سیاست گذاری اقتصادی ضعیف، دموکراتیک، پس از بحران کشورها: مطالعه موردی اندونزی

Economic crises in developing countries differ in their causes, severity and recovery trajectories. The literature on the causes and immediate management of these crises is well developed. However, it is more difficult to develop an a priori framework which facilitates an analytical interpretation of how crises affect economic policy and hence recovery. This is especially so in the commonly occurring “twin crises,” in which an economic crisis interacts with regime collapse. Country studies are needed to contribute to the development of such a framework. This paper addresses these issues with reference to Indonesia’s deep economic and political crisis of 1997–98.

There is a large literature on the consequences of economic and financial crises in developing countries. This focuses on economic decline and recovery trajectories, financial sector collapse and workouts, rising indebtedness and debt restructuring, and social impacts, among other topics. A parallel strand examines political ramifications, including possibly the reshaping of institutions and significant changes in policy direction. Crises obviously differ in their causes, severity and recovery trajectories. A number of “stylized facts” are typically identifiable: a sharp exchange rate depreciation, a substantial contraction in domestic demand, the cessation of much modern sector financial activity, complex corporate restructuring, and rising public and private indebtedness. However, it is much more difficult to develop an a priori framework which facilitates an understanding of political and institutional changes in the wake of a crisis, and how this affects economic policy and recovery. In some cases, crises trigger massive upheaval, regime change, and even institutional paralysis. In other cases, the policy settings, institutions, and the business environment hardly change. The former case, of what may be termed “twin crises,” is common to many developing crises. It is analytically both more interesting and more elusive. While the economic effects of a crisis are broadly predictable and amenable to empirical testing, it is much more difficult to develop a framework which facilitates an understanding of the impacts of institutional collapse and policy uncertainty. This is because so much of the story is inevitably country-specific and sui generis. Moreover, the very uncertainty of the commercial environment in the wake of a crisis introduces a range of parameters that are likely to have both aggregate and sector-specific impacts. The purpose of this paper is to address these issues with reference to Indonesia during and after its 1997–98 crisis. Both the issue and the country are well suited to such a case study, and both have wider implications for other crisis-affected countries. Indonesia experienced three decades of virtually continuous rapid economic development from 1968. It was then deeply affected by the economic crisis of 1997–98. Its economic contraction in 1998, of over 13%, was the sharpest among the four crisis-affected East Asian economies. The country also experienced “twin crises,” in the sense that the economic crisis was accompanied by and indeed precipitated regime collapse, resulting in the departure of President Soeharto in May 1998 after 32 years of authoritarian rule, and ushering in a period of political instability. Its territorial integrity was for a period threatened. From 1998 to 2004, Indonesia had five presidents, and there was a major reworking of its political institutions. As a result, the once stable and predictable commercial environment became much less certain. Nevertheless, Indonesia’s recovery has more resembled the East Asian (and Mexican) “V” than the “L” of the former Soviet Union and much of Eastern Europe for a decade from the late 1980s. Its per capita income has now recovered to pre-crisis levels, as have most social indicators. Our organization is as follows. Section 2 provides the context: the changing political and institutional environment in Indonesia, a summary examination of the country’s recovery trajectory since 1998, and a brief review of Indonesia’s recovery in comparative context. Section 3, the major part of the paper examines the Indonesian record in detail, focusing in particular on the main economic policy variables, how they have changed as a result of the crisis, and how these changes have impacted on development outcomes. Particular attention is given to four main case studies of how the post-crisis environment has affected the investment climate, commercial policy, trade policy and exports, and labor policy. Section 4 summarizes our main arguments, assesses the Indonesian experience in light of other post-crisis episodes, and raises some broader implications.

In the concluding section, we summarize our main arguments, and draw out some general lessons and implications from the Indonesian experience. Crises in the developing world are frequent but have unpredictable consequences. Regimes that preside over them, and are therefore blamed for them, are frequently toppled, in the process often leading to a political and institutional vacuum. These are “twin crises,” both economic and political. The two invariably interact, thus rendering more complex the establishment of functioning state institutions and delaying economic recovery. Foreign intervention may or may not be helpful. IMF-orchestrated rescue programs are generally a feature of these crises, with unpredictable consequences. Nationalist sensitivities provoked by these foreign interventions often weaken the political bases of support for economic policy reformers. It is difficult to develop an analytical framework that can predict the recovery trajectory. Since theory can provide only limited guidance, case studies are needed in order to identify the key variables that shape policy outcomes. A decade after its deep crisis, Indonesia provides an important case study of the interplay between politics and economics in a post-crisis, suddenly democratic state. While perforce sui generis, its experience highlights a range of likely policy outcomes, and in particular draws attention to some of the intractable areas of policy reform. From the experience of Indonesia, one clear lesson for greatly weakened states is the importance of establishing a “cordon sanitaire” around some key policy areas that increase the likelihood of professional policy-making while ensuring democratic accountability. These typically include an independent central bank, legislated restrictions limiting the size of fiscal deficits and public sector borrowings, and maintaining a broadly open economy (even if at the cost of enclave-style export zones). If these measures can be effected, the prospects for durable recovery are greatly enhanced. The more “micro” the economic policy area invariably, the more challenging is policy reform. For example, crises cause social distress. Populist pressures to increase mandated minimum wages and legislate for a variety of social welfare measures are hard to resist, even if the former hinders employment growth and the latter is either undeliverable or has serious fiscal consequences. It is also difficult for weak, post-crisis governments to maintain a clean, predictable investment climate, owing to the new divisions of political power, the absence of unity within the government, and frequent turnover within the legislature. Corporate debt workouts and financial restructuring are generally painful. “Fire-sale” foreign acquisitions may be the fastest route to economic recovery, but they are politically unpopular. Except for very unusual cases where the legal system is well developed and independent, the judiciary is unlikely to be able to play a major role in corporate restructuring. These factors limit the scope for countries like Indonesia to benefit from FDI technology spillovers, and to participate in MNE-dominated global production and buying networks. Paradoxically, these problems are likely to be more serious and protracted, the greater are the measures to deliberately weaken the state in the wake of authoritarian rule. That is, the conundrum that crisis resolution requires strong and credible governments, yet many of the measures introduced in the wake of the crisis—decentralization to the regions, a deliberately weakened executive, increased power to the judiciary in the context of a weakly functioning legal system, increased resort to referenda—have precisely the opposite effect. In turn, these weak, fragmented, and unstable governments inevitably have short time horizons, which affects both the level and the composition of investment. The uncertainty deters investors in general, and in particular it results in under-investment in sectors with long gestation periods, such as infrastructure and mining, and thereby limit the economy’s growth potential. Nevertheless, the Indonesian experience also has some positive lessons. Achievements in a few key policy areas—macroeconomic policy and openness—greatly facilitate recovery. Business begins to adjust to the new political economy rules. Reformers are able to adjust their modus operandi for reform, from the old model of convincing a few senior political leaders of their case to taking their arguments to the court of public opinion. Democracies may be slower to take difficult policy decisions, but once they are embedded in the polity they are more likely to be durable. How does Indonesia fit with the post-crisis recovery trajectories of other developing countries? At least three broad sets of experiences can be identified. The first case is where an economic crisis occurs in otherwise basically well-managed economies, and in which there is little political disruption and no major change in institutions and in the policy environment (Haggard, 2000). This was the case for both Korea and Malaysia after the 1997–98 economic crisis, and Thailand to a lesser extent. Recovery is likely to be swift and durable in these circumstances, once the emergency crisis resolution issues are addressed. The key to understanding these swift recoveries is a history of competent economic management, and regime credibility. One important corollary is that there is no necessary correlation between pre-crisis vulnerability indicators and post-crisis recovery trajectories, as the large literature on this subject has demonstrated (see, e.g., Athukorala & Warr, 2002). That is, according to most of the indicators typically employed, Indonesia appeared to be no more vulnerable than the other East Asian economies, certainly Thailand. The second case refers to systemic change in institutions, economic policies, and policy-making processes, best exemplified by the changes that occurred following the collapse of communism in Eastern Europe and the former Soviet Union. Output declined sharply; in some of the newly independent republics per capita income was less than half the pre-crisis level, a decade after the crisis. This deep collapse, together with a sudden and dramatic change in the political landscape, bequeathed an institutional and policy environment, in which the rules of the game were ill defined. As Pomfret (2002) emphasized, governments fairly quickly learnt the importance of hard budget constraints and openness to trade and investment. Moreover, there appears to be a reasonably strong correlation between various “transition indicators” (i.e., the speed of reform), “liberalization,” and “institutional quality” on the one hand, and economic performance on the other. However, enterprise reform was invariably messy, ranging from the blatant “kleptocracy” associated with the privatization programs, to uncertain regulatory frameworks and competition policy. Financial reform also proved to be problematic. Banking crises were common, as actors were understandably slow to adjust from a system of centralized command lending to the commercial responsibilities associated with a market economy. Social policy was also complex, as the social welfare net established under the communist regimes collapsed, or was wiped out by inflation. The third case refers to countries that experience major changes in institutions and policies in the wake of a crisis, but which nevertheless manage to achieve a partial recovery through the restoration of a workable policy environment. Outcomes in these intermediate cases vary considerably, depending on the speed of change, the durability of the new arrangements, and the external environment. In some cases, regime collapse leads to no fundamental change in policy settings and, if accompanied by a supportive external environment, the boost to competitiveness induced by the sharp exchange rate depreciation can lead to rapid recovery and hence a “V-shaped” crisis and recovery. This was largely the case in the 1994–95 Mexican crisis. Edwards (1998, p. 25) observed that a combination of euphoria, domestic policy mistakes, political turbulence and social disaffection contributed quite suddenly to “… the almost complete loss of confidence in Mexico, its institutions and its leaders …” Yet Mexico recovered quickly and strongly from its crisis, fuelled by strong export growth (Krueger & Tornell, 1999). In retrospect, an apparently deep and systemic crisis was overcome surprisingly quickly and easily. The Philippine crisis of 1985–86 has arguably the closest parallels with Indonesia in 1997–98. In both cases there was a long-established regime, in which power was heavily concentrated around one individual. Economic growth was emphasized and democracy was suppressed. Toward the end of the regimes, palace-centered corruption became endemic. The Philippine economy under Marcos was already slowing down prior to its crisis, whereas in Indonesia there were few warning signals. The magnitudes of the economic contractions were similar: 15% in the Philippines over two years, 13% in one year in Indonesia. And in both cases, capital flight undermined a regime that was unable to take the necessary steps to stem the crisis, and to draw on community support for a tough recovery package. In both cases, regime collapse resulted in a political and institutional vacuum, accompanied by a mounting debt and financial crisis, and an acrimonious relationship with the International Monetary Fund. In the Philippines, the immediate priority of the incoming President (Corazon Aquino) was the writing of a new constitution that ensured that a Marcos-style regime could not reappear (De Dios & Hutchcroft, 2003). That is, the central government was deliberately weakened. This was not only as a result of the fiscal crisis (and a decentralization program introduced shortly after the new constitution was enacted), but also by the stipulation of a one-term presidency, and a range of checks and balances on executive authority. The result was a weak and unstable regime, and one that longer-term investors largely eschewed for over a decade. Predictions are more difficult in these intermediate cases. The central challenge is to quickly rebuild a viable political and institutional system that delivers sound economic policy outcomes in a democratic environment, while also grappling with many pressing crisis resolution issues. The more there is agreement across the political spectrum on some key parameters—for example, the importance of growth, hard budgets, and an open economy—the faster the recovery process will be. But the macroeconomic story is only part of the equation. Coalitions may agree on these broad parameters, but still disagree on many specific policies. Where this disagreement degenerates into a new status quo, a likely outcome in view of a fiscally and politically weakened state, the result may be a permanent equilibrium at a lower growth. In these cases, at least three sets of variables are central to the speed and durability of the recovery process. The first is how quickly the new regime can convince investors that the rules of the game are predictable and credible. High levels of uncertainty deter investors. For example, as the literature on corruption emphasizes, “the only thing worse than organized corruption is disorganized corruption” (Shleifer & Vishny, 1993). Thus it is not just the level of corruption which matters but its predictability. Bardhan (1997, p. 1325), for example, noting that India and Indonesia had similar rankings in corruption surveys in the 1990s, conjectured that Indonesia’s superior economic performance during the Soeharto era may have been due to India’s “more fragmented, often anarchic, system of bribery.” The second factor arises from the common disjunction between macroeconomic and microeconomic policy that is particularly pronounced in the weak post-crisis states. This results in what Ammar Siamwalla (1999) had characterized as the “bifurcated state” in the case of Thailand, a characterization that is also highly apposite to post-crisis Indonesia. It arises because of the co-existence of competent macroeconomic management and an “always open” economy (in the technical Sachs & Warner (1995) sense), alongside widespread corruption, frequent political instability, and microeconomic policy that is highly vulnerable to capture. Thirdly, and more broadly, outcomes will be affected by the post-crisis institutional architecture. As MacIntyre (2003) pointed out, reform is likely to be more successful and durable when political authority is neither excessively concentrated nor diffused. The former implies that regimes may be able to take quick decisions, but the absence of checks and balances introduces risks and a lack of predictability, whereas the latter commonly leads to chronic indecisiveness and policy gridlock. Thus Indonesia, along with many other post-crisis developing countries, occupies this intermediate outcome, of neither swift and complete recovery nor a prolonged decline in per capita income. How quickly it verges toward the former outcome depends on how quickly its government is able to regain effective macroeconomic management, maintain a broadly open economy, and develop the institutions that underpin a stable and conducive microeconomic environment. As we have shown, its post-crisis governments have scored well on the first two criteria, but achievement in the third domain is a long and complex process.