Comment on “Making Economic Policy in a Democratic Indonesia: The First Two Decades”

• Date: 01 July 2020
• DOI: http://doi.org/10.1111/aepr.12307
• Author: Miki Hamada
• Published date: 01 July 2020

Comment on “Making Economic Policy

in a Democratic Indonesia: The First Two

Decades”

Miki HAMADA†

Institute of Developing Economies

JEL codes: F02, F60, H12, Z18

Basri and Hill (2020) summarize Indonesia’s trajectory over two decades, from the

Soeharto era to the democratic era, regarding economic policy-making. As they men-

tion, Indonesia’s transitions from authoritarian to democratic rule, from economic cri-

sis to a path of growth, from centralized to decentralized rule, and from public

indebtedness to effective fiscal consolidation, were all achieved successfully.

Against the backdrop of these achievements, Basri and Hill cautiously affirm that

Indonesia is not travelling down the road of economic populism. This conclusion is

derived from Indonesia’s prudent macroeconomic management after the Asian Finan-

cial Crisis (AFC) and the result of the 2019 presidential election.

Indonesia so far shows a relatively good and stable economic performance. Although

the current account deficit has become a tough challenge, a stable and manageable infla-

tion rate and declining unemployment and poverty rates provide stability in Indonesia’s

economy. When Indonesia experienced a historical currency depreciation of the rupiah

in 2018, Bank Indonesia took a range of monetary and macroprudential measures to

manage external pressures (International Monetary Fund, 2019). The fiscal deficit has

also been kept below 3% of gross domestic product (GDP); in 2019 the deficit was 2.2%

of GDP. Regarding the moderately managed macroeconomy, it is difficult to find mar-

ked factors indicating the rise of economic populism in Indonesia.

However, this does not mean that there are no symptoms of economic populism

and illiberalism. Over the past two decades, Indonesia’s transition to democracy has

been far more successful than neighboring Myanmar and Thailand –or most of the

Arab Spring nations (Bland, 2019), however, some have pointed out a regression of

democracy in Indonesia (Warburton & Aspinall, 2019).

Despite economic stability and an improvement in standards of living, inequality has

continuously widened, and corruption continues to increase rather than disappearing. The

poverty rate in September 2019 fell to 9.2%, a historical low. While inequality measured by

the Gini coefficient was 0.382 in March 2019. This is significantly higher compared with

0.308 in 1999. Interregional disparity has been expanding as well. The GDP per capita of

East Nusa Tunggara is the lowest in Indonesia, being 1/13 of that of DKI Jakarta. Mean-

while Central Sulawesi’s GDP per capita has grown 76% since 2010, while Aceh’sGDPper

†Correspondence: Miki Hamada, Institute of Developing Economies, 3-2-2, Wakaba Mihama-

ku, Chiba-shi, Chiba 261-8545, Japan. Email: miki_hamada@ide.go.jp

© 2020 Japan Center for Economic Research 235

doi: 10.1111/aepr.12307 Asian Economic Policy Review (2020) 15, 235–236