What Role For Indonesian State-Owned Enterprises After The Presidential Elections?
By Pierfrancesco Mattiolo, University of Antwerp
The Indonesian economy is growing at a rapid pace, following a model that combines free market principles with State planning. During the administration of President Joko Widodo, State-Owned Enterprises have gained even more prominence. How will his successor Prabowo Subianto wield this tool?
Over the next twenty years, Indonesia could become the world’s fourth-largest economy. Currently, it ranks seventh when measuring its GDP at purchasing power parity. The archipelago is endowed with abundant natural resources and a young, sizable workforce—two key factors for growth, albeit insufficient on their own. It also requires foreign investments and facilitating business activities. President Joko Widodo (popularly known as Jokowi) attempted to accomplish this in one fell and decisive swoop. In 2020, the Omnibus Law, a massive piece of legislation spanning about a thousand pages and touching many sectors, was passed. Even the trade policy follows the path of economic liberalization. Jakarta has intensified its diplomatic efforts to conclude an ambitious free trade agreement with the European Union and strongly opposes any foreign measure that may have protectionist effects on its exports, such as those from Brussels regarding palm oil.
Yet, despite the determined liberalising push, State-Owned Enterprises (SOEs) continue to play a central role in the Indonesian economy, a role that has further strengthened in the last decade. Jokowism, as his government’s economic doctrine is called, is a fusion of free market principles and robust State intervention. Such a mix would appear contradictory and even economically irrational. Not to Indonesians, nor to other Southeast Asian countries. This economic model, rewarded in recent decades by stable and vigorous GDP growth, predates Widodo and, as mentioned, is also present elsewhere in the region. In different forms, as described by Dr Gianmatteo Sabatino, a researcher at Zhongnan University of Economics and Law in Wuhan, in the excellent article The emerging trends of the modernization of state-controlled economy in the ASEAN space. The case of Indonesian State-Owned Enterprises (published on Rivista di Diritti Comparati, 1/2023).
Sabatino reconstructs how the Indonesian model of state-owned enterprise has evolved, starting from the commercial law of the Netherlands, which was transplanted into Indonesia during the colonial period, then passing through the regimes of Sukarno and Suharto. The independence process, officially sanctioned by the Indonesian Constitution of 1945, also involved the nationalization of Dutch public and private properties. Article 33 of the Constitution, still in force, states that ‘sectors of production which are important for the country and affect the life of the people shall be under the powers of the State’, as well as ‘the land, the waters and the natural resources’, which must be ‘shall be used to the greatest benefit of the people’. Article 33 also sets ‘economic democracy’ as the lodestar of the Indonesian economy. To implement these principles, Sukarno looked to the socialist economic planning model, also in line with his foreign policy of gradual rapprochement with the Soviet Union. This course was abruptly interrupted by Suharto’s coup.
The Suharto regime reversed course by promoting a liberalist economic model, albeit without moving too far from the past. His reforms introduced corporate governance legal frameworks closer to those of Europe and America but clashed with the corporatism rooted in certain sectors of the Indonesian economy. Suharto’s fall ushered in Indonesia’s era of political-economic Reformasi, with the constitutional principle of economic democracy resurfacing and the emergence of a new ‘national’ development model. Despite demands from various sides, particularly from the International Monetary Fund, to continue with liberalisations and privatisations, Jakarta prefers to maintain the State’s role in the economy. For Indonesian decision-makers, a well-administered public company can act as an ‘agent of development’ and even facilitate the emergence of new private enterprises. Former President Jokowi knows this well. His entrepreneurial career began as a manager of a State-owned cellulose factory and, after starting his own private business, the future president was aided by SOEs in times of need in a few instances.
Sabatino analyses Indonesian SOEs also in the context of ASEAN regional integration, which undoubtedly shapes the country’s corporate law. Despite diverse legal traditions, ASEAN nations exhibit a consistent tendency towards implementing models of state capitalism. Such tendency can be observed in four areas: defining and regulating SOEs, linking SOEs with development plans, applying state capitalist doctrines to SOEs, and establishing and overseeing state-holding companies. The dialogue and cooperation at the ASEAN level produces a sort of convergence among national economic laws, helped also by a common ground constituted of ‘development planning, relational business cultures and a key role for state-owned enterprises not only in traditional but also in innovative fields’. At the theoretical level, if we adopt this perspective, according to Sabatino, the ASEAN regional integration model does not appear, compared to the EU one for instance, as ‘weak’ or ‘incomplete’, but rather as ‘thin’ and ‘flexible’, able to accommodate the heterogeneity of ASEAN economies.
But let’s move back to the most recent development in Indonesian politics: the presidential elections. Widodo’s successor, former general Prabowo Subianto, may rely on SOEs to promote his policies, unless he intends to change this economic doctrine. It is unlikely that he will, considering that Jokowism is extremely popular and allows for mobilizing the country’s growing economic resources for other purposes. It is more difficult to anticipate what these purposes will be. Fulfilling the constitutional principle of economic democracy? Growing the economy, fairly and sustainably, or just focusing on the GDP growth percentage? Or perhaps strengthening his own power system? The proliferation of SOEs under Jokowi recalls a similar trend observed in Xi Jinping’s China. The key difference is that in Indonesia, the actions of ministries, and thus their enterprises, can be subject to electoral debate and change from one legislature to another. As Sabatino points out, the timing of development planning is appropriately synchronized by Indonesian law with elections. Electoral results impact the business choices of SOEs. Borrowing a famous expression associated with China, the ‘capitalism with Indonesian characteristics’ presents unique and undoubtedly interesting elements, as it is an alternative and almost opposite to Western capitalist practices, destined to lead the archipelago to the podium of world economies.
The article is based on a chapter written by the author in Italian for the news agency ChinaFiles.
