After Soeharto: Prospects for reform and recovery in Indonesia

With Soeharto’s demise, Indonesia gained democracy but lost effective
government. The economy has been slow to recover from the crisis, and even
modest growth of around 3–4% may not be able to be maintained: neither
stagnation nor decline is out of the question. It is therefore urgent to overhaul
Indonesia’s public sector institutions, which had been co-opted by Soeharto
into his economy-wide ‘franchise’—a system of government devoted to the
objective of redistributing income and wealth from the weak to the strong
while simultaneously maintaining rapid growth. This franchise has
disintegrated in the absence of a clear ‘owner’, with its various component
parts now working at cross purposes rather than in mutually reinforcing
fashion. The result has been a significant decline in the security of property
rights and the postponement of a convincing economic rebound. To reform
the public sector institutions it will be necessary to undertake a radical
overhaul of personnel management practices and salary structures, with the
objective of providing strong incentives for officials to work in the public
interest. The prospects for such reform, however, seem slight.
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