Book Reviews
impressive Papuan intellectuals who
feature so prominently in Aditjondro’s
writings are little known elsewhere in
Indonesia. He notes that Papuans are
better known for their brawn than their
brain.
Aditjondro’s writings will make a significant contribution to his Indonesian
readers’ understanding of Papuan society and the history of its political
struggle. Much of chapter 1 is a chronological outline of OPM’s struggle from its
131
establishment in 1965 to Tom Wanggai’s
activities in 1988. Chapter 3 presents
typologies of Papuan languages, ecosystems and material culture. Aditjondro’s
discussion of the patterns of leadership
should be compulsory reading for Jakarta’s intelligence analysts before they next
examine the ‘Papuan political conspiracy’.
Richard Chauvel
Victoria University
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
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To cite this article: (2002) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 38:1,
119-131, DOI: 10.1080/000749102753620310
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Bulletin of Indonesian Economic Studies, Vol. 38, No. 1, 2002: 119–31
BOOK REVIEWS
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Iyanatul Islam and Anis Chowdhury (2001), The Political Economy of East Asia: Post
Crisis Debates, Oxford University Press, Melbourne, pp. 288. Paper: £17.99; A$39.95.
This volume offers an overview of the
political economy of development in
East Asia, reviewing both the empirical
record and theoretical and policy debates
in the wake of the 1997–98 regional economic crisis. It is self-consciously synthetic: rather than presenting novel ideas
or evidence, the authors’ contribution is
to bring a synoptic but analytically sharp
perspective to bear on material currently
on the table. Another defining feature of
the volume is its genuine effort to integrate the general theoretical analyses of
both economists and political scientists,
as well as the more empirically based
work of regional specialists of both varieties. In this the authors reflect a now
rapidly spreading awareness that most
of the big questions outstanding in the
field of development lie at the interstices
of the study of government and markets,
and thus require serious intellectual
cross-fertilisation.
The authors lead with two large chapters reviewing first the evolution of the
literature on development up until the
mid 1990s, and then the debates that
have evolved in the wake of the economic crisis. These are thorough and
crisply done, but particularly in the first
there is much that is familiar. The second chapter, with its focus on debates
about the crisis, total factor productivity, and governance and institutional reform, has greater edge. Then follow four
subs tantive c hapters o n particular
themes : ca pital flo ws an d m acr o economic management; financial liberalisation and prudential regulation;
labour relations; and poverty and inequality. Running through all of these
chapters is a critical evaluation of theoretical literature pertaining to these various subfields, and a discussion of the
policy records in particular countries.
Although the book is primarily a survey of the state of the field, woven
throughout is the idea that the Asian crisis has exposed important problems in
the neoclassically inspired mainstream
of development economics. It comes to
a head in the final chapter that reflects
on the emergence a of ‘post-Washington’
consensus for development theory and
praxis in Asia. This is not so much an
ex-cathedra critique as one that draws
on Stiglitz, Krugman, Sachs and, more
distantly, Romer, as well, of course, as
the new drumbeat for good governance.
Echoing and extending the work of
others, Islam and Chowdhury strike a
number of important critical notes, but
there is also something not quite satisfying about the supposed new agenda.
Pointing vaguely to the need for reform
of the international financial architecture
and the importance of allowing developing countries sovereignty over their
own macroeconomic policy (and in particular, the option of Keynesian countercyclical spending) is not rea lly an
agenda for action—even if such senti-
ISSN 0007-4918 print/ISSN 1472-7234 online/02/010119 -13
© 2002 Indonesia Project ANU
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120
ments are now widely held in Asia.
There is much that needs to be pinned
down here. A surprising omission in the
discussion about a renewal of Keynesian
principles is any examination of Japan’s
extended crisis through the 1990s and
into the new century.
More broadly, although the authors
do indeed speak for a growing number
of observers, I found myself uneasy with
the finger-pointing at a Wall Street–US
Treasury–IMF complex (even when the
fingers borrowed for the purpose are
Stiglitz’s). Yes, it is assuredly the case
that US financial interests are forcefully
represented in the IMF, and that we can
see this shaping aspects of the ‘rescue’
operation of 1997–98, particularly in
Korea. It is a truism that powerful states
get to advance their interests at the expense of others. But international political economy is also much more complex
than this. Let us not forget that in much
of Asia it was primarily Japanese and
European banks, followed by their Korean and Singaporean counterparts, that
were doing the big lending in liberalised,
pre-crisis Asia. In this respect, the ‘Washington consensus’ label conceals as
much as it reveals. Undoubtedly, Washington is the single biggest force behind
the policies of the Fund and the Bank.
But during the 1980s and 1990s, these
broad ideas were also shared by economic thinkers and economic policy
elites across much of the OECD and indeed much (if not all) of Asia.
Islam and Chowdhury are to be congratulated particularly for incorporating
a wide reading of political science contributions to the debate. This adds considerable value. But I make two modest
qualifications. First, as with economists,
Book Reviews
there is considerable theoretical and
ideological variation among political
scientists. By no means did all political
scientists who wrote about states and
state capacity subscribe to deeply
dirigiste policy preferences (see for example Haggard vs Wade). Secondly,
largely overlooked is a more recent body
of literature focusing on the incentives
for different categories of policy makers
embedded in different institutional
structures. (San Diego reviewers must
be excused for mentioning this, since a
goodly portion of that literature comes
from UCSD.) This is important for a
number of the governance debates, and
it moves us well beyond the earlier statecapacity literature.
Overall, Islam and Chowdhury do
what no one else has yet done, or at least
done so effectively —provide a comprehensive, analytically sharp and highly
readable overview of the big debates
about development in Asia, before and
especially after the regional crisis. If
there is something indeterminate and
not entirely satisfying about the prescriptions they briefly sketch, I suspect
this reflects more the genuine uncertainty and even consternation that currently prevails in the field, rather than
any serious shortcoming on the part of
the authors. There is a powerful sense
in which important components of the
theory and praxis of the 1980s and 1990s
are indeed now subject to critical scrutiny, and there is certainly a new interest in equity and governance issues, but
we are still far from seeing the outlines
of any new ‘consensus’ emerging
Andrew MacIntyre
University of California,San Diego (UCSD)
Book Reviews
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Peter Boomgaard and Ian Brown (eds) (2000), Weathering the Storm: The Economies
of Southeast Asia in the 1930s Depression, ISEAS, Singapore, pp. xii + 332. Paper:
S$45.90/US$29.90; Cloth: S$65.90/US$39.90.
A book on the economic crisis of the 1930s
is very timely, given that many casual
parallels have been drawn between the
1997–98 crisis and past experience. However, this book may disappoint a reader
in search of more substantive parallels.
First, only the introduction presents a
cursory exploration of the similarities
between the early 1930s and the late 1990s
(pp. 12–16), suggesting that the differences exceed the similarities. If the 1930s
hold any lesson for the future it is that
‘the people’ are resilient, and that remedies prescribed from ‘outside’ (i.e. in the
1930s by colonial masters and in the 1990s
by the IMF) are not necessarily the best.
Secondly, as the editors underline in the
introduction, the emphasis of the book is
on the human suffering that the depression caused. Consequently most contributions are rather descriptive and devoid
of analytical economics. A last general
complaint is that the essays are not placed
in the context of the international literature on the 1930s depression. For instance, there is no discussion of the
monetary aspects of the depression in
Southeast Asia.
Still, historians of Southeast Asia will
appreciate this book, which for the first
time pulls together research on different
countries that had hitherto been done in
isolation. Rather than discussing each of
the 14 contributions, this review will
highlight the findings of those involving Indonesia, which dominate the book.
Boomgaard finds little evidence for
the suggestion that the depression was
a period of great suffering for Indonesians, particularly in Java. Lindblad de-
scribes trends in Indonesia’s foreign
trade and points to the consequences of
falling export revenues and reduced job
opportunities in export production. He
concludes that the depression marked
the beginning of a structural shift from
dependence on primary exports towards
industrialisation, even though this took
until the 1970s to materialise in full.
Touwen focuses on the strategies that
smallholders in the Outer Islands employed to combat falling commodity
prices. The main reaction was to increase
output rather than to diversify or stop
export production. Touwen offers three
explanations: supply was price-inelastic,
marginal costs of production were low,
and cash crop production was not the
main means of subsistence. Nawiyanto
points out that farmers in Besuki (Java)
increased the production of rice and
smallholder tobacco for domestic consumption after tobacco plantations cancelled land leases. Clarence-Smith gives
a fascinating but inconclusive glimpse
of the hitherto neglected world o f
Hadhrami Arab entrepreneurs in colonial Indonesia. Generally active in trade,
some were wiped out by the depression,
but others diversified activities to take
advantage of new opportunities in domestic shipping, manufacturing and real
estate.
Booth’s analysis of the different foreign trade and exchange policies in the
Philippines, Indonesia and Indochina
goes well beyond the recession of the
1930s, covering 1900–40. She poses the
challenging question whether trade protection and currency depreciation would
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122
have encouraged industrialisation earlier beyond the basic processing of commodities for export, perhaps reducing
the impact of the depression. Her answer is that alternative policies could
have made a difference. But would they?
Counterfactuals like this help to focus
on the questions that matter. However,
the longer the time period to which they
are applied, the greater the number of
affected variables, thus clouding the
analysis. For instance, a depreciating
and variable exchange rate of the Indonesian guilder relative to gold and the
Book Reviews
Dutch guilder may have reduced ready
access of business and government in
colonial Indonesia to the Dutch capital
market, and the exchange risk may have
increased the cost of finance. How to
factor that into a counterfactual?
This book is a significant contribution
to the historiography of a defining moment in Southeast Asia’s economic development. Anyone interested in further
research will draw inspiration from it.
Pierre van der Eng
ANU
Hotbin Sigalingging (ed.) (2001), Profil Pinjaman Luar Negeri Indonesia dan
Permasalahannya [The Profile and Problems of Indonesia’s Foreign Debt], Pusat
Pendidikan dan Studi Kebanksentralan [Center for Training and Central Banking
Studies], Bank Indonesia, Jakarta, pp. xiii + 254.
This is the first major publication of Bank
Indonesia’s Center for Training and Central Banking Studies since its establishment in June 2000. It comprises seven
chapters on Indonesia’s foreign debt,
including debt management policies,
implications for the monetary sector and
fiscal management, and alternative foreign debt management policies through
various debt conversion schemes. It
offers in one volume a comprehensive
overview of the topic, along with useful
data that are difficult to obtain elsewhere.
The book begins with a history of foreign debt management, although for the
most part this deals only with procedural issues. There are helpful descriptions of the types of foreign loans, based
on source and time-frame, and whether
they are government or private, concessional or semi-concessional. Less clear,
however, are the reasons for the government obtaining foreign loans, and how
it determines their amounts. The need
for foreign loans in the context of a general savings–investment gap framework
is described only briefly, without any
real focus on the more specific Indonesian context.
Chapter 3, on foreign debt, profiles
offers some of the book’s most interesting and useful insights, especially the
profiles for 1996–2000 of selected debt
indicators and the underlying problems
debt causes for Indonesia. The 1996 data
on the Debt Service Ratio (DSR) pointed
to potential debt problems, as the ratio
was already in excess of the 25% level
conventionally considered safe. The
problem can be traced to the alarmingly
rapid increase of private debt over several years prior to the crisis, much of it
unrecorded and unknown officially until 1998, when the government made reporting compulsory. A shortcoming of
this chapter is the inclusion of subtopics
on debt monitoring and management
policies, which would have been better
suited to the previous chapter.
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Book Reviews
Chapter 4 on private foreign debt
management provides an outline of successive government policies from the
onset of the crisis to the dissolution of
the Team to Overcome Private Debt
Problems. Aside from a chronological
listing of summaries of these policies,
however, it fails to offer details of the
causes and consequences of the huge
private foreign debt or to discuss the effects of these measures on the economy.
In other words, chapter 4 deals too superficially with private debt management policies, without any attempt at a
more in-depth analysis.
The author explains the implications
of foreign debt for the monetary and
banking sector by focusing on the balance of payments mechanism. He sees
the culprit as being the excessive growth
in foreign private sector debt—aided by
the absence of any hedging protection
and the virtually non-existent monitoring system—which had increased the
economy’s vulnerability to any change
in exchange rate expectations. This is
exactly what happened in 1997 and 1998,
resulting in sudden and large capital
outflow, and a corresponding drastic
devaluation of the currency.
The impact of all this on import and
export performance is interesting. While
the current account has been in surplus
since 1998, this has been due mainly to
a sharp contraction in imports. Exports
of goods and services did not increase
as expected, and the latter still register a
deficit at the time of writing. However,
a sharp improvement in merchandise
exports was recorded in 2000, when their
value jumped by about 25% from the
previous year.
The surplus on the current account
has lessened the impact of the capital
account deficit on the balance of payments. Several factors are cited for the
persistence of private capital outflow:
socio-political and security conditions,
123
poor overall macroeconomic performance, the downgrading of Indonesia’s
credit rating, and the economic downturn in several major western countries,
as well as Japan—Indonesia’s main trading partner and investor. Lacking from
the analysis, however, are the problems
of the banking sector that contributed to
the worsening of the crisis. Conspicuously absent, too, are the effects of the
scandal-ridden Bank Indonesia Liquidity Support program, introduced in response to the late 1997 and early 1998
bank rush. Failure to sterilise the monetary impact of this program amounted
to financing speculation against the
rupiah while also fuelling inflationary
pressures, with drastic consequences for
both the ba nkin g secto r and price
stability.
Readers may be disappointed by the
chapter on foreign debt implications for
fiscal management, as the subject is dealt
with rather superficially. While foreign
debt and its effect on the fiscal sustainability of the central government budget are described, no mention is made
of another aspect that directly determines the government’s fiscal position:
the growing burden of domestic debt
since the crisis. There are lengthy discussions on several aspects of regional
economic matters—Gross Domestic Regional Product, regional income inequality, and the amount and composition of
domestic revenues going to regional
governments —but overall this analysis
lacks any clear link to the role of foreign
debt.
In the final chapter, after briefly discussing debt restructuring, debt relief
and the possibility of a debt moratorium,
the author focuses on the debt conversion mechanism as the preferred debt
management policy. Although its use in
Indonesia is still limited, with more
widespread use it may have positive
side-effects on the economy through
124
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various programs, such as debt for nature swaps or debt reductions in return
for anti-poverty programs. The big question posed is how to make these mechanisms more attractive and applicable to
Book Reviews
Indonesian circumstances —a question
to which the author provides no answer.
Armida S. Alisjahbana
Padjadjaran University, Bandung
Hal Hill and João Saldanha (eds) (2001), East Timor: Development Challenges for the
World’s Newest Nation, Institute of Southeast Asian Studies, Singapore, and Asia
Pacific Press, ANU, Canberra, pp. xxv + 381. Paper: S$39.90/US$24.90; A$50.00;
Cloth:S$59.90/US$36.90.
In March 2001 a group of development
analysts, mainly economists, met in Dili
with East Timorese policy makers and
academics to discuss ways to achieve
rapid, broadly-based, sustained economic growth. The resulting volume’s
21 chapters, drawing on extensive
knowledge of development elsewhere,
cover macroeconomics, international
relations, agriculture, institutions (property rights to land, and political structures), banking and finance, social
policy, and lessons from international
experience.
This review considers answers the
participants gave to questions raised in
Xanana Gusmao’s preface, and which
concerned the National Council of
Timorese Resistance/National Council
(CNRT/CN) August 2000 Congress:
what development strategy to pursue;
which currency to adopt; whether to follow a balanced budget policy; whether
to offer fiscal incentives to investment;
how to manage the revenues to come
from the Timor Gap; whether to develop
other resources; whether to establish free
economic zones, or offshore financial
centres; and how best to provide farmers with access to markets and credit.
De Brouwer (chapter 2) sets out East
Timor ’s currency options in choosing
whether to have its own currency or to
use that of another country, and argues
that, while the Australian dollar would
be equally appropriate for economic
management purposes, the US dollar
option avoids risks to Australia–Indonesia relations. It seems odd to base a currency choice on relations between two
other countries, and since the Australian dollar is much more a ‘commodity
currency’ than the US dollar, its use
would place less pressure on other prices
in East Timor, particularly wages, in
ma na gi ng a d jus tm en t to ex te rn a l
shocks.
A ‘bottom-up’ strategy of agricultural
development is strongly preferred to a
‘top-down’ strategy of industrial development. With most East Timorese living
in rural areas, Timmer (chapter 6) and
Booth (chapter 15) urge that public investment focus on raising agricultural
productivity through research and development; improving infrastructure,
particularly road and sea transport; and
strengthening primary and secondary
education and primary preventative
health care. It is essential that most of
the aid and expected Timor Gap oil and
gas revenues be channelled to the rural
rather than the urban sector, to prevent
development of a dual economy—with
wide urban–rural income inequalities
and high urban unemployment, crime,
corruption and social dysfunction —as
has occurred in other countries experi-
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Book Reviews
encin g large aid and resource rent
windfalls.
Da Costa (chapter 9) shows how the
‘booming sector ’ implications of large
oil and gas revenue inflows may compromise exploitation of East Timor ’s
apparent comparative advantage in agriculture, and suggests developing a
com pa rative advanta ge in labourintensive activities. This does not seem
feasible in low-cost, standard-technology manufacturing, however, given alread y high wage le vels and wa ge
pressures from aid and oil and gas revenues, especially in the urban sector.
Instead, as in Mauritius and some Caribbean states, the emphasis should be
on education, to move the economy
into hig h-skill industrial and services activities.
On promoting agricultural productivity through research and extension,
Barlow (chapter 7) presents a strategy
that takes good account of social relationships within East Timor’s rural communities. Fox (chapter 10) describes
challenges to agricultural development
in the region bordering West Timor, because of its population loss through
deportations by the Indonesian military
and the militia in 1999. Western region
politicians have lost credibility, and Fox
sees politics being dominated by people
from the east, creating a bias against government service provision and investment in the west. If the western region
is to develop agriculturally, East Timor
and West Timor need to collaborate on
trade and labour movements, and particularly on sharing rights to water.
Several authors recognise the need to
resolve land disputes and create secure
individual title to land if development
is not to be retarded by sub-optimal levels of credit, investment and productivity. But Fitzpatrick (chapter 11) predicts
this process will be drawn out and costly.
A likely tendency to revert to traditional
125
clan titles, rather than move towards
individual title, will impede agricultural
development, and most alienated land
available around urban centres will
probably be used for high-cost industrial
development.
Without secure individual land title,
the credit market will remain immature,
but McLeod (chapter 13) warns against
government responding to perceived
credit shortages by involving itself in
lending. Government credit rarely goes
to those best able to use it, is prone to
‘capture’, and creates a contingent budget liability. Failing resolution of land
titles and development of a strong, independent judiciary, McLeod recommends that East Timor move slowly on
developing formal financial institutions,
relying instead on foreign financial bodies. Some NGOs have begun to provide
micro-credit but, as Barlow notes, it
would be a pity if traditional rural revolving community funds were to be
crowded out by subsidised foreign
micro-credit schemes.
On macroeconomic management,
Rosengard (chapter 3) and authors
grouped under ‘Lessons from International Experience’ provide good advice
on taxation regimes; managing aid flows
and resource rents; civil service functions and salary levels; and fiscal decentralisation. Authors discuss lessons
learned from the management of small
countries (Saldanha and Tavares, chapter 17); of war-torn countries (Haughton,
chapter 18); of the small Pacific island
economies and Papua New Guinea
(Chand, chapter 19, and Elek, chapter 20,
respectively); and of the small subSaharan African countries (Collier,
chapter 21).
Rosengard says running a fiscal deficit should not cause concern in the short
to medium term—provided the money
is spent on important things like infrastructure, health and education—since
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126
it can be financed through aid. International experience suggests a focus on
creation of an enabling environment for
private sector development (good infrastructure, secure land title, low-cost utilities and policy stability, rather than
investment incentives), and a small but
high quality and well paid civil service.
Collier gives useful advice on informed
public involvement in managing aid and
resource revenues. Well managed small
countries grow faster on average than
larger ones, so East Timor has nothing
to fear from being small. But small countries are forced to be more open than
large ones and are, for this reason and
because they are not highly diversified,
more prone to external shocks. Hence,
good management is critical. Located
near large countries and with a long land
border with Indonesia, East Timor is
‘born to trade’ (Hill, chapter 4). It should
not need to consider free economic
zones—it should be one.
One may quibble with a few recommendations. Hill argues for removing
the low tariffs and shifting to a turnover
tax. But with a poor administrative and
physical infrastructure and most of its
consumer goods imported, compliance
with a value added tax regime will
Book Reviews
probably be poor and costly, and retaining a low ‘revenue’ tariff may be a
better option at present. The book recommends that East Timor join the South
Pacific Forum (SPF) as well as ASEAN
(and AFTA). But it has nothing to gain
from joining the SPF, whose members
have together embarked on a preferential trade arrangement involving an agonisingly slow process of tariff reduction.
Booth (chapter 15) has some worrying
recommendations for social policy, including fertility control programs, a national food storage policy, and income
transfers as a social safety net. Raising
income levels is the best means of achieving reduced fertility, and it is preferable
for government to avoid both crowding
out of private storage and assumption of
family welfare responsibilities.
The volume has good answers to all
of Xanana Gusmao’s questions. Being a
latecomer, East Timor can benefit from
other countries’ experience, and this
book is full of excellent advice, not just
for East Timor but for the many small
countries in the region. Let us hope it is
followed.
Ron Duncan
ANU
Jeroen Touwen (2001), Extremes in the Archipelago: Trade and Economic Development
in the Outer Islands of Indonesia, 1900–1942, KITLV Press, Leiden, pp. xvii + 459.
31.76.
The historiography of economic change
in Indonesia has long been dominated
by Java. Slowly but steadily, the Outer
Islands and their specific development
problems are receiving greater attention.
This book is a milestone in that process,
because it seeks to describe and generalise the prewar development experience of all parts of the Outer Islands.
Even its title indicates that this is not
easy, as the experiences diverge considerably. Touwen solves this issue in
chapter 2 by identifying four clusters
of regions, using foreign and interregional trade as a yardstick. This explains the year the book begins: export
production by foreign-owned plantatio ns , m in ing v entu res and s m a ll
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Book Reviews
farmers increased significantly only
after 1900.
The first two clusters contain regions
where plantations (East Sumatra, Palembang, Southeast Kalimantan) and mining companies (Bangka, Belitung and
Riau) generate products for export. In
chapter 3 (‘European Dynamics’), Touwen describes the organisation and financing of production and trade, and
the recruitment of labour. He concludes
that the growth of exports in the regions
was generally high, but that the ventures
generated few backward linkages and
no forward linkages that could have
benefited the local economies. These regions generated trade surpluses, indicating that foreign companies used
part of their export revenues for foreign remittances, particularly to overseas shareholders, which constituted
a ‘drain’ of funds.
This contrasts with chapter 4 (‘Asian
Dynamics’), which generalises the experience of a third cluster of regions
where exports were generated mainly
by smallholders (Aceh, West Sumatra,
Jambi, Lampung, West Kalimantan,
South Sulawesi, Manado). Exports were
largely used to finance imports of consumption goods. Touwen details this by
discussing the production, financing,
transport and marketing of four smallholder products: pepper, coffee, copra
and, particularly, rubber. This is possibly the most innovative chapter of the
study, because it elaborates the considerable dynamics of smallholder agriculture, which have eluded many students
of economic change in Indonesia. Touwen emphasises the importance of Chinese traders who organised trade,
financing and transport, often to and
from Singapore.
The last cluster contains largely selfsufficient areas, where foreign trade
played a marginal role (Tapanuli, Bengkulu, Bali, Maluku and [West] Timor).
127
Chapter 5 (‘In the Periphery’) explains
that economic change was prevented by
the absence of a major dynamic sector,
by low investment in infrastructure and
social overheads, and by isolation arising from a lack of regular and cheap
shipping contacts.
The last chapter analyses the impact
of government policy on the development of the Outer Islands. Touwen concludes that the ‘Ethical Policy’ targeted
Java and largely bypassed the rest of the
country. This was not a matter of outright neglect. Implementation of policies
in the Outer Islands was hampered by
the very gradual development of the
colonial presence, with officials overwhelmed by the task of developing often va st regions without adequate
manpower and financial resources
(pp. 293–4). Secondly, the colonial government found it difficult to formulate
a consistent set of policies for the very
heterogeneous Outer Islands, most of
which were in a state of flux (pp. 264–6).
An interesting finding is that per capita
public expenditure was more evenly distributed across the regions than were per
capita exports. If regional income and
public revenue both depended on export
revenues, this means that the government redistributed income (pp. 272–4).
It is not possible to highlight all the
significant details that Touwen unearthed. Perhaps a few minor criticisms
can be mentioned. Touwen readily regards the growth of commodity exports
as a proxy for economic growth, which
is not necessarily the case. He discusses
commodity trade only, not the trade in
services. This is relevant, because he associates a commodity trade surplus with
a ‘drain’ of funds. Such a surplus may
simply reflect a deficit in the trade in
services. Touw en extensively us es
Hirschman’s linkages concept, which
was actually developed to analyse the
impact of industrialisation on a closed
128
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economy, rather than to examine the impact of export production, for which the
concept of comparative advantage may
well have been more important. Lastly,
an explicit discussion of the development of the domestic shipping network
is missing.
Book Reviews
These comments aside, the book is a
major contribution to the historiography
of economic change in Indonesia, and
deserves to be widely read.
Pierre van der Eng
ANU
Mohamed Ariff and Ahmed M. Khalid (2000), Liberalization, Growth and the Asian
Financial Crisis, Edward Elgar, Cheltenham, pp. 544. Cloth: £75.00.
This is an insightful, important, and
good book.
The book is insightful because it critically examines the process of growth in
13 diverse economies in developing Asia
—the early market-oriented reformers of
Indo nesia, South Korea , M alaysia ,
Singapore, Taiwan and Thailand, the
hesitant mixed-economy reformers of
Bangladesh, India, Pakistan, the Philippines and Sri Lanka, and the transitional
centralised economies of China and Vietnam. It considers three models of development and explicitly looks through
political and ideological rhetoric to identify the forces underpinning sustainable
economic growth and development.
It argues that a market-based liberal
policy regime, as opposed to mixed or
controlled policy regimes, is the most
likely to secure economic development.
After examining the economic performance of the economies under review, the
authors identify two preconditions for
development and seven elements of a
successful liberal policy regime.
The first precondition is the absence
of war; the second is institution building to strengthen private-sector initiativ es thro ugh pro perty ri ghts , a n
independent judiciary, effective bankruptcy laws and low taxation.
The elements of a liberal policy mixture include promoting competition in
the real and financial sectors (through
international openness and low tariffs);
an open capital account (although there
may be a role for selective capital controls); an open current account; fiscal
prudence; solid prudential supervision
of financial institutions; and an independent central bank. The arguments
are made persuasively, with reference to
a practical analysis of policy regimes and
economic outcomes in the 13 economies
studied, and supported by many other
studies.
The book is important because it
stands against revisionism in the postcrisis period. It provides a well balanced and non-strident argument for
one of the world’s most dynamic regions to maintain its commitment to
market-based liberal econom ics. It
highlights the gains from open competitive markets and resists the calls
of the Sirens to national and regional
insularity and economic demagoguery. The authors recognise the fragility of the market economy: they argue
the need for market discipline, well
functioning public institutions, and effective financial supervision and regulation. But they contend that this is not
a time for retreat from financial development and sophistication. To support
their argument they provide econometric evidence of the importance of
financial development in growing savings, investment and output.
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Book Reviews
The book is also important because it
puts the Asian financial crises of 1997
and 1998 in context. The vulnerabilities
that were exposed by the crises were
serious, but this does not mean that Asia
should be written off by the rest of the
world. It is still a dynamic region, the
more so if deals with its financial and
governance weaknesses.
The book is good because, while it is
a little folksy at times (especially in the
footnotes), it is well structured, well
written, and accessible to the nontechnical and economist reader alike. It
is set out in five parts. Chapters 1 and 2
provide an overview of the arguments
and an interpretation of the financial
crisis. Chapters 3 to 8 provide a detailed
analysis of economic, financial and
policy developments in six early reforming economies of Asia. Chapters 9 and
10 look at developments in the command economies of China and Vietnam,
and the core role that adopting market
policies has played in economic and social progress. Chapters 11 to 15 assess
129
the mixed performance of the mixed
market–state economies. Chapters 16
and 17 analyse the economic effects of
financial liberalisation and draw lessons
about policy frameworks. The material
is well indexed. It looks comprehensively at developing Asia, rather than
just focusing on east or south Asia.
I have very few complaints about
the book. At times the authors signal
important issues, such as speculation,
but do not analyse them, which I think
is an important omission. And at times
they overgeneralise: Hong Kong and
Singapore may have had open international financial markets for a long
tim e, but they have o nly recently
opened their domestic financial systems to international competition. But
these are quibbles. The book is a valuable addition to the debate on policy
makin g and structures in Asia and
will, I hope, be an influential one.
Gordon de Brouwer
ANU
George Junus Aditjondro (2000), Cahaya Bintang Kejora: Papua Barat dalam Kajian
Sejarah, Budaya, Ekonomi dan Hak Asasi Manusia [The Beam of the Morning Star:
West Papuan Studies in History, Culture, Economics and Human Rights], Elsham,
Jakarta, pp. 318. A$38.00; Rp 16,000.
A Papuan, in a traditional headdress
with clenched fist holding the Morning
Sta r Flag (Bendera Bintang Kejora)
proudly aloof, graces the cover o f
George Aditjondro’s book. It is one of
the images that best reflects the assertion of Papuan political and cultural
values during the ‘Papuan Spring’.
The cover is misleading. The book
does not discuss the events, values or
conflicts of the post-Soeharto revival of
Papuan nationalism. Although it was
published in mid 2000, at the time of the
Kongres Papua, which, in retrospect,
seems to mark the high point of proindependence political activity, the book
is a collection of writings about the
1980s. Aditjondro lived and worked in
Papua for five years in the 1980s, and
much of the material dates from that
time or discusses the developments that
Aditjondro participated in and witnessed. These are the writings of a sympathetic and scho la rly participant
observer.
The collection covers a diverse range
of aspects of Papua’s history and society, including the neglect of Papuan
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130
nationalism in Indonesian historiogra phy, the composition of Papuan society,
the cultural and artistic revival initiated
by Arnold Ap, human rights abuses and
transmigration. The publisher notes in
the introduction that the collection
might give the impression of gado gado
(an Indonesian dish of mixed vegetables
and salad), but there was a coherent focus around the problematic of Papua.
Indeed, issues such as human rights and
transmigration are as relevant for an
understanding of contemporary developments as they were in the 1980s. As
someone interested in both political
change in the Dutch colonial period and
contemporary developments, Aditjondro’s writings help fill some of the many
gaps in my understanding.
Section 2 discusses cultural issues and
human rights. Aditjondro makes the connection between the Papuan cultural and
artistic revival in which Arnold Ap was
a leading figure, his murder and the
emergence of human rights as a political
issue. The latter is an important historical discussion and he notes the roles
played by Mulya Lubis, Phil Erari, Agus
Rumansara, Michael Manufandu and
Aristides Katoppo as editor of the Jakarta
daily Sinar Harapan. The abuse of human
rights in Indonesian Irian Barat/Irian
Jaya has become central to the Papuan
political struggle against Jakarta’s authority over the province. The common experience of human rights abuse in most
sections of Papuan society is part of the
reason independence activists were able
to mobilis e support so quickly and
broadly. As useful as Aditjondro’s discussion of the 1980s is, it is a pity that it could
not be extended to incorporate the role
of the churches in the mid 1990s and the
centrality of Elsham (the Institute for
Human Rights Study and Advocacy) in
Papuan politics today.
Chapter 7 discusses transmigration
and is a reprint of a 1985 article in the
Book Reviews
journal Prisma. Transmigration—and
the resulting demographic transformation of the province’s population—is
one of the structural features without
which no understanding of political,
cultural and economic conflict in Papua
is possible. The scale of the Indonesian
settler community and its domination of
the economy have increased markedly
since 1985. There has also been considerable research undertaken by both
Papuan demographers and outsiders.
Aditjondro’s insights into the colonial
relationship are of particular value.
Scattered throughout the book are observations and analysis about how Indonesians interact with Papuans and
how Indonesian conceptualisation and
stereotyping of Papuan society has developed. For example, he associates the
prevalence of human rights abuses
against Papuans with the conception
many Indonesians hold of them as not
really being human in some sort of ‘hierarchy of civilisations’. Aditjondro notes
the similarity with the way many Australians have rationalised the treatment
of Aborigines at the hands of European
settlers. In a similar vein, the Javanese,
Buginese and Moluccan soldiers stationed in Papua for six month periods
of duty tend to become ‘trigger happy’
not so much through bravado, but rather
as a result of the fear and suspicion in
which they come to hold Papuans. Aditjondro compares the attitude of the Indonesian soldiers to that of European
settlers in north America: ‘There is no
good Indian except a dead Indian’ (sic).
In a more analytic mode, Aditjondro
examines Indonesian perceptions in the
context of Papua’s heterogeneous ethnic
composition. The artistic and material
culture of the Dani and the Asmat have
sha ped Indo nesian co nceptio ns of
Papuan culture. North coast and island
Papuans (Biak and Serui) are well
known for their sporting prowess. The
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Book Reviews
impressive Papuan intellectuals who
feature so prominently in Aditjondro’s
writings are little known elsewhere in
Indonesia. He notes that Papuans are
better known for their brawn than their
brain.
Aditjondro’s writings will make a significant contribution to his Indonesian
readers’ understanding of Papuan society and the history of its political
struggle. Much of chapter 1 is a chronological outline of OPM’s struggle from its
131
establishment in 1965 to Tom Wanggai’s
activities in 1988. Chapter 3 presents
typologies of Papuan languages, ecosystems and material culture. Aditjondro’s
discussion of the patterns of leadership
should be compulsory reading for Jakarta’s intelligence analysts before they next
examine the ‘Papuan political conspiracy’.
Richard Chauvel
Victoria University