Comment on “Making Economic Policy in a Democratic Indonesia: The First Two Decades”

Abstract

Basri and Hill (2020) summarize Indonesia's trajectory over two decades, from the Soeharto era to the democratic era, regarding economic policy-making. As they mention, Indonesia's transitions from authoritarian to democratic rule, from economic crisis to a path of growth, from centralized to decentralized rule, and from public indebtedness to effective fiscal consolidation, were all achieved successfully. Against the backdrop of these achievements, Basri and Hill cautiously affirm that Indonesia is not travelling down the road of economic populism. This conclusion is derived from Indonesia's prudent macroeconomic management after the Asian Financial Crisis (AFC) and the result of the 2019 presidential election. Indonesia so far shows a relatively good and stable economic performance. Although the current account deficit has become a tough challenge, a stable and manageable inflation rate and declining unemployment and poverty rates provide stability in Indonesia's economy. When Indonesia experienced a historical currency depreciation of the rupiah in 2018, Bank Indonesia took a range of monetary and macroprudential measures to manage external pressures (International Monetary Fund, 2019). The fiscal deficit has also been kept below 3% of gross domestic product (GDP); in 2019 the deficit was 2.2% of GDP. Regarding the moderately managed macroeconomy, it is difficult to find marked factors indicating the rise of economic populism in Indonesia. However, this does not mean that there are no symptoms of economic populism and illiberalism. Over the past two decades, Indonesia's transition to democracy has been far more successful than neighboring Myanmar and Thailand – or most of the Arab Spring nations (Bland, 2019), however, some have pointed out a regression of democracy in Indonesia (Warburton & Aspinall, 2019). Despite economic stability and an improvement in standards of living, inequality has continuously widened, and corruption continues to increase rather than disappearing. The poverty rate in September 2019 fell to 9.2%, a historical low. While inequality measured by the Gini coefficient was 0.382 in March 2019. This is significantly higher compared with 0.308 in 1999. Interregional disparity has been expanding as well. The GDP per capita of East Nusa Tunggara is the lowest in Indonesia, being 1/13 of that of DKI Jakarta. Meanwhile Central Sulawesi's GDP per capita has grown 76% since 2010, while Aceh's GDP per capita has grown just 7% in the same period. This interregional disparity has been a critical problem for a long time. Thus, President Jokowi has been at pains to promote development outside of Java. However, much like in the recent Papuan disorder, regional disparities and ethnicities are mixed together and can always be a seed of discord. Basri and Hill (2020) explain why the presidential challenger Prabowo Subianto was able to gain support from young, relatively highly educated, and middle class people. They attribute this to the jump in youth unemployment among those with higher education, which reached 74% in 2018. In addition, ethnicity and stagnant commodity prices might contribute to support for the team of Prabowo Subianto and Sandiaga Uno (P-SU). These observations can indicate only rough relationships, and a more detailed investigation and analysis of the election results are awaited. However, the nonnegligible massive support for the P-SU team implies that there is a possibility that populists and nationalists may gain momentum. Furthermore, some systems that Basri and Hill (2020) indicate as key features of the new political system after the AFC have shown signs of deterioration. An amendment of the Corruption Eradication Commission (KPK) Law was passed that may weaken the KPK which has been at the forefront of corruption eradication. A reconsideration of turning back from a direct election of president and regional heads to an indirect one has also been discussed. Additionally, the presidential challenger who ran a campaign with a stronger populist, authoritarian, and Islamic overtones has been included in the second Jokowi Cabinet. These changes in the political environment show uncertainty regarding Indonesia's direction over the next decades. Indonesia has reviewed its own past two decades, but there is no guarantee that this review will contribute to the promotion of democracy along with the maintenance of a reputation as a stable democracy. On the contrary, Indonesia might reverse its direction or otherwise revise the system which has been built over the past decades based on the experience of the two decades. Therefore, now is a good time to review and summarize the democratization process and the achievements of Indonesia over the last two decades, in order to understand the evolution of its political system from authoritarianism to democratic rule and how this evolution has affected the economic policy of Indonesia.