Comparative Analysis on Political Economy Development in Indonesia (during Soeharto’s regime) and Singapore (during Lee Kwan Yew’s regime)

            Indonesia has experienced its major economic development during Soeharto’s regime.[1] After previous leader Soekarno infamously rejected foreign aid by telling United States to “go to hell with your aid”[2] and opted for a more nationalistic economy approach, Soeharto’s regime decide to differentiate itself by allying with the West in the cold war thus resulting into Western states granting Indonesia with a massive aid package. With the limitless availability of foreign aid, policy reform to open up foreign direct investment, and access to utilize resources that had previously been nationalized, Soeharto was able to bring Indonesia’s economy out of crisis post 1965 Coup, brought about rapid economic growth and overall development on our political economy. Meanwhile, Singapore who suffered the similar problem of lacking infrastructure and limited capital at the beginning of its independence was also able to crawl out of crisis and enjoyed rapid economic growth under several policies carried out under Lee Kwan Yew’s administration. Although both state undergone seemingly similar policy reforms (implementing authoritarian government and open up more to foreign investment) and both aims to achieve political economic development, the way both government tried to achieve this goal differ greatly from each other.

This essay aims to draw similarities by identifying common factor that exist on both cases and find out how the two government’s economic miracles generated through different ways thus creating different results. Although both governments was able to generate rapid economic growth, Soeharto left Indonesia with huge foreign debt, corruption legacy, and unsustainable development while Singapore was not as dependent to foreign aid, no corruption legacy and more effective transfer of knowledge for its human resources.  

Firstly, rapid economic growth under two governments was made possible by common factor that both governments that opted to a more authoritarian governmental system but effective to boost economy through maintaining stability and implementing policy reforms in creating foreign investment-friendly atmosphere however, different approaches in governing the authoritarian regimes were taken. Both Soeharto’s and Lee Kwan Yew’s governments are famous for creating their own economic miracles through several policy reforms under authoritarian regimes. Soeharto used Golkar as his parliamentary vehicle which developed into electoral machinery to produce strong majority government with little to no opposition at all. Technocrats that held important positions in designing policy reforms were mostly accused of collusion with the government and serving the national interest of donor countries than that of Indonesia. The lack of accountability and transparency of government spending and financial activities during Soeharto’s regime also played an important role in nurturing corruption and practice of political nepotism inside government body which was commonly known as crony capitalism.

With commonly high domestic savings during Soeharto’s era, Indonesia’s high dependency on foreign aid remains a problem. This was caused partly by an inefficient use of capital, low productivity, and mainly corruption.  Most project aid especially in infrastructure sector like transport, mining, and energy has made corruption easier since they involve large scales funding management. Moreover, most grants were not recorded systematically and did not require budget appropriation. Donors directly dealt with the executing agencies or line ministries who did not normally report to ministry of finance. This fitted donor’s interest in minimizing bureaucratic controls while catering to their own interest. However it also meant a lack of instrument in properly monitoring the grants’ use that led to severe lack of accountability that allowed corruption to flourish.

In comparison to Lee Kwan Yew, he implemented what is known as benevolent dictatorship. Lee’s people Action Party weakened possible opposition power such as independent labor unions by creating the only legal platform for labor which was called National Trade Union Congress. Although he lacked opposition power and enjoyed a great deal of power, he didn’t abuse it in a way that he didn’t use it to ease up corruption but rather implementing death penalty for the act of corruption and illegal drugs trading . People who were deemed to possess threat against national, corporate, or political unity were jailed without proper due process. This was part of Lee Kwan Yew’s strategy in creating stable government to provide corruption-free and conducive atmosphere for business and investment.[3]

Secondly, Lee Kwan Yew focused to prosper the labor-intensive industrial sector as a way to solve unemployment as well as conducting an effective transfer of knowledge to increase the quality of its human resources. With his Jurong Industrial Estate[4], Lee Kwan Yew was able to create 10.000 jobs between 1963 and 1965 which increased to 15.000 additional job annually by the end of the 1960s.[5] Industrialization in Jurong began by producing textiles, toys, wood products and hair wigs which are labor-intensive. Along with that there were also capital and technology-intensive projects from companies such as Shell Eastern Petroleum and the National Iron and Steel Mills. Later in the 1970s, Singapore was able to see its industrial development growing thanks to the success EDB made in promoting Singapore as a lucrative place to open quick start up and invest. Singapore was also able to offer high skilled workforce to support the industrialization and upgrade its manufacturing industry to be able to produce more advanced products with added values such as silicon wafers, computer parts, or software packages. Moreover, Singapore was able established technology institutions to train its human resources in electronics and engineering field for high industries by cooperating with Japan, Germany, and France thanks to EDB’s ability to facilitate the cooperation. This was then continued by the creation of robot Leasing Scheme and Science Park to flourish research and development in technology.[6]

In comparison, policy reforms under Sohearto, was deemed unsustainable and less genuine. Rather than focusing on manufacturing industry, Soeharto focused more on agriculture, and allocating investors to mining sectors. Policy reforms in the 1970s and 19780s to open up to foreign investors was only part of the pre requisites of IMF/World Bank adjustment programs. Indonesia first liberalized its capital account completely in the early 70s and since mid-1980s it initiated major deregulation of the financial sector and trade liberalization. Technical assistance especially from Harvard Institute for International Development also played an important part in designing and implementing financial deregulation in 1980s.[7] Indonesia only agreed to structural reforms agenda under pressure from donor countries and not because an inherent motivation to reform or better its system in the financial and capital sector for the sake of its own people. It was proven on how policy reversals took place where Indonesia began imposing restrictions on foreign investment in 1973 which got intensified in early 1974 but then moved back to more capital intensive industrial policy with oil price boom.

To secure economic assistance from the U.S., Indonesia also needed to go all the way with the United States economic policy thus the deregulation.  On 31 October 1966 a private U.S. company was given concessions for exploration and exploitation of copper ore in West Irian. Foreign private capital was welcomed in exploration and production of oil. The foreign companies that were seized during Sukarnos reign had been returned to the Western owners. A Committee for foreign credit policy was formed in December 1966 to co-ordinate credits from various sources. The Foreign Capital Investment law of 24th December 1966 granted tax concessions and extensive safeguards. Indonesias new economic order marked a changed of spirit of the political new order Indonesia. Indonesian new order encouraged foreign investment and confidence that was very important for the Indonesian development. In order to attract more foreign investment, especially from America, Indonesia signed an investment guarantee agreement with the United States on 7th of January 1967 giving specific guarantees against inconvertibility, nationalization and domestic upheaval.[8]

In conclusion, although both Soeharto and Lee Kwan Yew were famous for bringing economic miracles for each state during their respective regimes, both has different characteristic in carrying out policy reforms that was deemed necessary to develop the economy.  Although both opting for authoritarian government, Lee Kwan Yee’s regimes developed into a benevolent dictatorship while Soeharto was deemed to abuse his great power by flourishing corruption inside in government body. Secondly, While Indonesia focused more on building infrastructure, mining, and agriculture, Singapore focused on effective industrialization that is labor intensive thus resulting in decreasing number of unemployment and also investing on developing the skill of its human resources through effective transfer of knowledge in high skilled industry sector that produce added values products and doesn’t only produce raw materials like mining does. Something that Indonesia apparently wasn’t very keen on doing under Soeharto’s regime.  

           

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[1] New Order Miracle of Soeharto’s Indonesia , http://www.indonesia-investments.com/culture/economy/new-order-miracle/item247 , Accessed on December 14^th 2016 

[2] Hill, H. The Indonesian Economy since 1996. Melbourne: Cambridge University Press, 1996. Page 79

[3] Jurong New Town And Jurong Industrial Estate". Www.Roots.Sg. Last modified 2016. Accessed on December 14^th 2016 https://roots.sg/learn/stories/jurong-industrial-estate/story

[4] On July 4, 1960, the Legislative Assembly announced a proposal to construct a planned town in the Jurong region. Jurong Industrial Estate was aimed to create job opportunities to fix the massive unemployment after the labor unrest that happened.. To support the industrialization, Economic Development Board was also established to plan and execute strategies to enhance Singapore’s position as a global business center and grow the Singapore economy, such as convincing foreign investors that the country was a good place for business.

[5] "Jurong New Town And Jurong Industrial Estate". Www.Roots.Sg. Last modified 2016. Accessed November 30, 2016. https://roots.sg/learn/stories/jurong-industrial-estate/story.

[6] "The Eighties". Singapore Economic Development Board - Investing Business In Singapore. Last modified 2016. Accessed on December 14^th 2016

[7] Chowdhury, Anis, and Iman Sugema. "How Significant and Effective Has Foreign Aid to Indonesia Been?" ASEAN Economic Bulletin 22, no. 2 (August 2, 2005): 186-216. Accessed November 16, 2016. http://www.jstor.org/stable/25773853. Page 15

[8] U. Mahajani, Indonesian Newsletter. Taylor & Francis, 1967. page: 231.