Making Economic Policy in a Democratic Indonesia: The First Two Decades

Abstract

After three decades of rapid economic growth during the authoritarian Soeharto era, followed by the deep but relatively short-lived Asian financial crisis, Indonesia transitioned rapidly to democratic and decentralized governance. We examine policy-making processes and economic outcomes during the first two decades of this new era, leading up to the 2019 national elections where it was widely conjectured that Indonesia might follow the global trends of authoritarian rule and illiberalism. We conclude that, thus far, Indonesia has navigated the transition from authoritarian to democratic rule quite successfully. Compared to the Soeharto era, growth has been somewhat slower, inequality has risen, and policy reform is slower and generally incremental. But living standards continue to rise and all major political players have elected to operate within the new democratic parameters. Macroeconomic management has continued to be effective. Nevertheless, there are no grounds for complacency: there is a large outstanding reform agenda, and the economy is not providing enough economic opportunities for the bettereducated senior secondary and tertiary graduates entering the workforce. Show more