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Indonesia: Why economic nationalism is so popular

Indonesia: Why economic nationalism is so popular
Published 25 Aug 2015 

The rise of economic nationalism in Indonesia has attracted criticism from Australian economists, bureaucrats and policy analysts. Among the many insightful analyses that have appeared in recent weeks, there has been little reflection on the popular resonance of nationalist interventions. Yet the ideological dimension of economic nationalism, and the public support its elicits, are fundamental for understanding the rise and resilience of nationalist policy-making in contemporary Indonesia. 

Over the past five years, Indonesia's parliament and ministries have introduced a spate of protectionist policies across a range of sectors, including export and import restrictions, the imposition of local content requirements, and mandating downstream processing. In a recent Lowy Institute paper (Trade Protectionism in Indonesia: Bad Times and Bad Policy), Arianto Patunru and Sjamsu Rahardja put this wave of nationalist policy-making in context, showing that historically, booms have unleashed a protectionist impulse, whereas once economic conditions deteriorate, technocrats usually move in to implement the necessary liberal reforms. This pattern inspired the axiom of 'Sadli's Law': that bad times make for good policy in Indonesia, and vice versa. 

Today, Indonesia is fast approaching another bout of those post-boom 'bad times', with growth slowing, domestic consumption contracting, and the rupiah the weakest it's been since the Asian Financial Crisis. But observers are scratching their heads, trying to explain why today the bad times appear to be reinforcing, rather than reversing, the protectionist trend.

One trope is that vested interests are to blame. Sometimes this refers simply to domestic industry groups lobbying for protection from foreign markets, but analysts also claim that rent-seeking elites use nationalist policy to suit their private interests.

Indonesia suffers endemic corruption, and a small, wealthy politico-business elite does indeed play a prominent role in national politics: (disputed) Golkar Party Chairman Aburizal Bakrie, Vice President Jusuf Kalla, and Chairman of the National Democratic Party Surya Paloh are the oft cited examples. I would actually argue it is often the capacity of oligarchic elites to avoid, rather than shape, state regulation (eg. avoiding taxes, court cases, and debt obligations) that marks their strength, yet observers are quick to paint a picture of policy-making where rational, technocratic policy-makers struggle to have their voices heard in a state captured by vested interests. [fold]

This is a limited, perhaps even out-dated, characterisation of what shapes nationalist policy in contemporary Indonesia. In a recent Interpreter piece, Matthew Busch offers a more nuanced view on why Sadli's Law is a poor predictor of policy change in Indonesia. He argues that reform takes place when new power coalitions emerge among the Indonesian elite, providing openings for policy transformation. So while Indonesia's economic downturn deepens, Busch argues, reform is doubtful without a serious crisis or realignment within the political elite, something Jokowi's presidency has so far been unable to bring about. 

But we need to look beyond the elite level if we really want to understand the rise and resilience of economic nationalism in Indonesia. There are two fundamental dimensions to the nationalist phenomenon that deserve more attention: ideology and popular preferences.

My experience of doing research in Indonesia on resources policy has driven home how economic nationalism is undergirded by a deeply-held developmentalist ideology that is pervasive among policy makers, elected officials, and civil society. Of course, statist economic thinking has a long history in Indonesia. But as Patunru and Rahardja explain in their paper, the post-crisis neoliberal reforms Indonesia undertook in the early twenty-first century were painful. Memories of that pain have hardened the dirigiste resolve of politicians and lawmakers, who already maintained a healthy suspicion of markets, foreign capital, and liberal models of economic development. Today, the term 'neolib' has become a common way to disparage one's political adversaries. The current government's stated commitment to autarky (eg. via food self-sufficiency policies and domestic content requirements) reflects a renewed and widespread distrust of free markets and foreign economic intervention.

This distrust is not limited to the political class; it is shared by the broader public. The new government's support for protectionist policies comports with a rise in popular nationalist sentiment. Some analyses pay lip service to the role of political populism in democratic Indonesia, but few reflect seriously on the fact that policy makers and elected officials perceive, and thus respond to, a public preference for nationalist policy. Especially during election season, politicians and parliamentarians compete with one another to take the most nationalist stance on resource management, food imports, petrol subsidies, and the like. Last year's presidential election brought nationalist outbidding to new heights, with Prabowo Subianto engaging in aggressive anti-foreign bombast at every opportunity, and Jokowi following suit. 

Much pressure comes from the country's media and vibrant NGO community. The media channels nationalist ideas emanating from civil society organisations. Think tanks on mineral and energy issues all take the nationalist position, regularly commenting on the renegotiation of foreign mining contracts and the mineral export ban, for example, impressing upon the government to remain strong in the face of corporate pressures. Environmental and anti-corruption NGOs make similar arguments. Muhammadiyah, one of the country's largest and most influential Muslim organisation, inserts itself into debates on economic issues, and has proclaimed a 'jihad' on laws it believes undermine the national interest and kowtow to foreign capital. There is no polling I know of that has measured public opinion on trade policy, mining contracts, or food imports, so NGOs and the media are taken to reflect the general will of the people on these matters. 

My intention here is not to deny that vested interests matter. But the bifurcated image of myopic and rent seeking elites overwhelming the rational technocrats is simplistic. It misses the fundamentally ideological nature of these policies and their broad public appeal, even to constituencies which have no material stake in nationalist policies. This doesn't mean protectionism is here to stay. But it does help explain why today's nationalist turn is yet to meet the fate that Sadli's law predicts.

Photo by Flickr user Asian Development Bank.

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