Transformation and development in Indonesia: a 50-year view
16 Sep 2022|

Over the past 60 years, Indonesia has been transformed: it has gone from the economic and political chaos of Sukarno’s ‘guided democracy’—a near-failed state and regional pariah—to become an economically successful democracy and regional leader, with a middle class of 25 million.

How did this transformation occur? The British economist John Maynard Keynes famously extolled the power of ideas. What was the source of the policy ideas that drove Indonesia’s remarkable transformation?

Indonesia had to rebuild its sadly depleted institutions during this period, including non-official sources of advice that would reflect a range of community thinking.

The Centre for Strategic and International Studies in Jakarta provided a valuable leavening to the military-oriented New Order government that came to power in 1966. The story of the first 50 years of CSIS illustrates the beneficial power of well-considered and well-articulated policy ideas. That story is told by Australian economist Peter McCawley, a former dean of the Asian Development Bank Institute and a lifetime scholar of Indonesia, in 50 years of CSIS: ideas and policy in Indonesia.

CSIS describes itself as ‘a policy-oriented research institution that focuses primarily on strategic thinking in international relations, domestic politics and economic issues’. But its remit and operations have stretched way beyond those of a conventional think tank. It has been a direct and influential force in the policymaking process, close to Suharto for the first two vital decades of his three-decade era and an important policy voice for more than 50 years.

The diverse and close influence of the centre reflected the unusual composition of the founders and patrons. Three were army generals who had long been close associates of Suharto. Others had been active leaders of the student movement in the 1960s that toppled Sukarno and participated in the dramatic transition to Suharto. Most of the civilian founders were ethnic Chinese who had to work around the tensions implicit in their ethnicity in a society always susceptible to racial division.

In 1965, Indonesia transitioned via a dramatic coup attempt that installed the second president, Suharto, accompanied by a bloody score-settling between Muslims (backed by the army) and communists.

Beginning the next year, Suharto’s New Order government tamed hyperinflation and rescheduled crippling overseas debt. The armed ‘confrontation’ with Malaysia was unwound and the key regional cooperation framework of ASEAN was established in 1967 with Indonesia’s role reflecting its demographic weight. In all this, the founders of CSIS played an influential role, beginning even before CSIS was formally created.

A degree of normality had been re-established by 1971, when the centre was formally founded. This inauguration coincided with a transition to more orderly policymaking. Suharto was now firmly established in power and held the first election since 1955. CSIS staff were not part of the new administration but were influential advisers with strongly articulated policy ideas.

The key CSIS specialisation was in security and foreign affairs. After the destructive foreign policies of Sukarno, the New Order moved quickly to end the conflict with Malaysia and to re-establish relations with the UN and its agencies such as the International Monetary Fund and—most importantly—the region. Indonesia returned to the ‘free and active’ foreign policy that had guided the historic Bandung Conference in 1955.

CSIS gave high priority to ‘second-track diplomacy’ (supplementing formal contacts through unofficial channels) focused on the region. It played an important role in restoring economic relations with Japan, which would become a vital supplier of investment and aid to Indonesia for the next 50 years.

Relations with China were strengthened too. With most of the founders being ethnic Chinese, CSIS was always going to be conscious of China. It worked towards the 1990 restoration of relations after a 23-year hiatus. CSIS leaders argued that the need was to engage China rather than to contain its role, while at the same time regional arrangements in Southeast Asia needed to be strengthened as the best hedging mechanism against China’s dominance.

In macroeconomics, CSIS played second fiddle to the well-known ‘Berkeley mafia’ of economic technocrats led by Indonesia’s senior economic minister, Widjojo Nitisastro. The centre staked out its own area of expertise in regional trade, and its relevance was illustrated when Mari Pangestu, former executive director of CSIS, was appointed trade minister in 2004. More recently, in 2020 President Joko Widodo supported her appointment as a managing director of the World Bank.

On domestic political issues, the integration of Papua following the 1969 ‘Act of Free Choice’ began a long period of involvement in the intractable problems of Papua, followed by an active interest in the vexed issues of Timor and Aceh. CSIS was active in the ‘reform’ era after 1999, including responding to the many challenges of decentralisation.

The centre’s close relationships with a number of Jakarta’s foreign embassies served not only as an inside track to inform foreign governments of Indonesian official thinking and interpret events from an Indonesian viewpoint, but also as a channel of feedback to Indonesia policymakers at the highest level. Timor’s painful journey from Portuguese colony to independent nation provides perhaps the clearest example.

Several key lessons for the work of think tanks in other developing countries in Asia stand out from the success of CSIS. One is that ideas are important. The community of activists and scholars who worked in CSIS believed in the need for reform in many sectors in Indonesia and they were effective in arguing their case. This meant that their views were interesting and that policymakers found it useful to engage with CSIS.

A second lesson is that pragmatic and active engagement with senior levels of government, political parties, and other leading community groups such as religious organisations and the business community strengthen the role that a think tank can play. Think tanks often describe themselves as non-partisan, but in the febrile environment of post-Sukarno Indonesia, such a commitment would have constrained a think tank to policy irrelevance. CSIS was often on one side of contentious issues. It was clearly a supporter of Suharto, especially before a bitter falling-out with the presidential palace that occurred in 1988. Indeed, sometimes CSIS’s thinkers were defined by what they opposed. Pluralism was vital to their vision of Indonesia, so they were at loggerheads with those Muslim groups that wished to establish an Islamic state—a vexed issue since independence.