OVERVIEW OF THE SEVEN YEARS' EXPERIMENT: WHAT CHANGED AND WHAT MATTERS?

Abstract

FTER the Asian currency crisis in 1997, Indonesia struggled to reconstruct its hard-hit economy and to implement a wide range of institutional reforms under the IMF loan program. At the end of December 2003, Indonesia finally graduated from IMF supervision, which had lasted for a period of over six years. The graduation signaled to the international markets that Indonesia’s crisis and the IMF-led reforms had at last been settled, and the markets reacted favorably. In October 2004, a new government was inaugurated in Indonesia following the first direct presidential election in the country’s history. For the first time after the fall of Soeharto, a government is expected to serve out its full term of five years. The resignation of President Soeharto in May 1998 triggered off democratization reforms, leading to a dramatic regime change from authoritarianism to democracy. The central government relaxed its unified grip not only in the political sphere but also as regards socioeconomic matters, a process that often had messy consequences. The initiation of the new government is expected to mark an end to this confused period of regime change. During the seven years in which Indonesia was busily occupied with internal affairs, drastic changes occurred in the East Asian economy. The Chinese economy came to the fore, AFTA began to work, and bilateral as well as multilateral FTA negotiations accelerated. In the increasingly competitive regional economy, Indonesia’s relative position seems to have suffered a setback. The new government has the responsibility of drawing up and executing appropriate development strategies without delay, taking full cognizance of these rapid changes in the surrounding world. This special issue aims firstly to analyze the changes in the Indonesian economy that have occurred since the economic crisis and the fall of Soeharto regime by looking at structure, institutions, and actors, and secondly to identify the key challenges that face the new government. Our analysis will demonstrate that even though Indonesia has emerged from the period of disorder, having successfully graduated from the IMF program and having inaugurated a new government, the Indonesian economy still faces some serious problems that need to be addressed.