00074918.2011.556061
Bulletin of Indonesian Economic Studies
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Widjojo Nitisastro and Indonesian development
Peter McCawley
To cite this article: Peter McCawley (2011) Widjojo Nitisastro and Indonesian development,
Bulletin of Indonesian Economic Studies, 47:1, 87-103
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Bulletin of Indonesian Economic Studies, Vol. 47, No. 1, 2011: 87–103
Review Article
WIDJOJO NITISASTRO AND INDONESIAN DEVELOPMENT
Peter McCawley
Australian National University
Widjojo Nitisastro (2010) Pengalaman Pembangunan Indonesia: Kumpulan Tulisan dan
Uraian Widjojo Nitisastro [The Experience of Development in Indonesia: A Collection of the Writings of Widjojo Nitisastro], Penerbit Buku Kompas [Kompas Book
Publishing], Jakarta.
Widjojo Nitisastro is one of Indonesia’s best-known economic policy makers. Much
has been written by others about his role as a top adviser over more than three decades. This collection of his own essays helps ill out the picture. Seven main policy
themes may be identiied: the role of economic growth in helping overcome mass
poverty; the need for economic policy makers to pay close attention to risk management and be constantly ready to respond to economic shocks; the importance of
strong leadership and discipline in government; the need to scrutinise investment
programs closely; the high priority to be given to borrowing programs and debt
management; the role of the price mechanism; and the management of Indonesia’s
relations with the international community. Strong messages about growth, leadership and stability permeate the essays. The collection is a valuable contribution to
the literature on economic policy making in developing countries.
INTRODUCTION
In the wake of the dramatic political events of September 1965 and their awful
aftermath in 1966, Indonesia faced urgent economic problems at almost every
turn.1 And as is well known, into the gap stepped a small group of key economic
advisers who became known as the ‘Berkeley Maia’.2 The acknowledged leader
of the group was the Dean of the Economics Faculty at the University of Indonesia, Professor Widjojo Nitisastro. Over the next three decades Widjojo and his
1 Elson (2001: ch. 6) discusses the events of the period.
2 Details of the early role played by the Berkeley Maia group in 1966 are set out in the
introduction to Arsjad Anwar, Thee and Azis (1992); see also Thee (2002: 195–6). The group
is generally listed as consisting of Widjojo, Ali Wardhana, Mohammad Sadli, Emil Salim,
and Subroto. They are also referred to as ‘economic technocrats’, and during the next few
years other economic advisers to the government, such as Rachmat Saleh, Ariin Siregar,
J.B. Sumarlin, Radius Prawiro and Sumitro Djojohadikusumo, became part of a wider
‘technocrat’ group (Prawiro 1998).
ISSN 0007-4918 print/ISSN 1472-7234 online/11/010087-17
DOI: 10.1080/00074918.2011.556061
© 2011 Indonesia Project ANU
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Peter McCawley
colleagues, including many outside of the original group, guided the Indonesian
economy with extraordinary skill through both good times and bad.3
The role that Widjojo Nitisastro played in Indonesia’s economic development
between 1966 and 1998 has been widely celebrated. Within Indonesia, he is universally known across the policy-making elite, the economics profession and the
development aid community. In 2007 a remarkable list of senior Indonesian policy
makers and advisers collaborated to produce a warm and valuable collection of
articles about their experiences of working with Widjojo (Arsjad Anwar, Ananta
and Kuncoro 2007a). In elite international policy-making circles he is among the
most respected economic statesmen of Southeast Asia since the Second World
War. The roll-call of eminent international leaders who have paid tribute to his
work includes Manmohan Singh, Larry Summers, Julius Nyerere, Noboru Takeshita, Cesar Virata, Michel Camdessus, Marshall Green and many others (Arsjad
Anwar, Ananta and Kuncoro 2007b).
Among the characteristics generally required of a top government policy maker
is the ability to work well with colleagues and draw the best efforts out of a close
team. Widjojo’s skill in coordinating the policies of the Berkeley Maia group is
legendary. One of his close colleagues, Emil Salim, described his role as follows:
Looking back on my experience as a cabinet minister for over two decades ... it was
Widjojo who was the real architect of the economic policies of the New Order. He
was the dalang, or puppeteer, who directed the play, while we, the other economic
technocrats, were the players, the wayang. We used to call him lurah (village head),
and we still do. Widjojo was able to carry out his economic policies because Soeharto trusted him; the president knew that he did not have a ‘hidden agenda’. Widjojo
was also able to rely on us, his fellow economists, because we all shared similar
views on the need to pursue sound economic policies (Salim 2003: 209).
Much has been written by Widjojo’s friends and colleagues about the role he
played as a top adviser. But what has been somewhat lacking is an accessible
record of Widjojo’s own views about economic policy during the period. With the
publication of this volume (Nitisastro 2010), we now have a valuable collection of
articles, reports and commentary selected by Widjojo himself. It helps to ill out
the picture of his role in economic policy making in Indonesia, and is a contribution to the literature on economic policy making in developing countries.
THE COLLECTION
Pengalaman Pembangunan Indonesia provides a rich body of commentary on policy
issues across the entire period of Widjojo’s career as a key adviser. With the exception of one early (1963) article, the scope of the collection coincides almost exactly
with the Soeharto era. A batch of articles prepared in 1966 records in detail the
3 A brief summary of Widjojo’s career is given in Arsjad Anwar, Ananta and Kuncoro
(2007b: xvii). Widjojo held ministerial rank in successive Indonesian cabinets for most of
the 1970s and until 1983, when he chose not to sit as a minister in the Fourth Development
Cabinet. He continued to be very inluential as one of President Soeharto’s closest advisers throughout the rest of the 1980s, and worked closely with the president until Soeharto
resigned from ofice in 1998.
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Widjojo Nitisastro and Indonesian development
89
thorough measures taken to ensure that a ‘rational’ approach to economic policy
(to use Widjojo’s words) would replace the policies pursued in the early 1960s
under then President Soekarno. The other chapters survey a wide sweep of economic policy issues covering the 1970s, the 1980s and much of the 1990s, up to the
end of the Soeharto ‘New Order’ era in 1998.
There are several ways of viewing the scope of the volume. One is to note the
sections into which Widjojo has grouped the chapters:
•
•
•
•
•
•
Indonesian Development Planning
Implementation of Indonesian Development
Facing Various Economic Crises
Tackling Problems of External Debt
Equity in Development
Indonesia and the World
A more complete picture, which gives a sense of the movement in policy as events
unfolded over the period, can be seen in the list of chapter headings arranged by
date of original publication (table 1).
To survey the remarkable breadth of the collection it will be useful to consider
the main themes that recur throughout the chapters, and to outline the distinctive view that Widjojo, as an eminent policy adviser from the developing world,
presents on some of the issues on today’s global development policy agenda. This
article also relects briely on some matters that the collection does not cover.
POLICY THEMES
Of the various themes to which Widjojo returns in his three-decade coverage of
policy making, a few underpin much of the discussion. They are simple, direct
messages, probably familiar to all good policy makers. It is perhaps signiicant
that, although his training and professional life has focused mainly on economic
policy, Widjojo has taken a close interest in demographic issues as well.4 His view
of the scope of policy thus tends to go well beyond the speciics of macro- or
microeconomic policy. For example, in a 1990 essay, ‘Progress and challenges of
development in Indonesia’, he outlines 10 main topics that he saw as important
at the time:
•
•
•
•
•
•
•
•
•
•
population in Java
debt management
economic reform and policy improvement
poverty alleviation
protection of the environment
food self-suficiency
development of human resources
expansion of the labour market
business growth and social justice
the role of government and regulation
4 Widjojo’s book on population trends in Indonesia, published in 1970, was an important
contribution to debate on the public policy issues the government faced at that time (Nitisastro 1970).
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Peter McCawley
TABLE 1 Chronological Listing of Chapters
Year
Chapter
No.
1963
1966
1968
1969
1971
1972
1975
1977
1978
1979
1980
1982
1984
1985
1986
1989
1990
1991
1993
1994
1996
1997
Title
1 Economic analysis and development planning
2 Unwise economic and inancial policy
3 Revisions to the foundations of the Indonesian economy according to economic principles
4 Contribution from the Economics Faculty, University of Indonesia, to the
1966 session of the Supreme Consultative Assembly on ‘new directions’ in
economics, inance and development
5 Comparisons of clauses from the contributions of the Economics Faculty,
University of Indonesia, to the 1966 session of the Supreme Consultative
Assembly with Assembly Determination No. XXIII of 1966
6 Implications and consequences of Supreme Assembly Determination No.
XXIII of 1966 in the area of economics, inance and development
8 Aspects of the approach underpinning Repelita (the ive-year development
plan)
7 Challenges in increasing food production in Indonesia
20 Old debts and new debts
14 The international monetary crisis
15 The food crisis
16 The Pertamina crisis
23 Helping small entrepreneurs
24 Food, nutrition and cross-sectoral cooperation
17 Devaluation of the rupiah
22 The equality program
27 Indonesia leads at OPEC in Bali while Iran and Iraq are at war
18 Fuel price increases
26 In the mutual interest of rich and poor nations
29 Perceptions of interdependence but lack of meaningful actions
11 Oil and the Indonesian economy
19 The slump in world oil prices
28 Fifteen events in the world economy in the 1980s
9 Progress and challenges of Indonesia’s development
12 Taking tough and painful decisions
10 Some features of Indonesia’s economic development during the last 25 years
21 A once and for all settlement of Indonesia’s foreign debt
25 Reducing poverty: Indonesia’s experience
30 Advancing mutual understanding and mutual conidence
13 Considering various proposals for development projects
Source: Nitisastro (2010).
This approach to policy making underlines Widjojo’s concern not just with the speciics of economic policy but with a much broader view of the development process
across Indonesia as a whole. In this, he shared many of the views of his colleague
Professor Sumitro Djojohadikusumo, who emphasised the importance of seeing
Indonesia’s development challenges within a long-term context (Esmara 1987).
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91
Economic growth and mass poverty
The irst main theme that Widjojo emphasises, especially in the earlier years, is
the challenge of mass poverty in Indonesia and the vital need for good development policies to begin an assault on the problem. His concern for the parlous
state that Indonesia was in during the mid-1960s, and the urgency of fostering
‘the slow return of sanity to government decision making’, as Jamie Mackie has
put it (McCawley and colleagues 2002: 166), is particularly evident in Widjojo’s
early articles. But a continuing emphasis on widespread poverty, and the need for
sustained economic growth to overcome it, remains a central theme throughout
the period covered by the collection. In 1994, for example, at an IMF–World Bank
conference in Spain, he outlined Indonesia’s anti-poverty programs in a paper
on ‘Reducing poverty: Indonesia’s experience’ (ch. 25). He noted the importance,
in the Indonesian context, of promoting rural development by investing in primary schools, health clinics, nutrition and family planning programs, and rural
infrastructure such as roads, irrigation systems and lood control structures at
the village level.
For Widjojo, the link between tackling poverty and developing sound policies
is clear. Again and again he emphasises the need for commonsense policy. He
urges policy makers constantly to consider ways of eliminating waste in government; to husband scarce resources; to make more ‘rational’ decisions than had
been the case in the 1950s and early 1960s; and to pay proper attention to sensible
macro- and microeconomic policies.
It seems in retrospect that in irmly supporting these principles, Widjojo and his
close colleagues in the Berkeley Maia, such as Ali Wardhana, set a tradition that
has endured among many Indonesian policy technocrats to the present day.5 A
long line of senior economic policy makers has followed their lead, including the
current vice president, Boediono; the trade minister, Mari Pangestu; the planning
minister, Armida Alisjahbana; the former inance minister, Sri Mulyani Indrawati;
earlier policy makers such as Ariin Siregar, J.B. Sumarlin, Radius Prawiro, Saleh
Aiff, Suhadi Mangkusuwondo and J. Soedradjad Djiwandono; and more recent
advisers such as Anggito Abimanyu, M. Chatib Basri, Moh. Ikhsan, Raden Pardede and others.
Some observers, both within Indonesia and overseas, argue that too many of
Indonesia’s senior economic policy makers today are over-cautious. A criticism
sometimes made of them, as of the Berkeley Maia group before them, is that they
are not adventurous enough. But it is surely a great strength of several generations of technocratic policy makers in Indonesia that they have adopted Widjojo’s
approach of cautiously examining all main proposals that come to them from the
viewpoint of Indonesia’s national interest, and of being reluctant to experiment
with policy unless the case for change is strong.
5 Radius Prawiro, who was governor of Bank Indonesia from 1966 to 1973, notes that several of the technocrats who rose to prominence in the late 1960s remained in the high ranks
of government for a long time. He observes that this continuity ‘was invaluable because it
meant that many of the lessons of the early years of the New Order were not lost when new
problems were faced in subsequent years’ (Prawiro 1998: 83).
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Risk management
A second dominant theme, consistent with the irst, is the importance of risk
management. Again and again, Widjojo warns of the need for Indonesia’s policy
makers to be waspada (cautious, alert or on guard) and to be ready to respond to
unexpected events (which, he emphasises, can change conditions for the worse as
well as for the better). It is clear throughout the book that Widjojo is thinking of
both domestic and external shocks. His fascinating chapters on the 1972–73 food
crisis and the Pertamina crisis of 1975 are about domestic shocks that dominated
Indonesia’s policy agenda for months at the time they occurred. But much of the
discussion – about oil prices, foreign exchange rates and international borrowings – relates to international shocks. Running through this material are several
recurring sub-themes.
First, Widjojo is concerned about the uncertainty of the international environment for developing countries, and about how Indonesia seems to be continually
buffeted by international events. The clearest example is the dramatic luctuation
in oil prices during the 1970s and 1980s. Other international events that contributed to uncertainty for Indonesian policy makers included the dramatic realignments of international foreign exchange rates between the Plaza Accord in 1985
and the Louvre Accord in 1987.
Second, Widjojo notes in a pragmatic way that decisions taken by senior policy
makers in distant rich countries can have signiicant backwash effects on developing countries. In commenting on the ‘Nixon Shock’ of August 1971 – when the
United States declared, in effect, its abrogation of the Bretton Woods agreement
on international exchange rate arrangements, which had applied since 1944 – he
noted that there were ‘... serious implications for developing countries’, and that
the changes ‘… in the short-term would disadvantage prospects for Indonesia’s
exports’ (p. 265).
Widjojo also stresses the need for Indonesia to diversify its sources of export revenues to guard against the risks of dependence on any single source. He urges that
‘… Indonesia must give high priority to efforts to increase foreign exchange revenues from the export of goods and services outside the oil and gas sector’ (p. 388).
Discipline in government
A third theme anticipates the current emphasis on the importance of governance
in developing countries. Widjojo believes that emerging country leaders must be
prepared to take dificult decisions. In a chapter on this subject he says (p. 229)
that
… it is necessary for leaders in developing countries always to be vigilant and never
to have doubts about moving to take necessary decisions, no matter how tough and
painful they may be. 6
And this was clearly one aspect of Soeharto’s approach to government of which
Widjojo approved. He says ‘President Soeharto as leader never drew back from
taking tough and painful decisions, no matter how … dificult they were’.7
6 All main quotations from Indonesian are translations by the author of this review.
7 Widjojo’s colleague Emil Salim also emphasises Soeharto’s willingness to take dificult
and unpopular decisions (Salim 2003: 213).
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Widjojo Nitisastro and Indonesian development
93
Widjojo is irm on the importance of disciplined decision making. He is critical
of what he calls ‘non-rational’ decision making during the period of the Soekarno
presidency. ‘We can’t just do this and that’, he says, speaking of the ad hoc
approach to public policy in the late 1950s and early 1960s. Decisions, he emphasises, must be ‘rational’. He is also critical of the lack of discipline and rationality
in other developing countries:
Failure to overcome … challenges in … developing countries sometimes arises because leaders fail to set consistent priorities when considering the measures they
plan to take. Sometimes the leaders are unable to agree among themselves on priorities. Or if they do reach agreement on the priorities, sometimes they do not adhere
to them, or fail to implement them. The result is that programs that were not seen
as priorities are adopted, while other activities originally accorded high priority are
pushed aside. In effect, activities are being carried out without any sense of priorities (p. 234).
Widjojo also emphasises the importance of discipline in the implementation of
policies. In 1966, when he and his colleagues were playing an increasing role in
efforts to reform the approach to economic policy making, he argued that
it would be best for us all to recognise that improvements in the economic situation
will not be realised through speeches, symposiums, seminars and so on, but only
through concrete actions. … [T]he problem we need to tackle is how the good intentions of government can be translated into reality (pp. 46–7).
Expanding on this theme, he said:
No matter how good particular decisions are, they will mean little unless they are
translated into action. Unless this happens, there will just be disappointment. In
practice, it is not unusual for steps to be taken that are said to relect the implementation of particular decisions but that do not, in fact, relect the real intent of
those decisions at all. Indeed, it sometimes happens that the particular steps that
are taken distort and undermine the original decisions, yet they are justiied with
various spurious explanations (p. 120).
On the basis of this approach, Widjojo and his colleagues argued throughout 1966 for widespread reforms to government. Proposals mentioned (ch. 6)
included greatly improved budgetary procedures; tighter supervision of government expenditures; strengthening of regulatory organisations such as the Financial Supervisory Agency (Badan Pengawas Keuangan); and a streamlining and
simpliication of government procedures. Only some of these reforms came to be
implemented in the ensuing years, but those that were (such as more disciplined
budgetary procedures) led to major improvements in government management,
while those that were not (such as streamlined government) remain widely recognised as part of the uninished agenda of government reform in Indonesia.
One of the clearest examples of the sort of discipline Widjojo favoured – though
imposed at a very late stage in the process – was the action the government took
in response to the Pertamina crisis in 1975. There had been much public comment
in Indonesia for ive years or more (Mackie 1970) about the free-wheeling ways in
which the giant state-owned oil company had been allowed to conduct its operations. Things came to a head in early 1975, when it was clear that Pertamina had
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incurred serious debt problems by undertaking massive short-term borrowings.
When international credit markets tightened, the company found itself unable to
service its debts.
In response to this crisis the government, at the urging of Widjojo and other top
economic advisers, inally clamped down on Pertamina (Sadli 2003: 134). It fell to
Widjojo, as Coordinating Minister for Economic Affairs and chair of the National
Development Planning Agency (Bappenas), to make a statement to the parliament
on the situation. His message was frank and tough (ch. 16). Widjojo outlined steps
that he diplomatically described as ‘measures to help overcome Pertamina’s dificulties’, and actions designed to protect both the nation’s inances and the balance of payments. In addition, he announced a range of new measures to bring
Pertamina’s operations under tighter regulatory control: its borrowings would be
much more closely restricted; its entire investment program would be re-examined;
stricter internal administration would be required from its management; and a
revision of its inancial arrangements would be undertaken to ensure that a much
higher share of the company’s proits was paid into government revenues.
Pertamina’s 1975 debt problems represented an acute crisis for the government.8 The crisis dominated public policy debate in Indonesia for over a year.
It seems obvious that action should have been taken much earlier, but President
Soeharto, for his own reasons, was reluctant to impose controls on the company.
As a result, the economic advisers within government who were pressing for
tighter regulation, including Widjojo and his colleagues, had no choice but to bide
their time. It can be argued that the Pertamina debacle was an example of lack
of discipline within government. However, Widjojo and other economic advisers
would have contended that the crisis showed precisely why their arguments in
favour of strict discipline in government were so important.
Investment programs
Another of the main themes to which Widjojo frequently returns, consistent with
his emphases on ‘rationality’ and risk management, is the need for careful oversight of investment programs. Policy makers, he says, must carefully consider the
risks inherent in proposed investments, and the pros and cons of public or private
sector projects that involve large-scale borrowings. Widjojo is instinctively cautious in evaluating large projects. He warns that things can go badly wrong when
the basic principles of ‘check and recheck’, as he puts it, are neglected. And he is
sharply critical of leaders in other developing countries who implemented careless
public investment programs; for example, he says that ‘[i]n the past, Ghana borrowed from various sources and used the money for unproductive purposes. This
is scarcely different from what we did at the same time’ (p. 401). And he observes,
doubtless recalling the circumstances in Indonesia in the early 1960s, that
[i]n some countries, there are leaders who want to build everything at once. All sorts
of large projects are implemented at the same time, as if there were no inancing or
8 Sadli provides details of the way the crisis developed and the role of the economic advisers in responding to it, noting that ‘the Pertamina crisis was managed by Widjojo himself’
(Sadli 2003: 134). Sadli describes the problems of Pertamina as ‘the greatest crisis I faced as
Minister for Mining’.
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other resource constraints. The result of this approach is that many plans end up
not being implemented, many projects are neglected, and inlation can begin to rage
entirely out of control (p. 234).
He discusses the implications of careful project planning at some length in
his essay on the approach of former Vice President Sudharmono (1987–93), who
exercised tight control over public investment programs (ch. 13). Sudharmono,
Widjojo explains, provided strong and effective discipline by asking a series of
straightforward questions about public investment proposals that came before
him. The most important of these were:
• Is the project necessary?
• Does it need to be so large? Is it not possible to build a smaller project?
• Is it necessary now? What is the urgency? Are there not more urgent alternative
activities?
• Can the costs be reduced? Has everything possible been done to reduce the
costs?
• Have experts reviewed the feasibility study? Can we see the results of the
review?
There is little doubt that Widjojo had in mind the need to curb the ambitions of
inluential presidential advisers who were close to President Soeharto. The economic advisers in Jakarta in the 1970s and 1980s often found themselves engaged
in policy battles with such well-known igures such as Ibnu Sutowo and B.J.
Habibie, the respective leaders of Pertamina and of a group of high-tech aeronautical companies in Bandung.9 The engineering advisers within government,
who supported the approach of these people, favoured a development policy for
Indonesia that focused on state-sponsored assistance for ‘strategic industries’. But
too often, in the view of Widjojo and the other economic technocrats, the grand
plans endorsed by the engineers were expensive and risky.10
Widjojo’s irm view is that policy makers should avoid over-conidence in
supporting either public or private investment. He made some prescient comments on the issues at stake in 1997 – just months before the Asian inancial crisis
unfolded, delivering a series of blows to the economy that set back development
9 B.J. Habibie, later president of Indonesia (1998–99), was responsible for a group of 10
state-owned irms operating in the airlines and aeronautical sector, one of the best known
being IPTN (Industri Pesawat Terbang Nusantara, literally ‘[Indonesian] Archipelago Aircraft Industry’).
10 The differences of view between the economic and the engineering advisers are relected in a September 1976 interview I had with Ibnu Sutowo in Jakarta. Ibnu mentioned
disagreements that had arisen between him and Widjojo several years earlier over plans for
a large fertiliser project. Ibnu had proposed the construction of a fertiliser plant drawing on
Pertamina resources. Widjojo was cautious and suggested that Indonesia seek to inance
the project using low-interest soft loans rather than the more expensive funds that Pertamina was likely to draw on. Ibnu was disappointed about the delays these discussions led to
in implementing the project. ‘That’s the way these people [Widjojo and his colleagues] go
about these things’, Ibnu said. ‘They hate me. ... They have disliked me for years. We are
different sorts of people. We do things in different ways.’
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for almost a decade. Endorsing Sudharmono’s sceptical approach to showcase
projects, Widjojo argued that unless policy makers avoid over-conidence,
… development will be derailed and lose direction, resulting in economic decline …
This is what happened in various developing countries, especially in Latin America.
When things were dificult on the economic front, and when their capacities were
limited, these countries were cautious and held irm to development priorities.
But when things improved, a sense of over-conidence developed that led them to
drop their guard. They competed to promote projects across various sectors, and
governments no longer held irmly to strict development priorities. The result was
that they over-reached themselves and an economic crisis eventuated. This is what
happened in Argentina, Brazil, Colombia, Venezuela, and especially Mexico.
A similar process has often occurred in the private sector in these countries. …
[Companies] have inanced their activities with international borrowings which,
oficially, are not accompanied by government guarantees. However, because international loans are used to support projects that are closely connected with the government, or with large government-owned enterprises, an indirect government
guarantee gets built into these activities. And when a foreign debt crisis looms, a
large share of the private sector debts – including short-term debts – get transferred
to the government. This is what occurs when we fail to pay suficient attention to
the details of implementation of development programs (p. 254).
From one point of view, the principles Widjojo outlines are obvious. But from
another, his messages are crucial ones because of the frequency of attempts to
brush them aside. There is a propensity in many countries for leaders who claim
to have vision – and for the enthusiastic lobbyists who line up behind them –
to support expenditure of public monies on investments of doubtful value. And
there has been no shortage of costly projects in Indonesia, to many of which
Widjojo refers in his collection.11
Borrowing and debt
Another of the collection’s main themes is the need for careful debt management.
Widjojo constantly emphasises that policy makers must be careful in taking on foreign borrowings. Nationalist and populist commentators in Indonesia sometimes
accused the economic technocrats of being too willing to sacriice Indonesian
interests in order to win praise from the international community. The technocrats were also accused of having been indoctrinated with neo-liberal ideology
in western universities. But it is clear that Widjojo shares the caution that many
Indonesian policy makers and commentators feel about opening the Indonesian
economy too readily to international market forces. In various places he refers
to the way luctuations in the global economy, and decisions taken by the major
industrial nations, have sometimes caused serious problems for Indonesia. On the
other hand, Widjojo is an internationalist, including in the matter of international
borrowings. In addressing the parliament in November 1969, he discussed at
length Indonesia’s ‘old debts and new debts’ (ch. 20). Faced with the challenge of
11 Among other projects, he mentions PT Krakatau Steel; LNG projects in Aceh; various
fertiliser projects (including initiatives in Kalimantan and Cirebon, and others involving
the state-owned Pusri fertiliser company); oil reinery activities in Cilacap; and a major
petrochemicals project in Gresik.
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Widjojo Nitisastro and Indonesian development
97
persuading sceptical members of parliament to adopt a sensible foreign borrowing program, he tactfully surveyed the recent history of Indonesia’s international
borrowings and set out the country’s needs for the future.
In discussing Indonesia’s experience, he explained that since 1966 the government had followed a cautious approach in negotiations with international creditors
about debts due from the Soekarno era. He emphasised that the negotiations had
been dificult. The government had been seeking to minimise the debt burden, but
creditors had legitimate interests as well. His clear message to members of parliament was that it was in Indonesia’s long-term interests to handle its international
debt problems in a responsible way. Summarising the dilemma, Widjojo said:
When there is a change of government … such as occurred in our country in mid1966, then the matter of old debts and new debts becomes relevant. Old debts are
those incurred by the previous government that have not been fully repaid. The
repayment of old debts becomes a responsibility of the new government. If the new
government is not prepared to accept responsibility for the old debts and refuses to
acknowledge them as an ongoing commitment, then other governments will not be
prepared to provide [it with] new loans and, moreover, will lay charges against [it]
in their own courts or in international courts. They may well coniscate property of
the new government, such as planes and ships that are in their territory. Because of
these considerations, the only course of action for a new government is to acknowledge the debts of the previous administration and look for ways to settle them as
well as possible. It is the responsibility of the new government to seek the best way
forward and to prevent a repeat of the situation in the future (p. 395).
He then turned to the present. Weighing up the challenges Indonesia faced in
1969, Widjojo drew on the ‘gap analysis’ approach that was still widely used in
the late 1960s, to suggest to the parliamentarians that Indonesia had an urgent
need to obtain foreign resources. His conclusion after discussing both the external
(balance of payments) and internal (budget) gaps was that:
Bearing all of this in mind, if we are realistic and don’t want to bury our heads in
the sand, the need for international borrowings and foreign aid is clear, from the
viewpoint of both the balance of payments and budgetary pressures (p. 407).
But then, in the next stage of his address to the parliament, he proceeded to tease
out in subtle ways the central issues of foreign borrowing. Harking back to the
Soekarno era, he posed the rhetorical question: ‘Is it not possible to replace foreign borrowings by printing money?’ In putting this question, without directly
mentioning the dificulties that arose during the still-too-recent Soekarno era, he
raised key questions to which his audience surely wanted answers. He gave two:
irst, that the principal challenge for Indonesia was not so much inding money
as spending it well; and second, that Indonesia’s most urgent need at the time
was for increased supplies of foreign, not domestic, resources – and that foreign
resources could not be obtained by the printing of rupiah (p. 408).
Looking to the future, Widjojo assured the chamber that Indonesia did not simply accept loans on the terms on which they were offered, but set conditions to
ensure that the terms were acceptable. To bolster the case, he explained that there
were three main purposes for which loans were needed at the time: food; other
urgent imports; and projects.
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Peter McCawley
Looking over this summary of Indonesia’s international debt management
strategy today, 40 years after the approach was outlined to the parliament, one
is struck by the care given to efforts to ensure that Indonesia’s new approach to
the international community was understood and accepted. At the time, the new
Soeharto government was just beginning to build its economic credentials both at
home and abroad. Widjojo therefore needed to emphasise that the adventurous
and experimental ways of the past would not be repeated, that Indonesia would
meet all reasonable international commitments, and that it was keen to retain
access to international inancial markets both to meet urgent funding needs and
to support longer-term development programs. Indeed, much of the thrust of the
strategy remains just as relevant now as it was 40 years ago, because Indonesia still
needs large amounts of capital to inance development. The case Widjojo made to
the parliament in 1969 in support of international borrowings could proitably be
re-read by parliamentarians today.
The price mechanism
A sixth theme is the importance of prices, both in international markets and at
home. Variations in international prices, especially of commodities such as oil, but
also of other tradable goods, foreign exchange and inancial capital, have often
had a dramatic impact on the Indonesian economy in recent decades. Important
episodes that Widjojo discusses in detail include the remarkable luctuations
in oil prices in the 1970s and 1980s; the associated movements in international
exchange rates, including the ‘Nixon Shock’ of 1971 and the large international
realignments between the Plaza and Louvre Accords of 1985 and 1987; and the
marked changes in international interest rates and equity prices during the 1980s.
Large international price movements of this kind tend to low through to the
Indonesian economy quite quickly. Policy makers needed to be constantly ready
to make adjustments to domestic policy in response.
On the controversial subject of domestic prices, Widjojo is generally somewhat
more circumspect. Like many of his economist colleagues in Indonesia, he is
inclined to focus on the macroeconomic implications of price changes rather than
on the implications of price policy in particular markets and industries. He also
shares (or, at least, judges it wise to allow for) the concerns that many policy makers and commentators have about the problems that can arise from uncontrolled
markets. At various times, for example, he warns of the exploitation that can arise
from ‘free-ight liberalism’, and the dificulties that sharp price changes in international markets can give rise to within Indonesia.
But Widjojo is certainly alert to the importance of price policies for key markets
at home – especially in the politically sensitive food (rice), fuel and utility sectors.
He urges that policy makers be pragmatic in responding to exogenous changes
from any quarter. And he adopts a pro-market approach, arguing that governments need to be ready to adjust domestic pricing policies in key sectors such as
rice and fuel when circumstances suggest that price changes would be helpful.
Indonesia and the world
The last of the main themes that recurs throughout the collection is Widjojo’s
awareness of Indonesia’s place in the international community, and especially
of its role in the developing world. He pays attention both to the beneits that
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Widjojo Nitisastro and Indonesian development
99
Indonesia can gain from interacting with the global development community and
to the ways it might in turn contribute to international understanding of the challenges of global development.
Widjojo’s views on how Indonesia should interact with the international community combine distinct elements of both nationalism and internationalism. As a
nationalist, he is aware that the major nations of the world pay scant attention to
the interests of developing countries like Indonesia when they negotiate among
themselves over policies that affect the management of the global economy. Writing in 1990 (‘Progress and challenges of Indonesia’s development’), he noted,
quite simply and without rancour, that
… [w]hen the industrial countries take decisions about matters that have a global
impact, they fail to consider – or, at best, give little attention to – the implications for
developing countries. The G-7 countries, and in recent events [concerning the Plaza
and Louvre Accords in the period 1985–87] just the G-2 countries [the United States
and Japan] alone, constantly leave developing countries on the periphery, well out
of sight and mind (p. 192).
And earlier, at a conference in Tokyo in 1984, in a keynote speech on ‘Perceptions
of interdependence but lack of meaningful actions’, Widjojo had been pointedly
critical of the commitment of rich countries in the ield of North–South cooperation. He declared that
[t]here has already been a plethora of global conferences – high-level conferences,
ministerial-level conferences and so on – that have set out irm commitments about
things like international development cooperation, commitments to … foster open
trading arrangements, and commitments to better manage arrangements for multilateral economic cooperation. But unfortunately none of these international economic conferences has managed to bring about any signiicant progress in the area
of international economic cooperation. And in fact, in all of the North–South forum
dialogue meetings that have been held, the inal results have led to dead ends, or
to efforts that have just faded away, or even to a weakening of earlier commitments
that had been entered into (p. 539).
But despite this plain speaking in his nationalist role, Widjojo also has an
internationalist’s perspective on Indonesia’s links with the world. While he
constantly emphasises that conducting effective economic diplomacy and
operating in global markets is a dificult task requiring leaders and oficials to be
on guard, he also argues that it is clearly in Indonesia’s interests to interact closely
with the global community.
Widjojo is an Indonesian nationalist in another sense too. Like his other
colleagues in the Berkeley Maia, he has been glad to be able to point to Indonesia’s
successes in important aspects of development policy. During the 1990s, along
with colleagues such as Sadli, Emil Salim and Suhadi Mangkusuwondo, Widjojo
was tasked by President Soeharto to act as a representative from Indonesia in
helping to foster South–South development cooperation programs, including
those in Africa (Salim 2003: 213). It was in this context that he spoke at the
Tokyo International Conference on African Development in 1993 on the topic of
‘Some features of Indonesia’s economic development during the last 25 years’
(ch. 10).
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Peter McCawley
During these efforts at South–South cooperation and on other occasions,
Widjojo was keen to share the lessons of Indonesia’s development programs with
other emerging countries. He discussed Indonesia’s experience of family planning, its programs in the agricultural sector to improve food production, and
especially its efforts in the area of poverty alleviation. Key aspects of Indonesia’s
anti-poverty programs that Widjojo highlighted were a strong emphasis on rural
development; sustained economic reform, including a budget policy that focused
on anti-poverty programs; and pro-market deregulatory and pricing policies
designed to promote economic growth through labour-intensive activities in agriculture and manufacturing. According to Widjojo,
… it is the rapid growth of sustainable, labour-intensive industry that has been the
most important factor in reducing poverty in Indonesia. The close relationship between this growth and reductions in the number of poor can be seen in the speciic
type of growth that has occurred in Indonesia: rapid growth in the agricultural sector followed by rapid growth in labour-intensive manufacturing – accompanied by
policy packages that have supported growth in these sectors (p. 485).
WIDJOJO’S KEY MESSAGES
Widjojo’s is the voice of one of the developing world’s most eminent policy makers in the latter part of the 20th century. What, then, are the central emphases that
emerge from his writings over 30 years of development policy making? Perhaps
three stand out: growth, leadership and stability.
First, Widjojo is in no doubt about the need for strong and sustained economic
growth to overcome poverty and promote development. He favours high levels of
sound public and private investment, effective iscal policies, continual economic
reform, and clear sectoral policies – all because they underpin strong economic
growth. Interestingly, this collection of articles written up to 1997 says little about
one of the headline issues in the debate on growth and development today – climate
change. Doubtless his well-known colleague Emil Salim has helped to ill this gap
in recent years. But it would be a mistake to overlook the view on energy consumption levels and international environment issues that Widjojo set out in 1990:
Energy consumption per capita in Indonesia is very low, and indeed rather low
even when compared with the level in some other countries in Asia. Indonesia has
natural energy resources such as oil, coal and hydro-power. If industrial countries
try to prevent the use of these resources for Indonesia’s development without giving attention to practical alternatives, while they themselves maintain extravagant
standards of living that use up much oil and coal, then this must be seen as an attempt on their part to constrain Indonesia’s development. Because of this, more efforts are needed by industrial countries to curb environmental damage within their
own borders and, at the same time, to become more willing to support programs
that promote sustainable development in emerging countries. (p. 196).
The relatively slight attention that Widjojo gives to environmental issues in
these essays may relect the priorities of the period when he was a policy maker.
But what is just as likely is that it relects the quite different priorities that rich
and poor countries give to the trade-offs that need to be made between energy
consumption and the environment.
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Widjojo Nitisastro and Indonesian development
101
Second, Widjojo has clear views about some key matters now regarded in international development circles as leadership and governance questions. He speaks
strongly of the need for effective leadership and (not necessarily quite the same
thing) for good, sensible management in developing countries. Policy makers in
rich countries who have for years delivered lectures about the need for developing countries to take more responsibility for their own progress may welcome
these views with enthusiasm. And there is a strong message in Widjojo’s emphasis on the need for economic policy leadership that resists vested interests.
But there are some implications of the approach he outlines that leaders in rich
countries might not quickly notice – including the possibility that as the conidence
of developing country leaders grows, the views they express may increasingly
diverge from the dominant perspectives in the rich world. India, for example, had
a irm position on trade policy issues that contributed to the failure to conclude
an agreement during the Doha round of trade negotiations in 2008. And more
recently, China’s concern to protect its interests complicated efforts to reach agreement during the 2009 Copenhagen negotiations on global environmen
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Bulletin of Indonesian Economic Studies, Vol. 47, No. 1, 2011: 87–103
Review Article
WIDJOJO NITISASTRO AND INDONESIAN DEVELOPMENT
Peter McCawley
Australian National University
Widjojo Nitisastro (2010) Pengalaman Pembangunan Indonesia: Kumpulan Tulisan dan
Uraian Widjojo Nitisastro [The Experience of Development in Indonesia: A Collection of the Writings of Widjojo Nitisastro], Penerbit Buku Kompas [Kompas Book
Publishing], Jakarta.
Widjojo Nitisastro is one of Indonesia’s best-known economic policy makers. Much
has been written by others about his role as a top adviser over more than three decades. This collection of his own essays helps ill out the picture. Seven main policy
themes may be identiied: the role of economic growth in helping overcome mass
poverty; the need for economic policy makers to pay close attention to risk management and be constantly ready to respond to economic shocks; the importance of
strong leadership and discipline in government; the need to scrutinise investment
programs closely; the high priority to be given to borrowing programs and debt
management; the role of the price mechanism; and the management of Indonesia’s
relations with the international community. Strong messages about growth, leadership and stability permeate the essays. The collection is a valuable contribution to
the literature on economic policy making in developing countries.
INTRODUCTION
In the wake of the dramatic political events of September 1965 and their awful
aftermath in 1966, Indonesia faced urgent economic problems at almost every
turn.1 And as is well known, into the gap stepped a small group of key economic
advisers who became known as the ‘Berkeley Maia’.2 The acknowledged leader
of the group was the Dean of the Economics Faculty at the University of Indonesia, Professor Widjojo Nitisastro. Over the next three decades Widjojo and his
1 Elson (2001: ch. 6) discusses the events of the period.
2 Details of the early role played by the Berkeley Maia group in 1966 are set out in the
introduction to Arsjad Anwar, Thee and Azis (1992); see also Thee (2002: 195–6). The group
is generally listed as consisting of Widjojo, Ali Wardhana, Mohammad Sadli, Emil Salim,
and Subroto. They are also referred to as ‘economic technocrats’, and during the next few
years other economic advisers to the government, such as Rachmat Saleh, Ariin Siregar,
J.B. Sumarlin, Radius Prawiro and Sumitro Djojohadikusumo, became part of a wider
‘technocrat’ group (Prawiro 1998).
ISSN 0007-4918 print/ISSN 1472-7234 online/11/010087-17
DOI: 10.1080/00074918.2011.556061
© 2011 Indonesia Project ANU
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Peter McCawley
colleagues, including many outside of the original group, guided the Indonesian
economy with extraordinary skill through both good times and bad.3
The role that Widjojo Nitisastro played in Indonesia’s economic development
between 1966 and 1998 has been widely celebrated. Within Indonesia, he is universally known across the policy-making elite, the economics profession and the
development aid community. In 2007 a remarkable list of senior Indonesian policy
makers and advisers collaborated to produce a warm and valuable collection of
articles about their experiences of working with Widjojo (Arsjad Anwar, Ananta
and Kuncoro 2007a). In elite international policy-making circles he is among the
most respected economic statesmen of Southeast Asia since the Second World
War. The roll-call of eminent international leaders who have paid tribute to his
work includes Manmohan Singh, Larry Summers, Julius Nyerere, Noboru Takeshita, Cesar Virata, Michel Camdessus, Marshall Green and many others (Arsjad
Anwar, Ananta and Kuncoro 2007b).
Among the characteristics generally required of a top government policy maker
is the ability to work well with colleagues and draw the best efforts out of a close
team. Widjojo’s skill in coordinating the policies of the Berkeley Maia group is
legendary. One of his close colleagues, Emil Salim, described his role as follows:
Looking back on my experience as a cabinet minister for over two decades ... it was
Widjojo who was the real architect of the economic policies of the New Order. He
was the dalang, or puppeteer, who directed the play, while we, the other economic
technocrats, were the players, the wayang. We used to call him lurah (village head),
and we still do. Widjojo was able to carry out his economic policies because Soeharto trusted him; the president knew that he did not have a ‘hidden agenda’. Widjojo
was also able to rely on us, his fellow economists, because we all shared similar
views on the need to pursue sound economic policies (Salim 2003: 209).
Much has been written by Widjojo’s friends and colleagues about the role he
played as a top adviser. But what has been somewhat lacking is an accessible
record of Widjojo’s own views about economic policy during the period. With the
publication of this volume (Nitisastro 2010), we now have a valuable collection of
articles, reports and commentary selected by Widjojo himself. It helps to ill out
the picture of his role in economic policy making in Indonesia, and is a contribution to the literature on economic policy making in developing countries.
THE COLLECTION
Pengalaman Pembangunan Indonesia provides a rich body of commentary on policy
issues across the entire period of Widjojo’s career as a key adviser. With the exception of one early (1963) article, the scope of the collection coincides almost exactly
with the Soeharto era. A batch of articles prepared in 1966 records in detail the
3 A brief summary of Widjojo’s career is given in Arsjad Anwar, Ananta and Kuncoro
(2007b: xvii). Widjojo held ministerial rank in successive Indonesian cabinets for most of
the 1970s and until 1983, when he chose not to sit as a minister in the Fourth Development
Cabinet. He continued to be very inluential as one of President Soeharto’s closest advisers throughout the rest of the 1980s, and worked closely with the president until Soeharto
resigned from ofice in 1998.
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Widjojo Nitisastro and Indonesian development
89
thorough measures taken to ensure that a ‘rational’ approach to economic policy
(to use Widjojo’s words) would replace the policies pursued in the early 1960s
under then President Soekarno. The other chapters survey a wide sweep of economic policy issues covering the 1970s, the 1980s and much of the 1990s, up to the
end of the Soeharto ‘New Order’ era in 1998.
There are several ways of viewing the scope of the volume. One is to note the
sections into which Widjojo has grouped the chapters:
•
•
•
•
•
•
Indonesian Development Planning
Implementation of Indonesian Development
Facing Various Economic Crises
Tackling Problems of External Debt
Equity in Development
Indonesia and the World
A more complete picture, which gives a sense of the movement in policy as events
unfolded over the period, can be seen in the list of chapter headings arranged by
date of original publication (table 1).
To survey the remarkable breadth of the collection it will be useful to consider
the main themes that recur throughout the chapters, and to outline the distinctive view that Widjojo, as an eminent policy adviser from the developing world,
presents on some of the issues on today’s global development policy agenda. This
article also relects briely on some matters that the collection does not cover.
POLICY THEMES
Of the various themes to which Widjojo returns in his three-decade coverage of
policy making, a few underpin much of the discussion. They are simple, direct
messages, probably familiar to all good policy makers. It is perhaps signiicant
that, although his training and professional life has focused mainly on economic
policy, Widjojo has taken a close interest in demographic issues as well.4 His view
of the scope of policy thus tends to go well beyond the speciics of macro- or
microeconomic policy. For example, in a 1990 essay, ‘Progress and challenges of
development in Indonesia’, he outlines 10 main topics that he saw as important
at the time:
•
•
•
•
•
•
•
•
•
•
population in Java
debt management
economic reform and policy improvement
poverty alleviation
protection of the environment
food self-suficiency
development of human resources
expansion of the labour market
business growth and social justice
the role of government and regulation
4 Widjojo’s book on population trends in Indonesia, published in 1970, was an important
contribution to debate on the public policy issues the government faced at that time (Nitisastro 1970).
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Peter McCawley
TABLE 1 Chronological Listing of Chapters
Year
Chapter
No.
1963
1966
1968
1969
1971
1972
1975
1977
1978
1979
1980
1982
1984
1985
1986
1989
1990
1991
1993
1994
1996
1997
Title
1 Economic analysis and development planning
2 Unwise economic and inancial policy
3 Revisions to the foundations of the Indonesian economy according to economic principles
4 Contribution from the Economics Faculty, University of Indonesia, to the
1966 session of the Supreme Consultative Assembly on ‘new directions’ in
economics, inance and development
5 Comparisons of clauses from the contributions of the Economics Faculty,
University of Indonesia, to the 1966 session of the Supreme Consultative
Assembly with Assembly Determination No. XXIII of 1966
6 Implications and consequences of Supreme Assembly Determination No.
XXIII of 1966 in the area of economics, inance and development
8 Aspects of the approach underpinning Repelita (the ive-year development
plan)
7 Challenges in increasing food production in Indonesia
20 Old debts and new debts
14 The international monetary crisis
15 The food crisis
16 The Pertamina crisis
23 Helping small entrepreneurs
24 Food, nutrition and cross-sectoral cooperation
17 Devaluation of the rupiah
22 The equality program
27 Indonesia leads at OPEC in Bali while Iran and Iraq are at war
18 Fuel price increases
26 In the mutual interest of rich and poor nations
29 Perceptions of interdependence but lack of meaningful actions
11 Oil and the Indonesian economy
19 The slump in world oil prices
28 Fifteen events in the world economy in the 1980s
9 Progress and challenges of Indonesia’s development
12 Taking tough and painful decisions
10 Some features of Indonesia’s economic development during the last 25 years
21 A once and for all settlement of Indonesia’s foreign debt
25 Reducing poverty: Indonesia’s experience
30 Advancing mutual understanding and mutual conidence
13 Considering various proposals for development projects
Source: Nitisastro (2010).
This approach to policy making underlines Widjojo’s concern not just with the speciics of economic policy but with a much broader view of the development process
across Indonesia as a whole. In this, he shared many of the views of his colleague
Professor Sumitro Djojohadikusumo, who emphasised the importance of seeing
Indonesia’s development challenges within a long-term context (Esmara 1987).
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Economic growth and mass poverty
The irst main theme that Widjojo emphasises, especially in the earlier years, is
the challenge of mass poverty in Indonesia and the vital need for good development policies to begin an assault on the problem. His concern for the parlous
state that Indonesia was in during the mid-1960s, and the urgency of fostering
‘the slow return of sanity to government decision making’, as Jamie Mackie has
put it (McCawley and colleagues 2002: 166), is particularly evident in Widjojo’s
early articles. But a continuing emphasis on widespread poverty, and the need for
sustained economic growth to overcome it, remains a central theme throughout
the period covered by the collection. In 1994, for example, at an IMF–World Bank
conference in Spain, he outlined Indonesia’s anti-poverty programs in a paper
on ‘Reducing poverty: Indonesia’s experience’ (ch. 25). He noted the importance,
in the Indonesian context, of promoting rural development by investing in primary schools, health clinics, nutrition and family planning programs, and rural
infrastructure such as roads, irrigation systems and lood control structures at
the village level.
For Widjojo, the link between tackling poverty and developing sound policies
is clear. Again and again he emphasises the need for commonsense policy. He
urges policy makers constantly to consider ways of eliminating waste in government; to husband scarce resources; to make more ‘rational’ decisions than had
been the case in the 1950s and early 1960s; and to pay proper attention to sensible
macro- and microeconomic policies.
It seems in retrospect that in irmly supporting these principles, Widjojo and his
close colleagues in the Berkeley Maia, such as Ali Wardhana, set a tradition that
has endured among many Indonesian policy technocrats to the present day.5 A
long line of senior economic policy makers has followed their lead, including the
current vice president, Boediono; the trade minister, Mari Pangestu; the planning
minister, Armida Alisjahbana; the former inance minister, Sri Mulyani Indrawati;
earlier policy makers such as Ariin Siregar, J.B. Sumarlin, Radius Prawiro, Saleh
Aiff, Suhadi Mangkusuwondo and J. Soedradjad Djiwandono; and more recent
advisers such as Anggito Abimanyu, M. Chatib Basri, Moh. Ikhsan, Raden Pardede and others.
Some observers, both within Indonesia and overseas, argue that too many of
Indonesia’s senior economic policy makers today are over-cautious. A criticism
sometimes made of them, as of the Berkeley Maia group before them, is that they
are not adventurous enough. But it is surely a great strength of several generations of technocratic policy makers in Indonesia that they have adopted Widjojo’s
approach of cautiously examining all main proposals that come to them from the
viewpoint of Indonesia’s national interest, and of being reluctant to experiment
with policy unless the case for change is strong.
5 Radius Prawiro, who was governor of Bank Indonesia from 1966 to 1973, notes that several of the technocrats who rose to prominence in the late 1960s remained in the high ranks
of government for a long time. He observes that this continuity ‘was invaluable because it
meant that many of the lessons of the early years of the New Order were not lost when new
problems were faced in subsequent years’ (Prawiro 1998: 83).
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Risk management
A second dominant theme, consistent with the irst, is the importance of risk
management. Again and again, Widjojo warns of the need for Indonesia’s policy
makers to be waspada (cautious, alert or on guard) and to be ready to respond to
unexpected events (which, he emphasises, can change conditions for the worse as
well as for the better). It is clear throughout the book that Widjojo is thinking of
both domestic and external shocks. His fascinating chapters on the 1972–73 food
crisis and the Pertamina crisis of 1975 are about domestic shocks that dominated
Indonesia’s policy agenda for months at the time they occurred. But much of the
discussion – about oil prices, foreign exchange rates and international borrowings – relates to international shocks. Running through this material are several
recurring sub-themes.
First, Widjojo is concerned about the uncertainty of the international environment for developing countries, and about how Indonesia seems to be continually
buffeted by international events. The clearest example is the dramatic luctuation
in oil prices during the 1970s and 1980s. Other international events that contributed to uncertainty for Indonesian policy makers included the dramatic realignments of international foreign exchange rates between the Plaza Accord in 1985
and the Louvre Accord in 1987.
Second, Widjojo notes in a pragmatic way that decisions taken by senior policy
makers in distant rich countries can have signiicant backwash effects on developing countries. In commenting on the ‘Nixon Shock’ of August 1971 – when the
United States declared, in effect, its abrogation of the Bretton Woods agreement
on international exchange rate arrangements, which had applied since 1944 – he
noted that there were ‘... serious implications for developing countries’, and that
the changes ‘… in the short-term would disadvantage prospects for Indonesia’s
exports’ (p. 265).
Widjojo also stresses the need for Indonesia to diversify its sources of export revenues to guard against the risks of dependence on any single source. He urges that
‘… Indonesia must give high priority to efforts to increase foreign exchange revenues from the export of goods and services outside the oil and gas sector’ (p. 388).
Discipline in government
A third theme anticipates the current emphasis on the importance of governance
in developing countries. Widjojo believes that emerging country leaders must be
prepared to take dificult decisions. In a chapter on this subject he says (p. 229)
that
… it is necessary for leaders in developing countries always to be vigilant and never
to have doubts about moving to take necessary decisions, no matter how tough and
painful they may be. 6
And this was clearly one aspect of Soeharto’s approach to government of which
Widjojo approved. He says ‘President Soeharto as leader never drew back from
taking tough and painful decisions, no matter how … dificult they were’.7
6 All main quotations from Indonesian are translations by the author of this review.
7 Widjojo’s colleague Emil Salim also emphasises Soeharto’s willingness to take dificult
and unpopular decisions (Salim 2003: 213).
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Widjojo is irm on the importance of disciplined decision making. He is critical
of what he calls ‘non-rational’ decision making during the period of the Soekarno
presidency. ‘We can’t just do this and that’, he says, speaking of the ad hoc
approach to public policy in the late 1950s and early 1960s. Decisions, he emphasises, must be ‘rational’. He is also critical of the lack of discipline and rationality
in other developing countries:
Failure to overcome … challenges in … developing countries sometimes arises because leaders fail to set consistent priorities when considering the measures they
plan to take. Sometimes the leaders are unable to agree among themselves on priorities. Or if they do reach agreement on the priorities, sometimes they do not adhere
to them, or fail to implement them. The result is that programs that were not seen
as priorities are adopted, while other activities originally accorded high priority are
pushed aside. In effect, activities are being carried out without any sense of priorities (p. 234).
Widjojo also emphasises the importance of discipline in the implementation of
policies. In 1966, when he and his colleagues were playing an increasing role in
efforts to reform the approach to economic policy making, he argued that
it would be best for us all to recognise that improvements in the economic situation
will not be realised through speeches, symposiums, seminars and so on, but only
through concrete actions. … [T]he problem we need to tackle is how the good intentions of government can be translated into reality (pp. 46–7).
Expanding on this theme, he said:
No matter how good particular decisions are, they will mean little unless they are
translated into action. Unless this happens, there will just be disappointment. In
practice, it is not unusual for steps to be taken that are said to relect the implementation of particular decisions but that do not, in fact, relect the real intent of
those decisions at all. Indeed, it sometimes happens that the particular steps that
are taken distort and undermine the original decisions, yet they are justiied with
various spurious explanations (p. 120).
On the basis of this approach, Widjojo and his colleagues argued throughout 1966 for widespread reforms to government. Proposals mentioned (ch. 6)
included greatly improved budgetary procedures; tighter supervision of government expenditures; strengthening of regulatory organisations such as the Financial Supervisory Agency (Badan Pengawas Keuangan); and a streamlining and
simpliication of government procedures. Only some of these reforms came to be
implemented in the ensuing years, but those that were (such as more disciplined
budgetary procedures) led to major improvements in government management,
while those that were not (such as streamlined government) remain widely recognised as part of the uninished agenda of government reform in Indonesia.
One of the clearest examples of the sort of discipline Widjojo favoured – though
imposed at a very late stage in the process – was the action the government took
in response to the Pertamina crisis in 1975. There had been much public comment
in Indonesia for ive years or more (Mackie 1970) about the free-wheeling ways in
which the giant state-owned oil company had been allowed to conduct its operations. Things came to a head in early 1975, when it was clear that Pertamina had
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incurred serious debt problems by undertaking massive short-term borrowings.
When international credit markets tightened, the company found itself unable to
service its debts.
In response to this crisis the government, at the urging of Widjojo and other top
economic advisers, inally clamped down on Pertamina (Sadli 2003: 134). It fell to
Widjojo, as Coordinating Minister for Economic Affairs and chair of the National
Development Planning Agency (Bappenas), to make a statement to the parliament
on the situation. His message was frank and tough (ch. 16). Widjojo outlined steps
that he diplomatically described as ‘measures to help overcome Pertamina’s dificulties’, and actions designed to protect both the nation’s inances and the balance of payments. In addition, he announced a range of new measures to bring
Pertamina’s operations under tighter regulatory control: its borrowings would be
much more closely restricted; its entire investment program would be re-examined;
stricter internal administration would be required from its management; and a
revision of its inancial arrangements would be undertaken to ensure that a much
higher share of the company’s proits was paid into government revenues.
Pertamina’s 1975 debt problems represented an acute crisis for the government.8 The crisis dominated public policy debate in Indonesia for over a year.
It seems obvious that action should have been taken much earlier, but President
Soeharto, for his own reasons, was reluctant to impose controls on the company.
As a result, the economic advisers within government who were pressing for
tighter regulation, including Widjojo and his colleagues, had no choice but to bide
their time. It can be argued that the Pertamina debacle was an example of lack
of discipline within government. However, Widjojo and other economic advisers
would have contended that the crisis showed precisely why their arguments in
favour of strict discipline in government were so important.
Investment programs
Another of the main themes to which Widjojo frequently returns, consistent with
his emphases on ‘rationality’ and risk management, is the need for careful oversight of investment programs. Policy makers, he says, must carefully consider the
risks inherent in proposed investments, and the pros and cons of public or private
sector projects that involve large-scale borrowings. Widjojo is instinctively cautious in evaluating large projects. He warns that things can go badly wrong when
the basic principles of ‘check and recheck’, as he puts it, are neglected. And he is
sharply critical of leaders in other developing countries who implemented careless
public investment programs; for example, he says that ‘[i]n the past, Ghana borrowed from various sources and used the money for unproductive purposes. This
is scarcely different from what we did at the same time’ (p. 401). And he observes,
doubtless recalling the circumstances in Indonesia in the early 1960s, that
[i]n some countries, there are leaders who want to build everything at once. All sorts
of large projects are implemented at the same time, as if there were no inancing or
8 Sadli provides details of the way the crisis developed and the role of the economic advisers in responding to it, noting that ‘the Pertamina crisis was managed by Widjojo himself’
(Sadli 2003: 134). Sadli describes the problems of Pertamina as ‘the greatest crisis I faced as
Minister for Mining’.
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other resource constraints. The result of this approach is that many plans end up
not being implemented, many projects are neglected, and inlation can begin to rage
entirely out of control (p. 234).
He discusses the implications of careful project planning at some length in
his essay on the approach of former Vice President Sudharmono (1987–93), who
exercised tight control over public investment programs (ch. 13). Sudharmono,
Widjojo explains, provided strong and effective discipline by asking a series of
straightforward questions about public investment proposals that came before
him. The most important of these were:
• Is the project necessary?
• Does it need to be so large? Is it not possible to build a smaller project?
• Is it necessary now? What is the urgency? Are there not more urgent alternative
activities?
• Can the costs be reduced? Has everything possible been done to reduce the
costs?
• Have experts reviewed the feasibility study? Can we see the results of the
review?
There is little doubt that Widjojo had in mind the need to curb the ambitions of
inluential presidential advisers who were close to President Soeharto. The economic advisers in Jakarta in the 1970s and 1980s often found themselves engaged
in policy battles with such well-known igures such as Ibnu Sutowo and B.J.
Habibie, the respective leaders of Pertamina and of a group of high-tech aeronautical companies in Bandung.9 The engineering advisers within government,
who supported the approach of these people, favoured a development policy for
Indonesia that focused on state-sponsored assistance for ‘strategic industries’. But
too often, in the view of Widjojo and the other economic technocrats, the grand
plans endorsed by the engineers were expensive and risky.10
Widjojo’s irm view is that policy makers should avoid over-conidence in
supporting either public or private investment. He made some prescient comments on the issues at stake in 1997 – just months before the Asian inancial crisis
unfolded, delivering a series of blows to the economy that set back development
9 B.J. Habibie, later president of Indonesia (1998–99), was responsible for a group of 10
state-owned irms operating in the airlines and aeronautical sector, one of the best known
being IPTN (Industri Pesawat Terbang Nusantara, literally ‘[Indonesian] Archipelago Aircraft Industry’).
10 The differences of view between the economic and the engineering advisers are relected in a September 1976 interview I had with Ibnu Sutowo in Jakarta. Ibnu mentioned
disagreements that had arisen between him and Widjojo several years earlier over plans for
a large fertiliser project. Ibnu had proposed the construction of a fertiliser plant drawing on
Pertamina resources. Widjojo was cautious and suggested that Indonesia seek to inance
the project using low-interest soft loans rather than the more expensive funds that Pertamina was likely to draw on. Ibnu was disappointed about the delays these discussions led to
in implementing the project. ‘That’s the way these people [Widjojo and his colleagues] go
about these things’, Ibnu said. ‘They hate me. ... They have disliked me for years. We are
different sorts of people. We do things in different ways.’
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for almost a decade. Endorsing Sudharmono’s sceptical approach to showcase
projects, Widjojo argued that unless policy makers avoid over-conidence,
… development will be derailed and lose direction, resulting in economic decline …
This is what happened in various developing countries, especially in Latin America.
When things were dificult on the economic front, and when their capacities were
limited, these countries were cautious and held irm to development priorities.
But when things improved, a sense of over-conidence developed that led them to
drop their guard. They competed to promote projects across various sectors, and
governments no longer held irmly to strict development priorities. The result was
that they over-reached themselves and an economic crisis eventuated. This is what
happened in Argentina, Brazil, Colombia, Venezuela, and especially Mexico.
A similar process has often occurred in the private sector in these countries. …
[Companies] have inanced their activities with international borrowings which,
oficially, are not accompanied by government guarantees. However, because international loans are used to support projects that are closely connected with the government, or with large government-owned enterprises, an indirect government
guarantee gets built into these activities. And when a foreign debt crisis looms, a
large share of the private sector debts – including short-term debts – get transferred
to the government. This is what occurs when we fail to pay suficient attention to
the details of implementation of development programs (p. 254).
From one point of view, the principles Widjojo outlines are obvious. But from
another, his messages are crucial ones because of the frequency of attempts to
brush them aside. There is a propensity in many countries for leaders who claim
to have vision – and for the enthusiastic lobbyists who line up behind them –
to support expenditure of public monies on investments of doubtful value. And
there has been no shortage of costly projects in Indonesia, to many of which
Widjojo refers in his collection.11
Borrowing and debt
Another of the collection’s main themes is the need for careful debt management.
Widjojo constantly emphasises that policy makers must be careful in taking on foreign borrowings. Nationalist and populist commentators in Indonesia sometimes
accused the economic technocrats of being too willing to sacriice Indonesian
interests in order to win praise from the international community. The technocrats were also accused of having been indoctrinated with neo-liberal ideology
in western universities. But it is clear that Widjojo shares the caution that many
Indonesian policy makers and commentators feel about opening the Indonesian
economy too readily to international market forces. In various places he refers
to the way luctuations in the global economy, and decisions taken by the major
industrial nations, have sometimes caused serious problems for Indonesia. On the
other hand, Widjojo is an internationalist, including in the matter of international
borrowings. In addressing the parliament in November 1969, he discussed at
length Indonesia’s ‘old debts and new debts’ (ch. 20). Faced with the challenge of
11 Among other projects, he mentions PT Krakatau Steel; LNG projects in Aceh; various
fertiliser projects (including initiatives in Kalimantan and Cirebon, and others involving
the state-owned Pusri fertiliser company); oil reinery activities in Cilacap; and a major
petrochemicals project in Gresik.
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persuading sceptical members of parliament to adopt a sensible foreign borrowing program, he tactfully surveyed the recent history of Indonesia’s international
borrowings and set out the country’s needs for the future.
In discussing Indonesia’s experience, he explained that since 1966 the government had followed a cautious approach in negotiations with international creditors
about debts due from the Soekarno era. He emphasised that the negotiations had
been dificult. The government had been seeking to minimise the debt burden, but
creditors had legitimate interests as well. His clear message to members of parliament was that it was in Indonesia’s long-term interests to handle its international
debt problems in a responsible way. Summarising the dilemma, Widjojo said:
When there is a change of government … such as occurred in our country in mid1966, then the matter of old debts and new debts becomes relevant. Old debts are
those incurred by the previous government that have not been fully repaid. The
repayment of old debts becomes a responsibility of the new government. If the new
government is not prepared to accept responsibility for the old debts and refuses to
acknowledge them as an ongoing commitment, then other governments will not be
prepared to provide [it with] new loans and, moreover, will lay charges against [it]
in their own courts or in international courts. They may well coniscate property of
the new government, such as planes and ships that are in their territory. Because of
these considerations, the only course of action for a new government is to acknowledge the debts of the previous administration and look for ways to settle them as
well as possible. It is the responsibility of the new government to seek the best way
forward and to prevent a repeat of the situation in the future (p. 395).
He then turned to the present. Weighing up the challenges Indonesia faced in
1969, Widjojo drew on the ‘gap analysis’ approach that was still widely used in
the late 1960s, to suggest to the parliamentarians that Indonesia had an urgent
need to obtain foreign resources. His conclusion after discussing both the external
(balance of payments) and internal (budget) gaps was that:
Bearing all of this in mind, if we are realistic and don’t want to bury our heads in
the sand, the need for international borrowings and foreign aid is clear, from the
viewpoint of both the balance of payments and budgetary pressures (p. 407).
But then, in the next stage of his address to the parliament, he proceeded to tease
out in subtle ways the central issues of foreign borrowing. Harking back to the
Soekarno era, he posed the rhetorical question: ‘Is it not possible to replace foreign borrowings by printing money?’ In putting this question, without directly
mentioning the dificulties that arose during the still-too-recent Soekarno era, he
raised key questions to which his audience surely wanted answers. He gave two:
irst, that the principal challenge for Indonesia was not so much inding money
as spending it well; and second, that Indonesia’s most urgent need at the time
was for increased supplies of foreign, not domestic, resources – and that foreign
resources could not be obtained by the printing of rupiah (p. 408).
Looking to the future, Widjojo assured the chamber that Indonesia did not simply accept loans on the terms on which they were offered, but set conditions to
ensure that the terms were acceptable. To bolster the case, he explained that there
were three main purposes for which loans were needed at the time: food; other
urgent imports; and projects.
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Looking over this summary of Indonesia’s international debt management
strategy today, 40 years after the approach was outlined to the parliament, one
is struck by the care given to efforts to ensure that Indonesia’s new approach to
the international community was understood and accepted. At the time, the new
Soeharto government was just beginning to build its economic credentials both at
home and abroad. Widjojo therefore needed to emphasise that the adventurous
and experimental ways of the past would not be repeated, that Indonesia would
meet all reasonable international commitments, and that it was keen to retain
access to international inancial markets both to meet urgent funding needs and
to support longer-term development programs. Indeed, much of the thrust of the
strategy remains just as relevant now as it was 40 years ago, because Indonesia still
needs large amounts of capital to inance development. The case Widjojo made to
the parliament in 1969 in support of international borrowings could proitably be
re-read by parliamentarians today.
The price mechanism
A sixth theme is the importance of prices, both in international markets and at
home. Variations in international prices, especially of commodities such as oil, but
also of other tradable goods, foreign exchange and inancial capital, have often
had a dramatic impact on the Indonesian economy in recent decades. Important
episodes that Widjojo discusses in detail include the remarkable luctuations
in oil prices in the 1970s and 1980s; the associated movements in international
exchange rates, including the ‘Nixon Shock’ of 1971 and the large international
realignments between the Plaza and Louvre Accords of 1985 and 1987; and the
marked changes in international interest rates and equity prices during the 1980s.
Large international price movements of this kind tend to low through to the
Indonesian economy quite quickly. Policy makers needed to be constantly ready
to make adjustments to domestic policy in response.
On the controversial subject of domestic prices, Widjojo is generally somewhat
more circumspect. Like many of his economist colleagues in Indonesia, he is
inclined to focus on the macroeconomic implications of price changes rather than
on the implications of price policy in particular markets and industries. He also
shares (or, at least, judges it wise to allow for) the concerns that many policy makers and commentators have about the problems that can arise from uncontrolled
markets. At various times, for example, he warns of the exploitation that can arise
from ‘free-ight liberalism’, and the dificulties that sharp price changes in international markets can give rise to within Indonesia.
But Widjojo is certainly alert to the importance of price policies for key markets
at home – especially in the politically sensitive food (rice), fuel and utility sectors.
He urges that policy makers be pragmatic in responding to exogenous changes
from any quarter. And he adopts a pro-market approach, arguing that governments need to be ready to adjust domestic pricing policies in key sectors such as
rice and fuel when circumstances suggest that price changes would be helpful.
Indonesia and the world
The last of the main themes that recurs throughout the collection is Widjojo’s
awareness of Indonesia’s place in the international community, and especially
of its role in the developing world. He pays attention both to the beneits that
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Indonesia can gain from interacting with the global development community and
to the ways it might in turn contribute to international understanding of the challenges of global development.
Widjojo’s views on how Indonesia should interact with the international community combine distinct elements of both nationalism and internationalism. As a
nationalist, he is aware that the major nations of the world pay scant attention to
the interests of developing countries like Indonesia when they negotiate among
themselves over policies that affect the management of the global economy. Writing in 1990 (‘Progress and challenges of Indonesia’s development’), he noted,
quite simply and without rancour, that
… [w]hen the industrial countries take decisions about matters that have a global
impact, they fail to consider – or, at best, give little attention to – the implications for
developing countries. The G-7 countries, and in recent events [concerning the Plaza
and Louvre Accords in the period 1985–87] just the G-2 countries [the United States
and Japan] alone, constantly leave developing countries on the periphery, well out
of sight and mind (p. 192).
And earlier, at a conference in Tokyo in 1984, in a keynote speech on ‘Perceptions
of interdependence but lack of meaningful actions’, Widjojo had been pointedly
critical of the commitment of rich countries in the ield of North–South cooperation. He declared that
[t]here has already been a plethora of global conferences – high-level conferences,
ministerial-level conferences and so on – that have set out irm commitments about
things like international development cooperation, commitments to … foster open
trading arrangements, and commitments to better manage arrangements for multilateral economic cooperation. But unfortunately none of these international economic conferences has managed to bring about any signiicant progress in the area
of international economic cooperation. And in fact, in all of the North–South forum
dialogue meetings that have been held, the inal results have led to dead ends, or
to efforts that have just faded away, or even to a weakening of earlier commitments
that had been entered into (p. 539).
But despite this plain speaking in his nationalist role, Widjojo also has an
internationalist’s perspective on Indonesia’s links with the world. While he
constantly emphasises that conducting effective economic diplomacy and
operating in global markets is a dificult task requiring leaders and oficials to be
on guard, he also argues that it is clearly in Indonesia’s interests to interact closely
with the global community.
Widjojo is an Indonesian nationalist in another sense too. Like his other
colleagues in the Berkeley Maia, he has been glad to be able to point to Indonesia’s
successes in important aspects of development policy. During the 1990s, along
with colleagues such as Sadli, Emil Salim and Suhadi Mangkusuwondo, Widjojo
was tasked by President Soeharto to act as a representative from Indonesia in
helping to foster South–South development cooperation programs, including
those in Africa (Salim 2003: 213). It was in this context that he spoke at the
Tokyo International Conference on African Development in 1993 on the topic of
‘Some features of Indonesia’s economic development during the last 25 years’
(ch. 10).
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During these efforts at South–South cooperation and on other occasions,
Widjojo was keen to share the lessons of Indonesia’s development programs with
other emerging countries. He discussed Indonesia’s experience of family planning, its programs in the agricultural sector to improve food production, and
especially its efforts in the area of poverty alleviation. Key aspects of Indonesia’s
anti-poverty programs that Widjojo highlighted were a strong emphasis on rural
development; sustained economic reform, including a budget policy that focused
on anti-poverty programs; and pro-market deregulatory and pricing policies
designed to promote economic growth through labour-intensive activities in agriculture and manufacturing. According to Widjojo,
… it is the rapid growth of sustainable, labour-intensive industry that has been the
most important factor in reducing poverty in Indonesia. The close relationship between this growth and reductions in the number of poor can be seen in the speciic
type of growth that has occurred in Indonesia: rapid growth in the agricultural sector followed by rapid growth in labour-intensive manufacturing – accompanied by
policy packages that have supported growth in these sectors (p. 485).
WIDJOJO’S KEY MESSAGES
Widjojo’s is the voice of one of the developing world’s most eminent policy makers in the latter part of the 20th century. What, then, are the central emphases that
emerge from his writings over 30 years of development policy making? Perhaps
three stand out: growth, leadership and stability.
First, Widjojo is in no doubt about the need for strong and sustained economic
growth to overcome poverty and promote development. He favours high levels of
sound public and private investment, effective iscal policies, continual economic
reform, and clear sectoral policies – all because they underpin strong economic
growth. Interestingly, this collection of articles written up to 1997 says little about
one of the headline issues in the debate on growth and development today – climate
change. Doubtless his well-known colleague Emil Salim has helped to ill this gap
in recent years. But it would be a mistake to overlook the view on energy consumption levels and international environment issues that Widjojo set out in 1990:
Energy consumption per capita in Indonesia is very low, and indeed rather low
even when compared with the level in some other countries in Asia. Indonesia has
natural energy resources such as oil, coal and hydro-power. If industrial countries
try to prevent the use of these resources for Indonesia’s development without giving attention to practical alternatives, while they themselves maintain extravagant
standards of living that use up much oil and coal, then this must be seen as an attempt on their part to constrain Indonesia’s development. Because of this, more efforts are needed by industrial countries to curb environmental damage within their
own borders and, at the same time, to become more willing to support programs
that promote sustainable development in emerging countries. (p. 196).
The relatively slight attention that Widjojo gives to environmental issues in
these essays may relect the priorities of the period when he was a policy maker.
But what is just as likely is that it relects the quite different priorities that rich
and poor countries give to the trade-offs that need to be made between energy
consumption and the environment.
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Second, Widjojo has clear views about some key matters now regarded in international development circles as leadership and governance questions. He speaks
strongly of the need for effective leadership and (not necessarily quite the same
thing) for good, sensible management in developing countries. Policy makers in
rich countries who have for years delivered lectures about the need for developing countries to take more responsibility for their own progress may welcome
these views with enthusiasm. And there is a strong message in Widjojo’s emphasis on the need for economic policy leadership that resists vested interests.
But there are some implications of the approach he outlines that leaders in rich
countries might not quickly notice – including the possibility that as the conidence
of developing country leaders grows, the views they express may increasingly
diverge from the dominant perspectives in the rich world. India, for example, had
a irm position on trade policy issues that contributed to the failure to conclude
an agreement during the Doha round of trade negotiations in 2008. And more
recently, China’s concern to protect its interests complicated efforts to reach agreement during the 2009 Copenhagen negotiations on global environmen