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Indonesia at Melbourne: “Are vested interests always lurking behind Indonesian policymaking?”

Matthew Busch | October 7, 2015

(Matthew Busch is a PhD candidate at Melbourne Law School, where his research focuses on the Indonesian state and political economy of economic management. He is counselor with Vriens & Partners.)

Indonesia’s economic policies are byzantine and unstable. Too often, however, poor outcomes are explained away with facile reference to “vested interests” – elites who advance their private commercial interests through privileged access to political parties and government officials. In fact, the idea of “mafia” – code for vested interests – is a common feature of public discourse in Indonesia. One need only open a newspaper to find reports about mafias in everything from garlic to natural gas trading. Unfortunately, hard and systematic data about these interests is much more elusive.

Vested interests can be anywhere and are a handy explanation for poor policies or deviations from the neoliberal, good governance path(link is external). Writing about post-commodities boom adjustments, Ross Garnaut, for example, notes: “the flow of easy money from mineral and coal resources into private hands during the formative years of democracy meant private wealth had excessive influence over economic policy.” This sounds highly plausible, especially considering the broad (and growing(link is external)) array of politicians with coal interests, but is it the whole story?

It is certainly true that some Indonesian groups acquired coal assets following the Asian Financial Crisis, a time of low prices, flagging regional demand, and domestic political risk. The acquisitions came up aces in the 2000s when Chinese and Indian demand drove prices to the stratosphere, but has this wealth definitively changed Indonesian politics, and, if so, how?

Evidence suggests coal interests escape tax obligations(link is external) but they are also subject to an onslaught of ill conceived, interventionist policy initiatives, including domestic market obligations, royalties, dedicated ports, and efforts to informally introduce production quotas. Instead, rather than explaining policy – often confused and counterintuitive – through the lens of vested interests, Eve Warburton highlights the importance of ideology(link is external). On the flipside, I argue that broad political economy factors are critical for understanding economic policies and reform.(link is external)

 

Vested interests undoubtedly exist in Indonesia, as in any late capitalist society. They enjoy privileged access to bureaucrats, the legislature, the courts, and regulatory organizations. Corruption elicits permits, favourable regulation, and regional budget allocations. It is not clear, however, to what extent these vested interests actually drive policymaking. Perhaps instead it is just that they are better at responding to (or even hijacking(link is external)) nationalist initiatives in an environment of legal uncertainty and policy flip-flops?

Consider recent minerals policy, which sought, including with an export ban, to prod miners to invest in domestic metals processing facilities. Supposedly the work of vested interests both home(link is external) and abroad(link is external), the policy has resulted in little actual investment, while stopping commercial activity for two minerals, nickel and bauxite, that are in fact dominated by domestic miners. If this policy is indeed the work of vested interests it seems to have brought them little return on their presumed investment.

A more useful consideration for Indonesia’s continuing policy chaos is the state. The most effective states are impersonal, professionalised mechanisms for administration. Doing this well helps states to tax, provide public goods, and interact effectively with non-state actors. Effective states are connected to society and possess an internal coherence that prevents them from becoming a mere site for intra-elite competition.

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