B.J.

HABIBIE TRANSITION TIME & ABDURRAHMAN WAHID

(GUS DUR) GOVERNMENT

In this particular paper, the writer will give a brief explanation about the
Indonesia’s condition in economy during the presidency of Habibie and Abdurrahman
Wahid. Habibie’s presidency was experiencing a multidimensional crisis that was
inherited by Soeharto’s presidency. After the Asian financial crisis took place in 1998,
Indonesia was one of many Asian countries who suffered a great crisis, start from the
economy until politic that was being marked by the downfall of Soeharto’s 30 years
autocratic regime.

Since then, Habibie was taken over the position and started to make some
restoration, including the economy that was in a great devastation. Many efforts were
done by him, but still there were a lot of things that needed to be done. Afterwards,
Abdurrahman Wahid came up as the next president. Almost the same thing like what
Habibie did, Abdurrahman Wahid made few continuations that was firstly taken as
initiatives to make economical restoration during Habibie’s presidency.

In the next part of this paper, brief explanation will be given for each
presidency. Start from the how was the condition going on, the dynamics, the progress
that had been made and the effect on the society after the policies were implemented.

The Habibie’s Presidency: Transition Period after Multidimensional Crisis

“The basis of any modern economy is in their capability of using their renewable
human resources. The best renewable human resources are those human resources
which are in a position to contribute to a product which uses a mixture of high-tech.”

( BJ Habibie, 1998.)1

President Habibie, aeronautical engineering, became the third president (not

being selected in the voting mechanism) of Republic of Indonesia after succeeded
President Soeharto, in 1998. It was not a good situation at his first-day office,

1
www.bbc.co.uk accessed in January 27th 2011 at 21:39
1
especially during in crisis time. Habibie was Soeharto’s vice for 1996-2001 periods.
But the Asian financial crisis that crashed Indonesia financial system, made Soeharto
and his regime, fall back, after revolutionary movement by the element of the peoples.
Habibie just lead only less than five years, as like the minimum period in the basic
constitution, UUD 1945.

As being Soeharto’s Vice, Habibie found himself a very difficult time to gain
trust from the people. Most of people claimed that Habibie must be cleared, as another
New Order’s regime. People thought that Habibie would make and create the same
policies just like what Soeharto’s did, such as, a very depending on foreign aid, and
also the practice of KKN (Corruption, Collusion, and Nepotism) in the government.
The dubious is not come from domestic only, but many foreign investors who were
feared about the security and instability condition in Indonesia. Because Indonesia,
besides another South East Asian Countries, crashed not just in the economy sector,
but also, social, and political became chaos at that time. Moreover, much people saw
that Habibie is an aeronautical engineer; he is an expert on that. But people, during
that time, thought that they need a leader, as to restore the condition after crisis. An
economist is the better one than the technocrat. Peoples also thought that Habibie
didn’t have any capabilities to restore the condition especially in economy, politic,
and social sector.

But those are just self-proclaiming by the particular groups of peoples.

Habibie, in another hands, contribute a good enough, in our point of view, for the
economical sector, financial, and also the mechanism for foreign aid. In this paper, we
try to explain about Habibie’s contribution for this country during his period as the
President. And also we will give the statistic data about the condition of Indonesia’s
economics at that time, 1998-1999.

President Habibie held office until elections were held under new rules in June
1999. As President, Habibie introduced a number of reforms including liberalisation
of the press and deregulation of political parties. As part of a program agreed with the
IMF, many market distorting regulations and monopolies were abolished. More
significantly, he oversaw legislation to devolve substantial powers from the central
government to the regions. His government also agreed to a plebiscite in East Timor

2
that led to independence for that territory. Civil unrest in various forms continued
however, and there was a damaging financial scandal.2
Habibie has introduced the new mechanism to offer to the public. He gave a
quite portion to local government, that we call decentralization era, to conduct their
own economy, to rule out their own home business. Habibie thought that recalled the
policy to the local government, give the people in the rural area, got a very big access
to the central government. Moreover, Habibie thought that, by letting the local
government to conduct their own economy, such as, have a contract with private,
domestic and foreign institution, made the local government knew how to made
progress for their people.
Habibie has his own paradigm to build the nation’s economy sector. He does
believe that to build the country especially in economical sector, and to progress all
the sector, the needs of high and competent human resources is a pre-condition before
the using of natural resources. He added that, by improving human resources, such as
technical awareness, peoples will use their own mind, their own creativity and their
own competencies to handle natural resources. By increasing human resources, then
the highly technology product, will easily product. And by this phase, it will trigger
the high scale technology scale corporate, established. So, it can be seen that Habibie
use the Top-Down approach to improve national economy by strengthening its own
technology. It cannot be rebuttal, that Habibie is the technocrat, so he will use the
technical approach in order to build national infrastructure.
We do believe that Habibie is a great man. It can be seen by his policy and
approaching style to restore the national condition, after being crashed in Asian
Financial Crisis. But, the other hands, peoples at that time, they need not just a highly
technocrat to restore the country after the crisis. People need the charismatic leader so
that peoples can have their trust on their new leader. Well, it was not an easy time for
Habibie to gain trust from people at that time, besides he was Soeharto’s vice, he also
did not have an adequate experience in economy. We can see that, in his government,
Habibie, still dependent on foreign aid. Some donor institutions such as IMF, World
Bank, and Asian Development Bank, as the primary donor for Indonesia, they decided
to stop to loan the budget for Indonesia, because Indonesia faced internal problems
related to the financial system, for example and more clearly is the scandal of Bank
Bali.
2
Economics in Habibies’ era.pdf, access on Thursday, 27 January 2011.
3
 Those donor institutions decided to stop giving aid to Indonesia, because the
government did not take this case seriously. They really disappointed with the
government, besides the low progress on law, the government also cut the role of
Audit Pricewaterhouse Coopers to do their audit to the private and public institution.
The donors felt that the auditing is the primer or even the first requirements for them
to give the aid. We see that, by stopping the aid, the financial system that shows in the
devise reserves in the central bank (Bank Indonesia), went down significantly. From
US$ 15,74 billion to US$ 15,585 billion. That is indicated that how the government
put a very high dependent on the foreign aid.3
Accurately, President Habibie did not have a better indicator in the economy
sector. At that period, the total foreign debt is about USD 148.097 comprises
government sector for foreign debt USD 75.862 dan private sector for foreign debt
USD 72.235. The foreign debt was increasingly higher USD 21.997 than in 1997
(USD 53.865).
Another indicator that surprisingly happened in Habibie’s era was, many
foreign investors took their investments in Indonesia in a very high number. That
made some private banks, collapse because they did not have any funds anymore.
Many investors though that the condition of economy in Indonesia was trustable.
They thought that, even the donor institutions stop their aid to Indonesia, that was
good enough to show that it was not a good time to invest in Indonesia.
The conclusion is, whether Habibie has a brilliant concept about development
idea through technology improvement, in fact, he could not handle the economy
instability. We also thought that it will be better that the concept of Habibie being
implemented after this country successfully out from the crisis.

Abdurrahman Wahid’s era of presidency : Suffocated yet keep on growing

In the presidency of the fourth president of Indonesia, Abdurrahman Wahid,

Indonesia’s economy was still in a great trouble. This was caused by the inability
from Abdurrahman Wahid and his cabinet in order to get Indonesia out of
multidimensional crisis. In order to realize this, Abdurrahman Wahid aimed his
economic policies to encourage foreign investment aid in accord with IMF

3
www.tempo.com, accessed in Thursday, January 27th 2011 at 22:45
4
agreements, to take steps to strengthen the weak banking and corporate sectors.4 But
these steps were stagnant because Abdurrahman Wahid and his cabinet were
distracted by other crucial issues like conflicts in few areas in Indonesia, the
increasing number of corruption, difficulty in making political reform in military and
battles with parliamentary.

The agreement with IMF was made on January 2000 with specifying
details for policy implementation in financial governance, corporate
and bank restructuring, and privatization.5 Government agencies
were not involved in supervising this newly made policy, so IMF
managed to make a special agency to do this. But, when the
legislature body tried to make amendments in Central Bank Law,
IMF objected because it is afraid that it can jeopardize central bank
independence. Consequently, due to this clash, from December
2000 until September 2001, IMF was only disbursing Indonesia with
only one payment (and was also the lowest disbursement rate ever
given by IMF in the entire 1997 – 2003 period), amounting to $309
million.6
Besides having an agreement with the IMF, Abdurrahman Wahid
also made extensive overseas trips over 90 countries, but this
strategy did not make any significant progress to promote economic
needs in order to make economic stability of Indonesia. The trips
were intended more on how to recover Indonesia’s image among
the global community.
As we may have assumed that the Indonesian economy under ex-President
Abdurrahman Wahid did not progress well and did not make any significant changes.
We may have to look to the causes and the implications that bore the people of
Indonesia during that time. As we learned from the history of economy in Indonesia,
there had been crises in economy and political as well. The transition between
4
http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Indonesia-POLITICS-
GOVERNMENT-AND-TAXATION.html, accessed in January 27th 2011, at 06:50 a.m
5
Leonardo Martinez-Diaz, Pathways Through Financial Crisis : Indonesia (Global Governance 12,
2006), pg. 407
6
In the end, the Fund and the government agreed to leave the amendments to a panel of experts. See
“Rizal Makes Little Progress in Lobbying the IMF,” Jakarta Post, 23 February 2001 was cited by
Leonardo Martinez-Diaz, Pathways Through Financial Crisis : Indonesia (Global Governance 12,
2006), pg. 407
5
Soeharto and Habibie which caused a lot of conflicts and contrasts, made it even more
obvious that the economy situation were changing as well. This can be called as the
meltdown of economy. The past economic crisis is a combination of a banking crisis
and external debt crisis, and it has been sparked by a combination of both external and
internal factors.7 The external factors include: (a) regional recession, currency
realignment, contagion effects, and the loss of business confidence that have induced
capital flow reversal; (b) the abnormal weather phenomena that has seriously affected
food output and agriculture incomes in the rural sector; and (c) negative terms of
trade.
What have been the main elements of Indonesia’s stabilization policy? At a
first glance the stabilization policy appears to be rather conventional. After an initial
period of severe monetary turbulence, the stabilization policy was a mix of monetary
constraint and expansionary fiscal policy.8
Two contradictory trends dominated the economic news in 2000. First, little
progress was made toward banking reform or corporate restructuring, generally
considered key obstacles to returning the Indonesian economy to the steady growth
path of the years before the 1997 crisis. Without a functioning banking system, capital
is not available for potential investors. Without corporate restructuring, the large
businesses remain non-players, their assets held by IBRA, the Indonesian Bank
Restructuring Agency, a government body.9 They are unable to pay their huge foreign
debts, incurred before 1997 when the Rupiah was nearly five times stronger than it is
now, and unable to borrow for new projects as well. For much of the year, Gus Dur
showed little interest in the economy, and was even reported regularly to fall asleep
during cabinet meetings on the subject.
The second trend dominating the economic news in 2000 was, surprisingly, an
economic growth rate for the year estimated at 4.5%-5%. This is nearly twice the
figure predicted at the beginning of the year by most observers, and an amazing
improvement on the 14% contraction of 1998 and the zero growth of 1999. The 2000
growth was moreover evenly spread over all four quarters. To be sure, not all the

7
Anthony L. Smith. Gus Dur and Indonesian Economy. 2001. Singapore: Institute of Southeast Asian
Studies, pg. 25
8
“Indonesia’s Economic Policy under the Wahid Administration” cited by Bambang Kusumanto
9
R. William Liddle. “Indonesia in 2000: A Shaky Start for Democracy” (From Asian Survey, XLI
[January/February 2001]), pg. 208-220
6
economic news was good. Inflation was nearly 10% and the rupiah continued to
depreciate.
Related to the IMF, the implications that Indonesia felt was that Indonesia was
unable to borrow money from international investors unless it pays impossibly high
interest rates.10 The IMF has withheld financial support since December because it felt
the country had not made enough progress on restructuring its economy. As a remedy
for Indonesia's problems, the IMF is calling for greater independence of the central
bank, a speedy privatization of the best banking assets and a ban on borrowing by
regional state authorities. Another implication that happened during the presidency of
Abdurrahman Wahid was that there had also been conflicts between the central bank
and the government, which has been reluctant to hand over greater autonomy to an
institution that oversaw the disappearance of $80 billion during the Asian crisis.
Abdurrahman Wahid cannot be seen as the blame factor of all the causes that
happened during his presidency and his economic legacy. To be fair, Wahid and his
then vice-president, Megawati, did attempt to stabilize the economy. According to the
World Bank, the annual GNP per capita almost halved from US$ 1110 in 1997 to US$
580 in 1999.11 However, even though the Indonesian economy shows signs of
recovery in terms of macro-indicators, the country still faces a huge problem of
poverty.
These are few facts that were happening in Abdurrahman Wahid’s presidency12 :

• Economic life when Abdurrahman Wahid was ruling Indonesia was far more
difficult and harsh. This was caused by the price of basic necessities that kept
rocketing and consequently most of Indonesian people could not afford
recognizing that most of them are living below standard of living.

• The high rate of unemployment kept going up and this was still the
continuation from economical collapse that was inherited from Soeharto’s and
Habibie’s era of presidency

• No progress has been made during his presidency and in fact it was worse.
This was caused due to the domestic and global market that was at the lowest
10
http://news.bbc.co.uk/2/hi/business/1304820.stm accessed in Feb 1st 2011, 10.22 A.M
11
Amir Effendy Siregar. “Indonesia: Democracy, Economic Development and the Media” (FIPP Seoul
2002) pg. 3
12
Ade Komarudin, et al., Trends in Indonesia : Vision for Indonesia’s Future (Vol. 6, May 2001), pg.
2
7
 point. The activity of export and import were listless, so a high national
income cannot be gained.

• There other unfortunate points are: recapitalization programme was uncertain,

index prices were declining and privatization was not able to reach the
targeted levels. These are the continuation from the ineffective implementation
of policies that was supposed to be supervised by the IMF during the economy
recovery.

So, it can be concluded that during his presidency, Abdurrahman Wahid did
not make any significant progress on Indonesia’s economy. Even in the year of 2000,
when he was still ruling, the economy showed signs of being on the way to recovery
with a stronger-than-expected real GDP growth rate of 4.8%, a budget deficit
amounting to only 3.2% of GDP (below the government's target of 4.8%), and a
surprisingly low inflation rate of 3.75%13, but these progresses still did not make any
significant change for the people. Most of them are still living excruciatingly because
everything seemed to be really hard to be accessed and afforded. Abdurrahman Wahid
may successfully promote pluralism and freedom in public’s life, but still, it should
have been realized that stable and progressive economy must be positioned as the
prior achievement.

13
http://www.nationsencyclopedia.com/Asia-and-Oceania/Indonesia-ECONOMY.html accessed in
January 27th 2011, at 08:50 a.m
8
BIBLIOGRAPHY

Book/PDF :

Economics in Habibies’ era.pdf

Effendy Siregar, Amir. “Indonesia: Democracy, Economic Development and the Media”.2002. FIPP:
Seoul

Kusumanto, Bambang. “Indonesia’s Economic Policy under the Wahid Administration”

L. Smith, Anthony. Gus Dur and Indonesian Economy. 2001. Singapore: Institute of Southeast Asian
Studies

Liddle, R. William. “Indonesia in 2000: A Shaky Start for Democracy”. 2001. Asian Survey

Komarudin, Ade, et al., Trends in Indonesia : Vision for Indonesia’s Future. 2001

Martinez-Diaz, Leonardo.Pathways Through Financial Crisis : Indonesia. 2006. Global Governance

Website :

http://www.nationsencyclopedia.com/Asia-and-Oceania/Indonesia-ECONOMY.html

http://news.bbc.co.uk/2/hi/business/1304820.stm

http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Indonesia-POLITICS-
GOVERNMENT-AND-TAXATION.html

www.tempo.com

www.bbc.co.uk