Ph.D. Thesis — M.S. Williams McMaster University — Political Science ISLAM AND THE FOREIGN ECONOMIC RELATIONS OF INDONESIA 1 THE ROLE OF ISLAM IN THE CONSTRUCTION OF THE FOREIGN ECONOMIC RELATIONS OF THE REPUBLIC OF INDONESIA By MARK S. WILLIAMS, B.A.H, M.A. A Thesis Submitted to the School of Graduate Studies in Partial Fulfilment of the Requirements for the Degree Doctor of Philosophy McMaster University © Copyright by Mark S. Williams, November 2012 Ph.D. Thesis — M.S. Williams McMaster University — Political Science DOCTORATE OF PHILOSOPHY (2012) McMaster University (Political Science) Hamilton, Ontario TITLE: The Role of Islam in the Construction of the Foreign Economic Relations of the Republic of Indonesia AUTHOR: Mark S. Williams, B.A., M.A. SUPERVISOR: Professor Richard Stubbs NUMBER OF PAGES: viii, 280 ii Ph.D. Thesis — M.S. Williams McMaster University — Political Science Abstract American IPE has traditionally marginalized the role that social forces, and particularly religion, have played in the construction of the international political economy. This dissertation is an examination into the foreign economic relations of the Republic of Indonesia from the perspective of the British school of International Political Economy (IPE). British IPE is used to critically assess what role, if any, the religion of Islam has had in the construction of Indonesia’s foreign economic relations. This research demonstrates that Islamic social forces have influenced the political debates that construct Indonesia’s foreign economic relationships. Mainstream Islamic organizations pushed the state to engage with international institutions of trade and finance throughout the pre‐independence period when Indonesian national identity was being forged, as well as during the parliamentary democracy that followed independence, and into Sukarno’s “Guided Democracy.” The trend from the Suharto era to the early twenty‐first has been the appropriation of Islamic discourse by the state to legitimize its economic policies of engagement with the international political economy. Firstly, this dissertation challenges the dismissal of religious social forces as a salient dimension of the international political economy that is implicit to the American school of IPE. Secondly, the findings of this dissertation challenge the narratives of mainstream International Relations (IR) theory that interprets political Islam as a destabilizing force in international order. iii Ph.D. Thesis — M.S. Williams McMaster University — Political Science Acknowledgements This research project could not have been possible without the generous support of McMaster University’s Department of Political Science, Institute on Globalization and the Human Condition, and the Graduate Students’ Association. I am also grateful for the financial support provided through the Ontario Graduate Scholarship and the Social Sciences and Humanities Research Council. Thank you to Dr. Richard Stubbs, Dr. Lana Wylie, and Dr. Robert O’Brien for their feedback, their patience, and their commitment to helping me see this project through. I am truly grateful for all that Richard has done for me over the years. I could not have asked more from a supervisor. To Mark Busser, Michael Di Gregorio, and Liam Stockdale for reading draft chapters of the dissertation and providing helpful feedback. Thanks to my colleagues in the doctoral program and the masters program at McMaster who I have met over the years for their support and for their friendship. Thanks to faculty members of the Islamic University of Indonesia and the Jakarta Islamic State University for their assistance with archival work, my Bahasa language tutors, and to the librarians at Leiden University, Tilburg University, and at the University of Oxford. Thank you to the undergraduate students in Canada and in Indonesia who I had the pleasure of meeting and learning together with over the years. Thank you Mom, Dad, Paul, Linda, Adéle and many others for putting up with my obsessive habits during the completion of this project. iv Ph.D. Thesis — M.S. Williams McMaster University — Political Science Table of Contents Chapter 1 The Two Traditions of International Political Economy: Approaching the Study of the Foreign Economic Policy of Indonesia………………………………………………………….1 Chapter 2 Islam and Indonesia’s Engagement with the International Political Economy During the Orde Lama (Old Order)………………………………………………………………………46 Chapter 3 The Role of Islam and the Foreign Economic Policy of Indonesia’s Orde Baru (New Order)……………………………………………………………………………………………………..128 Chapter 4 Identity Politics of Islam During Reformasi (Reform) and Demokrasi (Democracy): Indonesia and the International Political Economy……………………….189 Chapter 5 Discussion: Assessing the Liberal Economic Paradigm in the Case of Islam in the Republic of Indonesia…………………………………………………………………………………255 v Ph.D. Thesis — M.S. Williams McMaster University — Political Science List of Figures Figure 1‐Ownership of Capital in Batik…………………….……………………………………...…..75 Figure 2‐1950 Appointment of PRC Figure 3‐1955 Election of PRC….……………...……76 Figure 4‐Imports/Exports of Goods and Services…………………….…………………...……...77 Figure 5‐GDP Growth Rate………………………………………………………………………………….94 Figure 6‐Inflation as Represented by the Consumer Price Index……………………...…...94 Figure 7‐Freedom House Scores During the New Order……………………………………..141 Figure 8‐New Order Parliamentary Elections…………………………………………………….142 Figure 9‐Inflation, GDP deflator………………………………………………………………………...144 Figure 10‐Foreign Direct Investment: The New Order Period……………………………..145 Figure 11‐Gross Domestic Product…………………………………………………………………….146 Figure 12‐1999 National DPR Results for Parliamentary Seats…………………………...208 Figure 13‐Biggest Problems Facing Community…………………………………………………216 Figure 14‐Satisfaction with Government Handling of KKN………………………………….217 Figure 15‐2004 National DPR Results for Parliamentary Seats…………………………...219 Figure 16‐Family’s Quality of Life……………………………………………………………………...221 Figure 17‐Situation Months into the Future……………………………………………………….222 Figure 18‐Foreign Direct Investment: Demokrasi Period…………………………………….224 Figure 19: 2009 National DPR Results for Parliamentary Seats…………………………..229 Figure 20‐Extent Satisfied with SBY’s Policies……………………………………………………230 Figure 21‐2008‐09 GDP Growth Rate as a Percentage………………………………………..231 Figure 22‐Current Economic Situation in Indonesia…………………………………………...232 Figure 23‐Currently the Greatest Problem Facing Indonesians…………………………...233 Figure 24‐Impression of the International Monetary Fund…………………………………234 Figure 25‐Impression of the World Bank…………………………………………………………...234 Figure 26‐Hard Work and Competition…………………………………………………………...…235 Figure 27‐Income Equality and Wealth Accumulation………………………………………..236 Figure 28‐Work and Society……………………………………………………………………………...237 Figure 29‐Government Responsibility and Ownership……………………………………….238 Figure 30‐Confidence in Major Companies………………………………………………………...239 Figure 31‐The Extent that Religion Influences your Voting Preferences………………241 vi Ph.D. Thesis — M.S. Williams McMaster University — Political Science List of Abbreviations ABRI‐Indonesian National Armed Forces ASEAN‐Association of Southeast Asian Nations BPUPK‐Investigating Committee for Preparatory Work for Indonesian Indepedence BMI‐Bank Muamalat CIA‐Central Intelligence Agency DDII‐Dewan Da’wah Islamiay Indonesia DI‐Darul Islam DPR‐People’s Representative Council FDI‐Foreign Direct Investment G30S‐30th of September Movement GAM‐Free Aceh Movement GDP‐Gross Domestic Product HMI‐Muslim Students Association HST‐Hegemonic Stability Theory ICMI‐Indonesian Association of Muslim Intellectuals IPE‐International Political Economy IR‐International Relations ISDW‐Indies Social Democractic Association JI‐Jemaah Islamiyah JIL‐Liberal Islam Network KKN‐Corruption, Collusion, and Nepotism LDC‐Less Developed Countries MANIPOL‐Political Manifesto of the Republic of Indonesia MORA‐Ministry of Religious Affairs MPR‐People’s Consultative Assembly MUI‐Indonesian Ulema Council NAM‐Non‐Aligned Movement NASAKOM‐Nationalism, Socialism, and Communism NATO‐North Atlantic Treaty Organization NEFOES‐New Emerging Forces NU‐Nahdlatul Ulama OEP‐Open Economy Politics OIC‐Organization of the Islamic Conference OLFOES‐Old Forces OPEC‐Organization of Petroleum Exporting Countries PAN‐National Mandate Party PDIP‐Indonesian Democratic Party of Struggle PERMAI‐The Indonesian Marhaen People’s Union PKB‐National Awakening Party PKI‐Indonesian Communist Party PKS‐Prosperous Justice Party vii Ph.D. Thesis — M.S. Williams McMaster University — Political Science List of Abbreviations (cont) PNI‐Indonesian Nationalist Party PPP‐United Development Party PSI‐Indonesian Socialist Party RBQ‐Really Big Question SBY‐Susilo Bambang Yudhoyono SEA‐Southeast Asia SDI‐Islamic Council Union SEATO‐Southeast Asia Treaty Organization SI‐Islamic Union TNI‐Indonesian National Armed Forces UN‐United Nations viii Ph.D. Thesis — M.S. Williams McMaster University — Political Science Chapter 1 The Two Traditions of International Political Economy: Approaching the Study of the Foreign Economic Policy of Indonesia Introduction An early work in the modern discipline of International Political Economy (IPE) characterized the discipline as “the reciprocal and dynamic interaction in international relations of the pursuit of wealth and the pursuit of power” (Gilpin, 1975: 43). Though the author of the quote, Robert Gilpin, is widely known as a realist in International Relations (IR), Gilpin,