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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's Economy since Independence
Arief Ramayandi
To cite this article: Arief Ramayandi (2014) Indonesia's Economy since Independence, Bulletin of Indonesian Economic Studies, 50:1, 148-149, DOI: 10.1080/00074918.2014.896247
To link to this article: http://dx.doi.org/10.1080/00074918.2014.896247
Published online: 24 Mar 2014.
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148 Book Reviews
I would have liked the book to have devoted more space to the negative side of development in Indonesia, such as poverty and inequality, and to explain these problems in more detail. Nevertheless, the book deserves to be read widely; I hope to see an English edition in the future.
Mitsuhiro Hayashi
The Australian National University; Chuo University, Tokyo
© 2014 Mitsuhiro Hayashi
http://dx.doi.org/10.1080/00074918.2014.896309
Indonesia’s Economy since Independence. By Thee Kian Wie. Singapore: ISEAS, 2012. Pp. xiii + 307. Paperback: $42.90.
Thee Kian Wie was one of Indonesia’s most respected and most prominent eco-nomic historians. His recent passing is a great loss for Indonesia and its younger economists, many of whom refer to Thee as a role model. This book gathers together 14 of Thee’s published papers that were scattered elsewhere, making it a valuable collection for readers seeking to understand the chronology and dynam-ics of Indonesia’s economic development since the 1940s.
The book divides the author’s papers into four categories, the irst three of
which focus on important episodes in Indonesia’s economic progression: (a) the early independence period, in the 1950s, and the government’s initial efforts to create an economic base for the new nation; (b) the Soeharto era (1967–98), and the chronology of how the New Order regime managed to raise Indonesia’s
eco-nomic status, before it was devastated by the 1997–98 Asian inancial crisis; (c) the Asian and the global inancial crises, and other recent developments in the econ -omy; and (d) Indonesia’s industrial development and competitiveness, a topic on which Thee contributed much during his career.
Perhaps the book’s central message is about the need to design economic pol-icy that creates the right incentive structures for promoting sustainable and bal-anced growth in Indonesia. The chapters clearly suggest that economic policies to enhance welfare have to be driven by economic rationale, rather than by subjec-tive elements that could contradict the objecsubjec-tives of the policies themselves. In chapters 1 and 2, for example, Thee considers the economic effects of the Benteng (Fortress) program of the 1950s, which sought to reduce the wide economic gaps between the indigenous Indonesian majority and other ethnic groups that were dominating the economy in the early stages of Indonesia’s economic development after independence. The program failed, Thee notes, because it did not recognise the need to enhance the economic know-how of many indigenous Indonesians. Instead of achieving its equalisation objective, it created rent-seekers.
Thee emphasises the importance of avoiding protectionist policies that may reduce Indonesia’s international competitiveness, reiterating his point about pro-moting economic rationale over subjectivity. His analysis in chapters 4, 5, and 6 of the opening up of Indonesia’s economy during the Soeharto era—a period of fast economic growth hampered by corruption, collusion, and nepotism, and, ultimately, by pervasive mismanagement—implicitly hints at the need to design proper incentive structures for Indonesia’s economy if its development is to be
Book Reviews 149
sustainable and equitable. Thee also considers the effects of the Soeharto era’s exchange-rate management regime (chapter 6), which led to a massive resource misallocation that rendered the country highly vulnerable to external shocks.
Since the 1997–98 Asian inancial crisis, Indonesia’s economy has become less
open to trade and investment, which has helped Indonesia to weather the recent
global inancial crisis better than more open countries in the region. Yet it has
come at the cost of slower growth. Contributions from the industrial sector are not as vibrant as they were prior to the Asian crisis, and Thee argues that the economy is in desperate need of increased investment (chapters 8 and 9), particularly in bottlenecked infrastructure and in governance, as well as higher levels of pro-ductivity, achieved by way of technology transfers and innovation, research and development, and better-quality education.
In the chapters that analyse case studies of different industry segments in Indonesia—wood products, garment manufacturing, and auto parts (chapters 12 to 14)—the book emphasises the need to steer away from protectionist policies that could reduce Indonesia’s international competitiveness. Thee stresses that every protectionist policy must be founded on an appropriate economic rationale that prevents it from failing to meet its planned objectives after implementation. Again, creating proper incentive structures is a recurring theme.
The book’s strength is its comprehensive scope; it contains many examples of past policies introduced to promote economic development, as well as the effects of these policies. In other words, the book gives a relatively complete account of Indonesia’s policy successes and failures, and hence it provides many important
lessons. Given that the chapters in this book were drawn from separate publica -tions and written at different times in Thee’s career, some repetition can be found among those chapters that address similar topics. Overall, however, Indonesia’s Economy since Independence is a must read for both students and shapers of Indo-nesia’s economy. It offers an excellent and meticulous analysis of IndoIndo-nesia’s eco-nomic development and gives thorough explanations of what went wrong in the past, which no economic policymaker in Indonesia can afford to ignore.
Arief Ramayandi
Asian Development Bank
© 2014 Arief Ramayandi
http://dx.doi.org/10.1080/00074918.2014.896247
