Table Of ContentVOL. XIX, NO. 1
QUARTER
FIRST 1991
on
Issues
Indonesia's
Economic Development
Current Events • Capital Formation and Equal Distribution
Recent Economic Reform in Indonesia
• Problems of Foreign Trade and
The Role of the Private Sector in the Gulf Crisis
Indonesia: Deregulation and Privatisation
• Pacific Economic Cooperation and
Concentration and Conglomeration in the Indonesia
Context of Proliferating Strategic
Alliances Among Multinationals • Book Reviews
Centre for Strategic and International Studies
The Quarterly
TheIndonesian Quarterlyis ajournal ofpolicyoriented studies published bytheCentre
for Strategic and International Studies (CSIS), Jalan Tanah Abang 111/23-27, Jakarta
10160. It isamediumforresearch findings, evaluationsand views ofscholars, statesmen
and thinkers on the Indonesian situation and its problems. It is also a medium for
Indonesian views on regional and global problems. The opinions expressed in The
Indonesian Quarterly are those of their authors and do not necessarily reflect the
opinion ofthe CSIS.
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in 1971 the Centre uses as of 1989 the logo that figures on the front
coverofthisjournal. Theoriginal, inbronze, designedbyG. Sidhar-
ta, it consists ofadiscwithanengravingthatdepictstheglobewhich
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SETYAWAN
Editor Daniel
BAROTO
Secretary Al.
Advisory Board J. Soedjati DJIWANDONO, Kadjat HARTOJO, Daoed JOESOEF,
ofEditors Clara JOEWONO, Rufinus LAHUR, AJVI.W. PRANARKA, Pande R. SILALAHI,
Djisman S. SIMANDJUNTAK, Hadi SOESASTRO, A.R. SUTOPO,
Harry TJAN SILALAHI, Jusuf WANANDI.
The Indonesian Quarterly is published in January, April, July and October.
SIT 01381/SK/Dirjen PG/SIT/72
ISSN 0304-2170
From the Editor
• Concentration and Conglomera-
tion in the Context of
Proliferating Strategic Alliances
Current Events Among Multinationals
Djisman S. SIMANDJUNTAK 52
• The 1991/1992 Draft State Budget
• Capital Formation and Equal
HadiSOESASTRO
3
Distribution
• The Uruguay Round and Indonesia HadiSOESASTRO
/. SoedradjadDJIWANDONO 5 62
• Establishing New Quadrilateral Relations • Problems of Foreign Trade and
RizalSUKMA the Gulf Crisis
8
J. SoedradjadDJIWANDONO 74
• Pacific Economic Cooperation
and Indonesia
Articles
SuhadiMANGKUSUWONDO
82
• Recent Economic Reform in
Indonesia
Book Reviews
AnwarNASUT/ON
12
• The Role of the Private Sector in • TMhuecChisviilnSLeUrvBaIntS's Petition for Equality
90
Indonesia: Deregulation and
Privatisation • Racial Harmony in
MariPANGESTU a Heterogeneous Society
27 SES a.
From
the Editor
ENTERING the year 1991 Indonesia has to face an unfavourable global economic
situation. A Gulf War will overshadow the world not only with dark clouds of eco-
logical destruction but also with economic recession and uncertainties, which is likely
to affect adversely Indonesia's economy. On top of that, the failure of the multilateral trade
negotiations or the Uruguay Round may hamper Indonesia's endeavour to attain its develop-
ment objectives.
However, every cloud has a silver lining. The gloomy world situation has not discouraged
Indonesia from continuing to implement its development plan. This is reflected in the 1991/
1992 Draft State Budget, submitted by President Soeharto to the plenary session of the
House of Representatives on January 7, 1991.
The Draft State Budget has been very cautiously prepared with most of the projections
on the low side. Yet it has an optimistic tone since Indonesia's economic development is still
The Gulf
considered promising in the face of the disadvantageous international situation.
War will most likely cause fluctuations in oil prices. This will certainly be most detrimental
to Indonesia's development efforts, which understandably gives rise to some concern.
However, other encouraging aspects of the economy should also be taken into considera-
tion. The 1990 inflation rate which has been curbed below the two-digit, increased revenues
projected to derive from taxes, and the positive effects of deregulation and privatisation,
seem to offer opportunities for Indonesia's economy to grow amidst the global problems.
Accordingly, to give the readers an overview of how Indonesia has fared during the last
few years and what its potentials are, the Indonesian Quarterly has selected a number of
issues related to the country's economic development.
SETYA WAN
Daniel
Current Events
The 1991/1992
Draft State Budget
Hadi SOESASTRO
THE
1991/1992 Draft State Budget been derived from an increase in tax re-
which the government submitted to venues of non-oil/gas commodities.
the House of Representatives on Ja-
The government has based this estimate
nuary 7, 1991, may be evaluated from two on an oil price average of US$19 per barrel.
angles. The first is an examination of the This is a rather realistic assumption. The de-
budget itself, among other things by com-
velopment at the international oil market is
paring it with the previous budgets. The still very uncertain. The price scenarios,
second is an evaluation of the budget from
after the Gulf crisis is settled, predict esti-
the perspective of the country's macro eco-
mates between US$12 and US$25 a barrel.
nomic development as a whole.
Because no one can predict certain assu-
From the first angle, various encouraging rance, the mean estimate appears to be a
developments are evident. In comparison to reasonable one for planning purposes.
two years ago, government savings increased
The tax revenues from non-oil/gas,
five-fold, from Rp 1.8 trillion to Rp 9.6
targeted to go up 21 per cent, apparently can
trillion. This increase is partially a conse-
be attained by hard work of the fiscal ap-
quence of the increase in the revenues from
paratus. If it is estimated that Indonesia's
oil and natural gas. But tax revenues have
economy can maintain a growth rate of 6 to
not less contributed to this rise. In com-
7 per cent, and provided that the inflation
parison with the 1990/1991 Draft State
during the coming budget year will vary
Budget, the increase in domestic revenues
from 5 to 7 per cent, taxes have to increase
amounting to Rp 8.6 trillion has for 49 per
between 7 and 10 per cent. Viewing the
cent been effected by an increase of oil/gas
existing potentials, this target would appear
revenues, while the remaining 51 per cent has
to be attainable, but efforts to achieve it
The original version in Indonesian ("RAPBN 1991/ should be stepped up.
1992 dan Pertumbuhan Ekonomi") appears in Suara
Karya, 8 January 1990, translated and published inJhe Development revenues in the form of
Indonesian Quarterlywith the permission oftheauthor. foreign aid have decreased, especially in
1
4 THE INDONESIAN QUARTERLY, XIX/
terms of program aid. But this decrease was large increase in the Presidential Instruction
actually anticipated, because the increase in (Inpres) program. Various studies have
program aid received previously had actually shown the positive influence ofInpres on the
more of an "emergency aid" character. On rural economy to increase economic activi-
the whole, the estimate of revenues amoun- ties and the buying power. Priorities in allo-
ting to Rp 50.6 trillion gives no rise to ques- cations of government development funds
tions. also appear to be increasingly emphasized by
a spectacular increase in the financing of in-
Concerning expenditures there are no
frastructural development. This is consistent
great problems either. Some dissatisfaction
with the effort to maintain a quite high eco-
is found with state employees, to be sure, as nomic growth rate in the medium and long
their salaries have not been raised, but this is
term, and responds to urgent needs in Indo-
not a permanent situation. This means that,
nesia.
should the oil revenues exceed by far what is
expected, salaries of civil servants would On the whole it may be said that the
have the preference in using the surplus 1991/1992 Draft State Budget is quite realis-
funds. The rather spectacular rise in routine tic. But one question needs to be raised: to
expenditure is due to foreign debt servicing what extent is the Draft State Budget ade-
and subsidies on domestic petroleum pro- quate to maintain a sufficiently high eco-
duct prices. As regards the first one, nomic growth rate? The answer is definitely
although one might ask what may have negative. To be sure, the government budget
caused the increase, there is no question that cannot be given a Keynesion function; ex-
payments will be made. The increase of sub- penditures increase or decrease according to
sidies on petroleum products is a source of the rise and drop in revenues and do not pur-
concern because price adjustments are usual- port to stimulate or to suppress the domestic
ly hard to make in years when general elec- demands. For a long time, the task of
tions and sessions of the People's Con- macro-economic management has relied
Why
sultative Assembly (1992 and 1993) are to upon monetary instruments. should
take place. Therefore, there is fear that sub- this issue also be highlighted in discussing
sidies will swell in the coming years. As ex- the 1991/1992 Draft State Budget?
perience has shown in the past, the long-term
In the last few years the main engine for
impact of subsidies is not favourable.
Indonesia's economy has been non-oil and
The development expenditures in the natural gas exports and investments which
1991/1992 Draft State Budget are targeted to support these export activities. If the non-oil
reach Rp 20 trillion. Fifty six per cent of this and natural gas exports should decrease, in-
amount consists of expenditures in rupiahs. vestments will also be affected. Hence the
In the 1990/1991 Draft State Budget, expen- economy must depend more on building and
ditures in rupiahs, namely those made at meeting domestic demand. America's eco-
home, constitute 48 per cent of the overall nomy has faced a recession and its impact
national development expenditures. Viewed may be profound. Japan's economy is not
from this angle, the 1991/1992 Budget has encouraging. If these two should continue to
an expansionary impact, greater than that of weaken, the impact upon the economies of
the previous State Budget. This development Asia and the Pacific will soon be felt.
can also be anticipated in view of the rather Although Indonesia is promoting diversifi-
CURRENT EVENTS 5
cation of its exports, it is hard to expect that sources cannot be automatically transferred
the growth of non-oil and natural gas com- to non-export activities. Meanwhile the in-
modities can be maintained at a high level. terest rates cannot be expected to drop signi-
During 1990 (January to September), the ficantly (below 20 per cent) in a short time
growth of non-oil and natural gas exports either. Therefore, one cannot expect much
kept slackening (only 9 per cent compared to from monetary stimulation, even if the tight
the previous year). The recession in America monetary policy were relaxed. On the other
and the weakening of Japan's economy can hand, fiscal stimulation that the government
be expected to increasingly cause difficulties may be able to offer, will only have a limited
for exports. effect. This means that the available option
Meanwhile, imports have tended to in- to stimulate the private sector are also very
crease rapidly. The greater part of this in- limited. It should be noted that the old pro-
crease is motivated by an extraordinary rise tectionist measures are no longer a viable op-
tion.
in investments. If the export prospects con-
tinue to decline, so will investments, and im-
Finally, the task of the government is to
ports will drop. Even so, its impact upon the
create a stable, fair business climate which
balance ofpayment must be closely watched.
will give confidence and hope. Deregulation
The discussion based on the second per- is one way to the efforts to create this cli-
spective indicates that the ability of the pri- mate. But what is equally important is to
vate sector to maintain the momentum ofde- create open, clear and meaningful (not just
velopment, must be encouraged. The pro- formal) communications between the go-
blem is how to activate the private sector in vernment and the business sector. The bu-
order to stimulate the economy and to in- siness world will continue to need directives.
crease domestic demands without easing ex- It is difficult for business to fix priorities.
port opportunities. Current high interest rate The business sector must be given freedom,
are making exports less attractive, due to the but it cannot be turned loose. Experience
declining competitiveness. But economic re- during the last few years has proved this.
The Uruguay Round and Indonesia
DJIWANDONO
/. Soedradjad
THE
ministerial meeting in Brussel on neral Agreement on Tariffs and Trade in
December 3-7, 1990 was intended to Geneva participated in the negotiations to
wrap up the multilateral trade nego- improve and complete the rules of the world
tiations called the "Uruguay Round". Re- trade so that they would be fair and open to
presentatives of the signatories of the Ge- all countries. Initiation of the negotiations
The original version in Indonesia ("Putaran Uru- was announced at a meeting of trade minis-
guay dan Kita"),appears in Tempo, 22 Desember 1990; ters on the General Agreement on Tariffs
translated and published in The Indonesian Quarterly and Trade (GATT) in Punta del Este,
with the permission of the author. Uruguay, in September, 1986. Two hundred
1
THE INDONESIAN QUARTERLY, XIX/
6
ministers and three thousand senior officials subsidized domestically for a long time. The
of one hundred and eight countries attended subsidy has limited imports from other
the meeting in Brussel. The eighth round was countries and export subsidies have led to
very ambitious in setting the agenda of the unfair competition against the products of
meeting. There were 15 subjects discussed at other countries. The imposition of subsidies
the meeting which involved almost all has become part of the political system of
aspects oftrade. Some subjects hadjust been the EC and an integral part ofits agricultural
put in the agenda and were even not clearly policy. On the other hand, the US which has
defined. Some others were intended to an efficient agricultural sector, demands
amend 40 years old and out-of-date rules, concessions in this area to make Congress
while the rest were meant to expand the amenable to concessions in other sectors.
market which is important for exporting The problems mentioned above caused a
countries. All of them were discussed to be deadlock at the Brussels meeting. In his of-
agreed upon as one package. As a result, ficial statement, Hector Gross-Espiel, the
although representatives of the countries in presiding Chairman and the Minister of
GATT had negotiated them for four years, Foreign Affairs of Uruguay, proposed that
and there had been many informal meetings from December 7, 1990 until mid-January
of ministers and senior officials for consul- 1991, the Director General of GATT would
tation at various fora, and even several sum- try to arrange a follow-up meeting through
mit meetings of state leaders, it was still very consultations with all parties using the
difficult to reach a comprehensive agree- documents agreed upon in Geneva and in
ment. Brussels as talking points. Duringthat period
senior officials of the involved countries
Suspended Temporarily would be called upon to participate. Hence,
the Uruguay Round was suspended tempo-
The Brussels meeting failed to reach an rarily and expected to continue later. This
agreement to finalize the Uruguay Round. In decision is fundamentally a political commit-
the original schedule, the participants, con- ment to show that the results achieved so far
sisting of senior staff members coordinated with the exception of the agricultural sec-
by Arthur Dunkel (Director General of tors, would be taken into account, becoming
GATT) as Chairman of the Committee of the basis for further negotiations. However,
State Officials Negotiation, should have time is running out. Since Christmas holi-
reached a consensus on items laid down in a days and New Year are intervening, a
draft agreement in November 1990. In addi- meeting cannot be arranged, and the United
tion, the draft and various other matters States Government has to abide by the
commitment would have March 1991 deadline in order to submit the
calling for political
been discussed and agreed upon by the new regulation to the Congress for approval.
ministers in Brussels. It is worth noting that in non-agricultural
There were, however, some very basic sectors, there has been some progress which
problems with some of the political com- may result in agreements. With regard to In-
ponents that could not be solved until the donesia, talks on the textile sector, for exam-
ministerial conference ended on December 7, ple, have shown promising progress (in the
1990. The European Community's (EC) arrangement of the transition period) to-
agricultural sectors have been inefficient and wards full integration with GATT's regula-
CURRENT EVENTS 7
tions. The regulations, though not yet op- Then, a country should be sensitive to
timal, will create more opportunities for tex- counterparts' needs to increase their export
tile export than is currently the case. Talks market. This process is complicated because
on other market access, such as the reduc- they call for understanding of the implica-
tion of tariff and non-tariff barriers have tions on exports and imports as well as the
also made progress. Amendments on national economy. Each trading partner
GATT's regulations and new problems in should take part in the bilateral negotiations,
trade discussions have also shown some indi- and after being agreed upon, the agreements
cations of the possibility to arrange formulas should apply to all countries under the non-
acceptable to all participants. What remains discrimination and most favored nation
to be agreed upon in this connection is the treatment principle.
regulation of investment policy which has an
Basically countries should be willing to
impact on trading. These are the remaining
unresolved problems between the US and EC make concessions to their trading partners so
as to create markets, promote exports, im-
positions pending agreements in the agri-
ports and international trade which in turn
cultural sector.
will increase international economic growth
and prosperity. However, concessions and
What is the Follow-up?
access to markets are closely related with the
While efforts are being made through respective national interests of the individual
high-level diplomacy by the disagreeing par- countries, and both are difficult to settle
ties on agriculture to seek a political settle- through a compromise.
ment for the deadlock, what steps are to be
All parties should be willing to make con-
taken? Perhaps one of the very valuable
cessions for the successful conclusion of the
lessons for Indonesia, being a country which
Uruguay Round. There should be a process
for the first time actively participate in
of give and take. To this end, the flexibility
multilateral trade negotiations, such as
GATT, of the each country is urgently needed. Rigid
is Indonesia's increasing awareness
positions will only result in continued dead-
that national economy is gradually inte-
lock. If the differences of opinion are still
grated with the international economy. It
too big, such as in the agricultural sector, an
follows that the national economy is increas- agreement can only be reached if the US is
ingly interrelated with international eco-
nomy, and domestic regulations are also willing to reduce its demands, and the EC is
more and more related with international willing to increase its concessions. It should
be kept in mind that general agreements
regulations. However, there are many other GATT
within will be reached through nego-
countries which have similar experience.
tiations. Thus, pending completion or
In the Uruguay Round of multilateral during the temporary suspension of talks,
trade negotiations, request and offer, are every country, including Indonesia, should
means to increase access to market. This evaluate its own position. Can the conces-
means that countries offer concessions to sions be broadened? Does one country
still
counterparts, such as reductions on import want new opportunities from other coun-
duties or other trade barriers for certain tries? These questions and many others must
items, and provide assurances that these con- be raised, in order to reach a mutually
cessions will not to be violated in the future. beneficial consensus.
1
THE INDONESIAN QUARTERLY, XIX/
8
International Disaster Japan, the newly industrialised, developing,
and European countries, do too.
Indonesia, which has an open economy A
study sponsored by the Asia-Pacific
and wants to continue relying on its non-oil Confederation Chamber of Commerce and
exports as the engine for development really
Industry shows that if the Uruguay Round
desires an international trade regulation
fails, the increase oftrading blocs such as the
which is open to all countries both big and
Single Europan Market 1992, and theAmeri-
small, the developed and the developing, and
ca-Canada Free Market Agreement (which
the industrial as well as the agricultural na-
will include Mexico) will harm world trade.
tions. Only in such a trading system will its
The economic model arranged shows that if
national business world, with the coopera- the EC become more protectionist, the US
tion of the government which is trying to
will follow suit, the world's Gross Domestic
create a healthy commercial climate and the
Product will go down by more than US$200
business world, which continuously in- billion. On the other hand, if liberalization
creases its competitiveness, be able to sustain between the two blocs can be encouraged,
its development efforts. The failure of the the world's economy will increase byUS$400
Uruguay Round will hinder Indonesia's ef-
billion. This is, of course, based on certain
forts to reach the objectives of its national
calculations. In conclusion, all countries, in-
development.
cluding the big countries such the US, the
Nevertheless, Indonesia is not the only EC member countries, and Japan, should
interesting party that desires a more open abandon their inflexibility, show their
and free international trade system. The US, leadership ability to reach compromises and
with its increasingly open economy and thereby avoid the failure of the multilateral
growing deficit, which is currently facing a trade negotiations which will become a
recession, also badly needs a free and open disaster to the world trade and economy.
international trade system. All countries, in- The protectionism and the Depression of the
cluding Indonesia's neighbour countries, 1930s should not be allowed to recur.
Establishing New Quadrilateral Relations
SUKMA
Rizal
THE two week visit (10-21 November tional relations, either in the global and re-
1990) by President Soeharto to three gional political theatre or bilaterally. It
important Asian countries -- Japan, could be said that the recent international
China, and Vietnam - can be considered as changes affecting Asian regional politics
an important step in Indonesia's active have made the visitation significant. Presi-
foreign policy. Entering the 1990s, many dent Soeharto's call is not only important
changes have taken place in current interna- for achieving Indonesian national interests
