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Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Indonesia–Harvard University: Lessons From A
Long-Term Technical Assistance Project
Joseph J. Stern
To cite this article:
Joseph J. Stern (2000) Indonesia–Harvard University: Lessons From A
Long-Term Technical Assistance Project, Bulletin of Indonesian Economic Studies, 36:3, 113-125
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http://dx.doi.org/10.1080/00074910012331339003
Published online: 18 Aug 2006.
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INDONESIA–HARVARD UNIVERSITY:
LESSONS FROM A LONG-TERM TECHNICAL
ASSISTANCE PROJECT
Joseph J. Stern*
John F. Kennedy School of Government, Harvard University
On 30 June 2000 the Economic Analysis Project, housed in the Ministry of Finance in Jakarta, closed its doors, ending over 30 years of technical assistance delivered through one agency, the Harvard Institute for International Development (HIID). On that same date the Institute was reorganised and effectively ceased to exist as a separate University entity.1
Although no other HIID project lasted as long as the Indonesia project, the Institute has provided technical assistance to a large number of developing economies, often remaining in a country for an extended period. In this regard Harvard University’s overseas advisory work has probably been unique.
While it is not clear whether HIID’s 30-year effort of providing technical assistance to the Government of Indonesia set a record for the longest sustained technical assistance project ever mounted, it almost certainly will rank as one of the longest. Those interested in the history of technical assistance efforts may wonder how the relationship between the Indonesian government and Harvard University evolved and, perhaps more importantly, what the various HIID projects, especially those working in the macroeconomic area, accomplished. Finally, what lessons, if any, can be drawn from this effort?
Because HIID worked with a number of ministries and institutions in Indonesia, it would require a very long study to cover all of them. Here we deal only with the macroeconomic projects. Hence we exclude from our review the assistance provided to Bank Rakyat Indonesia in the development of a highly successful micro-finance program, the work on urban planning, the research and training activities undertaken by the Center for Policy Implementation Studies, and a number of smaller projects. Some of these activities have been described elsewhere, but a complete review covering the entire range of HIID activities in Indonesia remains to be written.3
History
Sukarno broke relations with foreign donors, the Ford Foundation suspended its activities in Indonesia, and HIID’s work at Leknas ended. The project’s work with Leknas was resumed when relations with foreign donors were reestablished and some measure of stability returned to Jakarta. Over time many of the economists working at Leknas were either drawn into government employment or decided to pursue their research in a more traditional academic environment, and the Harvard University project with Leknas concluded at the end of 1972.
The Bappenas Project. After the New Order government was established in 1966, President Soeharto appointed five economists from the University of Indonesia as an expert team under the leadership of Professor Widjojo to advise him on economic matters. Topping the agenda was the need to deal with Indonesia’s rampant inflation, running at an annual rate in excess of 600% (Gillis 1984: 235–9). A number of HIID advisers from the old Leknas project had maintained contact with members of the new economic team, but it was a meeting between Professor Ali Wardhana and David Cole, who had recently joined HIID, that most directly led to a new HIID advisory project in Indonesia.
As a member of the economic advisory team, Professor Wardhana undertook a tour of a number of Asian countries to study their experience with stabilisation efforts. Visiting Korea, a country that had just gone through a successful stabilisation program, Professor Wardhana learned of the role that Cole, a former USAID adviser, had played in that program. As Cole had already left Korea, it was only when Professor Wardhana travelled to Cambridge to meet with Leknas scholars studying there that he met Cole, and the two then engaged in a long discussion of alternative stabilisation programs. Two months later, after the Indonesian government had announced its own stabilisation program, Cole was asked to come to Jakarta to work with the Widjojo team to strengthen the program further, and to help in designing policies that would lead to a resumption of economic growth.
countries, including Japan, Germany, The Netherlands and the UK, funded advisers. In response to these developments, it was decided to shift some of the advisory assistance from Bappenas to the Ministry of Finance, where such help was also needed. As a consequence HIID’s work with Bappenas effectively ended in 1976/77.4
From 1977 to 1980, HIID had no resident presence in Jakarta, although once again a number of former advisers stayed in touch with their Indonesian colleagues. During this period Malcolm Gillis, who had been a resident adviser on the Bappenas project, suggested that the government might benefit from the preparation of a series of policy papers that would provide quantitative information to decision makers.5 This suggestion
apparently struck a responsive chord, and a project was eventually decided upon. This time the advisory effort would use only short-term consultants who, since many were drawn from academic institutions, would work in Indonesia largely during the (northern) summer months. The proposal was accepted, and HIID proceeded to recruit the consultants needed to undertake the work program that had been agreed upon. During the summers of 1978 and 1979 the consultants, working in Jakarta, produced a series of studies on a broad range of issues, including small business lending, urban development, pollution abatement and energy pricing.6
The Ministry of Finance Projects. One of the studies focused on government revenues and noted that over three-quarters of tax and export revenues were derived from oil, with the not surprising result that tax revenues were relatively inelastic. Moreover, the study concluded that the tax base would not be up to the task of mobilising the resources needed to support Indonesia’s economic transformation. By 1980, Ali Wardhana, who had become Minister of Finance in 1968, realising that oil revenues might indeed have peaked and would almost certainly begin to decline in real terms, began to work with Gillis on a project to help reform the tax system. That project, the Fiscal Reform Project, began in 1981 but, unlike previous HIID activities, was entirely financed by the Indonesian government. The Fiscal Reform Project relied primarily on short-term consultants, and recruited an international team of fiscal economists, as well as experts in tax law. Gillis, who served as the project director, remained resident in Cambridge, making frequent trips to the field.
some of the major distortions in the structure of import duties and other elements of trade policy could also be removed’ (Barichello and Flatters 1991). In 1983, with the concurrence of the government, the project staff began to shift their focus to issues of trade and industrial policy reform, increasingly relying on long-term resident advisers, rather than consultants, to carry out the work.7 Staff began to collect information on
the structure and major economic effects of the trade policy regime, providing senior officials in the Ministry of Finance with quantitative information on the impact of trade distortions and their economic cost. These detailed case studies, with their well documented ‘horror stories’, provided the policy makers with the information needed to argue for policy change (Barichello and Flatters 1991: 273). Trade policy continued to be a major part of the work of the macroeconomic projects until they came to an end in June 2000.
When the Tax Reform Project concluded in 1987, it was replaced by a new project, the Customs and Economic Management (CEM) Project, whose terms of reference formally recognised the shift from fiscal reform to a broader focus on trade policy issues. In 1994 the project contract was again extended, but by then the work on reforming customs procedures had run into decreasing returns, and the project was renamed the Economic Analysis Project (EAP), a name change that more accurately reflected the change in focus. Unlike previous projects in the Ministry of Finance, all of which were under the direction of the Minister of Finance, the EAP was responsible to the offices of both the Minister of Finance and the Coordinating Minister for Economy, Finance and Industry (EKUIN). Despite subsequent ministerial changes in both portfolios, that relationship was maintained until the project ended in June 2000.
strengthening and reforming the existing insurance and pension systems, and developing a range of policies that could underpin the rapidly developing and expanding financial market.8
Operational Style and Accomplishment
Over the years, more than 100 advisers and an even larger number of consultants worked on various HIID projects. During some years in the late 1980s and early 1990s, there were often 20 resident advisers, and sometimes an equal number of consultants, working in Indonesia. Although this represented the staff of all HIID projects, including those not covered here, the bulk worked in the Ministry of Finance. But even with their focus restricted to the macroeconomic work, these advisers and consultants brought a range of skills and backgrounds to the project, from economics and law to plant biology, which allowed it to deal with an astoundingly wide range of issues. Assembling such a range of talent was possible because the terms of reference for the various projects were fairly broad and flexible. This made it possible for the minister and senior officials to ask that additional tasks be carried out by the project without a need to amend the basic contract, even though these new tasks often involved calling on additional staff or consultants with the requisite specialised skills.
This contracting style had in fact been applied earlier to the Bappenas project, and made it possible for the head of Bappenas and the senior counterparts to request assistance on a variety of issues, many of which were not foreseen when the contract was signed. As a result, the Bappenas project assisted in the development of prototype mining contracts, provided analytic support in the area of food security, and helped in the development of a district (kabupaten) level public works program. It also made it possible for an adviser to design a program to combat soil erosion on Java—an effort that involved local government in the coordination and financial management of village activities—while another helped define and measure a series of performance indicators for the transport and communications sector.
some of whom were used to work on the three main project objectives. While the project met its immediate goals, the consultant funds were used, with the concurrence of the minister, for a range of other activities, including supporting an adviser who worked on integrated pest management. The CEM Project also helped mount a poverty study that extended and updated work from earlier studies, and it provided consultants to Garuda, the national airline, as well as to SekKab (Sekretariat Kabinet), the office of the cabinet secretary, on staff development. It was this flexibility in the terms of reference that often made the projects extremely useful to policy makers who could, and often did, ask for immediate assistance on issues that had become important, but that had not been foreseen when the original terms of reference were drafted.
The knowledge that the various projects had the flexibility to undertake work on a wide range of activities did not go unnoticed by other departments and agencies. Not infrequently other ministries or government bodies would seek assistance from one of the HIID projects. Because such requests often came from senior government officials, it was difficult to turn them aside. However, each of the project directors knew that the use of funds for work other than for the project’s immediate clients had to receive explicit approval from either the Minister of Finance or the Coordinating Minister. This often enabled requests to be deflected, avoiding potential conflicts between ministries.
Although the staff recruited by the CEM Project worked on a variety of issues, its main work focused on macroeconomic analysis. The project helped set up a comprehensive debt database that provided input for an early debt projection model and, as called for in its terms of reference, began the construction of a comprehensive database for tariff and non-tariff barriers. This was an activity that was continued until the final days of the project.9 The CEM Project, and later the Economic Analysis
Project, undertook the preparation of a monthly macroeconomic report which, by the time the project closed its doors on 30 June 2000, covered 86 consecutive months, giving a detailed review of the rise, fall and recovery of the Indonesian economy.
the whole the projects were financed directly by the government. One major advantage of this financing arrangement was that the advisers clearly knew for whom they were working. This effectively meant that they never had to consider whether their policy recommendations might conflict with the goals of a donor agency. This not only made it easier for the advisers, but also provided some assurance to the ministers and senior officials that policy recommendations reflected only Indonesia’s policy goals and objectives, and were not skewed to reflect those of a particular donor.
Over the years the project staff enjoyed substantial direct contact with senior government officials. Advisers and consultants had an opportunity to present their analyses directly to senior policy makers in sessions that at times led to long and probing discussions of the assumptions used, the quality of the data collected, and the likely impact of the suggested recommendations.10 These meetings had a number of benefits. Not
infrequently they yielded new insights. But most importantly they ensured that the analysis was heard and considered even if, as was frequently the case, the recommendations were not accepted or implemented. These meetings also provided indications of the political realities that in the final analysis always constrain policy actions. Useful as these meetings were, they had a downside. Junior and even middle-level ministry staff resented the relatively easy access to senior government officials enjoyed by the advisers. Not unexpectedly, this resentment at times found expression in an unwillingness to share information which, it was felt, would enhance the standing of the adviser with relatively little credit being given to junior staff.
It is probably inevitable that any single institution that places a large number of advisers in a small number of ministries and banks, and maintains their presence year after year, should come in for criticism and be subject to rumours and innuendo. The HIID projects were no exception. The situation was hardly helped by the fact that advisers produced few public reports and generally declined to participate in public discussions or seminars. The advisers maintained that their work was intended solely for ministry staff, and that dissemination of their analysis should be at the discretion of their counterpart staff. While this low-key approach, a hallmark of all the HIID projects, may have helped to build trust between the advisers and the senior decision makers, it did little to inform the public about what was going on.11 This allowed observers to charge that
the HIID projects had undue influence in setting Indonesia’s economic policies.
structure was Indonesia’s unfortunate colonial inheritance. Although many of the senior government officials were well trained and highly capable, the lower echelon staff of many ministries and agencies were considerably less competent. As far back as the Leknas project, HIID made staff development and training a top priority. In early 1971 Lester Gordon, then director of HIID’s predecessor, the Development Advisory Service, and J. Price Gittinger of the World Bank undertook a study of Bappenas’s development needs. A number of the recommendations from that report were put into effect, including the establishment of a mid-career program, the Program Perencanaan Nasional (National Planning Program), at the University of Indonesia. HIID also initiated a seminar series in Bappenas, and Clive Gray, one of the resident advisers, developed a full-time two-month planning course, offered in the Department of Communications, which was later continued by the department’s own staff. Gray eventually taught courses for four years in the full-time mid-career program that had been created at the University of Indonesia, and a text book, Pengantar Evaluasi Proyek [Introduction to Project Evaluation], which he co-authored with Kadariah and Lien Karlina, was published by the University of Indonesia (Gray, Kadariah and Karlina 1975).
In 1981 the Fiscal Reform Project realised that a massive overseas training effort would be needed to prepare the tax and other ministry officials to manage the new tax system. This led to the creation of a special training office at HIID that helped in the selection, placement and supervision of literally hundreds of Ministry of Finance staff who were sent abroad for training. Over the next nearly 20 years, some 700 officials undertook overseas training. The trainees came from the state banks, Bappenas, the Cabinet Secretariat, the Board for Finance and Development Supervision, the Center for Policy Implementation Studies, and of course the Ministry of Finance. Most of these trainees returned to their posts. As a result, the quality of the Ministry of Finance staff was markedly strengthened, undoubtedly reducing the need for foreign technical assistance. All the macroeconomic projects also mounted numerous courses, conferences and seminars on macroeconomics, fiscal matters, banking and finance, and public enterprise policy. Many individual advisers also worked to improve staff capacity. The staff of the Program for Financial Policy Studies and Training recruited numerous junior professionals and actively mentored their progress, while the CEM Project ran weekly seminars for a number of years that focused on economic policy analysis, using case materials drawn from Indonesia.12
HIID projects were important contributors to economic policy debates, they were by no means the only voice arguing for any particular policy change. The government received suggestions, analysis and advice from a number of sources: from multilateral donor agencies, from other advisers, and from government officials. In the end Indonesia’s economic policy was set by a group of senior and highly competent policy makers who chose from an array of often conflicting recommendations.
Perhaps the strongest asset that the advisers brought to their task was the wealth of information collected through field visits and interviews. Because they were frequently able to report the results of such field visits directly to senior government officials, they gave such officials a unique insight into what was happening in the field. Much of the work of the trade reform project involved visits to factories or head offices, collecting data that would then be used to evaluate requests for tariff assistance. As each case study was completed the results, with recommendations, were passed on to the appropriate decision makers. In 1985, when a consolidated and detailed review of the trade reform work was requested by the government, its conclusions and policy recommendations were buttressed by well documented information on how the trade regime actually worked, providing senior decision makers with the information that eventually helped change policy. Such field reports became a standard feature of much of the analytic work undertaken by the various projects over the years. In the final analysis, it may well be that the information based on field visits and interviews proved more persuasive than any argument based on economic principles alone.13
Lessons Learned
Over the years the design of individual HIID projects in the Ministry of Finance evolved from responding to specific technical assistance needs to providing a more flexible source of expertise on a broad array of issues of relevance to the ministry. This design permitted advisers to respond quickly to a range of requests from ministry staff while, at the same time, enabling the advisers to raise important issues on their own initiative. No matter how the projects evolved, the question remains: what allowed HIID to carry on its work for some 30 years, and why was it so effective? Undoubtedly numerous reasons could be put forward but four, it seems, are critical in explaining HIID’s effectiveness.
conclusions, and evaluating policy recommendations on their merits. Moreover, the fact that many served in senior economic management positions for a long period of time not only provided some measure of policy stability but also allowed strong links to develop between individual advisers and the policy leadership. The trust between the senior policy makers and the economic advisers created a climate in which policy recommendations would be heard and fairly reviewed.
Second, over the years, HIID developed considerable expertise on Indonesian economic issues. The fact that a large number of people from HIID and from other university faculties had worked in Indonesia meant that there was a capacity in HIID to access expert advice quickly on specific issues. This not only helped the field staff but also assured the economic team that the earlier expertise and insights were not lost.
Third, HIID made a concerted effort to recruit advisers and consultants on a global basis. This brought an international perspective to the work of the team, and assured the government that the policy recommendations did not reflect only American practices.
Fourth, the unique funding arrangement that supported the HIID activities was critical. Because the funding came directly from the Government of Indonesia, and because the recruitment was done through an academic institution and not a commercial firm, the advisers knew precisely for whom they were working. No adviser or consultant was ever concerned that the policies he or she espoused might be in conflict with the policies of the funding agency or a ‘home office’. In turn, this assured the government that the recommendations reflected the best assessment of the advisers, who put them forward in the belief that the proposed policy actions would help Indonesia.
NOTES
* Special thanks are due to Professor Widjojo Nitisastro and Professor Ali Wardhana, who generously shared with me their recollections of how Harvard University became engaged in Indonesia. I am deeply indebted to them for giving so freely of their time and for encouraging me to write this brief history. Reconstructing the early history of HIID’s Indonesia projects would have been difficult, perhaps even impossible, without their assistance and support. Numerous colleagues and friends, many of whom lived through all or substantial parts of the history described here, commented on earlier drafts. I am particularly grateful to David Cole, Malcolm Gillis, Louis T. Wells, Jr, Lester E. Gordon, Clive Gray, Walter P. Falcon and John J. Bresnan, all of whom provided information on the early history of HIID in Indonesia, and to Timothy Buehrer and Soedradjad Djiwandono, who commented on earlier drafts and corrected numerous factual errors. Even with all the generous help received, it is likely that I do not have the full story of HIID’s work in Indonesia entirely correct. But I trust that at least the broad outlines are accurate. As always, full responsibility for errors and misstatements remains with the author. 1 A report submitted in January 2000 recommended that Harvard University
close HIID and move many of its functions to different schools within the University, most notably to the John F. Kennedy School of Government. As part of the reorganisation, HIID’s ongoing technical assistance project with Bank Rakyat Indonesia was moved to the Kennedy School.
2 Although the DAS was formally reconstituted as HIID in 1974, for simplicity’s sake we refer to HIID throughout the remainder of the paper.
3 Some of the excluded activities are described in Perkins et al. (1997). 4 HIID was also part of a Bappenas project that relied on the work of a substantial
number of non-HIID consultants, financed under various bilateral aid programs. In addition to its policy work, that project also mounted a major staff development effort. That activity ended in mid 1976.
5 Gillis had also undertaken a World Bank consultancy on mineral taxation, and pursued some of his ideas on tax reform while working on this project in Indonesia.
6 A number of other projects eventually evolved from these short-term studies, including the Development Policy Implementation Studies (DPIS) Project that eventually became the Center for Policy Implementation Studies (CPIS), as well as the still ongoing micro-finance project at Bank Rakyat Indonesia. 7 A separate project, working directly with the tax office, focused on
improvements in property tax assessment and collection. That project ended in 1994.
8 Much of the financial sector work is described in Cole and Slade (1996). 9 Ministry staff frequently used the databases maintained by the project’s staff,
Data Keuangan), the Agency for Export Facilitation and Financial Data Processing. When the EAP ended, all data and data files were turned over to the Ministry of Finance.
10 At the end of a particularly gruelling review of a policy paper, one of the advisers commented that the sessions reminded him of his doctoral examination!
11 Gillis argued that the work on tax reform could not be carried out in public, especially given the role that foreign experts played in drafting some of the tax regulations. He was undoubtedly correct, given the subject he was working on and the strong nationalistic feelings that still prevailed in the early 1980s. Whether that style of operation served the project so well as the years progressed is an issue that at times was hotly debated among HIID staff. Some argued for a more open work style and more active participation in the public discussions about policy that began to take place in the 1990s. Others continued to feel that participation in public debates would not be productive, especially as remarks by the advisers would be taken by some as an expression of government policy.
12 The seminars were held on Saturday mornings, when the pace of work in the ministry was often less hectic. They became a casualty of the 1994 move to a five-day working week for government employees.
13 The selection of sites to be visited, whether agricultural regions or small-scale manufacturing units located in remote regions, or factories sited in industrial zones, was not based on any statistical sample. This obviously limited the generalisations one could draw from such data.
REFERENCES
Barichello, Richard R., and Frank R. Flatters (1991), ‘Trade Policy Reform in Indonesia’, in Dwight H. Perkins and Michael Roemer (eds), Reforming Economic Systems in Developing Countries, Harvard Institute for International Development, Cambridge MA.
Cole, David C., and Betty F. Slade (1996), Building a Modern Financial System: The Indonesian Experience, Cambridge University Press, Cambridge UK. Gillis, Malcolm (1984), ‘Episodes in Indonesian Economic Growth’, in Arnold C.
Harberger (ed.), World Economic Growth: Case Studies of Developed and Developing Nations, ICS Press, San Francisco CA: 231–64.
Gray, Clive, Kadariah and Lien Karlina (1975), Pengantar Evaluasi Proyek
[Introduction to Project Evaluation], University of Indonesia Economics Faculty Press, Jakarta.
Mason, Edward S. (1986), The Harvard Institute for International Development and Its Antecedents, Harvard Institute for International Development, Cambridge MA. Perkins, D., et al. (eds) (1997), Assisting Development in a Changing World, Harvard
