Much of the investment climate focuses on the national level. In an increasing number of countries this makes little sense, since the political drivers of change and conditions for investment and growth differ enormously between regions or localities. This applies in particular to Indonesia. It provides a unique opportunity to decipher some of the factors that contribute to better local governance and economic performance. The world’s fourth largest country has undergone a remarkable transition over the last 10 years. After the Asian crisis and General Suharto’s resignation in 1998, Indonesia’s government put an end to thirty years of authoritarian rule and implemented far-reaching political and administrative reforms. In 1999, Indonesian citizens were called upon (for the second time in history) to elect their national and regional representatives in a truly democratic way. At the same time, the national government enacted decentralisation laws that fully dispersed authority for local taxes and services to more than 400 district governments. This made Indonesia – at least in administrative terms – one of the most decentralised countries in the world.
This ‘big bang’ decentralisation presents an important opportunity for researchers interested in the political economy of the investment climate. Under Suharto’s regime, policy reform was orchestrated, almost entirely, by a small group of national elites. This ensured coherence and certainty, but also suppressed public-private reform initiatives on local levels. Today, the situation is a completely different one. Indonesia’s rapid regime change has created a large variation in political economy features – including interest group constellations, leadership qualities, and local checks and balances. This pronounced district-level variation presents a rare opportunity to explore effects of different types of public-private cooperation on local investment and growth.
More information is available from the Centre for the Future State website.
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