The Politics of Development Policy and Development Policy Reform in New Order Indonesia

Abstract

How can we account for Indonesia’s astonishing development performance between 1965 and 1997—rapid growth, massive reduction in the incidence of poverty, low income-inequality and substantial diversification of the economy—in the face of extremely dirigiste microeconomic policies, even by developing country standards, and massive, systemic and endemic rent-seeking and corruption? This question is answered by demonstrating that Suharto, the leader of Indonesia’s New Order government, was extremely successful in building and sustaining a procapitalist, pro-integration with the world economy, and pro-growth with equity political coalition in which corruption played a central role.