The new ‘Survey of recent developments’, by Chatib Basri and Arianto Patunru, reports a welcome boost in Indonesia's economic growth rate, accompanied by exchange rate stability, declining in?ation and interest rates, and a strongly performing stock market. But evidence continues to accumulate of the govern-ment's inability to achieve much by way of economic reform, notwithstanding the introduction of several policy packages with precisely that general objective. It is not surprising that investment spending remains at low levels, as Indonesia still ranks very poorly in international comparisons of ease of doing business; nevertheless, the authors find a hopeful sign in rapid growth of capital goods imports in August.
The authors refute criticism of the government for allegedly causing poverty to increase by slashing fuel subsidies last year. The main cause of the recent rise in poverty in fact has been big increases in rice prices as a result of the previous ban on rice imports, which has now been overturned. Concern about poverty and unemployment have resulted in the government casting around for a ‘quick fix’, analogous to Roosevelt's New Deal of the 1930s. This raises the possibility of large-scale misallocation of resources to projects of dubious economic merit, such as investment in the production of bio fuels. Meanwhile, there seems no end to Indonesia's string of natural disasters, although the latest—a huge and as yet unstoppable ?ow of mud from a gas exploration well—has a significant man-made element. The inability of the bureaucracy to prevent or adequately deal with this disaster, together with its failure to bring about the government's desired reforms, suggests the importance of a thorough overhaul of the civil service.
We include in the December issue, for the second time, an extended discussion of political affairs in Indonesia over the last year; this paper was presented by Rodd McGibbon at the annual Indonesia Update conference at the Australian National University in September. The author notes that Indonesia experienced relative political stability in 2006, and that important democratic gains were registered—including the continued implementation of direct elections of local government executives and the enactment of the Law on Governing Aceh. He shows that the political party system remained especially weak, however, with continuing signs of a troubling lack of popular identification with, and support for, the parties. Ideological debates have become an important part of the national political agenda, especially over the vexed issue of religion and the state, but these debates have largely bypassed the party system.
In their study of ‘creative destruction’ in Indonesian manufacturing, Jan ter Wengel and Edgard Rodriguez present clear empirical support for the textbook view of the benefits of strong competition among firms, the result of which is that less efficient firms eventually exit their industries, while more efficient survivors are constantly pushed to achieve higher levels of productivity by new entrants. The authors argue that the steady increase in productivity of Indonesia's manufacturing sector can largely be attributed to this ‘churning’ process. The authors draw attention to government policies that discriminate in favour of small business, but which lead to inefficiency and high administration costs. On the other hand, they highlight the government's failure simply to provide a regulatory environment in which it is easy to establish new firms and to close down those that fail. They also demonstrate that the argument that closure of firms leads to increased unemployment is not supported by the evidence.
In another study of Indonesian manufacturing, Virginie Vial revisits the literature on total factor productivity (TFP) growth in this sector, using plant-level data. Her results suggest that average and aggregate TFP growth rates have been higher than previously estimated. Nevertheless, her results are close to earlier estimates and show a similar trend, indicating that they are robust to the methodology employed. Larger differences appear in the industry-level results, suggesting that detailed industry TFP calculations should be treated with caution.
The final paper is a review article by Robert Cribb about three new books on Indonesian history, by Adrian Vickers, Stephen Drakeley and Ian Chalmers, respectively. Cribb argues that each benefits from fresh research and new analytical insights into Indonesia's enduring complexity, and that these studies will help determine the assumptions that Indonesianists of the next generation bring to their research. Vickers's book is described as attempting to breathe fresh life into a general history of Indonesia. Chalmers is seen as making a bold effort to restore attention to Indonesian discourses and to give historical depth to the discussion of contemporary Indonesia. Drakeley's inclusion of perspectives on gender and daily life is given special mention.
As has become our custom over the last three years, we are very pleased to present a set of abstracts of recently completed PhD dissertations on the Indonesian economy and closely related fields. Again, growth in the number of such dissertations, several of them by young Indonesian scholars, augurs well for the future of the profession in Indonesia, and for the study of economics as applied to that country.
The book review section in this issue attests to the large number of books being written on Indonesian economics and related issues these days, including many by Indonesians themselves. It is pleasing also to see several young Indonesian scholars represented among our reviewers. Indeed, to some extent this is a collection of reviews by the younger generation on books whose content has been supplied by an older generation of authors, some of whom are no longer with us. The topics of books reviewed here include: Indonesia's transition to democracy; two studies of regional development under decentralisation, and one on regional demographic analysis; the politics and economics of natural resource exploitation; two collections of memoirs of Indonesians who have played significant roles in Indonesia's development; a history of the Borneo environment; a study of state terrorism and political culture in New Order Indonesia; and, finally, a collection of conference papers on the changing Asia Pacific economic order.
Selamat membaca!