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Beny Trias Oktora, SE, MA
Head of Subdivision Material Preparation for Monetary Policy at Coordinator Ministry for Economic Affairs
Introduction
Asia Financial Crisis in 1997 was disaster for Indonesia and at the same time also became blessing in disguise. Why did Asian Financial Crisis in 1997 become blessing in disguise for Indonesia? Because significant reformed in social, economy and politic fields were prompted by the crisis. Those reformed has extensively affected and changed enormously the status quo systems. More announced reforms were in political system particularly in strengthening of separation of power or “Trias Politica”, balance of power and also mechanism of check and balance that have also bolstered degree of democratization in Indonesia.Now Indonesia is known as world`s third largest democratic country in the world where respectively India and United States as the first and the second. At the same time, Indonesia`s economic performance has been relatively improved. Recently, The Economist has predicted Indonesia as one of golden chance and the media has put Indonesia in basket of the promising countries “BRIC” (Brazil, Russia, India and China) then there will be another “I” in “BRIC”.
This paper aims are to describe what contribution of democratization in particularly after disastrous event Asia Financial Crisis in 1997 whether it is positively or negatively contribution to development of state status of Indonesia and then why Indonesia took different paths that also included democratization in fostering development of state. I argued that individual freedom as one of pillar of process democratization not need to weaken in order to achieve economic growth as one aspects of development of state. Whereas, strengthening individual freedom as part of socio-politic policy has given positive contribution on development of state. Amartya Sen in his book Development As Freedom emphasized that limited evidence support the thesis of Lee of Singapore to weaken individual freedom in order to boost economic growth. Plenty of evidences have already elucidated in North America (United States and Canada) and Western Europe on how important strengthening democracy as socio-politic policy enacted by government to foster development of state. Up to now, North America and Western Europe still utilize democracy as part of building of development of state.
Strengthening and building political institutional play important role in practicing democracy. Democracy in broad sense not only deals with elections for executive and legislative but also deals with building strong political institution. In the past since 1965 to 1997, function of check and balance which should be played by legislative branch was weakened by authoritarian regime (i.e. New Order Regime was conducted by General Suharto). Initially the idea to weaken legislative was to boost economy without time-consuming process and higher cost process of real democracy. But the result, executive branch was ruling without any control and conducting ignoring rule of law. Practices of corruption, collusion and nepotism were rampant, resulting higher economic cost and harming people welfare.
The orderliness of this paper is as follows. Section 2. Research Questions, key research questions provide guidelines to develop this paper. Section 3. Literature Review, I examine scholars` papers and books that closely related to my paper discussion especially topic that discussed about relationships between democracy, development of state and economic development. Section 4. What Is Democracy, I describe the general concept of democracy. Section 5. The Needs of Democracy for Development of State, I examine how important the strengthening of democracy especially in individual freedom and political institutional building as part of development of state policy. Section 6. Data on Democratization and Economic Growth of Indonesia, I analyze data after Asia Financial Crisis in 1997 on Indonesia economic growth and democratization policy that conducted in Indonesia. And finally in Section 7. Conclusion, I conclude my paper that is development of state policy not only involves economic policy imposed by government but also Indonesia government successfully endorsed democratization policy together with economic policy with relatively better result in economic performance and democracy indicator.
Research Questions
Incorporating democracy as factor for development of state is one thing should be done in showing that to be rich such countries do not be afraid to let their people free to have and practice their rights. The thesis stated that beginning of development state necessitated semi authoritarian government or dominated such as Singapore (also known as Lee`s Thesis) was debatable since little evidences provided[1].To guide my paper, I propose crucial research questions to expand discussion on democracy and development of state. The questions as follows: (i) What the result if economy policy is the first priority in development of state of Indonesia? (ii) What the result if socio-politic is the first priority in development of state of Indonesia? (iii) What the result if economy and socio-politic policies are simultaneously in development of state of Indonesia?
Literature Review
The relation between democracy and economy performance has already attracted many scholars to study whether democratization is function of economic growth and vice versa. The most pronounced is the more develop a country economy in term of economic growth will encourage better democracy degree. Some political economic scientists argued that to develop well democracy degree or level a country should have already had good level of economic development. Economic development in the form of economic growth brought changing in social structure in society that by presence of more of middle class. The role of middle class is very crucial in enhancing democracy. Huber et al (1997) emphasized based on historical analysis that countries had well economic performed positively contributed to development of democracy. Huber et al (1997) has confirmed Lipset (1959) that emphasized on wealthy society as result of economic development has become one of requisites of democracy.Study on notion that democracy has positively relation on a country economic performance has been evolved. When democracy has established in a country and has been endurance for specified of times it stimulated through some channels (i.e. physical capital, human capital, social capital and political capital) and at the end generated economic growth[2]. Gerring et al (2005) made formulation on how democracy utilizing those channels and resulting economic growth (Gerring et al (2005) found robust that democracy positively generates economic growth).
Using sensitivity analysis De Haan and Siermann (1995) wanted to make robust analysis on relationship of democracy and economic growth (exactly the impact of democracy on economic growth) and concluded that the relationship between democracy and economic performance is not robust. It means that they are doubted on the relationship. However they underlined that it is not necessary to adopt a policy in which democratic rights are repressed. Furthermore, Przeworski and Limongi (1993) found interesting evidence that there was not clear answer whether democracy foster or hinder economic growth. Either a country democracy or authoritarian is not matter at all as long as there is autonomy state role to guide a country to do something for its economic development. Evidences are very clear that postwar (i.e. World War II) some countries are democracy countries and some countries are authoritarian countries and both category has performed relatively well in economic[3].
What is Democracy?
Democracy is free election to choose either representative as legislative or executive branches of power; narrowly explaining what democracy is. However, many political scientists provided broad definition of democracy. Definitely, democracy not always does about election and election is starting points of democracy. Tilly (2007) has classified democracy in 4 approaches: (1) constitutional, (2) substantive, (3) procedural and (4) process-oriented. Constitutional approach thinks intensely about laws that are enacted in order to establish democracy in a country or political activities. On the contrary, substantive approach do not underline on laws of political activities but the real indicator of presence of democracy for instance a country guarantees human welfare, individual freedom, security, equity, social equity, public deliberation, and peaceful conflict resolution. Election is central judgment imposed by procedural approach in valuing whether a country called democracy or not. Competition in election is major consideration especially incumbent should form independent institution who responsible for the election. The last approach process-oriented has certain criteria that should fulfill and they are effective participation, voting equality, enlightened understanding, control of agenda and inclusion of adult.I highlight that process-oriented approach combines with constitutional approach had representative explanation on democracy. Government takes initiative to enacted constitution that established democracy in formal. Constitution not guarantees automatically democracy will establish. Otherwise in reality the process of democracy should exist. So a country should show the real process of democracy that according to Dahl (2005): elected official, free, fair and frequent elections, freedom of expression, alternative source of information, associational autonomy and inclusive citizenships.
The Needs of Democracy for Development of State: Indonesia Case
Post WW II, common strategy for successful of development of state among developing countries especially in East Asia was performing economic policy, industrial policy, central planning, and government and bureaucrat role. The policies endorsed by government are centrally in economic policy regardless of democratization policy. Excluding China, North Korea and Vietnam that are obviously they are communist countries that automatically expel from democracy countries lists. Common sense of that policy was very reasonable because they should feed their people first regardless their freedom and food and job are most prominent than individual freedom and others criteria of democracy.Indonesia after President Sukarno was being derived by force by military in 1965 was also taking the same strategy in development of state. General Suharto as authoritarian regime actor underlined on economic policy and continuously started to weaken democracy by simplified on 3 parties only and repressed the different thought exist in public. His political enemies have been repressed by the power of army especially former President Sukarno party PNI and communism party (at the time US highly supported the authoritarian regime in some parts of developing countries in the world to retain spreading of communism also known as cold war). Authoritarian regime at the time seemed to be trend of regime at the time in South East Asia we recalled Marcos of Philippines, Mahathir Muhammad of Malaysia, Suharto of Indonesia, and Lee Kuan Yew of Singapore. Singapore and Malaysia now still operate semi-authoritarian regime which held election but the result we can predict the incumbent party is the winner.
For Indonesia establishing democracy is the real needs for development of state strategy. Learning the mistakes from the past in General Suharto regime as authoritarian regime that operated only pretended democracy only resulted corrupt government. The difference between Indonesia and Singapore even though both operated authoritarian regime at the time Lee Kuan Yew has had highly commitment and implemented to form clean government despite of its government was (is) considering as authoritarian or semi authoritarian regime. Sort of commitment were not seriously taken by Suharto regime at the time. Bureaucratic machine that should seriously guide the private sector in developing economic development of the country was failed and became source of inefficiency because of gigantic web of corruption inside the government.
I observed that the control mechanism was (is) not worked. The power was centralized in one actor President Suharto. The presence of election even continuously in 5 years term for electing representatives were only procedural and automatically rejected as fair and competitive elections. Family relation, relative’s relation and friendship to authority were main mode if Indonesian people would like to start business and to hold certain high level job in government or even lower job. Suharto himself also has practiced this mode. Accumulation of corruption, crony and nepotism modes have been unsatisfied opponent group who did not agree of kind of practices.
Considering of diversified of conditions of Indonesia in term of ethnic, religion, culture, and even languages, one mode that could unify those differences is democracy. Principle of democracy that benefit to economy is surveillance or control function conducted by people representatives in parliament. Government as executive in strong democracy country cannot practice inefficient economy and force to practice in accountability and transparency. When efficient economy together with accountability and transparency could generate benefit for economy.
Post Asia Financial Crisis in 1997, several reform in politic has conducted that centralized in strengthening political institution such as allowing establishing parties besides three parties that have already existed regardless the platform of the party (exclude the communist ideology), removal army representatives in Dewan Perwakilan Rakyat (the House of Representative), forbidding army in election as voters and also being elected and freedom of press or media. For the first time, successfully held and relatively stable presidential election, Indonesia President was elected directly by people in 2004.
Democratization in Indonesia obviously is needed when and also responded on considered of heterogeneity condition of Indonesia to become part of development of state strategy. Uniquely democratization also have had significant contribution in inducing clean government because Dewan Perwakilan Rakyat / the house representatives have enacted on forming of ad hoc commission in combating corruption which is Komisi Pemberantasan Korupsi / Corruption Eradication Commission that adopted the same form of organization and strategy in Hong Kong. With democratization mode, requisite of economic development which is political stabilization and efficiency government (i.e. is still trying to form) could form compared with previous condition without democracy.
Data on Democratization and Economic Growth of Indonesia
At this section, I examine data on democratization in Indonesia based on Freedom House indicators on democracy from year 1997 to 2008. Then I examine data on economic growth of Indonesia based on IMF.
Source: Freedom House organization, I compile the original data from Freedom House website that only consists of survey started from 1997(the Asia financial crisis occurred) to 2008 (current year of survey)
Every year Freedom House one of distinguish nonprofit organization conducts a survey on status of global freedom. Freedom is measured based on the opportunity to act spontaneously in a variety of fields outside the control of the government and other centers of potential domination. Freedom House underlines that political rights is enable people to participate freely in the political process, including the right to vote freely for distinct alternatives in legitimate elections, compete for public office, join political parties and organizations, and elect representatives who have a decisive impact on public policies and are accountable to the electorate and civil liberties allow for the freedoms of expression and belief, associational and organizational rights, rule of law, and personal autonomy without interference from the state.
The survey does not value government performance but generally reflect the interplay of a variety of actors, both governmental and nongovernmental. Each country is consigned a numerical rating—on a scale of 1 to 7—for political rights and an analogous rating for civil liberties; a rating of 1 indicates the highest degree of freedom and 7 the lowest level of freedom.
From the data Indonesia Freedom Status after general election for house representatives members and president and vice president (in local government also general election held for local leader governor for local leader in province and walikota / bupati / major in city and municipal) that started in 2004, Freedom House survey indicated Indonesia status was being improved until 2008.
The hardest condition of economic performance of Indonesia was in 1998 obviously after crisis happened. Economic growth was slightly slumped to -13.2%. The impact of Asia Financial crisis was so enormous and in the region Indonesia truly has had most severe condition both in term of politic, economic and social unrest. After year 1999 to 2008, economic growth was improved.
In 2006 with improving economic growth status of freedom resulted from Freedom House survey also getting increase to become free (F). Government relatively succeeds in foster socio-politic policy and also economic policy. However government has been forced to reform Indonesia political systems by “people power” because of awful experienced in the past. Government was not the only actor and there was nongovernment actor who also concerned to reform the systems.
Conclusion
Indonesia government after Asia Financial Crisis in 1997 has concerned not only on economic policy but also in socio-politic policy. Serial reformed in political institution building have been performed since 1997 until now. Political reform underlined on strengthening political institution in order to separation of power. Separation of power can effectively control the executive from being corrupted.In Indonesia case, democracy has had important role for development of state strategy. The combinations of socio-politic and economic policies after financial crisis have been proved to foster Indonesia development of state strategy with granted as world`s third largest democracy country in the world (and surprisingly also the number one Muslim country in world that has had practiced democracy in the world). Gradually economic policy that has been already conducted had proved firmly to face current global financial crisis. In economic policy, IMF prescription was absolutely taken by government. Despite of successful of those combinations, Indonesia government must perform extra efforts in combating corruption seriously especially in state prosecutor and police which pillars of law enforcement.
However, debates about whether democracy foster and hinder economic development is still going on using cross countries data. In the case of China and Vietnam, both countries are far from democracy but they act like democracy countries in term of open market policy, continuing involve in free trade arena and reform their economic policy. Then still closed and forbidden political activities of their people except communist party.
The last remark from me, completely development of state should also consider socio-politic policy because people will not satisfy only to replete their biological needs. They need forum or media to articulate their opinion and their thought which is not provided only in university and business forum or activities. Freedom of speech and freedom of press which are part of democracy principles or elements (i.e. individual freedom) are acceptably medium for people to express their opinion and thought. Sen (1999) emphasized on his book Development As Freedom that Western Europe and North America (United States and Canada) have been formed their development of state strategy together with democracy. And the contemporary evidence is India which is having relative well in economic performance and also practicing democracy even when their economic performance was not well like today. I borrow from Rodrik (2001) in Development Strategies for The Next Century, he argued that:
“Economic development ultimately derives from a home-grown strategy, and not from the world market. Policy makers in developing countries should avoid fads, put globalization in perspective, and focus on domestic institution building. They should have more confidence in themselves and in domestic institution building, and place less faith on the global economy and blueprints emanating there from”.
Being confidences to tackle its problems with its own characteristics are indispensable. My suggestion is practicing real term democracy is as essential as practicing appropriate economic policy.
References
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[1] (Sen 1999, 15) Sen argued that Lee`s thesis only provided little evidence.
[2] (Gerring et al 2005)
[3] (Przeworski and Limongi 1993, 65)
[4] PR stands for Political Rights and CL stands for Civil Liberty. The scale ranges from 1 to 7 which is 1 is the best score and 7 is the lowest score. Status consists of NF stands for Not Free, PF stands for Partly Free and F stands for Free.
