For the first 15 years of the New Order era, the government continues to maintain the Import-Substitution Industrialization (ISI) strategy which emphasized fiscal policy to reduce import and provide a favorable circumstance for the promotion of domestic industry (Wie, 2012). However, after the oil boom ended in the 1980s, the government switched to an Export-Oriented Industrialization (EOI) policy, seeing the success of South Korea and Taiwan and the various weaknesses in ISI policy (Djidin, 2007). From inward-looking to outward-looking strategy. This change in strategy also accelerated industrialization in Indonesia, leading to a transformation of the economic structure from agriculture to industry. The employment share of the agricultural sector steadily declined, while the shares of the manufacturing and services sectors increased simultaneously as shown in Figure 1. Since then, the manufacturing sector has become the driving force of economic growth (Puspitawati, 2021).
Fifth, the existence a pilot organization. Like South Korea with its the EPB, Indonesia have Bappenas as a pilot organization, which had a very crucial role in designing, defining, and formulating of Repelita, and led by the technocrats. Bappenas policies created a protective framework that facilitated the emergence of domestic capital, primarily dominated by state corporations, military-owned companies, and their domestic Chinese corporate clients (Robison, 1986). However, since the power centralized in Suharto's hand, 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. Bappenas cannot fully act like Korea's EPB which can control and punish the businesses (Putra, 2024).
Sixth, investment in education and human capital. Through the restoration of monetary stability and the rehabilitation of the deteriorated productive apparatus and infrastructure, the Indonesian economy experienced unprecedented rapid and sustained growth in the New Order era (Wie, 2007). According to the World Bank (2023), Indonesia's GDP growth in 1965 was only around 1.1%. In the first two years of the New Order, economic growth reached double digits in 1968, at 10.9%, and again double digits in 1980, at 10%. After the oil boom was over in 1985, economic performance corrected to 2.5% and rose again to 7.8% in 1996 before falling due to the Asian financial crisis of 1997-1999.
As shown in Table. 1, the increase in economic performance is accompanied by increases in other achievements, such as improving levels of education. The technocrats at Bappenas were also highly conscious of the importance of social development. They created phenomenal programs that is still impactful today, namely program of Sekolah Inpres (one elementary school in each village) and program of one Puskesmas (public health center) in each district (Sato, 2019). Those human capital investment programs are essential foundations in the development and transformation of a nation.However, behind the impressive achievements of the New Order, there is a critical question: why was Indonesia unable to transform into a developed country like South Korea or Japan after the developmental state of 1966-1998? The reasoning is there are several weaknesses of the New Order development regime that hampered transformation. First, there is a severe level of corruption and involvement of the president's family in state-sponsored business (Winanti, 2002). Suharto's family members were given every conceivable advantage in establishing their business empires. This included monopoly control over certain spices, like cloves, and various domestic industries, such as citrus fruit. The Suharto children gained increasing prominence by securing government contracts for projects like toll roads, power initiatives, and the poorly conceived "national car" program (James, 2000).
Second, Bappenas as a bureaucratic motor in development, does not have full authority and solid political support like the Korean EPB. For instance, it difficult for state-supported business groups to be punished when they made mistakes because they enjoyed high privileges if they were good clients of Suharto as their patron. This weak coordinating institution means that the state bureaucracy is not effective enough to create miraculous achievements like in South Korea (Putra, 2024).
Third, the government was unable to integrate and implement EOI's long-term industrial policy. According to Djidin (2007), the EOI's policy in Indonesia often focus on low-value-added manufacturing with minimal technology transfer and innovation, and emphasis on exporting raw materials or semi-processed goods. This hampers the development of a robust and diverse industrial base. Furthermore, the Indonesia's EOI often depends heavily on foreign direct investment (FDI), led to economic dependence on foreign investors and the repatriation of profits out of the country.
3.Conclusion
Indonesia experienced a developmental state during the New Order regime from 1966 to 1998, which was measured based on six characteristics. The New Order government was a model of centralistic and unified command under Suharto's administration. This regime was supported by an effective developmental structure through three main groups: the military, the bureaucracy, and the Golkar Party. In addition, to create order and stability in development, the first 20 years of the New Order saw the establishment of Kopkamtib as a repressive and coercive state instrument. The strength of this regime was also supported by a relatively better and more autonomous bureaucracy compared to the Old Order government, with the presence of two main groups of bureaucrats in development matters: the technocrats and the technologue.
Meanwhile, the relationship between the government and businesses was also very close, especially with the conglomerates who were Suharto's clients. They received privileges, protection, and support from the state within the framework of industrial policy. Furthermore, the shift in policy paradigm from ISI to EOI after the end of the oil boom in the 1980s had a positive impact on Indonesia's economic achievements. This progress was accompanied by increased government social investment in education, human resources, and health sectors, the effects of which can still be felt today. These achievements cannot be separated from the role of the pilot organization, Bappenas, which functions in designing and formulating development plans, despite in some extent by political factor, this organization did not have enough power and less effective to control the implementation.
However, even though the New Order's achievements are remarkable, Indonesia's accomplishments are not as miraculous as those of South Korea or Japan due to several weaknesses, such as high levels of corruption, ineffective pilot organizations, and imperfect implementation of EOI policies.
