When Susilo Bambang Yudhoyono became president in 2004, one of the biggest challenges he faced was the implementation of an ambitious regional autonomy program that had been initiated in 1999 by the first president of the post-Suharto era, B.J. Habibie. Famously described as ‘big bang’ decentralisation because of its sudden introduction and its comprehensive scope, regional autonomy commenced in practice in 2001 and was intended to be a key pillar of Indonesia's democratisation process. It encompassed a series of decentralisation measures that ranged from the devolution of political authority to the restructuring of fiscal relations between Jakarta and the lower administrative tiers in the regions (Aspinall and Fealy 2002; Hill 2014). In 2004, just before Yudhoyono took office, these initial steps were refined and complemented by additional measures, notably the introduction of direct elections for local executive positions such as governor, mayor and district head (Erb and Sulistiyanto 2009).

Throughout Yudhoyono's time as president, the implementation of regional autonomy received rather mixed reviews. On the one hand, scholars and activists, as well as many central government officials, were highly critical of decentralisation due to its failure to accelerate regional economic development or to broaden the range of actors represented in local politics (Buehler 2010, 2014a; Hadiz 2010). On the other hand, local elites and the Indonesian public at large enthusiastically embraced decentralisation. While the elites primarily relished the abundance of new patronage opportunities, many ordinary Indonesians regarded decentralisation as one of the defining features of their young democracy because it allowed them to realise their local aspirations through the creation of new administrative entities and, most importantly, the direct election of their local leaders.

By the end of Yudhoyono's presidency, however, direct elections for local leaders had come very close to being abolished and democracy in Indonesia was on the brink of suffering a major setback. In September 2014, less than a month before Yudhoyono was due to leave office, a new regional election law was passed, stipulating a return to indirect elections for governors, mayors and district heads. Only four months later, though, the law was overturned and direct elections were reinstated. Significantly, President Yudhoyono played a pivotal role in both the abolition and the prompt restoration of direct local elections.

President Susilo Bambang Yudhoyono came to office at a pivotal time for rule-of-law and anti-corruption reforms in Indonesia. The two institutions at the forefront of these reforms were already established by the time he was inaugurated on 20 October 2004, but they had not been operating long and were still finding their feet. The first, the Constitutional Court, was established just one year earlier, on 15 October 2003. The second, the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, KPK), had been working since mid-December 2003. The Jakarta Anti-Corruption Court (Pengadilan Tindak Pidana Korupsi, Tipikor Court), which tried all of the KPK's defendants, handed down its first decision in March 2005, well after Yudhoyono took office.

During Yudhoyono's presidency, the Constitutional Court and the KPK firmly established themselves within a largely unaccommodating political environment, and then actively and professionally performed their functions, which have been critically important to overall post-Suharto reform. As we shall see, both institutions had a relatively slow start during Yudhoyono's first term, with the KPK choosing to target small fry and the Constitutional Court invalidating unconstitutional legislation. However, as Yudhoyono's second term commenced, both institutions became perceptibly emboldened. The KPK began to target powerful politicians, while the Constitutional Court adopted more aggressive decision-making practices, such as amending constitutionally questionable legislation rather than simply invalidating it.

Although the KPK and the Constitutional Court became very popular with the public, they also faced significant obstacles, put in their path mainly by those whose interests were adversely affected by their work. For example, several KPK commissioners were arrested by police or prosecutors who either were themselves under KPK investigation or appeared to act at the behest of others being investigated. The paucity of evidence to support these arrests led to speculation that the commissioners had been framed. Sections of the national parliament—many members of which had been investigated or prosecuted by the KPK— threatened to cut the commission's budget and powers, and to reduce the potency of the anti-corruption courts. The Constitutional Court faced two efforts—one through a statute passed in 2011 and the other through a government regulation in lieu of law (peraturan pemerintah pengganti undang-undang, perppu) issued by the president himself in late 2013—to rein it in and to ensure that allegations of judicial misconduct could not be handled internally.

After a decade in power, President Susilo Bambang Yudhoyono left Indonesia a more prosperous country than any of his five predecessors. He pledged to be a president who would be ‘pro-growth, pro-jobs, pro-poor and pro-green’. That is, he staked his leadership credentials on rapid socio-economic development. At one level, one could argue that he achieved this goal, as the Indonesian economy enjoyed moderately strong growth during his tenure. If one digs deeper, however, it becomes clear that there are contrasting narratives on his economic record. According to one viewpoint, he inherited a fragile economy and political system, and he consolidated both, to the point where Indonesia is now the world's tenth-largest economy (as measured by purchasing power parity) and a robust democracy. An alternative narrative recognises these achievements but also laments Yudhoyono's timidity on key economic reform issues, notably fuel subsidies, the infrastructure deficit, economic nationalism and inequality. These narratives need to be assessed in the light of a range of contextual factors that take into consideration the weight of public expectations in Indonesia, the regional and global economic environments and comparative assessments of the economies of neighbouring states or of the BRIC states (Brazil, Russia, India and China).

In this chapter I examine the performance of the Indonesian economy during Yudhoyono's decade in power (2004–14), asking four main questions. First, how did the economy perform according to conventional economic yardsticks? Second, how does this record compare with earlier periods of Indonesian economic development, and with those of comparable countries? Third, how have contextual factors affected Indonesia's economic track record? Fourth, to what extent can one draw a direct causal connection between the economic outcomes and the Yudhoyono presidency, in the sense that the outcomes were a result of initiatives and decisions of the president himself?

Drawing tight causal connections between an administration and a country's economic outcomes is a hazardous exercise given that many factors are not directly amenable to presidential control. This is obviously so in the case of global economic conditions, but domestically too there are many ‘veto players’ who can frustrate economic policy-making and reform. With this caveat, two broad themes inform this analysis. First, President Yudhoyono presided over a decade of moderately strong economic growth.

In the twilight of his presidency, Susilo Bambang Yudhoyono spoke reflectively to his personal staff about his place in Indonesian history and on the world stage. He saw himself as holding the exalted position of one of his nation's great presidents, if not the greatest. Moreover, he was convinced that he bore comparison with other leading contemporary international figures, such as Barack Obama, Tony Blair, David Cameron and Angela Merkel. He saw these leaders as peers because, like them, he had not only had a major impact on his own country but also become a significant player in global affairs.

Yudhoyono's lofty opinion of his own attainments stands in contrast to the widespread opinion of scholars and political commentators that he was a good, but not a great, president (Bachelard 2014; Howes and Davies 2014). His achievements have often been referred to and it is only necessary to refer briefly to them here. He is credited with stabilising and consolidating democracy in Indonesia; facilitating the fight against corruption; overseeing the peace process in Aceh; providing policies that led to high economic growth; and supporting law enforcement agencies in their counterterrorism operations.

Arguably, the principal reason that Yudhoyono was not a better president was that he was too hesitant and indecisive—in a position that required the very opposite of these traits. One of the most common terms used by Yudhoyono's detractors to describe him was ‘peragu’, a waverer or doubt-ridden person. And indeed, he lacked the gumption to take bold decisions that is the mark of a great leader. A vivid early illustration of Yudhoyono's indecisiveness comes from 2002 when, as coordinating minister for political and security affairs in Megawati Sukarnoputri's government, he was tasked with overseeing peace negotiations with the Free Aceh Movement (Gerakan Aceh Merdeka, GAM). A senior diplomat on the Indonesian negotiating team recalled that the initial discussions with Yudhoyono went well: ‘We presented him with a quite complex brief but were surprised at how quickly he grasped the details. He was very impressive intellectually’. The problems began, however, when the team asked for guidance on their negotiating position. Yudhoyono requested a succession of option papers over the following weeks but repeatedly failed to give instructions. Matters came to a head as the negotiators were about to depart for meetings with GAM in Geneva.

Outcomes in the general area of job creation, poverty and income distribution were ambiguous during the Yudhoyono years. Jobs growth flip-flopped between rapid expansion of informal jobs in President Yudhoyono's first term, and then of formal employment during the resources boom in his second term. On the positive side, rates of poverty declined almost continuously throughout his period in office, and policy in this area was one of the big achievements of his presidency. But these improvements for the poor were not reflected in a better distribution of income. In fact, inequality worsened strikingly during Yudhoyono's second term of government.

Although strong and sustainable jobs growth can be associated with both declining poverty and improvements in income distribution, in Southeast Asia rapid economic growth has quite often been associated with rising inequality (Booth 1999). Indonesia appeared to be the exception during the Suharto period but there are good reasons to expect that this may not be the case now. While poverty alleviation is widely accepted as a legitimate focus of government policy, middle-class interests have more influence in a democratic polity, and these will not always favour rapid employment growth or more equitable fiscal arrangements. Moreover, organised labour did not support policies that could have achieved a more rapid expansion of blue-collar jobs in Indonesia in the early reformasi period, and subsidised energy and other fiscal arrangements have mainly benefited the better-off, facilitating growing inequality (Manning 2010; Dartanto 2013).

President Susilo Bambang Yudhoyono projected a greater concern for and a deeper knowledge of policy alternatives in areas affecting the welfare of the poor than any of Indonesia's first three reformasi presidents, B.J. Habibie, Abdurrahman Wahid and Megawati Sukarnoputri.1 This chapter will show that he oversaw considerable progress in social programs oriented towards overcoming poverty, and that he personally supported some major innovations in this field. At the same time, the president's extreme caution in policy-making in areas affecting the poor, his aversion to conflict and his need to take political calculations into account all meant that his government avoided making some difficult decisions that could have benefited lower-income groups much more.

During his ten years in office, President Susilo Bambang Yudhoyono spoke on many occasions about his commitment to improving the social welfare of Indonesian citizens. In a speech delivered in Bali in December 2012, he described four key priorities: eradicating poverty; providing access to decent jobs and economic opportunities (which he called ‘inclusive growth … through financial inclusion’); making basic needs available to and affordable for the poor; and providing a social safety net for people living below the poverty line (Yudhoyono 2012). These goals echoed the three pillars of socio-economic development that Yudhoyono had announced at the start of his tenure in 2005: economic growth, jobs growth and poverty reduction, to which he added environmental protection in 2007.

This chapter analyses the approaches and programs that Yudhoyono initiated during his ten years in power to advance these goals. We focus on education, health and social assistance, looking at the targets Yudhoyono set for his government, the strategies he implemented to achieve his goals and whether he met his targets. We conclude that the outcomes fell far short of expectations because the president's approach became ensnared in three sets of challenges that he never managed to resolve satisfactorily.

The first challenge was to reconcile the competing demands on the budget of massive subsidies and an expanding number of poverty alleviation programs. The president maintained numerous subsidies, notably fuel subsidies, that ate away at the fiscal space for other agendas, including social welfare. At the same time, he initiated various poverty alleviation and social protection programs for individuals, households and communities. Unfortunately, these programs were rolled out unevenly across Indonesia, and the ad hoc nature of many of them limited their long-term impact. In the end, Yudhoyono's strategy to alleviate poverty was mainly limited to disbursing social assistance, neglecting long-term strategies to free poor people from poverty and strengthen the competitiveness of the economy.

The second challenge was to lay down a coherent, strategic plan for social welfare and implement it across Indonesia's many competing ministries and government agencies. Under Yudhoyono the government produced ambitious plans for national development, economic growth and poverty reduction.

In October 2014, the Indonesian National Army (Tentara Nasional Indonesia, TNI) held the biggest military parade in the nation's history, complete with F16s whistling overhead, battleships and hundreds of military vehicles. This display of force was a farewell to Susilo Bambang Yudhoyono, who left behind a legacy of military modernisation and an emphasis on professionalism (Faridz 2014). From the podium Yudhoyono declared:

A few months earlier, on 1 July 2014, the anniversary of the founding of the Indonesian National Police (Polisi Republik Indonesia, Polri), the president spoke of his hopes to transform Indonesia's police into a ‘world-class’ force. Modernisation of equipment and technology was crucial to developing that professionalism. Apart from terrorism, he said, ‘your job is to bust criminals. Protect the community. That's it’ (Firdaus 2014). Professionalism through modernisation was the cornerstone of Yudhoyono's ten-year governance of the security sector.

Military professionalism was a longstanding theme in the president's intellectual history. But what did he mean by it? In 1990, on the precipice of the New Order's long decline, Yudhoyono presented a paper on military professionalism to the Army Staff and Command College (Sekolah Staf dan Komando Angkatan Darat, Seskoad) (Yudhoyono 1990). In it he rejected the liberal preoccupation with civilian supremacy over the military as a Western import. He argued that officers of the Indonesian Armed Forces (Angkatan Bersenjata Republik Indonesia, ABRI) should be professional, not liberal-democratic, and that ABRI's professionalism did not limit the force to one neat category, ‘soldier’, ‘nation-builder’, ‘leader’ or ‘state functionary’. ABRI was all these things and as long as it adhered to professionalism, morality, security expertise, solidarity, leadership, unity and closeness to the people, then it would remain the only institution able to deliver security and stability amidst development. Honna (2003: 77–9) described Yudhoyono's idea of professionalism as a catch-all concept directed against the threat of social change.

On most aspects of Susilo Bambang Yudhoyono's performance over his ten-year presidency, history will likely be kind—his cautious, indecisive, middle-of-the-road approach will earn more positive than negative accolades in areas of economic growth, foreign policy and even probably, at the end of the day, corruption. One area that is an unmitigated loss for him in terms of ‘legacy points’, however, is his administration's performance on religious freedom and minority rights. Especially during his second term, minority groups such as the Ahmadiyah, Shi'a and even Christian groups experienced sustained and repeated attacks—increasingly involving the use of violence. Indonesia's much-lauded international reputation for tolerance and pluralism has been tarnished significantly.

The score card on this issue is so straightforward that this chapter will not focus its analysis on arguing that minority rights and religious politics in Indonesia have regressed over the past decade; others have already effectively, and repeatedly, made that point. Human Rights Watch (2013: 6), for example, declared that

Similarly, the United States Commission on International Religious Freedom (2014: 125) concluded that

Numerous scholarly and media articles have also noted with concern that Indonesia's famed religious tolerance appears to be on the retreat (Fealy 2011; Jones 2013; Harsono 2014).

Rather than reiterate these arguments, this chapter will focus on the role of the president himself in at best allowing, and at worst contributing to, the deterioration of minority rights and the politicisation of religion in Indonesia. Yudhoyono was elected in 2004 on a platform of anti-corruption and forward-looking progress for Indonesia. By the end of his first term, however, significant problems in Indonesia's religious relations were emerging. Nevertheless, he was re-elected in 2009 with a landslide victory and a huge mandate for reform (Timberman 2009).

INTRODUCTION

The past six years have been a memorable experience for Vietnam. After a long period of continuous high growth and macroeconomic stability till 2007, Vietnam pitched itself to foreign investors as one of the most attractive investment destinations. The accession to the World Trade Organization (WTO) further consolidated optimism about Vietnam's growth prospects. However, after a short period of overly optimistic expectations in the first half of 2007, Vietnam had to start worrying about the overall economic situation. The accumulated inflationary pressures from continuous credit and public investment expansions, in combination with external shocks such as rising energy and rice prices, and inappropriate policy responses to a surge in capital inflows in 2007, sent the country into macroeconomic turbulence and saw it struggle to formulate a proper stabilization policy. A policy package to deal with macroeconomic instability has been implemented since March 2008. And whilst the macroeconomic situation somewhat improved by the end of 2008, the country suffered serious adverse impacts from the global financial crisis and recession. The policy stance then had to be reverted to prevent an economic downturn, via coordinated stimulus measures. Economic growth subsequently recovered but was accompanied by increasing macroeconomic instability. The situation necessitated a further switch in macroeconomic policies towards curbing inflation and restoring macroeconomic stability, which has been a dominant policy trend since early 2011.

This chapter will look into Vietnam's key experiences with macroeconomic policy management since the WTO accession in 2007. In doing so, the chapter portrays the main patterns of macroeconomic performance and related policy responses. The key focus is on the three sub-periods of macroeconomic instability or economic downturn that forced Vietnam to switch the policy stance. This will be the basis to determine the key lessons of policy management since 2007.

The remainder of the chapter is structured as follows: Section 2 provides an overview of Vietnam's macroeconomic performance and policy changes since the WTO accession in 2007. Section 3 analyses the issue of macroeconomic instability and the policy responses implemented in late 2007 to 2008. Section 4 focuses on the economic downturn and stimulus package implemented in Vietnam in late 2008 to 2009. Section 5 then summarizes the key policy responses by the Government of Vietnam to macroeconomic instability and structural problems since 2011. Finally, Section 6 draws out some key lessons from Vietnam's experience with macroeconomic stabilization since 2007.

INTRODUCTION

Amid the global financial turbulence, the economy of Indonesia posted an annual average growth of above 6 per cent between 2008 and 2012, except in 2009. This was arguably among the most stable growth performance among the regional economies of East and Southeast Asia. The strength of domestic demand has indeed been a primary driver of the stable growth performance. In contrast to the major ASEAN (Association of Southeast Asian Nations) economies, exports of Indonesia amounted to less than 25 per cent of its GDP, compared to Malaysia at more than 80 per cent and Thailand at more than 60 per cent in recent years. Private consumption contributed between 44 and 49 per cent of the quarterly year-on-year GDP growth in 2012 (see Figure 2.1). Indonesia has also seen investment pick up in recent years, and the country's resilient growth in 2008–12 can also be attributed to high commodity prices and capital inflow surges.

Despite the large domestic demand base, the uncertainties with the advanced economies, particularly the United States and the European Union, had negatively affected and exposed a number of apparent weaknesses with the Indonesian economy. A couple of these vulnerabilities are worth highlighting as they are arguably structural in nature. First is the country's banking sector's exposure to cross-border bank-lending activities. Like the rest of the ASEAN economies, the banking sector assumes a vital role in overall financing activity in the local economy. Among the major ASEAN economies, Indonesia arguably adopts the most open banking sector regulation. Majority foreign ownership, as high as 100 per cent, has long been adopted following the 1997 East Asian crisis. Furthermore, foreign banks are allowed to enter the local industry both as a branch or a subsidiary. The high interconnectedness of the local banking sector to the global banks exposed the local economy to increasingly volatile cross-border bank-lending flows as evident during the deleveraging of the European banks in 2011.

The second is current account weaknesses. The persistent current account deficits in recent years have raised concerns over macroeconomic stability, causing depreciation pressures on the local currency. The root cause of the current account deficit has been attributed to costly long-standing energy subsidies and the heavy reliance on commodity exports.

Southeast Asia entered its worst post-1997 recession against the backdrop of the global economic breakdown in 2008–9. Southeast Asian countries were able to decouple themselves from the ripple effects of the global financial shocks and bounced back strongly in 2009–10, thanks to their growing domestic markets, limited financial exposure to the crisis epicentres, and timely stimulus packages. The major Southeast Asian countries like Singapore, Malaysia and Thailand in 2010 exhibited a V-shaped recovery with staggering GDP growth of 15.0, 6.5 and 6.2 per cent, respectively, from a sharp contraction in 2009, while Indonesia, the Philippines and CLMV (Cambodia, Laos, Myanmar, Vietnam) countries demonstrated exceptional resilience. More recently, however, Europe's worsening financial and banking crisis and a sluggish recovery of the United States have dampened Southeast Asia's growth prospects. According to the latest estimates by the Asian Development Bank (ADB), the escalating global economic uncertainties have seen Southeast Asia's growth forecast revised downwards to 6.6 per cent in 2012 and 7.1 per cent in 2013, from the earlier estimates of 6.9 per cent and 7.3 per cent, respectively.

The current global economic circumstances underscore the risks of disproportionate dependence on exports as a crux engine of growth and the unsustainable features of overproduction in developing Asia, upheld by undue consumption in the United States and the European Union. There is a need, therefore, for Southeast Asia to bolster domestic demand and to put greater emphasis on intra-regional sources of economic potentials. For the time being, the region is in dire need of an optimal mix of macroeconomic and trade policy measures that differ by country, underpin domestic demand, and revive the domestic economies. More importantly, a new phase of Southeast Asia's economic policy needs to address several socio-economic issues which constitute a root cause of the imbalances — including a lack of social security, underdeveloped and incomplete intra-regional financial markets, rapidly increasing income inequality, and limited competition among service products, and put in place a shield against emerging challenges such as a shift of demands towards East Asia, managing capital flows, escalating intra-regional trade linkages, and the mounting significance of intra-industry trade and trade in differentiated products.

Nevertheless, the quest for concrete regional actions and coordination has been plagued by the complication of individual economies and the diverse levels of economic and cultural development, on top of the widely varied states of statistical accuracy and, not least, secrecy.

INTRODUCTION

The Asian Development Bank Institute (ADBI) drafted a report on ASEAN 2030, towards the borderless economic community. The objective of ASEAN 2030 is to become Resilient, Inclusive, Competitive, and Harmonious, or, a “RICH” ASEAN. To reach such a goal in 2030, we need to re-evaluate past ASEAN economic performance and policy implementations. ASEAN has gone through two recent economic and financial crises in 1997/8 and 2008/9. The ASEAN economies were hard hit by these crises. ASEAN has also moved in the direction of a borderless region — the process began in 1992; the next milestone will be in 2015, with the Economic Community. Given the significance of strengthening economic linkages, ASEAN+3 has been brought into the discussion. Several measures have been implemented to deal with the economic and financial crises, such as the establishment of the Chiang Mai Initiative Multilateralism, the Asian Bond Market, and the ASEAN Macroeconomic Research Office.

To achieve economic stability and growth, more areas of cooperation are needed, such as monetary policy, micro-prudential policy, and macro- and resolution. This chapter argues that some policy areas necessary for RICH to be realized are missing.

THE PAST ASEAN CRISES AND RESOLUTION

Since its inception in 1992, ASEAN has gradually become highly integrated with the international supply chain and international production networks. The foreign direct investment (FDI) and portfolio investment within ASEAN have increased significantly, not only from the region but also from the rest of the world due to the prosperity of the ASEAN economy.

The 1997/98 Asian Financial Crisis (AFC) alerted the countries of East Asia to the need for better management of their macroeconomic policies and financial systems. The AFC was caused by a combination of mismanagement by the authorities and financial liberalization. Poor monetary monitoring procedures, the defence of the fixed exchange rate system with limited international reserves, and the reversal of capital flows were among the causes of the AFC. Due to economic interdependence in the region through financial liberalization, all of the ASEAN economies were hard hit by the AFC. The monetary and macroeconomic policies were to be revised, and regional policy cooperation was designed to prevent any future crisis. As a result, a macroeconomic monitoring and surveillance system was formed at the ASEAN level.

INTRODUCTION

Export-led growth strategies have by and large been seen as a key engine of economic growth among the Asian economies. Persistent account surpluses achieved through a wide array of policy pushes such as import substitution and export orientation since the 1950s have allowed these economies to attain economic development at a pace otherwise unachieable. A great deal of research has confirmed that export-led growth has delivered enormous benefits to the Asian economies in terms of staggering economic growth, accelerated poverty reduction, rapid productivity growth, sharp surges in income per capita, and outward-looking industrialization (see, for instance, Thangavelu et al. 2009; Greenaway and Kneller 2007; Hsieh 2002; and Aw et al. 2000, among many others).

Nevertheless, the adverse impacts of the global financial crisis in 2008–9 have made it excruciatingly clear that excessive dependence on external demand and persistent current account surpluses as a prime driver of economic growth are highly perilous. On the one hand, the sudden collapse of export demand from the United States and the eurozone appeared to be a crucial transmission mechanism through which the global economic meltdown propelled the Asian economies into a sharp recession. On the other, persistent current account surpluses, together with inadequate domestic demand (i.e., consumption and investment), bear the brunt of responsibility for global economic imbalances, which are in turn a root cause of the global financial crisis. Table 7.1 demonstrates this point by presenting the trends of current account balances as a share of GDP since the 1990s. It can be observed that the Asian economies, on average, consistently ran current account surpluses amounting to 4–6 per cent of GDP. These figures are well above the of 0–1 per cent averaged among advanced economies, and the deficits of 2–3 per cent for all countries in the World Bank's World Development Indicators (WDI) database.

Public and policy debates on reducing dependence on external export demands, as well as implementing global economic rebalancing in Asia, hinge on two policy options: domestic financial reforms and increasing social safety net expenditure (Servén and Nguyen 2013; and Adams and Park 2009). The idea is that the lack of a well-functioning financial market within the region imposes financial constraints on households and firms which are ultimately translated into inadequate domestic consumption and investment.