The recommendations of the Washington consensus were the commandments of many developing states, including Indonesia. They became the roadmap pursued by policy makers in developing countries, in addition to the rationale of international financial institutions such as The International Monetary Fund (IMF) and the world Bank, as well as ‘First World' countries such as The United States.
At the end of the G-20 summit, Former British Prime Minister Gordon Brown stated that the old Washington Consensus is dead. The global financial crisis prompted the leaders of The G-20 to make such a statement.
Since the last 1980s Indonesia has implemented the recommendations of the Washington Consensus. It has done so on both voluntary and imposed bases.
Its adherence has been voluntary since Indonesia's policy makers shared the ideas of the recommendations. It was imposed by the international financial institutions or donor countries when the pace of implementation of those recommendations was seen to be slow or of Indonesia seemed to be reluctant to implement the recommendations.
To avoid the impression of intervening in domestic affairs, imposition occurred through Indonesia's participation in international agreements and Indonesia's economic dependence.
Indonesia ratified the World Trade Organization Agreements in 1994 in order to implement the recommendation of trade liberalization. Indonesia has also amended its foreign investment law of 1967 in order to implement the recommendation of liberalizing inward foreign direct investment.
For the same reason, the government also amended the Company law in 1995, and amended it a second time in 2007. The capital market has been revived and the law of 1958 was amended in 1995.
Furthermore, privatization of state enterprises has been a key element of Indonesia economic reform since the late 1980s. Many state enterprises either went public or entered into joint operation schemes.
The government is deregulating many of its laws and regulations of various business sectors so not to impede market entry of restrict competition. The Banking Law of 1992 allows foreign shareholding of more than 50%. Foreign distribution and retail companies are allowed to operate. In 1999 under the insistence of the IMF through the Letter of Intent, Indonesia introduced the Law on Competition.
In addition, the government has overhauled many of its laws and regulations to give legal security for property rights. The 1996 Mortgage Law and the 1999 Liens over Movable and Intangibles Law have replaced the Dutch colonial laws on pledges.
The Copyright Law, Trademark Law and Patent Law have been amended since 2000. Other new intellectual property rights laws were introduced, such as the 2000 Layout Designs and Integrated Circuit Law, and the 2000 Trade Secrets Law.
Unequal benefit
The above are only a few examples of how Indonesia has subscribed to the recommendations of the Washington Consensus and implemented them.
Of course the recommendations are undertaken in the hope of revitalizing the Indonesian economy. Some of the recommendations have worked and benefited Indonesia.
However, most of the benefits have gone to First World countries or their companies, or those who see Indonesia as a huge and potential market. One may question, for example, whether the amendment of intellectual property rights law is due to concerns for Indonesia in this field or it is because Indonesia became a member of the WTO? Indonesia's market has been open widely to foreign goods and services. Significant trade barriers no longer exist. If there are entry barriers or unprotected rights they are mostly due to the inability of the central government to impose policy on local governments or due to weak law enforcement.
All these steps have made Indonesia more and more integrated with international economic policies. Hence, when PM Gordon Brown stated that the Washington Consensus is over, a big question now awaits Indonesia: what will be the fate of Indonesia?
Can Indonesia free itself from First World international economic policies? Can Indonesia free itself from direction by international financial institutions? Or will Indonesia continue to be dependent on global economic policies made in the First World countries or through the international financial institutions?
In the context, two main questions can be raised. Have past policy makers made the right policy choice for Indonesia to subscribe to the recommendations of the Washington Consensus? Can donor countries and international financial institutions be held responsible due to the collapse of Washington Consensus?
One thing is for sure. Indonesia cannot return to its position prior to the Washington Consensus. What has been decided in the past must be respected today. Now it will be up to the current and future administrations to make what is in place work to the advantage of Indonesia. Lessons have been learned. In the future policy makers should consider carefully when signing loan agreements. Economic dependency has been encroaching on Indonesia's sovereignty.
Furthermore, when Indonesia becomes a member of certain international agreements, due care must also be performed. Policy makers have to be aware that international agreements have been used by developed countries as political instruments. In the past they have become a tool that replaces colonialism.
In short, policy makers should make policies that will give due regard to national interests. This is by no means an attitude of being opposed to foreign investors, free trade or globalization. This is to say that everything should be benchmarked on what is best for the welfare of Indonesia and its people.
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At the end of the G-20 summit, Former British Prime Minister Gordon Brown stated that the old Washington Consensus is dead. The global financial crisis prompted the leaders of The G-20 to make such a statement.
Since the last 1980s Indonesia has implemented the recommendations of the Washington Consensus. It has done so on both voluntary and imposed bases.
Its adherence has been voluntary since Indonesia's policy makers shared the ideas of the recommendations. It was imposed by the international financial institutions or donor countries when the pace of implementation of those recommendations was seen to be slow or of Indonesia seemed to be reluctant to implement the recommendations.
To avoid the impression of intervening in domestic affairs, imposition occurred through Indonesia's participation in international agreements and Indonesia's economic dependence.
Indonesia ratified the World Trade Organization Agreements in 1994 in order to implement the recommendation of trade liberalization. Indonesia has also amended its foreign investment law of 1967 in order to implement the recommendation of liberalizing inward foreign direct investment.
For the same reason, the government also amended the Company law in 1995, and amended it a second time in 2007. The capital market has been revived and the law of 1958 was amended in 1995.
Furthermore, privatization of state enterprises has been a key element of Indonesia economic reform since the late 1980s. Many state enterprises either went public or entered into joint operation schemes.
The government is deregulating many of its laws and regulations of various business sectors so not to impede market entry of restrict competition. The Banking Law of 1992 allows foreign shareholding of more than 50%. Foreign distribution and retail companies are allowed to operate. In 1999 under the insistence of the IMF through the Letter of Intent, Indonesia introduced the Law on Competition.
In addition, the government has overhauled many of its laws and regulations to give legal security for property rights. The 1996 Mortgage Law and the 1999 Liens over Movable and Intangibles Law have replaced the Dutch colonial laws on pledges.
The Copyright Law, Trademark Law and Patent Law have been amended since 2000. Other new intellectual property rights laws were introduced, such as the 2000 Layout Designs and Integrated Circuit Law, and the 2000 Trade Secrets Law.
Unequal benefit
The above are only a few examples of how Indonesia has subscribed to the recommendations of the Washington Consensus and implemented them.
Of course the recommendations are undertaken in the hope of revitalizing the Indonesian economy. Some of the recommendations have worked and benefited Indonesia.
However, most of the benefits have gone to First World countries or their companies, or those who see Indonesia as a huge and potential market. One may question, for example, whether the amendment of intellectual property rights law is due to concerns for Indonesia in this field or it is because Indonesia became a member of the WTO? Indonesia's market has been open widely to foreign goods and services. Significant trade barriers no longer exist. If there are entry barriers or unprotected rights they are mostly due to the inability of the central government to impose policy on local governments or due to weak law enforcement.
All these steps have made Indonesia more and more integrated with international economic policies. Hence, when PM Gordon Brown stated that the Washington Consensus is over, a big question now awaits Indonesia: what will be the fate of Indonesia?
Can Indonesia free itself from First World international economic policies? Can Indonesia free itself from direction by international financial institutions? Or will Indonesia continue to be dependent on global economic policies made in the First World countries or through the international financial institutions?
In the context, two main questions can be raised. Have past policy makers made the right policy choice for Indonesia to subscribe to the recommendations of the Washington Consensus? Can donor countries and international financial institutions be held responsible due to the collapse of Washington Consensus?
One thing is for sure. Indonesia cannot return to its position prior to the Washington Consensus. What has been decided in the past must be respected today. Now it will be up to the current and future administrations to make what is in place work to the advantage of Indonesia. Lessons have been learned. In the future policy makers should consider carefully when signing loan agreements. Economic dependency has been encroaching on Indonesia's sovereignty.
Furthermore, when Indonesia becomes a member of certain international agreements, due care must also be performed. Policy makers have to be aware that international agreements have been used by developed countries as political instruments. In the past they have become a tool that replaces colonialism.
In short, policy makers should make policies that will give due regard to national interests. This is by no means an attitude of being opposed to foreign investors, free trade or globalization. This is to say that everything should be benchmarked on what is best for the welfare of Indonesia and its people.
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