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Jakarta Post

Ali Wardhana, the architect of economic development

  • Vincent Lingga

    The Jakarta Post

Jakarta   /   Mon, June 9, 2014   /  09:20 am

Professor Ali Wardhana, who was dean of the Jakarta School of Economics at the University of Indonesia (UI) from 1967 to 1978; the nation'€™s finance minister from 1968 to 1983; and chief economics minister from 1983 to 1988, was, along with the late Widjojo Nitisastro, one of the most distinguished architects of the Indonesian economy.

No wonder, then, that a gathering at the Niaga Financial Center to celebrate his 86th birthday was packed to capacity with scholars, business leaders, and former and current ministers.

Further contributing to the air of significance was the oration made by Anwar Nasution, formerly one of Wardhana'€™s students and later his teaching assistant. Nasution himself was the dean of the Jakarta School of Economics from 1998 to 2001; senior deputy governor of Bank Indonesia (BI) in 1999-2004; and chief of the Supreme Audit Agency (BPK) in 2004-2009.

Nasution noted in his speech that it was to the great credit of Wardhana, who mastered macroeconomic and monetary theories that he, as finance minister, was able to tame the hyperinflation of the mid-1960s '€” bringing it down from almost 660 percent in 1966 to 85 percent in 1968, and then reducing it to 10 percent in 1969.

His accomplishments set the macroeconomic foundations for the launching of Indonesia'€™s first Five-Year Development Plan under Soeharto.

 Wardhana was also lauded as the first Indonesian finance minister to introduce a balanced budget, using development assistance or '€œsoft loans'€ from developed countries and multilateral development banks to manage the fiscal deficit.

Certainly, Wardhana'€™s fiscal management achievements from 1968 to 1983 and his deft handling of macroeconomic policy in 1983-1988 should also be attributed to his being a part of Soeharto'€™s strong economic team.

Soeharto'€™s economic team, at least during the first two decades of his authoritarian rule, was effective because its core members consisted of like-minded professionals '€” individuals like Mohammad Sadli, Soebroto, Emil Salim and JB Sumarlin '€” who had built trust through long personal association. And just as importantly, because the team had a clearly recognized intellectual leader in Widjojo.

Like Widjojo and Salim, Wardhana received his PhD in economics at the University of California at Berkeley.

With the trust and backing of president Soeharto, the close-knit team designed the economic platforms of Soeharto'€™s first Cabinet, and later oversaw the implementation of the whole sequence of economic policies '€” from the stabilization stage, through the rehabilitation stage and into the period of development '€” allowing for a guarantee of coherence and consistency.

But it was no easy task for Wardhana and the other members of the economic team to sell economic policies to Soeharto; they had to compete for trust and attention with Soeharto'€™s business cronies like Sudono Salim, who often acted as '€œpersonal economic advisers'€.

Liem Sioe Liong'€™s Salim Group: The Business Pillar of Suharto'€™s Indonesia, a book coauthored by husband and wife Richard Borsuk and Nancy Chng, illustrates the rivalry between the people fighting for Soeharto'€™s attention.

In a series of interviews with the authors of the book, Anthony Salim, Sudono'€™s youngest son and current chair of the Salim Business Group, recalled multiple occasions when he and his father would bump into Widjojo coming out of meetings with Soeharto.

'€œHe didn'€™t like us very much,'€ Anthony said of Widjojo.

Considering the complex decision-making process at the top, Wardhana'€™s achievements are a credit to his perseverance and patience in convincing Soeharto of the merits of the economic policies he and his team championed, as well as of the appropriate sequence by which they should be implemented.

Wardhana'€™s forward-looking policy of liberalizing Indonesia'€™s capital accounts in the early 1970s, though not without risks, flew in the face of conventional economic theories.

But it was the open capital regime and the 1967 Foreign Investment Law that regained market and investor confidence in Indonesia, triggering substantial injections of foreign aid as well as huge inflows of private capital into an economy left in virtual shambles by then president Sukarno in late 1965.

Besides the loyalty of the armed forces and the foreign direct investment (FDI) and business development that was backed by Soeharto'€™s business cronies, foreign development assistance with soft terms and more than 30-year-long rates of maturity became a pillar of Soeharto'€™s rule.

Also of strategic importance, according to Nasution, was the internationally celebrated fiscal and monetary management Wardhana implemented during Indonesia'€™s more than 10-year-long oil boom.

Indeed, during Soeharto'€™s rule, fiscal and monetary management was judiciously coordinated; Bank Indonesia, the nation'€™s central bank, was not politically independent, but was included in the presidential Cabinet. That decision was what protected the economy from what economists have referred to as the '€œDutch disease'€, or curse, of natural resources.

The government wisely made use of the windfall stemming from oil profits to develop basic infrastructure, including irrigation networks (enabling the country to achieve rice self-sufficiency in 1984), small plantations, rural health service centers and thousands of elementary and secondary schools.

Countries in the Middle East, Africa and Latin America that are rich in natural resources like oil and diamonds are often plagued with persistently poor economic growth when compared to neighbors with comparatively less bounty.

The Dutch disease strikes when windfall profits from natural resources cause domestic currency to appreciate. Currency appreciation, in turn, makes agricultural and manufacturing products less competitive on the world market. In addition, a government flush with revenue has less incentive to promote economic diversification.

The writer is senior editor at The Jakarta Post.