Funny Money: Fiscal Policy, Rent-seeking and Economic Performance in Indonesia

The state and illegality in Indonesia

“…In 1993 economist and former minister Sumitro Djojohadikusumo estimated that the national budget incurred leakages of around 30% each year. 21 In 2003 Minister for Planning Kwik Kian Gie more conservatively estimated budget leakages as at least 20% 20 Our approach differs from that of MacIntyre (2000), whose analysis of off-budget funds and rent-seeking distinguished 'command lending', 'private contributions' and 'hidden government funds'. 21 Biografi Prof. Dr. Sumitro 2009.…”

“…It thereby seeks to throw some light on the unexpected outcome that a revolution intended to overthrow the highly corrupt Suharto regime has led to a democratic regime in which corruption is even more pervasive and apparently less well-ordered (MacIntyre 2001). Notwithstanding neo-liberal orthodoxy that the state should withdraw from direct economic involvement, democracy makes it more likely that ideological and policy battles within the elite may result in the state becoming more interventionist because elites need insulation from markets in order to generate the rents that keep them in power or fund their ambitions.…”

“…One widely known example was the privatization of the customs office in the mid-1980s which occurred when corruption there and poor law enforcement against smuggling threatened the economy. The famous 'mysterious killings' that occurred in the 1980s, and for which Suharto himself claimed credit, can also be seen as a tool to control crime rates when they were seen as threatening the economy (MacIntyre 2003;Duncan and McLeod 2007). With very high rates of corruption, but corruption that was centralized and controlled, Indonesia then enjoyed high rates of economic growth and was even considered in some quarters to be a successful development model.…”

The Road from Authoritarianism to Democratization in Indonesia

“…Increases in the price of oil between 1974 and 1979 underpinned the growth. This contributed massively to export earnings and government revenue that led to an impressive rise in real income per capita with the middle classes being substantial benefi ciaries (MacIntyre 1991). Growth slowed to 4 percent in 1982-1986, but Suharto managed to avert the mounting threat to growth posed by drops in the price of oil by reorientating the economy from oil to nonoil exports.…”

“…Sitting at the apex of this political structure, he went on to extend state patronage across the archipelago through Golkar and a vast network of state offi cials and business interests (MacIntyre 1991). Access to state revenues came via these patronage networks, all of which remained fi rmly attached to a highly centralized corporatist style of rule.…”