Scholars have had difficulty characterizing the economic orientation of the contemporary Indonesian state. Following the devastating Asian Financial Crisis (AFC) of 1997–98, the Indonesian government opened up many parts of its economy, and pursued a neoliberal economic model recommended by its lenders, the International Monetary Fund and the World Bank. At the same time, many sectors remained characterized by high levels of state intervention and market distortion. Despite the democratic transition and the new government's pursuit of liberal economic policies to ensure competition, transparency and accountability, old oligarchs and predatory state actors maintained much political and economic power. State capacity has also continued to vary enormously across ministries and regional governments, and problems of coordination and communication mean that different state bodies often pursue contradictory economic policy paths. As a result, since the end of the New Order, analysts have variously identified the new democracy as being “neoliberal” (Aspinall 2012), “quasi-developmental” (Sato 2017), “oligarchic” (Hadiz and Robison 2013), “nationalist” (Patunru and Rahardja 2015), or some combination thereof.
Yet, this chapter argues that over the course of the past decade, a discernible developmental model has (re)emerged. To advance this argument, the study draws upon a body of literature on the “new developmentalism” in middle-income and emerging economies. The new developmentalism is characterized by a normative commitment to an activist state, and a rejection of neoliberalism's blind faith in small government (Khan and Christiansen 2010; Trubek et al. 2013; Schneider 2015; Döring, Santos and Pocher 2017). Economic policy is underpinned by the idea that states should intervene in markets in order to stimulate economic growth, direct industrial upgrading, and ensure economic redistribution. The new developmentalism is heterodox and flexible, and state activism is supplemented by selective support for aspects of an orthodox and liberal economic strategy. It is a paradigm associated with emerging economies such as China, and often Brazil (at least during the first decade of the 2000s), where activist states seek to transform their country's comparative advantage, and graduate to a higher-income status.
Aspects of this model have deep roots in Indonesian history. But, a more self-conscious developmentalist agenda re-emerged during President Susilo Bambang Yudhoyono's second term in office (2009–14). The chapter suggests that under President Joko “Jokowi” Widodo, the new developmentalism has crystallized further and, arguably, become a defining feature of Indonesia's political economy.