How Not to Industrialise? Indonesia's Automotive Industry

This paper examines the development of the Indonesian automotive industry since 1970. After giving an overview of trends and a comparative East Asian assessment, we investigate ownership patterns, the political economy of intervention and key structural features of the industry. Output grew rapidly in the three decades to 1997; there was a significant increase in technological capacity; and some firms in the components and commercial vehicle sectors were approaching international efficiency. However, the highly interventionist policy regime has resulted in an inefficient industry characterised by “back-to-front” industrialisation, uneconomic production runs and minuscule exports. The industry's fundamental weaknesses were exposed by the crisis of 1997–99. Looking beyond the current difficulties, the future challenge will be to develop a globally efficient and integrated industry.     

Survey of Recent Developments

Following the remarkably successful 2014 parliamentary and presidential elections in Indonesia, attention now turns to the new president and his agenda for the next five years. President Joko Widodo, known as Jokowi, has emphasised the importance of strong economic growth and rising living standards. But he faces significant, broad-ranging economic challenges and, perhaps not surprisingly, serious discussion of these issues did not feature during the election campaigns. In many respects the economy is at a crossroads, facing the choice between a business-asusual scenario of no reform and consequently sluggish economic growth, and a politically difficult reform agenda that would set it on a higher growth path. Economic policymakers regard the events of 2013 as a mini economic crisis, and they feel vindicated in their explicit preference for stability over growth—that is, for slowing the economy through tighter fiscal and monetary policy and letting the currency decline. For now, the economy is slowing but holding up quite well, especially by comparative international norms and considering foreign and domestic headwinds, including possible macroeconomic and financial fragilities. Here we examine these headwinds—from global economic volatility and declining commodity prices, particularly in the wake of the so-called Bernanke shock of May 2013, to the continuing policy drift at home. We investigate whether there is evidence of an emerging adjustment from the commodity-driven growth of the past decade to some of the traditional tradables sectors, especially manufacturing. While the commodity boom is almost certainly a thing of the past—at least at levels witnessed since 2005—the country's political narratives and the government's microeconomic policies appear to be still premised on an era of plenty funded by a disappearing boom. We speculate on likely options and directions for what in all likelihood will be a ‘Jokowi decade’.     

The Evolution of Competition Policy in Indonesia

This paper assesses the evolution of the new Indonesian competition law passed in 1999, and the creation of the Competition Commission. The first half of the paper traces the debate and process of deregulation and liberalization that preceded the introduction of the law. Whilst deregulation did lead to increased competition and efficiency, distortions to competition in the goods sector still persisted due to ad hoc and non transparent measures taken due to government interventions and vested interests. The services and infrastructure sectors were only partially liberalized. The second half of the paper evaluates the debate on competition law and assesses its introduction and implementation. In the brief period of implementation to date, the tension between a pro-competition and an anti-bigness interpretation of the Law is evident. The paper concludes that ambiguities in the law should be eliminated, that the competition agency focuses on advocacy and introducing transparent procedures rather than hastening towards concluding investigations, and that competition issues faced by independent regulatory agencies in the services and infrastructure sectors should be introduced carefully.