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Ali Wardhana: The Legacy of Indonesia'€™s Economic Legend

  • Muhammad Farid

    The Jakarta Post

Jakarta | Mon, October 19, 2015 | 04:10 pm
Ali Wardhana: The Legacy of Indonesia'€™s Economic Legend

From July to September, the rupiah continued to depreciate against the US dollar, from nearly Rp 13,000 per dollar in July, finally bottoming out around Rp 14,800. This is the worst fall against the dollar since the 1997 monetary crisis, which was followed by the May 1998 riots and resignation of then president Soeharto. The looming US interest rate hike, the devaluation of the Chinese yuan and declining commodities, including oil prices, are said to be the main causes of rupiah depreciation.

Indonesia'€™s dependency on commodities is relatively high, since they comprise around 60 percent of the country'€™s exports; therefore the rupiah exchange rate is vulnerable to commodity price fluctuations. This vulnerability is not a new problem for Indonesia. In 1989, Ali Wardhana, in his paper published in The Indonesian Quarterly by the Centre for Strategic and International Studies (CSIS), wrote about the causes of Indonesia'€™s economic slowdown as an effect of the fall of the world oil prices. He mentioned that '€œgiven the level of uncertainty of oil prices and Indonesia'€™s level of proven oil reserves, the only reliable source of export growth for Indonesia is a wide range of non-oil exports both from agriculture and from manufacturing'€.

Ali, who warned about the risk of dependency on oil, just passed away on Sept. 14, 2015, at age 87. Holding a doctoral degree from University of California Berkeley, Ali was the architect of Soeharto'€™s New Order economy, along with Widjojo Nitisastro, Mohammad Sadli, JB Sumarlin, Subroto and Emil Salim, who also graduated from Berkeley '€” this group of economists was nicknamed the Mafia Berkeley (Berkeley Mafia). Ali himself held a record as the longest serving Finance Minister of Indonesia (1968-1983), while at the same time being the longest serving Dean of the Faculty of Economics, University of Indonesia (1968-1978). President Soeharto later also appointed him as Coordinating Minister for Economics, Industry and Development Monitoring from 1983 to 1988. At the international level, he held a position as a member of the board of directors of the International Monetary Fund (IMF) and the World Bank from 1971 to 1972.

Ali himself is a legend in Indonesia'€™s economy, not only because of several reputable positions he held, but also because of policies and legacies he made. As part of Soeharto'€™s team of technocrats, he played an important role in bringing hyperinflation down from 650 percent to 10 percent in three years (1966-1969). He also directed Indonesian economic policies in facing precarious global conditions; for example, the breakdown of Bretton Woods system, as well as the up and down oil prices during the 1970s and 1980s. During 1973-1982, he succeeded in managing Indonesia to avoid the '€œDutch Disease'€ or '€œcurse of oil'€ '€” a condition where the exploitation and export of natural resources created damaging effects on an economy '€” by allocating revenues from the oil boom to fund development, such as building infrastructure and strengthening national education and health through the building of elementary schools and community health centers (Puskesmas) through Inpres (Presidential Instruction), leading some schools to be known as Inpres schools.

In June 2015 or three months before his passing, a tribute titled A Tribute to Ali Wardhana, Indonesia'€™s Longest Serving Finance Minister: From His Writings and His Colleagues was released. This is the first book that compiles the essences of Ali'€™s thoughts on Indonesia'€™s economic policies and his legacy in general.

The editor, Marie Pangestu, who was Trade Minister (2004-2011), and Tourism and Creative Economy Minister (2011-2014) collected Ali'€™s speeches at the Annual Meetings of the Board of Governors of the World Bank and IMF during 1969-1982, as well as his selected writings to compose the book. Those speeches and writings are essential to have a comprehensive understanding about Indonesia and global conditions that contributed to his policy making process.

In this tribute, Ali'€™s colleagues, friends, and families also share their points of view about his thoughts, policies, and success in navigating Indonesia'€™s economy for more than two decades. Among the colleagues who give testimonies in this tribute are prominent figures, mainly from the economics field, both domestic and international, such as Sri Mulyani Indrawati (managing director of the World Bank Group and former National Development Planning Minister and Finance Minister), Emil Salim (one of Soeharto'€™s economics team, having held some ministerial positions under Soeharto'€™s government), Muhammad Chatib Basri (former finance minister during May 2013-October 2014), J.B. Sumarlin (who held some ministerial positions under Soeharto), David Cole (former economic and financial policies economic advisor to the Indonesian government) and Dwight H. Perkins (advisor, economist from Harvard University). In terms of the role of foreign support, the foreign advisors implicitly testify that Ali as well as the members of the technocrat team adopted advice from foreigners to meet Indonesia'€™s needs, and were '€œin no way '€˜steered'€™ by foreign advice'€ (p. 6).

Of course, the testimonies also disclose human interest aspects of Ali based on their personal impressions. Marie Pangestu mentions, '€œPak Ali gave all to this to the country and it is hard to imagine what kind of country Indonesia would have become without people like Pak Ali'€. Ali'€™s fellow Berkeley alumnus Emil Salim says '€œ['€¦] as written in this nation'€™s history, Indonesia once had a '€˜bright diamond'€™ in the form of a country man rising to the occasion, whenever his country needed him. Ali Wardhana never considered himself a '€˜bright diamond'€™. And if ever asked why he would have done what he did in the past, he would stroke his beard and whisper: '€˜For God and Country'€™,'€ (p. 229).

Emil Salim may be right about the '€œbright diamond'€; however, it is more important for Indonesia to draw lessons from the past through Ali'€™s experiences and thoughts, which are presented in the tribute. Indonesia currently is facing a big question on how to transform itself into a value-adding economy '€” the one that Ali had advised on 26 years ago through his paper. History never repeats itself, but the patterns do. At this level, Indonesia apparently needs to learn from the legacies of the country'€™s economic legend Ali Wardhana. And at this level too, for those who have the ability to explore the current currency issue in Indonesia, as well as Asia and developing countries in general, the tribute can be a reference, since it describes Ali'€™s thoughts about the patterns of the problems, as well as the correlations between the problems and development issues.

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