Political institutions and economic policy reform in post-Suharto Indonesia

Abstract

This research addresses the effects of political institutions, particularly the effects of the new institutional arrangements on policy outcomes in the post-Suharto Indonesia (1999- 2007). The core argument is that the new institutional arrangements have brought about many significant effects on policy outcomes. This thesis illustrates this argument by qualitatively investigating how the changes in Indonesia's key political institutions, especially the country's constitution and key political laws, have affected the achievements in economic policy reform. Given the complexity of the institutional reform since 1999, it uses executive strength as its optic. This refers to an aggregated measure of a president's constitutional powers and partisan support in parliament. This topic is important for two reasons. First, the importance of political institutions is still underplayed in the Indonesian literature despite the many significant changes in this area since 1999. Therefore, this research develops an alternative way of looking at certain policy outcome from an institutional angle. Second, assessing the achievements in economic reform in the post-Suharto era is critical for the prospect of democratic consolidation. Looking at the achievements in fiscal and investment policy areas, this research finds a stark variation among the post-Suharto administrations. There is a general pattern of policymaking capacity across these areas. President Wahid adopted very limited policy reforms in both fiscal policy and investment policy areas. President Megawati, on the contrary, adopted many significant policy reforms in these areas with elements of delay and partial reversal. President SBY performed the best, adopting many policy reforms in these areas in a very determined manner. The case study of fuel subsidy reform confirms this general pattern. Without ignoring the effect of political actors and their interests, this research argues that this variation is best explained by the variation in the degree of executive strength. Wahid achieved only limited reforms, primarily because he had insufficient political capital to adopt politically difficult reforms, the most important of which were constitutional protection over president's security of tenure and partisan support. These institutional underpinnings improved under Megawati with the tightening of impeachment procedures. She had constitutional protection over security of tenure though she still lacked partisan support. SBY had sufficient political capital since he was directly elected by the people and had protection over security of tenure as well as sufficient partisan support in parliament. These findings imply that the new institutional arrangements are of great importance for policy outcomes. Political institutions must therefore be accorded at least the same attention as interest in analyzing certain policy outcomes in Indonesia.