Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 00074910802169160
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
BOOK REVIEWS
To cite this article: (2008) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 44:2,
315-322, DOI: 10.1080/00074910802169160
To link to this article: http://dx.doi.org/10.1080/00074910802169160
Published online: 31 Jul 2008.
Submit your article to this journal
Article views: 46
View related articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 18 January 2016, At: 19:57
Bulletin of Indonesian Economic Studies, Vol. 44, No. 2, 2008: 315–22
BOOK REVEWS
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
Miranda S. Goeltom (2007) Essays in Macroeconomic Policy:
The Indonesian Experience, PT Gramedia Utama, Jakarta, pp. 594. Rp 175,000.
Professor Miranda Goeltom is senior deputy governor at Bank Indonesia, with a
long and distinguished career as an academic and policy economist at Bappenas
(the national planning agency), in the office of the Coordinating Minister for
Economic Affairs and (for the past decade) in Bank Indonesia. She writes, with
the benefit of inside experience, on a wide range of policy issues, mainly macroeconomic.
For this reviewer, the most interesting chapters are those relating to the development of monetary policy. Over the past three decades the Indonesian financial system has been transformed. Previously dominated by state-owned banks,
the banking sector now includes well over 100 private banks (with significant
representation from major foreign banks), while the state banks account for less
than half of all banks’ assets. ‘Financial repression’ has gone, with non-bank alternative sources of funding now provided by capital markets, through bonds and
equities. Credit is no longer rationed through a closely controlled allocation process favouring the state-owned enterprises and guided by the central bank into
‘priority’ areas; now, the full range of finance is available, with consumer loans
for motor cycles and cars being the fastest growing and most profitable part of
banking. Monetary policy has gone from direct controls, through a period where
money base control was attempted, and finally to the current international-bestpractice model of inflation targeting, using short-term interest rates as the instrument of policy. All this took great institutional change, not least in the central
bank, with the need to develop the tools for a market-based monetary policy: a
short-term money market and the instruments of open-market operations. During
this transition there was the monumental disruption of the 1997–98 crisis, which
saw the central bank’s reputation greatly diminished. The crisis also halved one
commonly used measure of financial deepening: the ratio of bank credit to GDP.
This story is told in a series of chapters covering the evolution from regulated
finance towards inflation targeting; a detailed exposition of the transmission
mechanism of monetary policy; the problems of time-consistency; how the central bank communicates with the public; and the shift from a closely managed
exchange rate to a much freer regime. Other chapters cover the institutional
developments in policy making; the strengthening of governance in the banking
system; and the widening of the array of financial institutions and instruments
(including the development of the government bond market, one of the few ’side
benefits’ of the crisis). The relationship between monetary and fiscal policy, the
1997–98 crisis, and the role of the International Monetary Fund during the crisis
ISSN 0007-4918 print/ISSN 1472-7234 online/08/020315-8
DOI: 10.1080/00074910802169160
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
316
Book reviews
are all covered. A consistent theme is the inevitability of international financial
integration and globalisation, and the problems and opportunities this presents.
The focus here is on capital flows: their effect on the exchange rate and the vulnerability that comes from possible reversals of flows. Regional cooperation has
been active, particularly since the crisis, and especially between central banks: the
Chiang Mai Initiative for pooling foreign exchange reserves, and the possibility
of an ‘Asian Monetary Fund’ are discussed. Ranging more widely, chapters cover
the role of women, reform of state-owned enterprises, and demographics.
This is a rich variety of policy challenges, and Professor Goeltom uses the
opportunity to juxtapose theory and international analysis with the local realities,
presenting views on how well (or imperfectly) the theoretical models fit the Indonesian reality. At times, the treatment is quite technical: economic modelling and
simulations are used to illustrate aspects of the policy process.
Each of the chapters is a lightly edited version of earlier papers and speeches,
mainly from around 2005–06, with some going back considerably further. This
reflects Professor Goeltom’s consistent and active publication record, but it results
in a fair amount of repetition, and coverage of issues which were overtaken by subsequent events. A book written from scratch would probably draw the underlying
themes more sharply and capture the continuity and evolution of both policy making and the financial sector. We might have hoped that an ‘insider’ would give us
more of the detailed flavour and cut-and-thrust of the policy process, and the political economy of Bank Indonesia as it came through this turbulent decade. This will,
no doubt, have to wait until Professor Goeltom is no longer intimately involved
in the policy process, when she may be freer to add the colour and context that is
missing from the story told here. For the moment, we should be grateful that, in a
country where detailed commentary by policy makers is still quite rare, Professor
Goeltom has provided a contemporaneous commentary on so many issues of
importance to the macro economy, and that these writings have been gathered
together and edited into a consistent story of a financial sector in transition.
© 2008 Stephen Grenville
Stephen Grenville
Lowy Institute for International Policy, Sydney
Soren Davidsen, Vushnu Juwono and David G. Timberman (2006)
Curbing Corruption in Indonesia 2004–2006: A Survey of National Policies and
Approaches, Centre for Strategic and International Studies, Jakarta,
and United States – Indonesia Society (USINDO), Washington DC,
pp. xiii + 100, available at .
With Indonesia’s democratisation, corruption has become a prominent political
issue, manifested in frequent exposés of corruption cases in the press, indictments
of government officials and both formal and informal political leaders for corruption, and anti-corruption campaigns by government and non-government
organisations. On the government side, two of the key agencies are the Corruption Eradication Commission (KPK) and the Coordinating Team for Eliminating
Crimes of Corruption (Timtas Tipikor). This book surveys the current state of
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
Book reviews
317
corruption in Indonesia, the approaches adopted to combat it and the constraints
on effective anti-corruption efforts.
Given the coalition status of his government, President Susilo Bambang
Yudhoyono (SBY) appears to believe there are limits to the government’s capacity continually to push the anti-corruption agenda. This book’s authors show
that current anti-corruption efforts focus less on institutional reforms to reduce
incentives and opportunities to engage in corruption, and more on prosecution
of individuals who appear to lack strong political connections. Also, a strategy of
wholesale replacement of government officials has been ruled out. Instead, several cases of corruption have been exposed and the perpetrators indicted with the
intention of creating a deterrent. This approach is often dubbed ‘selective logging’
(tebang pilih). Not surprisingly, many ‘big fish’ escape this process. The most notable of these cases is the alleged corruption of former president Soeharto and his
family. Only limited action has been taken against those in high positions in the
Indonesian political hierarchy, particularly high-ranking government and party
officials and the military. Against this background, combating corruption is considerably more complicated when the legal system that is supposed to enforce the
law is itself plagued by corruption.
One urgent issue discussed in the book that has yet to be dealt with openly in
the newly democratic Indonesia is how political parties finance their activities.
It is widely suspected that their major funding derives from abuse of power by
corrupt government officials. This is similar to what happened during the Soeharto era, when many government regulations and policies were the focus of rentseeking activities to provide funding for the regime.
The possibility of government funds flowing to parties’ coffers is exemplified by
a corruption case discussed in the book, involving prominent members of major
parties. It is widely believed that the parliament (DPR) is another major conduit
through which parties gain access to funding. Reportedly there are middlemen
(calo) who can influence the decisions of members on appointments to important public offices, the allocation of expenditures in the government’s budget, the
speed at which draft legislation is processed and so on, in return for bribes. Funds
received are thought to be used both to finance political activity and to supplement members’ incomes.
An issue largely overlooked in the book is the way the anti-corruption movement
at the local level has boosted the momentum of the campaign at the national level.
The political consequences of tackling corruption are of considerable moment, so
it is perhaps no coincidence that the first phase of SBY’s anti-corruption drive has
focused mainly on cases in the provinces and districts. Even so, these regional
cases have sometimes involved top-level officials.
In these early stages, the power of top national political leaders and government officials appears still to be too strong for the government to prosecute its
anti-corruption drive effectively at this level. Although the effort to eradicate
corruption hitherto has mainly targeted individuals lacking strong links to top
government officials and political leaders, the increasing number of successful prosecutions in the regions provides grounds for some optimism that these
efforts can be replicated at the national level. Indeed, there is now a growing
number of corruption cases before the courts that can be described as national in
character.
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Book reviews
Another aspect overlooked in the book is the impact of democratisation on
corruption at the local level. In the new democratic era, under a freer press, newspapers publish exposés; young and ambitious local prosecutors make reputations through official investigations and indictments; firms and local offices of the
national chamber of commerce can lobby legislators to protect firms from official
harassment and to discipline local officials; and local political parties may gain
votes with anti-corruption stances. As demonstrated by the most recent elections
for provincial governor in West Java and South Sumatra, corruption is a powerful
political issue and may serve to garner electoral support (or turn off many less
committed voters so that parties with more committed voters win the election). It
remains to be seen how this phenomenon will be played out in the 2009 presidential and legislative elections.
One final comment about the book is that those who are looking for in-depth
analysis of corruption in Indonesia will not find it here. From the start the authors
emphasise that the book is a ‘survey’ of the anti-corruption drive by the SBY
administration. With this caveat, the volume is a valuable reference for those
interested in the chronology of policies and approaches in the anti-corruption
campaign during the first two years of the SBY presidency.
© 2008 Ari Kuncoro
Ari Kuncoro
University of Indonesia, Jakarta
Saw Swee-Hock, Sheng Lijun and Chin Kin Wah (eds) (2005)
ASEAN–China Relations: Realities and Prospects,
ISEAS Publications, Singapore, pp. xix + 375. Paper: S$49.90.
Saw Swee-Hock (ed.) (2007) ASEAN–China Economic Relations,
ISEAS Publications, Singapore, pp. xiv + 376. Paper: S$49.90.
After an uneven process lasting four decades, the Association of Southeast Asian
Nations (ASEAN) has developed into one of the world’s most successful regional
international organisations. However, evolving global and regional conditions
have provided ASEAN with a new set of challenges and opportunities. The implications of China’s rise for ASEAN and its relationships with other major powers
represent one area of heated debate.
Intended as a platform for research on this debate, the ASEAN–China Forum
was hosted by the Institute of Southeast Asian Studies (ISEAS) in Singapore in
2004 and 2006, with the latter event dedicated to discussions on economic cooperation and challenges. An edited volume was published by ISEAS following each
event. As their titles suggest, the books share a common theme about the present
and future status of ASEAN–China relations. The editors begin each book with an
introductory chapter providing an overview of the areas covered. Both volumes
also include chapters that probe the overall relationship between ASEAN and
China and the quest to realise a strategic partnership. Whereas chapters 2 and
3 of the 2005 book set an explicitly positive and optimistic tone preceding the
more detailed deliberations in later chapters, the 2007 volume looks at China and
ASEAN separately in chapters 2 and 3, before opening the discussion on their
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319
relationship. Towards the end, the 2007 book introduces more caution into its
overall assessment, describing the likely character of the relationship as ‘tango
together but watch each other’s steps’ (ch. 14: 311).
The 2007 publication investigates a number of specific aspects of economic
interaction between China and ASEAN. Trade issues, particularly in the context of the establishment of an ASEAN–China Free Trade Agreement (ACFTA),
are discussed in chapters 5–7, which canvass not only the economic pros and
cons but also the legal and institutional aspects of ACFTA. In view of the global
trend towards services trade and investment, chapter 8 examines efforts at services liberalisation, while chapters 9 and 10 consider the Asian bond market and
ASEAN–China investment cooperation. Developments in energy cooperation
(ch. 11) and business networks (ch. 4), as well as China’s role in regional and subregional development (chs 12 and 13), are examined in greater detail. However,
the underlying factors that affect economic relations often transcend economics
narrowly defined. For instance, not least due to geopolitical proximity, the pursuit
of ASEAN–China relations is underpinned by a blend of political, foreign policy
and economic considerations. While there has been progress in the institutionalisation of ASEAN–China economic relations, the prospects of further interaction
will need to be discussed in the context of the developing relationship in other
arenas, and of the future of ASEAN as a multilateral organisation facing a ‘width
vis-à-vis depth’ challenge.
The earlier volume provides a broader overall understanding of ASEAN–China
relations, with its wide coverage of topics, ranging from regional security cooperation to the external challenges confronted by ASEAN. It also covers a number of
important aspects of economic cooperation, such as prospects for the ASEAN+3
framework (ASEAN plus China, Japan and South Korea; chs 6 and 7), the emergence of an East Asian Community (chs 16 and 17) and China’s business environment (chs 18 and 19). From a diverse range of perspectives, the authors identify and
elaborate on issues of great importance to individual countries and to the region
as a whole. Together, the discussions reflect the subject’s multi-dimensional and
complex nature. For example, numerous chapters (chs 12–15, 22 and 23) are dedicated to discussions of China’s role in addressing both the internal concerns and
the external threats confronting Southeast Asia. Discussion of regional issues in
this volume also includes China’s role in promoting the ASEAN Regional Forum
(chs 4 and 5), the development prospects of the Mekong sub-region (chs 20 and
21) and the implications for the dynamics of ASEAN–China relations of ASEAN’s
links with Japan, the US and India (chs 8–11).
A remarkable feature of the two books is that they have brought together the
contributions of a myriad of talents. In particular, the 2005 volume goes far beyond
the realm of academia. The diverse authorship includes prominent officials of
ASEAN, a general in China’s People’s Liberation Army, policy makers and advisers, and academic experts from both the ASEAN countries and China. As a result,
it not only provides a relatively balanced view of China and the other countries
but also allows for tremendous synergistic power.
In sum, the two volumes are complementary, with one providing a comprehensive discussion of the overall situation and ways forward, and the other focusing on ASEAN–China economic ties. They demonstrate that the future of ASEAN
lies in improving the cohesion and integration of the region on the one hand, and
320
Book reviews
remaining inclusive, and evolving in step with the changing global and regional
environment, on the other. Given the scope of the 2005 book, readers may have benefited if the chapters had been organised more coherently, perhaps around themes.
It is also worth noting that since these books were published there has been further
progress within ASEAN (for example, the establishment of the ASEAN Charter in
2007) and in its relations with China. There is little specific discussion of Indonesia
in the two books, but BIES readers will find them a useful source of information in
the search for a better understanding of the future of ASEAN.
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
© 2008 Tao Kong
Tao Kong
ANU
Denis Hew Wei-Yen (ed.) (2007) Brick by Brick: The Building of an
ASEAN Economic Community, Institute of Southeast Asian Studies,
Singapore, pp. 252. Paper: S$39.90/US$25.90/A$36.00.
ASEAN’s leaders have agreed to create an ASEAN Economic Community by
2015. This timely volume, published soon after that decision was taken, seeks to
set out the scope and difficulty of achieving this objective.
The task of building an economic community has been widely interpreted as
the creation of a single market. Chapter 2, by Peter Lloyd, presents a strict, and
ambitious, definition of a single market. In such a market, all policy impediments
to economic transactions would be eliminated, so that the price of all goods and
services, as well as the prices of all mobile factors of production (including labour
and capital), would be the same in all participating economies. The European
Union (EU) comes closest to such a highly integrated market. However, more
than 50 years after the Treaty of Rome, the EU has a considerable way to go to
meet Lloyd’s definition of a single market.
Chapters 3 to 9 discuss some important dimensions of the integration of ASEAN
economies. They assess the present extent of integration in terms of trade in goods
and services and investment, noting that a great deal has already been achieved.
At the same time, the chapters foreshadow the many further steps that will be
needed. In particular, they highlight the problems of integrating economies at
very different stages of development.
These assessments indicate that there will not be a fully integrated market
among ASEAN countries by 2015. Like APEC, which committed itself to achieve
the unattainable ideal of ‘free and open trade and investment’ by 2010 (for trade)
and 2020 (for investment), ASEAN has created excessive expectations. Once again,
the solution is to use long-term vision to accelerate the ongoing process, and to set
attainable milestones for some significant aspects of integration. Chapter 6 offers
useful and specific suggestions for measurable progress.
The volume makes it clear that the challenge of deep economic integration is the
need to do far more than get rid of border barriers to trade and investment. The
extent of policy harmonisation that will be needed goes well beyond the scope of
any of the so-called free trade agreements that have been negotiated. In fact, the
many bilateral agreements negotiated by individual ASEAN economies have not
promoted efficient specialisation among them. The discriminatory rules of origin
Book reviews
321
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lurking in these agreements discourage intra-industry trade among ASEAN economies, limiting their prospects for competing in external markets, which account
for over three-quarters of ASEAN’s exports.
The editor has done well. His chapter 2 provides an excellent overview of the
book, and the authors have been carefully selected to cover the full range of issues
involved in creating an economic community. As the title suggests, the challenge
can best be met by taking sensible, practical steps building on earlier achievements.
In that way, ASEAN can expect to become progressively more integrated, with
mutual benefit to each economy, by 2015, even if impossible ideals are not met.
© 2008 Andrew Elek
Andrew Elek
Tinderbox, Tasmania
L. Alan Winters and Shahid Yusuf (eds) (2007) Dancing with Giants: China, India,
and the Global Economy, Report No. 38339, The World Bank, Washington DC,
and Institute of Policy Studies, Singapore, pp. xvi + 272,
available at . Paper: US$ 22.95.
This multi-author volume is a welcome addition to the bourgeoning literature on
the awakening from economic slumber of the two Asian ‘Giants’, China and India,
and its likely impact on the world economy. All chapters in the volume have been
authored or co-authored by World Bank economists, drawing on papers commissioned from prominent scholars in the field.
The introductory chapter by the editors provides a succinct overview of the
patterns of integration of the ‘Giants’ into the world economy and the challenges
the two powers pose to other countries. It also previews the subsequent chapters. The next two chapters deal with the interaction of the ‘Giants’ with other
countries through international trade: chapter 2 by Yusuf, Nabeshima and Perkin
provides a bird’s-eye review of China’s and India’s evolving industrial capabilities and trade patterns, and chapter 3 by Dimaranan, Ianchovichina and Martin complements this industry-focused analytical narrative with a quantitative
analysis using a global economy-wide modelling approach. A major limitation of
the analysis in both chapters is the failure to take into account trade complementarities arising from the integration of China (and possibly of India in the future)
into rapidly expanding global production networks. The authors do mention this
phenomenon in passing, but the analytical core is based entirely on the traditional
notion of horizontal specialisation in which countries trade solely in goods produced entirely, from beginning to end, within one country.
The model simulation results reported in chapter 3 suffer from some additional
limitations. First, the discussion here does not have sufficient transparency to
make the findings and inferences convincing. For instance, in the absence of adequate explanation, it is hard to fathom how one can manage to calibrate complicated scenarios such as ‘growth focused on … relatively sophisticated products’
(p. 69) and ‘strong growth in quality and variety of exports’ (p. 80) within the
standard computable general equilibrium (CGE) framework. Second, as regards
the macroeconomic closures used in the analysis, the assumption of ‘a constant
levelling of employment, with perfect mobility of skilled and unskilled labour
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Book reviews
between sectors and none between regions’ (p. 82) sits rather uncomfortably with
the prevailing ‘surplus labour’ conditions in the Chinese economy that are vividly depicted in the background paper by Richard Cooper. Third, the available
input–output tables for both China and India, which form an integral part of the
data base, are of the ‘competitive import type’ (that is, they do not differentiate
between domestic intermediate goods and imported intermediate goods). CGE
modelling, therefore, requires artificial separation of imported inputs and domestic inputs based on the assumption that imported inputs are used in each industry in the same proportion as indicated in the original input–output tables. This
is an implausible assumption, particularly for export-oriented manufacturing in
China, which depends heavily on imported inputs.
Chapter 4, by Lane and Schuler, examines the implications of the emergence of
the ‘Giants’ for the reshaping of the international financial system; it also explores
the relationship between the external financial positions of the ‘Giants’ and the
reforms and developments in their domestic financial systems. If one had to find
fault with this well written chapter, it would mainly be with the inadequate discussion of the policy implications of the authors’ conclusions. In chapter 5, Zmarak
Shalizi examines issues involved in managing energy supply and demand in the
two countries, and undertakes model simulation exercises to yield emission trajectories to 2050. However, because of the highly aggregated nature of the model
used, the chapter fails to come up with specific policy recommendations tailored
to the unique opportunities and constraints in each country.
Chapter 6 by Chaudhuri and Ravallion is perhaps one of the best available
analyses of the distributional impact of the growth process in the two countries.
With the help of a carefully designed set of tables and figures, the authors convincingly demonstrate why some segments of the population have been left behind in
relative terms; this can be explained by the fact that ‘they [the “Giants”] are only
partially awake in that segments of their societies remain (relatively and absolutely) dormant’ (p. 176). There is also strong empirical support here for the view
that the sustainability of reforms and the growth process depends crucially on the
effectiveness of policies to redress unevenness. While this inference pertains to
both countries, China bears the greatest near-term risk that rising inequality will
jeopardise growth.
Chapter 7 by Philip Keefer deals with the importance of the governance environment for the sustainability of growth and development. The chapter comes
up with the rather optimistic inference that both India and China have begun to
reveal signs of a virtuous circle, signs that growth can help propel governance
reform, ensuring successful continuation of the process of reform and economic
advancement. However, this reviewer failed to see how this prediction followed
from the econometric analysis or the case histories presented in the paper. It is
also not consistent with inferences by some other well-informed observers about
unresolved governance issues faced by India and China.
Notwithstanding the above criticism of individual chapters, this is an important book on a subject of immense policy relevance. In particular, policy makers in
Indonesia and other countries in the region will find much to learn from it on how
to ‘danc[e] with the Giants without getting one’s toes stepped on’.
© 2008 Prema-chandra Athukorala
Prema-chandra Athukorala
ANU
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
BOOK REVIEWS
To cite this article: (2008) BOOK REVIEWS, Bulletin of Indonesian Economic Studies, 44:2,
315-322, DOI: 10.1080/00074910802169160
To link to this article: http://dx.doi.org/10.1080/00074910802169160
Published online: 31 Jul 2008.
Submit your article to this journal
Article views: 46
View related articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 18 January 2016, At: 19:57
Bulletin of Indonesian Economic Studies, Vol. 44, No. 2, 2008: 315–22
BOOK REVEWS
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
Miranda S. Goeltom (2007) Essays in Macroeconomic Policy:
The Indonesian Experience, PT Gramedia Utama, Jakarta, pp. 594. Rp 175,000.
Professor Miranda Goeltom is senior deputy governor at Bank Indonesia, with a
long and distinguished career as an academic and policy economist at Bappenas
(the national planning agency), in the office of the Coordinating Minister for
Economic Affairs and (for the past decade) in Bank Indonesia. She writes, with
the benefit of inside experience, on a wide range of policy issues, mainly macroeconomic.
For this reviewer, the most interesting chapters are those relating to the development of monetary policy. Over the past three decades the Indonesian financial system has been transformed. Previously dominated by state-owned banks,
the banking sector now includes well over 100 private banks (with significant
representation from major foreign banks), while the state banks account for less
than half of all banks’ assets. ‘Financial repression’ has gone, with non-bank alternative sources of funding now provided by capital markets, through bonds and
equities. Credit is no longer rationed through a closely controlled allocation process favouring the state-owned enterprises and guided by the central bank into
‘priority’ areas; now, the full range of finance is available, with consumer loans
for motor cycles and cars being the fastest growing and most profitable part of
banking. Monetary policy has gone from direct controls, through a period where
money base control was attempted, and finally to the current international-bestpractice model of inflation targeting, using short-term interest rates as the instrument of policy. All this took great institutional change, not least in the central
bank, with the need to develop the tools for a market-based monetary policy: a
short-term money market and the instruments of open-market operations. During
this transition there was the monumental disruption of the 1997–98 crisis, which
saw the central bank’s reputation greatly diminished. The crisis also halved one
commonly used measure of financial deepening: the ratio of bank credit to GDP.
This story is told in a series of chapters covering the evolution from regulated
finance towards inflation targeting; a detailed exposition of the transmission
mechanism of monetary policy; the problems of time-consistency; how the central bank communicates with the public; and the shift from a closely managed
exchange rate to a much freer regime. Other chapters cover the institutional
developments in policy making; the strengthening of governance in the banking
system; and the widening of the array of financial institutions and instruments
(including the development of the government bond market, one of the few ’side
benefits’ of the crisis). The relationship between monetary and fiscal policy, the
1997–98 crisis, and the role of the International Monetary Fund during the crisis
ISSN 0007-4918 print/ISSN 1472-7234 online/08/020315-8
DOI: 10.1080/00074910802169160
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
316
Book reviews
are all covered. A consistent theme is the inevitability of international financial
integration and globalisation, and the problems and opportunities this presents.
The focus here is on capital flows: their effect on the exchange rate and the vulnerability that comes from possible reversals of flows. Regional cooperation has
been active, particularly since the crisis, and especially between central banks: the
Chiang Mai Initiative for pooling foreign exchange reserves, and the possibility
of an ‘Asian Monetary Fund’ are discussed. Ranging more widely, chapters cover
the role of women, reform of state-owned enterprises, and demographics.
This is a rich variety of policy challenges, and Professor Goeltom uses the
opportunity to juxtapose theory and international analysis with the local realities,
presenting views on how well (or imperfectly) the theoretical models fit the Indonesian reality. At times, the treatment is quite technical: economic modelling and
simulations are used to illustrate aspects of the policy process.
Each of the chapters is a lightly edited version of earlier papers and speeches,
mainly from around 2005–06, with some going back considerably further. This
reflects Professor Goeltom’s consistent and active publication record, but it results
in a fair amount of repetition, and coverage of issues which were overtaken by subsequent events. A book written from scratch would probably draw the underlying
themes more sharply and capture the continuity and evolution of both policy making and the financial sector. We might have hoped that an ‘insider’ would give us
more of the detailed flavour and cut-and-thrust of the policy process, and the political economy of Bank Indonesia as it came through this turbulent decade. This will,
no doubt, have to wait until Professor Goeltom is no longer intimately involved
in the policy process, when she may be freer to add the colour and context that is
missing from the story told here. For the moment, we should be grateful that, in a
country where detailed commentary by policy makers is still quite rare, Professor
Goeltom has provided a contemporaneous commentary on so many issues of
importance to the macro economy, and that these writings have been gathered
together and edited into a consistent story of a financial sector in transition.
© 2008 Stephen Grenville
Stephen Grenville
Lowy Institute for International Policy, Sydney
Soren Davidsen, Vushnu Juwono and David G. Timberman (2006)
Curbing Corruption in Indonesia 2004–2006: A Survey of National Policies and
Approaches, Centre for Strategic and International Studies, Jakarta,
and United States – Indonesia Society (USINDO), Washington DC,
pp. xiii + 100, available at .
With Indonesia’s democratisation, corruption has become a prominent political
issue, manifested in frequent exposés of corruption cases in the press, indictments
of government officials and both formal and informal political leaders for corruption, and anti-corruption campaigns by government and non-government
organisations. On the government side, two of the key agencies are the Corruption Eradication Commission (KPK) and the Coordinating Team for Eliminating
Crimes of Corruption (Timtas Tipikor). This book surveys the current state of
Downloaded by [Universitas Maritim Raja Ali Haji] at 19:57 18 January 2016
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317
corruption in Indonesia, the approaches adopted to combat it and the constraints
on effective anti-corruption efforts.
Given the coalition status of his government, President Susilo Bambang
Yudhoyono (SBY) appears to believe there are limits to the government’s capacity continually to push the anti-corruption agenda. This book’s authors show
that current anti-corruption efforts focus less on institutional reforms to reduce
incentives and opportunities to engage in corruption, and more on prosecution
of individuals who appear to lack strong political connections. Also, a strategy of
wholesale replacement of government officials has been ruled out. Instead, several cases of corruption have been exposed and the perpetrators indicted with the
intention of creating a deterrent. This approach is often dubbed ‘selective logging’
(tebang pilih). Not surprisingly, many ‘big fish’ escape this process. The most notable of these cases is the alleged corruption of former president Soeharto and his
family. Only limited action has been taken against those in high positions in the
Indonesian political hierarchy, particularly high-ranking government and party
officials and the military. Against this background, combating corruption is considerably more complicated when the legal system that is supposed to enforce the
law is itself plagued by corruption.
One urgent issue discussed in the book that has yet to be dealt with openly in
the newly democratic Indonesia is how political parties finance their activities.
It is widely suspected that their major funding derives from abuse of power by
corrupt government officials. This is similar to what happened during the Soeharto era, when many government regulations and policies were the focus of rentseeking activities to provide funding for the regime.
The possibility of government funds flowing to parties’ coffers is exemplified by
a corruption case discussed in the book, involving prominent members of major
parties. It is widely believed that the parliament (DPR) is another major conduit
through which parties gain access to funding. Reportedly there are middlemen
(calo) who can influence the decisions of members on appointments to important public offices, the allocation of expenditures in the government’s budget, the
speed at which draft legislation is processed and so on, in return for bribes. Funds
received are thought to be used both to finance political activity and to supplement members’ incomes.
An issue largely overlooked in the book is the way the anti-corruption movement
at the local level has boosted the momentum of the campaign at the national level.
The political consequences of tackling corruption are of considerable moment, so
it is perhaps no coincidence that the first phase of SBY’s anti-corruption drive has
focused mainly on cases in the provinces and districts. Even so, these regional
cases have sometimes involved top-level officials.
In these early stages, the power of top national political leaders and government officials appears still to be too strong for the government to prosecute its
anti-corruption drive effectively at this level. Although the effort to eradicate
corruption hitherto has mainly targeted individuals lacking strong links to top
government officials and political leaders, the increasing number of successful prosecutions in the regions provides grounds for some optimism that these
efforts can be replicated at the national level. Indeed, there is now a growing
number of corruption cases before the courts that can be described as national in
character.
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Another aspect overlooked in the book is the impact of democratisation on
corruption at the local level. In the new democratic era, under a freer press, newspapers publish exposés; young and ambitious local prosecutors make reputations through official investigations and indictments; firms and local offices of the
national chamber of commerce can lobby legislators to protect firms from official
harassment and to discipline local officials; and local political parties may gain
votes with anti-corruption stances. As demonstrated by the most recent elections
for provincial governor in West Java and South Sumatra, corruption is a powerful
political issue and may serve to garner electoral support (or turn off many less
committed voters so that parties with more committed voters win the election). It
remains to be seen how this phenomenon will be played out in the 2009 presidential and legislative elections.
One final comment about the book is that those who are looking for in-depth
analysis of corruption in Indonesia will not find it here. From the start the authors
emphasise that the book is a ‘survey’ of the anti-corruption drive by the SBY
administration. With this caveat, the volume is a valuable reference for those
interested in the chronology of policies and approaches in the anti-corruption
campaign during the first two years of the SBY presidency.
© 2008 Ari Kuncoro
Ari Kuncoro
University of Indonesia, Jakarta
Saw Swee-Hock, Sheng Lijun and Chin Kin Wah (eds) (2005)
ASEAN–China Relations: Realities and Prospects,
ISEAS Publications, Singapore, pp. xix + 375. Paper: S$49.90.
Saw Swee-Hock (ed.) (2007) ASEAN–China Economic Relations,
ISEAS Publications, Singapore, pp. xiv + 376. Paper: S$49.90.
After an uneven process lasting four decades, the Association of Southeast Asian
Nations (ASEAN) has developed into one of the world’s most successful regional
international organisations. However, evolving global and regional conditions
have provided ASEAN with a new set of challenges and opportunities. The implications of China’s rise for ASEAN and its relationships with other major powers
represent one area of heated debate.
Intended as a platform for research on this debate, the ASEAN–China Forum
was hosted by the Institute of Southeast Asian Studies (ISEAS) in Singapore in
2004 and 2006, with the latter event dedicated to discussions on economic cooperation and challenges. An edited volume was published by ISEAS following each
event. As their titles suggest, the books share a common theme about the present
and future status of ASEAN–China relations. The editors begin each book with an
introductory chapter providing an overview of the areas covered. Both volumes
also include chapters that probe the overall relationship between ASEAN and
China and the quest to realise a strategic partnership. Whereas chapters 2 and
3 of the 2005 book set an explicitly positive and optimistic tone preceding the
more detailed deliberations in later chapters, the 2007 volume looks at China and
ASEAN separately in chapters 2 and 3, before opening the discussion on their
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319
relationship. Towards the end, the 2007 book introduces more caution into its
overall assessment, describing the likely character of the relationship as ‘tango
together but watch each other’s steps’ (ch. 14: 311).
The 2007 publication investigates a number of specific aspects of economic
interaction between China and ASEAN. Trade issues, particularly in the context of the establishment of an ASEAN–China Free Trade Agreement (ACFTA),
are discussed in chapters 5–7, which canvass not only the economic pros and
cons but also the legal and institutional aspects of ACFTA. In view of the global
trend towards services trade and investment, chapter 8 examines efforts at services liberalisation, while chapters 9 and 10 consider the Asian bond market and
ASEAN–China investment cooperation. Developments in energy cooperation
(ch. 11) and business networks (ch. 4), as well as China’s role in regional and subregional development (chs 12 and 13), are examined in greater detail. However,
the underlying factors that affect economic relations often transcend economics
narrowly defined. For instance, not least due to geopolitical proximity, the pursuit
of ASEAN–China relations is underpinned by a blend of political, foreign policy
and economic considerations. While there has been progress in the institutionalisation of ASEAN–China economic relations, the prospects of further interaction
will need to be discussed in the context of the developing relationship in other
arenas, and of the future of ASEAN as a multilateral organisation facing a ‘width
vis-à-vis depth’ challenge.
The earlier volume provides a broader overall understanding of ASEAN–China
relations, with its wide coverage of topics, ranging from regional security cooperation to the external challenges confronted by ASEAN. It also covers a number of
important aspects of economic cooperation, such as prospects for the ASEAN+3
framework (ASEAN plus China, Japan and South Korea; chs 6 and 7), the emergence of an East Asian Community (chs 16 and 17) and China’s business environment (chs 18 and 19). From a diverse range of perspectives, the authors identify and
elaborate on issues of great importance to individual countries and to the region
as a whole. Together, the discussions reflect the subject’s multi-dimensional and
complex nature. For example, numerous chapters (chs 12–15, 22 and 23) are dedicated to discussions of China’s role in addressing both the internal concerns and
the external threats confronting Southeast Asia. Discussion of regional issues in
this volume also includes China’s role in promoting the ASEAN Regional Forum
(chs 4 and 5), the development prospects of the Mekong sub-region (chs 20 and
21) and the implications for the dynamics of ASEAN–China relations of ASEAN’s
links with Japan, the US and India (chs 8–11).
A remarkable feature of the two books is that they have brought together the
contributions of a myriad of talents. In particular, the 2005 volume goes far beyond
the realm of academia. The diverse authorship includes prominent officials of
ASEAN, a general in China’s People’s Liberation Army, policy makers and advisers, and academic experts from both the ASEAN countries and China. As a result,
it not only provides a relatively balanced view of China and the other countries
but also allows for tremendous synergistic power.
In sum, the two volumes are complementary, with one providing a comprehensive discussion of the overall situation and ways forward, and the other focusing on ASEAN–China economic ties. They demonstrate that the future of ASEAN
lies in improving the cohesion and integration of the region on the one hand, and
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remaining inclusive, and evolving in step with the changing global and regional
environment, on the other. Given the scope of the 2005 book, readers may have benefited if the chapters had been organised more coherently, perhaps around themes.
It is also worth noting that since these books were published there has been further
progress within ASEAN (for example, the establishment of the ASEAN Charter in
2007) and in its relations with China. There is little specific discussion of Indonesia
in the two books, but BIES readers will find them a useful source of information in
the search for a better understanding of the future of ASEAN.
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© 2008 Tao Kong
Tao Kong
ANU
Denis Hew Wei-Yen (ed.) (2007) Brick by Brick: The Building of an
ASEAN Economic Community, Institute of Southeast Asian Studies,
Singapore, pp. 252. Paper: S$39.90/US$25.90/A$36.00.
ASEAN’s leaders have agreed to create an ASEAN Economic Community by
2015. This timely volume, published soon after that decision was taken, seeks to
set out the scope and difficulty of achieving this objective.
The task of building an economic community has been widely interpreted as
the creation of a single market. Chapter 2, by Peter Lloyd, presents a strict, and
ambitious, definition of a single market. In such a market, all policy impediments
to economic transactions would be eliminated, so that the price of all goods and
services, as well as the prices of all mobile factors of production (including labour
and capital), would be the same in all participating economies. The European
Union (EU) comes closest to such a highly integrated market. However, more
than 50 years after the Treaty of Rome, the EU has a considerable way to go to
meet Lloyd’s definition of a single market.
Chapters 3 to 9 discuss some important dimensions of the integration of ASEAN
economies. They assess the present extent of integration in terms of trade in goods
and services and investment, noting that a great deal has already been achieved.
At the same time, the chapters foreshadow the many further steps that will be
needed. In particular, they highlight the problems of integrating economies at
very different stages of development.
These assessments indicate that there will not be a fully integrated market
among ASEAN countries by 2015. Like APEC, which committed itself to achieve
the unattainable ideal of ‘free and open trade and investment’ by 2010 (for trade)
and 2020 (for investment), ASEAN has created excessive expectations. Once again,
the solution is to use long-term vision to accelerate the ongoing process, and to set
attainable milestones for some significant aspects of integration. Chapter 6 offers
useful and specific suggestions for measurable progress.
The volume makes it clear that the challenge of deep economic integration is the
need to do far more than get rid of border barriers to trade and investment. The
extent of policy harmonisation that will be needed goes well beyond the scope of
any of the so-called free trade agreements that have been negotiated. In fact, the
many bilateral agreements negotiated by individual ASEAN economies have not
promoted efficient specialisation among them. The discriminatory rules of origin
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lurking in these agreements discourage intra-industry trade among ASEAN economies, limiting their prospects for competing in external markets, which account
for over three-quarters of ASEAN’s exports.
The editor has done well. His chapter 2 provides an excellent overview of the
book, and the authors have been carefully selected to cover the full range of issues
involved in creating an economic community. As the title suggests, the challenge
can best be met by taking sensible, practical steps building on earlier achievements.
In that way, ASEAN can expect to become progressively more integrated, with
mutual benefit to each economy, by 2015, even if impossible ideals are not met.
© 2008 Andrew Elek
Andrew Elek
Tinderbox, Tasmania
L. Alan Winters and Shahid Yusuf (eds) (2007) Dancing with Giants: China, India,
and the Global Economy, Report No. 38339, The World Bank, Washington DC,
and Institute of Policy Studies, Singapore, pp. xvi + 272,
available at . Paper: US$ 22.95.
This multi-author volume is a welcome addition to the bourgeoning literature on
the awakening from economic slumber of the two Asian ‘Giants’, China and India,
and its likely impact on the world economy. All chapters in the volume have been
authored or co-authored by World Bank economists, drawing on papers commissioned from prominent scholars in the field.
The introductory chapter by the editors provides a succinct overview of the
patterns of integration of the ‘Giants’ into the world economy and the challenges
the two powers pose to other countries. It also previews the subsequent chapters. The next two chapters deal with the interaction of the ‘Giants’ with other
countries through international trade: chapter 2 by Yusuf, Nabeshima and Perkin
provides a bird’s-eye review of China’s and India’s evolving industrial capabilities and trade patterns, and chapter 3 by Dimaranan, Ianchovichina and Martin complements this industry-focused analytical narrative with a quantitative
analysis using a global economy-wide modelling approach. A major limitation of
the analysis in both chapters is the failure to take into account trade complementarities arising from the integration of China (and possibly of India in the future)
into rapidly expanding global production networks. The authors do mention this
phenomenon in passing, but the analytical core is based entirely on the traditional
notion of horizontal specialisation in which countries trade solely in goods produced entirely, from beginning to end, within one country.
The model simulation results reported in chapter 3 suffer from some additional
limitations. First, the discussion here does not have sufficient transparency to
make the findings and inferences convincing. For instance, in the absence of adequate explanation, it is hard to fathom how one can manage to calibrate complicated scenarios such as ‘growth focused on … relatively sophisticated products’
(p. 69) and ‘strong growth in quality and variety of exports’ (p. 80) within the
standard computable general equilibrium (CGE) framework. Second, as regards
the macroeconomic closures used in the analysis, the assumption of ‘a constant
levelling of employment, with perfect mobility of skilled and unskilled labour
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between sectors and none between regions’ (p. 82) sits rather uncomfortably with
the prevailing ‘surplus labour’ conditions in the Chinese economy that are vividly depicted in the background paper by Richard Cooper. Third, the available
input–output tables for both China and India, which form an integral part of the
data base, are of the ‘competitive import type’ (that is, they do not differentiate
between domestic intermediate goods and imported intermediate goods). CGE
modelling, therefore, requires artificial separation of imported inputs and domestic inputs based on the assumption that imported inputs are used in each industry in the same proportion as indicated in the original input–output tables. This
is an implausible assumption, particularly for export-oriented manufacturing in
China, which depends heavily on imported inputs.
Chapter 4, by Lane and Schuler, examines the implications of the emergence of
the ‘Giants’ for the reshaping of the international financial system; it also explores
the relationship between the external financial positions of the ‘Giants’ and the
reforms and developments in their domestic financial systems. If one had to find
fault with this well written chapter, it would mainly be with the inadequate discussion of the policy implications of the authors’ conclusions. In chapter 5, Zmarak
Shalizi examines issues involved in managing energy supply and demand in the
two countries, and undertakes model simulation exercises to yield emission trajectories to 2050. However, because of the highly aggregated nature of the model
used, the chapter fails to come up with specific policy recommendations tailored
to the unique opportunities and constraints in each country.
Chapter 6 by Chaudhuri and Ravallion is perhaps one of the best available
analyses of the distributional impact of the growth process in the two countries.
With the help of a carefully designed set of tables and figures, the authors convincingly demonstrate why some segments of the population have been left behind in
relative terms; this can be explained by the fact that ‘they [the “Giants”] are only
partially awake in that segments of their societies remain (relatively and absolutely) dormant’ (p. 176). There is also strong empirical support here for the view
that the sustainability of reforms and the growth process depends crucially on the
effectiveness of policies to redress unevenness. While this inference pertains to
both countries, China bears the greatest near-term risk that rising inequality will
jeopardise growth.
Chapter 7 by Philip Keefer deals with the importance of the governance environment for the sustainability of growth and development. The chapter comes
up with the rather optimistic inference that both India and China have begun to
reveal signs of a virtuous circle, signs that growth can help propel governance
reform, ensuring successful continuation of the process of reform and economic
advancement. However, this reviewer failed to see how this prediction followed
from the econometric analysis or the case histories presented in the paper. It is
also not consistent with inferences by some other well-informed observers about
unresolved governance issues faced by India and China.
Notwithstanding the above criticism of individual chapters, this is an important book on a subject of immense policy relevance. In particular, policy makers in
Indonesia and other countries in the region will find much to learn from it on how
to ‘danc[e] with the Giants without getting one’s toes stepped on’.
© 2008 Prema-chandra Athukorala
Prema-chandra Athukorala
ANU