Liberalizing New Order Indonesia: Ideas, epistemic community, and economic policy change, 1986--1992

Major theories in social and political science have not taken seriously the role of ideas in explaining economic policy change. This study is different. The case of Indonesia from 1986 to 1992 demonstrates that ideas and the actors in the public arena who fought for their acceptance and implementation strongly influenced the movement of policy from dirigism to greater liberalism.;The relevant actors were economists, journalists, present and former government ministers, writers, and public speakers. Some of them, the technocrats, worked inside the government. But most worked outside, constituting an influential intellectual epistemic community. These actors did not belong to a formal organization. They did not appoint a leadership or authority to orchestrate their actions. Instead, what they had was a broad intellectual consensus, a shared belief in the best course the country could take to achieve a higher level of economic development.;When the opportunity came in the early 1980s following the fall of the world oil price, these actors attacked the dirigist status quo and offered their liberal solution. The technocrats worked from inside to convince the ruling elite of President Soeharto's New Order regime that the time had come to begin policy reorientation. They revived the modernizing spirit that had characterized the early New Order in the mid and late 1960s, when it dismantled the anti-capitalist legacy of Indonesia's first president, Sukarno. The intellectuals did their part from outside to discredit the dirigist status quo and to persuade the general public to support economic liberalization.;When their ideas won the day, the course of policy shifted substantially. This shift affected major economic sectors, particularly trade, investment, finance and banking. The period of 1986--1989 in Indonesia's history is properly called the deregulation era. After 1989, newly powerful business interests and the inability of the liberals to produce persuasive new ideas combined to weaken the reform process.;The study concludes with the suggestion that taking the role of ideas seriously might also be useful in understanding broader processes of social, political and cultural change in other times and places.