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Economics and Finance in Indonesia

Vol. 61 No. 1, 2015 : 21-40
p-ISSN 0126-155X; e-ISSN 2442-9260 21

Pragmatism and Nationalism: Industrialization Policy in Indonesia and
Nigeria I

Ahmad Helmy Fuadya,∗
a Research Center for Regional Resources, Indonesian Institute of Sciences (LIPI)

Abstract

This paper examines industrialization policy in two oil giant economies, Indonesia and Nigeria. What are
the key features of continued economic divergence in these two countries since the 1980s? It shows that
Indonesia’s policy-makers adopted a series of liberalization measures and switched to an export-oriented
strategy to develop manufacturing industries from the mid-1980s, while Nigeria’s policy-makers was reluctant
to do so. This paper also seeks to understand the rationale behind the different policy choices. This paper
argues that policy-makers’ experience and educational background are possible explanation to the different
industrialization policies in these two countries.
Keywords: Industrialization; Indonesia; Nigeria; Policy-Maker

Abstrak
Tulisan ini mengamati kebijakan industrialisasi di dua perekonomian raksasa berbasis minyak, yaitu In-
donesia dan Nigeria. Apa fitur kunci dari divergensi ekonomi berkelanjutan di kedua negara sejak 1980an?
Perumus kebijakan Indonesia menerapkan upaya liberalisasi dan berubah ke strategi orientasi ekspor untuk
mengembangkan industri pengolahan sejak pertengahan 1980an, sedangkan perumus kebijakan Nigeria
enggan menerapkan langkah serupa. Tulisan ini berusaha memahami alasan dibalik pilihan kebijakan yang
berlainan. Tulisan ini berpendapat bahwa pengalaman dan latar belakang pendidikan perumus kebijakan
merupakan salah satu alternatif penjelasan atas perbedaan kebijakan industrialisasi di kedua negara.
Kata kunci: Industrialisasi; Indonesia; Nigeria; Pengambil Kebijakan

JEL classifications: B310, O250, O570

1. Introduction In the wake of independence, in the 1960s, Nigeria
was full of optimism about the future of the econ-
omy. However, like a tragedy, up to the end of the
Indonesia and Nigeria are two oil rich countries, 1990s the economy grew very slow and often grew
which share similarities in many respects. Both are at a negative rate, while two thirds of the popula-
located in a tropical area, have very large and eth- tion lived below the poverty line and inequality in-
nically diverse population, experienced a long his- creased considerably. By contrast, after years of
tory of colonial rule, and are notorious for their pessimism and chaos in the early 1960s, like a mir-
high level of corruption. Both countries were ruled acle, Indonesia’s economy grew continuously at an
by military leaders from 1966 to 1998 (with two average annual rate of 7 per cent and experienced
brief civilian administrations in Nigeria in 1979– rapid poverty reduction.
1983 and 1993). Despite these similarities, they
show a stark contrast in economic performance. Industrialization has been regarded as a major
factor contributing to divergent economic develop-
ments in Asia and Africa. This has also been a fea-
I This paper is developed from my Ph.D. thesis, Elites and ture of Indonesia–Nigeria comparisons since the
Economic Policies in Indonesia and Nigeria, 1966–1998, at the 1980s1 . Since the mid-1980s, the manufacturing
Universiteit van Amsterdam.
∗ Corresponding Address: Jend. Gatot Subroto Street No. 10,

Jakarta 12710 Indonesia E-mail: elhelmy@yahoo.com. 1 In 1970s and the beginning of the 1980s, the key to rapid

Economics and Finance in Indonesia Vol. 61 No. 1, 2015

22 Fuady, A. H./Pragmatism and Nationalism: ...

sector has been an engine of growth in Indone- industrialization since the 1980s, while Nigerian
sia.The ccontribution of the sector to the coun- policy-makers were reluctant to do so. There are
try’s GDP increased significantly, from 8 percent in several studies attempt to explain the economic
1965 to 29 percent in 2003 (World Bank 2007b). divergence by examining the historical and insti-
The value added of manufacturing in Indonesia tutional contexts in the two countries (see for in-
surpassed that of the agricultural sector in 1989, stance Bevan et al. 1999; Kohli 2004; Eifert et al.
and the gap between the two has grown consider- 2002; Lewis 2007; and Thorbecke 1998). Accord-
ably since then. In Nigeria, however, the manufac- ing to Bevan, Indonesia historically had a greater
turing sector has not grown rapidly, with the value export orientation and there was more smuggling
added of this sector averaging only around 5 per- between the islands outside Java and neighbour-
cent of GDP from 1965 to 2003, while agriculture’s ing countries (Bevan et al. 1999, p. 419). These
value added reached 34 percent of GDP during the conditions made an outward orientation in Indone-
same period (World Bank 2007b). Moreover, In- sian economic policies more acceptable to policy-
donesia experienced a substantial transformation makers. Kohli (2004, p. 327) argues that failure in
into an industrial economy by weaning itself away Nigeria’s industrialization can be traced back to the
from oil dependence, while Nigeria’s economy ’per- colonial period, in which ’British "effortless" colo-
sisted as an oil monoculture’ (Lewis 2007, p. 187). nialism laid the foundation of a distorted state and
a commodity-dependent economy’. In the post-
In Indonesia and Nigeria, manufacturing perfor-
colonial period, Nigeria has indeed been an inef-
mance diverged significantly starting from the early
fective state, characterized by a personalistic and
1980s, when oil prices began to drop. Even though
ethnically fragmented political elite, combined with
both countries changed their industrialization strat-
an army and bureaucrats that are not competent,
egy during this period from an import-substitution
and lack of long-term vision (Kohli 2004, pp. 363–
strategy to an export-promotion strategy, there
4). The state’s ineffectiveness, lacking the vision
were significant differences between these two
and organizational capacity to promote industri-
countries. In the early 1980s, Indonesia’s policy-
alization, is thus argued to have contributed to
makers implemented a series of economic liber-
Nigeria’s development failures. Meanwhile, Eiffert
alization measures. This liberalization was sus-
et al. (2002), Thorbecke (1998) and Lewis (2007)
tained and even increased gross capital forma-
emphasize how policy-makers in Nigeria were di-
tion in Indonesia, when the state could no longer
vided along communal and factional lines, and
rely on oil revenues. Nigeria’s policy-makers, in
concludes that this made a problem of collective
contrast, failed to improve gross capital forma-
action. Moreover, patronage, clientelism, ethnic di-
tion in the economy with their half-hearted eco-
vision, rent seeking, and conflict over welfare distri-
nomic reform measures. In fact, investment poli-
bution led the country astray (Lewis 2007, pp. 77–
cies in these two economies also differed signifi-
8). Different to the previous studies, in this study
cantly during this period. During the oil boom pe-
shows the importance of personal background and
riod in the 1970s, the governments in both coun-
life experience of policy-makers in shaping devel-
tries adopted nationalistic inward-looking policies,
opment in Indonesia and Nigeria, which has re-
and an import-substitution strategy. After the end
ceived very little attention in the existing literature.
of the oil boom in the early 1980s, Indonesia’s
It argues that policy-makers’ experience and ed-
policy-makers clearly wanted to stimulate more do-
ucational background are possible explanation to
mestic private investment as well as FDI. In con-
the different industrialization policies in these two
trast, Nigerian policy-makers were still reluctant to
countries.
provide more room for private and foreign partici-
pation.
This paper first briefly presents the importance of
This paper aims to understand why Indonesian policy-makers’ backgrounds to shape their policies.
policy-makers opted for a switch to export-oriented It then provides an overview of industrialization
policies in Indonesia and Nigeria. This paper then
presents short biographies of the policy-makers re-
economic development and poverty alleviation in Indonesia was
attributed to a pronounced rural-agricultural bias in develop-
sponsible for the industrialization policies in the two
ment spending. Meanwhile, the poor economic result in Nigeria countries, to assess the relevance of their personal
was due to neglect of the rural-agricultural sector. background to the policies they espoused.
Economics and Finance in Indonesia Vol. 61 No. 1, 2015

Second. 24). eth. the outlook of members of an elite can change tions and ethnic backgrounds are associated with fundamentally during their careers. 2015 . ’certain types of getherness within their circle. managed economy in the 1950s and early 1960s. p. stituents. A policy- maker drawn from a political party is required Examining the background of policy-makers does to serve the party’s interests. However. not imply denying their ability to change. of thought. A ’shocking’ ex- the public./Pragmatism and Nationalism: . not only for the policy-maker. In Indonesia. religion. personal background may shape an elite’s belief in certain values and ideas that they There is also an importance role of policy-makers’ think suit them or their society (see also Guiso. Close encoun- different preferences for redistribution [and] differ. about what kind of policy would be is not only in terms of alumni networks of a school. that having a cer- ground and Life Experience tain social background is not a guarantee that an elite will act according to the interests predicted by that background. this tendency also works in this does not mean that they cannot change. lessons for the policy-maker in Suharto’s period ments. social networks wards devising and carrying out a specific required and interrelationships are important to understand policy’. the reverse direction. It is possible that hav- tant for understanding how their opinions are ing childhood memories of growing up in rural ar- formed and what kinds of policies they are likely eas will lead the policy-maker to prioritize develop- to support. to a new policy stance. Such an intellectual network. A policy-maker can but also intellectual networks that share similar be. port the elite’s choices in policy-making. 23 2. a ment in rural areas. morality and democracy in childhood. p. regional origins. 2006. This icy measures. Even maker who make use of class or ethnic sentiments though they learned attitudes about authority. learn from success or failure of policies that have lief systems. may lead policy-makers to distribution’ (Guiso et al. This obligation usually comes eas as ’backward’. 345). which may lead them education and training might be better suited to. de- to gain political power will need to serve their con. Fuady. the ’right’ or ’wrong’ policy. ’Different religious affilia. and of ’political socialization’ is dynamic and therefore Ziegler 1995. a policy. will help to explain an tional policy-making may bring members of an elite elite’s perception of certain policy ideas. There are at least two reasons. for instance. Analysis rather than a regulatory economy or state interven- tions. beliefs and behaviour. provided important temic community can help to provide policy argu. and inspire them with a spirit of to- as Derlien (1990. are more likely to prefer ’Differences in the way in which organizations are liberal economic policies relying on market forces structured. but also for not to commit similar mistakes. for instance. ceives being of rural origin. there is also the pos- policy-maker is often obligated to serve the inter. It depends on how the person per- professional affiliation) of policy-makers is impor.1. It should be realized. for Life experience provides the possibility for policy- example. policy-makers. p. Similarly. A. as well as political and biased policies. Harrison 2000. and therefore prioritize the de- from the background that provides the elite a basis velopment of ’modern’ urban areas. network. with disastrous consequences. experiencing the mis- also known as an epistemic community. First. Educational background.. This epis. and Zingales 2006. education. codes of conduct and a certain es. 350) notes.. may sup. as well as in the positions people oc- Economics and Finance in Indonesia Vol. Of course. Those trained in a liberal economics school a policy-maker’s knowledge. maker to be alert to possible consequences of their decision-making. Therefore. for instance. Parry (1969. Also. donors. of rural origins will not automatically prefer rural- nicity. 2. a policy-maker Personal background (family. 61 No. p. For instance. sibility that the policy-maker will perceive rural ar- ests of their group. because. been implemented by themselves or by previous tablished behaviour. closer together. velopment. brings with it community networks that makers to learn about the necessity of certain pol- are important in maintaining an elite’s power. for holding and maintaining their power. H. This community can serve as ’guardian perience provides a ’wake-up call’ for a policy- angels’ for the elite’s policy choices. ters with business professionals and international ent preferences for redistribution affect actual re. Intellectual more practical decisions. however. participation in na- background. The Importance Personal Back. 97) notes that the process Sapienza. 1.

gross capital formation only grew from Nigeria. Meanwhile. higher than for capital goods. manufacturing in terms of labour and value added Moreover. while the contribution of agri. This was In addition. more than 11 percent annu. ally.. Since 1991 the was less than 5 percent annually. Meanwhile. In the 1991–2000 period. the contribution of manufacturing to GDP about US$5 billion in 1973 to US$12 billion in 1981. H. 440) also notes that in the turing value added in 1970 and 1985 respectively 1980s. In contrast to sumer durables. differences in manufactur- dustry ing performance between the two countries are also obvious.1 percent and 22. manufacturing tor in 1970 and 66. growth of Indonesia’s manufacturing sector cent in 2000 (World Bank 2007b).4 percent in the sector grew robustly. while goods dropped from 80. 129). This was much value added of manufacturing also contributed the lower than in Nigeria. 329). from the mid-1980s. Indonesia’s manufacturing creased from 19. However. A. the value added of manufac. In the period of the 1970s to the Figure 1 compares manufacturing value added in 1990s. dur. In terms of labour. Decreasing capacity utilization.7 percent of labour in man- 70 percent in 1980 to 40 percent in 1990 and 29. 2015 .6 per- ufacturing from 1981 to 1990 was only about 3 cent of Nigeria’s labour in the manufacturing sec- percent. non-durable consumer goods (particu- higher than the growth rate of manufacturing in larly food.2 percent to 52. culture declined from 56 percent to 17 percent. the they were unable to pay more for their imported share of value added of non-durable consumer materials or to find new sources internally. lion in 1973 to US$70 billion in 1996.2 times higher than in Nigeria. as well as tex- Nigeria. which averaged almost 15 largest share to GDP. underdeveloped. In terms of exports. Data from the World Bank ure 2). exports. p. which slowed down to 11 percent annually tiles and apparel continued to dominate Nigerian in the same period.24 Fuady. 61 No. p.. beverages and tobacco. same period (Thee and Yoshihara 1987.1 per- 1970. Starting from a similar tuted less than one percent of total merchandise position in the 1960s. manu- percent annually in the same period. percent in 1970 to 35 percent in 1990 and 57. ria was not progressing. bution of agriculture since 1989. cupy within them. facturing grew from scratch to be the main engine ing the period 1971–1980.3 ufacturing in the respective years. In sum. In Indonesia. p. content of information that people receive’ (Trotter manufacturing in Indonesia surpassed the contri- 1999. intermediate and capital goods in- the situation in Nigeria. 38)./Pragmatism and Nationalism: . manufacturing in Nige. In Indonesia. added of non-durable consumer goods contributed tributed to the low growth of manufacturing in Nige. 84. However. and con- constraining not only the amount but the specific tributed only 4 percent to GDP in 2000.2. The contribution of manufacturing to In. manufacturing exports in Nigeria consti- Indonesia and in Nigeria.6 those able to survive had to reduce output and cut percent in 1980. gross capital formation. which absorbed only nual growth. p. many establishments closed down because (Anyanwu et al.4 percent to total manufac- ria. con. meanwhile. while in Nigeria the manufacturing sector still lagged far behind agriculture. manufacturing in Indone. 1997. 38). In ad- Economics and Finance in Indonesia Vol. it then constantly contracted. sia grew more than 14 percent annually. value percent in 1995 (see Ukoha 2000. 2). (2007b) shows that gross capital formation in In- donesia’s GDP grew from 10 percent in 1975 to donesia increased rapidly from less than US$5 bil- 25 percent in 2000. from the 1980s. after macroeconomic of growth and exports. 1. grew from 4 percent in 1975 to 10 percent in 1983. Ukwu (1994. In in Nigeria. The rate of growth in man. In the period 1961.5 percent in 1985. This is much in the country experience negative average an. 2. in Indonesia. the contribution of manufac- turing in Indonesia in 2005 was more than fifteen turing to total merchandise exports rose from 1. (Anyanwu et al. and then fell again to US$5 billion in 1996. Similarly.7 percent and 67. affect the flow of information. 1997. from 15. p.8 percent in 1971 to 47. p. value added of con- back on the number of employees. non-durable consumer goods absorbed 73. Performance of Manufacturing In. while in Nigeria it remained stability was restored. The performance of manufacturing in the two The contribution of manufacturing in the two economies corresponds to the development of economies also shows clear differences (see Fig.

After the finan- try decreased. the changing structure of credit. capital ex. the average applied (Ekpo 1996. Figure 3 shows that gross capital formation In the Second National Development Plan (1970– in Indonesia in 1980s and 1990s. to more than 11 percent of total capital expendi- ture. the share of credit from penditure allocated to industry was relatively high.8 percent of total in- ticipation of the Indonesian government in indus- vestment in the country (Anyanwu et al. investment averaged less than 7 percent of Nige- ria’s GDP. Moreover. This try was relatively low. government banks decreased steadily.7 percent. In the First Five-Year Devel- contrasts with the situation in Indonesia. however. during the period of liberalization in the second half p. In 1984. A./Pragmatism and Nationalism: .5 per- ment allocated 1.5 percent. 190). prior to crisis. it increased Nigeria which is about 10 to 15 percent lower. p. meanwhile private investment dropped the manufacturing sector as a proportion of total from 15.. However.3 percent capital expenditure was much lower in Indonesia in the 1980s. while tariff rate remained high. This de- creased to 25. Fuady. which increased government revenue. the share of public investment in GDP in in 1993. more than 30 percent. With decreasing oil prices The growing participation of the private and the in the world market and changing industrial poli. the figure was only 5. public investment than in Nigeria. 1970s. the par- reached a remarkably high 88.9 percent in the industrial development. 190). Even though it fluctuated. During the oil boom in the 1980s and 20. 25 Figure 1: Manufacturing. 2015 . the average rate of tariffs in Indonesia de- capital expenditure reached 25. where pri- opment Plan.5 percent of capital expenditure to cent of GDP in the 1970s to 17. 1. the Indonesian govern- vate investment increased steadily from 14. is 1974). Value Added Growth (%) Source: World Bank (2014). by contrast. foreign sectors in Indonesia can also be seen in cies. while the Economics and Finance in Indonesia Vol.9 percent in the 1990s (Lewis 2007. 1969–1974.9 percent in the 1970s to only 5. 237). cial liberalization of 1988. industry’s share of 1980s. and in the 1980s it reached more than Table 2 shows that capital expenditure allocated to 10 percent.4 percent In Nigeria. 1997). tariff rate in Indonesia was 37 percent. since the adjustment program (1986). the average applied the 1980s was even higher than in the 1970s. Table 1 shows that. H. reaching more than 7. the proportion of capital expenditure to indus. in 1988.3 percent in 1987 creased substantially. private investment nearly collapsed (Lewis 2007. compared to that in during the oil booms in 1975–1985. after the adoption of the structural In term of openness. In Nigeria. 61 No. tal expenditure to industry also increased. World Bank (2007b) for Nigeria 1961–1980 dition.2 percent in 1989 and 19. capi- p. Moreover. in the 1970s public of the 1980s. more than 25 percent of GDP. According to Lewis. In Nigeria..

while in Nigeria the government’s role in the 1997/98. due to both internal and external factors. The share of credit from government decrease in Nigeria.8 and 23. while it did not stantially.. it is not private and foreign banks increased substantially./Pragmatism and Nationalism: . Even though gov. In addition..6 25. was a clear trend for Indonesia’s industrial policy Economics and Finance in Indonesia Vol.7 6. The increasing role of domes- tic private banks and foreign banks is also clear in Industrialization has been regarded by many devel- the industrial sector (Table 3). However.2 percent respectively in 1988/89 countries considered industrialization to be the to 37. best and fastest way to develop their country. there rates.0 Source: World Bank (2007a) share of private and foreign banks increased sub.4 percent in 1997/98.0 2006 11. government intervention in industrializa- more open to the world market economy than Nige.2 1993 32. p. Figure 2: Manufacturing. Therefore.5 and 10. credit from domestic private economy remained strong. tion rose or fell following changes in oil prices ria. Indonesia was donesia. This section shows how industrialization and FDI poli- This section has shown the differential perfor. Value Added (% of GDP) Source: World Bank (2014) and World Bank (2007b) for Nigeria 1960–1980 Table 1: Average Applied Tariff Rate (Unweighted in %) Year Nigeria Indonesia 1984 35.6 and 5. In In- ria.26 Fuady. Industrialization Policies 1998/1999. 61 No. meanwhile. as seen in the inflows of FDI and in the tariff and changes in cabinet ministers.2 and 4. the share of credit from domestic dard of living (Ghatak 2003). try decreased steadily in Indonesia.7 6. 2015 . the government’s role in indus. H. opment economists as a major path to achieving a ernment banks remained important in providing faster rate of economic growth and a higher stan- credit to industry.0 37.35 percent in 1988/89 to only 35. mance of manufacturing in Indonesia and Nige.8 19. surprising that policy-makers in newly-independent from 16.3. cies in Nigeria and Indonesia changed over time. A.4 percent to 53. 286).4 1999 24.65 percent in sia.6 9. There was a clear trend for banks in the Indonesian economy decreased from higher private and foreign participation in Indone- 67.0 1989 35.9 2003 24. particularly since the 1980s. 1.8 percent respectively (Nota Keuangan and RAPBN 2. and foreign banks increased over the same pe- riod from 28.

27 Figure 3: Gross Capital Formation (% GDP) Source: World Bank (2014) Table 2: Proportion of Government Capital Expenditure Allocated to Industrial Development (Annual Average in %) Indonesia Nigeria 1969–1974 1. pp. 1997. During this early indepen- dence period. A. The vigorous import- In the early independence period. Nigeria’s fed. substitution strategy was meant to reduce overde- eral government continued the colonial policies of pendence on imported products and to save for- Britain to attract foreign investment to the country eign exchange reserves (Anyanwu et al.7 1979–1984 7. Source: Data for Indonesia based on Nota Source: Keuangan dan RAPBN 1998/1999 Source: (p./Pragmatism and Nationalism: . and the Income Tax (Amendment) Act of economy in the mid-1980s. p. such as tax holidays and a more compet- reluctance to liberalize Nigeria’s economy and re. however. Fuady.65 1981–1985 11..1 1984–1989 5.5* 1970–1974 5. itive business environment (Enuenwosu and Ne- duce government intervention remained strong. the In addition. there was still a investors. Data for Nigeria based on Source: Federal Ministry of Industry and Source: Technology (1992. the Nigerian government had also started to turn to import-substituting in- 2. during the 1959 offered a wide range of incentives for foreign liberalization period in the 1980s. Nige. 61 No. 5–6). the Customs (Drawback) Regulations ria. Economics and Finance in Indonesia Vol. the Industrial De- velopment (Import Duties Relief) Act of 1957. 47) and Ekpo Source: (1996.7 1974–1979 4.3. 435).22 Note: * Includes the mining industry. p.72* 1975–1980 12. Moreover.27 1986–1990 13. 127).1. p. (Ukwu 1994. The Industrial Development 36). media 1980. Industrialization Policy in Nigeria dustries and was convinced of the need to have an independent economy. 1. H. 2015 . the call for a broad-based nationalist Customs Duties (Dumped and Subsidized Goods) movement was growing. 237) through trade and investment liberalization. by contrast.4 1989–1994 5. had only begun to liberalize its of 1959. p. (Income Tax Relief) Act of 1958. Chief Obafemi Awolowo.. Act of 1958.

p. and dictated the transfer of equity ownership from ment Plan stated that: foreign investors to domestic actors.24) (8.96) (23.98) (20. to work toward the goal of increasing indigenous During the oil boom in the 1970s Nigeria adopted ownership.73) Total 15683 22449 31313 35411 43473 (100%) (100%) (100%) (100%) (100%) Source of Credit 1993/94 1994/95 1995/96 1996/97 1997/98 Government Banks 28452 30059 32846 34807 41983 (53. organizational values and foreign control of our na- foreigners dominated 57.3 percent of manufactur. This is the only way for an aspiring na- had nationalized the Dutch companies and yet tion like Nigeria to develop at a rapid rate and in the found that foreign investors "flock" to them’ (Enu.98) (42. the government decided not to opt for nationalization. A desire to end foreign domination of the remove by stages the already stifling dependence Nigerian economy was the main factor in the drive on foreign expertise. the government launched the Nige- However.59) (19. Burma. of her own resources instead of relying unduly on dia. Minister of Industry nationalist policies toward foreign investment. and Indonesia which external aid. and Technology 1992. quicken its pace of development through the use stance.88) (19. (Federal Ministry of Industry ing and processing industries. Thailand. Schedule 1 of the decree reserved an exclusive monopoly The uncompromising objective of rising economic for Nigerians in advertising. gambling. In 1970. right direction. electron- prosperity in Nigeria is the economic indepen. tion’s economic life. foreign toward nationalist policies. or ’Nigerianization’ of foreign companies.31) (63.35) Total 53483 62967 73023 81234 108023 (100%) (100%) (100%) (100%) (100%) Note: Number in parentheses is the percentage of credit received by industry.28 Fuady. nationalization later evolved into ’indige. As a result. 61 No.14) (37.45) (18.15) (68.75) Foreign Banks 822 1866 3063 4518 5533 (5. ] Nigeria will [. ics manufacturing. Considering the 8) constraints in human and material resources. . laundering. p. 7). bread and candle making.31) (9..78) Foreign Banks 9335 11954 15247 16215 25224 (17. for in. 2015 .52) Private Banks 2602 4385 6706 8473 10325 (16. for instance.3 percent of building and construction industries ( Anyanwu et The decree provided guidelines for investment al. Source: Calculated from Nota Keuangan dan RAPBN 1998/1999 (p. . transport. foreign raw materials.78) (12. The Second National Develop. step to lay the foundation of industrialization and to selves. (Enuenwosu and Nemedia 1980. ’urged Nigeria to follow the example of In. noted: 1974). rian Enterprises Promotion Decree (NEPD) No.85) (38. A. p. 275) ing and quarrying industries. H.35) (33.42) (23. the government had emphasized the need With it the nation took the very bold but inevitable for the economy to be directed by Nigerians them.17) (72. Ceylon. and 91. .86) Private Banks 15696 20954 24930 30212 40816 (29. municipal bus and taxi ser- Economics and Finance in Indonesia Vol.76) (12. 1997. 39).53) (21.. 286) leader of the opposition in the Federal House colonialist forces in Africa.93) (23. 1.80) (63. Joseph Adetoro.20) (47.28) (34. also known as the Indigenization Decree. who is also known as ’Mr Indigeniza- the Second National Development Plan (1970– tion’. . Table 3: Credit to the Manufacturing Sector in Indonesia by Source (Billions of Rupiah) Source of Credit 1988/89 1989/90 1990/91 1991/92 1992/93 Government Banks 12259 16198 21544 22420 27615 (78./Pragmatism and Nationalism: .19) (37. road dence of the nation and the defeat of neo.74) (44. enwosu and Nemedia 1980. ] of Representatives in the First Republic. p. In (1972–1974). 100 percent of min. 5 nization’. of 1972. [.

321). he was impressed by three of the ufacturing. pp. which terview 19/08/2009). the NEPD allowed en- 2). to deregulate and liberalize the investment environ- yeast and alcohol. 1997. liquefied natural gas. In addition. Approval and screening procedures for Five years later.. pottery and metal man. nology 1992. and low. 1980s led to a change in the government’s policy ping. and retail (Beveridge 1991. p. travel on manufacturing. the Indigenization Decree to encourage foreign in- 309). Fuady. in 1985 the ’government selectively relaxed participation was fully banned (Beveridge 1991. basic commodity production. With the belief that development of manufactur. pp. such as manufac. In 1987. ’[Direct government investment in manufac. For Nigeria. 51– eign investment. p. Obasanjo’s adminis- the establishment of new enterprises were also tration applied a second round of indigenization. In 1981. 29 vices. 2015 . For instance. petro. H. the require- ment of 40 percent Nigerian participation was in. Nigeria’s industrial policy dur- Economics and Finance in Indonesia Vol. a member of the Supreme Military genization of key positions in strategic industries. and reclassifying some sub-sectors which in Schedules 2 and 3 were repealed. voting shares from indigenous or foreign sources sufficiency. newspapers and hairdressing to Sched- World Bank on economic reform. ment relaxed the Indigenization Decree by reclas- technology manufactured goods. media.. Committee was established to attract more foreign investment. recalls that there was and the policy on dialogue with the organized pri- no disagreement in the SMC on the necessity for vate sector (Federal Ministry of Industry and Tech- the government to intervene in the economy (In. policies for industrialization. 321). machine tools. petroleum refining. stated that during the structural adjustment turing of chemicals. Babangida. drugs. 313) note chemicals. According to Metz (1991). p. travel agencies and wholesale. activities falling under Schedule 2. tic Components from the fifth Development Cab- tionalism over liberal economic policies. turing allowed the government to exercise almost foreign investors were allowed to increase their a complete monopoly in the following sub-sectors: share of ownership in a number of other sectors basic steel production. foreign cline. wholesale distribution. sifying a number of activities from Schedule 2 to cement. terprises to increase capital by ’the issue of non- ing is a major instrument for rapid growth and self. Biersteker and Lewis (1997. namely the policy on servicing companies (Beveridge 1991. When oil prices continued to de- the size of the enterprise was less than that. adding film distribution. 320). if the Schedule 3 of the 1977 NEPD (Beveridge 1991. that in 1988 a new industrial policy was designed steel plants. Bunu Sherif Musa. huge resources were channelled to in. flat. construction. vestment in neglected areas.000 naira. Metz 1991). The Indig- It expanded the 1972 Indigenization Decree. 315– local sourcing of raw materials. and the Industrial Development Coordinating phosphatic]’ (Anyanwu et al. eridge 1991. in spite of the provisions of the 1977 NEPD’ (Bev- dustry. however. 309). If 320. Unlike Indonesia. 36). Thus. p. pp. and also the hotel industry and oil. The restrictions ule 1. by enization Decree was significantly relaxed in 1989. and household chemicals. in 1977. ship. edible salt. the Nigerian govern- agencies. p. enterprise’s capital was more than 200. 276–77). This indicates how strongly eliminated the Ministry for the Utilization of Domes- policy-makers in Nigeria at that time preferred na. A. matches. such as large-scale agribusiness and manufacturing that used local re- Increasing government revenue because of the oil sources’ (Metz 1991). the policy on indi- 6). such as activities in Schedule 1 were left (Beveridge 1991. program period. 61 No. The structural adjustment program adopted in July a public-led industrialization strategy was added. For p. creased to 60 percent. 1986 also emphasized an export-promotion strat- while the private sector was neglected (Federal egy. The liberalization measures in Nigeria. and the drop in oil prices in the world market in the ipation to 60 percent in domestic air traffic. pulp and paper (basic). Council (SMC) at the time. 1986). to Schedule 1. and fertilizer (nitrogenous and ment. mandated a 40 percent Nigerian participation for Minister of Industry (August 1985 to September technology-intensive activities. in 1988. 1. the recession in the world economy Schedule 2 of the decree restricted foreign partic. p. inet (1988–1993). and only 40 previously had fallen under Schedule 2. p. such as furniture. boom also led the Nigerian government to increase its involvement in the manufacturing sector. streamlined (Beveridge 1991./Pragmatism and Nationalism: . radio and television op- following an agreement between Nigeria and the eration. Schedule 3 were half-hearted. to invite more private participation and for- Ministry of Industry and Technology 1992.

hammad Sadli. p. Instead (Pangestu 1996. . In terms of investment policy. 43). oppor- nationalist-protectionist measures. 6). stated that the New Order Nigeria’s new industrialization policy was a re. the Industrial Urgency Plan or the Sumitro Plan. In addition. Sadli observed that there was not much competition from other countries to attract FDI. p. placed non-indigenous or non-Nigerians in key po. p. industrialization started with (Sadli 1993. the Dutch owners whose firms had been nation- • Improving the country’s investment climate. The plan emphasized the need for government Similar to Nigeria when the oil windfall started in to take control and ownership of the economy. Together. sentiments toward foreign participation in the econ- omy: However. Minister of Trade and of foreign-exchange controls made Indonesia an Industry. except • Improving the regulatory environment. of indigenous people or pribumi (Chalmers 1990. Indonesia at the beginning of Suharto’s came in to exploit the country./Pragmatism and Nationalism: . the early 1970s. The new industrial policy of 1989 The government launched a new Foreign Invest- limited the role of the public sector to: ment Law in 1967. p. since sponse to the World Bank’s criticism of Nigeria’s the country lacked domestic savings for capital manufacturing development. p. and petrochemicals (Ukwu 1993. Industrialization Policy in Indonesia vestors to have domestic partners to invest in In- donesia. in the late 1950s many foreign Bunu Sherif Musa clearly expressed his negative companies were nationalized. acts provided for a wide range of incentives. 1994. Law in 1968. foreign loans were the was too much resource allocation to large. particularly that there investment. In 1951.. Many entrepreneurs New Order adopted a liberal economic policy. 61 No. Sukarno administration. the achievements of the SAP and the well as exemption of sales taxes on capital goods 1989 industrial policy were disappointing. At this time. 43). these two investment laws state and local levels of government (Federal provided quite a strong legal basis for investors to Ministry of Industry and Technology 1992. The government also issued • Encouraging private-sector participation by a guarantee that foreign firms would not be na- privatizing government holdings in industry. chairman of the Technical Team (Federal Ministry of Industry and Technology 1992. tionalized. ]. the gov- • Establishing a clear set of industrial priorities. of increasing private investment. pulp and paper.3. become involved in the Indonesian economy. also known as 1993.. mport-substituting industries. tax holidays. The 64). ing the structural adjustment program made local particularly key industries. Indonesia’s industrialization strat- Economics and Finance in Indonesia Vol. p. There was also the sourcing of raw materials a main strategy for in. A. while other countries such as Thailand and the Philippines required such a partnership In Indonesia. 277) from 1967 to 1973. main source of funds to achieve macroeconomic intensive. for instance. 1. as However. Moreover. for Investment (Tim Teknis Penanaman Modal) p. 2015 . 440). but many others revenue. H. capital. There was also no requirement for foreign in- 2. and abolition Sumitro Djojohadikusumo. alized in 1958. amongst those entrepreneurs [. Indonesia’s industrialization policy changed substantially after the collapse of the However. At the time. ernment also launched the Domestic Investment • Harmonizing industrial policies at federal. nomic deterioration and insufficient government ing Nigeria attain greater heights. . which had been nationalized during core industries. p.30 Fuady. introduced the Economic Urgency Plan attractive destination for foreign investment (Sadli (Rencana Urgensi Perekonomian). Mo- sitions in order to conceal the secrets of business. 152). to their former owners. such as tax holidays and exemption of import duties. For domestic investors. The government also returned many • Playing a catalytic role in establishing new foreign firms. such as stability and to rehabilitate the economy (Sadli steel. tunities to exploit natural resources. the Sukarno period. the share of pub- lic investment in GDP in the 1980s increased. 43). government considered FDI to be crucial. Benteng program to protect and increase the role dustrialization.2. Challenged with eco- some came in with the intention of really mak.

141). According to hospital. 1. General Ibnu Sutowo. namely small invest. 31 egy changed substantially. The changes in govern. hundreds of sociates. hijacked pro- dozen looters were killed (Robison 1986. Pangestu also noted that interventions in and given its relative autonomy from government industry were motivated not only by the aim to control. which had the authority to tender and im- anti-Japanese riots. 77–80). 141–2). H. opportunity to increase popular subsidies. fertilizers. many sectors were closed to put forward their nationalist projects. p. foster pribumi enterprise. . in the wake of to their Indonesian partner within ten years.. 222): (1) every foreign invest. frozen foods and tourism (Lewis 2007. pp. with at Habibie. such as petroleum exploration. ing. refin- duced two new schemes to provide credit to indige. production. Kredit Investasi Kecil) and credit ment. Set- (Malapetaka Januari). ’Policies for licensing. p. telecommunications. together with electricity generation. and the president’s family (Lewis 2007.. 118). insurance. the government issued policy became involved in steel production. related activities. credit. p. Fuady. production. funding for among the pribumi group. and ultimately resulted military-controlled businesses. p. ethnic Chinese business as- ination over the economy. p. 2015 . the technicians in the government. Kredit Modal ing. At the end of 1973. aluminium. was well known as an ag- substitution policies. A. the rise of national. Suharto’s family. mining. petrochemicals. Prawiro 1998b. public sector salaries. p. Unfortunately. As noted by new investment. but also to increase economic sectors. [. telecommu- sure of the Malari Incident. 104. 8. Bank Indonesia intro. (4) to protect velopment and promotion of large-scale industry. cars were burned. 109). 34). . or simply Malari The State Secretariat (Sekretariat Negara. dustries. Besides increasing government also noted that the oil windfall also provided the revenue from oil money. (3) if the Iranian revolution and the Iran-Iraq war (1980– the partner was not a pribumi. munications. the de- ist sentiment was also driven by dissatisfaction fence budget. pp. increasing state ownership’ (Pangestu 1996. for instance. led by ership had to be sold through stock markets. and also to non-economic ven- value added. Pertamina also In January 1974. pp. The tragedy. who were in favour of technological de- least 50 percent to be sold to pribumi. usually re- ferred to as the Malari Incident. the Indonesian government Economics and Finance in Indonesia Vol. Prawiro 1998b. such as in transportation. ment had to be in the form of a joint venture with a p. changes in foreign direct investment. and Jansen tended to favour small and medium firms and to 1990. substitution activities’ (Lewis 2007. 211). Oil money also moved the Indonesian economy to- ward nationalist policies because it strengthened When the economy slowed down because of de- the position of Pertamina. regulation of investment and gressive state entrepreneur (Lewis 2007. In the riots. pribumi (domestic indigenous) partner. p. 164– tectionist policies by their rent-seeking activities. 109). In addition. 1988). 61 No. to increase industrial linkages. Lewis ing this period. played a crucial role in chan- Japanese Prime Minister Kakuei Tanaka visited In. refining and marketing. and ce- ment credit (KIK. rice Prawiro (1998b. president-director accelerated because of a combination of import. (2) foreign investors had to shift 51 percent of their ownership After the second oil windfall in 1979. the government spent more instructed to limit the provision of credit to pribumi than US$19 billion to expand the steel and LNG in- only. p. ] High-tariff and non- tariff barriers were intended to insulate import- The spirit of nationalism was very intense dur. air services. and patronage. People were dissatisfied sources were channelled to patrons such as se- because of the Japanese and ethnic Chinese dom. Pertamina expanded investment into many develop infant industries. Indonesia’s state oil creasing oil prices. shops looted. which included acquiring privileges in public utili- ment policy were mainly a response to the pres. was a series of large-scale neg). contract- for permanent working capital (KMKP. and tures. in the January 1974 riots. p. nior military officers. nications and the state electricity company (PLN) (Robison and Hadiz 2004. Kuyvenhoven. ’Industrialization was company. and procurement were nominally in- Kerja Permanen) (Poot. and (5) state-owned banks were Lewis (2007. These riots happened when plement projects. ties projects./Pragmatism and Nationalism: . this 51 percent own. existing investments. Rather than limiting its investments to oil- to deepen Indonesia’s industrial structure. and a day later a 110). of Pertamina since 1957. nelling the extra resources. Schwarz 2004. the re- donesia in January 1974. telecom- nous small-scale enterprises. 103. pulp and paper. With the first oil windfall.

32 Fuady. 126). A. ment program. 113). creased protective measures in the previous pe- and (4) no VAT on imported capital (Prawiro 1998b. p. 2. tional customs service was suspended and their p. (3) invest- lization of Domestic Components. 346). the stock market was liberal- cedures. 346). usually on a short-term basis. The high costs of the government’s import- tractor (Lewis 2007. p. which meant that investors could be involved in more than one economic sector (Prawiro 1998b. nal or external disruptions.1. a Swiss-based foreign con. 2015 . 346) view in 1984 and 1985 (Prawiro 1998b. to meet temporary shortages of liquidity caused by inter- 2 This is a monetary instrument that allows eligible institu.4. while a value- posits of state-owned enterprises by state-owned added tax (VAT) was also introduced (Lewis 2007. or SBPU) Kuncoro and Resosudarmo (2006. Pakto). p. this deregulation as a voluntary structural adjust- Further financial deregulation took place in 1988. University of Indonesia. Indonesian Policy-Makers inated for every bank. which was de- omy. operations taken over by the Société General de Surveillance (SGS). Moreover. 116). new invest- erence) supported the lobby for the deregulation ment policies were introduced: (1) foreign owner- policies advocated by the economist-technocrats ship was allowed up to 95 percent. A group of US-trained Prawiro 1998b. dividends. 385). provided subsidized ex- allowing a wider range of brokerage activities. p. and a longer term for mone- p. Several big projects were cancelled or postponed due to the austerity measures. 2. and taxes on interest. p. interest rates were liberal- ized. 113. In May 1986. riod. 113.4. 1. 61 No. substitution strategy were increasingly questioned. p. sory notes (Surat Berharga Pasar Uang. the Ministry for the Uti- cial access for joint-venture investment. darmo 2006. p. p. p. ment to establish a domestic bank was reduced The taxation system was simplified to earn more from 15 percent to 2 percent. p. In addition. Hartarto.. and roy- After the collapse of the Indonesian economy alties for deposits in foreign currency in state- in mid-1965. the New Order government was owned banks were eliminated (Lewis 2007. a discount window. the procedures for approval of for- Industry (1983–1993). the tary instruments was allowed (Prawiro 1998b. particularly manufacturing and agriculture. In 1989 the Negative Investment List (DNI) replaced the Investment Priority List (DSP). p. Minister of In investment. Economics and Finance in Indonesia Vol. The na- bank financial activities were eased (Lewis 2007. and to re- major cities outside of Jakarta. 317). also came out in favour of eign investments were simplified by reducing the deregulation measures (Pangestu 1996. the credit ceiling was elim. and port credit. 334–6). An signed to further develop the banking sector. (2) wider finan- in the cabinet. H. helped to design Indonesian Treasury certificates (Sertifikat Bank Indonesia.. 113. which had in- ment licenses could be granted for up to 30 years. In addition. 316). To ease possible liquidity economists and one Canadian-trained economist problems that might be triggered by the financial (Professor Subroto) from the Faculty of Eco- liberalization. 384).2 and promis- tions to borrow from the central bank. Prawiro 1998b. In trade. and reduced import tariffs significantly regulations on venture capital. started a series of deregulation measures in 1983. p. 127). government simplified export/import approval pro- 342–3). with the main goal being to de- The government launched the ’October 1988 pack- velop and to diversify non-oil sectors of the econ- age’ (Paket Oktober 1988. Biographies of Policy-Makers In the financial sector. pp./Pragmatism and Nationalism: . the monopoly on de- revenue from the non-oil sectors. was abolished (Pangestu 1996. installed in early 1966. banks was reduced. For- immediate response was to devalue the rupiah in eign banks were allowed to open branches in six order to boost export competitiveness. the reserve require- duce food and fuel subsidies (Lewis 2007. pp. Pangestu notes that the 1988 cabinet which cut processing time from more than six was strongly liberal because the Ministry of In- months to less than two months (Kuncoro and Re- dustry (in spite of their usual interventionist pref- sosudarmo 2006. number of required documents from 26 to 13. Kuncoro and Resosu. SBI). 346). the Indonesian government issued nomics. insurance and non- (Kuncoro and Resosudarmo 2006. p. gave exporters greater freedom in the use ized by easing requirements for listing equities and of their export proceeds.

the Natsir cabinet (September 1950 to April 1951). 38). sians. he was a proponent of direct investment by The enactment of the Foreign Investment Law fun- the government. He then became Minister Besides Sadli. 51–2). to help him as the Sumitro’s important role in shaping industrializa- minister’s advisor. p. In that capacity he was involved tion policy in Indonesia is related to the fact that in the return of foreign companies that had been there were very few Indonesian economists in the nationalized during the 1950s. he advocated an active role of the gov- door policy. portant person behind industrialization in Indone. Fuady. During Sukarno’s pe. Djuanda investment (Soehoed 2001. New Order. but they were not committed to laissez-faire eco- nomics (Basri and Hill 2004. A. In ad- the previous regime./Pragmatism and Nationalism: . Ian Chalmers (1996. 1950s. He had also saving foreign exchange reserves. so that local industry could grow. including Sjafruddin Prawiranegara. 2010. pp. Muhammad Technical Team for Investment. ’In the early 1950s there owners. Investment Law was then enacted in 1967 and be. Hong Kong. of Trade in the first Development Cabinet (1968– tant role in designing FDI policies is Abdoel Raoef 1973) and Minister of State for Research in the Soehoed. to counter the domination of for- damentally reversed the anti-foreign paradigm of eign investment (see Thee. p. H. while tects of Indonesia’s post-colonial economy. notes how Sumitro supported protec- look at who was in charge of the cabinet. pp. when he was Minister of Trade early in the Even though Indonesia had embarked on an open. When the BKPM was es- role of the government in the economy. Under Sadli’s coordi. 644). came an important measure driving Indonesia to Sumitro was a socialist who advocated an active economic liberalization. 1. Born on 29 of luxury cars in 1968 and limited the role of for- May 1917 at Kebumen. Sumitro eign capital through licensing for auto production Djojohadikusumo was one of the principal archi. tion of the automobile industry in the late 1960s. He was then the on set of the Suharto regime in 1966. he stayed out of the country from 1958 note here is the role of Mohammad Sadli. donesia just after Sukarno stepped down and the pointed the first chairman of the Technical Team New Order was installed. 343). had no formal training in economics. he became an eco- was assigned to promoting investment after the en. Sumitro was three times cabinet minister. Sumitro banned the import sia was Sumitro Djojohadikusumo. which became the Hatta and Sumitro Djojohadikusumo. the role of these Government of the Republic of Indonesia (Pe- economists was quite fundamental in designing merintah Revolusioner Republik Indonesia) (rebel and implementing economic policies. Thailand. such as Goodyear country in the early independence period. even though licensed by foreign (particu- riod. They appointed Minister of Finance in the Wilopo cabi- were proponents of sound market-oriented poli. nomic advisor in Malaysia. Central Java. He only returned to In- Laws in 1967 and 1968 respectively. Soehoed was in charge of foreign capital terdam’. actment of the Foreign and Domestic Investment France and Switzerland. He was also appointed a member of the were only two qualified economists. Important to movement. As Minister of Trade. 2015 . pointed him a member of the Economic Advisory Team for the President. 203). p. 33 and implement economic stabilization policies at he was Minister of Trade and Industry.. When the New Order started. (Nederlandse Economische Hogeschool) in Rot- nation. the government was very active in pro. ernment in industry. who to 1967. Dr. Accord- to its American owners and Heineken to its Dutch ing to Thee (2010. He was ap. Suhadi Mangkusuwondo considered Economics and Finance in Indonesia Vol. was asked by Sanusi Hardjadinata. 330–1). 41). moting industrialization. The Foreign Kartawidjaja. net (April 1952 to July 1953) and the Burhanudin cies (Kuncoro and Resosudarmo 2006. During that period. held several important economic portfolios since all automobile assemblers were owned by Indone- Indonesian independence. 61 No. p. BKPM). Other economic policy-makers at the investment and Sri Pamungkas of domestic capital time. This is not surprising if we for instance. An im. p. Senior Minister of Industry and Development. Harahap cabinet (August 1955 to March 1956). Suharto immediately ap- for Investment (Sadli 1993. p. During the Because of his involvement in the Revolutionary stabilization period (1966–1972).. Soehoed second Development Cabinet (1973–1978). who had both Investment Coordinating Board (Badan Koordinasi studied at the Netherlands School of Economics Penanaman Modal. in 1969. another figure who played an impor. dition. Yusuf Wibisono and Ong Eng Die. 178). In larly Japanese) firms (Thee and Yoshihara 1987. Therefore. Soehoed was appointed deputy director. In the early tablished.

such industry.34 Fuady. 61 No. However. ery were offered to farmers at subsidized prices. This was significantly different (Interview 29/11/2008). General Moham. 2015 . During Yusuf’s tenure. particularly those from the central The role of persons in charge of the Ministry of bank (BI). 1. South Sulawesi. Interestingly. General Yusuf also followed the guide- as Radius Prawiro. entrepreneurs called small investment credit (KIK) and perma- tary. During his irrigation. During his time in Paris. French and literature ment and textiles. Berkeley (Sumarkidjo nior high school in Batavia. Sumitro discarded his noble traditional owned enterprises. not only professionally but also per- on 23 June 1928. whose core support KIK and KMKP3 were also advocated by the at the time consisted of Indonesian intellectuals. The university study in the Netherlands. government also took an active role in meeting so- pressors attacked the Netherlands. lines of development. pesticides and agriculture-supporting machin- defended his doctoral thesis./Pragmatism and Nationalism: . the government was directly involved in (Cnossen 1995). Sumitro. to support agricultural development and to his master’s degree at the Netherlands School of meet the demand for domestic clothing. When he returned to Indonesia in industrialization through the development of state- early 1946. cial needs. Jawaharlal Nehru. Ali Wardhana and Sumarlin. When he was minister of from his successors at the Ministry of Trade. Henri Bergson and Henri tic food production. born in Bone Selatan.. Sumitro as someone who was always concerned inated by FEUI economists. Yusuf ar. such as System during the Depression. economists. in 1943. led by Widjojo Niti- he returned to the Netherlands in 1938 and earned sastro. were generally close to the FEUI mad Yusuf. was minister of industry in the sonally. 121). there was a chal- joined a socialist group and met with André Mal. was the only military officer to occupy an eco- 3 At a National Economic Stabilization Board meeting. In terms of edu- revolutionary and the Sukarno periods. He joined Sutan Sjahrir in In- In the 1970s.. the Nazi op. including Rahmat Saleh and Industry cannot be neglected. while Arifin Siregar earned semar). Arifin Siregar. lenge of high food prices and insufficient domes- raux. they were not trained in the United States. He doctor’s degree in Germany. Yusuf got about the position of domestic producers relative to along very well with the economists in the cabinet foreign companies. These were industries that were at the Sorbonne in Paris (1937–1938). Rahmat Saleh earned his bachelor’s degree in ranged the Surat Perintah Sebelas Maret (Super. tablish several industries. the government tried to es- nomics) and earned his bachelor’s degree in 1937. besides its open- helping Dutchmen in hiding by passing on coupons door policy. credietwezen in de Depressie’ (The People’s Credit To accelerate infrastructure development. After this proposed by the economists. the president approved the initiative of the gover- net (1968–1973). with Amirmachmud and Basuki Rahmat. as seen below. protectionist schemes such as donesia’s Socialist Party. However. Economics and Finance in Indonesia Vol. Sumitro’s socialist-nationalist by the economists. where he studied at the Netherlands School of Economics (Netherlands School of Eco. which authorized Suharto to take over his Master’s degree in the Netherlands and his power from Sukarno and start the New Order. whereas the other economic posts were dom. title of Raden Mas. Suharto’s choice may have been nor of Bank Indonesia to introduce a special scheme for pribumi designed to guarantee the involvement of the mili. ce- He then studied philosophy. During this period.. BI officials. and then became an active military offi. economists. fertiliz- Cartier-Bresson. such as demand for clothing and build- ing in the coal distribution services. the prestigious se- the University of California. Sumitro went to Rotter- 2006. During the Economics in 1940. At the age of 25 years. Sumitro ers. To increase production. p. such as fertilizers. first and second Development Cabinets (1968– these BI officials had significant differences com- 1978). Trained and raised in the mil- views seem clearly to be related to his educational itary. an Having graduated from Senior Civilian School FEUI economist who had earned his degree from (Hogere Burger School (HBS). Yusuf did not have much experience or vi- background. De- nomic post in Suharto’s first Development Cabi- cember 1973. Barli Halim. he could rely on his general secretary. He held several military commands during the jojo. which were mainly written terview 28/08/2008). the cement industry was developed. including Wid- cer. dam in 1935. PSI. sion of how to industrialize Indonesia. Together cation. economics from FEUI. he early period of the New Order. took part in ing materials. H. among the economists’ team. who was more pragmatic (In. pared to the other team members. A. entitled ’Het Volks. nent working capital credit (KMKP). work.

ing and partnerships (bapak angkat) for small- scale industry in 1981 (Chalmers 1990. Indonesia inaugurated a drastic financial idays for foreign investors. deregulation was a necessary step to take before tional Studies) group. Soehoed also strongly defended tax hol. ate a high-cost economy (Interview 28/11/2008). The size. how. Hartarto was an engineer and a career bureau- national companies – apart from the state-owned crat in the Department of Industry before he oc- enterprises. has usually been portrayed as an opponent of the porations today in the development of basic indus. and entities that can compete with the multinational cor. Therefore. who came from a peasant family Malari riots occurred. Hartarto said that with the CSIS (Centre of Strategic and Interna. and was blamed for the growing foreign in. I want to highlight the role of Johanes Bap- the Technical Team for Investment and the Invest. the main rivals of the cording to him. in the mid-1980s in Indonesia’s economic liberal- vestment from Japan that dominated the domestic ization process. Interestingly. p. which led to 218). Cabinet in 1983. which may cre- in development. and therefore it is bet- true that Soehoed advocated a structural approach ter not to have too much regulation. Har- Minister of Industry from 1978 to 1983. 1. when the government liberalization through monetary deregulation on 27 wanted to delete this in 1971 (Soehoed 2001. Ac- mardhani and Ali Murtopo. Since 1978. He believed there was an emergency tion’. firms in the late 1950s (Interview 28/11/2008). the importance of creating a business climate that there are few companies currently able to become was conducive to industrialization. known as Pakto 1988. tista Sumarlin. economists in policy-making. 35 It is interesting that the non-economist Soehoed. ticipation in the banking sector. trialization. graduated as a chemical engineer from the Univer- port of the government. particularly regarding deregulation measures.. while recogniz. Soehoed was associated in industrialization. Sumarlin’s liberal ideology seems to have come from his education and his experience in manag- The process towards liberalization went further ing the Indonesian economy from the beginning of with the appointment of the fourth Development the New Order. of private and foreign banks led to the infusion of ing the need for foreign investment. apart from financial sup. 55) of advocating private participation seems to have come from his experience in managing several Soehoed was not against foreign investment. the private sector will step back if FEUI economists in economic policy-making. minister of finance from 1988 to ment Coordinating Board (BKPM). He got this experience by ever. Even though Hartarto did not get along very well Soehoed stressed the importance of state-owned with the FEUI economists. sures to increase private and foreign participation have never been fully abolished. staffing and ’stature’ of the cupied the top-level position in the department. Hartarto’s standpoint tries. 13). 2015 . a partner of sufficient weight when facing multi.. clearly makes it the only sity of New South Wales in Sydney. was widely tarto Sastrosoenarto. before a controversial huge credit expansion. seems to have lation facilitated the entry of private and foreign par- influenced his ideological stance: the aim of in. October 1988. H. He was trained as an economist Economics and Finance in Indonesia Vol./Pragmatism and Nationalism: . Increasing foreign invest. A. They agreed on It is evident that within private national enterprises. The deregu- joining the New Order government. When the 1974 1993. The new minister of industry. more credit for the manufacturing sector and main- when Soehoed became Minister of Industry. He state-owned enterprises. His experience in the private sector. 61 No. He believed foreign investment was needed being a participant in a management training pro- to solve the problems of insufficient capital and gram to fill management positions in nationalized inadequate technology. state-owned enterprises. Sumarlin. the private sector would be willing to step in. such as introducing subcontract. particularly with Sudjono Hu. basically there was not enterprises in developing basic industries: much difference in their policy stance. p. It is there is too much regulation. was probably the most important person BKPM. p. tained the growth of gross capital formation. he was deputy chairman of in Blitar. Finance. mea. understood that the govern- regarded as a forceful and articulate advocate of ment could no longer rely on oil money for indus- the socalled ’structural approach to industrializa. which advocated an active role for the state. Australia. ment in the late 1960s and early 1970s was partly due to the policy he implemented when he was on Finally. The increasing role creasing indigenous participation. situation that required inviting private participation During the New Order. Fuady. During his tenure as Minister of economy. (Soehoed 1982.

After Nige- (Olson and Shadle 1996). who be.. a political party that aimed to guaran- tee freedom for all and that promised a better life 2. Nigeria’s economic policy was 2002. 343). in the early days of independence. His friendship with Widjojo terms of industrial development. because his party lost the 1959 fed. In sia (FEUI) in 1954. 376). In 1951. a political party. He then nas (1983–1988). he led the opposition in the government.. with responsibil- teachers training courses at Wesley College in ity for fiscal and monetary policy.2. Awolowo. as acting permanent secretary. and ernment in the economy. He remained in this position signed the structure of the new ministry. was known as a leader of the Action politician. he ministerial posts. However. He tional Problems: The Indonesian Case 1950–1960. Another person important for Nigeria’s industrial- eral parliamentary elections. Minister of Planning and National of the founders of the Trades Union Congress of Development (1983–1988). he studied part-time and earned a period. (Federal Ministry of Industry and Technology 1992. 281). and in 1943 he was one tus (1973–1983). p. Minister of the State Appara- rian Youth Movement. manent secretary of the Federal Ministry of Indus- Therefore. A. In 1939. including Vice-Chairman of Bap- was secretary of the Ibadan branch of the Nige- penas (1973–1982). the seed of economic nation- Region. Awolowo was a 1966. like Sumitro in the was strengthened at the University of California. p. Economics and Finance in Indonesia Vol. rowing a single kobo from foreign countries (Fed. Minister of Education ad in- went to London to study law.D. Awolowo advocated national- Berkeley. The first term was from April to June 1965. During Suharto’s Ibadan. where he earned his Master’s degree in ist economic ideas and an active role of the gov- 1960. when the Biafran war ended. p. 61 No.36 Fuady. tion he continued to design industrial programs. his career was very good. 1. finishing in 1947. In 1962 he was tried ization policy is Philip Asiodu. He then became a lecturer at FEUI. University of Indone. Awolowo believed that to make the country great. He was permanent secretary at the ministry typical ’fiscalist’ or Keynesian economist. who was twice per- and then jailed until the First Republic collapsed. Chairman of Bappe- Nigeria (Olson and Shadle 1996. and Minister of Finance (1988–1993) In the early 1950s. in 1968 with a thesis entitled Some ria’s independence movement.com. One of identified industrial programs in preparation for the his legacies was his ability to manage Nigeria’s fi. 89). Awolowo established the Ac- (TokohIndonesia. subsequently continued his studies at the Univer- Awolowo’s nationalist sentiments likely came from sity of Pittsburgh in Pennsylvania. was educated at Anglican and Methodist schools In 1970–1973. nomic development (Bamisaye 2002. p. tion Group. from January 1966 to January 1971. Nigeria must first achieve economic freedom. he won the regional elec- liberal. Second National Development Plan (1970–1974) nances throughout the costly civil war without bor. 1950s in Indonesia. He not only de- missioner of finance. He then attended ment Planning Board (Bappenas). In this posi- lieved in the use of fiscal policies to promote eco. H. p. dustry was following the military coup in January 274).4. but also until 1971. Sumarlin was secretary of the mon- in Ikenne and at Baptist Boys’ High School in etary board and a deputy on the National Develop- Abeokuta. Awolowo did not have the opportunity to manage In this period. when Gowon took implemented the separation of industry from the power in 1966. Western Nigeria. a 1996. ria’s independence. Nigerian Policy-Makers for Nigerians. allowing full foreign participation in the tions and became chief minister of the Western economy. 2015 ./Pragmatism and Nationalism: . p. However. 89). terim (1985). present-day Ogun State. He also served as premier rians during the constitutional convention in 1953 of the Western Region (1954–1959). USA. an Ibo Yoruba. he held many bachelor’s of commerce in 1944. he the Nigerian economy. He was born on 6 Aspects of Stabilization Policies and Their Institu- March 1909 in Ikenne. try. he demanded self-government for Nige- Group. otherwise the economy would fail (Odey After independence. In managing the economy. 2004). His next assignment at the Ministry of In- eral Ministry of Industry and Technology 1992. In June 1940. Together with Nnamdi Azikiwe. the Federal Ministry of Industry. which was the first self-governing region alism had already grown during this period. at the Faculty of Economics. pio- before Nigerian independence (Olson and Shadle neered by Chief Obafemi Awolowo. obtain- his experience as an outstanding leader of Nige- ing his Ph. Awolowo was released from prison Federal Ministry of Commerce and Industry into and was invited to join the cabinet as federal com.

who was transferred there. He was among the pioneers of the Na- Asiodu. uity of the manufacturing firms and retain some of the profits. companies. After finishing his MA at Oxford in 1956. where he read philosophy. At that uni- during the colonial period. when industry should be rarely occupied by technocrats. city that is not their city of origin. there were 18 ministers of industry. neering. He had lived several 1974 Bunu Sheriff Musa was then posted to the years in Calabar. and then realized in his primary education. thougt of himself as a Lagosian tional Youth Service Corps (NYSC4 ) from 1973 to since he was born on 26 February 1934 in Lagos. unity to the country. try in the 1980s. and had lived in Lagos versity. He then attended a gov- the 1972 Indigenization Decree. for new Nigerian graduates to take part in the development of the country. 2004). the ward a few technocrats with an economics back- goal of economic nationalism was widely shared ground. ernment secondary school in Maiduguri from 1963 to 1967. and if the situation continued. his father was transferred back to La. the bulk of the investments with basic training in economics. and was posted to Lagos (Sheriff. which has a strong socialist tradition. p. Like dustrial sector. but not ers. It is at this initial stage that a policy should be one was trained as an economist. introduced in 1973. In fact. He studied at the Federal School of Sci- Philip Asiodu was born in a bureaucratic family. However. however.. 1. 1974. From 1966 to are held by foreigners and largely absentee own. or from an academic back- allowing the latter to acquire a significant stake. His parents came from Asaba. it would rope. When Babangida introduced the struc- The desire for greater Nigerian participation in the tural adjustment program in 1986. In and Olu Falae. because he had an interest in pol. Kalu Idika Kalu by most members of Nigeria’s policy-makers. He studied at a Qur’anic school for National Development Plan. Fuady. for preparing the law than with engineering (Interview 08/06/2009). when irrigation engineer. or even persons much more important. he brought for- economy grew stronger in the 1970s. In this paper./Pragmatism and Nationalism: . his background in philosophy. before enrolling father was a civil servant in the customs services at Ahmadu Bello University in Zaria. following his Chad Basin Development Authority (CBDA) as an father. the policy-makers against the strong pressure for For instance. politics and (Asiodu 1969. was trained as an uation at that time. Asiodu was trained in Eu- dominant. A. the position of minister of the 1970s. Therefore. which was dominated by foreign engineer. The position of Minister of Industry in Nigeria was able if within a decade. 14). Economics and Finance in Indonesia Vol. foreign private investment had been Sumitro and Awolowo. 14) of which usually prefer state intervention in the economy. overseas scholarship to study irrigation engineer- gos. In the biggest city in Nigeria. until graduating from King’s College in 1952 (Interview 08/06/2009). to further develop Nigeria’s manufacturing sector. He thus grew up in what was then the capital of Nigeria. and are expected to mix with politics and economics. In 1978 he was awarded an he was ten. with a specialization in civil engineering. for instance. The economic sit. Minister of Indus- indigenization of foreign capital. Second National Development Plan.. Bunu Sherif Musa. ria. 1998. Therefore. They mainly set in the mutual interest of investors and Nigerians came from the military. he said: economics may have persuaded Asiodu to use state power to change established ownership and It is imperative that Nigerians own some of the eq. all (Asiodu 1969. Asiodu pre. The new graduates have to serve for one year in a lege. he obtained his bachelor’s degree in engi- since 1921. 2015 . there was almost no resistance from industry continued to be filled by non-economists. However. he stayed sented Planning for Further Industrial Development in London for a few years before returning to Nige- in Nigeria. an Ibo. ground in engineering or public administration. p. was a program designed to England to pursue his studies at Queen’s Col. Previously he had wanted people from other tribes and social origins so that they can bring to study law. H. speaking area that is now the capital of Delta State. His ence in Lagos from 1967 to 1970. Oxford University. the aspiration for greater Bunu Sheriff Musa was born in Maiduguri on 15 participation was accommodated in the Second January 1947. such as Chu Okongwu. 61 No. raised demands for more domestic participation. After that he moved 4 The NYSC. 37 In 1969 at the conference on National Reconstruc. Politically the situation will be unten. in 1973. a big city in the east. More- lead to serious economic and political problems over. where he joined the Nigerian civil service. he notes that in the in. itics and he thought politics would go better with tion and Development in Nigeria.

2015 . but it penditure allocated to industry was decreasing. Indonesia and Nigeria both adopted The educational background of policy-makers is a an import-substitution strategy to develop industry. he was tionalism there was in fact strong and consistent deployed to the Ministry of Mines. as the president. Moreover. on imported raw materials. Finance and the Ministry of Planning. when oil revenue decreased.38 Fuady. In the 1970s. Bunu Sheriff Musa was also one of the ministers Although Nigeria’s economic problems are some- who occupied a position in Babangida’s cabinet times blamed on policy inconsistency as a result of until the dissolution of the Federal Executive Coun- elite fragmentation. he returned success of industrialization in Indonesia. which still very much relied trained economists in the economic policy arena. economy. alize the economy through a structural adjustment when foreign companies dominated the Nigerian program and alter the industrialization strategy to economy. who pragmatically This paper has discussed the continued economic liberalized the economy by relying on the market divergence between Indonesia and Nigeria in the mechanism. and that 3. A. Conclusion lasted less than four years.. vinced by the liberalization agenda. This paper 1982 to general manager of the Authority (Sheriff shows that there was nevertheless a significant re- 2004). The remain- omy. fluence Nigeria’s economic management. those advocating protection- These changes not only maintained manufacturing ist measures were mainly educated in the United performance. but also increased it. for instance. their home country. Moreover. were quite reluctant to carry out the reforms decided by the minister of finance as well It is sometimes suggested that government in. Sudden liberal. The 1970s policy-makers in the 1980s. there were not many changes tural adjustment was half-hearted. Among the policy-makers. both coun. It is not only that government capital ex- try. on the issue of economic na- cil in 1993. There the Ministry of Labour. led them to advocate nationalist mea- make it more export oriented. possible explanation of their ideology. ing at the University of Southampton. After obtain. H. When Babangida came to power in 1985. in Nigeria’s economic policy-makers. funded by increasing oil revenues. for instance. crease it. early 1980s./Pragmatism and Nationalism: . economic conditions at the time. manufacturing had become the engine Nigeria. the struc. Europe’s strong socialist tradi- similar pressure on its balance of payments be. tion may have influenced their ideas of national- cause of decreasing oil revenue. to the Ministry of Aviation in 1989. tural adjustment held posts only at the Ministry of lieved in an active role of government in the econ. In. He helt that position for only one year. tervention was an important factor behind the ing his master’s degree there in 1980. ism. when Nigeria adopted there was also an increasing role in industrial in- the World Bank’s structural adjustment program. Those who However.. Instead of decreasing capital expenditures on ing economic policy-makers were not fully con- industry. 61 No. By the end of Kingdom and Nigeria. A similar phenomenon can alization measures for export-oriented industries. usually those who were trained in Europe or in donesian policy-makers adopted a series of liber. were of exports of the Indonesian economy. and not to serve at the CBDA. duction of the Indonesian government’s role in the he appointed Bunu Sheriff Musa Minister of Indus. during the structural Economics and Finance in Indonesia Vol. They were ization and inefficient devaluation put even more still fragmented and there were only a handful of pressure on industry. 1. advocated nationalist-protectionist measures were tries had to alter their industrialization policies. but was during a critical period. However. Power and Steel agreement among political elites and technocrats in 1986. such as Awolowo and Philip Asiodu. vestment for private and foreign participation. there was a strong Ministry of Water Resources in 1990. In the 1980s. the government opted to in. From the Ministry of Industry. In addition. be seen in Nigeria. with trained in Europe. Civil servants. sures. Nigerian The advocates of economic reform through struc- economic policy-makers during the period still be. attempted to liber. where he was promoted in merely the liberalization measures. Nigeria. to the alike. the only time they had some room for manoeuvre was dur- ing the structural adjustment program. Employment and Productiv- was not much room for liberal economists to in- ity (Sheriff 2004). The nationalist eco- nomic views of Nigerian policy-makers contrasted with Indonesian policy-makers. and finally to desire for national economic independence.

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