Academic journal article Southeast Asian Affairs

Rampant Corruption

Academic journal article Southeast Asian Affairs

Rampant Corruption

Article excerpt

Under authoritarian rule, the power of the Indonesian state was strong, and it was concentrated in the hands of Soeharto. The spoils distribution system was used to co-opt the élite. When there was enough money to distribute, and the economy was healthy, the situation appeared to be stable. However, when the economic crisis set in the weakness of the system began to reveal itself.

Some Indonesian observers had predicted that the Soeharto government would end in the late 1970s, as corruption was already rampant then. Yet the government remained for another twenty years. Apart from authoritarian rule, what were the other reasons that contributed to the duration of the New Order?

In fact, the legitimacy of the New Order was based on growth and development. For almost three decades, Indonesia experienced healthy economic performance measured by any conventional economic indicator: there was gross national product (GNP) growth, large foreign investments, and low inflation rates. Massive foreign capital and short-term loans poured into Indonesia.

Once there was a crisis of confidence, however, investors withdrew their short-term loans, and the banking system collapsed as banks were unable to pay debts. The country was thrown into turmoil. In the view of Harvard Professor Jeffrey Sachs, Indonesia "was paying the price for increased reliance on foreign capital to finance domestic investments, and for the erosion of export competitiveness by rapid capital inflows. …

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