Besides of bank and non-bank industries, Indonesia opened its capital market after independence in 1952 (Otoritas Jasa Keuangan, 2016), while South Korea opened in 1956 (Park, Kim, & Park, 2021). However, like South Korea, the development of the Indonesian capital market experienced a sluggishness for several decades after it opened. It was only after the government carried out deregulation in the early 1987 period that enthusiasm in the capital market increased again. The December 1987 Policy Package (Paket Desember 1987) was a simplification of the requirements for the stock and bond issuance process as well as the elimination of several fess such as securities issuance registration fees. This policy also removed restrictions on share price fluctuations on the stock exchanges. As an option for issuers who do not yet meet the requirements to enter the stock exchange. In 1989, 37 companies were go public and their shares were listed on the Jakarta Stock Exchanges (Otoritas Jasa Keuangan, 2016).
However, this seemingly established contracting institutions has some problems, especially in the banking industry. The World Bank data shows that lending interest rates in Indonesia were relatively high at above 12% during the New Order (World Bank, 2023). Interest rates are no longer determined by market forces, because of the credit mechanism increasingly imperfect with the allocation of credit to individual groups, and bad credit is getting out of control (Otoritas Jasa Keuangan, 2019). These vulnerable contracting institutions were ultimately unable to weather the storm of the Asian financial crisis, which brought Indonesia into a multi-dimensional crisis and led to the collapse of the New Order regime.
c. Ineffective Coordination Institutions
The government's role as a coordination institutions during development is the key to South Korea's success in achieving miracles (Park, 2011). The primary reasons behind the economic progress in Korea lie in the government's efforts to address institutional shortcomings. These efforts aimed to create favorable conditions for positive feedback loops between export-driven economic expansion, marked by substantial investments, and the enhanced accumulation of human capital through the more efficient utilization of previously unused labor. The Korean government opted for export-oriented industries to catalyze lasting economic growth, actively resorting to foreign borrowing to fund specific sectors and businesses. As a result, its function can be described as the central authority of "Korea, Inc.," employing a command-and-control system along with discretionary actions.
From the perspective of this coordinating institutions, we can see quite contrasting differences between Indonesia and South Korea. First, strategy for economic growth. While South Korea chose an export-oriented strategy, Indonesia took the opposite strategy an import substitution for first 15 years the New Order era. This strategy emphasized fiscal policy to reduce import and provide a favorable circumstance for the promotion of domestic industry and started to promote the manufacturing industry (Wie, 2012). However, this strategy has a detrimental impact on the national economy due to its protectionist character, which has high costs and causes unemployment in traditional economic sectors (Asryad & Detajanna, 1997).
Second, effective planning board. Both Indonesia and South Korea have had Five Year Plan's (FYPs) during the development period. To ensure development plans run well, Korea has an Economic Planning Board (EPB) that the oversees the implementation of "Korea Inc." blueprint where the President acts like a CEO in a company (Park, 2011). Â The President and the EPB, monitored the performance of firms and rewarded or punished them accordingly. Indonesia in a similar way has the National Planning Agency (Badan Perencanaan Pembangunan Nasional, Bappenas), which had a very crucial role in designing, defining, and formulating of FYPs.
However, Bappenas policy provided a protective framework for the emergence of domestic capital dominated by state corporations and by companies owned by the military and their domestic Chinese corporate clients (Robison, 1986). Hence, Bappenas does not have enough effective power to ensure that the planning and development implementation process is carried out in accordance with the principles of merit system and good governance. The New Order regime did have several great economists and technocrats known as the Berkely Mafia, but according to Hill and Narjoko (2010), their role was like that of a firefighter. During periods of looming or actual crisis, technocrats were allowed to be in the ascendancy, and they delivered major economic reforms that led to recovery and faster growth. Reversely, during periods of buoyant economic growth, they were less influential.
Third, leadership style. This factor is perhaps the most significant and influential explanation in the context of coordination institutions and Indonesia's economic achievements in general during the New Order era. The key figures in the developmental progress of Korea and Indonesia, President Park Chung-hee and President Suharto, shared a dedication to advancing their countries and attaining substantial economic growth. President Park Chung- hee is known to have a personal commitment to creating an effective and relatively clean government, supported by a competent bureaucracy. Unfortunately, in Indonesia, the opposite happens.
The political leadership commitment to economic development in Indonesia case was only a political jargon and was not followed by the concrete executive action (Winanti, 2002). The New Order regime failed to take full advantages economic opportunities to achieve miracles because of the interests of elites, cronies and the president's family who increasingly control the country's economic resources. Over time, the concentration of authority in the New Order state grew, diminishing societal influence, and resorting to violence to maintain power when necessary. Authoritarianism eventually gave rise to self-serving policies, including the exploitation of natural resources in resource-rich areas for the advantage of the central government and ruling elite (Wie, 2012). Several studies even concluded that the New Order regime changed from a developmentalism-state to a patrimonial and predatory state with rent-seeking bureaucracy.
This ineffective coordinating agency is further exacerbated by the high level of corruption in the government, judiciary, and bureaucratic systems. V-Dem Institute (2023) data shows that Indonesia during the New Order era had e very high political corruption index, above 0.9. Meanwhile South Korea during the authoritarian-development period relatively moderate at 0.6 points.
5. ConclusionÂ
