ThewordeconomyMakingtradepolicyinanewdemocracyafteradeepcrisis:Indonesia1.IntroductionHowdodeepcrisesaffecttradepolicyindevelopingcountries?Theconventionalhistoricalviewisthateconomiesturninward,inanattempttoprotectfirmsandemployment,torestoretradebalances,andinresponsetotheperceivednegativeconsequencesofglobalisation.Asacorollary,itisarguedthatgovernmentsfinditeasiertoreformduringgoodtimes,ofstrongeconomicgrowthandlowunemployment.However,overthepasttwodecades,analternativeviewhasarisen,basedontheobservedbehaviourofcountriesincrisis.ThisiswhatLittleetal.Termedthenewliberalisation.Thatis:thebalanceofpaymentscrisiscreatestheshockenvironmentinwhichtradeliberalizationandotherradicalpolicychangesbecomepossible.LalandMyintdevelopedthisargumentmoregenerallywiththeircrisishypothesis,thatmajorreformsareoftentriggeredbyasignificantevent:amajoreconomiccrisis,amilitarydefeat,thecessationofexternalsupportoranaturaldisaster.Thepoliticaleconomyexplanationsforthischangedbehaviourarecomplex,andincludebothgenericandcountry-specificfactors.ThepurposeofthispaperistoaddtoourunderstandingofthenexusbetweentradepolicyandcriseswithreferencetoastudyoftheIndonesianexperiencesincethelate1990s.Afterthreedecadesofmostlyrapideconomicgrowth,accompaniedbyliberalisationinthelate1960sandmid-1980s,thecountryexperiencedadeepeconomicandpoliticalcrisisin1997-98.in1998,theeconomycontractedbyover13percent,thegovernmentsignedontoahighlycontroversialInternationalMonetaryFundprogramme,andthe32-yearruleofPresidentSoehartocametoanabruptend.Authoritarianpoliticalstructuresgavewaytoaweakenedstate,anewandfragiledemocracyandmajorchangesinpoliticalandinstitutionalstructures.Ourmainconclusionisthat,perhapsunexpectedly,theIndonesianeconomyremainedlargelyopenoverthisperiod.However,insomeinstances,holdingthelineontradereformhashadmoretodowiththepersonalitiesinvolvedintradepolicyratherthantheinstitutionalprocessesforformulatingthatpolicy.Thus,opennessisprecarious,andnotdeeplyembeddedineithersupportiveinstitutionalisedpolicy-makingstructuresorwidespreadpopularopinion.Moreover,barrierstodomestictradehaverisensignificantlyandnowposeasubstantialthreattothecountryeconomicintegration.Thislatterissuehasreceivedrelativelylittleattentionintheliteratureontradepolicyandcriseswherecentralgovernmentauthorityisgreatlyweakened.Weareunawareofasubstantialliteratureonthissubjectforotherdevelopingcountries,addressingbothinternationalanddomestictradepolicy.ButweconjecturethattheIndonerienexperiencehaswidegeneralapplicability.Thisisthereforeanissuethatotherdevelopingcountriesandinternationaldevelopmentagencieswillneedtoaddressinpost-crisisenvironments.Therestofthepaperisorganisedasfollows.Section2providessomecontextonIndonesia,includingbriefreviewsoftheevolutionoftradepolicy,thesevereeconomiccrisisof1997-98,andthenewpost-crisispolicy-makingframework.Section3examinesinternationaltradepolicysincethecrisis,whileSection4investigatesthechangingdomestictradepolicyregime.Section5providesananalysisofthebureaucracyill-fatedattempttodevelopanewtradepolicylawinthisnewpoliticaleconomyenvironment.Section6sumsupourargumentsanddiscussessomebroaderimplication.2.THEINDONESIANCONTEXTA.TradePolicyunderSoehartoItissometimesobservedthatIndonesiawasmadebyGodforfreetrade.Thisisareferencetoitsstatusastheworldlargestarchipelagicnation,itsporousinternationalborders,13000...
