GLOBAL GOVERNANCE IN A GLOBALIZING
WORLD: DO GLOBALIZATION AND GLOBAL
GOVERNANCE ERODE NATIONAL SOVEREIGNTY?
Frassminggi Kamasa
Abstrak
Tulisan ini membahas mengenai hubungan antara globalisasi dan pemerintahan global dan efeknya terhadap kedaulatan bangsa dan negara. Secara khusus, tulisan ini akan mengkaji secara empiris proses globalisasi dan pemerintahan global yang telah mengakibatkan erosi terhadap kedaulatan negara yang bersumber dari ide Westphalia. Berbeda dengan kajian-kajan yang lain, tulisan ini mempertimbangkan apakah pemerintahan nasional yang lemah, berbagai tekanan dalam proses globalisasi, dan kompleksitas pemerintahan global dapat menjelaskan fenomena kedaulatan bangsa dan negara yang mulai terkikis. Perkembangan yang demikian akan mengurangi kapasitas negara dan konsolidasi nasional dalam mengatur urusan dalam dan luar negeri. Sebagai tambahan, akan dianalisa apakah proses dan interaksi globalisasi dan pemerintahan global bersifat otonom atau justru merupakan ekspresi dari hegemoni Barat. Dengan menggunakan analisis studi kasus tunggal mengenai globalisasi dan pemerintahan global yang terjadi di Indonesia dari tahun 1997—2007, ditemukan asosiasi antara globalisasi, pemerintahan global, dan kompleksitas pemerintahan global. Selanjutnya juga akan dibuktikan bahwa interaksi antara berbagai tekanan dalam proses globalisasi dan kompleksitas pemerintahan global menghambat kepentingan pemerintah untuk mengembangkan ketahanan nasional dan pembangunan bangsa dan negara.
Abstract
This paper discusses the relationship between globalization and global
governance and its effect on the nation’s sovereignty. Particularly, this paper
will empirically examine the process of globalization and global governance that has resulted in the erosion of national sovereignty that comes from the idea of Westphalia. In contrast to other studies, this paper considers whether the national governments are weak, the pressures of globalization processes, and the complexity of global governance may explain the dawn of the erosion of the sovereignty of the nation and the state. Such developments will reduce the capacity of the state and national consolidation in regulating domestic and foreign affairs. In addition, it will be analyzed whether the process and the interaction of globalization and global governance are autonomous or even an expression of Western hegemony. By using a single case study analysis on globalization and global governance that occurred in Indonesia from 1997-2007, we found relationship between globalization, global governance, and the complexity of global governance. Furthermore it will be proved that the interaction between the various pressures in the process of globalization and global governance complexity hamper the interests of the government to develop a national security and nation building .
Keywords: state sovereignty, globalization, global governance, development.
Introduction
This study investigates Indonesia from 1997-2007. In this study I will
discuss the question about whether globalization and global governance erodes Indonesia’s national sovereignty. I will divide this essay into three sections. The first section analyzes the cause-and-effect relationships
between a weak national government, globalization, and global
governance that erode national sovereignty. The second section
investigates how globalization pressure is likely to have the effect of
eroding national sovereignty. The third section examines how the global
My research question is: “Does globalization and global governance erode national sovereignty?” The study’s hypotheses may include the following: (1) state being weakened by the process of globalization and
global governance. A weak national government will lead to an erosionin
national sovereignty. (2) globalization and global governance is less an
autonomous process, and more of an expression of United States
hegemony, this coupled with an economic downturn will lead to erode
national sovereignty.
My first hypothesis, as pointed out by Freiden (2006:471) and Griffiths
(2008:132), is that globalization and global governance weaken national
government and state capacity. In the complex multidimensional processes of globalization and global governance, the state’s capacity for independent political action is weakened. My second hypothesis as
outlined by Gilpin (1987:45) and critical theorists, is that regimes, values,
and agenda setting in globalization and global governance are skewed.
Partisan processes of globalization and global governance have significant
effects on the erosion of state sovereignty.
The debates in International Relations (IR) about global governance
are extensive and voluminous. One of the debates on global governance is focused on “whether national sovereignty is being eroded.”129
129
Sovereignty is defined as supreme authority over a given territory
withthe authority to make laws and regulations for that society.130 Globalizationis“a trend of increasing transnational flows and increasingly thick networks of interdependence.”131 The Functional paradigm views global governance as universal liberal democracy.132 According to Pattberg, “in simple terms, global governance means to steer the process of globalization.”133
Many scholars pointed out that global governance in the form of thick
globalism and liberal international economic institutions represented only
the interests of industrial countries and northern corporations, which
ruled in a way that was autocratic, deceptive, exploitative, hypocritical,
and imperialistic.134 Thus, from the ideological point of view, the project
130
Krasner, S. (2001). Rethinking the sovereign state model. Review of International Studies (27, 17-42), pp. 19-29
131
Quoted in Keohane, R. (2002).Power and Governance in a Partially Globalized World.
London: Routledge, p. 15.
132
Ardalan, K. (2011). Globalization and Democracy: Four Paradigmatic Views.
Transcience Journal , Vol. 2, No 1 (2011), 30-31. Available at http://www2.hu-berlin.de/transcience/Vol2_Issue1_2011_26_53.pdf.
133
Quoted in Patberg, P. (2006). Global Governance: Reconstructing a Contested Social
Science Concept. Garnett Working Paper, 13. Available at
http://www2.warwick.ac.uk/fac/soc/garnet/workingpapers/0406.pdf.
134
Balaam, D., & Veseth, M. (1996). Introduction to International Political Economy.
of liberalism is, among other things, about building a sense of uniformity
and the incorporation of all mankind into a single idea free from
restrictions of political boundaries.135 The sovereign state’s capacity for
independent political action is weakened by globalization, especially in
the area of economic policy.136“ National governments had ceded power
to the WTO and the IMF or had this power seized from them by international markets.”137 According to critical theorists, such as Cox, Rosenberg, and Cutler, the emergence of the modern states system is
actually the development of a new form of imperial power, and
hegemony, in which the growing influence of private actors has blurred
the boundaries between private and public authority in the global
realm.138 In each of these analyses, it is clear that there is some erosion of
Hit Man Reveals Why the World Financial Markets Imploded and What We Need to Do to Remake Them. New York: Broadway Books, pp. 101, 134; Rais, A. (2008). Agenda Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of the Nation: Save Indonesia!).
135
Gilpin, R. (1987). The Political Economy of International Relations. New Jersey: Princeton University Press, pp. 45-46; Perkins, J. (2004). Confessions of an Economic Hit Man. California: Berret-Koehler Publishers, Inc; pp. 8-10, 15-17, 120-129; Rais, A. (2008). Agenda Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of the Nation: Save Indonesia!). Yogyakarta: PPSK Press, pp. 11-18; Thirkell-White, B., Grugel, J., & Riggirozzi, P. (2008). Beyond the Washington Consensus? Asia and Latin America in search of more autonomous development. International Affairs (84:3) , pp. 501-504.
136
Griffiths, M., O'Callaghan, T., & Roach, S. (2008). International Relations: The Key Concepts. New York: Routledge, p. 132.
137
Quoted in Frieden, J. (2006).Global Capitalism: Its Fall and Rise in the Twentieth Century. New York: W.W. Norton & Company, p. 471.
138
national sovereignty by the processes of globalization and global
governance. It also suggests that the process is less autonomous.
A case study of Indonesia
a. Weak national government
The Republic of Indonesia is the world’s largest archipelago with 13,487 islands and anarea of 5,193,250 km². It is a “fragile” country with a population of 240 million people occupying 400 ethnicities and speaking
583 local languages. Indonesian society is united in one principle, which is
Pancasila (five principles), and has a national motto Bhineka Tunggal Ika (unity in diversity). Indonesia also has the world’s largest Muslim population. Given this background, there is no wonder that governance is
a delicate action for the national government. With increasing global
political interdependence and integration, Indonesian national
sovereigntymay have become vulnerable and weakened by less
autonomous processes of globalization and global governance.
A weak government can be measured from three principles of poor
governance. Poor governance can be defined simply as the contrary of
good governance.139 In my view, a weak national government is the
139
Nasution, A. (2009, February 13).
http://www.bpk.go.id/web/files/2009/02/corruption2009-vienna-11-13-feb-2009.pdf.
Retrieved August 15, 2012, from BPK:
condition of lacking political power, social power and lack of influence of
the leadership or elites in running the state. It is manifest in the lack of
capability or poor management of the governing body to run the system,
take action, control, or regulatethe stateorganization and the people. This
can be seen from the poor governance indicators such as the high level of
national debt, the high level of corruption, and income inequality.
The first principle of poor governance is a high level of national debt.
Debt plus lots of interest leads to disappearing freedom. Since the Cold
War, globalization agencies were using loans as a main instrument of
hegemony by justifying huge international loans that would funnel back
to the hegemony through massive engineering project and bankrupt the
countries that received these loans so they would be forever beholden to
their creditors.140 This system has been called a “Marshall Plan in reverse” where “payments on Third World debt require more than $375 billion a year, twenty times the amount of foreign aid that Third World countries
August 27, 2012, from World Bank:
http://siteresources.worldbank.org/INTVIETNAM/Resources/Localizing-MGDs-for-Poverty5.pdf, pp. 2;Koh, T. (2009, October 7); Lecture on The Principles of Good Governance. Retrieved 13 August, 2012, from National University Singapore: http://www.spp.nus.edu.sg/ips/docs/pub/sp_tk_The%20Principles%20of%20Good%20Go vernance_071009.pdf; Khemani, M. (2008, March 6). Combating corruption in the Commonwealth. Retrieved Auguts 20, 2012, from Commonwealth Quarterly: http://www.thecommonwealth.org/EZInformation/176102/060308combating/.
140
Rais, A. (2008). Agenda Mendesak Bangsa. Selamatkan Indonesia! (Urgent Agenda of the Nation: Save Indonesia!). Yogyakarta: PPSK Press, pp. 1-2, 23-24; Perkins, J. (2004).
receive with the countries of the Global South subsidizing the wealthy North, even as half the world’s population lives on less than $2 a day.”141
Chronic indebtedness in Indonesia from 1997-2007 has seriously constrained the government’s ability to advance general prosperity. The Indonesian reliance for external debt from a cartel of international
creditors, known as the Paris Club, had even started before the onset of 1997 financial crisis. In 1996, Indonesia’s external debt amounted to US$127.4 billion or 54.5 per cent of GDP, in 1997 it amounted to US$135.0
billion or 163.1 per cent of GDP, in 1998, it amounted to US$149.9 billion
or 129.0 per cent of GDP, in 1999 amounted to US$ 147.6 billion or 91.0
per cent of her GDP, and in 2000 amounted to US$ 149.1 billion or 86.9 per
cent of her GDP.142 The data presented here are a conservative figure and
therefore it is reasonable to assume that Indonesia is in a state of
bankruptcy in 1996-2000 because of its debt burden reached absolute
levels.
Besides its false recipe to force Bank Indonesia (BI) to close sixteen
banks on November 1997 that created the banking debacle, the IMF also contributed to a huge Indonesia’s debt. As we can see from the table
141
Hiatt, S. (2007). A Game As Old As Empire: The Secret World of Economic Hit Men and the Web of Global Corruption. San Fransisco: Berrett-Koehler Publishers, Inc, p. 19.
142
IMF. (2000, June). Recovery from the Asian Crisis and the Role of the IMF. Retrieved
August 8, 2012, from International Monetary Fund:
http://www.imf.org/external/np/exr/ib/2000/062300.htm#box3; Febriaty, H. (2010).
below, it would be reasonable to assume that continued high
indebtedness may have contributed to destabilization in Indonesia from
1997 until it was able to repay enough debt by 2006. Huge debt and social
inequality factors created political turbulence and resulted in the fall of
the government in May 1998 and the disintegration of East Timor.
Indonesia Debts to the IMF 1997-2006
Year US$ (in billions) SDR (in billions)
1997 2.92 2.202
1998 5.64 4.254
1999 1.34 1.001
2000-2003 5 3.638
2002 4.5 3.638
2006 (outstanding) 3.2 2.2
Source: http://www.imf.org/external/np/sec/pr/2006/pr06215.htm,
William Cline in International Debts Reexamined argues that the
government that spends over 4 per cent of GDP to pay debts will be
unable to undertake its duty to maintain complete political stability.143
The condition in Indonesia is much worse than 4 per cent. Globalization
143
seems malign for Indonesia from 1997-2007. The government cannot
escape from a seeming addiction to interest-bearing debt. As a result, the
government is unable to undertake its duty to maintain political stability
because it spends over 100 per cent of GDP to pay its debts to the major
multinational banks, many corporations, and foreign aid missions from a
multitude of countries. The nation becomes bankrupt because of
interest-bearing debt. This indebtedness, coupled with the Asian financial crisis,
may better explain the cause-and-effect relationship between a weak
national government, globalization and global governance eroding
national sovereignty.
The second principle of poor governance is white-collar crime in the form of corruption. Transparency International defines corruption as “the abuse of entrusted power for private gain. This can mean not only financial gain but also non-financial advantages.”144 I think corruption in Indonesia can be seen from three perspectives. Systemic corruption,
corruption by necessity, and by needs. All these categories are mutually
connected in a globalized world in such a way that if the core system of today’s capitalism is driven by unfairness, consumerism, hedonism, and individualism, the others are also affected.145 With this framework,
144
Compact, U. N. (2011). Global Compact Principle 10. Retrieved August 31, 2012,
from The UN Global Compact:
http://www.unglobalcompact.org/aboutthegc/thetenprinciples/principle10.html.
145
Katz, C. (2011, January-February). Interpretations of the economic crisis. Retrieved
everything is not enough and there is likely to be a need for more
resources to be exploited. The present capitalist system lacks built-in
systems that respect the harmony between the human and the Supreme
Being, harmony between human beings, and harmony with nature. In this regard, corruption is a systemic and chronic disorder that exists in today’s capitalist system. This can be seen from the inequitable distribution of the world’s income that I will present in the next variable.
From micro-analysis, Indonesia also is unable to escape from this
tendency. Corruption has become a chronic problem in Indonesia from
1997-2007. Based on Political and Economic Risk Consultancy (PERC) and
Transparency International survey, from 1997-2006 the level of corruption
in Indonesia has not significantly improved.146 On average, Indonesia
isusually at the top ranking in corruption practices. And because corruption is a ‘cancer’ sweeping across Indonesia, the public trust in politicians is low.
http://www.isreview.org/issues/75/feat-katz.shtml; Perkins, J. (2004). Confessions of an Economic Hit Man. California: Berret-Koehler Publishers, Inc, p. 206; Perkins, J. (2009).
Hoodwinked. New York: Broadway Books, pp.61-71.
146
Quah, J. (2011). Curbing Corruptions in Asian Countries: An Impossible Dream?
Bingley: Emerald Group Publishing Limited, pp. 388; LAN. (2007).
Indonesia’s Level of Corruption according CPI and PERC Year CPI Rank and
Score*
PERC Rank and Score**
1997 46th (2.72) 12th (8.67)
1998 80th (2.0) 12th (8.95)
1999 96th (1.7) 12th (9.91)
2000 85th (1.7) 12th (9.88)
2001 88th (1.9) 11th (9.67)
2002 96th (1.9) 12th (9.92)
2003 122nd (2.9) 12th (9.33)
2004 133rd (2.0) 12th (9.25)
2005 137th (2.2) 13th (9.10)
2006 130th (2.4) 13th (8.16)
2007 143rd (2.3) 11th (8.03)
Source: Jon S.T. Quah (2011). Curbing Corruption in Asian Countries: An Impossible Dream? (Emerald: Bingley) pp. 388. *The Corruption Perception Index by Transparency International score ranges from 0 (most corrupt) to 10 (least corrupt).
**The Political and Economic Risk Consultancy, Ltd (PERC) score ranges from 0
(least corrupt) to 10 (most corrupt)
From the table above we can infer that corruption in Indonesia from
1997-2007 increased. From 1999-2002, corruption in Indonesia almost
reached the absolute level. This is the period when Indonesian banks
were insolvent because of their imprudent use of fractional reserve
banking without any regulation or enforcement to stop this devastating
At this time also, Indonesia came under the auspices of the IMF and
the World Bank to escape from the devastating financial crisis of 1997.147
Without integrity in the system and transparency when using its
interest-bearing loans, it would be reasonable to assume that the practice of
corruption likely happened by taking advantage of a weak national
government that cannot dodge from dependency and must get
interest-bearing debts from the creditors.
The third principle of poor governance is income inequality. Income
inequality is the condition where income distribution does not circulate
evenly. There are domestic and international factors that cause income inequality. For the sake of this study, I argue that ‘the rules of the game’ of capitalism which include a usurious economic system, money market
system (stocks and bonds), and fiat monetary system has made wealth no
longer circulate in the economy. The consequence is that the rich get
richer and the poor get poorer.
The result is catastrophic. The gap between the ‘haves’ and ‘have-nots’ is a world-wide phenomenon. According to the 2007 Human Development Report, the poorest 40 per cent of the world’s population
147
Quah, J. (2011). Curbing Corruptions in Asian Countries: An Impossible Dream?
Bingley: Emerald Group Publishing Limited, pp. 388; Bank, T. W. (2007, July 24);
accounts for 5 per centof global income, the richest 20 per cent accounts
for three-quarters of world income.148 From this macro analysis, it is
reasonable to assume that rich people are getting greedy at the expense of
others.
The ‘rules of the game’ in the name of financial globalization also manifested itself in numerous economic and financial crises due to
usurious-based economic and financial globalization.149 What is its
relationship with income inequality? As I have mentioned in the previous
analysis, globalization regimes sustain interest-bearing debt and breed
corruption. Corruption affects income inequality.
According to the UN-HABITAT “empirical research into causal relationship between corruption and income inequality suggests that it
would take only a 10 per cent decrease in corruption to increase GDP growth by 1.7 percent in Asian countries.”150 Income inequality has a strong impact in weakening the state by magnifying social inequality and
feeding corruption.
148
UNDP. (2007). Human Development Report 2007/2008.New York: Palgrave Macmillan, p. 25; Perkins, J. (2004); Confessions of an Economic Hit Man. California: Berret-Koehler Publishers, Inc, pp. xii, 206.
149
The savings and loan crisis in the 1990s, Asian and Russian monetary crisis in 1997, Enron accounting fraud in 2001, Argentine, Zimbabwe, and Turkey currencies and debt crises respectively in 2002, 2003, 2004, Bernard Madoff investment scandal in 2005, and the subprime mortgage crisis in 2007.
150
On a micro-analysis, it creates social inequalities, instability, and the
degradation of national confidence. To be specific, when the economic
and financial crisis hit Indonesia, ordinary people became vulnerable
because they lost their jobs, and even if they retained a job, wages
decreased because of a massive rupiah devaluation. No matter how hard
Indonesian people worked, they were still poor because corruption
prompted by the system had shackled them.
The level of trust and national integration ebbed away. The national
government was helpless in providing basic necessities for the people.
Thisrocked the very foundation of national sovereignty. People became
desperate to find any job; most were informal or dirty, difficult, and
dangerous jobs. With less pay than they were used to, corruption became
short-cut to sustain their life, families, and dependents. The gap between
rich and poor became wider.
Year Gini Ratio in Indonesia
1996 0.356
1997 0.560
1998 0.370
1999 0.311
2002 0.343
2005 0.343
2006 0.357
Source: Collected from various sources and Indonesian National Agency of Statistics
(BPS), Analysis of poverty conditions in Indonesia.151
From the table above, Indonesia’s Gini index (a measure of the inequality of income distribution, in which a lower index indicates better
equality) rose to 0.376 in 2007 from 0.356 in 1996. It reached peak value in
1997. From this fact, I can infer that inequality has been increasing in Indonesia for a decade. The economic growth ‘cake’ is not distributed evenly.The concentration of wealth became more exclusive as the gap
between rich and the poor widened. Too much reliance on economic
globalization in the form of debts and foreign capital flows created
vulnerabilities for long-term state economy planning.
The conditions attached to debts was too controlling and did not give
national freedom to do things based on local conditions. This may have
dampened national sovereignty, created political turmoil, and social
151
Statistik, B. P. (2008). Analisis dan Penghitungan Tingkat Kemiskinan Tahun 2008 (Analysis of Poverty Rate in 2008). Jakarta: Badan Pusat Statistik, available at http://daps.bps.go.id/File%20Pub/Analisis%20Kemiskinan%202008.pdf pp. 30-35; ADB. (2012); From Poverty to Prosperity:A Country Poverty Analysis for Indonesia.
Retrieved August 7, 2012, from Asian Development Bank:
http://216.109.65.20/Documents/Reports/Poverty-Assessment-INO/default.asp; Maulia, E. (2008, December 17). Income gap widens in Indonesia, most other countries: ILO.
Retrieved August 10, 2012, from The Jakarta Post:
http://www.thejakartapost.com/news/2008/12/17/income-gap-widens-indonesia-most-other-countries-ilo.htm; Sinaga, A. (2012, June 5). Income, a perilously widening gap.
Retrieved 15 August, 2012, from The Jakarta Post:
problems. The positive economic growth in Indonesia was yet to
trickle-down for the welfare and prosperity of the people.152
b. Economic globalization pressure
Globalization pressure is the use of persuasion, influence, intervention
or even intimidation to make states lose their autonomous economic and
political decision making power. Economic and political globalization as a
pressure from the Western world to the non-Western world is explained
by the concept of hegemony. The new liberal cosmopolitan ideal is
emerging and being accepted as the dominant ideology. There is
substantial pressure from globalization agents such as the IMF, World
Bank, and MNCs to follow homogenous, hegemonic, and imperialistic
democratization processes coupled with liberal development strategies.153
With her strategic location and rich natural resources, Indonesia has
attracted states and transnational actors to impose three strands of
152
Wijayanto. (2011, April 28). Income, a perilously widening gap. Retrieved August 8, 2012, from Globe Asia: http://www.thejakartaglobe.com/columnists/the-illusion-of-being-equal-prosperous-and-employed/437854.
153
Ardalan, K. (2011). Globalization and Democracy: Four Paradigmatic Views.
liberalism. Commercial liberalism promotes the idea of free trade and
economic interdependence, republican liberalism endorses the spread of
democracy, and institutional liberalism promotes the development of
international institutions.
For Indonesia, globalization pressure from 1997-2007 can be divided
into three components. First, the component of economic policy resulted
from the imposition of Washington Consensus mantras, which are
privatization, deregulation, and liberalization to escape from the Asian
financial crisis 1997. Second, the spread of an American political model
via globalization agents required Indonesia to undertaken overhaul of
political organization based on liberal values. Third, the war on terror included pressure to eradicate so-called “Islamic terrorism” in Indonesia and prevent the country from becoming Southeast Asia’s terrorism hotspot. In this analysis, I focus on the first aspect.
Indonesia’s national sovereignty was at low ebb from 1997-2007. The government was weak because of its ailing internal affairs and reliance on
globalization regimes. Indonesia was basically bankrupt because of a debt
trap. International interest-bearing loans bound Indonesia to its creditors.
Fundamental economic integration and interest-seeking rules nourish rent-seeking behavior in today’s capitalism.
Indonesia’s decaying sovereignty can be clearly seen from the conditional aid found in the Letter of Intent (LoI) and Memorandum of
Economic and Financial Policies (MEFP) of the government of Indonesia
undertake privatization, deregulation, and liberalization of its strategic
state-owned enterprises (SOEs).154
The IMF has given a false recipe to Indonesia, which must follow the
LoI in order to basically liberalize, deregulate, and privatize its economy
and become a model of Washington Consensus policies. The LoI sets out
the conditions for Indonesia to get funds from the IMF.155 Jonathan Stevenson describes this shocking pressure “the IMF offered help in the form of confidential agreement on 31 October 1997. The letter of intent
required that 16 banks be closed in November 1997, which prompted a run even on relatively healthy banks.”156 The pressure was getting high when the IMF threatened to withhold further bailout funds if the
government did not following its instruction. Furthermore, on January 9,
1998, US President Bill Clinton called President Suharto to insist that IMF
program must be followed.157
154
IMF. (2012, July 18). Indonesia and the IMF. Retrieved August 23, 2012, from
International Monetary Fund:
http://www.imf.org/external/country/idn/index.htm?type=23.
155
IMF. (2002, November 20). Indonesia—Letter of Intent. Retrieved August 10, 2012,
from International Monetary Fund:
http://www.imf.org/external/np/loi/2002/idn/03/index.htm..
156
Quoted in Stevenson, J. (2000).Preventing Conflict: The Role of the Bretton Woods Institute. New York: Oxford University Press, p.18.
157
Kutan, A., Sudjana, B., & Moradoglu, G. (2012). IMF Programs, financial and real sector performance, and the Asian Crisis. Retrieved August 31, 2012, from City
University of Hongkong:
On February 4, 2000, the IMF approved a three-year term loan to
support the program of structural reforms in Indonesia. When Indonesia
asked for financial assistance, the IMF provided a variety of conditions.158
Sometimes these requirements actually increased the financial crisis on
borrowing countries, as well as what happened in Indonesia during the
1997 economic crisis. The policy of the Fund is used to force, among other
things, privatization, removal of subsidies and deregulation. After the
1997 crisis, on March 26, 1998, the US$40 billion rescue package organized by the IMF failed in the goal of reviving Indonesia’s economy. In fact, it increased the country’s debt burden dramatically, while simultaneously exacerbating Indonesia’s economic crisis.159
The hegemonic dominance of the economic and political globalization
contracts affected national sovereignty, capacity, and capability to create
independent political-economic decisionsat critical times. These sets of
regimes were retained by the IMF via post-program monitoring.160 With
158
Baswir, R. (2005, December 06). Tim Ekuin 'Boediono'? (Economic Team of 'Boediono')? Retrieved August 12, 2012, from Gadjah Mada University: http://www.ekonomikerakyatan.ugm.ac.id/My%20Web/sembul34_1.htm; Tri. (2003, July 31). Pasca-IMF, Dikeluarkan Buku Putih (Post-IMF, White Book been Released).
Retrieved August 30, 2012, from Suara Merdeka:
http://www.suaramerdeka.com/harian/0307/31/nas6.htm.
159
Kamasa, F. (2011). What China's and India's Economic Development Can Bring to ASEAN? Jurnal Diplomasi, Vol. 3, No. 1, March 2011, p. 112.
160
high interdependence, caused by the lack of political will creating a basis
for the large-scale economies, Indonesia could not resist globalization
pressures, could not secure enough freedom to do things, was, and still is,
trapped in a huge debt.
When Indonesia signed the conditions of the loans, its national
sovereignty basically eroded for five reasons. First, the Indonesian
government was required to make an autonomous Banking Law. From
here emerges Act No.23/1999 on Bank Indonesia that separates state
authority from the central bank of the Republic of Indonesia.161 The
puzzle is, if the state is sovereign, why does it have to stipulate a law that
is so important, being imposed by non-state organization (INGOs)?
Furthermore, BI cannot be separated from the effects of having to submit
tothe IMF Articles of Agreement, that is, to be regulated, and in some
instances (as per the following articles: article IV section 2, article IV
section 3.a, article V section 1, and article VIII section 5), this involves the
state losing control of its central bank to the IMF, and only the central
Indonesia—Letter of Intent,Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding,. Retrieved August 14, 2012, from International Monetary Fund: http://www.imf.org/external/np/loi/2001/idn/02/index.htm.
161
Indonesia, R. o. (1999). Act of the Republic of Indonesia No. 23 of 1999 Concerning Bank Indonesia. Retrieved August 23, 2012, from Bank Indonesia:
bank, not government, is to have the relationship with the IMF.162 The
bank is the backbone of national economy and if the central bank cannot
escape being ruled by the non-state organization then logically the IMF is
controlling Indonesia and the economic sovereignty of Indonesian is
being eroded.
Second, under the LoI requirements for restructuring the banking
system, the government had to amend the Act of the Republic of
Indonesia concerning Banking by Act No. 10 of 1998 and create
Government Regulation No. 29 of 1999 concerning Purchase of Shares in
Commercial Banks, which allowed total foreign ownership to 99 per cent
of the commercial bank.163 This high threshold was dictated by the IMF in
the conditionsassociated with its loansin an effort to spur growth in the
immediate aftermath of the 1997 monetary crisis.
Third, under the LoI on privatization of the SOEs, the government
should increase the shares of SOEs released to the public. At least, this
should be done for companies engaged in domestic and international
162
IMF. (1944, July 22). Articles of Agreement of the International Monetary Fund.
Retrieved August 18, 2012, from International Monetary Fund: http://www.imf.org/external/pubs/ft/aa/.
163
telecommunications sectors.164 Because of this commitment, in less than
five years, the Indonesian government lost the ownership of its
telecommunications company Indosat which is strategically important.
Because of this commitment, SOEs became purely business-oriented,
which is to seek profit and sacrifice the welfare of the people.
The economic and financial globalization that took place towards the
end of the twentieth century is characterized by the liberalization ofall
sectors imposed through structural adjustment programs (SAP) by global
financial institutions. Globalization comes with policy conditions.
According to the IMF, the prime goals of SAP are to improve a country’s balance of payments, and to promote sustainable long-term growth. In reality, it is not transparent and can be seen as a major cause of
poverty in Indonesia.
IMF’s SAP is intended to assist Indonesia tomeet its debt-bearing loans provided by the IMF to Indonesia to address fiscal issues, monetary,
inflation, financial deregulation, trade liberalization, and privatization of
public-sector enterprises. The assistance has become counterproductive
164
Online, H. (2000, September 21). Privatisasi Indosat Diundur Sampai 2003 (Indosat Privatization Postpones untill 2003). Retrieved August 20, 2012, from Hukum Online.com: http://www.hukumonline.com/berita/baca/hol674/privatisasi-indosat-diundur-sampai-2003; Ritonga, U. (2002, Juni 18). Kesepakatan Ekonomi sebagai Pengganti LoI IMF (Economic Agreement as a Substitute of IMF's LoI). Retrieved
August 20, 2012, from Tempo Interaktif:
and was often criticized as the crisis became deeper, longer, and harder.165
We can see this course from table below.
Level of Unemployment, Level of GDP, Level of Trade, Inflation Rate,
and Interest Rate in Indonesia 1997-2007 (in percentage)
Year Level of
(BPS), 1997-2007, Statistical Yearbook of Indonesia (various years);
http://www.worldbank.org/en/country/indonesia,
http://eprints.undip.ac.id/26483/2/Jurnal_Skripsi.pdf
165
What assumptions can be made with the above data? Five salient
observations can be drawn from these economic downturn indicators.
First, by any standards, Indonesia had high unemployment rates from
1997-2007. From 1999-2007, the growth of the economy was relatively low,
at just about 3.9 percent. Second, the high rates of unemployment,
inflation rates, and interest rates contributed to the onset of a weak
national government in Indonesia handling macro and micro economic
indicators. Unemployment grew and the number of poor people
increased sharply. The difference between the highest and the lowest of
the unemployment levels are double and inflation rates twelve-fold.
Third, the double digits of unemployment rates, interest rates, and
inflation rates in Indonesia may have contributed to destabilization in
socio-economic conditions in Indonesia. Such high destabilization affects
societal economy activities. Fourth, in Indonesia from 1997-2007, the
unemployment, inflation rates, and interest rates were relatively stable at
high levels of 10 per cent, 17 per cent, and 20 per cent for a decade. Fifth,
these indicators coupled with other variables may better explain the onset
of weak national government and economic downturn in Indonesia over
a period of ten years. Economic downturn is even harder when we look at
the effects of the economic crisis as a result of the US sub-prime mortgage
crisis in 2008 and the series of bubbles from then until now.
The economic globalization pressure has created unequal
making. For example, the fiat monetary system will invariably lead to
inflation because paper money is printed continuously so that the value of
its purchasing power decreases. It also invariably benefits highly
industrialized countries because soft currencies (e.g. Indonesian Rupiah)
must be linked to hard currencies (e.g. US Dollar).
The monetary crisis in Indonesia that began in July 1997 led to the fall
of President Suharto on May 21, 1998. Inflation soared, and was recorded
at 11.05 % in 1997 and reached 77.63 per cent in 1998. This financial crisis
led to the collapse of the rupiah from Rp. 2.000 in 1997 to reach Rp. 20.000
per US dollar in 1998. This caused high prices in traded goods of more
than 4 times, that is, of more than 300 per cent, at the 1998 exchange rate,
in addition interest-bearing foreign denominated debt was swollen as the
value of the rupiah depreciated against the US dollar. The sovereignty of
national government is eclipsed when the national currency depreciates
in such way.
Based on this analysis, it is reasonable to say that the IMF’s bailout of Indonesia in 1997-1998 is basically a pressure for Indonesia to adhere to structural conditionality, but this has adversely affected Indonesia’s macro and micro-economic conditions. Indonesia at that time desperately
needed loans because of its economic imprudence, fiat monetary system,
and monetary speculation. It is hard to resist the actors and agents of
Global governance complex
According to Anthony McGrew, “an evolving global governance
complex existsembracing states, international institutions, transnational
networks and agencies (both public and private)that functions, with
variable effect, to promote, regulate, or intervene in the common affairs of humanity.”166 The global governance complex is embracing all nation-states today. It is inevitable, inescapable, and irresistible. As we have seen
from the analysis above, globalization is present at an economic, political,
and societal level. In fact globalization and global governance complicate
the ability of the state to maintain its sovereignty. The global governance
complex frames the regimes and values of international relations.
A web of organizations, public and private, domestic and
international shapes political regimes and policy, sets standards, and
enforces rules on a wide range of issues where sates lack effective
authority.167 I have outlined the case of the IMF intervention in Indonesia
from 1997-2007 that may fit into this categorization. The process of global
governance in Indonesia is less autonomous but driven by hegemonic
interests to gain advantage in the name of globalization and undermine
national sovereignty.
166
McGrew, A. (2010). Globalization and global politics. In J. Baylis, & S. Smith,
Globalization of World Politics (p. 25). Oxford: Oxfor University Press.
167
Indonesia, from 1997-2007 experienced this global governance in a
harsh way. As we have seen above, Indonesia was hit badly from the 1997
Asian financial crisis. The state capacity and autonomy was degraded and
almost lead to Balkanization, with the risk of disintegration and becoming
a failed state. Indonesia has been bound by numerous international
commitments by the globalization and governance regimes. The rule of
law became less well obeyed and the situation became very chaotic. A set
of regimes, values, and ideas was created for, and enforced by, a variety
of globalization actors. In this situation, the grass roots movement
consisting of religious groups and civil society urged for restoration of
Indonesia against the blatantly foreign intervention in shaping Indonesia’s economic and political policy.168
In the area of global governance complex, there are in fact three
distinct but interrelated processes at work. First the process of global
governance complex locates who is the authority in global politics.
Transformation of international politics becomes an arena no longer
dominated by the state because the state is seen as incompetent or
without capacity to solve global multidimensional problems. In another
way, the reduction of the state as the central decision making body on
policy is due toa lack of central authority and challenges to state
autonomy, capacity and legitimacy.
168
Second, where did liberal regime legitimacy come from? An act of
imposition, intervention, or even intimidation is certainly against the
principles of non-interference and respecting sovereignty that Indonesia or any civilized nations embraced. Learning from Indonesia’s experience, the idealism of liberalism can ruin the essence of the liberal idea, which is
freedom to choose, because it imposesthe views of another actor who has
different historical process, cultural identity, and world-view and requires
acceptance ofa singular global governance synthesis.
Lastly, the global governance complex entails considerable risk to
security if it is promoting or regulating its norms and value by
intervention. The way that the legitimacy of the state is not being
recognized gives rise to suspicion in many different ways. First, the global
governance complex may be tending to world government. Second, it is
likely to build a sense of uniformity and incorporation of all mankind into
a single idea and society. Third, as Patomäkiargues, it may transform
people and collective actors to accord with the preferred liberal world
order. Then it might give rise to a definition of higher and lower beings, the ‘other’ may be treated as an innocent to be converted. There also emerges the perceived need for coercive powers to protect the liberal
agenda.169
169
Conclusion
In conclusion, globalization and global governance eroded Indonesia’s national sovereignty from 1997-2007. During this time Indonesia suffered
many serious blows. A national government suffered the most and
economic and political autonomy were much reduced by the crisis. The
Indonesian experience has shown that globalization and global
governance is less an autonomous process. It is more an expansion of
non-state actor and Western-liberal democratic state hegemony, coupled
with economic crises that attenuate national sovereignty.
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