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Photographs included in the original manuscript have been reproduced xerographically in this copy. Higher quality 6” x 9* black and white photographic prints are available for any photographs or illustrations appearing in this copy for an additional charge. Contact UMI directly to order. Bell & Howell Information and Learning 300 North Zeeb Road, Ann Arbor, Ml 48106-1346 USA 800-521-0600 UMI LIBERALIZING NEW ORDER INDONESIA: IDEAS, EPISTEMIC CCMMÜNITY, AND ECONŒIC POLICY CHANGE, 1986-1992 DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Rizal Mallarangeng, MA. ***** The Ohio State University 2000 Dissertation Committee: proved by Professor R. William Liddle, Adviser Professor Kevin O'Brien Adviser Profesor John Champlin Political Science Graduate Program UMI Number 9971599 UMI* UMI Microform 9971599 Copyright 2000 by Bell & Howell Information and Learning Company. All rights reserved. This microform edition Is protected against unauthorized copying under Title 17, United States Code. Bell & Howell Information and Leaming Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, Ml 48106-1346 ABSTRACT Major theories in social and political science have not taken seriously the role of ideas in explaining economic policy charge. This study is different. The case of Indonesia from 1986 to 1992 demonstrates that ideas and the actors in the pub­ lic arena who fought for their acceptance and implementation strongly influenced the movement of policy from dirigism to greater liberalism. The relevant actors were economists, journalists, present and former government ministers, writers, and public speakers. Some of them, the technocrats, worked inside the government. But most worked outside, constituting an influential intellec­ tual epistemic community. These actors did not belong to a for­ mal organization. They did not appoint a leadership or author­ ity to orchestrate their actions. Instead, what they had was a broad intellectual consensus, a shared belief in the best course the country could take to achieve a higher level of eco­ nomic development. 11 When the opportunity came in the early 1980s following the fall of the world oil price, these actors attacked the dirigist status quo and offered their liberal solution. The technocrats worked from inside to convince the ruling elite of President Soeharto's New Order regime that the time had come to begin policy reorientation. They revived the modernizing spirit that had characterized the early New Order in the mid and late 1960s, when it dismantled the anti-capitalist legacy of Indone­ sia's first president, Sukarno. The intellectuals did their part from outside to discredit the dirigist status quo and to persuade the general public to support economic liberalization. When their ideas won the day, the course of policy shifted substantially. This shift affected major economic sectors, particularly trade, investment, finance and banking. The pe­ riod of 1986-1989 in Indonesia's history is properly called the deregulation era. After 1989, newly powerful business inter­ ests and the inability of the liberals to produce persuasive new ideas combined to weaken the reform process. The study concludes with the suggestion that taking the role of ideas seriously might also be useful in understanding broader processes of social, political and cultural change in other times and places. Ill Dedicated to Dewi and Dundun IV ACKNOWLEDOŒNTS This dissertation could not have been written without the help of many people. First, I wish to thank my adviser, R. William Liddle. I am very fortunate to be one of his students. He is my teacher and best friend. Without his patience, trust and and support, my experience in writing this dissertation would not have been so inspiring and eye-opening. Daniel Dhakidae, P. Swantoro and Jakob Oetama of Kampas and Mary S. Zurbuchen of the Ford Foundation made possible my field research in Jakarta and library research in Athens, Ohio. Hadi Soesastro, Mari Pangestu and Harry Tjan Silalahi provided me with a comfortable office in the CSIS building in Jakarta and an exciting intellectual environirent while I was doing my field research. In the course of the research and writing, I consulted and interviewed many personally helpful and intellectually stimu­ lating people. They include Iwan J. Azis, Goenawan Mohammad, Fikri Jufri, Rahman Tolleng, Sjahrir, Benny Murdani, Radius Prawiro, Mohammad Sadli, Suhadi Mangkusuwondo, Frans Seda, Adi Sasono, Umar Juoro, Hal Hill, Ross MacLeod, Herbert Feith, Lance Castles. I am sure that there are others whom I have for­ gotten to mention, and I ask their forgiveness. In Columbus I have been very lucky to be surrounded by friends most of whom are also "murid-murid Pak Bill" (Bill's students): Takeshi Kohno, Sjaiful Mujani, Denny J.A., Kathleen Woodward, Bahtiar Effendi, Blair King, Donny Azdan, and Mulya Siregar. Their often challenging questions were an extra moti­ vation to try to think clearly. I hope they understand that some years from now, somebody in Indonesia will call us "the Liddle Mafia." To all of these people I express my gratitude. Finally, and most inportant of all, I don't know how truly to express my thanks to my wife Dewi and son Dundun. Dewi has done so much for me. Without her love, patience and friendship, I might not have taken this "road less traveled by." Dundun, in his own way, inspired me to go on and finish this dissertation. When I ran out of ideas, as so often happened, and had to en­ dure many sleepless nights, my days would still be joyful, happy and rewarding because of this little Pokémon master. I dedicated this dissertation to them. VI VITA October 29, 1964 Bom, Ujungpandang, Indonesia 1990 Drs., Political Science, Gadjah Mada University 1994 MA., Political Science, The Ohio State University 1994-2000 Graduate Teaching Assistance, The Ohio State University PUBLICATION Research Publication 1. Mallarangeng, Rizal, 1992, Pers Orde Barxi - Tinjauan Isi Harian Kowpas dan Suara Karya, Fisipol, UGM: Yogyakarta, Indonesia. 2. Mallarangeng, Rizal (with William Liddle), 1996, Indonesia in 1995: Struggle Over Politics and Policy, Asian Survey XXXVI, No.2, pp. 109-116. 3. Mallarangeng, Rizal (with William Liddle), 1997, Indo­ nesia in 1996: Pressures from Above and Below, Asian Survey XXXVII, No.2, pp. 167-174. FIELDS OF STUDY Major Field: Political Science Vl l t a b l e o f c o n t e n t s Page Abstract ............................................. ii Dedication ............................................ iv Acknowledgments ........................................ v Vita ................................................ vii List of Charts ......................................... x List of Table ......................................... xi Chapters : 1. Introduction: ideas and the making of public policy .................................. 1 1.1 Theoretical review ........................... 2 1.1.1 Coalition politics and economic interest theory ........................ 3 1.1.2 State autonomy t h e o r y .................. 6 1.1.3 Rational choice t h e o r y ................ 10 1.2 An alternative explanation: the importance of ideas ...................... 15 1.3 The role of ideas in economic liberalization ...................... 20 1.4 Ideas and institution: Indonesian liberal epistemic community .................. 24 1.5 The case of Indonesia: various explanations ................................ 27 1.6 Organization of study ........................ 35 2. Historical background: the New Order's economic policy before 1986 ........................ 37 2.1 The opening gambit: the technocrats and their liberal policies ................... 38 2.2 Intellectual countervailing forces: the road to Malari .......................... 61 viii 2.3 The revival of dirigism...................... 83 2.4 Summary .................................... 103 3 , Rediscovering the market : crisis and the technocrats ' response ........................ 106 3.1 Political setting and economic problems ........ 107 3.2 The technocrats' response .................... 120 3 .3 Summary .................................... 134 4. Agency of persuasion: the liberal epistemic community and itsrole .................. 136 4.1 The liberal network ......................... 137 4.2 Intellectual migration ...................... 146 4.3 The "system" attacked ..................... 154 4.4 Summary .................................... 171 5. Economic liberalization: its reach and limits .....................................