2.Indonesia under the Developmental State Regime
Shortly after independence in 1945, the Indonesian government began to take economic policies and intervene in the economic sector, which can be categorized as a developmental state. Under Sukarno's "The Guided Economy" policy, industrial development was to be accomplished by the state. The plantation industry, which was still managed by Dutch management, was nationalized, and its management was transferred to national bureaucrats. Nationalization policies were also implemented in various sectors, such as oil and gas, banking, and transportation (James, 2000).
However, this initial stage of development was premature due to the weak capacity of the state apparatus in the economic sector and an unprepared developmental structure (Vu, 2007). Eventually, in the mid-1960s, during the final years of Sukarno's leadership, Indonesia faced stagnant economic output, widespread poverty, and hunger, deteriorating infrastructure, and nearly 600 percent hyperinflation due to unchecked deficit financing (Wie, 2012).
After the military regime seized the power 1965, Indonesia started economic development, which were characterized by high degree of state intervention. In pursuing economic goal, the state is not only defining and generating national economic plan but also has a very significant role in its implementation (Winanti, 2002). As Burkett and Landsberg note (2000), Korea, Indonesia, Malaysia, and Thailand were generally perceived as following the Japanese model. Their swift economic growth and industrial transformations seemed to validate the traits of state-led capitalist development. Therefore, this paper aims to explain Indonesia's experience as a developmental state in terms of the six characteristics previously stated. The time frame taken in this article is between 1966-1998, or 32 years during President Suharto's rule in Indonesia, known as the New Order. This period is also known in modern Indonesian history as the era of development. Moreover, Suharto was nicknamed the Father of Indonesia's Development (Bapak Pembangunan).
First, strong government and effective developmental structures. The emergence of Major General Suharto, who played a role in eradicating the Indonesian Communist Party (PKI) after the 30 September 1965 uprising, coupled with the worsening economic situation, made most people want a change in President Sukarno's leadership regime. In many studies about Indonesia, at least three main groups supported Suharto's leadership in the early stages: anti-PKI army groups, Islamic groups, and student groups. Hence, since 1966, Indonesia's de facto leader has been Suharto, whose source of authority in Johnson's (1999) perspective is called revolutionary authority: the authority of a population dedicated to transforming their social, political, or economic order.
The New Order government was a highly centralized and one-command government under the control of President Suharto. This regime ruled for over 3 decades with a strong and powerful government. At least three main components were supporting the government at that time, namely the army which had defense and socio-political (dual functions), the bureaucracy with a mono-loyalty character, and the Golkar political party (Aspinall & Fealy, 2010). Through the structure of these three groups, which reached the village level throughout Indonesia, the New Order regime became an effective government. In Vu's (2007) view, the New Order regime had stronger developmental structures and functioned better than the previous regime from an economic point of view.
However, the Indonesian government under Suharto was an authoritarian regime (Crouch, 2010), and one of repressive and coercive regimes in the Third World at the time (Feith, 1982). Indonesia is a typical example of developmental state building under authoritarianism (Sato, 2019). Â In the first two decades of the New Order, there was the Command for the Restoration of Security and Order (Kopkamtib) institution which became a repressive state coercive tool to create order and stability as the basis for development. The Kopkamtib became a government entity focused on enhancing and maintaining order, security, and stability, with the aim of achieving national stability as a crucial factor for the successful execution of the Five-Year Development Plans specifically, and Long-Term Development more broadly (Tanter, 1991).
Second, capacity and autonomous bureaucracy. In contrast to the capacity of the Old Order bureaucracy during Sukarno's reign, the bureaucrats, especially those who managed the economy at the central government level during the New Order era, had relatively strong capacities. Most of them are Western-trained economists and holds highest position both at the Ministry of Finance (MoF) and the National Development and Planning Agency (Bappenas). Ransom (1970) called them the 'Berkeley mafia' because many of them were graduates of the University of California at Berkeley. Sato (2019) stated, together with the Berkeley Mafia, referred to as the technocrats, there is another essential bureaucratic group that influences development in Indonesia, namely the technologue, they are mostly Western-trained as well. The technologue refers to bureaucrats with expertise in technology and engineering which mainly working at the Ministry of Industry, the State Ministry of Research and Technology, and state-owned enterprises (SOEs).
The technocrats intervene in macroeconomic policies to create stability, including inflation, interest rates, strategic projects, and debt levels. Meanwhile, the technologist group emphasized the importance of the state-led development of technology-intensive 'strategic industries'. When there were differences of opinion between these two groups, Suharto acted as a balancer and determined which policies needed to be taken. Under Suharto's strong leadership, the state bureaucracy operated relatively autonomously from short-term political interests, including private interests, in determining strategic policy (Sato, 2019).
Third, state-business close relationship. Even though bureaucrats are autonomous from the firm interests, the state also must embed with the private sector for guiding and facilitating the formulation of policies that effectively promote industrial growth and economic development (Evans, 1995). Historically, Suharto itself has been long relationship with the private sector and made fundraising since he was an army commander in the regional level (Jenkins, 2010). Fundraising model and build a tight connection with a selected business key leaders apparently continued during his presidency.
For Indonesia's case, the relationship between state and business seemed even more extreme because Suharto and a handful of businesspeople created patron-client relationships. Anyone who expects access to wealth, projects, and business patronage from the state must be on the president's right side and provide sufficient funds to the president on an "off-budget" basis in exchange for permits, concessions, and privileges (Mackie, 2010). Based on patrimonial relationship, big businesses flourished due to Suharto and government support, through favoring policy, such as subsidy, protection, and special privilege.
Eventually, like the keiretsu in Japan or the chaebols in South Korea, in the New Order era they were also known as crony conglomerates, which referred to the few businessmen, predominantly Chinese, who were in Suharto's inner circle. Most of them still control the economic sector in Indonesia today and are widely known as the Sembilan Naga or Gang of Nine or Nine Dragons (Yesidora, 2023).
Fourth, industrial policy and export-oriented industrialization. Starting in 1969, the government established a Five-year Development Plan (Repelita), which became the basis for medium-term development. These development planning programs are founded on three core principles of development philosophy, known as the "trilogy of development" (Trilogi Pembangunan): equitable wealth distribution, economic growth, and national (political) stability, all aimed at achieving social well-being and justice for the populace (Winanti, 2002). The government also launched an emergency program for recovery and a long-term plan of national development.
According to Sato (2019), the state intervention such as promotion of domestic investment, investment incentives to priority sectors, restriction on foreign ownership and employment, automobile component localization policy, and bonded zone for export production. Meanwhile, deregulation policy including liberalization of foreign exchange control in 1970 and liberalize interest rates in 1983.
