SOUTHEAST ASIAN STUDIES: technocracy

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Vol. 5, No. 1, TADEM

Contents>> Vol. 5, No. 1 

The Rise and Fall of Virata’s Network: Technocracy and the Politics of Economic Decision Making in the Philippines

Teresa S. Encarnacion Tadem*

* Department of Political Science, College of Social Sciences and Philosophy, 2nd Floor Bulwagang Silangang Palma, Roces Ave., cor. Africa St., University of the Philippines, Diliman, Quezon City 1101, Philippines

e-mail: teresatadem[at]gmail.com

The influence of a technocratic network in the Philippines that was formed around Cesar E. A. Virata, prime minister under Ferdinand Marcos, rose during the martial law period (1972–86), when technocracy was pushed to the forefront of economic policy making. Applying concepts of networks, this essay traces the rise and eventual collapse of Virata’s network to a three-dimensional interplay of relationships—between Virata and Marcos, Virata and the International Monetary Fund and World Bank, and Marcos and the United States. Virata’s close links to social, academic, US, and business community networks initially thrust him into government, where he shared Marcos’s goal of attracting foreign investments to build an export-oriented economy. Charged with obtaining IMF and World Bank loans, Virata’s network was closely joined to Marcos as the principal political hub. Virata, however, had to contend with the networks of Marcos’s wife, Imelda, and the president’s “chief cronies.” While IMF and World Bank support offered Virata some leverage, his network could not control Imelda Marcos’s profligacy or the cronies’ sugar and coconut monopolies. In Virata’s own assessment, his network was weakened when Marcos’s health failed during an economic crisis in 1981 and after Benigno Aquino’s assassination in 1983. In those crises, Imelda Marcos’s network and Armed Forces Chief of Staff General Fabian Ver’s faction of the military network took power amidst the rise of an anti-dictatorship movement. The United States’ switch of support from Marcos to Corazon Aquino sealed the demise of Virata’s network.

Keywords: Philippines, Cesar E. A. Virata, technocracy, Ferdinand Marcos, networks

An important network that has emerged in the Philippines is that of technocracy. It was seen in the 1960s during the pre-martial law period (1960–72), but its significance rose rapidly during the martial law period (1972–86), when technocracy was thrust into the forefront of the country’s economic policy making. In general, the attraction of technocracy to government leaders generally emanates from the system the latter represent, “in which technically trained experts rule by virtue of their specialized knowledge and position in dominant political and economic institutions” (Glassman et al. 1993). This paper argues that the politico-economic clout of the technocracy is based also on the strength of its network(s) in connecting with the important centers of power in society. I use Albert-Laszlo Barabasi’s (2002) definition of network:

not just a simple interconnection between two objects, but one which comprises of a complex series of links, nodes, hubs, and clusters, all in varying configurations and density, and differing in strength in terms of their linkages with each other or within themselves.

My article will look into how Barabasi’s concept has been applied

to the study of politics . . . and how these concepts help us understand the dynamics of coalition, compromise or contention among and between actors, parties, movements, and institutions. (Abinales and Onimaru 2010, 1)

I will apply the concept of networks in looking at factors that have strengthened as well as hindered a particular technocracy network in the Philippines, i.e., the network of Cesar E. A. Virata, who during the martial law period was viewed as the “chief technocrat.” He was President Ferdinand Marcos’s minister of finance, and later on prime minister. The paper aims to trace the evolution of the political and economic clout of Virata’s technocracy network as well as the factors that caused the collapse of the network. In particular, it will highlight how Virata’s technocracy network was thrust into power by a three-dimensional politico-economic relationship among the following networks: Virata’s relationship with the leadership, i.e., Ferdinand Marcos; his relationship with the International Monetary Fund and World Bank; and Marcos’s relationship with the United States. These relationships intertwined with each other and highlighted the success as well as the collapse of the Virata technocracy network.

This paper hopes to contribute to the writings on Philippine technocracy as well as the networks approach in Philippine politics. As I write this article, I have not come across any writings on the Philippine technocracy using the political networks approach. This may be understandable, as writings on Philippine technocracy have been sparse and have generally used the political economy framework1) or the social/cultural approach.2) This article, therefore, seeks to contribute to the literature on the networks approach in the following manner: (1) it applies this approach to the study of technocracy; (2) it uses political network analysis as opposed to the general trend of major analytical studies in the fields of sociology, anthropology, and communications; (3) it seeks to introduce a Philippine perspective in particular, and a Southeast Asian perspective in general, to the study of network analysis vis-à-vis the more dominant Western-oriented approach; and (4) the article’s study of network analysis is applied also to politics in stable situations, i.e., “normal politics” under the authoritarian Marcos regime from a technocrat network perspective.

I Defining the Technocracy and Their Network(s)

Technocrats are situated in a crucial network in society, which is the middle class. The middle class is also referred to as the “intermediate class” in the development process and politics. This network is crucial in the Third World because “middle class personnel occupy the niches of the state apparatus” (Johnson 1985, 15). The particular network of the technocrats is the new middle class, which came about according to C. Wright Mills after World War II, “with the new technocratic-bureaucratic industrialist capitalist economy” (as cited in Glassman 1995, 161). The middle class in the Third World is largely a “new middle class” consisting of technocrats who are salaried employees of large corporations, government bureaucrats, as well as managers and service workers (Glassman 1995, 350).

This new middle class, which the technocracy is part of, is defined also by neo-Weberians,

who make clear distinctions between the capitalists and the middle-class. For Mills, the new middle-class is the result of the demise of the entrepreneurial capitalism and the rise of corporate capitalism with its army of managers, technocrats, marketers and financiers. The middle-class is therefore the skilled workforce of capitalism and expands with it. (Robison and Goodman 1996, 8)3)

The power of the technocracy network is, therefore, found in its middle-class roots, which paved the way for the education and consequent expertise of its members as well as the position it occupies in the state apparatus.

This is clearly seen in Cesar E. A. Virata’s middle-class family background.4) His father was a mathematics professor at the University of the Philippines who later became the acting president of the university. He is related to Emilio Aguinaldo, a Philippine national hero. He actually describes himself as coming from a “poor” family despite owning hectares of land.

One could say that Virata’s description of himself as belonging to the “middle class” is best seen in the context of which class the technocrats perceived themselves to belong to in Philippine society. Placido Mapa Jr., who served in several positions during Marcos’s martial law regime—such as chairman of the Development Bank of the Philippines (1976–79), director general of the National Economic Development Agency (NEDA) and Socio-Economic Planning, and president of the Philippine National Bank (PNB) (1983–86)—viewed himself as belonging to the upper class. This was understandable, as his mother’s side belonged to the very wealthy sugar landed elite clan of the Mapa-Ledesma-Lizares while his father’s side belonged to the wealthy landed elite family of the Alunans. These families originally hailed from the province of Iloilo and migrated to Bacolod, Negros Occidental.5) As was the case with the Philippine elites, Mapa attended the boys’ schools of De La Salle—run by the La Salle brothers—for his elementary and high school education. For college he went to the Jesuit-run Ateneo de Manila University. Like the other Philippine elite scions whose families paid for their graduate studies in the United States, Mapa went to the United States for his higher studies. He obtained a master’s degree in Economics from the Jesuit-run St. Louis University in 1957 and a doctoral degree in Economics from Harvard University in 1962. His class background was unlike that of Virata, who did not have the means to go to private school or a family wealthy enough to pay for his graduate studies in the United States.

Virata, however, would not be considered lower class like another Marcos technocrat, Manuel Alba. Alba, who was the dictator’s NEDA deputy director general for planning and policy from 1975 to 1981 and minister of budget from 1981 to 1986, considered himself as coming from the lower class, i.e., from a very poor family. As he pointed out, his father was a municipal treasurer in the lower ranks of the government bureaucracy and his mother was a plain housewife. He was the fourth in a family of 11 children, and the family did not have any landholdings. Like Virata, he was able to take advantage of the public school system, where he graduated as valedictorian in both elementary and high school. He remembers vividly how he went to school without shoes as his family could not afford them, and how his family members as well as other relatives all pooled their resources to see him through school. His educational background enabled him to enter the elite University of the Philippines (UP), where Virata also studied. For Alba, going to UP was a great achievement as it was considered an iconic institution and being a UP alumnus was a “ticket to everywhere.”6)

After obtaining a bachelor’s degree in Business Administration from UP, he worked in the country’s top accounting firm of SyCip Gorres Velayo (SGV). It was after he passed the Certified Public Accountant exam that he joined the faculty of the UP College of Business Administration (CBA) as an instructor. Through the UP CBA he obtained a fellowship from the US Agency for International Development to pursue graduate studies in the United States. In 1961 he obtained an MBA with a specialization in Marketing and Transportation from the University of Minnesota. He later received another fellowship to pursue a PhD in Management Science and Business Administration (with Marketing, Economics, Transportation Management, Operations Research, and Social Psychology as specialized areas) at Northwestern University, which he completed in 1967.

In the case of Virata, his middle-class background enabled him to go to UP, where he gained his technocratic expertise. His ties to the university’s academic network were further reinforced when, after graduating with a degree in engineering, he taught at the UP College of Business Administration. His being a UP faculty linked him to another important network of US government fellowships; Virata was able to access a fellowship from the Mutual Security Administration, a forerunner of the US Agency for International Development, which sent him to pursue a master’s degree in Business Administration with a major in Industrial Management at the Wharton School, University of Pennsylvania. This opened up another vital network for Virata, which was the US academe.

When he came back to the Philippines, Virata added another important network to his social, academic, and US networks. He was recruited into SGV, which brought him into the business community network. He worked full time in SGV until he was called back to teach at UP in December 1965. He went on to become a professor as well as dean at the UP College of Business Administration. Virata then combined two networks that complemented each other, academe and the business community.

II The Technocracy Network during the Pre-Martial Law Period

What brought Virata into the technocracy network was his recruitment into government, which was facilitated by his academic network. The latter began in December 1965, when Rafael Salas7)—who was then UP vice president under President Carlos P. Romulo—invited him to join the Finance Transition Committee and the Agriculture Transition Committee, where he later became a member of the Presidential Economic Staff (PES). For Virata, it was Salas who had a major influence on Marcos with regard to the latter inviting technocrats and academics to join the government.8) Virata’s academic network, therefore, linked him to the government, with no less than President Ferdinand Marcos personally inviting him to be part of his administration. Marcos represents an important hub in the government network for the technocracy. As pointed out by Barabasi, the role of the hub is to connect different communities together, and these hold the system together (Barabasi 2010). Moreover, hubs are defined as the central point of activity, interest, or importance. The most highly connected nodes are the hubs (Barabasi 2009, 192). President Marcos was the hub in government that held together the different political, economic, and social networks of Philippine society, which the technocracy network was part of.

II-1 Redefining the Technocracy Hierarchy

Virata’s entry into the government’s technocracy network may be described as the “new kid on the block” effect, which is most present in networks. This is because there were already other technocrats who were part of the key economic policy-making bodies, namely, the Project Implementation Agency (PIA) and the National Economic Council (NEC). The pre-martial law technocracy hierarchy had Armand Fabella as the director of the PIA and Mapa as his deputy. Fabella, like Mapa, belonged to the upper class of Philippine society, and his family owned coconut lands in Pagsanjan. Their wealth was enough for his father to study at the University of Chicago. Fabella’s father became the first Filipino Certified Public Accountant in the United States, where he added to his wealth through engagement in the stock market.9)

Virata, on the other hand, was Mapa’s deputy when the latter was the head of the PES, which replaced the PIA. Mapa’s other deputy was Alexander Melchor. Mapa said that since he could depend on his reliable PES deputies, he could spend most of his time outside the office meeting with congressmen.10) It was, however, to Virata that Marcos gave the important position of secretary of finance in 1970 and not to his two seasoned technocrats, Fabella and Mapa. One probable reason for this was that Fabella and Mapa originally came from the Macapagal administration, and when Marcos came into power Fabella had to leave as he was Macapagal’s PIA director. Another reason in Mapa’s case could have been that since he was Fabella’s deputy and could stay on with the help of endorsements from family friends and relatives, Marcos may have been wary of him as he came from the upper class, specifically the influential sugar bloc. This bloc wielded a power that Marcos may not have been comfortable with. Moreover, Mapa’s family had a political track record, with his grandfather and father having held political positions in government. As pointed out by Mapa, his grandfather was a member of the first National Assembly during the time of President Manuel Quezon, which was the Commonwealth period, and his father was secretary of agriculture and natural resources under President Elpidio Quirino (1948–53).11)

As for Fabella, his entry into the Marcos administration was facilitated in 1969 by Benjamin “Kokoy” Romualdez, the younger (and said to be favorite) brother of First Lady Imelda Marcos, who saw the need for Fabella’s technical expertise. Romualdez asked Fabella to help out in the Marcos government in a program put together by the executive assistant of Vice President Fernando Lopez. He later became a consultant with the Central Bank.12)

As noted by Onofre D. Corpuz, Marcos’s minister of education, as well as by Virata and Mapa, Marcos was not comfortable with technocrats who were “politically threatening.” They observed this with Marcos’s executive secretary, Salas, who was considered a brilliant “technopol,” i.e., a person who had the skills of a technocrat as well as a political strategist and who belonged to the sugar landed elite class. They felt that Marcos was not comfortable with him. Sensing that he did not have Marcos’s support in his political ambitions, Salas left the government to head the UN Agency for Population. He was succeeded by another technopol, whom Marcos was also not comfortable with. This was Alejandro Melchor, a graduate of the United States Naval Academy in Annapolis. Corpuz and the other technocrats felt that Marcos was politically threatened by Melchor because the latter was close to the US military. Thus, Marcos abolished the position of executive secretary. As is clear, Marcos was not the type of person who was willing to take chances even with the best and the brightest. Salas was very careful about this—about the rule of power to never compete with your boss—very early in the game. Nevertheless, Marcos still felt threatened by him.13) According to Horacio “Boy” Morales Jr., who was identified with the “Salas boys”—those who worked closely with Salas—Marcos did not like technopols or political technicians. As for the likes of Virata, Morales felt that they were not true technocrats because they were academicians.14) Morales believed that since Virata had no political ambitions and did not belong to the upper class like Fabella and Mapa, he was not a political threat to Marcos. In addition, Virata was able to catch the attention of Marcos by having a quality that the latter liked: they both shared the same economic concern of boosting foreign investments in the country as well as encouraging an export-oriented economy.

II-2 Consolidating the Virata Technocracy Network

Virata transformed from being a node in the technocracy network into being a hub. He consolidated his relationship with the technocrats of the Macapagal period—Fabella and Mapa—albeit transforming it into a different kind of relationship where he was now “senior” to them because of his position as secretary of finance. According to Mapa, it was Virata who offered him a position in government when telling him about the possibility of the Philippines occupying a seat on the World Bank Executive Board. He offered the position to Mapa and asked him whether he would be interested in going to Washington. Mapa thought it was a rare and excellent opportunity, which he said he grabbed; and so the Philippine government nominated him.15) Thus, from 1970 to 1974 he was alternate executive director in the World Bank and for a short while also alternate executive director of the IMF.16)

Virata added other technocrats to his network. These included Vicente T. Paterno as chairman of the Board of Investments (BOI) in June 1970. The BOI was established to provide greater incentives for foreign investment. Another technocrat whom he recruited was Gerardo Sicat, who replaced Filemon Rodriguez as the head of the NEC in 1970. Like Virata, Sicat did not agree that the path to development was through heavy industrialization and protectionism. He was also supportive of trade and export industries.17) Their other allies in government were Placido Mapa Jr. and Armand Fabella, who shared a belief in Virata’s development paradigm. Like Mapa, Fabella was open to dealing with the World Bank and IMF when he was the director of the PIA during the Macapagal administration, and he continued with this role during the pre-martial Marcos administration.

II-3 Working Closely with Virata

The technocrats saw the importance of working closely with Virata. For example, Mapa as finance secretary would usually communicate either with Virata or with Central Bank Governor Gregorio Licaros when it came to policy decisions. But many times, he said, he would take his own initiative and just let Virata and Licaros know what he had done. He felt he could do this because he was confident of his relationships with them. In general, they shared the same perspectives in economic planning.18) Thus, Mapa pointed out that in his position as alternate executive director of the World Bank and IMF, he no longer received direct instructions from Marcos. He got all his instructions from Virata, Licaros, or Marcos’s Executive Secretary Alejandro Melchor. He added that if he needed any instruction, he would also route it through them. However, Mapa clarified that although he had a history of communicating directly with Marcos, as a matter of protocol when he was in the World Bank he would be careful to route communications through Virata, Licaros, or Melchor.19)

The technocrats generally agreed with Virata’s suggestions, as well as vice versa. The exception was Sicat, whom Virata described as a hard-core advocate of liberalization, unlike Virata, who saw the need to make compromises to assuage the powerful and contentious Filipino families in the business community. An example of this was Sicat’s opposition to the concept of pioneer and non-pioneer industries, which Virata instituted with other fellow technocrats. The measure was intended to find some ways of defining which areas foreign investors could freely venture into and which would be preserved solely for Filipino interests.20) This was to temper the animosity of Filipino entrepreneurs against foreign competition. The policy stipulated that industries that had not been in operation or established in the Philippines would be categorized as “pioneer.” They could be 100 percent foreign-owned. But industries that Filipinos had started and were operating—for example, cement—would be called “non-pioneer.” Virata had to correct Sicat’s view and explain to him that the purpose was to avoid conflict between foreign and domestic investments.21) Paterno also shared Virata’s views. As he pointed out, Sicat and he were not attuned to each other as Sicat was very much concerned with liberalization and market forces while Paterno was more in favor of guided industrial development. For Paterno, market forces were fine for countries that were already established but not for countries like the Philippines, which still had to build up their industrial capability.22) Both Virata and Paterno point to their engineering background as a cause for their differences with Sicat, who Virata notes was a pure economist.23)

Virata, therefore, became the hub of this network that defied a scale-free model and had no place for dominant latecomers, i.e., where all nodes were identical (Barabasi 2010). His importance is seen more in a competitive environment where fitness plays a role, as represented by Virata’s economic perspective, which was shared by Marcos. For Virata, such a concern was brought about by his SGV or business community network when he traveled around the country while working for SGV. This network brought him also to Taiwan and Korea, whose development very much impressed him.24) The SGV node of the business community network, and therefore of Virata, gave him a certain development perspective that Marcos also shared. The technocracy network of which Virata was a hub was able, therefore, to link with the crucial Marcos hub of the government network. As pointed out by Barabasi (2009, 64) hubs are special:

They dominate the structure of all networks in which they are present, making them look like small worlds. Indeed, with links to an unusually large number of nodes, hubs create short paths between any two nodes in the system. . . .

Through the Marcos hub, the Virata technocracy network was linked with another hub of the government sector, which was the Philippine Congress. This was because Virata’s initial task as a government official was to help the government formulate and shepherd the passing of the Investment Incentives Act of 1967 to attract more foreign investment into the Philippines. This would be the base for the importance of Virata’s technocracy network to Marcos and would give him a prominence over the other technocrats, some of whom had been there even before he came. As pointed out, between “two nodes with the same number of links, the fitter one acquires links more quickly” (ibid., 95). By 1970, Marcos had appointed Virata as secretary of finance and a member of the Monetary Board of the Central Bank of the Philippines.

Virata’s economic perspective as well as the task assigned to him by Marcos opened up two crucial hubs for him: the World Bank and the International Monetary Fund. Marcos would appoint Virata as the point person in trade negotiations and representations in these international financial institutions and Consultative Group25) meetings.26) By 1970, he also served as the Philippine governor to the World Bank and the Asian Development Bank.

This opened a vital economic network for Virata, which was propagating an economic paradigm of trade and investment liberalization under a free market regime. Virata’s technocracy network acquired a truly central position in the larger network of economic decision making, which Barabasi describes as reserved for nodes that are simultaneously part of many large clusters (ibid., 61). Virata’s technocracy network wittingly or unwittingly became an important source of support for the IMF and World Bank. This was highlighted when Virata as head of the NEC replaced the traditionally nationalistic Hilarion M. Henares and his technocracy allies, e.g., Alejandro Lichauco. Henares’s NEC during the Macapagal administration (1961–65) was at loggerheads with the economists in the influential PIA, who were pressing for an open-door policy for foreign investments and foreign loans, mainly from the IMF. Marcos’s victory in the 1965 presidential election against Macapagal signaled the marginalization and consequent downfall of the nationalist technocracy network of Henares-Lichauco and the domination of Virata’s open-door economy technocracy network. What characterized Virata’s network, therefore, was the power law degree distribution of a scale-free network, which predicts that most nodes have only a few links, held together by a few highly connected hubs (ibid., 71). Virata was connected to two very influential hubs: the Marcos and the IMF/World Bank hubs.

II-4 Technocracy and the Networks of Political Allies

The nationalist technocratic network, however, would continue to have allies in the Philippine Congress network. This consisted of no less than then Senate President Gil Puyat, who was also the head of the National Economic Protectionism Association (NEPA), an important network of nationalist economists, businessmen, and entrepreneurs. Marcos would, however, provide Virata with the network of allies he needed in Congress; these came mainly from Marcos’s Nacionalista Party, a potent political hub. This was the hub that helped Virata and Marcos pass the Investment Incentives Act. Its major members for this purpose were Senator Jose W. Diokno, head of the Senate Committee of Economic Affairs; Senator Jose Roy, head of the Committee on Finance and chair of the Ways and Means Committee; and Congressman Lorenzo Sarmiento, head of the House of Representatives Committee on Economic Affairs, who helped craft the investment bill in 1967. They were also working on replacing the Basic Industries Act of 1961.27) Virata worked closely with Senator Diokno in particular. They succeeded in having the bill passed despite opposition from Senate President Puyat. Virata relied on the political acumen of Diokno and Sarmiento in talking to their colleagues in Congress and in strategizing on how to have the bill passed. Marcos, therefore, had influential party mates in Congress who shared his, Virata’s, and the United States’ economic perspective. One of the major results of the Investment Incentives Act was the reversal of laws against foreign participation in the country’s vital industries such as rice and corn and other forms of agribusiness. The act also enticed foreign oil companies to enter into service contracts for the exploration and development of Philippine oil fields (Bello and Rivera 1977, 115). In 1970, the Export Incentives Act was tackled and passed. The act allowed foreign-owned firms to export 70 percent of their manufactured goods. All these laws paved the way for the entry of foreign investor networks into the country, something that the IMF and World Bank as well as the US government wanted.

II-5 The Marcos Hub and the Virata Network

Marcos, as Philippine president, was an important connector, which is considered to be a significant component of the social network. Connectors are generally described as “nodes within an anomalously large number of links which are present in diverse complex systems . . .” (Barabasi 2009, 56). For the Virata network, this may explain why Marcos was a crucial hub, particularly because of the support Virata received from Marcos’s political allies in Congress. Despite the allies in Congress, Marcos’s support for Virata’s technocracy network would prove to be most vital as it had to rely on the leadership’s political acumen against the nationalist network. The latter network was represented by, among others, Senator Lorenzo Tanada, who challenged the entry of Dole Corporation as a major investor in agriculture in the country by declaring the control by transnational corporations of large tracts of agricultural land as unconstitutional. Local capitalists such as Senate President Puyat of Puyat Steel and Manilabank informed Virata that he would not approve the Philippines’ entry into the General Agreement on Tariffs and Trade prior to the Kennedy Round in 1968. For the United States, the General Agreement on Tariffs and Trade was an avenue by which it could further liberalize the world economy. In general, Virata said, government policies to allow the entry of foreign companies—such as Lonestar, a cement company from Texas—were met with hostility by their local competitors.28)

For Virata, there was an explicit division of labor between technocrats and the political leadership. To seek his guidance, the technocrats would tell Marcos, “Mr. President, you know, we don’t know politics.”

He would reply, “Do your best in your own field, and you let me know whether we can implement it politically. I will help you in that aspect.”29)

As far as Virata was concerned, Marcos could deliver. Thus, the strength of Virata’s technocracy network seemed to hinge on political support from Marcos. For Virata, one of the reasons why Marcos could deliver was his political network in Congress, particularly with regard to what Virata considered to be the most powerful bloc, the sugar bloc. Virata wanted to impose a 20 percent export tax, which he wished to get passed by Congress as an anti-inflationary measure and to finance government deficit. He knew he could not do it if the sugar bloc did not agree. But he said that Marcos had some room to maneuver as the bloc was not monolithic and Marcos was able to forge alliances with a particular faction in the bloc represented by Roberto Benedicto—Marcos’s classmate at the UP College of Law—and the Montelibanos, among others. Marcos also used his powers as president to persuade the other protectionist blocs in Congress to go along with the government’s policy of opening up the economy. For example, with regard to logging concessionaires, Marcos could withhold their license to log if they did not support his government policy. Virata viewed Marcos as a strong politician whom people would call a “dictator,” and that was even before he declared martial law.30)

The pre-martial law period, therefore, highlights the dominance of Virata’s technocracy network, which consisted of like-minded technocrats such as Mapa, Fabella, Sicat, and Paterno. Given his position as secretary of finance, Virata was head and shoulders above the rest, and they worked closely together with him. They were strongly supported by the network of Marcos’s political and economic allies in Congress and the business community respectively. What further boosted this support was backing from US networks, particularly the IMF and World Bank hubs, which agreed with the economic policies Marcos and Virata’s technocracy network were pushing for. What brought them all together was the shared economic vision of liberalization and the pursuit of an export-oriented industrialization policy. This enabled them to reinforce their relationship with their political and economic allies in the political and business communities.

The Virata network’s prominence, therefore, cannot be described by the scale-free model whereby the node’s (in this case Virata’s) attractiveness was determined solely by its number of links. What emerged as more important was the Virata node’s fitness to play a role in a competitive environment (Barabasi 2009, 95). In this way, the Virata node compared to the node represented by nationalist economists, e.g., Hilarion Henares, had the advantages of a fitness connectivity product that is able to link with a higher product, i.e., Marcos and the IMF/World Bank; this, therefore, made it more attractive than the node represented by the nationalist economists. Because the Virata node was able to acquire links following a power law, it was able to develop into a hub as its network displayed “fit-get-rich” behavior, meaning that the “fittest node will inevitably grow to become the biggest hub” (ibid., 103).31)

III The Virata Technocracy Network during the Martial Law Period

Given this context, it was not surprising when Fabella observed that Cesar Virata was a rising star.32) For Marcos, however, the importance of Virata’s network was confined mainly to the economic sector and did not cover the political arena, which apparently was more important for Marcos. This was seen in his declaration of martial law, which did not involve any of the technocrats. The political network that worked with Marcos in the declaration of martial law was the “Rolex 12.” This was the collective name for 12 of the closest and most powerful advisers of President Marcos during the martial law years in the Philippines from 1972 to 1981.33) The origin of the name Rolex 12 came from a widespread story that each associate received a Rolex watch from Marcos himself, although this was allegedly proven to be untrue.34)

As Virata pointed out, none of the technocrats were part of Marcos’s inner circle, which planned the declaration of martial law. Virata also pointed out that “nobody among us said we wanted martial law.” He emphasized, “I had not heard any of my colleagues say that they wanted martial law.”35) This was understandable because in terms of economic policy making, Virata saw that Marcos could basically get what he wanted and thus there was no need for martial law to pursue the government’s economic policies. In other words, Marcos seemed to have the networks he needed to obtain his objectives. The United States, which had strongly supported the Virata technocracy network, was also kept in the dark with regard to Marcos’s declaration of martial law. Nevertheless, the United States supported it, and this gave the go-ahead to the IMF and World Bank to continue extending loans to the Philippines through Virata. Thus, the two important hubs that gave the Virata network leverage were in alliance with each other with regard to the declaration of martial law.

During the martial law period, Marcos would be the hub that kept the different and important networks together. Marcos was then a one-person hub supported by various networks, chief among which were the technocrats, the military, and his relatives and cronies. These were also said to be the three legs that propped up the martial law regime, a.k.a. Marcos. All the crucial political and economic networks, which included the United States, had to deal with Marcos. As for Virata’s network, it was tasked by Marcos with continuing to deal with the IMF and World Bank. Virata’s network did not have links with Marcos’s military network.

Thus, for Virata’s network, it did not seem a problem that they were kept in the dark on the planning of martial law. The new regime consolidated Virata’s technocracy network in implementing, wittingly or unwittingly, the IMF and World Bank’s development paradigm of trade and investment liberalization under a free market regime albeit under an authoritarian capitalist state-led economy. With the abolition of Congress, martial law made it easier for Virata to pass economic policies such as the amendment of the Tariff Code, which allowed the Philippines to enter into the Tokyo Round of Trade Negotiations in 1974.36) This was because of the abolition of the power of the nationalist network in Congress. As Virata pointed out, before the declaration of martial law numerous bills were bundled up in Congress but this was no longer the case under martial law, as the bills were cleared by the decreeing powers of the president.

III-1 The Strength of Virata’s Technocracy Network

The strength of Virata’s technocracy network was that it continued to be connected to Marcos as its major hub and from this hub it was given the authority to deal with the IMF and World Bank hub. With this structure, Virata did not see martial law as undermining his network’s clout, although for him there was really no need for martial law. Nevertheless, it did not seem to matter for the Virata network whether economic decision making was being undertaken under an “elite” democracy or an authoritarian regime. What seemed to be important to Virata was that he continued to have the backing of Marcos. And more important, this did not hamper the Philippine government’s and his relationship with a crucial network, i.e., the IMF and World Bank.

Martial law, therefore, reinforced the relationship, as Virata’s importance to Marcos continued with the role he played as the government’s point person with the IMF and World Bank. For Virata this role was understandable as he believed that international institutions had better two-way communications with technocrats; he pointed out that technocrats were better qualified than politicians to understand development policies. He and Marcos continued to share the perspective that they needed the IMF and World Bank for further trade liberalization as signified by the Philippines’ entry into the General Agreement on Tariffs and Trade.37)

It was through Virata’s network that the IMF and World Bank were able to take a more aggressive stance in influencing the economic policies of the martial law regime. This was seen in 1979, when the two institutions initiated the “industrial reform program” in the country as the last stage of Philippine export-led industrialization. This plan consisted of the following policies: drastic dismantling of protective tariffs, withdrawal of subsidies from local enterprises, creation of better incentives for foreign investments, and establishment of more export-processing zones to enable multinational corporations to take advantage of low-cost Filipino labor (Bello and Kelly 1981, 3). One network that benefited was the foreign business community, particularly the American Chamber of Commerce (Business International Research Division 1980).

As for Virata’s relationship with the technocrats in his network, it was further strengthened during the martial law period. As Mapa narrated, when he was appointed president of the Development Bank of the Philippines (DBP) in 1976, when its previous head—Leonides Virata, the uncle of Cesar Virata—passed away, he said that he would follow what Leonides had instituted, which was to informally consult and coordinate or just exchange notes with his fellow heads of economic agencies every Friday over lunch. His fellow heads included the secretary of finance, the Central Bank governor, the secretary of commerce, and the heads of the PNB, DBP, NEDA, and Budget. Mapa felt that Marcos valued their opinions. He observed that the people Marcos had working for him—for example, other Cabinet members and other heads of institutions—would be attuned to his thinking. As Mapa pointed out, what they would try to do first among themselves was to avoid—and to help each other overcome—conflicting positions. Thus, it helped that they got together regularly to coordinate with each other.38)

As Mapa noted, there were many policies that were not under their control. He noted that Virata would try to talk to President Marcos about some things but would not always get what he wanted. In some instances, they found themselves on a collision course with First Lady Imelda Marcos. The projects of the First Lady that they opposed included her Cultural Center of the Philippines and the Light Railway transit.39)

In Fabella, Virata recognized important traits that could be of use to Marcos. Fabella said that under the Macapagal administration he was a Cabinet member, but under Marcos’s martial law regime he was designated in 1980 as chairman of the Presidential Reorganization Committee. Fabella noted that while he was doing the reorganization, Virata and other members of Marcos’s Cabinet had the habit of asking him how the proposed changes would affect their respective departments. Noticing this, Fabella said it was Virata who told him that he should be present at all the meetings. For Fabella, this was a tremendous opportunity to find out how things were going. In relation to this, Fabella credits Virata with maintaining some form of balance; he perceived the others as “thieves.” It was for the above reasons given by Mapa and Fabella that they and other technocrats expressed their respect for Virata.40)

The Virata network during the martial law period was further boosted by the entry of two other technocrats into government; these were Virata’s former students at the UP CBA, Jaime Laya and Manuel Alba. Alba was originally brought into the Marcos government by Onofre D. Corpuz, whom Marcos appointed as president of the University of the Philippines from 1968 to 1971 and minister of education from 1975 to 1979. Alba was Corpuz’s student in his UP undergraduate years. After Marcos won the 1965 presidential elections, Corpuz set up the Development Academy of the Philippines, which was to provide training for career professionals with the aim of strengthening the bureaucracy. Corpuz also had Alba appointed as executive director of the Presidential Commission to Survey Philippine Education from 1971 to 1973 and founding executive director of the Educational Development Program Implementing Task Force. The task force was created to implement all foreign-assisted projects in education. In 1973, Alba left government to take on the post of director of the East-West Center, Technology and Development Institute, in Honolulu. In 1975, Sicat asked him to be the deputy director general for planning and policy at NEDA.41) This ushered in Alba’s entry into Virata’s technocracy network. Laya was also pulled into government by Sicat. He served as Sicat’s NEDA deputy director general in 1974. He was also concurrently the deputy governor of the supervision and examination sector at the Central Bank. In 1975 he was appointed as minister of budget, and in 1981 he was appointed as governor of the Central Bank. From 1984 to 1986 he was the minister of education, culture, and sports. While in government, Mapa said that Laya worked closely with Virata and Melchor.42)

III-2 Hindrances to Virata’s Technocracy Network

The links of Virata’s network with Marcos and the IMF/World Bank were not enough to establish the network as a “winner-take-all” one with no potential challengers. The winner-take-all network as described by Barabasi (2009, 103) refers to one in which the fittest node grabs all links, leaving very little for the rest of the nodes. Such networks develop a star topology in which all nodes are connected to a central hub, in this case the Marcos hub. However, Virata’s network faced several challenges.

One was that Marcos compartmentalized his technocrats.Virata had his own network, composed mainly of former UP-based technocrats whom Virata nurtured, such as Sicat,43) the first director general of NEDA; Alba, minister of budget; Laya, governor of the Central Bank; and those who worked closely with him, such as Mapa44) and Paterno.45) What they had in common, with the exception of Mapa, was that they all came from UP. Virata was the mentor of Alba and Laya in the UP College of Business Administration. He also sent them abroad to pursue their PhD. These people composed Virata’s network, which was responsible for accessing loans from the IMF and World Bank. The recruitment of technocrats into Virata’s network can be described as what Barabasi refers to as prior acquaintanceship, which

allows directors to vouch for prospective recruits. Therefore, the small-world dynamics help the creation of a powerful “old boy network”, or corporate elite, that has unparalleled influence in economic and political life. (ibid., 206)

The Virata network had to operate together with other technocrats who had their own networks and worked independently of the Virata network. One was the network of Roberto Ongpin,46) minister of trade and industry. His strength seemed to lie in his purported ties with the Chinese community, where he was known to have allegedly operated the “Binondo cartel,” which was regarded as a de facto Central Bank. Virata did not approve of Ongpin’s Binondo cartel, although he agreed with Ongpin’s support for the Association of Southeast Asian Nations’ 11 industrial projects that Paterno did not agree with. Paterno preferred to support small and medium-scale industries. He also was not too comfortable with the big loans being given by the IMF and World Bank, as he believed they would only breed corruption.47) The other network was that of Geronimo Velasco, minister of energy. This network included the contacts Velasco made during his stint as the highest salaried person in the Philippines when he was an executive in Dole Philippines. Marcos, thus, made sure that the economy was not left in the hands of one technocrat’s network, i.e., Virata’s. This was also a way of dividing and conquering the technocrats. Ongpin and Velasco, therefore, can be described as “new kids on the block” who were not accounted for in a scale-free model, just like Virata. That is, they had “intrinsic qualities that influence the rate in which they acquire links in a competitive environment” (ibid., 95). More important, they were able to establish a direct and strong link with the potent Marcos hub.

Aside from the disagreement between Virata and Paterno with regard to the 11 ASEAN industrial projects, Virata also had disagreements with Minister for Planning Sicat, who was in favor of a full-blown export-oriented industrialization of the Philippines, unlike Virata. This was exemplified even during the pre-martial law period, when Sicat also did not agree with Virata’s concept of “measured capacity,” which the Philippine Chamber of Industries was pushing in order to avoid overinvestment and which led to the waste of scarce capital resources. The intention of this was that the BOI had to study market demand, including external demand. The BOI would only approve of capacities with some allowance for a particular industry, so that the economy would not waste Philippine resources. This, of course, went against the principles of the free market economy, which was the reason Sicat did not agree with it.48) But Virata felt that scale was important for economic progress and that there was a need to reach a certain scale that was economical and competitive if the Philippines was to achieve economic progress. For Virata, the level of protection or subsidy was an important policy to guide Philippine business, and he believed that this was true also for foreigners, whose interest was to secure a share of the market and to exploit the country’s resources.49) With regard to Placido Mapa, Virata did not agree with his opposition to the birth control methods that were being advocated by the IMF and World Bank. Mapa was a member of what was viewed as the ultra-conservative Opus Dei, while Virata was a Freemason and he and his relatives were supporters of the Philippine Independent Church, which was considered more progressive than the Catholic Church. Despite these differences, the members of Virata’s technocracy network generally gave in to him. It was because of this that Virata held an influential position in his network, where he could be defined as one of the hubs. Hubs can be likened in the business community to individuals who communicate with more people about a certain product than does the average person. With their numerous social contacts, they are among the first to notice and use the experience of the innovators. Though not necessarily innovators themselves, their conversion is the key to launching an idea or an innovation. If the hubs resist a product, they form such an impenetrable and influential wall that the innovation can only fail. If they accept it, they influence a very large number of people (ibid., 130).

III-3 First Lady Imelda Marcos

What seemed to be a formidable obstacle to the Virata network was First Lady Imelda Marcos and her own technocracy network, consisting of, among others, Conrado “Jolly” Benitez,50) her brother Benjamin “Kokoy” Romualdez,51) and Roman “Jun” Cruz.52) One of Virata’s many major disagreements with Mrs. Marcos was over the establishment of her Ministry of Human Settlements. Virata felt there was no need for this, as there was already a National Housing Authority. Virata also felt that the idea of human settlements was just a “U.N.-flavor of the month thing just like the current concern for the environment.”53) He also said no to several of the First Lady’s projects, but he believed that she would get her funds from the private sector and from the Government Service Insurance System (GSIS) under Cruz. The government, however, would have to pay off all her debts. As he pointed out, he refused a number of the First Lady’s requests since her projects were not in the budget, and because of this she called him “Dr. No.” Eventually, some of the buildings became government buildings. The loans extended by the private sector and the GSIS to Mrs. Marcos, which went into the establishment of government buildings, had to be repaid by the Philippine government.

Another incident that highlighted Virata’s clash with Imelda Marcos’s network was when the former, in an attempt to curb corruption in government offices, wanted to put certain safeguards in the GSIS, the Social Security System54) or the SSS, and the Retirement and Separation Benefits System or the RSBS. One safeguard was to put the GSIS and SSS under the office of the Insurance Commission. Virata said he wanted to do this to preserve the integrity of these pension and insurance funds by having sound investment guidance. He believed that the funds could be subject to abuse. Virata pointed out that Gilbert Teodoro Sr. of the SSS agreed with him but that Cruz of the GSIS would not, because he was very supportive of the First Lady’s projects, having extended advance financing to a number of them. Virata said that the president did not approve of his recommendations on the grounds that these institutions had their own charters and trustees.55)

There was an incident in 1982, when the country was at the height of its rescue operations for collapsing firms, when Mrs. Marcos wanted to appropriate US$12 million from the Cabinet and presidential funds to host a film festival in Manila. Virata put his foot down and refused to accede to this demand; Marcos, realizing the gravity of the country’s economic situation, agreed with him. This, however, did not deter Mrs. Marcos from getting US$111,111 from the coffers of the Ministry of Human Settlements, which she headed (Sacerdoti 1983, 48).

III-4 Virata and the Network of Oligarchs and Politicians

As for the oligarchs, Virata acknowledged that Marcos shielded the technocrats from them by reducing their political and economic powers. But he acceded that Marcos also instituted his new oligarchs because they were his supporters.56) In relation to this, Virata was also challenged on how to navigate among the politicians, i.e., the government’s allies who lost the elections. Virata felt that this was the most difficult part as these politicians thought that the government projects were helping their opponents politically.

III-5 Virata and the Network of Marcos’s Chief Cronies

Virata accepted that he, and no one else, could interfere in the interests of Marcos’s chief cronies, Roberto Benedicto and Eduardo “Danding” Cojuangco. For Virata, as far as the technocrats were concerned, his technocracy network was no match for Benedicto and Cojuangco. Aside from the chief cronies having direct access to the president, Virata noted that they had their power base. From Virata’s point of view, the technocrats were just interested in finding out what Benedicto and Cojuangco were doing and how these two chief cronies of Marcos were affecting the other sectors. When the technocrats saw that they were taking more than they deserved, that was the time Virata’s network spoke up. The leverage of Virata’s network vis-à-vis the chief cronies was its link with the IMF and World Bank, ergo the United States, which were not happy in general with the cronies’ monopolization of industries. An example was Cojuangco’s monopoly of the coconut industry, especially the takeover of US coconut oil processing firms. This went against the IMF and World Bank’s economic mantra of free competition and liberalization. To show its disapproval of crony monopolies, the US government even filed a lawsuit against Cojuangco and Juan Ponce Enrile’s57) coconut conglomerate—Granex, Crown Oil Corporation, and Pan Pacific Commercial—for conspiring to create a shortage of oil in order to drive up prices (Bello et al. 1982, 191). In general, however, Virata’s network was able to stand its ground against these three major networks—Marcos’s cronies and relatives, and the networks of oligarchs and politicians—as the IMF and World Bank continued to give loans to the Philippines that Virata’s network was responsible for negotiating.

Ironically, however, the technocratic centralization encouraged by the IMF and World Bank allowed for an increasing concentration of power in President Marcos’s hands, which translated into further support for crony interests. This was because a major consequence of centralization was the lessening of checks on the leadership, which allowed the monopoly of state power by the networks of relatives and friends of the Marcos regime. Members of this ruling bourgeois network used the government as a vehicle to enrich themselves. The crony networks, which are also referred to as “bureaucrat capitalists,” greatly benefited from the local technocrats’ efforts to attract foreign capital because they had the right connections with the regime to either enable them to enter into joint ventures with multinational corporations or to avail of foreign loans acquired by the state (ibid., 105). Moreover, the technocrats were said to have tolerated Marcos’s cronies as they both shared a common concern with bringing the country’s major export crops under the control and supervision of the state. Conflict of interest, however, ensued between these two parties on the question of whether or not export crops should become a center of state or private accumulation. The technocracy believed the former, while the cronies believed otherwise. The Virata technocracy network believed that the cronies would use this source of private accumulation to achieve their political ends (Hawes 1984, 238).

This was exemplified in the coconut levy controversy pitting the Marcos cronies led by Cojuangco against Virata. The Marcos cronies imposed a coconut levy on farmers, which the technocracy viewed as a double tax on the latter. Virata argued that the levy should be abolished because it further depressed the already low price paid to farmers for their copra and was not at all beneficial to the coconut farmers (Bowring 1982, 8). Marcos initially sided with Virata and agreed to have the levy abolished but later reversed his decision during a Cabinet meeting while Virata was abroad. Virata is said to have tendered his resignation, which Marcos refused. The former consoled himself by saying that he would not abandon the struggle for economic liberalization (ibid.).

The opposition experienced by the Virata network can be described as the manner in which the fitness model “allows us to describe networks as competitive systems in which nodes fight fiercely for links” (Barabasi 2009, 106), in this case, the link to the Marcos hub. The Virata network also defies the scale-free model, which “reflected to our awakening that networks are dynamic systems that change constantly through the addition of new nodes and links” (ibid.). In the case of challenges to the Virata network, it did not matter how many cronies or technocrats Marcos added to his network; what was important was the nature of the competition they posed to the Virata network. When it came to accessing IMF and World Bank loans, none of them could compete with Virata’s technocracy network.

III-6 The Emerging Political Value of the Virata Technocracy Network

It is in the area of accessing IMF and World Bank loans for the Philippine government that the Virata network may be described as the “star” dominating the vast majority of links to the Marcos hub. Opposition from the Imelda Marcos and crony networks further strengthened the Virata network’s links to the IMF-World Bank hub, as these two financial institutions saw Virata’s network as a bulwark against crony corruption in the Marcos government. The IMF-World Bank group was said to pressure the Marcos regime to lift martial law and declare a New Republic in 1981 headed by a Cabinet composed of World Bank technocrats: Finance Minister Virata, appointed as prime minister; Industry Minister Roberto Ongpin; Central Bank Governor Jaime Laya; Minister of Planning Placido Mapa; and Alejandro Melchor, who served as a Cabinet-rank presidential adviser and executive secretary to Marcos during the earlier years of martial law (Bello et al. 1982, 184).

Virata, however did not agree with this perspective. As he pointed out, Mrs. Marcos wanted the position of prime minister, which the Marcoses’ colleagues in the Kilusang Bagong Lipunan (Movement for New Society, or KBL)58) nominated her to. He said he was taken by surprise when President Marcos preferred him for the position. When asked in our interviews how true the write-ups were, particularly in the Far Eastern Economic Review (Tanzer 1981; Sacerdoti and Tasker 1983), that his selection as prime minister was because of pressure from the United States in general and the IMF and World Bank in particular—as they did not like the corruption of the First Lady and the Marcos cronies—Virata was dismissive, although he said that he was aware of the reference to him as an “Amboy.”59) Whether this is true or not, what is significant is that Virata’s ascendancy to the position of prime minister highlighted his value to Marcos. This situation seems to have transformed the Virata technocracy network into what Barabasi (2009, 237) calls the hierarchical modularity or the modular scale-free network, which makes multitasking possible. As elaborated by Barabasi, while the

dense interconnections within each module help the efficient accomplishment of specific tasks, the hubs coordinate the communication between the many parallel functions. Bottlenecks and slowdowns are inevitable if the same module is simultaneously confronted with several tasks. (ibid., 234)

The United States, through the IMF and World Bank, therefore, was perceived to have pressured Marcos to accord the Virata network not only economic responsibilities but also political responsibilities as well as make sure that crony corruption was kept in check.

A major hindrance to Virata’s economic and political responsibilities was the emergence of a consolidation of hubs, epitomized by the KBL political party network. During the KBL caucus early in 1985, Mrs. Marcos bemoaned that some of her projects, such as the Kilusang Kabuhayan at Kaunlaran (Movement for Livelihood and Development), received insufficient funding. This complaint was followed by Marcos’s chief crony Benedicto, whose monopoly of the sugar industry was frowned upon by the IMF and World Bank. Benedicto accused the technocrats of allowing the IMF to exert undue influence on the local economy. He urged the KBL not to accede to the demands of these financial institutions. Labor Minister Blas Ople supported this accusation by saying that the country had already given up its sovereignty to the IMF (Bowring and Sacerdoti 1983, 54). Such a situation highlighted how Virata’s network clashed with four powerful networks under the KBL umbrella that were all part of the Marcos hub: Imelda Marcos’s network of technocrats, Marcos’s crony network, Marcos’s political allies, and networks of Cabinet officials who were not economic technocrats but believed that they were being undermined by the Virata network under the tutelage of the IMF and World Bank. What occurred here was also an acknowledgment that for the umbrella KBL network, the Virata technocracy network could undermine the hubs it represented thanks to support from the IMF and World Bank.

The growing opposition to the Marcos dictatorship seemed to also favor Virata’s network, as this gave it more leverage on Marcos not to support the crony interests. This was seen in 1984, when the political opposition against Marcos called a bank run on government and crony banks, such as the government’s PNB and the United Coconut Planters Bank. Virata said Marcos had passed a decree saying that the governor of the Central Bank would be obligated to restore the funds of banks that had been affected. Virata believed it was Cojuangco’s group that had crafted that decree. Cojuangco was then head of the United Coconut Planters Bank. Central Bank Governor Jose Fernandez60) and Virata did not agree with the decree. Virata told Marcos, “Mr. President, this signed decree has no parallel or precedent in international law.”61) He added that when “the Central Bank helps an institution they have to follow certain procedures, like you must have acceptable security, and Monetary Board approval.” Virata told Marcos it would not be good if the decree was made public. Marcos instructed his Executive Secretary Juan (Johnny) Tuvera62) not to release that decree.

Marcos’s withdrawal of the decree further signified the need for the Virata network of technocrats to access IMF and World Bank loans, without which the country could not survive. Thus, despite opposition from his party members in the KBL, Marcos came out with a statement saying, “[T]he KBL central committee since 1972 has always reviewed all policies and programs adopted by the Party but which are now claimed by new managers.” This was his way of signaling to his party members to stop their attacks on the technocrats (Rocamora 1983, 6). The technocrats would go on to take over almost all the crony-owned companies that had been saved by the government during the economic crisis.

At this point, the Virata network may have acquired the status of a star hub in the category of the winner-take-all network, where there seemed to be no potential challenger. As Fabella noted, several of the policies the technocrats were able to pursue were because of Virata. He described Virata as supportive, and Fabella knew his limits and how far he could push. For Fabella, it did not matter if the government ran into a fiscal crisis, as the technocrats knew it was coming and could not do anything about it.63)

Furthermore, what transpired seems to have destroyed the hierarchy of hubs—the hubs of the cronies, relatives, and political allies—characterizing the scale-free topology and turned the Virata network into a starlike network, with a single node grabbing all the links (Barabasi 2009, 103–104). A probable reason for this is that the cronies and relatives, e.g., Imelda Marcos, Cojuangco, and Benedicto, were also contained within their own specific sectors—Cojuangco in the coconut industry and Benedicto in the sugar industry. And in the case of Imelda Marcos, although she had political and economic power through her Ministry of Human Settlements and as governor of Metro Manila, her access to resources was also dependent on the loans that the Virata network was able to avail of through the IMF and World Bank. All these dynamics, however, were dependent on decisions made by Marcos.

IV The Collapse of the Virata Technocracy Network

All the above factors were not enough to sustain Virata’s network, which was brought to an end by the collapse of its most important hub: the Marcos hub. This may be described as what Barabasi calls a series of cascading failures, which is when a network collapses and its failure shifts loads or responsibilities to other nodes:

If the extra load is negligible, it can be seamlessly absorbed by the rest of the system, and the failure remains effectively unnoticed. If the extra load is too much for the neighboring nodes to carry, they will either tip or again redistribute the load to their neighbor. Either way we are faced with a cascading event, the magnitude and reach of which depend on the centrality and capacity of the nodes that have been removed in the first round. (Barabasi 2009, 120)

Virata’s fellow technocrats in his networks were very much aware of the problems that the First Lady as well as Marcos’s cronies were creating for them. In reaction to this, they tried as much as possible to support Virata, whom they regarded as their senior in terms of responsibilities. It was against this background that Virata was appointed as prime minister in 1981. Mapa noted that during this time, so as not to be isolated, he needed to work with other agencies as a coordinator and referee because there were conflicting positions among different ministries and agencies. He said that he would try to do everything through Virata, as he was prime minister. He said that he and his fellow technocrats would support Virata, and many times during Cabinet meetings there would be conflicts, but they would ask for a committee to be formed to referee. Many times, Mapa would end up being the chairman of that committee. As Mapa observed, it was very hard to get colleagues to reconcile their differences. He pointed in particular to Secretary of Energy Geronimo Velasco and Secretary of Trade and Industry Roberto Ongpin, who were difficult to control as they had direct lines to the president. In the case of Velasco, Mapa felt that he sided more with the technocrats but when there were some matters that affected him, he would go directly to the president. In general, however, Mapa felt that Virata was very good in terms of going back to the president and also trying to keep Velasco and Ongpin in line.64)

Nevertheless, this cascading failure, as perceived by Virata, could not be stopped due to Marcos’s failing health. As Mapa noted, when the president got sick there seemed to be a power vacuum and Virata and Melchor tried to salvage the situation. There were, however, areas where they were not in a position to do anything.65) The situation was aggravated by the assassination of ex-Senator Benigno “Ninoy” Aquino on August 21, 1983, which gave tremendous impetus to the growing opposition against Marcos. The assassination of Ninoy Aquino came at a time when the economy was reeling from a world recession and a deterioration of the country’s terms of trade, which were gradually causing a number of companies—including crony-owned ones—to collapse. In 1981 the situation worsened further when Dewey Dee, a Chinese businessman, left the country with US$100 million worth of unpaid debts. This adversely affected the financial system and several big business establishments. Another blow to the Philippine economy came when Mexico defaulted on its debt payments in 1982. Virata may have managed to control the situation in the beginning, but after Ninoy Aquino’s assassination things got out of hand, particularly because Marcos was sick and not in command of the situation.66) Imelda Marcos and Armed Forces Chief of Staff General Fabian Ver, representing a faction of the military network loyal to Marcos, took control.67) This did not bode well with the United States, as it despised the Imelda Marcos-General Ver network. What resulted was that the hierarchy of highly connected hubs was taken out, with Marcos no longer in command. This proved to be the final blow to the networks that were linked to this hub, including Virata’s technocracy network.

The situation led also to the loss of support for the Marcos government from a crucial sector, which was the business community, particularly the middle class. With the growing corruption, human rights violations, and socioeconomic inequalities, the business community—led by the Makati Business Club—together with the Catholic Church hierarchy began to voice their opposition against Marcos.68) The business community initially tolerated the corruption of Marcos’s cronies, but when the economy began its downturn and the government used state funds to rescue the crony companies, the business community began to move toward the side of the opposition. Their major complaints were the following: (1) they felt that the government was unable to curb graft and corruption; (2) they said the technocrats were too bureaucratic and arrogant and lacked practical experience; (3) they resented the bailout of crony companies; (4) they disapproved of the technocrats’ blind loyalty to the policies of the IMF and World Bank group, which led to the centralization and streamlining of the local economy such that it benefited only foreign investors and not their local counterparts (Bello et al. 1982, 191).

The loss of support from the business community, Church, and middle-class networks was significant for Marcos, because the United States viewed these networks as important sources of legitimacy for Marcos’s martial law rule. Before the business community and Church hierarchy joined the opposition, the major source of opposition was the mainstream Left, i.e., the Communist Party of the Philippines, its armed group, the New People’s Army, and its illegal united front, the National Democratic Front or the CPP-NPA-NDF. Between the mainstream Left and Marcos, the United States would of course support the latter. But the United States could not ignore that the CPP-NPA-NDF was also drawing from the other disenchanted sectors of society, i.e., the lower classes, the marginalized, and even some segments of the middle and upper classes. For the United States, the repercussions of the policies of a technocratic regime were not only economic but political as well. The determination of the technocracy to produce an apolitical and pro-business atmosphere gave the leadership a legitimate excuse to depoliticize the Filipino people. This was implemented in various forms, e.g., the imposition of authoritarian controls on the flow of information, the elimination of leaders of national movements, and the denial of civilian rights (Stauffer 1974, 173). Joint ventures between technocracy-manned state corporations and multinational corporations led to adverse socioeconomic consequences, e.g., the displacement of people. Small farmers, fishermen, and quite a number of the urban poor were forced to evacuate their land and sea locations to pave the way for industrial and agricultural projects such as export processing zones, a copper sintering plant, a nuclear plant, and export-crop plantations (ibid.). Tribal Filipino communities were evicted from their ancestral lands to pave the way for infrastructures such as dams to provide electricity and irrigation in order to entice foreign capitalist business ventures into far-flung areas. This led to the cultural genocide of at least 4.25 million tribal Filipinos (Rocamora 1979, 2).

All these developments led to the burgeoning of an anti-dictatorship struggle in the country. With the business community and Church hierarchy networks joining the ranks of the opposition and, more important, the emergence of Aquino’s widow, Ma. Corazon “Cory” Aquino, as the leader of the opposition, the United States began to see Aquino as a palatable alternative to Marcos.

The ultimate push for the United States to support the opposition was the defection within the military led by Marcos’s Defense Minister Juan Ponce Enrile and his military aide, Col. Gringo Honasan, as well as Philippine National Police Chief Fidel V. Ramos. The three of them with their supporters in the military joined the civilians to wage the 1986 People Power Revolution against the Marcos dictatorship. Virata’s network did not have any links with Enrile or Ramos or, for that matter, Marcos’s military network. Virata did not even know that his own military assistant, Lt. Col. Angelo Reyes,69) was a member of the Reform the Armed Movement of the Philippines.70)

The withdrawal of US support for Marcos also severed the relationship of the Virata technocracy network with the IMF and World Bank, since the latter relationship was the basic reason for Marcos’s support of Virata’s network. Previously, there had been some who defected from Virata’s technocracy network: Director General of the National Economic and Development Authority Gerardo Sicat Jr. resigned in 1981 and left the country in 1985 for a World Bank position in Washington, DC; and Vicente Paterno, minister of trade and industry and later on of public highways, resigned from government in 1980.71) Both could no longer tolerate working for the Marcos government. There was no problem in replacing them, and their desertions were not drastic enough to break down the Virata network. As pointed out by random theory, when nodes are removed randomly, there are a fraction of nodes that indicate a critical point has been reached whereby the network breaks apart: “If you remove more nodes from the critical fraction, then it would break apart into different pieces” (Barabasi 2010).

Virata knew that the critical fraction had been reached even before the 1986 People Power Revolution. This realization came about when he was in the United States, in the middle of negotiating loans for the Philippines with the IMF and World Bank. He was seeking a debt moratorium because the Mexican default of 1982 had triggered an economic crisis in the Philippines. Such macroeconomic failures, as pointed out by Barabasi (2009, 209), “can throw entire nations into deep financial disarray.” Moreover, because the Philippine economy was part of a highly interconnected network of financial institutions, the breakdown of some selected nodes—in this case, the crisis in the Mexican economy combined with the inability of the IMF and World Bank to immediately resolve it—set off a cascade of failures that shook up the whole economic system, especially in the Philippines. It did not help that because of Marcos’s growing unpopularity, the issue was not given priority by the two international financial institutions. When Virata sought a meeting with the IMF and World Bank, the institutions told him that they could not field any personnel to talk at that time and that the only window they could give Virata’s economic team was after the World Bank meeting. Finally, they selected October 17, 1983 as the date for the meeting. In the meantime, Aquino was assassinated in August 1983 and the situation took a turn for the worse.72) At that point, Virata told Marcos he could no longer do his job and he might as well resign, but Marcos told him to stay on.73)

This seemed to be a recognition by Virata that his relevance to Marcos was dependent on Marcos’s relationship with the United States, which determined Virata’s relationship with the IMF and World Bank. Virata’s predicament can be equated to what Barabasi (ibid., 105) describes as the “fit-get-rich” behavior of scale-free networks, which prevails in the marketplace when there is a hierarchy of operating systems such that the most popular is followed by several less popular competitors. Such a hierarchy is present in most industries. In Virata’s case, his popularity and leverage hinged on his being able to obtain the IMF and World Bank loans that the Philippines badly needed. In this respect, Marcos’s relatives, cronies, and political allies could not compete with Virata’s network. But Virata was gradually losing this network. And, as pointed out by Barabasi (ibid., 110), “vulnerability is due to interconnectivity”; this can be applied to the Virata network’s links with Marcos and the IMF and World Bank.

The validation of this claim, as Virata pointed out, came with Ninoy Aquino’s assassination, when Virata saw his own relationship with the IMF and World Bank sour. He noted that the two financial institutions were beginning to withhold or tighten assistance. When Virata inquired about economic assistance to the Philippines, the IMF and World Bank would reply that the matter was being processed or considered.74) Virata blamed this on the United States’ diminishing support for Marcos. He observed that the United States was beginning to talk to opposition members and sizing up possible successors, and he noted the continuous bad press on the Philippines in the United States. Virata’s dependence on Marcos to access US support, which helped to facilitate World Bank and IMF assistance, may have proven to be the Virata network’s Achilles’ heel, as described by Barabasi (ibid., 117–118):

[T]he findings indicate that scale-free networks are not vulnerable to failures. The price of this unprecedented resilience comes in their fragility under attack. The removal of most connected nodes rapidly disintegrates these networks, breaking them into tiny noncommunicating islands. Therefore, hidden within their structure, scale-free networks harbor an unsuspected Achilles’ heel, coupling a robustness against failures with vulnerability to attack.

Marcos’s calling of snap elections under US pressure may have spelled the end of his support for the Virata network. Virata advised Marcos not to call snap elections as he had tenure of office. But he claimed that Marcos called snap elections because the United States was portraying the president as losing control, and that was why he wanted a fresh mandate even though his term had not ended.75) After the snap elections, which Marcos won by only a slight margin, Virata offered to resign as minister of finance. He suggested to Marcos that since the margin of victory was so slim, perhaps it was time for change. Virata was not yet planning to resign as prime minister, because he wanted the Batasang Pambansa (National Assembly) to be convened so he could personally present his resignation to the legislative body—since the assembly had elected him.76) He added that he could also be charged with dereliction of duty if he resigned as prime minister. But eventually Virata learned that Marcos had offered Enrile the position in order to stop the People Power Revolution.77)

The power, therefore, of Virata’s technocracy network lay mainly in the support it could get from the US and Marcos hubs, and consequently such support translated into how Marcos needed Virata in order to access loans from the IMF and World Bank. This situation characterizes Barabasi’s (ibid., 112–113) failures in random networks, whereby “there is a critical threshold below which the system is relatively unharmed. Above this threshold, however, the network simply falls apart.” In this case, the Virata hub’s inability to continue performing its task brought down the network.78)

Conclusion

Cesar E. A. Virata had links to social, academic, US, and business community networks that thrust him into government. In government, he developed his own network; the importance of this network was its link with the Marcos hub, which kept the different political, economic, and social networks together. What strengthened and allowed Virata to consolidate his own network in government was that he shared with Marcos a common economic concern, i.e., bringing in investments to the country and the pursuit of an export-oriented economy. This economic perspective opened him up to the IMF-World Bank hub. During the pre-martial law period, the Virata network clashed with the network of nationalist economists of the government’s National Economic Council (NEC) as well as nationalist politicians and local capitalists, as they were against the open-door policy of the economists in the Project Implementation Agency, where the Virata network was embedded. When Marcos became president, the nationalist economists were booted out and the Virata network reined in the NEC. The Virata network, however, had to contend with the nationalist networks in Congress, i.e., those against liberalization. But Marcos’s party members from the Nacionalista Party, who were part of the Marcos hub, supported the Virata network’s open-door policy, i.e., liberalization of the economy. This helped the latter to pass the Investments Act and the Export Incentives Act. Marcos’s support for the Virata network would prove to be most crucial. Marcos’s political strength among the agricultural and industry blocs lay in his network of political and economic allies such as Benedicto, who represented a faction of the powerful sugar bloc. Marcos also made use of his leverage as president to make the other blocs, e.g., the logging concessionaires, behave. Virata’s was, therefore, only one of the networks that connected to the Marcos hub. Its importance was its ability to access loans and foreign assistance from the IMF and World Bank for the Marcos hub.

The declaration of martial law highlighted the compartmentalization of the Virata network as an economic network, as the technocrats were kept in the dark about the declaration of martial law. It also highlighted the importance of Marcos’s political networks, i.e., those that were involved in the planning of martial law. The declaration of martial law also established Marcos as the major hub in Philippine politics, with which the Virata network was well-connected because of its important role in accessing World Bank and IMF loans. But this would only be the case for as long as the US hub, which the IMF and World Bank were connected to, supported Marcos’s declaration of martial law. Thus, the two very important hubs for Virata—the Marcos hub and the US network, or the World Bank and IMF hub—continued to give the Virata network the leverage it needed.

The Virata network, however, would go up against other formidable networks. Foremost was that of First Lady Imelda Marcos, who would use other sources of government funds, thus bypassing the Virata network, to finance her personal projects. Marcos allowed this to happen. The network of oligarchs and politicians who were all linked to the Marcos hub were viewed by Virata also as hindrances to his economic decision making, but they were not as significant as Marcos’s chief cronies, Benedicto and Cojuangco. Virata’s leverage vis-à-vis the chief cronies was the support his network received from the IMF and World Bank, which were not happy with the cronies’ monopoly over industries since that blocked the entry of foreign, particularly US, companies into the country. Marcos generally sided with his cronies but would later get pressured by the United States as well as the IMF and World Bank to curb crony capitalism by giving the Virata network not only economic but also political power, as seen in the appointment of Virata as prime minister. This was despite the opposition of networks under Marcos’s political party, the KBL, which were all linked with the Marcos hub and were up against the Virata network. These included Imelda Marcos’s network of technocrats and Marcos’s crony networks, political allies and networks, and Cabinet officials who were not economic technocrats. These networks all believed that they were being undermined by the Virata network under the tutelage of the IMF and World Bank. It is ironic that during the pre-martial law period this was not the case, as the Virata network had a good relationship with Marcos’s party members in the Nacionalista Party. During the economic crisis in the early 1980s, the Virata network had the upper hand as Marcos needed to get IMF and World Bank loans. Thus, Marcos also told his KBL party mates and their respective networks to stop criticizing Virata and his technocrats.

For Virata, the breakdown of his network was due to the failing health of Marcos during a period of economic crisis that was aggravated with the assassination of Ninoy Aquino. These situations witnessed the takeover of power by the networks of Imelda Marcos and General Ver’s faction of the military network. This led to the rapid decline of support for Marcos from the business community and the Church and an increase in support for the CPP-NPA-NDF. Both these networks joined forces to strengthen the anti-dictatorship struggle. The situation did not augur well for the United States, but it found an alternative to Marcos in the person of Corazon Aquino. By then the Virata network had begun to lose its support from the IMF and World Bank, and with the calling of snap elections by Marcos and his offer of the position of prime minister to Enrile, Virata saw the collapse of his network, which had lost its link with its two important hubs, those of Marcos and the United States. The shifting of US support to Corazon Aquino and the 1986 People Power Revolution also prevented the toppling of the US and IMF-World Bank hubs, which were perceived by the Philippine Left as having supported the Marcos dictatorship.

The rise and fall of the Philippine technocracy, therefore, was dependent on four important nodes that were transformed into hubs: the Virata, Marcos, US, and IMF-World Bank nodes. Virata became the hub for the technocracy dealing with the IMF and World Bank. The fate of this hub was also dependent on the power given to it by the Marcos hub, which controlled political and economic power, and the other hubs that were linked to it, e.g., Marcos’s relatives and cronies, the business community, political allies, and the military, among others. The IMF-World Bank hub was the one that extended the loans needed by the Marcos government through the Virata network. The loans, though, needed the approval of the United States. For Barabasi (2009, 211), one way of avoiding the cascading failures that brought about the downfall of the Virata network was to abandon hierarchical thinking, which he points out did not fit the network economy. He elaborates that in

traditional organizations, rapid shifts can be made within organizations, with any resulting losses being offset by gains on other parts of the hierarchy. In a network economy, each node must be profitable. Failing to understand this, the big players of the network game exposed themselves to the risks of connectedness without benefiting from its advantages. (ibid., 213)

For Barabasi (ibid., 192), the Achilles’ heel of the network was the vulnerability of the hubs. In the case of the technocracy network, as well as the other networks linked to Marcos, the Achilles’ heel was that they were dependent on Marcos; and when Marcos became ill, he could not stay in command. With the growing opposition to the Marcos dictatorship, the United States began to look for an alternative, and it found one in Corazon Aquino. The only member of the technocracy who joined the opposition was Paterno, who went on to become a senator as part of the Aquino administration’s senatorial lineup during the 1988 elections.

Virata’s dispensability was further seen after the 1986 People Power Revolution, when President Corazon Aquino appointed technocrats to important positions: among others Jaime Ongpin as secretary of finance and Jose Concepcion as secretary of trade and industry. Jose Fernandez was retained as Central Bank governor. With the exception of Solita Monsod, who was the NEDA director general, they all shared the same economic perspective or development paradigm of the IMF and World Bank. This assured the new Aquino government of continuing loans from these two international financial institutions and, more important, the support of the United States. What emerged is what Barabasi (ibid., 221) calls “a web without a spider,” where there is no centralized star network. Instead, there is a

hierarchy of hubs that keep these networks together, a heavily connected node closely followed by several less connected ones, trailed by dozens of even smaller nodes. No central node sits in the middle of the spider web, controlling and monitoring every link and node. There is no single node whose removal could break the web. A scale-free network is a web without a spider. (ibid.)

A web without a spider might have been possible under a democracy, but under an authoritarian political environment where Virata’s technocracy network prospered and later on collapsed, it would have been difficult to attain.

Accepted: January 21, 2016

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1) See Tadem (2012a; 2014, 345–348).

2) See Tadem (2013). My other writing which combine both frameworks are the following: Tadem (2015b; 2012a; 2012b).

3) In contrast, the lower-level white-collar workers and the declining blue-collar workers make up the lower middle-class segment of the new middle class (Glassman 1995, 307).

4) Virata’s father was a product of the public school system and was sent to Harvard University as a pensionado. His grandparents owned a fishpond, rice lands, and a coconut farm; and his grandmother made patis (fish sauce) (Virata, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, November 21, 2007, RCBC Plaza, Makati City, Philippines).

5) Placido Mapa, interview by Yutaka Katayama and Teresa S. Encarnacion Tadem, tape recording, March 13, 2009, Metrobank Plaza, Gil Puyat Avenue, Makati City, Philippines.

6) Manuel Alba, interview by Yutaka Katayama and Teresa S. Encarnacion Tadem, tape recording, December 12, 2008, Third World Studies Center, G/F Palma Hall, College of Social Sciences and Philosophy, University of the Philippines, Diliman.

7) Rafael Salas would become Marcos’s executive secretary. Virata’s uncle Leonides Virata was at that time the director of economic research with the Central Bank. But this did not seem to play a part in Virata’s recruitment into government.

8) Cesar E. A. Virata, interview by Yutaka Katayama and Cayetano Paderanga, tape recording, December 13, 2007, RCBC Plaza, Makati City, Philippines.

9) Armand V. Fabella, interview by Yutaka Katayama, Cayetano Paderanga, Temario Rivera, and Teresa S. Encarnacion Tadem, tape recording, August 11, 2008, Fabella Residence, Harvard St., Wack Wack Subdivision, Mandaluyong City, Philippines.

10) Mapa, interview, March 13, 2009.

11) Placido Mapa, interview by Yutaka Katayama, Cayetano Paderanga, Temario Rivera, and Teresa S. Encarnacion Tadem, tape recording, March 27, 2009, Metrobank Plaza, Gil Puyat Avenue, Makati City, Philippines.

12) Fabella, interview, August 11, 2008.

13) Horacio “Boy” Morales Jr., interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, August 14, 2009, Third World Studies Center Office, Palma Hall, University of the Philippines, Diliman, Quezon City; Onofre D. Corpuz, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, January 25, 2008, Corpuz Residence, UP Professors Village, Tandang Sora, Quezon City, Philippines.

14) Horacio “Boy” Morales Jr., interview, August 14, 2009.

15) Mapa, interview, March 13, 2009.

16) Mapa, interview, March 13, 2009.

17) Virata, interview, November 21, 2007.

18) Mapa, interview, March 13, 2009.

19) Mapa, interview, March 13, 2009.

20) Cesar E. A. Virata, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, May 2, 2008, RCBC Plaza, Makati City, Philippines.

21) Virata, interview, May 2, 2008.

22) Vicente T. Paterno, interview by Yutaka Katayama, Temario Rivera, and Teresa S. Encarnacion Tadem, tape recording, August 15, 2008, 11th Floor Columbia Tower Ortigas Ave., Mandaluyong City, Philippines.

23) Cesar E. A. Virata, interview by Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, September 30, 2008, RCBC Plaza, Makati City, Philippines.

24) Mapa, interview, March 13, 2009.

25) The Philippines Consultative Group’s chairman was from the World Bank. Its membership included representatives from the IMF and major lending countries such as the United States, large private bank consortia tied with the debt package, and the Asian Development Bank. This Consultative Group determines how public and private funds are to be spent as well as decides the country’s financial strategy, ranging from taxation policies to anti-inflation programs (Wellons 1977).

26) Virata, interview, December 13, 2007.

27) Cesar E. A. Virata, interview by Yutaka Katayama and Teresa S. Encarnacion Tadem, tape recording, November 23, 2007, RCBC Plaza, Makati City, Philippines.

28) Virata, interview, May 2, 2008.

29) Virata, interview, November 21, 2007.

30) Virata, interview, November 23, 2007.

31) For further details of Philippine technocracy and policy making during the pre-martial law period, see Tadem (2015b).

32) Mapa, interview, March 13, 2009.

33) “Rolex 12,” http://en.wikipedia.org/wiki/Rolex_12.

34) The “Rolex 12” consisted of Philippine Constabulary Vice Chief Tomas Diaz, Minister of Defense Juan Ponce Enrile, Chief of the Armed Forces of the Philippines Romeo Espino, Chief of the Philippine Constabulary Metropolitan Command Romeo Gatan, Chief of the Philippine Constabulary Metropolitan Command Alfredo Montoya, Chief of the Intelligence Services of the Armed Forces of the Philippines Ignacio Paz, Chief of the Philippine Constabulary Fidel Ramos, Chief of the Philippine Air Force Jose Rancudo, Chief of the Philippine Navy Hilario Ruiz, Chief of the Philippine Army Rafael Zagala, Chief of the National Intelligence Security Authority Fabian Ver, and Eduardo “Danding” Cojuangco Jr. (http://en.wikipedia.org/wiki/Rolex_12).

35) Virata, interview, December 13, 2007.

36) Virata, interview, May 2, 2008.

37) Virata, interview, November 21, 2007.

38) Mapa, interview, March 13, 2009.

39) Mapa, interview, March 13, 2009.

40) Fabella, interview, August 11, 2008.

41) Alba, interview, December 12, 2008.

42) Placido Mapa, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, April 22, 2009, Metrobank Plaza, Gil Puyat Avenue, Makati City, Philippines.

43) Sicat was all set to join the Economic Growth Center at Yale University when Virata prevailed on him to chair the National Economic Council (Virata, interview, November 21, 2007).

44) Mapa together with Cesar Zalamea headed the Presidential Economic Staff when Virata was recruited to join this government agency.

45) Paterno said that Virata and Mapa were the ones who recruited him to the Board of Investments in 1969, when he was ready to leave his private sector job in the Manila Electric Company, Meralco (Paterno, interview, August 15, 2008).

46) Roberto “Bobby” Ongpin was Virata’s deputy in the Presidential Economic Staff. Ongpin also worked in SGV when Virata was with the accounting firm.

47) Paterno, interview, August 15, 2008.

48) Virata, interview, November 21, 2007.

49) Virata, interview, November 21, 2007.

50) Conrado Benitez obtained his PhD in Education at Stanford University and was considered to be an Imelda Marcos technocrat and her right-hand person for development projects.

51) Benjamin “Kokoy” Romualdez was known to operate the “real” Department of Foreign Affairs. He took the lead in the negotiations on the bases agreement with the United States.

52) Roman “Jun” Cruz headed the Government Service Insurance System, or GSIS, which is in charge of government employees’ pension funds.

53) Cesar E. A. Virata, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, November 28, 2007, RCBC Plaza, Makati City, Philippines.

54) The SSS took care of the pensions of employees in the private sector.

55) Cesar E. A. Virata, interview by Cayetano Paderanga, Temario Rivera, and Teresa S. Encarnacion Tadem, tape recording, July 29, 2008, RCBC Plaza, Makati City, Philippines.

56) Virata, interview, December 13, 2007.

57) Enrile was Marcos’s minister of defense.

58) The KBL was the political party that Marcos created during the martial law period.

59) “Amboy,” an abbreviation for “American boy,” is a moniker used for someone who represents the interests of the United States (Virata, interview, November 28, 2007).

60) Fernandez replaced Laya as Central Bank governor. This was because Laya was accused of “window dressing” the dollar reserves of the Central Bank to prevent the IMF and World Bank from seeing that the level of international resources had reached a dangerously low level (Galang 1983, 72). Virata said they needed to get a technocrat who was not identified with the Marcos government, and Fernandez was such a person (Virata, interview, May 2, 2008).

61) Virata, interview, July 29, 2008.

62) Tuvera was Marcos’s senior presidential assistant from 1978 to 1986.

63) Fabella, interview, August 11, 2008.

64) Mapa, interview, March 13, 2009.

65) Mapa, interview, April 22, 2009.

66) Virata, interview, November 23, 2007.

67) Virata, interview, November 23, 2007. Ver was Marcos’s trusted aide. He was Marcos’s former driver and hailed from Ilocos Norte, the same province as Marcos. Marcos chose Ver to be the chief of the Armed Forces of the Philippines over his own second cousin, Fidel V. Ramos, who was viewed as the next chief with the retirement of Romeo Espino, due to seniority.

68) The Church hierarchy included Jaime Cardinal Sin, who together with Corazon Aquino called for the People Power Revolution in 1986. The Church hierarchy is considered as mainly appealing to the Filipino middle class.

69) Reyes became secretary of the Departments of Environment as well as Energy under the Gloria Macapagal Arroyo administration (2001–10).

70) RAM was the network of Honasan, which staged a mutiny during the 1986 People Power Revolution. It consisted of military officers who were disgruntled over the corruption in the military. RAM, which was nurtured by Enrile, consisted mainly of the lower ranks in the military, i.e., colonels, lieutenants, and others. Virata, who said he appointed Reyes as his director for information for the Office of the Prime Minister to monitor, in particular, intelligence reports, abandoned him during the 1986 People Power Revolution. Virata said he had to seek refuge in Cavite, where the governor was his friend (Virata, interview, November 23, 2007).

71) Paterno left the KBL after calling on the Batasang Pambansa (National Legislative Assembly) to institutionalize reforms such as a freer press, fair elections, and identification and punishment of those behind the Aquinas assassination (Situationer 1983, 152).

72) Cesar E. A. Virata, interview by Yutaka Katayama, Cayetano Paderanga, and Teresa S. Encarnacion Tadem, tape recording, June 24, 2008, RCBC Plaza, Makati City, Philippines.

73) Virata, interview, November 23, 2007; Virata, interview, June 24, 2008.

74) Virata, interview, November 23, 2007.

75) Virata, interview, December 13, 2007.

76) Virata, interview, June 24, 2008.

77) Virata, interview, June 24, 2008. Cesar E. A. Virata, interview by Cayetano Paderanga and Teresa S. Encarnacion Tadem, tape recording, September 2, 2008, RCBC Plaza, Makati City, Philippines.

78) What brought down the Marcos hub is based on the perspective of Virata as collaborated by secondary materials used in this article. There are, however, other views with regard to this—for instance, that the Marcos hub collapsed because of the strength of the opposition against Marcos led by Corazon Aquino and Jaime Cardinal Sin, which was complemented by the military mutiny of Marcos’s Secretary of Defense Juan Ponce Enrile and Philippine National Police Chief Commander Fidel V. Ramos.

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Vol. 3, No. 2, Khadijah Md Khalid and Mahani Zainal Abidin

Contents>> Vol. 3, No. 2

Technocracy in Economic Policy-Making in Malaysia

Khadijah Md Khalid* and Mahani Zainal Abidin**

* International Institute of Public Policy and Management (INPUMA), University of Malaya, Academic and International Building, 50603 Kuala Lumpur, Malaysia

Corresponding author’s e-mail: dijut[at]email.com

** Mahani Zainal Abidin was the chief executive of Institute of Strategic and International Studies (ISIS), Malaysia from 2010 until her untimely demise on June 22, 2013.

This article looks at the role of the technocracy in economic policy-making in Malaysia. The analysis was conducted across two phases, namely the period before and after the 1997/98 economic and financial crises, and during the premiership of four prime ministers namely Tun Razak, Dr Mahathir, Abdullah Ahmad Badawi, and Najib Razak. It is claimed that the technocrats played an important role in helping the political leadership achieve their objectives.

The article traces the changing fortunes of the technocracy from the 1970s to the present. Under the premiership of Tun Razak, technocrats played an important role in ensuring the success of his programs. However, under Dr Mahathir, the technocrats sometimes took a back seat because their approach was not in line with some of his more visionary ventures and his unconventional approach particularly in managing the 1997/98 financial crisis. Under the leadership of both Abdullah Ahmad Badawi and Najib Razak, the technocrats regain their previous position of prominence in policy-making. In conclusion, the technocracy with their expert knowledge, have served as an important force in Malaysia. Although their approach is based on economic rationality, their skills have been effectively negotiated with the demands of the political leadership, because of which Malaysia is able to maintain both economic growth and political stability.

Keywords: technocracy, the New Economic Policy (NEP), Tun Abdul Razak, Dr Mahathir Mohamad, National Economic Action Council (NEAC), government-linked companies (GLCs), Abdullah Ahmad Badawi, Najib Tun Razak

Introduction

Malaysia is a resource rich economy that had achieved high economic growth since early 1970s until the outbreak of the Asian crisis in 1998. However, growth has been moderate in the post-Asian crisis period. Malaysia began, in early 1960s, as an agriculture-based economy but had embarked on an industrialization path when growth rates varied substantially due to fluctuating global primary commodity prices. From 1970, Foreign Direct Investment (FDI) inflow and operations by multinational companies in electrical and electronic and textile industries producing for exports were the catalyst for Malaysian industrialization. At the same time, Malaysia also experimented with import substitution industrialization by introducing heavy industries such as the national car, Proton. As the economy matured, Malaysia entered another phase beginning in the mid-1990s where growth was to be based on knowledge and the services sector would play a larger role.

Malaysia is a small but very open economy; trade is twice the size of its Gross Domestic Product (GDP). Its balance of payment has traditionally been characterized by surpluses in the merchandise account from a strong export performance but it has persistent deficits in the services account. In addition to hosting large FDI inflow, Malaysia also received short-term capital, which began arriving in large volumes in the early 1990s. This was a product of globalization and the policy of liberalizing the capital account, which later exposed the economy to new vulnerabilities. During the period 1990–96, total net flows to Malaysia amounted to over 12% of GDP or USD8.6 billion, compared to 4.2% (USD1.5 billion) in the 1980s.

A noteworthy feature of the Malaysian development is that growth was achieved with equity. The incidence of poverty was reduced drastically from 49.3% in 1970 to 3.8% in 2009. This performance was achieved based on stable and sound macro-economic fundamentals and policies. Yet, at the micro-economic level, some distortions took place to accommodate sectoral group or racial interests. Although, the policies were targeting high overall growth, selected sectors were promoted through, among others, direct ­public sector intervention and the introduction of specific programs, which sometime were not consistent with market-based economic principles.

The analysis of Malaysia’s economic performance can be divided into three distinct phases:

(i) From Independence in 1957 to 1981

During the first part of this period (1957 to 1969), although laissez-faire economic policies were implemented, mild import substitution industrialization was also put in place in order to develop domestic industries. This import substitution effort was only partially successful. In the second part, from 1970, industrialization was promoted through the establishment of the export processing zone, which attracted many multinational companies that formed the base for manufacturing exports. Malaysia had taken full advantage of the relocation of FDI from the United States, Europe, and Japan seeking for investment location that offered lower labor costs.

Although industrialization became a major economic contributor, the focus of ­Malaysia’s economic development during this period was developing the rural economy. A lot of effort was undertaken to diversify the agriculture sector and upgrade the rural economy because these constituencies were the base for the ruling coalition party. Malaysia was a major exporter of rubber and tin but subsequently, with the diversification of agriculture, palm oil overtook rubber as the main agricultural export. Large amount of funds were allocated for the rural sector for infrastructure development and activities to raise rural income.

Responding to the racial riot in 1969, the government launched the New Economic Policy (NEP) in 1970 with the twin objectives: poverty eradication irrespective of race and the restructuring of society to correct economic imbalances in order to reduce and eliminate the identification of race with economic functions. The NEP is a major policy that shapes Malaysia’s socio-economic development because there were interventions made to ensure these objectives were met. This policy has a major impact on technocracy in the public sector through the building of human capital and the dominance of one ethnic group—the Bumiputeras (sons of the soil)—in the public sector.

(ii) From 1981 until the outbreak of the Asian crisis in 1998

Dr Mahathir Mohamed became Malaysia’s fourth prime minister in 1981 and he embarked on a developmentalist state strategy that saw high state intervention and the expansion of the public sector’s role in the economy. Many state-owned companies were established, especially those which are entrusted to carry out the heavy industrialization policy. The economic crisis in 1985 due to large fiscal deficits and the collapse of primary commodity prices had triggered a fundamental policy change. The size of the public sector was reduced and privatization was introduced to drive growth and efficiency. This period also saw many liberalization and deregulation measures and the beginning of a closer cooperation between the public and private sectors.

As a result, the 1986–97 period is eulogized as Malaysia’s golden age; from 1990 to 1996 the economy grew at an average annual rate of 8.5%, the longest period of sustained high growth in Malaysian history. Exports grew by double digits annually. Malaysia reached full employment from 1993 to 1997, had low inflation and the public sector registered average fiscal surplus of about 2.4% of GDP annually (1993–97), which is a vast improvement from the 1985’s deficit of 0.6% of GDP. Vision 2020 was launched in 1991 with the aim of turning Malaysia into a developed country by the year 2020. The attainment of this goal is predicated on the economy growing on average at an annual rate of 7% during the period 1990–2020 and therefore it is important for Malaysia to achieve long term macro-economic stability. The private sector was given the task to be the engine of growth while the public sector’s role is to facilitate private sector ­activities.

(iii) 1998 onwards: the Post-Asian crisis period

The economic recession in 1998 was the worst in Malaysian history, with the GDP ­contracting by 7.4%. This crisis was triggered by regional contagion when the Thai baht depreciated massively. However, internal difficulties such as excessive bank lending, and property bubbles had worsened the impact of the regional contagion and loss of investors’ confidence. Malaysia introduced measures that were contrary to the con­ventional wisdom; it introduced capital controls and pegged the exchange rate. Malaysia recovered sharply in 2000, as with the other crisis hit economy, South Korea. Dr ­Mahathir took credit for these unconventional and controversial measures that worked.

During this post-crisis period, Malaysia’s growth has been moderated; GDP grew on average at about 5.0% during the 1999–2010 period as compared to 8.3% during the 1986–97 period. This performance is not unique to Malaysia because other regional countries also had the same sub-par growth. Private investment, which fell significantly during the crisis, has not recovered. To sustain growth, the public sector had to take a leading role by increasing its investment and expenditure, resulting in a persistent fiscal deficit. On the other hand, exports, both manufacturing and primary commodities continue their high performance. This performance has led to the rethinking of the Malaysian economic strategy to put the country back on a higher growth path and to improve its competitiveness and productivity. The New Economic Model (NEM) for Malaysia was launched in 2010 with the goals of achieving a high income economy and inclusive and sustainable growth.

Role of Technocracy in Development

The role of technocrats has become increasingly more prominent in Malaysian development since 1981. Technocrats are an elite group with expert knowledge and ability that has continually served the governing elite (Miyakawa 2000, 11). Technocrats are experts who formulate economic policy and implement it to achieve a set of targets, and are usually civil servants or professionals who receive special training in economics, business, or related field.

At the macro-level, Malaysia is an economic success story. It has enjoyed high, steady GDP and per capita income growth with macro-economic stability. It has become an important trading nation and a host to a large inflow of FDI. In addition, social develop­ment was not neglected—poverty had been significantly reduced and the wealth gained was relatively well distributed. Does technocracy have a role in these achievements?

Technocrats’ role in Malaysia’s economic policy-making and implementation has changed over these three periods. Without doubt, technocrats were given the tasks to manage the economy at the macro-level so that the country could have an impressive economic growth. But, at the same time, technocrats were side-stepped at the micro-economic level. Moreover, the changing role of technocrats depends largely on the balance of influence between technocracy and political leadership.

To understand the role of technocracy in economic development, it would be useful to examine the reasons why political leaders seek the assistance of technocrats, the background of the technocrats, and their relationship with politicians as well as their contributions. As an open economy, technocrats are not needed in order for Malaysia to get international acceptance or assistance. Instead their expertise and professionalism are likely to be used to ensure that development is properly done and the benefits of progress reach the people.

In the early stage of Malaysia’s development, the technocrats came from the civil services but in the later stages, businessmen and professionals had a larger role. There were occasions when technocrats who were given key responsibilities turned to become politicians and be the leaders of other technocrats, many of whom were their former colleagues. What is clear is that the role and contribution of technocrats are very much dependent on the personality and vision of the prime ministers. This economic vision will also determine the type of technocracy needed.

In the Southeast Asian experience, macro-economic management was delegated to largely autonomous agencies and insulated technocrats, who pursued conservative policies. In Indonesia, the so-called “Berkeley Mafia” (a group of economists sponsored by the US Government to receive their tertiary training in US economic faculties) was credited for steering the New Order’s economic policy and emphasizing macro-economic discipline (Neumann 2002). The influence of technocracy on the country’s political leader­ship was such that interests of specific groups were not able to override national interests. Similarly, in Thailand the bureaucrats in the Ministry of Finance (MOF) and the Central Bank were allowed to pursue prudent policies.

Was the high economic growth in Malaysia as well as Thailand and Indonesia due to the economic technocrats being insulated from political pressures? Is it true that a strong developmental state should ensure a high degree of autonomy enjoyed by decision-makers, especially in the bureaucracy? According to Booth (1998) “. . . in Thailand, Indonesia and Malaysia, technocrats in the ministries of finance have been able to insulate key areas of macroeconomic policy-making from overt political interference.” Neumann (2002) is of the view that a hands-off approach in macro-economic management as well as insulating technocrats from political and business pressures had led to stability. ­However, inevitably, vertical patron-client network and political interests would lead to abuse of micro-economic policy for political advantage (ibid., 9). Clearly, there is divergence in effectiveness between macro-economic and micro-economic policies.

This inference raises the question of the role of technocracy in economic policy-making when a country needs to achieve a relatively high rate of growth under increasing challenges of globalization, a public sector that is supposed to take a facilitative role, a dynamic private sector to drive growth, and a democratic system where the interest of the public must be given due consideration. These challenges faced by Malaysia in economic policy-making became more acute in the period after the 1998 Asian financial crisis. An important aspect to examine is whether the separation between economic imperatives and special interests can be done at both the macro- and micro-levels. Thus, the analysis of the role of technocracy in economic policy-making cannot avoid examining the relationship between state and markets and how these two sides interact and influence one another and their effects on institutions and growth performance. Emphasis will be given to the understanding of the dynamics of the relationship between technocrats and the political elite as well as the contribution of the former in the development of Malaysia after the Asian crisis.

The focus of this article is to study the role of technocracy in managing the Malaysian economy during and after the Asian crisis. Economic technocracy should put ­market and economic rationality at the forefront of economic policy to ensure that growth is well founded, resources are used efficiently, and the country is resilient and continues to be competitive. The analysis will focus on two interrelated components—issues and ­players. The issues are economic growth, sustainability, and competitiveness while the players are political leaders, institutions, and technocrats. The conventional wisdom is that the market knows best and by extension technocrats can manage economic matters efficiently to produce the desired outcomes. “. . . The market claims that standard economic solutions as set out by the western capitalism ideals, in particular the neo-classic economics should be the right solution and this claim is presented by technocracy” (Shiraishi 2001). By extension, institutional technocracy advocates “economic ­rationality.”

This article will examine whether the “conventional wisdom” is applied or is applicable to Malaysia, especially in the period after the Asian crisis (the post-crisis period). The discussion begins with a review of the role of technocracy from Malaysia’s inde­pendence in 1957 until the Asian crisis in 1998. This is followed by an analysis of the management of the crisis and the economy during the post-crisis period. The post-crisis period is divided into three phases marked by the changing of the guards in Malaysian leadership. Dr Mahathir Mohamed who steered Malaysia out of the Asian crisis stepped down in October 2003 after 22 years as prime minister and he was succeeded by Dato’ Seri Abdullah Ahmad Badawi. Dato’ Sri Najib Razak took over as prime minister in April 2009, where he had to steer the economy through the global financial crisis which broke out in late 2008. Undoubtedly, the analysis of economic policy-making and management in Malaysia in the post crisis period will no doubt be linked to the vision and style of the three leaders.

The Role of Technocracy in Malaysia’s Economic Development before the Asian Crisis

Although technocrats have always served the governing elite, “. . . however, technocracy is not completely in consonance with the democratic governance of the general public, and as such there has always been tension between governing elite and the ­general public throughout history” (Miyakawa 2000). The tense relationship between rational governance and democracy is brought about by the fact that policy-making depends more and more on technocratic policy analysis and on bureaucratic organizations that have special expertise and relevant information. Consequently, the democratic deliberation by the general public (in Malaysia’s case, the parliamentary deliberation) became less important. Often, policies formulated by the technocracy and approved by the executive branch are passed through the Malaysian Parliament without sufficient deliberation.

Notwithstanding the role of the Parliament, in Malaysia, the more interesting relationship is between the technocracy and the ruling elite as symbolized by the Cabinet. In some periods, the Cabinet is represented by the Prime Minster and thus, the control of economic policy-making is largely dependent on the style and approach taken by the Prime Minister.

Technocracy in Malaysia is inherited from the British colonial system where the bureaucracy is set to be independent from the political process. Besides the civil servants in the bureaucracy, from time to time, selected professionals from the business sector and academia are recruited to join the technocracy for specific tasks. During the early period of Malaysia’s nationhood, the civil service attracted the best brains because it was considered an elite service and many were trained in Britain. They were placed at key ministries and central agencies such as the MOF, the Bank Negara of Malaysia (the central bank), and the Economic Planning Unit (EPU). In the later years, as the size of the civil service expanded, the recruitment was less stringent while most of them received their training in local higher educational institutions. Nevertheless, the upper echelon of the civil service continues to receive their post-graduate training overseas.

Technocrats’ influence is best seen in central agencies such as the central bank, the Treasury, the EPU, and Implementation Coordination Unit (ICU). However, another important aspect of economic technocracy is the role played by government agencies in meeting specific development objectives. These agencies are bodies under ministries that were established with special mandate to upgrade the rural areas and the economic status of the Bumiputeras. Examples of such agencies are the Majlis Amanah Rakyat, Federal Land Development Authority (FELDA) and Federal Land Consolidation and Rehabilitation Authority (FELCRA).

Generally, technocrats are considered to have made positive and influential contribution to the socio-economic development of Malaysia. The imperative of delicate race relations has to a large extent protected macro-economic policy-makers from parochial interference and hence allowed them to pursue long-term strategies without needing to focus solely on short-term outcomes. The strategies and policies formed by these technocrats could have been influenced by their training in Western academic institutions as well as interaction with business leaders and world economic bodies such as the World Bank and the International Monetary Fund (IMF).

The discussion on the role of technocrats in Malaysian economic development ­during the period before the Asian Crisis can be divided into two phases:

(i) From Independence in 1957 to 1981

Under the leadership of Tunku Abdul Rahman (the first prime minister), Tun Abdul Razak (the second), and Tun Hussein Onn (the third), technocrats experienced a relatively harmonious relationship with the political elite. In fact, they were considered as valued partners and their views and advice were taken seriously. Their contributions to economic policy formulation and the implementation of these policies were enormous. The technocrats were instrumental in designing many of the key economic policies such as the green revolution, export-oriented industrialization, national petroleum policy, and the development strategies embedded in the five-year plans.

This close relationship was not surprising, considering that both Tunku Abdul ­Rahman and Tun Abdul Razak were members of the bureaucracy and many of the technocrats studied together with these leaders either at schools or universities. The EPU was perceived to be the most influential institution because it decided on the allocation of development budget. Senior EPU officers such as Thong Yaw Hong, G. K. Rama Iyer, and Radin Soenarno worked closely with the political leaders to implement the government vision and plans. The government agriculture policy, albeit conservative, has success­fully diversified and modernized the sector with the creation of new land development schemes by the federal land authority. These new land schemes, which were planted with palm oil, were used to mitigate the adverse effect of low and fluctuating rubber prices as well as solving the problem of landless farmers.

Tun Razak had paid a special focus on rural development and technocrats were critical in ensuring that his ideas were effectively implemented. For example, Taib Andak, a close friend of Tun Razak was tasked to implement land redistribution scheme for the landless through FELDA. When Taib retired, Raja Muhammad Alias Raja ­Muhammad Ali, another technocrat was given the responsibility on FELDA to ensure that this important project was successful. Likewise, technocrats in the Ministries of Finance and International Trade and Industries (MITI) as well as specialized agencies like the Malaysian Industrial Development Authority (MIDA) played a major role in designing incentives and industrial estates to attract FDI and to promote export-oriented industrialization.

Clearly, the technocrats had enjoyed a considerable leeway and influence in the formulation and implementation of macro-economic policies up to the early 1980s. Politi­cal leaders relied on technocrats not because the latter sought legitimacy or international acceptance but on the former’s ability and professionalism so that development would take place. The technocrats were knowledgeable, professional, and skilful and were able to offer advice to politicians and were effective in implementation. Delegation of macro-economic policy formulation and implementation to insulated technocrats had enabled them to pursue conservative macro-economic policies. During this period, technocrats were in the driving seats and some of the leading technocrats became national figures and household names. For example, Ghazali Shafie, who was the Secretary General of the Ministry of Home Affairs and a very influential bureaucrat, joined the political elite by becoming the Minister of Home Affairs and thus brought the bureaucracy closer to the power apex.

Following the racial riot in 1969, the government declared a state of emergency, suspended the Parliament, and formed the National Operations Council (NOC). This council was chaired by Tun Razak and he was assisted by the bureaucracy, Army, and Police. During this time, the NEP was formulated by key technocrats, both Bumiputeras and non-Bumiputeras.

(ii) From 1981 until the outbreak of the Asian crisis in 1998

The changing balance of influence and role between technocrats and political leadership was evident when Dr Mahathir took office in 1981 as the nation’s fourth prime minister. He introduced measures to inculcate higher discipline in the bureaucracy and demanded greater productivity. Dr Mahathir had strong visionary ideas on how to leap-frog the economy to a higher level of development. Some of Dr Mahathir’s ideas were modeled after the developmental experience of Japan and South Korea, namely state intervention to spur industrialization, which in turn would be the mainstay of the nation’s economic activities.

Heavy industrialization policy was introduced to drive the industrialization process. The public sector was used as a channel to realize these ideas and many government companies were established to implement the heavy industrialization policy such as the national car project. As a consequence, the size of the public sector ballooned. The technocrats’ role was to implement the strategies through the establishment of public enterprises and many were appointed to head these entities and the state-owned companies. Clearly, Dr Mahathir asserted a stronger role of the political elite over the “traditional” economic actors, namely the technocrats.

The 1985 economic recession had changed Dr Mahathir’s economic approach. Liberalization was seen as a way for Malaysia to attain higher growth. The “new Mahathir leadership” became critical of the large bureaucracy and perhaps regarded it even as a hindrance to development. Conversely, the private sector was given the responsibility to drive economic growth, resulting in the “rolling back” of the public sector by privatizing or closing inefficient public sector agencies and departments. To provide the right environment for the private sector to take the lead role, the Government had introduced a number of liberalization measures such as in the banking sector, capital market, and relaxation of equity rules for FDI.

Dr Mahathir brought in Daim Zainuddin, a businessman-lawyer-politician and a close ally, into the government as his Finance Minister in order to implement his new economic approach of liberalization and privatization. Daim supervised the creation of many private companies and nurtured a cadre of young Bumiputera entrepreneurs to ensure that the private sector become the main engine for growth.

The Malaysian Business Council was established in 1991 to bring the public sector and the business community closer. Although the Malaysian Business Council served an important informational function, it had no authority to make decisions or provide direct input for policy-making. During this period, a number of economic ideas, particularly concerning privatization, came from the private sector while the technocrats were given the task of implementing these ideas only. Dr Mahathir’s grand vision of making Malaysia a developed country—Vision 2020—was developed together with Dr Noordin Sopiee from the Institute of Strategic and International Studies (ISIS), a think tank. Subsequently, the role played by technocrats took a back seat.

The increasing influence of the private sector and others from outside the bureaucracy did not mean that Dr Mahathir had totally sidelined the civil service. He trusted and relied heavily on a few key civil servants. Azizan Zainul Abidin, his chief of staff, was entrusted with many important responsibilities and upon retirement from the civil service he was appointed to head Petronas, the national oil company. Chief Secretaries to the government (head of the civil service) such as Sallehuddin Mohamed and Ahmad Sarji Abdul Hamid were close to and highly regarded by Dr Mahathir as they were tasked to ensure that the civil service implement policies efficiently. Similarly, Raja Tun Mohar Raja Badiozaman, a key economic technocrat, was associated with a number of key ­projects such as Proton, the national car and later became the economic adviser to Dr ­Mahathir when he retired from the civil service.

It is clear that Dr Mahathir stamped his own idea on economic growth and along the way reduced the role of technocrats. The fact that his tenure as prime minister covered 22 years meant that he had a longer institutional memory than the technocrats. As a result, he had a better understanding and grasp of the path of economic development that has been or should be taken. His prime ministership also dispelled the idea that technocrats were guiding or advising the government—rather it was the technocrats who were the instruments of political rulers. In effect, technocrats were an endogenous part of some deeper political processes.

Dr Mahathir’s economic vision was largely influenced by his desire to uplift ­Malaysia’s economic status, for it to be a modern economy, have an economic strength and competitive edge, enhance its role in the international trading system, have science and technological capability, and integrate well into a globalized economic system. He believes that input and support from the business sector in economic strategies and growth are critical.

Dr Mahathir’s economic vision was premised on a strategy of high growth, which had also brought some macro-economic shortcomings, namely the formation of a savings-investment gap, persistent current account deficits, and high private sector domestic debt. Looking beyond the traditional indicators of economic fundamentals, there are also some signs of weaknesses such as the de facto peg exchange rate, asset price bubbles, and exposure to a large capital outflow. At the micro-level, deficiencies were even more glaring—the high level of debts accumulated by some major companies, over-reliance on the stock market for funding, asset price inflation, excess capacity in some sectors such as the construction industry, and the promotion of projects with questionable viability.

Macro-economic indicators prior to the Asian crisis showed that the Malaysian economy was well managed. It had a robust external sector, the public fiscal position was in surplus, the banking sector was well supervised and had sufficient capital, it was a receiver of foreign capital inflow (both short- and long-term ones), and its equity market was the third largest in Asia. In addition, it had full employment and inflation was low. These developments were achieved by market-based and private sector driven economic policies. But when the crisis hit, the micro-level deficiencies outweigh the macro-­economic fundamentals and pushed the economy downward, resulting in the strategies and policies being questioned and policy-makers scrutinized.

Management of the Asian Crisis

The impact of the 1997/98 economic and financial crisis was severe and it could destroy all the economic achievements that Malaysia had made over the past 40 years since its independence. The most severe effect was on the financial sector—the ringgit exchange rate depreciated by 45% from its July 1997 level of RM2.50 to USD1; the equity market lost 80% of its market valuation; the short-term capital account showed a substantial net outflow of RM21.7 billion; and the interest rate level had jumped while the level of non-performing loans (NPLs) of financial institutions had increased significantly. The other severe impact was the massive contraction in the construction sector, sharp decline of domestic consumption and domestic private investment. But the crisis also brought some positive effects, namely on exports where the initial exports reduction was reversed when the ringgit was pegged (at RM3.80 for one US dollar). By virtue of depreciation, in nominal ringgit value of the total export, revenue had increased by 29.8%. Fortunately, the price impact was limited with inflation capped at 5.3% and unemployment rate at 3.2% (the unemployment effect was absorbed by foreign labor who returned to their home countries when the economy slowed down).

The impact and the causes of the crisis were the key factors in shaping Malaysia’s response to the crisis. The crisis was triggered by external factors and worsened by internal weaknesses. The contagion effects were set off by the baht devaluation in July 1997, which caused the market and foreign investors to lose confidence in the health of the Malaysian and other regional economies. The “voting by the feet” saw a massive outflow of short-term foreign capital, with the devastating effects of pushing down the value of the exchange rate. The Malaysian domestic private sector which depended heavily on loans from the banking sector and the stock market had to brutally reduce their activities. When interest rates increased and domestic consumption slowed down, the excess capacity especially in the construction industries had forced companies into heavy losses. In sum, these weaknesses were mostly the product of liberalization efforts introduced earlier without the accompanying safeguard measures.

As with the other affected countries, Malaysia’s early response was to adopt the standard IMF-style measures,1) namely tightened fiscal and monetary policies, introduce measures to redress balance of payment deficits and float the exchange rate. The government had also deferred mega projects and initiated cutbacks on government purchase of foreign goods. In the financial sector, a comprehensive set of measures was implemented such as reclassifying the NPLs in arrears from six to three months and greater financial disclosure by financial institutions. A credit plan was also introduced to limit overall credit growth to 25% by end-1997 and 15% by end-1998, where priority was given to productive and export-oriented activities. The central bank had also raised the three-month intervention rate from 10% to 11%, increased the minimum risk-weighted capital adequacy ratio from 8% to 10 %, and reduced the single customer limit from 30% to 25%. The level of provisions against uncollateralized loans was also increased to 20%.

However, these initial policies as advocated by the “Washington Consensus”2) did not produce the expected results. The fiscal reduction of 20% and infrastructure projects deferment had severely contracted domestic demand. In addition, higher interest rate and credit tightening had starved domestic firms of funds at a reasonable cost. As a result, the domestic economy continued to deteriorate and the exchange rate remained volatile. The private sector was in serious trouble and it could not lead the recovery as it did in the 1985 crisis. Moreover, the private sector’s rising debts could threaten the stability of banking institutions due to the inadequacy of capital to meet the rising NPLs. The external environment was very volatile and uncertain and recovery from the crisis would need much more than an export-driven recovery strategy. In other words, the standard solution as suggested by the IMF was not working.

The ferocity and speed of the unfolding events of the crisis required a different and radical approach. If the situation continued to worsen, the crisis could have destroyed Malaysia’s economic achievements. Therefore, a co-ordinated, comprehensive, and centralized approach was adopted. This was a departure from the 1985 crisis management, which was primarily the responsibility of the MOF. In 1985, the globalization was not as extensive and the domestic economy was less integrated with the regional and global economies as in the 1990s. As such, the government had the time to prepare for any transmission of shocks as capital flows was also less volatile then. Unlike in 1998 when the public sector position was a surplus, Malaysia experienced twin deficits in the fiscal and external payment positions in 1985. Hence, the fiscal policy stance adopted by the MOF then was different with the focus mainly on fiscal restraint through a privatization exercise as government downsized its role in the economy.

In 1998 it was the private sector that was the weak link in the economic chain and this posed a greater problem—if the private sector were to succumb to the crisis, and then it would bring down the banking sector in its wake. Fortunately, the public sector was in a stronger position (having a smaller share of outstanding external debt at 11.4% in 1998 as compared to 53.6% in 1985) and so was able to effectively lead in the recovery process. Indeed it was very clear that a hands-on crisis management style of keeping a constant watch on the economy, sometimes down to the micro-level, was needed because of the potentially dire consequences brought upon by the unprecedented speed of crisis.

When the crisis first broke in July 1997, Dr Mahathir was preparing for his retirement and the management of the economy was left largely to Anwar Ibrahim, the Deputy Prime Minister and the Minister of Finance. Dr Mahathir was alarmed and unhappy when the early crisis response measures, which followed the standard prescription of cutback in public sector expenditure and higher interest rate, did not produce the desired outcome but instead made the economy worse. Dr Mahathir decided that the response to the crisis must be comprehensive and quick, address the critical issues, and serve the needs and interest of the nation. More importantly, since the standard economic ­remedies were not working, new measures must be introduced. For quick and effective implementation, a new body must be created that can overcome the issues of overlapping ministerial jurisdiction. The National Economic Action Council (NEAC) was established in early 1998 for this purpose.

The priorities set by the NEAC were:

• The domestic economy to lead the recovery process
In view of the external volatility and uncertainty, expansion of the domestic economy was essential to compensate for the adverse impact of contracting externally linked economic activities.

• Stabilization of the ringgit
With a stable ringgit, domestic production could resume because exchange rate uncertainty would have been removed. Most businesses could operate at any exchange rate level, after making adjustments, as long as there was some degree of stability.

• Regaining monetary policy independence
Malaysia must regain the control of its monetary policy and this could be done only if the link between interest and exchange rates was severed. Monetary independence would allow a substantial reduction of the interest rate without putting pressure on the currency.

• Restoring market confidence
Malaysia had a reputation as a good investment location and the crisis was, in part, attributed to the loss of confidence among international investors. The loss of domestic confidence followed when the economy deteriorated and the exchange rate plunged. The restoration of market confidence, particularly domestic, was crucial to bringing back a favorable environment for investment.

• Maintaining financial market stability
Financial institutions without adequate capital to meet this contingency would not be able to perform their intermediary functions of funding business activities and this could throttle the economy.

• Ensuring adequate liquidity to finance economic activities
For the economy to stabilize and grow, there must be sufficient liquidity and a reasonable level of interest rate, which will allow companies to borrow again and resume their activities.

• Preserving socio-economic stability
In an ethnically diverse society, socio-economic considerations are vital for continued stability and harmony. Experience has shown that economic hardship could feed racial tension, if one ethnic group perceived that it was suffering more than other groups or if one group was less distressed. The recovery measures must ensure that policies were not only economically efficient and market consistent but also supported socio-economic and strategic objectives.

• Assisting affected sectors
Some sectors were more affected than others during the crisis, and since some of them are critical to the economy, steps must be taken to maintain their viability.

Before the formation of the NEAC, management of the economy was primarily in the hands of the Treasury which is, part of the MOF. But the Treasury did not have jurisdiction over other parts of the government structure that are also essential in dealing with the crisis. The government needed a national committee (NEAC) that brought together all the relevant ministries and interest groups to overcome the problem of inter-agency areas of responsibility. This would eventually allow a more focused and integrated strategy, applied consistently to all ministries. NEAC would also consolidate the national institutional capacity in implementing measures and to ensure a quick response to any new challenges triggered by the crisis.

The need for impartiality of the crisis management team decisions was paramount. It must look beyond a particular inclination or stance of any ministry or central public agency. In the early stage of the crisis, the MOF, including Bank Negara Malaysia, favored the adoption of IMF-style solutions. But others, particularly Dr Mahathir, had argued for possible counter measures, namely an easier interest rate and expansionary fiscal policies. This policy dichotomy was not a good platform from which to develop a crisis response. The often cited example of the policy differences between Dr Mahathir and the MOF was the forced resignations of the Governor and Deputy Governor of Bank Negara Malaysia when these officials disagreed with Dr Mahathir’s suggestion that interest rate should not be increased but instead should be lowered.3) Some commentators interpreted these resignations as part of the political feud between Dr Mahathir and Anwar Ibrahim, leading up to the sacking of the latter on September 2, 1998 (Khoo 2003).

Ideally of course, Malaysia would be best served by policies flowing from all ministries and public agencies, which also reflected the general sentiment. Such neutrality would ensure that whatever policies adopted were not perceived by the public and media, as coming solely from one influential group. Also conflicting and over-lapping jurisdiction of ministries and public agencies could vitiate the full implementation of crisis. Unfortunately with the division in views becoming more and more evident, the opportunity to develop consensus was diminishing. Another policy vehicle was needed, one that had credibility and broad bipartisan support. To overcome this, the NEAC therefore had to be a high-level council with a strong executive implementation mandate.

By virtue of its diverse membership and powerful leadership, the NEAC was well positioned to integrate the diverse functions and jurisdiction of the many ministries and government agencies. This later proved to be a key factor in solving the many and complex problems that were to come the NEAC’s way. These two strengths—an integrated policy response and overcoming institutional rigidity—came from having the Prime ­Minister as the chairman of the NEAC. The NEAC members included the private sectors and professionals from outside the bureaucracy. In fact, the Executive Director of NEAC at that time was Daim Zainuddin, a former Finance Minister, businessman, and confidante of Dr Mahathir and some view this as a move to marginalize Anwar Ibrahim. The other members of the NEAC were Anwar Ibrahim (Deputy Chairman), Daim Zainuddin, Dr Noordin Sopiee (Chairman of ISIS), and Oh Siew Nam (businessman). The work of the NEAC was supported by the EPU as the Secretariat and the NEAC Working Group. The NEAC Working Group worked directly for the Executive Director to produce the National Economic Recovery Plan which proposed the response measures to be taken. Members of the Working Group came from the private sector, a think tank, and academia.4)

NEAC was established as a consultative body to the Cabinet, and many parties questioned its effectiveness without an implementation mandate. Moreover, at that time the Treasury was in charge of most economic and financial decisions and so few could imagine that the NEAC was going to lead the crisis management process. However, the NEAC needed a mandate and clout to implement its decisions, something that it would not be able to do should it be just another consultative body. It was decided while the executive powers would remain with the Cabinet and the NEAC be its consultative body on economic matters, the latter should be conferred some executive powers. The control structure of NEAC requires that every important decision made by the Council has to be approved or endorsed by the Cabinet, although sometimes there was a time lag when some of the measures had to be implemented immediately. In addition, the Parliament must also approve any major policies or institutional changes. During the course of NEAC’s operations, however, it became very influential, primarily because the mandate was derived from its chairman, the Prime Minister.

The Malaysian response was certainly unconventional and not based on the standard economic reasoning as advocated by the technocrats. Capital controls were clearly against the economic conventional wisdom and normally introduced by countries to solve non-economic problems. The solutions, which could be interpreted as isolating or insulating the country against external vagaries, were also not usually taken by a small open economy which is dependent on the world for its well-being. Although Dr Mahathir was an early supporter of globalization, his criticism on the harmful side of globalization as exhibited by the Asian crisis is consistent with the Malaysian response to the crisis and could be linked with Malaysia’s stance on a more cautious path to liberalization. For example, Malaysia refused to allow foreign investors to buy distressed domestic assets even though this approach was adopted by the other crisis hit countries in the region.

The measures taken which were considered, at that time, to go against the conventional wisdom are:

• Reversing budget surplus into deficit through fiscal stimulus programs
The budget stance was reversed from a surplus of 3.2% of the GNP in 1998 to a deficit of 6% in 1999.

• Easing the monetary stance
The statutory reserve requirement for banks was gradually reduced from 13.5% in February 1998 to 4% in September 1998. The base lending rate (BLR) was reduced from a high of 12.3% in June 1998 to 6.79% in October 1999.

• Stabilization of the ringgit
Introduced capital controls measures on September 1, 1998. The selective capital controls have two inter-related parts: first, the pegging of the ringgit to the US dollar at a rate of RM3.80 to USD1 and second, the restriction on the outflow of short-term capital.

But at the same time, the political leadership also paid heed to the economic technocracy and introduced market-based measures to address some of the causes of the crisis. These measures, which were based on industry best practice, were targeted to ensure that the banking sector remained sound. For this purpose an asset management company (Danaharta) was set up to manage NPLs of financial institutions. Then, a ­Special Purpose Vehicle (Danamodal) was set up to capitalize the banking sector and the Corporate Debt Restructuring Committee (CDRC) was set up to facilitate debt restructuring of viable companies.

An array of measures was also introduced to further strengthen the governance environment including improving transparency and disclosure standards; establishing a committee on corporate governance; enhancing monitoring and surveillance; enhancing accountability of company’s directors; protecting the rights of minority shareholders; and reviewing codes and acts to minimize weaknesses.

The economic governance process during the crisis, particularly in the key years of 1997 and 1998, was the product of an extremely dynamic situation. The Malaysian economy was, in the 1990s, already very much integrated with the global one, and many of its crisis parameters were external. Thus, any policy decisions must bear in mind the openness of the economy. The question of whether the policies were reactive or pro-active was also critical—in crisis times, while the reactive process dominated policy decisions, the government must also be pro-active for policies to be effective and efficient.

Dr Mahathir was frustrated with the approach proposed by the bureaucracy, which had followed the standard crisis solutions. He wanted a new approach, a “thinking outside the box,” particularly in dealing with the sharply depreciating currency. Nor Mohamed Yakcop, a former senior official of the Bank Negara Malaysia explained to him the workings of speculation on currency and this confirmed to Dr Mahathir that the ringgit had to be pegged if the economy was to be saved. Other ideas on the formation of special vehicles to deal with NPLs and to recapitalize the financial institutions came from ­models that have been successfully implemented in other countries.

In managing this crisis, Dr Mahathir employed a new set of technocrats from amongst the retired civil servants, businessmen, professionals, researchers, and academicians. The civil service was used primarily for implementing the measures suggested by this new set of technocrats. Dr Mahathir took this route because he disagreed with the earlier crisis response measures implemented by the bureaucracy and wanted new solutions, even though they were deemed controversial. However, another explanation is that Dr Mahathir wanted to wrest control of the economy from Anwar Ibrahim and thus, he had to establish a new economic team. Notwithstanding the political struggle between the two leaders, the civil service implemented the measures proposed by the NEAC effectively, particularly the capital controls and the pegging of the ringgit, which were crucial for Malaysia in overcoming the crisis.

The Role of Technocracy during the Post-Crisis Period

Dr Mahathir felt vindicated because although initially the world had denounced ­Malaysia’s response to the crisis, the measures had worked. Malaysia recovered relatively well with less economic and social costs as compared with some other crisis-hit countries. Even the IMF, in time, acknowledged that capital controls could be alternative solutions to a crisis. After recovery from the crisis, Malaysia as many other countries in the region and world faced a number of economic shocks namely the September 11 incidence, SARS epidemic, and the Middle East conflicts. Dr Mahathir, through NEAC, continued the Asian crisis policy response by keeping an accommodative monetary policy and expanding the fiscal stimulus programs. By then, the world had taken note of the earlier Asian crisis experience and response and most countries followed that approach in dealing with these shocks.

It is worthwhile to note that even though Dr Mahathir had introduced response measures that were contrary to the conventional wisdom, Malaysia had followed the standard solutions in other areas particularly in terms of enhancing corporate governance and in dealing with the financial sector’s problems. Dr Mahathir continued the mechanism of economic management even when the economy had recovered from the crisis. Yet, there were also criticisms that Malaysia had refused to “bite the bullet” namely to allow problem companies to fail and for deep restructuring to take place. One thing is clear—the public sector is back in the driving seat for driving economic recovery and growth when the private is unable to do so.

The Asian crisis has redefined the new economic priorities for Malaysia, as follows:

• To achieve a sustained high growth path
The 1997–98 turmoil highlighted the pitfall of a growth strategy based on accumulation of inputs, in this case high capital investment. Therefore, Malaysia’s economic goals—to be an industrialized nation and to restructure its society—must now be based on productivity, technology, and knowledge. The government had announced new policy initiatives to produce high growth, namely:

i. Knowledge-based economy: This strategy is to respond to the changing nature of the global economic activity driven by rapid advancements in information and communication technologies. A key ingredient for a successful knowledge-based economy is the availability of the right human capital, which requires a sufficient pool of educated, flexible, well-trained, and highly skilled manpower.

ii. Human capital: This vision of the future economic and competitive landscape naturally requires a high quality human capital. Malaysia’s education sector has to make a quantum leap to build a labor force that is not only proficient in employing today’s technology but also able to contribute to and shape the technology and ideas of tomorrow.

• New sources of growth: The next growth cycle would have to come from the services sector. To achieve this target, service sector’s productivity must be improved.

• Revisiting the privatization policy: A review is useful to ensure that balance between efficiency and benefit of privatization is maximized.

• Deepening the capital market: One of the main reasons for the 1997–98 crisis was the over-dependence of companies on the banking sector and the equity market in raising funds to finance their activities. The third source of capital, that is the bond market, should be developed further to reduce the reliance on the two other sources and to better match funding risks and returns.

• Increasing economic competitiveness:
i. Malaysia can no longer compete on cost alone: The sales pitch must point to world class quality and service. A key consideration is for Malaysia to reposition itself in the global supply chain by becoming a base for R&D, production of critical components and design and procurement centers.

ii. Continue with plans to liberalize selected sectors: The financial sector consolidation plan has merged 58 financial institutions into 10 banking groups. This exercise is part preparation for liberalization where ultimately domestic financial institutions will have to compete freely with larger and more efficient foreign financial institutions.

• Restructuring of the corporate sector: More professional managers are needed. The question that was put forward in the aftermath of the crisis was whether there is a need to remake Malaysia Inc. because of over-reliance on a number of owner-entrepreneurs has not produced a robust corporate Malaysia. While this model benefits from their risk-taking dynamism, there is concern that this trait would lead to insufficient emphasis on controls, good governance, and risk management and asset-liability management.

• Continuing with the objectives of restructuring the society to achieve a more balanced socio-economic composition: Although the NEP has reduced poverty, it has not been very successful in its task of raising the Bumiputeras corporate equity to the targeted 30% share. The issue of the restructuring of society has now an added dimension: while the numerical targets are still important and are being pursued, of equal importance is the question of quality of these achievements.

When Abdullah Ahmad Badawi took over as Prime Minister in November 2003, naturally there were questions about the new prime minister’s approach towards economic strategy and policy formulation. Highest in the mind of the public and the investing community is whether Abdullah Badawi would maintain the existing economic strategies and economic policy-making structure.

Although Dr Mahathir had set out many policies for Malaysia, it is not unexpected that Abdullah Badawi would introduce his own strategy for Malaysia’s economic growth as well as the players who would influence economic policy. It is worthwhile to note that Abdullah Badawi came from the civil service—he held a high ranking position in the bureaucracy before joining politics.5) Therefore, his preference towards restoring the role of technocrats was understandable. Even though there were calls for the private sector to resume their role as the driver for economic growth, there were little concrete measures to back this call. The government continued to stimulate growth through its investment and thus unable to reduce the fiscal deficits.

Abdullah Badawi’s economic strategy was to focus on soft infrastructure (enhancing human capital and knowledge). Among his major policies were:

• Setting targets forwards achieving a balanced budget

• Continuing the liberalization efforts in order to attract foreign investment inflows, particularly portfolio investment

• Allowing more competition in the automotive industry, which may ultimately reduced the dominance of the national cars

• Deferment of mega projects

• Removal of oil subsidy

• Making the agriculture industry as another engine for growth

• Focus on biotechnology

This focus on soft infrastructure was in contrast to Dr Mahathir’s preference for hard infrastructure (highways, airports, hospitals, and schools) and some groups had interpreted this as reversing earlier policies.

The conservative and cautious approach of technocrats in the MOF and Bank ­Negara Malaysia was obvious in the Government’s response to key contemporary economic issues. For example, the Government was largely silent on the calls to review the ­ringgit peg including from Dr Mahathir, the architect of the scheme, and the ringgit peg was only removed when China did so in July 2005. Similarly, there is no immediate and comprehensive response to the steeper than usual increases in the Consumer Price Index in 2005, as a result of higher oil price.

Abdullah Badawi’s new style of governance is characterized by inclusiveness, which was supposed to be different from Dr Mahathir’s. He urged the people to “work with me, and not for me” and presented a style of leadership that invited greater participation, offered accommodation, and built consensus.6) His people-friendly measures were comprehensive and systematic and extended beyond the public service delivery system to the general public and the private sector. A high-powered taskforce called PEMUDAH was established to reduce bureaucratic red-tape and facilitate the public-private sector partnership and to support the transformation of the public service from a regulator to an enabler. As part of his program to increase professionalism in the government, ­Abdullah Badawi appointed non-politicians—Nor Mohamed Yakcop, who was Dr ­Mahathir’s economic adviser and Amirsham Aziz, a former banker—in his Cabinet.

The expectation that the bureaucracy’s role, which was marginalized and side-lined in key decision-making process in the previous administration would be restored did not fully materialize. It is true that technocracy played a more important role in formulating and steering the economic direction in Abdullah Badawi’s Administration, however, the players were not from the public service but from different groups. Unlike Dr Mahathir, who sourced economic and business ideas directly from top business leaders, Abdullah Badawi sought counsel from professionals in the private sector.

This inability of the civil service to resume a lead role in public administration and in giving advice to the political leaders to meet the more sophisticated and complex demands of the nation’s socio-economic development could be partly due to the structure of the public sector that is heavily dominated by the Malays. In 2010, 77% of the 900,000 civil service was made up of Malays, 9.4% Chinese, 5.1% Indians, and the balance by other Bumiputeras.7) This structure does not reflect the country’s demographic composition of 67.4% Bumiputeras (including Malays), 24.6% Chinese, 7.3% Indians, and 0.7% others. The NEP had favored a higher employment of Malays in the public sector to compensate for the lower ratio of Malays employed in the private sector. In the 1970s and 1980s, there was a higher proportion of non-Malays in the important ministries and in critical posts as compared to now. Some observers concluded that this preference for employing Malays has undermined the practice of meritocracy in the recruitment and promotion in the civil service. Low salary is also a factor that discourages the Chinese from joining the civil service.

Another important departure from the Mahathir era was the appointment of young business professionals in key public sector agencies such as Khazanah Nasional (the investment arm of the government), Tenaga Nasional (the privatized national energy company), and Telekom Malaysia (the privatized national telecommunication company). These technocrats were tasked to transform Khazanah Nasional and government-linked companies (GLCs) to be the new national economic pace setter and create dynamic and efficient companies that would drive the national economic growth. The Government-Linked Company Transformation Program was launched in 2004 and these GLCs were given performance targets. They had performed well and were a dominant force in the economy: during the 2004–12 period, the GLCs gave a 14.5% per annum total shareholder return, increased their market capitalization by USD65.3 billion, and delivered 18.2% per annum earnings growth. As well as having a dominant presence in some domestic industries, some of these GLCs have successfully ventured abroad, particularly in financial and telecommunication sectors in ASEAN.

Khazanah Nasional and GLCs were the new technocracy, where professionals with private sector experience brought new approaches to public sector governance and ­policy formulation. Many of these technocrats were trained in business schools or served in management consultancy. This elite group included Azman Mokhtar (head of Khazanah Nasional), Wahid Omar (Telekom Malaysia and later Maybank),8) and Che Khalib Mohamed Nor (Tenaga Nasional). The injection of these new technocrats, who are qualified Bumiputeras (many were graduates from top tier world universities and have worked internationally) is also to overcome the lack of technical competency in the civil service. Thus, although the NEP remains the underlying policy, the new Bumiputera technocrats are highly skilled, competitive and have international experience. They also work together and are supported by non-Bumiputera technocrats in Khazanah Nasional and many of the GLCs. For example, there are four non-Bumiputera Executive Directors working with four other Bumiputera Executive Directors in the key investments portfolio. Likewise, CIMB Bank, a GLC that was formed through the amalgamation of various banks including the Bank Bumiputera,9) and now one of the top two banks in Malaysia and has a significant ASEAN footprint, has non-Bumiputeras in its top management team such as Deputy Chief Executive Officer (CEO) in charge of corporate banking, Deputy CEO in charge of consumer banking and chief financial officer.

These private sector but government-linked technocrats had the stamp of prime ministerial authority to promote efficiency, effectiveness, and professionalism in the government machinery. This increasing “privatization” of the technocracy (as distinguished from the bureaucracy as a whole) has blurred the lines between a true technocrat and a “corporate-technocrat.” They also increasingly functioned as “mediators” between the Cabinet and the ministries. This is discerned most clearly in the measuring of the performance of ministries under the Ministry Key Result Areas (MKRAs) which was later introduced by the Najib Razak’s administration. It is interesting to note that although Dr Mahathir himself never went that far in the “privatization” of the bureaucracy with the appointment of “outsiders” into technocratic roles and positions, it conformed to his agenda of continuously modernizing the public service. The increasing role and influence of the GLCs strengthens the conceptual framework that the public and private sectors are partners and must develop synergistic relationship.

Clearly in the Abdullah Badawi Administration, technocrats were given a more prominent role but unlike the 1970s and early 1980s, and the control of economic policy-making was with the new technocrats—young professionals with corporate experience—from the GLCs. Another important development was that Abdullah Badawi allowed the Parliament a closer scrutiny of the government economic policies and measures.

The euphoria and “feel-good” sentiments which initially accompanied the results of the 2004 general election, where Abdullah Badawi and Barisan Nasional (the ruling coalition) won the largest mandate, later gave way to cynicism, sense of betrayal, and growing disenchantment. Rising costs of living, rising crime, and the continuance of a corrupt culture were some of the main factors contributing to an increasingly negative perception of Abdullah Badawi—broken promises, unfulfilled pledges, and shattered expectations.

The 2008 general election gave the Barisan Nasional its worst election result, where it lost for the first time its two-thirds parliamentary majority and five states plus the Federal Territory to the opposition coalition.10) Besides the perception of unfulfilled expectations and promises, it was argued that the massive election loss was attributed to the role played by and influence of the “Fourth Floor Boys,” Abdullah Badawi’s young advisers led by his son-in-law, which was touted as the “real power behind the throne.”

With such election results, it was untenable for Abdullah Badawi to continue as Prime Minister. However, Najib Razak only assumed the premiership in April 2009, 12 months after the 2008 general election. The global economy, which had just entered its worst crisis since the Great Depression in late 2008 was not a welcoming curtain raiser for the new prime minister. Although the Malaysian financial sector was not affected, the impact of the global crisis came through the real sector, where the sizeable drop in exports had threatened to push the economy into a recession.

Najib Razak had once described himself as a “technocratic politician” in an interview with the Malaysian Business Magazine (1993). This was based on his early experience as an executive with Petronas from 1974–76. He also served briefly with Bank Negara. Trained as an economist and with Malaysia’s experience in dealing with the 1998 Asian Crisis, Najib Razak firmly responded by launching a large fiscal stimulus package, with a size of about 10% of the gross domestic product and lowering of interest rates. Part of the stimulus package was spent on skills training and infrastructure development. These measures were the new standard prescription for responding to a crisis where the ­market demand collapsed. In such cases, the public sector had to stimulate the economy through fiscal surplus and accommodative monetary policy. These new standard prescription was implemented well by the bureaucracy and the Malaysian economy recovered well in 2010 after declining by 1.7% in 2009.

Since the Asian crisis, the Malaysian economy was only growing at a moderate rate and it was stuck in the “middle income trap.” After attaining a middle income country status in the early 1990s, Malaysia was unable to progress well to join the group of high income countries. Najib Razak saw it as his mission to uplift the status of the Malaysian economy through a new economic model. For this purpose, he established the NEAC in June 2009. The Chairman of the Council was Amirsham Aziz, the former minister in charge of the EPU in the Abdullah Badawi Administration. Two members of the NEAC Working Group under Dr Mahathir (the body that was charged with the formulation and implementing the recovery measures during the Asian crisis, and hence warranting the word “Action” in its name), Dr Zainal Aznam Yusof and Dr Mahani Zainal Abidin were brought back into service. Other members of the Council are Andrew Sheng (former Chairman of the Hong Kong Securities and Futures Commission), Dzulkifli Abdul Razak (Vice-Chancellor, Universiti Sains Malaysia), Dr Hamzah Kassim (technology and ­public policy consultant), Dr Yukon Huang (World Bank), Dr Homi Kharas (Brookings Insti­tution), Prof. Danny Quah (London School of Economics), and Nicholas S. Zefferys (businessman).

Najib Razak also launched the NKEA to complete his economic transformation program. This work has been tasked to Idris Jala, the former Chief Executive Officer of Malaysian Airlines and now appointed a Minister in the Prime Minister’s Department and the head of PEMANDU (Performance Management and Delivery Unit). PEMANDU, formed in September 2009 is also responsible for monitoring the key performance index of ministers and ministries and its staff are recruited from outside of the public service.

Hence, under Najib Razak the trend started by his predecessor, Abdullah Badawi in increasing reliance on the new technocrats is reinforced. It is still too early to determine the impact of these new actors in economic policies on the relationship between the public and private sectors. It is important to analyze if the new technocrats have improved the economic policies and have positively contributed to the modernization and improvement of the bureaucracy. An example is the Iskandar Regional Development Authority (IRDA) staffed mainly by people from outside the public service, which manages the Iskandar Malaysia economic region. IRDA functions as a one-stop center including ­processing investor applications, which tries to reduce the problems of multiple or overlapping jurisdictions, thus saving business time and costs. In other words, IRDA combines the administrative capacity of the bureaucracy with the corporate efficiency of the private sector.

Analysis and Concluding Remarks

Technocrats are a crucial part of Malaysian economic growth and development. In the earlier periods, they were valued because of their ability, skills, and professionalism to advise on policy formulation and to implement measures and programs. Subsequently, the role of technocrats took a lower profile when political leaders had their own visions and strategies on how to develop the country. However, there were still a small number of technocrats who had key roles and were highly trusted by the political leaders. During these periods, technocrats pushed for economic efficiency, liberalization, and rural develop­ment as well as the building of national capacities and industries.

Since the 1997–98 Asian crisis, the role and composition of technocrats have changed. Although there was the pronouncement that the role of technocracy as represented by the public service/bureaucracy would be restored after being marginalized or sidelined during the Mahathir years, this did not actually occur. It is obvious that technocracy is playing a more prominent role in the Abdullah Badawi and Najib Razak’s Administration but the technocrats are not from the public service. These new technocrats are professionals with corporate or consulting experience, many with Masters in Business Administration degrees but not from businesses. This group has the qualification, experience, and skills required to lead the government economic growth initiatives that are mostly carried out through the GLCs. Naturally, public servants do not have such skills because their work and experience are mainly in implementing public policies.

The use of GLCs as the vehicles to generate private sector-led growth is understandable after the failures of government-promoted Bumiputera entrepreneurs during the Asian crisis. Dr Mahathir and Daim Zainuddin nurtured and promoted a number of Bumiputera and non-Bumiputera entrepreneurs through the privatization of government companies, infrastructure projects, and the commissioning of services required by the government. This preferential treatment was resented and when many failed, this was a good reason to seek a new approach to promote the private sector role in the economy.

If the public sector technocrats wish to re-establish their former influence, they must possess the highest level of competency in economic policy-making and implementation as well as corporate governance. Moreover, they have to benchmark their ability with the best in the business world. For this, the bureaucracy must be able to attract the best graduates. Recognizing this, Najib Razak has opened the public service to direct entry at any level for candidates with talent and exceptional qualifications. More importantly, besides having technical competency, the technocrats must uphold the highest code of conduct and yet have to be flexible to accommodate political interests.

The issue faced by the political leadership will continue to be on how to balance the conservative and sound economic policies recommended by the technocrats with the practical demand of the business world, the public and political constituency. For example, although technocrats have advised on reducing the budget deficits by cutting down drastically subsidies, political leaders have to weigh this advice carefully. The losses incurred during the 2008 general election were partly attributed to the decision made by Abdullah Badawi to reduce petrol subsidies, which caused the price of petrol to increase substantially. In working with the new technocrats, political leaders will also have to be mindful of the resentment that may arise from the public service because this may ­jeopardize the effective implementation of policies. There may also be criticism from other quarters if the new technocrats do not put national and public interests above corporate considerations.

Striking this balance and the efforts to distance technocracy from politics, have their roots in the NEP, the role of United Malays National Organization (UMNO) in Malaysian politics and national development as well as the legacy of Dr Mahathir. Until the introduction of the NEP in 1971, UMNO—as the strongest component of the ruling coalition party—had not encroached into the technocratic domain so that the boundaries between politics and government were observed (and respected). In other words, technocratic integrity was upheld on the basis that political interference and intervention was a breach of—at least—the implicit trust between the political and policy-making elites (as two distinct groups in the system of government). That is to say, the technocrats could be relied on to formulate and execute policies in consonance with the political agenda of national development. Any purported attempt to directly manipulate and direct the technocracy as “a government arm of the ruling party” can only disrupt the policy-making processes and concomitantly result in demoralization. This situation, however, was to change in the aftermath of the racial riots of 1969.

UMNO, as much as the country, was to be profoundly affected by the socio-economic changes brought about by the NEP. In fact, one could even contend that the transformation of UMNO went in tandem with the national transformation during the era of the NEP (which actually went beyond the stipulated time-frame of 20 years—1971–90). The ranks of UMNO became swelled with members from “non-traditional” backgrounds and profiles. From humble beginnings with the original membership consisting of teachers and lower level bureaucrats, the image of UMNO had changed “overnight” by the advent of the NEP. This sociological transformation would in turn impact on the party’s relationship and attitude towards the technocracy.

Dr Mahathir’s intrusive role in relation to the management of the technocracy was but a natural reflection of the state-interventionist character of the NEP itself. The “politicized” nature of the NEP—i.e. as a policy tool to consolidate UMNO’s political dominance “required” that the party should be more “audacious” in politicizing the technocracy. In short, the UMNO-ization of policy-making could only be a prelude to the UMNO-ization of the policy-makers themselves. Hence, technocrats who were hitherto politically insulated, became more politically conscious.

The sociological transformation of UMNO, with its growing factionalism (linked to either Razaleigh/Musa or Mahathir/Daim) led to the split of the party in late 1980s. This had an impact on Malaysian domestic politics and economy in the 1980s and beyond. The involvement of UMNO in business and the corporate world reflected the government’s interventionist approach in the economy (i.e. the Malaysian version of state capitalism to promote rapid growth and development). UMNO’s flagship company, Renong, was particularly active in representing UMNO’s presence in the capital market—acquisitions and investments. Thus, Renong acted as a proxy or front company for UMNO as a political party. The nexus between politics and business tended to crowd out domestic direct investment (DDI) either by encouraging capital flight by local businesses (mainly from the Chinese community) or concentrating government procurement in crony companies (as well as “reducing” it to a form of rent-seeking).

Interested parties within UMNO and the ruling government had made it difficult for technocrats and senior bureaucrats to work independently. Daim Zainuddin was appointed by Dr Mahathir as Finance Minister twice (1985–91, 1999–2001) and later served as a powerful UMNO Treasurer for 17 years. Subsequently, the involvement of UMNO in business definitely had serious repercussions not only on Malaysian development in the 1980s and beyond but also on the role and contribution of the economic technocrats. These technocrats and the public bureaucracy were also expected to fulfil the interests of certain UMNO personalities who were either linked or even became part of the ruling government.

Dr Mahathir’s own survival in a faction-riven UMNO meant that developmental policies of the country must also protect his interests and those of his allies or supporters including those outside the party and selective non-Malay businessmen (groups) such as ­Vincent Tan (Berjaya Group), Ting Pek Khiing (Ekran Group), Yeoh Tiong Lay and Francis Yeoh Sock Ping (YTL Group), Eric Chia (Perwaja Steel), and Ananda Krishnan (Usaha Tegas Group).

The involvement of UMNO in business, which in turn, led to the growing problem of money politics in the party—eventually led to the executive overriding the technocracy (primarily via the EPU) for partisan political purposes, which sometimes diverged from policy considerations. In addition, the “traditional” role of technocrats as “advisers” was also eclipsed by the emergence of “new” set of actors such as prominent businessmen or groups. However, one could also argue that Dr Mahathir’s big vision or “mega project” such as the privatization of public services, the Multimedia Super Corridor, the development of Kuala Lumpur City Centre (the “Twin Towers”) and Kuala Lumpur International Airport was inspired by his desire to propel Malaysia to a higher level of development. Certainly this vision is beyond the advice or imagination of “traditional” technocrats.

Similarly, the emergence of MITI and the appointment of one of Dr Mahathir’s most trusted and capable Cabinet minister, Rafidah Aziz, as the Minister increased the government’s expectations of the technocrats. The changing perception of the technocracy and by extension, the bureaucracy was also integral to their modernization and transformation—from a regulator and administrator to an enabler and pace-setter. This required the technocrats to support the government in forging and fostering a strategic partnership to drive growth and promote development in the country. The 1990s also saw the growing importance of MATRADE (MITI’s export promotion arm) and MIDA. Hence, under the Mahathir Administration profound changes in policy also saw a shift in the direction and outlook of the technocracy and a re-definition of their role in economic decision-making.

Dr Mahathir “bequeathed” an inimitable legacy upon leaving office in late 2003. One aspect of his legacy has been the impact of the politics-business nexus on the role of the technocracy in economic decision-making. Technocratic role became more reflective of Dr Mahathir’s agenda for making Malaysia a developed country, in which the private sector will assume a key role. That in effect reduced and constrained the role of the technocracy from being objective and professional policy-makers and administrators to agents of a bigger agenda which include political expediency.

This is not to argue that the situation was part of Dr Mahathir’s political strategy of consolidating both his personal and UMNO’s dominance or hegemony in the government. But rather it was an unintended consequence of Dr Mahathir’s increasing reliance on figures outside the government to be his advisers—reflecting the uncanny resemblance to his broader reputation as a “maverick” politician and Prime Minister (Wain 2009). Furthermore, by having an inner circle of non-technocratic advisers, the technocrats were often by-passed or sidelined. This meant that Dr Mahathir was willing to go beyond the conventions or culture of political and administrative conduct if he felt that the technocracy did not meet with his expectations or were to prove intransigent to his economic plans.

Technocracy under all Malaysian political leaders is intimately and indispensably linked with their respective reform agendas, which promote political legitimacy and regime stability. The background and agenda of the prime ministers, it would seem, are important factors in shaping the attitude and relationship between these leaders and the technocrats. However, the profile and composition of technocrats chosen by the political leaders will depend on the economic environment and imperatives as well as the skills of these technocrats.

Accepted: November 1, 2013

References

Booth, Anne. 1998. Initial Conditions and Miraculous Growth: Why Is Southeast Asia Different from Taiwan and South Korea? London: School of African and Oriental Studies, University of London.

Chang, Ha-Joon. 1998. The Role of Institutions in Asian Development. Asian Development Review 16(2): 64–95.

Government of Malaysia. 2010. Public Service Commission Annual Report, 2008–10. Kuala Lumpur: Government Printers Sdn. Bhd.

Haggard, Stephan. 2004. Institutions and Growth in East Asia. Studies in Comparative International Development 38(4): 53–81.

Jomo, K. S. 1999. Development Planning in Malaysia: A Critical Appraisal. In Political Economy of Development in Malaysia, edited by B. N. Ghosh and Muhammad Syukri S. Utusan, pp. 85–104. Kuala Lumpur: Utusan Publications & Distributors.

―. 1997. Southeast Asia’s Misunderstood Miracle: Industrial Policy and Economic Development in Thailand, Malaysia and Indonesia. Boulder: West View Press.

Khoo Boo Teik. 2003. Beyond Mahathir: Malaysian Politics & Its Discontents. London: Zed Books Ltd.

Malaysian Business Magazine. 1993. Cited from http://hsudarren.wordpress.com/. Accessed May 29, 2014.

Miyakawa, Tadao. 2000. The Science of Public Policy: Evolution of Policy Sciences, Part 1. London: Routledge.

Neumann, Frederic. 2002. Curse or Blessing? Patronage and Economic Policy-Making in Southeast Asia. School of Advanced International Studies (SAIS) Working Paper Series WP/05/02, John Hopkins University, Washington D.C.

Shiraishi, Takashi. 2001. The Asian Crisis Reconsidered. RIETI Discussion Paper Series 05-E-014, Tokyo.

Sivamurugan Pandian; Rusdi Omar; and Mohd Azizuddin Mohd Sani. 2010. “Work with Me, Not for Me”: Malaysia under Abdullah Ahmad Badawi (2003–2009). Asian Culture and History 2(1): 97–107. Accessed May 28, 2014, http://journal.ccsenet.org/index.php/ach/article/view/4819.

Torii, Takashi. 2005. A State with “Seizable” Scale: A Political Economy Approach to Mahathir’s Development Policies and Implementation Mechanism. In After the Crisis: Hegemony, Technocracy and Governance in Southeast Asia, edited by Takashi Shiraishi and Patricio N. Abinales, pp. 105–118. Kyoto: Kyoto University Press; and Melbourne: Trans Pacific Press.

Wain, Barry. 2009. Malaysian Maverick: Mahathir Mohamad in Turbulent Times. London: Palgrave Macmillan.

1) IMF argues that the crises in Southeast Asian countries were not the result of macro-economic mismanagement but their weak institutions e.g. cronyism in government-business relationship, overly geared and overly concentrated corporations, and weak financial systems. The solutions demanded measures that went beyond the usual demand for liberalization and privatization but required programs to transform institutions to unprecedented extent.

2) The “Washington Consensus” list of desirable policies included stable fiscal and monetary policies; low inflation; exploitation of comparative advantage through trade, exchange rate, and foreign investment policies; flexible labor market; and market-friendly—if not exactly laissez-faire—governments.

3) It is unclear whether the Deputy Governor, Fong Weng Pak, was forced to resign or his contract had ended.

4) Members of the NEAC Working Group were Wan Azmi Wan Hamzah (businessman), Thong Yaw Hong (former senior bureaucrat/banker), Dr Zainal Aznam Yusof (researcher), and Dr Mahani Zainal Abidin (academician).

5) Abdullah Ahmad Badawi was the Principal Assistant Secretary of the National Operations Council (NOC)/MAGERAN (Majlis Gerakan Negara), the Director of Youth at the Ministry of Culture, Youth and Sports after that, and later on the Deputy Director-General of the same ministry.

6) (Sivamurugan et al. 2010).

7) Public Service Commission Annual Report 2010 (Government of Malaysia 2010).

8) Wahid Omar is now Minister at the Prime Minister’s Department. He was appointed Senator, and later Minister, after the 13th General Election in May 2013.

9) Bank Bumiputera Malaysia Berhad (BBMB) was established in 1965 in line with government initiatives to increase Bumiputera participation in the national economy. By 1980 it had become the largest bank in the country in terms of assets with overseas operations. In 1999, BBMB and Bank of Commerce merged to form Bumiputera-Commerce Bank. In 2006 CIMB completed its restructuring exercise under Bumiputera-Commerce Holdings Berhad with mergers and acquisitions of a number of banks and financial institutions to become a universal bank, known as the CIMB Group.

10) The five states which were lost to the Opposition coalition were Selangor, Penang, Perak, Kedah, and Kelantan. However, 10 months later, Perak was brought back to the Barisan Nasional (BN) fold when three members of the Parti Keadilan Rakyat (PKR) Opposition coalition declared themselves as BN-friendly independents.

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Vol. 3, No. 2, Khoo Boo Teik

Contents>> Vol. 3, No. 2

Technocracy and Politics in a Trajectory of Conflict*

Khoo Boo Teik**

* An earlier version of this article first appeared as No Insulation: Politics and Technocracy’s Troubled Trajectory, IDE Discussion Paper No. 236, May 2010, Institute of Developing Economies, Chiba, Japan. Permission to publish the paper in its present edited form is gratefully acknowledged.

** 邱武德, National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan

e-mail: khoo-bt[at]grips.ac.jp

Technocracy often holds out the promise of rational, professional, and politically disinterested decision-making particularly in economic planning and management. Yet states and regimes frequently turn to technocracy not just to obtain expert inputs and calculated outcomes but to embed the exercise of power in many agendas, policies, and programs. Thus, technocracy operates as an appendage of politically constructed structures and configurations of power, and highly placed technocrats cannot be mere backroom experts who supply disinterested rational-technical solutions in economic planning, resource allocation, and social distribution since they are engaged in inherently political exercises. Using examples of technocratic interventions in a variety of developing countries, this article traces the trajectories of technocracy that were marked by conflict, especially in conditions of rapid social transformation, severe economic restructuring, or political crises when the technocratic was unavoidably political.

Keywords: technocracy, economic crises, structural adjustment, politics in Chile, Indonesia, the Philippines, neoliberalism, populism

I am not a politician. . . . I am a technocrat and believe in technocracy,
and technicians are politically neutral.
(Raúl Prebisch cited in Dosman 2008)

With social thought turning so rapidly into attempted social engineering,
a high incidence of failed experiments is the price that is often paid for
the influence intellectuals wield.
(Hirschman 1979, 86–87)

Technocracy, signifying the use of technocrats in economic decision-making (rather than the more precise but rarely encountered rule by technocrats), has had a curiously troubled relationship with politics. At first glance that seems unlikely. On the one hand, politics, in the shape of states and regimes, needs technocracy for complex policy formulation that is fortified and legitimized by expert knowledge, methodical applications, and reasoned expectations. Technocracy, on the other hand, needs politics, that is, the sanction of power, to insulate it from pressure and interference that would prevent technocrats from being deployed or heeded “without fear or favor” as the old cliché goes.

In reality their apparently symbiotic relationship contains a latent conflict. The conflict is readily seen in certain forms. Sometimes seemingly technical recommendations may be rejected and the technocrats associated with them ejected from their positions for running afoul of the powers that in principle insulate them from interference. At other times, technocrats find themselves arraigned against vested interests that circumvent or sabotage technocratic forms of governance. Or else, popular resentment against apparently rational policies may erupt into anti-regime protests that are put down by repressive measures. Yet, the conflict lies deeper. Politics depends on technocracy for expert inputs and calculated outcomes in order to embed the exercise of state power in many kinds of agendas, policies, decisions, and programs. Thus, any functioning technocracy operates as an appendage of politically constructed structures, institutions, and configurations of power. At certain levels of work and in circumscribed situations, socio-economic problems may require no more than technical solutions. Beyond that, it is illusory to conceive of highly placed policy-making technocrats as backroom boys (and girls) whose task is to prepare disinterested rational-technical solutions to problems of economic planning, resource allocation, and social distribution, each of which is inherently a political matter.1) The potential for conflict is especially high when technocracy is inserted into policy-making and technocrats emerge as an identifiable force under critical circumstances—during periods of rapid social transformation, in conditions of severe economic restructuring, or at moments of political crises—when the technocratic is unavoidably political.

This article traces a post-World War II trajectory of tension and conflict between technocracy and politics, mostly in what used to be called the “underdeveloped” world. Within that trajectory the relationship between technocracy and politics had several dimensions. These included changes in the projects of economic transformation—from modernization and development to debt and crisis management to economic stabilization and structural adjustment, and the neoliberal reconfiguration of the global economy—for which technocracy was co-opted. As such, technocrats themselves assumed different roles, being planners, implementers, managers, brokers, and intermediaries. The conditions of technocratic deployment and the hopes of their outcomes changed, too: visions of postcolonial development collapsed under structural adjustment while state intervention was reduced to neoliberal good governance. At the beginning of the trajectory was an issue that preoccupied regimes and technocrats: how should technocratic decision- and policy-making be insulated from vested interests or popular pressure? At its end has arisen “technocratization” or fusion of technocracy and politics as a way to overcome the conflicts that made each of them the bane of the other. The article contends that the narrowing potential for relatively autonomous development and a resurgence of populist forms of dissent in the former Third World suggest that just as politics can no longer depend on technocratic solutions, technocracy is far from resolving its political problems.

Crises of Modernization and Development

Under the influence of “applied modernization theory,” technocracy held considerable appeal for most postcolonial governments that (even or especially when they were moved by nationalist impulses) were searching for ways to leave behind their “techno-economic backwardness” that produced an “unholy trinity of ignorance, poverty and disease” (Mkandawire 2005, 13). While theoretical debates raged among the political and intellectual circles over which developmental paths were economically ideal, politically feasible, or socially desirable, postcolonial regimes often reserved, or were advised to reserve, a special role in socio-economic planning for technocrats. These were “one sub-group of bureaucrats that possesses specialized knowledge” (Centeno 1993, 310) whose training, expertise, and professionalism were thought to have equipped them with the modern values, rational attitudes, and technical methods needed to modernize their traditional societies. For example, an international consultancy report on improving “development administration,”2) a forerunner of technocracy, reasoned that:

Modern government depends increasingly upon modern technology for national security, for the conduct of its own developmental and recurrent operations, and for the performance of its regulatory and control functions. The proficiency and knowledge of its professional and sub-professional classes therefore define the ultimate limits of its technical capabilities. . . . Because of the rapid obsolescence of professional and technical knowledge in certain fields, in fact, it may be necessary to devote disproportionate emphasis to those services where the rate of change is greatest. ­(Montgomery and Esman 1966, 14)

Indeed, even after modernization theory qua theory had been discarded, a development paradigm it spawned continued to pose issues of development as technical matters to be planned and managed in top-down fashion by professional personnel. To that extent, even when an “unsuccessful top-down approach, which had dominated the development industry until about 1990” was modified with ideas of decentralization and good governance, its technocratic discourse, focused on technical and instrumental solutions, only “directed the technocratic IDAs [International Development Agencies] back to where they started—in the structural crisis of development” (Bryld 2000, 700, 704).3)

It was not just hopes of development that made technocracy appealing. In some situations, the failure of development brought an urgent and purposeful deployment of technocrats when “the permanence, the technical skills, and the anonymity of [technocrats] ma[d]e them appear the possible receivers for otherwise bankrupt regimes.”4) The insertion of technocracy into economic policy-making and management in this manner occurred most dramatically in “post-crisis economies.”5) Some of those were under­developed economies, others post-Soviet Union nations undertaking a transition to capitalism. Those countries greatly differed socially, economically, and politically. In common, however, their regimes acquired a partially technocratic character by deploying technocrats in high-level economic policy-making as a response to crisis. At moments of systemic crisis, rule by experts equipped with “technocracy’s apparent emphasis on order, rationality and apolitical criteria” could be alluring (Centeno 1993, 324). During the Cold War period, and following the collapse of the Soviet Union, the turn to technocracy joined social experiments in modernization or transformation to political attempts at crisis management. Thereby, rulers and technocrats hoped that capitalist rationalization undertaken by mostly authoritarian regimes would be the answer to the failures of development that spawned radical popular mobilization.

The two reasons for the emergence of technocracy, discussed above, converged in a lasting politics of technocratic policy-making although the fads and phraseology of dominant economic doctrine changed with time and situation. Certainly technocracy and the rise of technocrats as an identifiable force in the respective economies and political systems of those countries could not have been apolitical. They were seen in such extraordinarily politicized situations as Thailand after Sarit’s imposition of martial law in 1958, Indonesia in the wake of Soeharto’s 1965 gestapu, Chile following Pinochet’s overthrow of Allende in 1973,6) Ghana subsequent to military takeover in 1981, and any of a number of Eastern European or Baltic states that broke from Soviet domination after 1989. It seemed that a technical development model could be applied to less-than-modern societies and a “coherent, practical and authoritarian ideology or model of moderni­zation” could be recommended to societies and political systems in crisis:

The technocratic model of modernization, as a highly functional strategy of government, borne into an appropriate crisis by a mission-minded team of technocrats and imposed by the military and supported by its beneficiaries, may recommend itself to like-minded and organized elites confronting similar crises. (MacDougall 1976, 1168)7)

Under Soeharto’s New Order which inspired this “technocratic model,”

economists-technocrats, as non-party, professionally-trained experts, have replaced politicians in policy making posts, most visibly as a team of academics that moved into government posts laterally, from the University of Indonesia. . . . In a bureaucratic state, these technocrats have functioned as policy innovators, as courtiers of foreign investment, and as relatively systematic administrators. They have provided a repressive military regime with a progressive civilian image and initiated their military patrons into the mysteries of their science. (ibid., 1166)8)

The model presupposed the benign intent of any “like-minded elite” and the progressive stances of its “mission-minded team of technocrats.” Even so, those who opted for technocracy had to insulate the technocrats drafted for high-level policy-making. Well might the leading technocrats—the “Berkeley Mafia,” the “Chicago Boys,” and Marcos’s “pillar,”9) to take three notable examples—have been cast as “providing a repressive military regime with a progressive civilian image.” But they could hardly live down their collective reputations as the expert collaborators of military dictatorships, the designers and implementers of harshly imposed programs of economic restructuring, reductions in social spending, and deflationary policies.10) In Chile, some programs to combat extreme poverty were undertaken to give a populist tint to neoliberal economic restructuring (Huneeus 2000, 498). Of Marcos’s technocratic pillar, the World Bank’s Ascher Memorandum candidly observed in 1980 that:

There is no evidence that the economic expansion of the first five years of martial law has created a favorable image of the technocrats that could offset the blame they have incurred for the sluggish growth, higher inflation, and unemployment of the last few years.11)

Again a frank précis of a similar situation of technocrats operating in an environment of “low politics” created by an authoritarian regime was made by another World Bank report, this time on Ghana after more than one military coup:

The military character of the Government made it possible to implement unpopular measures while depressing [sic] dissent. Policy issues have not been openly debated, and freedom of information and publishing rights are restricted. However, Ghana’s military leaders have given considerable decision making latitude on economic matters to the highly qualified technical team which was charged with managing the economic reform. (Nooter and Stacy 1990, cited in Moore 1995, 21)12)

Likewise, Thailand’s administration of a World Bank structural adjustment loan following an economic crisis in the early 1980s was successful, it has been argued, because Prime Minister Prem Tinsulanonda placed “specialist economic technocrats” in key positions and gave them “protection from the pressures and protests of those groups opposed to the changes” the technocrats introduced (Anek 1992, 47).13) Thus, the apolitical efficacy for which the technocrats were supposedly valued and lauded could only be attained by firm demonstrations of “political will” that insulated their technocratic deliberations, directions, and decisions from public debate, “immunized” political opposition to their programs, and repressed popular resentments (Bello, O’Connor, and Broad 1982; Silva 1991).

Moreover, the top technocrats, not having their own political base, owed their privileged positions to the patronage of regime leaders14) who typically drafted them from other than the normal ranks of the state’s administrative machinery to serve in select agencies. Parachuted from relative obscurity into policy-making prominence, those technocrats could only operate against certain powerful vested interests, where necessary, if they were insulated from the obstructive actions of the latter. In the Philippines, the technocrats responsible for economic reform were often in conflict with the Marcos cronies, with the former enjoying the additional approval of the World Bank, but with the latter being regarded by the dictatorship as its more reliable “pillar” (Bello, O’Connor, and Broad 1982, 190–193). Technocracy in Latin America, too, was dependent on, rather than anti­thetical to, patrimonial and caudillo authority although “the latter rests on presumed personal qualities rather than the possession of specialized knowledge” (Teichman 2004, 25).

The converse was true, too: those who failed to persuade the patron or fall in with his intentions, or opposed his plans would not last in their positions. If one were to be cynical, the relatively cheap dispensability of technocrats was one of technocracy’s attractions to regimes and leaders from whom, alas, there could be no insulation. As Shiraishi in this volume shows, the Indonesian technocrats, “cohesive in their adherence to the three principles of balanced budget, open capital account, and pegged exchange rate system,” were effective for three decades when they functioned as Soeharto’s “right arm in formulating and executing national development policies.” However, when in response to the financial crisis of 1997–98 the technocrats urged Soeharto to call in the Inter­national Monetary Fund (IMF) and introduce reform measures, their move backfired because they had lost Soeharto’s confidence and was denied access to him. In Thailand, Thaksin Shinawatra dismissed the “inflexible” head of the Bank of Thailand and filled key planning and financial posts with Thaksin’s own “outsider” advisers, as Pasuk and Baker recount in this volume. Mahathir Mohamad, who sharply disapproved of their monetary and fiscal responses to the 1997 financial crisis, forced the resignations of the Governor and Deputy Governor of Bank Negara Malaysia just days before he sacked Anwar Ibrahim, Deputy Prime Minister and concurrently the Minister of Finance, on September 2, 1998 (Khoo 2003).15)

The need for insulation could arise from a different source. A technocratic view of governance assumed that “all social actors can be modeled in certain predictable ways” and since “specialization [confers] on experts wisdom, self restraint, and a sense of social justice,” technocrats “should be provided with sufficient political insulation to be able to plan, implement and monitor state programmes” (Bangura 1994, 56).16) Or, if one preferred, there was link between a “technocratic mentality” and “authoritarian, exclusionary politics, resistant to both compromise and the incorporation of contrary viewpoints” (Teichman 2004, 25).17) In any case, just how technically superior their ideas and policies were compared to contrary viewpoints could not be determined, simply because of “the disappearance from the political scene of forces whose ideological predispositions favored the radical redistribution of wealth and resources” (Hadiz 1997, 63).

Alternatively, it was unnecessary to presuppose that technocrats had to accept an “inherent desirability of authoritarian political structures” to see that their “technically rational” pursuit of economic stabilization and growth at “virtually any social or political cost” led to legitimating authoritarian rule (Kaufman 1979, 190). The technocrats were not necessarily reluctant practitioners of received economic doctrines that set or limited the directions of their policies and strategies. There was a self-deluding aspect to the basic technocratic conviction that being pragmatic was being non-ideological. On the contrary,

In imposing the domination by an instrumental rationale and scientific method, technocracies are similar to theocratic regimes or states that have explicit, dominant political ideologies. In all these cases, legitimacy comes . . . from adherence to the dictates of a “book.” Whether that document contains the word of god, a theory of history, or the econometric functions that describe equilibria, those best able to interpret its message and implement its laws cannot take opposition or popular participation into account. (Centeno 1993, 313)

Where monetarism ruled alongside the military in “a climate of total triumphalism” to “establish the rules of neoliberalism in all spheres of society” (Silva 1991, 395):

[t]he Chicago boys presented themselves as the bearers of an absolute knowledge of modern economic science, thereby dismissing the existence of economic alternatives. All possible criticism of the economic model was rejected by portraying it as the product either of ignorance or the covert promotion of particular interests. (ibid., 394)

Despite the insulation, patronage, and absence of rival paradigms, the technocratic model did not establish an unambiguously salutary record of economic development in the two situations where the model was most hailed. New Order Indonesia hardly vindicated “technocratic optimism,” as was discovered by a group of young intellectuals collected around the Bandung-based weekly, Mahasiswa Indonesia. They scorned Sukarno and the existing political parties. Having no mass base, they looked to the military for modernizing reforms and to the Western capitalist countries for political and financial support. Later, these

outspoken champions of a technocratic style of “development” [were] distressed to discover that “development” exacerbated rather than reduced corruption, widened the gap between rich and poor, and greatly increased Indonesia’s external dependency . . . [while] opening the country’s doors to Western culture turned out to have more disintegrative than modernizing effects on Indonesian society.18)

Nor was the lesson from Pinochet’s Chile—the need “to create highly cohesive technocratic policymaking teams with relatively high degrees of insulation from social forces” (Silva 1996, 2)—so readily worthy of replication:

Under military rule, boom and bust cycles and mounting social costs characterized Chile’s lurching efforts to reorganize the economy radically. A short, gradual programme of economic stabilization and restructuring after the overthrow of Salvador Allende was followed by draconian, ideologically rigid neoliberal policies, uneven economic recovery, and a brief spurt of rapid economic growth fueled by financial speculation that ended in Chile’s worst economic decline since the Great Depression. (ibid., 1)

Intermediation and Domination

The mode and circumstance of crisis management frequently left the technocrats castigated as agents of foreign domination and penetration. It was not so much that many influential technocrats had been trained abroad, in the University of California, Berkeley, and University of Chicago, most famously or notoriously.19) Shiraishi in this volume suggests that the “Berkeley Mafia” could just as well have been called the “UI-UGM Mafia,” given their initial training and later appointments, as students and then lecturers, with Universitas Indonesia and Universitas Gadjah Mada, the two leading universities of ­Indonesia. For Pinochet’s leading technocrats, besides, Santiago came before Chicago (Silva 1991, 390–391), and the Universidad Católica de Chile before Milton Friedman’s Department of Economics (Huneeus 2000, 473–477). More to the point, those technocrats were the practitioners of crash programs of economic restructuring and stabilization, pro-market reform, structural adjustment, and integration or re-integration with the global capitalist system.

Such programs, seemingly the more legitimate the more they claimed to replace failed domestic initiatives, were typically implemented with the backing, under the oversight, and at the demand of foreign creditors, the IMF, and the World Bank. In general, the regimes’ hopes of capital inflows, promises of foreign aid, and expectations of economic improvement had to be weighed against external pressures to dismantle the previously nationalist, socialist, or populist policy molds of crisis economies, and to remake them in the image of western market-based systems. To restructure debt-ridden economies according to structural adjustment conditionalities, for instance, technocrats with the concurrence of their rulers had to impose deflationary policies. But, over and over again, the consequence was typical: internal sacrifices were imposed on vulnerable sections of society, but the “lender of last resort” never demanded “haircuts” of foreign creditors who had made reckless loans.

Obviously no lovers of their displaced regimes, the leading technocrats “were more than simply the principal architects of economic policy: they were the intellectual brokers between their governments and international capital, and symbols of the government’s determination to rationalize its rule in terms of economic objectives” (Kaufman 1979, 189). For example, an observer, who conferred an ancient pedigree on Thai technocracy by characterizing Siam’s absolute monarchs as technocrats for having introduced modernizing reforms, wrote of the World Bank and Thai technocrats as kindred spirits in restructuring administrative, financial, and planning systems:

The World Bank’s implicit development ideology coincided with the classical conservatism of the technocrats and the two groups tended to bring to bear similar viewpoints when considering monetary or fiscal policy issues. Thailand joined the World Bank and International Monetary Fund in 1949, and each major loan negotiation or mission from the Bank and the Annual Consultation with the Fund tended to strengthen the technocrats’ influence in the government. (Stifel 1976, 1193)

A different view which suggested that Thai technocracy emerged after the World Bank’s economic survey of Thailand 1957–58 more critically held technocracy to be an accessory to the far from technical act of mapping and launching Thailand’s development paths in the aftermath of Sarit’s imposition of martial law in October 1958:

[t]he resultant World Bank programme . . . acted as a catalyst that conjoined the new political regime and a new development direction for Thailand, activating a combined force of Sarit’s absolutist power, American imperialist wherewithal, and the technocratic strategic planning and technical know-how in the momentous transformation of Thai economy and society. (Kasian 2004, 30)

Perhaps there was little alternative. Like the rest of Southeast Asia, Thailand was in such dire need of technocratic skills given “the post-war economic disorder, decoloni­zation, and a new responsibility for development” that a pioneering “small group of technocrats, usually trained in Europe . . . quickly gained considerable power because of the rarity of their skills” (Pasuk and Baker in this volume). And although the “close cooperation among a small group . . . [was] later mythologized” (ibid.), the Thai technocratic cadre that was created from the 1960s was

engaged mostly in the technical management of the economy—infrastructure planning, and tight macro management under a fixed exchange rate regime. The main direction of policy was laid down by the military rulers under the influence of the World Bank, and adjusted in practice by business lobbies. Technocrats administered policy, but in this era had only a limited role in making policy. (Pasuk and Baker 2000, 20)20)

Being the intermediaries between the national and the global, so to speak, technocrats were most valuable in symbolic, ideological, and practical terms. Through them “cooperation with international business [and] a fuller integration into the world economy” was attained (Kaufman 1979, 190). The technocrats displayed “a strictly secular willingness to adopt the prevailing tenets of international economic orthodoxy . . . a ­different, but no less ideologically bounded, set of intellectual parameters within which the technocrats could then ‘pragmatically’ pursue the requirements of stabilization and expansion” (ibid.). Thus, in the “still weak and chaotic” Indonesia after Soeharto’s ­seizure of power, the Widjojo Nitisastro-led team of technocrats showed that the way to obtain necessary external resources was to design policies that found favor with global capi­talism: the termination of “confrontation” with Malaysia, abolition of price controls, return of nationalized enterprises to former owners, passage of a liberal foreign investment law, rationalization of banking and interest rates, and end of multiple exchange rates ­(Anderson 1983, 488–489). Up to the mid-1970s, the Indonesian technocrats “adhered to the type of free-market, open-door economics advocated by Western liberal economic orthodoxy in general and the IMF, the World Bank . . . and the Inter-Governmental Group on Indonesia in particular” (Robison 1986, 110). But the technocrats really derived their power from their role as “managers of the process of debt renegotiation, and as authors of policies designed to allow international capital access to Indonesia” (ibid.).

It was power that rose and fell with the need for international capital investment, loans, and aid (ibid., 111). Often the technocrats’ policies and programs did not fail, at least not initially, and not least because “rewards” of aid and capital flows to the regime they served replaced the external investor-creditor-state hostility to the supplanted regime and even sabotage of its economy (as had happened to “anti-imperialist” Indonesia and “socialist” Chile before their respective military coups). With relative success, the technocrats gained more than ideological benediction from their close associations with international educational and financial institutions. Thus, by the early 1990s, when Latin American technocrats defined “the new [that is, neoliberal] policy paradigms,” they could count on the support and approval of a “continental network of Harvard, Chicago, and Stanford grads . . . atop businesses and ministries spreading the new market mind-set” (Business Week, June 15, 1992, 51, cited in Centeno 1994, 24). The existence of an “international network linking IMF analysts, private investors, bank officials, and government technocrats was not the figment of the conspiratorial imagination of those who sought to understand the new wave”; “[n]ot only creditors and multilateral agencies, lecturers and seminar presenters, media pundits and intellectual authorities, but even the ex-roommates of the new elites approved the new policies” (Centeno 1994, 24).

At different points in the post-World War II development of the global economy, therefore, technocrats found themselves managing a range of economic, fiscal, debt, and monetary crises in various countries and regions. Whatever they did, and whatever the purposes they thought they were serving, they came to be the standard bearers of the World Bank’s development orthodoxy, Milton Friedman’s monetarism, Jeffrey Sachs’s “shock therapy,” the IMF’s “good governance” strictures for structural adjustment,21) and the Washington Consensus of liberalization, deregulation, and privatization.

Rare Reproduction

Purveyors of instrumental approaches, technocrats would seem to be little more than the instruments of others. Such was not always the case. Technocracy was not necessarily pre-empted from coming into its own, minimally to display more assertive forms of conduct than those discussed above. During the early and hopeful days of decoloni­zation, “moral incentives” moved many would-be bureaucrats and technocrats: “the self-confidence, enthusiasm, and commitment that were so evident in African bureaucracies . . . were contagious, as reflected in many African students who anxiously rushed home after graduation to participate in the exhilarating projects of nation-building” ­(Mkandawire 2005, 16). Offering a less skeptical view of the predispositions of technocrats, relevant to the point being made here, Turner noted that in early 1970s’ Nigeria:

Individual technocrats, by virtue of their technical training, and in some cases, experience in industry, are accustomed to rational, impersonal and universal criteria for making decisions and for assessing their own accomplishments. Professional standing, and therefore job mobility, depends on getting results which in turn depends on co-operation with other technocrats. Technocrats are relatively uncorrupt, not because they possess special moral qualities, but because their function is to develop and provide local technical and executive capabilities and reduce ­dependence on foreign resources. (Turner 1976, 69)22)

Turner’s was a balanced depiction of Nigerian technocrats: they “stood” (in relation to compradors and middlemen within the civil service, and the foreign oil interests they serviced) according to where they “sat” (within structures of state power in the early 1970s). More generally, Turner’s portrayal insightfully hinted how differently placed technocrats might orient their policy-making vis-à-vis foreign interests if or when they were imbued with impulses of economic nationalism. Roughly akin to the Nigerian situation, Indonesian technocrats in the mid-1970s were engaged in a protracted conflict with “various appanage holders” (Robison 1990, 110) who controlled Pertamina, the state oil company. The technocrats were especially opposed to the “financially unsound schemes . . . regardless of established priorities and acceptable costs” launched by Ibnu Sutowo, one time head of Pertamina (Milne 1982, 407). In Malaysia, Tengku Razaleigh Hamzah, the Chairman of Petronas, the national oil company, brought negotiations with foreign oil companies to an impasse as he fought for much better profit-sharing and operational terms.23) Interestingly, the Indonesian technocrats’ externally lauded platform of “strong state and free market,” comparative advantage and free trade was internally challenged by a group of “engineers”—a sort of “Bandung Institute of Technology Mafia”—who advocated the economic-nationalist use of industrial policy, and state nurture and protection from external competition to develop domestic industries. The rivalry between technocrats and engineers—the latter being oddly disqualified from being titled technocrats24)—for the support of their common patron, Soeharto, rendered Indonesia’s develop­ment somewhat schizoid, “oscillat[ing] between the two strategies”: in good times, economic nationalism led to large-scale, capital-intensive but often wasteful and debt-laden state projects; in a bust, the regime shelved those projects, devalued the rupiah, and resorted to deregulation to integrate the economy more deeply with the global market (Shiraishi in this volume).

In post-authoritarian but pre-1997 crisis South Korea, the technocracy of the finance and economic ministries clashed with “liberal economists who dominate[d] the research institutes” over the pace of financial liberalization.25) The liberal economists, intellectually leading an emergent ruling coalition, pressed for “a sudden acceleration of liberali­zation.” The technocrats, “the voice of prudent caution, resisting pressure for too rapid opening of the financial sector,” was “more skeptical, partly out of principle and partly out of a perceived challenge to technocratic management powers” (Gills 1996, 672, 681, 683). Ironically, when rapid financial liberalization, among other things, led to the collapse of the South Korean won in late 1997, the IMF, a leading opponent of East Asian “financial repression,” would project itself as an enlightened technocracy that would set an errant South Korean state right (Hall 2003). However, in Singapore, which had weathered the 1997 crisis rather well, technocrats who manage the state’s massive financial assets have had to fend off criticisms by domestic and global market competitors and investors who urged higher degrees of transparency and disclosure from the technocrat-managed government-linked corporations (Rodan 2004, 483).

In retrospect, it mattered significantly when or how technocrats emerged, during rapid growth and major social transformation, or at moments of severe crisis and externally imposed adjustment. Comparing the quality of technocracy in four African nations, Bangura (1994, 52) broadly suggests that “sustained growth enables the state to nurture a technocratic class” having “solid bonds . . . to the state apparatus and the principal institutions from which technocrats are recruited.” “Profound crisis and tough programmes of economic reform,” however, can lead to “de-professionalization” so that while “multilateral funding agencies . . . export their expertise and shape the agenda of change,” working with what local experts can be recruited, the resultant technocracy is “fraught with problems since the institutional settings from which it springs are in crisis” and its reproduction “at the same level of quality . . . becomes a difficult problem in the long-run” (ibid., 52–53).

One can appreciate Bangura’s insight against the high-quality East Asian technocracies’ record of directing relatively autonomous and highly rewarding paths of development via state-led late industrialization. In Japan and the East Asian newly-­industrializing economies, technocrats wielded a firm hand in transforming their economies. They used industrial policy in its many manifestations: promoting strategic industries, nurturing select corporations, allocating resources preferentially, maintaining different methods of protectionism, and periodically rationalizing the structures of important sectors. The East Asian technocracies by no means made their economic history free from crisis. Japan’s unconditional surrender and military occupation, South Korea’s wartime destruction, the Taiwanese regime’s retreat from a lost civil war, and Singapore’s risky secession from Malaysia were not circumstances the respective technocrats could have chosen. Nor were their regimes exemplars of liberal democracy: three out of four of them were authoritarian and two of those were military dictatorships for long periods. Yet, driven by economic nationalism, diligently “governing the market,” and operating with high state capacities, the technocracies pushed their programs of industrialization and structural transformation to competitive global-scale progress in a range of import-­substituting and export-oriented industries.

The “East Asian experience” showed that technocracy’s efficacy or achievement could not be a matter of using, patronizing, or even insulating technocrats alone. The policy-making role and contributions of technocracy were bound to the ways states organ­ized and managed their structures of political economy, including institutions, centers of power, markets, and relations with the global economy. The authoritarian Northeast Asian states that pursued late industrialization within a short period, for instance, would pick and subsidize their favored “winners” but would require of the latter outstanding performance, both the support and the discipline being elements of a coherent strategy of economic development targeting rapid growth, industrial advance, and market competitiveness. Designing and implementing such agendas, technocracy could make its efficacy, even its self-interest, an integral part of a project of economic nationalism vis-à-vis an ever-possible foreign domination.

Such a narrative of East Asian industrial success is too well rehearsed to bear further recounting here.26) Suffice it to add that if the East Asian technocrats began in crisis, they progressed to growth, reproducing themselves into the bargain. They were nurtured in select educational institutions, recruited via elitist methods, cohesively organized in strong agencies and ministries, bonded to well-defined policy agendas, insulated from popular pressures by strong regimes for long periods, and empowered by diverse forms of legal, bureaucratic, and political support.27) The process of technocratic reproduction possibly went furthest where it could be most fully controlled, namely, in the small state of Singapore where the boundaries between ruling-party politicians and senior state technocrats were blurred in the making of “a self-conscious, self-righteous class of ­talented and brilliant people with strong character, who are imbued with a collective sense of purpose and a consciously collective understanding of the thinking of the group” (Barr 2006, 6). Advancing their way to a “miracle,” against the grain of international economic orthodoxy, these technocrats reached what was probably technocracy’s pinnacle, at any rate outside the western developed states.

Without idealizing Northeast Asia (and allowing for Singapore to be part of it in all but geography), it is instructive to contrast it with Southeast Asia to see how the character of actually functioning technocracy, in relation to its ideal, can be malformed or deformed within the framework of political economy. The position and potential of the technocracies of pre-1997 crisis Southeast Asia were curtailed by regimes that mimicked the “Japanese model,” the “South Korean model,” or the “Taiwanese model.” The Southeast Asian regimes, insulated from popular pressure, from foreign direct investment, and, it might be said, from technocracy itself, turned large sectors of the economy into oligarchic preserves. What could technocracy, implying rational policy- and decision-making based on the rule of law and “good governance,” achieve against the organized, state-managed, predatory, or rent-seeking conduct of Marcos’s family and the Filipino tycoons, Soeharto’s children and the Indonesian cukong, Mahathir’s coalitions of “Umnoputras” and cronies, and the “Bangkok big business” of Thailand?

Senior technocrats were responsible for maintaining macro-economic stability. ­Perhaps they baulked at the misdeeds of the powerful. Perhaps they urged “good economics” against “bad politics.” By the overall record, however, technocracy often labored as the instrument of nothing nobler than a “contractocracy.”28) For example, privatization was where technocrats might have excelled as makers of policy, setters of governance standards, and enforcers of rule compliance. Yet, as privatization accelerated, technocrats were shunted aside by political considerations. Leigh (1992, 120–121) noted that linkages between key individuals in the business and political elites “placed state regulators on the defensive . . . simply and effectively bypassed,” while institutionalized checks on regulatory power “suited the ‘oligarchs’ in the Philippines and the ‘timber tycoons’ of Malaysia.” By the late 1990s, Malaysia’s privatization had much in common with Indonesia’s where a “huge range of former public monopolies in oil distribution and contracting, power generation, telecommunications, toll road and port construction and operation were now passed, usually without tender, into the hands of the major oligarchs” (Robison 2004, 409).29) And when the Thai political system was transformed, businesses “could no longer deal primarily with bureaucrats and technocrats, but had to negotiate deals with frequently-changing ministers in a series of governments” (McCargo and Ukrist 2005, 25).

Techno-Political Fusion

The politics of technocracy’s relationship to development goes deeper. Referring to the South Korean technocracy’s caution in opening and liberalizing their financial sector, Gills (1996, 683) contended that

Beyond the self-interest of the technocrats . . . there is the issue of the “right to development,” even if via some of the old methods of protection and state guidance. What was precisely so remarkable about the “strong state” NICs was they succeeded in industrializing and creating national capital and wealth in the Third World.

Beyond the “right to development,” however, the accumulating evidence—from Japan and the newly industrialized countries (NICs) of East Asia, to China and “Rhineland capitalism”—is clear:

for most countries, and certainly most “latecomers” to industrialization, national success in the global marketplace depends on coherent long-term strategic action by state, and the construction and maintenance of a dense web of “intermediate” institutions (banks, financial and technical services, training, and infrastructure of all kinds) that the market needs but does not provide. (Leys 1996, 195)

In the post-war, Keynesian, pro-development milieu that supported “long-term strategic action by the state,” the “web of intermediate institutions” would be the realm of technocrats of many kinds. Then and there, technocracy would not just pick up the pieces of shattered government but deploy its “human resources” as a critical element of competitive advantage. Since the 1970s, however, neoliberal globalization had steadily whittled the path of relatively autonomous state-led, technocracy-implemented development so that:

The era of national economies and national economic strategies is past—for the time being, at least. With capital free to move where it wishes, no state (and least of all a small poor one) can pursue any economic policy that the owners of capital seriously dislike. . . . It is hardly too much to say that by the end of the 1980s the only development policy that was officially approved was not to have one—to leave it to the market to allocate resources, not the state. (ibid., 23–24)

“In the World Bank’s own ingenuous language,” adds Leys (ibid., 24), “new ideas stress prices as signals; trade and competition as links to technical progress; and effective government as a scarce resource, to be employed sparingly and only where most needed.” And for most nations, to use Andre Gunder Frank’s language, “Now neo-liberalism, post-Keynesianism and neo-structuralism have . . . become totally irrelevant and bankrupt for development policy. In the real world, the order of the day has become only economic or debt crisis management” (cited in ibid.).

After the 1997 financial crisis, the neoliberal agendas that IMF’s intervention imposed via the extant regimes met with oligarchic resistance coupled with popular opposition. As it happened, debt management, structural adjustment, and deeper integration with the global system did not replace “crony capitalism” with the orderly self-regulating markets envisioned by neoliberalism. Almost exactly the feared opposites happened. Thaksin Shinawatra and his Thai Rak Thai’s part-nationalist, part-oligarchic, and part-populist movement remade Thai politics only to create untidy scenes of half-hearted policy reforms, incomplete agendas, and recurring political turmoil (Kasian 2006; Glassman 2004; Pasuk and Baker 2004). Of the institutionalization of a “vast system of benefices and rents” in post-Soeharto Indonesia that defined the state’s relationships with capitalists, cronies, and “fixers,” it has been said that

[t]his was not a world where “rational” technocrats simply negotiated their way through the constraints of powerful interests, both within and outside the state. This was a vast and crudely instrumental system of state power where public authority and private interest were fused and where state capitalism gave way to the rise of politico-business oligarchies emerging from within the state itself. (Robison and Hadiz 2004, 30)

These developments showed how ineffectual was the beneficent impact of technocracy on political economy in times of crises, precisely when, it was always thought, technocracy would best fulfill its role. Still, such developments are far from being the precursors of any “end of technocracy.” If anything, they seem uncannily to bring matters back to the politics of the “technocratic model of modernization,” albeit in different guises. For China, it has been hoped that “reformists” and “leftists” who had fought each other would be swept aside by “a third force of market-friendly authoritarian technocrats” whose “post-totalitarian technocratic authoritarianism,” “pragmatic authoritarianism,” “political authoritarianism,” or “limited authoritarianism,” however one wants to call it, evidently represents a gradual movement towards a “democratic idea [that] has just appeared on the horizon” (Xiao 2003, 61–65). For other important reasons, too, technocrats may ironically be more needed than ever before:

in a world where the liberal notion of a progressive and autonomous civil society becomes a threat to markets, neoliberals were drawn to the idea of “change teams” or “technopols” able to stand above the clash of vested interests and rent-seekers and to impose collective welfare benefits of markets on society. Neoliberal agendas clearly required a political formulation in which these technocratic policy-makers might be insulated from the raids of predatory interests. (Robison 2004, 415)

Perhaps closest to this scenario of a neoliberal, market-fundamentalist world where technocrats stood above venal interests was a political trend that washed over Latin America during the 1990s. Here and now, technocracy and politics met, or were encouraged to meet, so that not old and insulated technocrats but new and politically blooded “technopols” would arise to bear the task of “freeing markets and politics” (Domínguez 1997). As Centeno showed of the Mexican tecnócratas led by Carlos Salinas, a “hybrid” elite had triumphed who seemed ideally to combine the educational credentials of the técnicos with the political access and acumen of the politicos (Centeno 1994, 106). Their program of salinastroika meant joining the “global revolution of the market” within which the states of the developing world “reduced public subsidies, competed for links with the developed economies and investment capital from multinationals, and sought to prove their ‘fiscal responsibility”’ (ibid., 21). In plain and hard-nosed terms,

[c]ountries that play the game dictated by either creditors or other potential sources of capital are rewarded with investments or new loans. Exporters of primary materials may find that the international markets are only open to those producers that respect a certain set of rules. In the most extreme interpretations of this situation, reforming governments have lost their autonomy over economic policy and must follow the dictates of external powers. But even in less dramatic cases the promise of extra capital or the threat of curtailment has an obvious effect on government decisions. (ibid., 22)

There appears to be nothing new under the technocratic sun after all. It has been technocracy’s game to manage that envisioned national-global interface over and over again in a relatively long trajectory that took technocracy into orthodox development, crisis intermediation, debt management, structural adjustment, and neoliberal marketization. If such is the situation in which the technocratic ideal finds its culmination, it must do so in a severely truncated form.

There is no doubt that technocracy exerts a persistent appeal: when all is said and done, who would not want to replace a “strong and demagogic discourse used in the past” with a “technocratic approach” that promised “rational solutions” to social and economic ­problems (Silva 1991, 410)? Yet any technocratic separation of the economic from the political was likely to be false. Even the “Chicago Boys” were only a subset of the ­“ODEPLAN Boys” who formed the economic twin to the “Gremialists” whose political project to entrench authoritarian rule was no less important to Pinochet’s regime than neoliberal economic restructuring (Huneeus 2000). There was never an intention to separate economics from politics for all the talk of insulating “good economics” from “bad politics.” Thus, in mid-1980s’ Chile, “paradoxically, the opposition to authoritarian rule also adopted an increasingly technocratic character” whereby the “CIEPLAN Monks” (an influential group of technocrats in the democratic government) vouchsafed their professional credentials in reply to the presumed technical superiority of the Chicago Boys (Silva 1991, 386, and fn. 3). And to a smaller degree, such a form of the techno­cratization of politics can be present, too, in Malaysia where Anwar Ibrahim leads a nascent opposition coalition that proffers a new economic agenda, one that is not sullied by cronyism, but supposedly strengthened with technocratic competence and professionalism.30)

Beyond that, it seems premature to think that the technocrats, technopols and ­tecnócratas have triumphed. For several years now in Latin America, political movements that bring together assertive indigenism, radical populism, and resurgent regionalism have haunted neoliberalism. In one country after the next, “the strong populist and demagogic discourse used in the past” has reasserted itself in renewed demands for social equity and justice, indigenous rights and re-nationalization, and the construction of regionalism and regional solidarity:

A string of New Left governments has emerged beginning with Hugo Chavez in Venezuela in 1999 followed by Luis Inacio “Lula” da Silva in Brazil in 2003. They have been joined by the election of left of center presidents in Bolivia, Ecuador, Argentina, Chile, Uruguay, Nicaragua, Paraguay and El Salvador. (Burbach 2009)

From that view, a “Bolivarian tide” threatens to topple technocratization from its imagined height. Whether or not it succeeds, its points are clear: politics and technocracy remain each other’s bane since the one cannot insulate the other, not for long, not ultimately. There may just have to be another game in town!

Accepted: November 1, 2013

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1) “Clearly, some expertise is necessary to operate a statistical office or build a bridge. It is not so obvious, however, that one need be familiar with econometrics to be able to discuss economic policy or be an engineer in order to judge the merits of a new airport site” (Centeno 1993, 318). One need not agree wholly with the examples to see the point of the argument.

2) The functions of “modern development administration” included “innovation, experimentation, active intervention in the economy, major involvement with clients, building new capacities, and conflict-management activities” but these functions “cannot be accommodated within the norms of classical Western models of administration” (Esman 1974, 16).

3) Bryld (2000, 702–703) made an important distinction between political and technical interpretations of concepts such as decentralization and governance when he argued that the IDAs “engage in a technical decentralization process . . . to achieve good governance and thus promote development,” using a “technical instrument . . . to reach what is necessarily a political goal.”

4) Peters (1979, 342); here, “technocrats” has been substituted for “bureaucrats” in the original text.

5) Technocrats, of course, had a different, extremely successful record elsewhere, in Japan and the newly-industrializing economies of East Asia a discussion of which is given in a later section of this article.

6) For Chile which has had a longer technocratic tradition than the other countries listed here, Silva (1994, 282) has suggested that technocracy emerged in a post-World War I crisis of oligarchic order which “created a very propitious climate for the adoption of so-called ‘technical and apolitical’ policies” and allowed a public technocracy to act as a “moderating mediator” between competing socio-political forces.

7) MacDougall’s is the most insistently approving of three articles in the same issue of Asian Survey (Vol. 16, No. 12, 1976) to assess, essentially to praise, “the contributions of technocrats to development” in Southeast Asia.

8) So arcane were the “mysteries of their science” that MacDougall was lost for a proper name for the “scientists” on whom he conferred a litany of titles; to wit, “economists-technocrats,” “professionally trained experts,” “professor-economists,” “practical modernizers,” “economic modernizers,” “economists,” “production-minded bureaucra[ts],” “New Order modernizers,” and “primarily Western-educated economists” (MacDougall 1976, 1166, 1172, 1176, 1181).

9) Bello, O’Connor and Broad (1982, 185) characterized Filipino technocrats as forming one of the “three pillars” of the Marcos dictatorship, the other two being the army and the “cronies.”

10) As MacIntyre and Jayasuriya (1992, 3–4) put it succinctly, “Economic adjustment (particularly in inclement global conditions) is a politically painful process, for in addition to creating glittering new benefits for some it also creates heavy costs for others. As much as an economic process, structural reform is a political process creating new winners and losers. The distribution of the costs and benefits of adjustment measures is central to an understanding of economic reform.”

11) Cited in Bello, O’Connor, and Broad (1982, 193).

12) Moore (1995) added (in his endnote, p.114), “One assumes that the ‘highly qualified team’ was a World Bank team, of course.”

13) Anek (1992, 32) stressed “Prem’s ability to insulate economic officials from the pressures of various opposing groups by building coalitional links to countervailing groups and institutions.”

14) Prominent regime leaders, each the leader of a coup d’etat, were Sarit (in Thailand), Soeharto, Pinochet, and Marcos. MacDougall (1976, 1167) called Soeharto the “prize student” who profited from the “tutelage” of his “presidential counselors”; thus was Soeharto elevated beyond the “politicians” who were dismissed by the “counselors” as more or less “grossly incompetent,” “economically irrational,” unproductively-inclined, indecisive, and impractical (ibid., 1179).

15) And this, in Malaysia where technocracy was part of an established and loyal civil service! Bank Negara enjoys “a reasonable degree of operational autonomy” but is not independent; it accepts that its functions are tied to “broader goals”—economic growth, high level of employment, price stability, reasonable balance in the country’s international payments position, eradication of poverty, and restructuring society (Hamilton-Hart 2008, 53). By law, the King appoints the Governor while the Minister of Finance appoints the Deputy Governor. In practice, the Prime Minister decides.

16) One could add a “technocratic view of the state . . . as a rational actor with a narrow focus on how to improve effectiveness and efficiency. Little attention is paid to non-economic factors, and the political aspects are overlooked. Thus, the complex political, social and cultural landscape in which the state operates is grossly oversimplified” (Bryld 2000, 703).

17) Still, technocrats may not always have their way. Shiraishi (in this volume) shows how the technocrat-­economists favored by Soeharto had to contend with the “engineers” whose rival vision of development was infused with economic nationalism.

18) This summary of the change in sentiment among the Mahasiswa Indonesia intellectuals comes from a review of Francois Raillon’s book on this group which the initially “still insecure Suharto clique found [to be] useful allies, since they provided an attractive ideological rationale for a regime that had none of its own and was desperately concerned to win respectability in Western eyes” ­(Anderson 1986, 541).

19) For an impressive list of the foreign university affiliation of the economic team of Patricio Aylwin in Chile, see Silva (1991, 407, Table 2).

20) Pasuk (1992, 26) concluded that over several post-war decades, Thai technocrats (and foreign advisers) helped “forge the tools [of policy reform] and . . . wield them” but “they did not decide when, where, and how they should be brought into action.”

21) Dijkstra (1996), evaluating “foreign influence on economic policies” under the Chamorro regime in Nicaragua, stressed that the implementation of structural adjustment measures could just as much be a “consequence of ideology rather than impartial technical advice,” and hence not technocratic as such.

22) For what it is worth today, it might be noted that Turner’s depiction was badly misrepresented in Droucopoulos and Henley (1977).

23) A glowing but incomplete account of Razaleigh’s eventual success in obtaining better terms than those initially offered by the foreign oil companies is given in Gill (1987, 132–143). In the event, Razaleigh lost his position (Jesudason 1989).

24) Unless it was because “with their economic bias, the engineers tend to exude the type of entrepreneurial government reminiscent of Sutowo” (Far Eastern Economic Review, May 16, 1980, 44, cited in Milne [1982, 407]), that is, an advocate (whatever his failings) of an interventionist state that would compete with or control private enterprise. Compare this with the note that in Chile the “neo-liberal model of development . . . meant the end of the entrepreneur state and the establishment of the market as the principal mechanism for the allocation of resources” (Huneeus 2000, 471).

25) Referring to this policy conflict, Gills (1996, 680) presciently observed, on the basis of “salutary lessons of some Latin American cases in the 1970s and 1980s, and of Russia,” that, “Financial liberalization is clearly the most potentially dangerous or economically disruptive process of accelerated opening.”

26) For a few authoritative accounts, see Johnson (1982), Amsden (1989), Rodan (1989), and Wade (1990).

27) In instructive contrast, from Bangura (1994, 46): “The Nigerian technocracy arose out of a deep socio-economic crisis and a far reaching process of economic and political restructuring. It is recruited informally through a variety of ways, the principal ones being contacts with military officers, business elites, politicians, top bureaucrats, and ethnic pressure groups, and visibility in professional organizations and public debates. It is a fairly large group, with considerable input from academics. Except for the early formulation of the economic reform program, which required some level of foreign input, the group has a solid indigenous base, oil revenues having played a role in creating a large pool of trained academics, bureaucrats, and professionals. Given the nature of its recruitment and its contradictory interests and orientations, it has not developed any consistently clear set of ideas that have remained dominant for any considerable period, except in certain areas of economic reform where neoliberalism has been forced upon the policy makers by the multilateral funding agencies and creditors. It has not been a very stable force, given the constant changes in policy, rules and personnel by the political leadership. This instability derives partly from the pressures exerted by a very open civil society, which provides a fertile environment for the regime’s manipulation of the political process, exacerbating the problem of creating a closed and predictable administrative system for the technocrats. Despite the inputs made into many aspects of public policy, the Nigerian technocrat remains largely ineffective in terms of influencing key outcomes and the general direction of change.”

28) “. . . the oligarchy collaborated with southern business elites, bureaucrats and transnationals though the corrupt National Party of Nigeria, to turn the country into a ‘Contractocracy”’ (Bangura 1994, 27).

29) For an excellent study of the political and economic sources of the failure of four major privatization projects in Malaysia, which symbolized the failure of Mahathir’s privatization as a whole, see Tan (2008).

30) Among the features of the technocratization of Chilean politics, according to Silva (1991), was the growth of private research institutes which supplied a counter-technocratic response to the regimes. Recently, in Malaysia, research institutes not linked to state-sponsored think tanks have begun to offer professional and technocratic critiques and counter-proposals to state policies.

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Vol. 3, No. 2, The Editors

Contents>> Vol. 3, No. 2

Technocracy and Economic Decision-Making in Southeast Asia: An Overview

The Editors
(Khoo Boo Teik,* Teresa S. Encarnacion Tadem,** and Shiraishi Takashi***)

* 邱武德, National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan

Corresponding author’s e-mail address: khoo-bt[at]grips.ac.jp

** Department of Political Science, University of the Philippines, Diliman, Quezon City 1101 Philippines

*** 白石 隆, Institute of Developing Economies Japan External Trade Organization (IDE-JETRO), 3-2-2 Wakaba, Mihamaku, Chiba, Chiba Prefecture, 261-8545, Japan; National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan

This article provides an overview of issues important to studying technocracy and economic decision-making in Southeast Asia. Historically the subject extends from the incorporation of non-communist states of the region into the US-molded post-World War II international order to the East Asian financial crisis of 1997. To Indonesia, Malaysia, the Philippines, and Thailand, advisory and expert missions of the United States, World Bank, and other international agencies bore “state-of-the-art” economic policy-making and development planning that reserved a special, politically immunized role for technocrats. Yet, technocrats occupied a contentious position because of conflicting interests in changing conditions of underdevelopment, late industrialization, trade and investment liberalization, and financial global­ization. As such, the assessment of the relationship between technocracy and economic decision-making in Southeast Asia should consider such opposed expectations as: the claims of technocratic efficacy against claims on social equity; demands of professional efficiency against demands of public accountability; appeals to state priorities against appeals to democracy; advances of national interests against defense of vested interests; promotion of economic targets against the attainment of social objectives; and the autonomy of technocrats against their captivity to patronage.

Keywords: technocracy, economic decision-making, Southeast Asia, technocratic efficacy, social equity, public accountability, democracy, patronage

There has been a sustained academic interest in technocracy in Southeast Asia even if the volume of academic work directed specifically at technocracies and technocrats has not been immense. Compared with the enormous and still growing academic literature on technocracy in Latin America, say, the academic literature on Southeast Asian technocracy may seem to be slight, if not inadequate. Even so, various studies in political economy and politics assessed the contributions of technocracy to economic development and growth of the Southeast Asian region (Milne 1982; Shiraishi and Abinales 2005), or in specific countries. Although, arguably, the region’s best publicized technocrats were the so-called “Berkeley Mafia” of Indonesia while its most admired was the technocratic elite of Singapore, studies have covered different aspects of the roles and impacts of technocrats in Indonesia (MacDougall 1976; Robison 1986; 1990); Malaysia (Montgomery and Esman 1966; Hamilton-Hart 2008); the Philippines (Bello et al. 1982); Singapore (Rodan 2004; Barr 2006); and Thailand (Stifel 1976; Anek 1992; Pasuk 1992).

Much of the early academic work on technocracy in Southeast Asia which went beyond making scattered comments on technocrats focused on their deployment by particular regimes for the task of leading economic and development planning. For ­studies typically conducted from the perspective of modernization theory, the technocrats’ roles and contributions were largely conceived as an important factor or “input” in development. Such studies assumed that the technocrat’s role was politically neutral and the technocratic input was economically positive (MacDougall 1976; Stifel 1976). To that extent, a benign technocracy served as a professional counterpart to an entrepreneurial vanguard. Later studies in political economy were more critical of the technocratic record in economic policy-making. They rejected any assumed neutrality on the part of technocrats, and instead targeted technocratic “complicity” in the construction of authoritarian regimes, the imposition of socially inequitable programs, and the eventual consolidation of neoliberal governance (Bello et al. 1982; Robison 1986; 1990).

Behind those two opposed perspectives stand several issues which have not been systematically discussed with reference to Southeast Asian technocracy, economic decision-­making, and politics. Some of those issues might usefully be explored here as a general guide to the concerns of the research project that has culminated in the present volume of articles.

Technocracy and Politics

Technical decision-making, applied to industrial production and management in the west, notably the United States, prompted some early twentieth-century visions of organizing government according to the merits of technocracy, the latter understood as “a system of governance in which technically trained experts rule by virtue of their specialized knowledge and position in dominant political and economic institutions” (Glassman et al. 1993). Partly due to the growing importance of technocracy and bureaucracy in capitalism after World War II, and partly due to a “general waning of authority of all large institutions and effectiveness of governments” burdened with fiscal problems and “overcomplexity” (Peters 1979, 342), technocracy held an attractive promise of de-politicized rational alternatives to the problems of society. To that degree, a major point of contention in discussions of technocracy in Western countries was the loss of accountability in decision-making that diluted public debate in favor of technocratic inputs and procedures.

One striking example of that trend towards a greater reliance on technocracy was the highly visible entry, among others, of corporate lawyers, bankers, and professors—America’s “best and brightest”—into the United States’ high-level policy-making, not least in the conduct of war.1) What was preferred at home was soon exported, and American technocratic thought and practice entered the newly-independent non-­communist countries of Southeast Asia, an important region that was being integrated into the United States’ sphere of influence in the United States’ strategic remaking of the post-World War II international order. To these countries, what seemed like international “state-of-the-art” ideas and practices of technocratic decision-making were conveyed by official or advisory missions of the World Bank and other international agencies, and by a range of American experts—from political advisers to technical consultants, and from academics to Peace Corps volunteers. Indeed, US influence over if not intervention in Southeast Asian affairs was accompanied by an important assumption that “modern development administration” (a forerunner of technocracy in changing “traditional” societies technically and behaviorally) included “innovation, experimentation, active intervention in the economy, major involvement with clients, building new capacities, and conflict-management activities,” that is, functions that were supposedly beyond “the norms of classical Western models of administration” (Esman 1974, 16). Not coincidentally, then, there was a steady replacement in high-level bureaucratic positions of the old-style colonial civil servants by social scientists (and especially economists) who were increasingly trained in American universities or influenced by their current theories and models of modernization and development.

In newly independent underdeveloped countries generally, technocracy’s potential was differently valued. Usually equipped with “applied modernization theory,” technocracy appealed to postcolonial regimes striving to shed a “techno-economic backwardness” that produced an “unholy trinity of ignorance, poverty and disease” (Mkandawire 2005, 13). Not only were technocrats a scarce “sub-group of bureaucrats that possesse[d] specialized knowledge” (Centeno 1993, 310), they were presumed by training, expertise and professionalism to bear the progressive values, rational attitudes, and specialist ­methods needed to modernize their societies. In Southeast Asia, for example, amidst debates over which developmental paths were economically ideal, politically feasible, or socially desirable, many regimes reserved, or were advised to reserve, in economic policy-­making and development planning a special role for “professional and sub-­professional classes,” or technocrats, as an international consultancy report on improving development administration reasoned:

Modern government depends increasingly upon modern technology for national security, for the conduct of its own developmental and recurrent operations, and for the performance of its regulatory and control functions. The proficiency and knowledge of its professional and sub-professional classes therefore define the ultimate limits of its technical capabilities. . . . Because of the rapid obsolescence of professional and technical knowledge in certain fields, in fact, it may be necessary to devote disproportionate emphasis to those services where the rate of change is greatest. ­(Montgomery and Esman 1966, 14)

It was not just hopes of development that made technocracy appealing. Where development had failed, “the permanence, the technical skills, and the anonymity of [technocrats] ma[d]e them appear the possible receivers for otherwise bankrupt regimes” (Peters 1979, 342).2) As often happened under economic crisis, regimes would be urged by international institutions to induct technocrats into high-level policy-making. Rulers and technocrats hoped, thereby, that “technocracy’s apparent emphasis on order, ration­ality and apolitical criteria” would be reassuring in a moment of “general societal crisis” (Centeno 1993, 324).

Whatever the circumstances that occasion it, the deployment of technocrats as a force in policy-making basically signals a shift in power to “a set of actors and institutions [that would] make decisions . . . implement those decisions in the society and economy, and . . . do so with a minimum of opposition” (Peters 1979, 340–342). Hence, although non-partisanship is held to be a technocratic virtue, an apolitical technocracy does not obtain. In practice, politics and technocracy are interlocked. Politics in the shape of regimes and leaders needs technocracy’s expert knowledge, methodical applications, and reasoned expectations for complex and credible decision-making. Conversely, technocracy, signifying the use of technocrats rather than the more precise but rarely encountered rule by technocrats, needs politics, that is, the sanction of power, if it is to be heeded, let alone used productively. Politics would ideally harness technocracy to clear objectives while insulating technocrats from interference so that they can function “without fear or favor,” as the cliché goes. The reality is more complex: there is latent conflict between politics and technocracy. The conflict is apparent enough in certain forms. For example, seemingly technical recommendations may be rejected and the technocrats associated with them ejected from their positions for running afoul of the powers that are supposed to insulate them from political interference. Or else popular resentment against “ration­al” policies which result in differential socio-economic impacts may erupt into anti-regime protests or must be put down by repressive measures. For that matter, particular (teams of) technocrats may find themselves opposed by institutional rivals with different ideas of planning and development. Or private non-state quarters may defend their vested interests by circumventing or sabotaging technocratic forms of governance. In each instance, the technocrat may be as much a scapegoat as a disinterested expert.

Yet the politics-technocracy conflict lies deeper. Politics looks to technocracy for expert inputs and calculated outcomes but does so to embed the exercise of state power in diverse economic and developmental agendas, policies, decisions, and programs. An actually functioning technocracy, therefore, operates as an appendage of politically shaped structures, institutions, and configurations of power. At certain levels of work in circumscribed situations, some socio-economic problems may require no less, but no more, than technical solutions.3) Beyond that, it is illusory to conceive of highly placed technocrats as backroom experts whose task is to prepare disinterested rational-technical solutions to the problems of economic planning, resource allocation, and social distribution, each of which is inherently a political matter.

Understanding Technocracy in Southeast Asia

The potential for politics-technocracy conflict in economic decision-making is especially large in times of rapid transformation, severe restructuring, or actual collapse when policies and outcomes, no matter how technocratic they are made out to be, are unavoidably political. Under contentious conditions, readily pitted against one another will be different sets of expectations and interests, including the following:

• claims of technocratic efficacy against claims on social equity

• demands of professional efficiency against demands of public accountability

• appeals to state priorities against appeals to democracy

• advances of national interests against defense of vested interests

• promotion of economic targets against the attainment of social objectives

• the autonomy of technocrats against their captivity to patronage

Technocrats are bound to be assessed in partisan ways in such times. In judging their performances, their supporters and detractors alike will make much of supposed technocratic ideals and disposition—faith in techniques and models, professional aloofness, ideological conservatism, and pro-establishment proclivities, as well as affinities with non-democratic institutions, centralized decision-making, and statist priorities. But these are not the only important aspects of technocracy. In fact, how far technocrats perform to expectations crucially depends on other matters, including their assigned roles, their scope of authority, and their institutional milieu.

It was a concern with these kinds of issues, pertaining to the separate and comparative records of Southeast Asian technocracies that inspired the research conducted for this volume of articles. The focus of the volume is the relationship between technocracy and economic decision-making in Southeast Asia. Its principal approach is to explain and assess the roles and performances of technocracies in Southeast Asian countries whose economies had had significant moments of economic and political crises while showing comparable experiences of underdevelopment, late industrialization, trade and investment liberalization, and financial globalization. Indonesia, Malaysia, the Philippines, and Thailand were selected for this study because their experiences more fully extend from the post-World War II period when technocracy emerged to the present when technocracy’s positive or negative impacts on the management of the 1997 financial crisis in East Asia generated economic and political effects which continue to reverberate.

Each of the case studies of Indonesia, Malaysia, the Philippines, and Thailand grapples with the record of technocracy in its selected country, weaving together economic and technical issues with social concerns and political pressures. Neither elevating nor maligning a technocratic role in economic decision-making, particularly in times of ­economic stress, the volume seeks collectively to provide detailed investigations and assessments of the relationship between technocrats and economic decision-making as experienced within Southeast Asia’s socio-economic development in the postcolonial era. The relationship has been a relatively long, complex, and fascinating one given the pathways of Southeast Asian development, the roles of technocrats in charting them, and the conditions under which development occurred. Over half a century, as is too well known to be rehearsed at length here, Southeast Asia’s economic development has covered modernization, structural transformation, late industrialization, debt and crisis management, economic stabilization and structural adjustment, trade and investment liberalization, and closer integration with a global economy. Compelled to respond to these multi-­dimensioned twists and turns in development, Southeast Asian technocrats have performed a multiplicity of roles and borne a wide range of responsibilities as economic planners, program implementers, fiscal managers, power brokers, and institutional intermediaries. At the same time, many high-level technocrats have had to tread fine lines between domestic and foreign parties, especially in times of economic distress when the intervention of international financial institutions crucially shaped post-crisis policy options.

In all this, different technocrats operated under the patronage or the protection of leaders and regimes that differed as well in their personal capabilities and influence over economic decision-making. Domestic and global conditions often changed rapidly and sharply, too, creating a need for technocratic deployment but also imposing constraints on its courses and outcomes. Domestic political conditions were critical: in three out of the four countries studied, authoritarian regimes or military dictatorships ruled for long periods, defining the political and institutional frameworks within which technocrats worked. Transitions to democratic regimes—reversed more than once in Thailand—brought their own conditions, not always favorable to technocrats. Between the 1970s and 1990s, technocrats had to manage the ramifications of global economic changes or instabilities which included: the dismantlement of the Bretton Woods fixed foreign exchange mechanisms; oil shocks; the collapse of commodity prices; trade and investment liberalization; the integration of the global capitalist economy after the implosion of the Soviet bloc; the huge expansion of the “paper economy”; and the wild gyrations of the money markets.

Indeed, one way to understand the differences between Southeast Asian technocracies “then and now” is to note the considerably altered circumstances of their deployment. “Then,” as in the era of decolonization and the Cold War, the circumstances of economic planning were dominated by a need to resolve pressing domestic problems. “Now,” as in the post-Cold War age of “globalization,” the conditions of economic manage­ment demand stable interfaces with volatile external markets. In this context, probably the most far-reaching moment of change came with the financial crisis of 1997. If the so-called “East Asian miracle” marked the height of Southeast Asian economic advance, the so-called “East Asian financial crisis” signaled its reversal. To approach technocracy in Southeast Asia, therefore, is to understand why, how, and to what consequence technocrats were used to build up a “miracle” and subsequently to manage its “meltdown.” Only then, as envisaged by the research project, can the technocrats’ roles, influences, and impacts—positive and negative—be properly assessed. Hence, the research project set out to establish how technocracy, utilizing different teams of technocrats, helped to lay the foundations of policy- and decision-making, chart the directions of transformation, manage crises, and make or unmake selected Southeast Asian economies at different times.

Structure of the Special Issue

Many of the issues bound up with technocracy in Southeast Asia are closely examined in Takashi Shiraishi’s study of technocracy in Indonesia from its origins in the 1960s to its present post-New Order transitional state. The original corps of Indonesian technocrats had an uninterrupted involvement in economic policy-making over four decades of growth, crises, and reforms. In Shiraishi’s assessment, the pioneer technocrats performed well in macro-economic policy-making, namely, in maintaining a balanced budget, an open capital account, and a pegged exchange rate system. As the details of their qualifications and appointments show, they were a small and tightly-knit elite believing in free trade, comparative advantage, limited state intervention, and reliance on the private sector. The natural allies of the international financial institutions, the technocrats—virtually pre-Washington Consensus neoliberals—had serious rivals in a domestic group of “engineers” committed to industrial policy and state intervention. Moreover, the technocrats’ macro-economic reforms were constrained by resource and revenue fluctuations. In difficult times, Soeharto relied on the technocrats, partly to still international concern. In good times, Soeharto gave the “engineers” ambitious state projects. But the technocrats’ influence could not extend beyond fixing macro-economic policies: they were unable to check cronyism and corruption in implementation. When push came to shove in 1997–98, and their proposed financial reforms made them side with the International Monetary Fund (IMF) against Soeharto’s family and cronies, the technocrats’ utility to Soeharto ended. The technocrats saw their work, mission, and influence in technical terms. Still, Shiraishi concludes, their operational milieu was highly politicized and they were only effective within certain political parameters: the New Order’s centralized decision-making process, their immunization against dissent by the political demobilization of society, and Soeharto’s personal trust. When Soeharto fell, and his repressive “politics of stability” yielded to democratization, decentralization, and electoral demands for a “politics of economic growth,” the technocrats’ scope was truncated by new political conditions. Now, their influence was challenged by emerging parties and politicians operating at national, provincial, and local levels. In this likewise politicized but multipolar order, not even a President who wants to entrust policy-making to proven technocrats can shield some of the latter from powerful figures who are not less predatory for being allies and partners.

Compared to its Indonesian counterpart, Thai technocracy, examined by Pasuk Phongpaichit and Chris Baker, and Akira Suehiro, experienced more swings in status and influence from its post-World War II genesis to the administrations of Thaksin ­Shinawatra before he was deposed in the September 2006 military coup d’etat. Pasuk and Baker chart the Thai technocracy’s “rise and fall” through three generations of technocrats. Their considerably different perspectives, duties, and conditions of work reflected domestic and global changes that had transformed the Thai economy from an agricultural into a newly industrializing economy by the mid-1990s before plunging it into its direst condition in 1997. The few and cohesive pioneering technocrats laid the foundation for macro-economic management. Much valued for their skills, they could even wring some scope of autonomous planning from the generals. The political upheavals of 1973–76, though, cast uncertainty over the position of the technocracy as they did everything else in Thai society. (Shockingly, threats against his personal safety drove Puey Ungphakorn, the dean of the pioneer technocrats, into exile, never to return to Thailand.) The second technocrat generation was divided between those who eschewed long-term planning for pro-market quantitative modeling and short-term management of market instabilities, and others who wanted to follow the East Asian developmental state’s path to industrialization. In short, the technocrats were apt to serve as advocates of competing ideological positions within a context of mounting trade and investment liberalization. The third generation, active after the Plaza Accord-induced, foreign investment-led growth, was tasked with carrying out full-scale financial liberalization as Thailand emerged as a foreign investment-led newly industrializing economy. By this stage, however, the technocrats’ scope of action had been reduced by new politicians, big businesses, and party-sponsored think-tanks. From these turns, Pasuk and Baker show that the pervasive influence of neoliberal ideology undermined the efficacy of technocratic management while competing agendas and cross-cutting political pressures damaged the technocrats’ cohesion. Consequently, a technocratic record commended for competence, autonomy, and insulation in its heyday was discredited for a lack of understanding of the global economy, lack of anticipation of risks, and lack of independence from political intimidation when the Thai currency collapsed in 1997!

After his Thai Rak Thai party won its first general election in 2001, Thaksin attempted ambitious reforms of the Thai economic and financial systems, as Suehiro’s detailed analysis of the Thai civil service shows. Thaksin reduced the status and effectiveness of the technocrats associated with three core planning, budgeting, and fiscal management agencies, and the central bank. He accomplished this partly by substituting formerly fragmented decision-making, which favored ministry-based technocrats, with centralized decision-making (over economic strategies, budgetary allocations, and transmission of funds) that was more closely controlled by the Prime Minister, his political deputies, and his special advisers. In fact, Thaksin reorganized the bureaucracy to prioritize his agendas, reformed personnel management to place meritocracy ahead of senior­ity, and compelled state agencies to improve public service delivery. Whatever their actual impact on post-crisis recovery, Thaksin’s public service reforms undermined an established and stable if conservative bureaucracy. The power shifts that necessarily accompanied the reforms threatened to emasculate technocrats and bureaucrats alike. Yet, reducing technocratic control over budgetary allocations and procedures of expendi­ture simultaneously left some sectors with lowered funding. Critically, these sectors included the military when Thaksin decided that the post-Cold War security position required less not more defense spending. In a sense, Thaksin’s downgrading of technocracy which was a pillar of the political system indirectly destabilized the system. If the reforms left the technocrats helpless against the most popular Prime Minister and political party ever elected, Thaksin’s other moves—which are beyond the scope of this volume—led to his overthrow in September 2006. And, then, ironically, the post-coup Cabinet had 18 retired and serving public officials, and only one politician. Whether such a Cabinet composition reflected the military’s disdain for the other political parties that could not compete with Thaksin’s Thai Rak Thai, Suehiro wonders if Thai politics was perhaps returning to its mold of a “bureaucratic polity.”

Teresa S. Encarnacion Tadem assesses and contrasts the scope of technocratic influence in pre- and post-martial law Philippines. She notes that the elite Filipino technocrats had first become prominent under the Macapagal Administration (1961–64) for their role in opening the economy to foreign investments and loans, the latter mainly from the IMF. Under martial law (1972–86), insulated from opposition to their economic schemes, the technocrats became one of the Marcos regime’s “three pillars.” They supplied him with a credible development program endorsed by the international financial institutions while the latter’s support conferred credibility on the technocrats themselves. Under technocratic oversight, trade barriers were removed and the economy made export-oriented and dependent on an influx foreign capital. Yet, the martial law technocrats’ failure to alleviate poverty contributed to Marcos’s ouster and their own decline. Their technocratic successors retained an economic strategy of liberalization now implemented via globalization, privatization, and deregulation. To some degree, the post-martial law technocracy has been shielded from public criticism because of the prevalence of neoliberal ideology among influential policy-makers and the prevailing transnational character of economic policy-making. Even so technocracy under democracy is vulnerable to criticisms by political interest groups, non-governmental organizations, and the business community. The technocratic scope of decision-making is now constrained, partly due to strong rivalry within the ranks of technocracy and bureaucracy. Above all, the democratic system has left an ironic impact on technocracy that underscores the latter’s loss of insulation: the expediency of electoral politics and the calculations of patronage politics are liable to cause the political leadership to sacrifice unpopular economic policies and, sometimes, their technocratic proponents.

Khadijah Khalid and Mahani Zainal Abidin relate the changing influence of Malaysian technocracy to several factors that framed the technocrats’ position in economic management, namely, the fundamental orientations of the economy; national socio-economic objectives; the relationship of the political leadership to the technocrats; and pressures from the global economy. From 1957 to 1981, the technocrats enjoyed a close relationship with the first three Prime Ministers, each a former member of the civil service elite. Whether the orientation of the national economy was roughly laissez-faire (1957–69) or state interventionist with social objectives (1970–81), senior technocrats in development planning, financial management, and state enterprises were well insulated from political pressure. Policies devised by them were rarely debated even in Parliament. For a quarter century, then, the technocrats directed export-oriented industrialization, high-growth strategies, petroleum development policies, and socio-economic restructuring. However, when Mahathir Mohamad was Prime Minister, from July 1981 to October 2003, he emulated the East Asian developmental state, dominated economic decision-making, and favored private-sector initiatives. The technocrats were still insulated from public pressures but technocracy was no longer a privileged source of ideas and policies. For those, Mahathir relied on himself and a circle of political and business advisers. Faced with the volatility of 1997–98, the central bank and the Ministry of Finance offered the counsel of caution and accord with market sentiment and the IMF. Mahathir instead confronted the money markets with limited capital controls and a fixed foreign exchange rate. Thus a tradition of technocratic autonomy ended: now the technocrats would only implement the policies determined by Mahathir and his crisis-management council. Khadijah and Mahani argue that sidelining the technocracy had created major problems of macro- and micro-economic and financial management before the 1997 crisis. When he became Prime Minister in November 2003, Abdullah Ahmad Badawi, an ex-bureaucrat, restored some of the technocracy’s lost prestige. But socio-political conditions have changed, and economic policy-making has become the shared but contested terrain of bureaucrats, young professionals, and politicians with technocratic backgrounds.

Finally, Khoo Boo Teik locates Southeast Asian technocracies within a depiction of an international trajectory of technocracy that covers the issues raised by this volume. Khoo suggests that the technocratic trajectory has been long but troubled. Developing countries embarked on many projects of economic advance and transformation only to lurch from development to debt and crisis management to structural adjustment, and the neoliberal reconfiguration of the global economy. In each project, technocrats emerged as an identifiable decision-making force under unavoidably politicized circumstances. Technocrats assumed different roles as planners, implementers, managers, brokers, and intermediaries. Yet, with few exceptions in the developing world, despite technocratic inputs, visions of postcolonial progress collapsed under structural adjustment while state intervention was reduced to neoliberal good governance. What began as a basic need to deploy technocracy for its skills and to insulate its workings from political pressures and interference led to a complex trend of “technocratization”—or a fusion of technocracy and politics—to overcome the latent conflicts between technocracy and politics. Politics could no longer depend on technocratic solutions while technocracy could not resolve its political problems. Thus, technocrats played a central role in modernization, economic transformation, or crisis management, all extraordinarily politicized situations, but they could scarcely live down their reputations as the expert collaborators of authoritarian regimes, the designers and implementers of harsh economic programs, or the allies of international institutions bent on reducing social spending via deflationary policies. Moreover, neoliberal globalization has whittled the path of relatively autonomous state-led, technocracy-implemented national economic strategies. As Southeast Asia after 1997 has demonstrated, technocracy’s old role has been truncated. Technocrats found themselves being squeezed between popular demands for equitable social policies and oli­garchic resistance to reform agendas, between satisfying the calculations of politicians and meeting the claims of civil society. To that extent, technocracy’s trajectory, which included its course in Southeast Asia, has shown how relatively ineffectual was the impact of technocracy on political economy in crises, precisely when, it was thought, technocracy would best fulfill its role.

Accepted: November 1, 2013

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Halberstam, David. 1972. The Best and the Brightest. New York: Random House.

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1) For the original “best and brightest,” see Halberstam (1972). Gabler (2010) argues that the Obama administration is packed with “The Best and Brightest 2.0”—“cool, unflappable customers . . . Ivy-educated, confident and implacable realists and rationalists. Like their forebears, they have all the answers, which is why they have been so unaccommodating of other suggestions on the economy, where economists have been pressing them for more stimulus, or on Afghanistan, where the President keeps doubling his bets.”

2) Here, “technocrats” has been substituted for “bureaucrats” in the original text.

3) “Clearly, some expertise is necessary to operate a statistical office or build a bridge. It is not so obvious, however, that one need be familiar with econometrics to be able to discuss economic policy or be an engineer in order to judge the merits of a new airport site” (Centeno 1993, 318).

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Vol. 3, No. 2, Shiraishi Takashi

Contents>> Vol. 3, No. 2

Indonesian Technocracy in Transition: A Preliminary Analysis*

Shiraishi Takashi**

*I would like to thank Caroline Sy Hau for her insightful comments and suggestions for this article.

**白石 隆, Institute of Developing Economies Japan External Trade Organization (IDE-JETRO), 3-2-2 Wakaba, Mihamaku, Chiba, Chiba Prefecture 261-8545, Japan; National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan

e-mail: takasisiraisi[at]gmail.com

Indonesia underwent enormous political and institutional changes in the wake of the 1997–98 economic crisis and the collapse of Soeharto’s authoritarian regime. Yet something curious happened under President Yudhoyono: a politics of economic growth has returned in post-crisis decentralized, democratic Indonesia. The politics of economic growth is politics that transforms political issues of redistribution into problems of output and attempts to neutralize social conflict in favor of a consensus on growth. Under Soeharto, this politics provided ideological legitimation to his authoritarian regime. The new politics of economic growth in post-Soeharto Indonesia works differently. Decentralized democracy created a new set of conditions for doing politics: social divisions along ethnic and religious lines are no longer suppressed but are contained locally. A new institutional framework was also created for the economic policy-making. The 1999 Central Bank Law guarantees the independence of the Bank Indonesia (BI) from the government. The Law on State Finance requires the government to keep the annual budget deficit below 3% of the GDP while also expanding the powers of the Ministry of Finance (MOF) at the expense of National Development Planning Agency. No longer insulated in a state of political demobilization as under Soeharto, Indonesian technocracy depends for its performance on who runs these institutions and the complex political processes that inform their decisions and operations.

Keywords: Indonesia, technocrats, technocracy, decentralization, democratization, central bank, Ministry of Finance, National Development Planning Agency

At a time when Indonesia is seen as a success story, with its economy growing at 5.9% on average in the post-global financial crisis years of 2009 to 2012 and performing better than its neighbor economies of Malaysia (with its economic growth of 4.1% a year in 2009–12), the Philippines (4.8%), and Thailand (3.0%), it is easy to forget that less than a decade ago many people wondered and worried whether Indonesia would turn into a Yugoslavia, in danger of breaking up owing to ethnic and religious tensions, or a Pakistan, subject to periodic military intervention and the rising jihadist threat, or a Philippines, democratic but with insurgencies simmering in the provinces and a weak and stagnant economy.

Nothing of this sort has happened. Instead, and most remarkably, a politics of economic growth has returned, but under conditions that are different from the politics of economic development pursued by Soeharto under the New Order.

The politics of economic growth is politics that transforms political issues of redistribution into problems of output and attempts to neutralize social conflict in favor of a consensus on growth, thus creating a “virtuous” cycle of political stability which leads to economic development which leads to the rising living standard which in turn leads to further political stability. Under Soeharto, this politics provided the ideological legitimation to his authoritarian state, while also delivering on its promise to improve the living standards of a substantial majority of the Indonesian people, helping to create a sizeable Indonesian middle class. In this context, technocrats emerged as major allies of Soeharto, working closely with the President on all economic policy issues.

The new politics of economic growth works differently under the current decen­tralized democracy, and technocrats also now work under conditions different from ­Soeharto’s New Order. The salience of this politics of economic growth was underscored in the reelection of Susilo Bambang Yudhoyono in 2009 as President. Public support for the incumbent President and his Democratic Party nicely correlated with public perception of Indonesia’s economic performance. Thanks in part to the global financial crisis that pushed down fuel prices, for which the President took credit, Yudhoyono was reelected overwhelmingly in the first round voting with technocrat Budiono as his running mate. The resurgence of the politics of economic growth in Indonesia and with it the comeback of technocrats as a force (though as vulnerable as the technocrats in ­Soeharto’s time, but in a different way) in Indonesian politics can be seen in the prestige and authority that former Minister of Finance Sri Mulyani Indrawati enjoys even after she was sent off to the International Monetary Fund.

What made technocrats effective as economic policy-makers under Soeharto? What conditions have enabled technocrats to be effective under the current democratic system? Who are they in the first place? The answers to these questions illuminate the important but nevertheless fraught position occupied by technocrats in Indonesia’s changing political structure and processes of economic policy-making.

The Making of Indonesian Technocracy

Technocracy in Indonesia emerged and developed in the 1960s and 1970s in tandem with the rise and consolidation of Soeharto’s authoritarian developmental state. Soeharto fashioned his New Order regime with the state as his power base and the army as its backbone. The regime was centralized, militarized, and authoritarian. Army officers dominated the military and occupied strategic positions in the civilian arm of the state as district chiefs, provincial governors, directors-general, and ministers in the name of dual functions. State power was repeatedly impressed upon regime “enemies”—“com­munists,” “separatists” in East Timor, Aceh, and Papua (Irian Jaya), criminals, labor activists, journalists, and Islamists. The government contained the question of social divisions along ethnic and religious lines through state repression (politics of stability, that is) while it addressed the question of class divisions through its politics of economic development. The government thus achieved the state of political demobilization (as opposed high level of political mobilization under Sukarno’s Guided Democracy) deemed necessary to national development by barring oppositional groups (whether ethnic, religious, or political) from participation in the political processes and imposed its politics of stability and development on the public.

Technocrats, who were in charge of development, thrived in the state of political demobilization under the New Order. They started their technocratic career in the early days of the New Order as Soeharto’s economic advisers. They were young academics trained as economists at Indonesia’s premier university, the University of Indonesia (hereinafter UI), and abroad who maintained their academic status as UI professors while joining the government as technocrats. Five of them emerged as key members of ­Soeharto’s economic team and founding fathers of the Indonesian technocracy: Widjojo Nitisastro, Ali Wardhana, Emil Salim, Subroto, and Mohammad Sadli.

In the early years of the New Order, there were not very many Indonesians who had the technical expertise to formulate and manage economic policies and to communicate in the language of economics with their counterparts from other countries such as the United States and Japan and from international agencies such as the International Monetary Fund (hereinafter IMF), the World Bank (hereinafter WB), and the Asian Development Bank (hereinafter ADB). The first-generation of technocrats obtained the expertise and the language thanks to their training at foreign, largely American, universities. Their small number and close personal relationships with each other (as well as their expertise) set them apart from the great majority of civilian bureaucrats and military officers who ran the New Order state. While they could have a significant impact on broad economic policies, above all monetary policies and major allocations of government resources, they had relatively little influence on or control over the political and bureaucratic processes that enabled the policy implementation of contracts, licenses, promotions, payoffs, and other micro-economic details (Bresnan 1993, 73).

Technocrats enjoyed Soeharto’s trust and confidence as his ally and were appointed as ministers in charge of key economic agencies: Widjojo Nitisastro as Chairman of ­BAPPENAS (Badan Perencanaan Pembangunan Nasional) (1967–83), Coordinating ­Minister for Economy, Finance and Industry (hereinafter Menko, 1973–83), and presidential economic advisor (1993–98);1) Ali Wardhana as Minister of Finance (1973–83) and Menko (1983–88);2) Emil Salim as State Minister for State Apparatus (1971–73), Minister of Transportation, Communication and Tourism (1973–78), State Minister for Development Supervision and Environment (1978–83), and State Minister for Population and Environment (1983–93);3) Subroto as Minister of Manpower, Resettlement and Cooperatives (1978–83) and Minister of Mining and Energy (1983–88);4) Mohammad Sadli as Minister of Manpower (1971–73) and Minister of Mining and Energy (1973–78).5) They were soon followed by their juniors: J. B. Sumarlin who served as State Minister for State Apparatus (1973–83), State Minister for National Development Planning and BAPPENAS Chairman (1983–88), and Minister of Finance (1988–93);6) Saleh Afif who served as State Minister for State Apparatus and Deputy Chairman of BAPPENAS (1983–88), State Minister for National Development Planning and Chairman of BAPPENAS (1988–93) and Menko (1993–98);7) Adrianus Mooy as BI (Bank Indonesia) Governor (1988–93);8) Rachmat Saleh as BI Governor (1973–83) and Trade Minister (1983–88);9) Arifin Siregar as BI Governor (1983–88) and Trade Minister (1988–93);10) Soedradjad Djiwandono as BI Governor (1993–98).11)

As their careers show, four of the first-generation technocrats studied at the ­University of California, Berkeley, and three of them obtained their Ph.Ds there, hence the group appellation “Berkeley Mafia.” But a more appropriate label for the technocrats under Soeharto should have been the “UI-Gadjah Mada Mafia” because many of the technocrats who followed their footsteps were either trained at the UI or Gadjah Mada University, which would serve as the nesting grounds for grooming the technocrats who succeeded the original five.

In the early years of the New Order, technocrats were instrumental in setting the principles that informed the macro-economic policy framework under Soeharto: the ­balanced budget, the open capital account, and the pegged exchange rate system. The balanced budget principle and its international institutional framework, IGGI/CGI, served as a mechanism to keep total public expenditures under domestic government revenues plus official capital inflows.12) It was instrumental in keeping the government from resorting to deficit financing and served to shield the Minister of Finance from excessive financing demands (Ginandjar and Stern forthcoming, 13–14). It also functioned to prevent the government from attempting to raise funds by issuing domestic government bonds (and indeed, the government did not issue domestic bonds until the 1997 crisis). But it was never made into a law. It essentially depended on the ability of the Finance Minister to persuade the President to reject proposals that required excess expenditure. The government also relied on off-budget expenditures, the size of which was often unknown even to senior policy-makers. Over time, the government increasingly resorted to off-budget accounts to fund numerous pet projects (such as the state aircraft industry and Krakatau Steel), finance government election campaigns, and underwrite persistent public enterprise sector deficits by borrowing from state banks (ibid.).

The second principle—the open capital account—was introduced in 1971, when the government eliminated controls on foreign exchange transactions, most notably capital flows. The open capital account was meant to provide a further brake on monetary policy by ensuring that any monetary mismanagement would show up almost immediately in an outflow of foreign exchange. And finally, an adjustable pegged exchange rate (the third principle) was meant to maintain the real international value of the rupiah by adjusting the nominal rate to reflect changes in domestic consumer prices relative to the international prices of its major trading partners (ibid.).

Technocrats, enjoying Soeharto’s trust and armed with the three principles, proved effective in the economic policy-making as long as the president supported them. They formulated broad economic policies collectively. A good example is monetary policy. Under the New Order, the BI was not independent. Central Bank Law No. 13, 1968 (Law of the Republic of Indonesia Number 13 of 1968 concerning the Central Bank) explicitly stated that BI implement monetary policy formulated by the Monetary Board. The board was composed of the Finance Minister, Minister of Trade and Industry, State Secretary, government Economic Advisers (Widjojo Nitisastro and Ali Wardhana, that is), and the Governor of BI. Policy recommendations and decisions as well as their implementation were in due course reported and discussed with the President. Decisions were generally made after going through him. Sometimes decisions were made for immediate implementation. Otherwise, they went through Cabinet meetings, which were conducted once a month (Djiwandono 2004, 46).

But the above technocrats only represented one school of thought on Indonesia’s economic development. They adhered to the doctrine of free trade and advocated limiting state intervention in the market to a minimum and guaranteeing as much as possible the free economic activities of the private sector. They also hewed to the notion of “comparative advantage” of a country for economic development. Another school of thought—mainly represented by engineers, many of whom were trained at the Bandung Institute of Technology (ITB)—believed in industrial policy and upheld state-led economic nationalism, arguing that the state should actively intervene to promote long-term growth of domestic industries, if necessary shielding these domestic industries from outside competition.

Officials representing these two opposing camps sought Soeharto’s support and blessings. Indonesia’s development strategies oscillated between the two schools of thought as Soeharto oscillated between the two strategies. When the economy was booming, economic nationalism manifested itself in the form of large-scale capital-­intensive state projects, which often turned out to be wasteful and served to increase Indonesia’s external debt. When the economy experienced a downturn, those projects were shelved, the exchange rate was devalued, and deregulations were introduced to integrate the Indonesian economy more deeply into the global market.

BAPPENAS was the stronghold of technocrats with the physical presence, either formal or informal, of Widjojo Nitisastro, while the nationalist school was represented by such high-ranking officials as B. J. Habibie, who served as State Minister for Science and Technology and Chief of Technology Assessment and Application Agency (Badan ­Pengkajian dan Penerapan Teknologi, BPPT) from 1983 to 1998; Ginandjar Kartasasmita who served as Junior Minister for the Promotion of Domestic Products (1983–88), Head of the Investment Coordinating Board (Badan Koordinasi Penanaman Modal, BKPM) (1985–88), Minister of Mining and Energy (1988–93), and State Minister for National Development Planning and Chief of BAPPENAS (1993–98); Hartarto, Minister of ­Industry (1988–93); and Tunky Ariwibowo, Minister of Industry (1993–95) and Minister of Industry and Trade (1995–97). Rent-seekers with vested interests, above all presidential cronies and, increasingly, Soeharto’s family members, openly allied themselves with the nationalist school.

Technocrats had their heyday in the mid- to late 1980s. One contentious issue between technocrats and nationalists was import controls. In 1982, an “approved traders” system was introduced. The system established a list of categories of raw materials, components, and products that could be imported only by specified agencies. By early 1986, 1,484 items were under import license controls and 296 items were under physical import quotas. These items amounted to USD2.7 billion worth of imports in 1985, representing more than half the value of Indonesia’s total imports. These controls did little to protect local industries, and functioned more as a means of generating income for the president’s family and friends (Bresnan 1993, 247, 249). Another issue was controls on private investment. Foreign investment was tightly controlled; from 1974 onward, the Investment Coordinating Board (BKPM) issued comprehensive guidelines every year listing the priority areas for investment. Under the leadership of Ginandjar Kartasasmita, the 1985 investment priority list, for instance, included 400 projects which were open to foreign investors, others which were restricted to domestic investors, and areas that were closed to investment altogether (ibid., 251).

But oil revenues were declining because of the collapse of oil prices in the early 1980s. The Fourth Five-Year Plan, announced in 1984, made it clear that the days of state-funded projects were over. The Plan estimated that the economy would have to create nine million new jobs over the five-year period; this in turn would require the investment of Rp145.2 trillion, but the government budget would only be able to provide around half of that amount. The remainder, Rp67.5 trillion, would have to come from the private sector and state enterprises. Both the Commander in Chief of the Armed Forces Gen. Benny Murdani and the State Secretary and Chairman of the government’s party, Golongan Karya (Golkar) Lt. Gen. Suhdarmono—Soeharto’s two top lieutenants in those days—called on ethnic Chinese businessmen to support the Plan by calling for the end of racial discrimination in government policies (ibid., 254–255).

With this broad political backing, technocrats took initiatives toward deregulation from 1983 to 1989. The economic team which retained control over the major economic portfolios took steps to reform the financial system, adopted a more open trade stance, and introduced a modern tax system (Ginandjar and Stern forthcoming, 17). Soeharto took his economic ministers’ advice, as he had on earlier occasions when resources were constrained. Menko Ali Wardhana and his economic ministers proceeded with their reforms when they had the formal authority, bureaucratic strength, political backing, and Soeharto’s personal support to act on such issues as trade, investment, exchange rates, interest rates, and taxes. The incremental approach included bank reforms in 1983; a tax reform at the end of that year; reform of the customs service in 1985; the devaluation of the rupiah in 1986; and partial trade reforms in 1986 and 1987. Investment controls were eased in 1986 and 1987, and in 1988 a package of deregulation measures in trade and customs was announced by Radius Prawiro, the new Menko (Bresnan 1993, 262–263).

But technocrats had lost their momentum and political support by the early 1990s. In the 1993 reshuffle, most of the technocrats were replaced by economic nationalists and bureaucrats (Ginandjar and Stern forthcoming, 17–18). This was in part because of the rise of nationalists led by Habibie and Ginandjar and in part because of the rise of a new breed of career bureaucrats who were able to obtain technical expertise by doing graduate work abroad (technocratic bureaucrats) and who were often supported by ­Soeharto and his family members and cronies.

Mar’ie Muhammad13) replaced J. B. Sumarlin as Finance Minister; Ginandjar ­Kartasasmita14) replaced Saleh Afif as State Minister for National Development Planning and BAPPENAS Chief; S. B. Joedono,15) Habibie’s ally, replaced Arifin Siregar as Trade Minister; while one of two remaining technocrats, Saleh Afif, was appointed as Menko to replace Radius Prawiro16) and another, Soedradjad Djiwandono, replaced Adrianus Mooy as BI Governor.

It is also important to note that the Indonesian economy was undergoing major changes by the early 1990s. The private sector emerged as the driving force for economic growth. There was a general surge in foreign direct investment after the 1985 Plaza Accord as realized foreign investment rose from USD0.3 billion in 1985 to USD4.3 billion in 1995. Most notable was the shift in the ratio of non-oil and gas revenue receipts as a proportion of the Gross Domestic Product (GDP), which rose from slightly more than 8% in 1985–86 to nearly 12% in 1994–95 (ibid., 19, 22). But attempts at curbing vested interests were not very successful. As Menko, Saleh Afif knew that eliminating or even reducing the monopolies Soeharto’s cronies controlled would be impossible. Protectionism also reared its head in the form of Soeharto’s son’s national car project, which began in 1996 and was routinely ridiculed as the “family car project.”

But most important was the fact that as private capital flows increased in the 1990s, the government found it increasingly difficult to manage the exchange rate regime. The BI purchased foreign currencies to manage increasingly large capital inflows and to prevent an appreciation of the rupiah, thereby increasing the money supply and forcing the BI to offer higher Certificates of Deposit rates to raise interest rates, which in turn invited more private capital inflows under the pegged exchange rate regime. As the economy overheated and the real exchange rate appreciated, imports grew rapidly while exports slowed down. Though the government took steps to reduce domestic demand, it failed to address the issue of export growth. As a result, the growing trade imbalance and Indonesia’s debt, above all short-term private debt, began to rise significantly. The BI widened the intervention bands around the pegged exchange rate in a belated effort to introduce more flexibility into the foreign exchange market and to warn offshore borrowers that they were taking considerable foreign exchange risks that had to be covered. But widening the bands was immediately followed by pressures that drove the exchange rate to the appreciation edge of the band. Serious concerns were also raised when it became known that the president’s cronies and family members were using state banks to obtain foreign funds for a range of large investment projects since such borrowings were assumed to have a measure of sovereign guarantee. In short, adherence to the exchange rate regime in place led in the 1990s to significant and large unhedged foreign exchange exposure by many Indonesian companies. Eventually, widespread bankruptcies would follow when the exchange rate regime collapsed in 1997–98.

Technocrats in Crisis

The implicit inconsistency between the open capital account policy and the reliance on a pegged exchange rate was exposed when the economic crisis started in Thailand and spread to Indonesia (Ginandjar and Stern forthcoming, 17, 34–35). Technocrats initially believed that Indonesia’s economic fundamentals were sound and viewed the crisis as containable.17) They in fact characterized it as a “mini crisis” that could be used to redress long-term structural problems which had not been addressed after the deregulations lost steam in the early 1990s. Between 1989 and 1996, real GDP growth averaged 8%; the overall fiscal balance remained in surplus after 1992; public debt as a share of GDP fell; and inflation hovered near 10%. Confident of Indonesia’s sound economic fundamentals, technocrats seized the opportunity to persuade Soeharto to introduce structural reforms as they deemed fit and to address structural problems such as expanding bad loans in the banking sector, the dependence of business groups on short-term dollar-denominated funds from foreign sources, and the control of Soeharto’s children, lieutenants, and crony business tycoons over commanding heights of the Indonesian economy.

The government abandoned its long-standing crawling peg exchange rate regime on August 1, 1997; in September, the government announced 10 policy measures, which technocrats named their own IMF conditionality, calling for financial and fiscal tightening and structural reforms, including the suspension of government development projects and banking sector reforms, i.e., bailing out healthy banks which faced temporary liquidity difficulties, merging unhealthy banks with other banks, or else liquidating them ­(Shiraishi 2005, 33; Ginandjar and Stern forthcoming, 48).18)

Yet the rupiah kept going down; by early September 1997, it plunged below the symbolic USD1:Rp3,000 line. On October 8, Widjojo persuaded Soeharto to ask for assistance from the IMF. The President appointed Widjojo Nitisastro to head the economic team to make the necessary preparations to notify the IMF (Djiwandono 2004, 63). The team was composed of members of the Monetary Board—Minister of Finance Mar’ie Muhammad, Minister of Trade and Industry Tungky Ariwibowo, State Secretary Moerdiono, Economic Advisors Widjojo Nitisastro and Ali Wardhana, and BI Governor Soedradjad Djiwandono. Interestingly, Ginandjar Kartasasmita, BAPPENAS Chief, was not included in the team. A small team who negotiated the program in details assisted the team, which was composed of Director General of Financial Institutions (MOF) ­Bambang Subianto, BI Managing Director Boediono, and Assistant to Coordinating ­Minister for Economic and Financial Affairs Djunaedi Hadisumarto.

In November 1997, the government signed the letter of intent (LOI) with the IMF. The President was well aware of the essence of the program. But Soedradjad Djiwandono tells us in his memoirs that whether the program should be precautionary or stand-by was never brought up in discussions between the economic team and the President. After the signing of the first LOI, BI Governor proposed at an economic team meeting that the team should explain the details of the program, including the meaning of first and second line of defense and the issue of conditionality, to the President. But Widjojo Nitisastro, the chairman of the team, decided to wait for a better moment. This never happened (ibid., 72).

The November 1997 LOI was based on the assumption that the crisis was essentially a moderate case of contagion and overshooting of the exchange rate. The program was thus designed for such a mild crisis (Ginandjar and Stern forthcoming, 49). But the LOI required every structural and bureaucratic reform that were deemed good for Indonesia. Both technocrats and the IMF wanted to use the crisis to achieve what Indonesian technocrats had worked for. Taking over the broad reform agenda without fully appreciating what the reforms entailed, what political and social changes they implied, and the capacity of the government to manage such rapid economic change, the team and the IMF not only weakened the focus of its own agenda but in the end undermined the political structure that had evolved under Soeharto over 40 years (ibid., 109).19)

The structural reforms required by IMF not only threatened to hurt the business interests of Soeharto’s children, his crony business tycoons, and his lieutenants, but also worked to undermine Soeharto’s huge patronage networks and the informal funding mechanisms of state agencies (including the military). When the government closed 16 troubled banks and suspended government development projects right after it signed the agreement with the IMF, Soeharto learned that he was duped. He allowed his son to take over another bank and revived government development projects the government had suspended and which were controlled by his family and crony businesses. The ­closure of banks also triggered a bank run and led to a systemic crisis in the banking sector.

Technocrats’ attempt to correct the “distortions” of cronyism backfired because they failed to understand the huge political significance and functions of patronage under the New Order. In trying to rein in the activities of Soeharto’s children as well as cronies, the technocrats not only antagonized their President, but unwittingly triggered a crisis in an already jittery market. Bank closures, rather than addressing the question of unhealthy banks, had the opposite effect, undermining confidence in all private banks and precipitating an open political confrontation between the presidential family and the ­Minister of Finance and BI Governor. The presidential family won the battle. But the price paid was high: the market confidence in the government will in complying with the IMF conditionality was deeply undermined, while technocrats lost the presidential ­confidence.

The most contentious issue between the President and the economic team was the question of liquidity. The BI had to deal with banks that suffered from bank runs, but adding liquidity into the banking sector could jeopardize the efforts to strengthen the rupiah and possibly violate IMF conditionality. The BI thus found itself in between the two opposing camps. “On the one hand, the President mounted pressure for easing liquidity to help the weakening real sectors. On the other hand, the Fund (IMF) kept reminding BI of the need to keep interest rates high to defend the rupiah as agreed upon in the LOI” (Djiwandono 2004, 99). Besides, the President instructed state banks to start lending to small and medium scale enterprises with subsidized rates of interest. To make things worse, this scheme was designed by the President and some Cabinet ministers and senior officials of several ministries without consulting either the Governor of BI or the Ministry of Finance (ibid., 112–113). Soedradjad Djiwandono asked for the presidential approval to raise the interest rate in compliance with the LOI, but he never got it (ibid., 113). Instead the President instructed the BI to inject liquidity into the troubled banks and loosen monetary controls. The resulting sharp increase in liquidity support from the last quarter of 1997 to 1998 spurred further deterioration of the macro-economic situation and increasingly strained the relationship between the government and the IMF (Ginandjar and Stern forthcoming, 95). Sino-Indonesian businesses benefited the most from the liquidity support. A 2000 study by the Supreme Audit Agency (Badan Peneriksi Keuangan) claimed that around Rp138 trillion of the BLBI funds issued was misused between 1997–98 (ibid., 96).

Then, in December 1997, Soeharto fell seriously ill and did not attend the ASEAN summit meeting. This instantly transformed the economic crisis into a political crisis. Conflict manifested itself again between the government and the IMF in January 1998 when the government announced a draft budget with no surplus, in spite of the IMF requirement of a 1.3% GDP surplus in the November agreement. The draft budget was also criticized for its “unrealistic” tax revenue and exchange rate assumptions. In reaction, the rupiah plummeted by 70%, reaching 10,000 rupiah per dollar. Another round of negotiations between the government and the IMF began. This time, though, it was Soeharto himself, and not the technocrats, who took charge of the negotiations with IMF representative Stanley Fisher (ibid., 51)—another sign that the President had lost faith in his economic team. To compound the matter, Soeharto pointedly chose not to invite the Minister of Finance and the Governor of BI to the official signing of the LOI.

By that time, US high officials began to see Soeharto as part of the problem. ­Soeharto understood this very well and wanted to wage what he called “guerrilla warfare.” He let the IMF spell out all the structural reform measures it wanted (which amounted to over 100) without any intention of abiding by the conditionality (Shiraishi 2005, 24; Ginandjar and Stern forthcoming, 53). Soeharto also entertained the possibility of introducing a currency board system as a solution to the crisis, calling it “IMF plus”; this was supported by some officials in the MOF (Ginandjar and Stern forthcoming, 52). Japan and the United States, however, were alarmed since the ill-timed introduction of a currency board system would instantly deplete Indonesia’s foreign currency reserves and devastate the Indonesian economy while providing Soeharto’s children and cronies with a small window of opportunity for bailout. BI Governor Soedradjad Djiwandono opposed the idea and was dismissed in February 1998.20) In a few weeks, Deputy Governor of the BI, Boediono, was also dismissed.21) Ginandjar writes: “For a time it seemed that Finance Minister Mar’ie Muhammad would be headed for a similar fate but he survived for reasons that may never be known” (ibid., 101).

With the economic team in disarray, Japan and the United States intervened. ­President Clinton sent former Vice President Walter Mondale in March 1998 to dissuade Soeharto from introducing a currency board system. Suspicious of US intentions, however, Soeharto was in no mood to listen to the US envoy. The meeting was cut short when Soeharto rejected Mondale’s suggestion about the need for “political reform.” Shortly thereafter, Japanese Prime Minister Ryutaro Hashimoto visited Indonesia, met with Soeharto, persuaded him not to introduce the currency board system, and opened the way for yet another IMF rescue package, which was to be agreed on in April 1998.

In the meantime, Soeharto was re-elected president once again on March 11, 1998, with B. J. Habibie as his vice president. The positions of Menko and BAPPENAS chief were held by Ginandjar Kartasasmita. Fuad Bawazir,22) who was known to be close to Soeharto’s children and in favor of introducing a currency board system, was appointed as the Minister of Finance, while Syahril Sabirin,23) the only survivor of the BI massacre and in support of a currency board system, had replaced Djiwandono as BI Governor. The new cabinet thus further reduced the role of technocrats with some ministers becoming closely identified with the presidential family.

After his re-election, Soeharto established the Economic Stabilization Council with Menko Ginandjar Kartasasmita as its executive chairman. Ginandjar promptly set as his top priority the need to repair relations with the international community and regain market confidence. The committee also had Anthony Salim, the son of Indonesian ­Chinese business tycoon Liem Sioe Liong, as Secretary General (ibid., 55–58). He also regularly consulted with Widjojo.

Ginandjar was in charge of negotiations with foreign governments and the IMF. His counterparts were the so-called “Three Musketeers”: US Treasury Undersecretary for International Affairs, David Lipton; Japanese Vice Minister for International Finance, Eisuke Sakakibara; and German Director General of International Affairs, Ministry of Finance, Klaus Regling. The committee decided to abandon the currency board scheme, reestablished dialogue with the IMF, and concluded a new LOI two weeks after the new cabinet was formed. Ginandjar states that all the programs resulting from the negotiations were embraced by the Indonesian economic team as its own. All the government departments were given specific and written instructions by the Menko to carry out reforms within their areas of responsibilities and to abide by the timetable (ibid., 56–57).

But it was too late. By then Soeharto’s politics of stability and economic development had been thoroughly discredited. Its collapse was triggered by the fuel price increase in May 1998. Following massive riots in May in Jakarta and elsewhere, Soeharto resigned. The New Order came to an end.

The Remaking of Indonesian Technocracy

B. J. Habibie succeeded to the presidency according to constitutional stipulation. He had a weak presidential mandate and power base. He chose to present himself as a reformer, initiating measures in the name of reformasi, which eventually led to the transformation of the Indonesian political system from developmental authoritarianism into decentralized democracy.

The basic shape of the post-Soeharto regime was defined by the constitutional revisions and new laws introduced over the transitional period under Presidents Habibie (May 1998–October 1999), Abdurrahman Wahid (October 1999–July 2002), and ­Megawati Sukarnoputri (July 2002–October 2004). These constitutional revisions—which took place incrementally from 1998 to 2003—reformulated the relationship among the three branches of government in terms of the division of powers. The President and the Vice President, formerly elected by the People’s Consultative Assembly (Majelis ­Permusyawaratan Rakyat, hereinafter MPR), are now to be elected directly; the legislature is to consist of the DPR (Dewan Perwakilan Rakyat), the Council of People’s ­Representatives and the newly created DPD (Dewan Perwakilan Daerah), the Council of Local Representatives; and the MPR, the highest decision-making body under ­Soeharto which saw the peak of its power in the transitional years under B. J. Habibie and ­Abdurrahman Wahid, lost much of its powers. While Soeharto controlled the MPR through direct and indirect appointment of its majority members and by extension all the government organs, constitutional revisions in the post-Soeharto era have created a division of powers in which the presidency has to share power with a parliament whose members are directly elected and in which political parties dominate. Elections, both parliamentary and presidential, are to be held every five years and define the national political calendar. Though still powerful with its own sphere of influence and interests curved out in the name of national unity and security, the army no longer dominates politics. The military doctrine of dual functions was scrapped and military officers were withdrawn from the civilian arm of the state. New defense and police laws were enacted. The army domination over the military establishment came to an end. Navy and air force officers serve as a military chief in rotation with army officers. The police was separated from the military (Matsui and Kawamura, 2005, 75–99; Honna, 2013).

Free and fair parliamentary elections were held in 1999, 2004, and 2009. The first direct presidential election, which brought the current president Susilo Bambang ­Yudhoyono to power, took place in July and October 2004. The second presidential election brought the incumbent back the second term in 2009. Democratization has also gone hand in hand with decentralization. New laws on local autonomy and local finance in 1999 have created local governments which are no longer accountable to the central government but answer to the local parliament. While Soeharto could in effect appoint provincial governors, district chiefs, and mayors, the central government now has to share powers with local governments. More powers and resources have been devolved to local governments, above all district and municipality governments at the expense of—and often in tension with—the central and the provincial government. An increasing proportion of central government budget has been allocated to local governments: from 19.3% in 2001 to 30.7% in 2005, when direct elections of local chiefs started, to 33.9% in 2007. Expanded authority combined with guaranteed and increasing resource allocation to the local governments created incentives for local groups to create more local governments and to control such governments with their own men. The number of districts and municipalities increased from 311 in 1998 to 478 in 2008 while the number of provinces expanded from 27 in 1998 to 41 in 2008. Parties formed coalitions to control local governments, the composition of a governing coalition different from one locality to another, some being made up with only nationalist parties or Islamic and Islamist parties, but more often combining both nationalist and Islamic and Islamist parties ­(Okamoto 2010).

In democratic politics, the DPR, the lower house of the parliament, has emerged as a new power center along with the presidency and the military, and electoral politics has assumed a crucial role in organizing the government. Yet no single party controls the parliament. A party or two may emerge or disappear every election, but the multiparty system will remain with no single party controlling the parliament, as long as the ­current electoral system stays and deep social divisions along religious (pious Muslims vs. statistical Muslims and non-Muslims, traditionalist vs. modernist Muslims), ethnic, and class lines inform party divisions. It is not easy for any president to organize any cabinet to work as a team because a “team” composed of technocrats, professionals, military officers, bureaucrats, and politicians from different parties needs to be cobbled together not only for the business of governing but also for achieving a majority in the parliament.

This is evident in all the teams assembled by the successive Presidents. Instrumental in checkmating Soeharto in his final days, Ginandjar Kartasasmita emerged as a key player in the Habibie government, along with the President himself and General Wiranto, Commander in Chief of the Armed Forces and Defense Minister. Ginandjar, not Habibie, assembled his economic team as Menko, including Boediono24) (formerly Ginandjar’s deputy for macro-economic affairs at BAPPENAS before his transfer to the BI) as BAPPENAS Chief and State Minister for National Development Planning, ­Bambang Subianto25) as Minister of Finance (appointed at Widjojo’s recommendation), and Syahril Sabirin as BI Governor. The arrival of Abdurrahman Wahid as the fourth President marked a clear break with the New Order past. Elected as an outcome of back room dealings among political party bosses in the MPR, his cabinet was dominated by party politicians: out of 35 cabinet ministers in his first cabinet, 22 were party politicians while 6 were retired military officers and 4 career bureaucrats; in the second cabinet, 11 party politicians, 4 military officers, 6 career bureaucrats in the 26 member cabinet. Kwik Kian Gie,26) Indonesian Democratic Party of Struggle (Partai Demokrasi Indonesia ­Perjuangan, hereinafter PDI-P) politician and Vice President Megawati’s confidant, became Menko. Bambang Sudibyo,27) Gadjah Mada accounting professor and a confident of National Mandate Party (Partai Amanat Nasional) Chairman and People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR) General Chairman, Amien Rais, was appointed Finance Minister. Djunaedi Hadisumarto,28) inheriting the technocratic ­mantle, served as Chairman of BAPPENAS, but was not made State Minister for National Develop­ment Planning. Syahril Sabirin remained as BI Governor. In the second ­Abdurrahman Wahid cabinet, Rizal Ramli—a former student activist with the background in engineering who was sent by technocrats to do graduate work at Boston University, but who rebelled against his seniors by openly attacking technocracy and establishing his own business consultancy firm upon his return to Indonesia—became Menko, while Prijadi Praptosuhardjo, previously Bank Rakyat Indonesia director, became Finance ­Minister.29)

Mindful of the fate of Abdurrahman Wahid whose administration was chaotic and who was eventually ousted from power in impeachment, Megawati was careful not to antagonize any party. The Jakarta elite had also come to the agreement that political alliance alone would not suffice to lift Indonesia out of the mess and that Megawati needed “professionals” unbound by party politics. She gave ministerial positions to party representatives, but reserved some of the more important economic posts for non-partisan professionals and her confidants. Dorodjatun Kuntjoro-Jakti,30) UI professor of political economy whom Soeharto in his final days sent to the United States as ambassador, was appointed Menko; Boediono Minister of Finance; and Kwik Kian Gie Minister of National Development Planning. Burhanuddin Abdullah replaced Syahril Sabirin in 2003 as BI Governor.

By the time Susilo Bambang Yudhoyono came to power in 2004, Boediono had restored the credentials of technocrats by his success in achieving macro-economic sta­bility. With his party controlling only 10% of the parliament, it was imperative for the President to gather a stable parliamentary majority. He enlisted most of the political parties except Megawati’s PDI-P for the government coalition, while encouraging the Vice President to take over the Golkar leadership and destroying the opposition coalition of PDI-P and Akbar Tandjung-led Golkar. But he paid a high price. He gave almost one third of ministerial positions to party representatives in organizing his cabinet and allowed the Vice President to have a say in appointing economic team members, even though parties, including the Golkar, in the governing coalition do not hesitate exploiting opportunities to promote their own gains at the expense of the President and the government.

As mentioned earlier, the fact that the Indonesian economy did well under ­Yudhoyono enhanced the stature of his Finance Minister Sri Mulyani and was a factor in his designation of BI Governor and former Menko Budiono as his running mate in the 2009 presidential election. Given the new division of powers and the effects of decentralization on center-local relations, however, it is clear that the president can no longer preside over Indonesia’s political life in the way Soeharto had done before. This was amply demonstrated recently when Sri Mulyani was sent off to the IMF in 2010 despite (or perhaps because of) her success as Finance Minister because her principled budget-making angered many politicians, particularly Golkar boss Aburizal Bakrie, who demanded pork barrel funding. Even a technocrat of her stature who has enjoyed good relations with the President can be politically expendable.

The government can take policy initiatives to address problems and policy issues only on the basis of an achieved national consensus. But achieving a national consensus under the new democratic dispensation is a challenge precisely because the era of political demobilization is over and various social forces are making themselves felt in political processes.

There are important commonalities among those who now dominate local and national politics: the great majority of national and local parliamentary members are men, born in the areas they represent (putra daerah), highly-educated at least formally, with activist backgrounds in party, youth, and religious organizations (whether nationalist or Islamic), belong to Indonesia’s small but fast expanding middle classes, and are represented by business people, professionals, civil servants, school teachers, military and police officers, religious teachers, and journalists. There are hardly any parliamentary members with peasant, labor, and urban poor backgrounds.

The implications are clear. In national as well as local politics, local men with middle-class backgrounds dominate. In part a product of Soeharto’s politics of stability and development, this emergent elite thrived under Soeharto, but now encompasses formerly marginalized (but nonetheless middle-class) groups composed of journalists, school teachers, and religious leaders. This elite shares in the belief that economic growth is the key to Indonesia’s future, and is in a position to make its belief a part of the national agenda, even though its members disagree on how to achieve growth and they do not shy away from calling for populist and protectionist measures in the name of welfare whenever those measures suit their political and economic interests. In his election manifesto, Yudhoyono (2004) made the achievement of economic growth, along with maintaining national unity, central to his agenda. The new system of decentralized democracy has also worked for him, despite its decisive curbing of the executive power of the presidency.

At the same time, however, decentralization has given real powers and resources to local governments, above all district chiefs and mayors. To see how decentralization combined with democratization, above all direct elections of local chiefs worked, it is useful to examine two provinces with very different sets of social conditions, North Sumatra and Central Java (including the special region of Yogyakarta).

In North Sumatra, which is ethnically and religiously highly diverse (with 33% ­Javanese, 16% Tananuli Bataks, 10% Toba Bataks, 8% Mandailing Bataks, 6% Nias, 5% Karo Bataks, 5% Malays, 3% Angkora Bataks as well as smaller minorities, while 65% Muslim, 27% Protestant, 5% Catholic, 3% Buddhist), the number of districts and mayor­alty increased from 19 in 2000 to 26 in 2008 (BPS 2001a). Seventeen small parties (which do not have members in the national parliament) along with seven national parties helped forge governing coalitions that differed in composition and membership from one district to another (on average, about 2.7 small parties in a coalition). In 12 out of 26 districts/municipalities, governing coalitions were made up with a combination of nationalist parties (PD, Golkar and/or PDI-P) and Islamic parties; only 4 districts/municipalities were controlled by Islamic/Islamist parties.

In Central Java which is ethnically and religiously homogeneous, with 98% Javanese and 96% Muslim, a different picture obtains (BPS 2001b). The number of districts and municipalities has remained the same. A smaller number (2.3 on average) of small parties joined governing coalitions in smaller number of districts and municipalities (6 out of 40); in 18 out of 40, a coalition of nationalist parties (PD, Golkar and/or PDI-P) with Islamic and Islamist parties, while 6 districts and municipalities came under the governing coalition of Islamic and Islamist parties.

The implications should be clear enough. In ethnically diverse North Sumatra, ethnic politics are now very much localized and contained in local politics because ethnic groups have ended up with creating their own local governments and/or joining governing coalitions. Religious politics have also to some extent come to be contained locally because the areas with a high concentration of pious Muslims now have Islamic/Islamist party coalition under which local governments introduce religious regulations to meet the demands of pious Muslims, while in other districts these religious issues remain muted because of the coalition that brings together both nationalist and Islamic/Islamist parties.

To put it simply, democratization and decentralization have “contained” ethnic and religious politics by localizing them. Politics of identity, once suppressed by Soeharto, now thrives, but as a local issue, with some exceptions (such as pornography) flaring up occasionally. “National” issues are now largely framed by, and very much tied to, a politics of economic growth, with the central government deriving its public support and electoral success from its perceived capacity to deliver economic growth, create jobs, reduce poverty, and keep inflation under control as we can see in Fig. 1. The language of economic growth—a byproduct of economics as a discipline—is part of a discursive field in which technocrats claim expertise. But the irony is that the elevation of this discourse of economic growth to the national agenda comes at a time when technocrats have become no more than technicians who are charged with “fixing” the economy while having no control or say over how politics, or more specifically the purpose of politics, is defined. The transformation of technocracy and the changing conditions under which technocrats now work need to be located—and can only be understood—within this larger context of political and ideological transformation, rather than a simple question of economics and economic policy.

16681.jpg

Fig. 1 Economic Performance and Public Ratings of the President and the Democratic Party

Source: Lembaga Survei Indonesia (LSI) (2009).

This is not to say that Indonesia did not undergo important institutional changes for the economic policy-making in these transitional years. The Central Bank Law, enacted in 1999 under Habibie, guaranteed the independence of the BI from the government for the first time; and prohibited the BI from purchasing government domestic bonds. BI’s independence was tested in 2000 when President Abdurrahman Wahid asked BI Governor Syahril Sabirin to resign while promising him other positions. Syahril Sabirin refused to resign and was arrested and put in jail, but was subsequently cleared of all charges by the High Court.31) It was a symptom of the technocrats’ marginalization from economic policy-making that Wahid’s first Coordinating Minister (Menko) for Economic Affairs, Kwik Kian Gie, went so far as to refer to his government as “they” and did not bother to coordinate. No State Minister for National Development Planning was appointed, because the President wanted to undercut the power of BAPPENAS.32)

Under Megawati, who came to power in July 2001, restoring macro-economic stability became the top priority. Megawati appointed “professionals” who were unbound by party politics to two strategic posts for this objective. Boediono33) was named Minister of Finance and Burhanuddin Abdullah replaced Syahril Sabirin as BI Governor. Both Boediono and Burhanuddin did their jobs well to achieve macro-economic stability and banking sector reform to pave the way for Indonesia’s graduation from the IMF program. But the economic ministers did not work as a team. Megawati confidant Kwik Kian Gie, appointed Minister of State for National Development Planning, openly attacked his own agency, ­BAPPENAS, as a nest of corruption.

Megawati years also witnessed two major institutional developments in the economic policy-making. One was the enactment of Law Number 17 on State Finance in 2003. It introduced the European Union Maastricht treaty-type rule to achieve economic and financial stability, legally requiring the government to keep the annual budget deficit below 3% of the GDP and the total government bonds issuance (both central government and local government bonds) below 60% of the GDP. In other words, the law holds the government politically accountable for maintaining a self-restraining fiscal policy.

This law led to the reorganization of the Ministry of Finance, expanding its powers at the expense of BAPPENAS, the National Development Planning Agency. The Agency for Economic, Fiscal, and International Cooperation Research was created out of the former Agency for Fiscal Analysis and was made responsible for budget making, while the budget planning function was assigned to the Directorate General for Budgetary and Fiscal Balance, which was created out of the former Directorate General of Budgeting. The power to make the Fiscal Policy and Macro Economic Framework, a power previously shared by BAPPENAS and MOF, came under MOF jurisdiction with the passing of the new law. Equally important, the budget which had previously been classified as the routine budget and development budget and were respectively under the jurisdiction of the MOF and BAPPENAS came under MOF jurisdiction with the elimination of the routine and development budget distinction. By abolishing the distinction, the law stripped BAPPENAS of its control over the development budget (Hill and Shiraishi 2007, 123–141).

Under Soeharto, BAPPENAS was in charge of national planning, the development budget, coordination with foreign governments and international organizations for international assistance, and development project coordination and implementation. This in effect made BAPPENAS the super ministry to oversee the entire economic policy-making. In its heyday, Widjojo Nitisastro, Soeharto’s most trusted economic adviser, served as Coordinating Minister for Economic and Fiscal Affairs, State Minister for National Develop­ment Planning, and Chief of BAPPENAS simultaneously. Under Soeharto, national development planning was implemented by presidential decree, not by law. The legal status of BAPPENAS was not clearly defined. Its effectiveness depended on its chief’s ability to work with Soeharto and on his commitment to prioritizing national development.

In the post-Soeharto era, BAPPENAS lost much of its powers. A new law on the national development planning system was enacted in 2004 in the final days of the ­Megawati presidency. It granted legal status to BAPPENAS and stipulated that the Chief of BAPPENAS support the president in formulating the presidential national development plan and assume responsibility for drafting the central government development plan. Now, however, almost two thirds of budget for public works, for instance, is allocated to provinces and districts/municipalities. BAPPENAS not only lost its control over the development budget, but also has no say in almost two thirds of the public works budget.

The Indonesian technocracy evolved under the New Order from 1966 to 1998 as a strategic component of its politics of stability and economic development. Technocrats were instrumental in persuading Soeharto to adopt reform measures in the 1980s that imposed market discipline on the government’s developmental policies. Indonesian technocrats as a group were effective because they were cohesive in their adherence to the three principles of balanced budget, open capital account, and pegged exchange rate system, and also because they enjoyed Soeharto’s confidence and could therefore function as his right arm in formulating and executing national development policies. In the 1990s, however, technocrats faced increasing challenges from economic nationalists entrenched in the government agencies such as the Ministry of Industry, the Investment Coordination Agency and the BPPT/BPIS (Agency for State Strategic Industries), Soeharto’s family and crony business interests, and bureaucrats who were trained abroad and rose in their individual departmental hierarchies as career officials. In their attempt to regain their power, technocrats tried to seize the opportunity offered by the 1997 currency crisis to persuade Soeharto to go to the IMF and to introduce reform measures, but the move backfired because technocrats lost his confidence.

The transitional governments led by B. J. Habibie, Abdurrahman Wahid, and ­Megawati Sukarnoputri sought institutional and political alternatives to the discredited Soeharto-era economic policy-making process. These alternatives ranged from relying on technocrats while consulting key players in Indonesia’s economy and politics such as businessmen, mass media, politicians, public intellectuals, and future technocrats, as well as foreign governments and international organization (as Ginandjar Kartasasmita did as Coordinating Minister under Habibie) to outright disregard for technocracy and its institutional bulwark BAPPENAS (under Abdurrahman Wahid) to the empowerment of MOF for the sake of macro-economic stability at the expense of BAPPENAS and long-term national planning (under Megawati).

In retrospect, however, it is decentralized democracy, introduced in those transitional years, which created a new set of conditions for a politics of economic growth: social divisions along ethnic and religious lines are no longer suppressed as they had been under Soeharto but are now contained locally, while the politics of economic growth is embraced not only by middle-class people who dominate local and national politics but more broadly by the population. With the enactment of a series of laws governing the BI and government finance as well as constitutional revisions, a new institutional framework based on the two preeminent agencies of BI and MOF is now in place for macro-economic policy-making. But technocrats are now more dependent on their ability to court public support for policy measures they are advocating and to secure the backing of the president and the vice president who may or may not agree on any policy issue and whose decisions on economic policy will be influenced by non-technical and highly political issues such as public reception, parliamentary approval, and personal chemistry. The era of political demobilization during which technocrats had a freer hand in formulating economic policies and could rely on the backing of the president alone is over. In retrospect, however, technocracy has never been shielded from “politics.” If it once looked as if this had been the case under the New Order, it was because Soeharto used the enormous state power to demobilize popular politics. But those days are over. Although the institutional foundation is now in place for the independence of the Central Bank and the fiscal prudence of the Ministry of Finance, their performances ultimately depend on who runs these institutions and the complex political processes that inform their decisions and operations.

Accepted: November 1, 2013

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Iijima Satoshi 飯島 聰. 2005. Indoneshia Kokka Kaihatsu Keikaku Shisutemu Ho no Seitei to sono Igi ni tsuite インドネシア国家開発計画システム法の制定とその意義について [About the significance of the establishment of Indonesia’s national development planning system]. Kaihatsu Kinyu Kenkyu-sho Ho 開発金融研究所報 [Journal of JBIC Institute] 25 (July): 167–197.

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Matsui Kazuhisa 松井和久; and Kawamura Koichi 川村晃一. 2005. Indoneshia So-Senkyo to Shin-Seiken no Shido: Megawatei kara Yudoyono e インドネシア総選挙と新政権の始動―メガワティからユドヨノへ [From Megawati to Yudhoyono: Indonesian general elections and the beginning of a new administration]. Tokyo: Akashi Shoten.

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1) Widjojo Nitisastro (UI; Ph.D., University of California, Berkeley) joined Soeharto’s advisory team in 1966 as a member of the National Economic Stabilization Board. He was appointed Chairman of BAPPENAS in 1967 and served in that position until 1983, while also serving as Menko from 1973 to 1983. He was appointed as advisor to BAPPENAS (1983–98) and presidential economic advisor (1993–98), while working as professor of economics at UI from 1964 to 1993.

2) Ali Wardhana (UI; Ph.D., University of California, Berkeley) was professor of economics at UI. From 1966 to 1968, he was a member of the Economic Advisory Team of the President, served as Minister of Finance from 1973 to 1983, and replaced Widjojo as Menko from 1983 to 1988.

3) Emil Salim (UI; Ph.D., University of California, Berkeley) served as Deputy Chief of BAPPENAS (1967–71), State Minister for State Apparatus (1971–73), Minister of Transportation, Communication and Tourism (1973–78), State Minister for Development Supervision and Environment (1978–83), and Minister of State for Population and Environment (1983–93).

4) Subroto (UI; Ph.D., University of Indonesia) served as Director General of Research and Development at the Department of Trade, Minister of Manpower, Resettlement and Cooperatives, and finally Minister of Mining and Energy (1983–88) before becoming Secretary General of the Organization of Petroleum Exporting Countries, OPEC, in 1988.

5) Mohammad Sadli (UI; Ph.D., University of Indonesia) studied at the Massachusetts Institute of Technology (MIT) and the University of California, Berkeley, and served as Minister of Manpower (1971–73) and Minister of Mining and Energy (1973–78).

6) J. B. Sumarlin, a UI graduate, who obtained his Ph.D. from the University of Pittsburgh started his technocratic career as deputy chairman for fiscal and monetary matters at BAPPENAS (1970–73), then served as Vice Chairman of BAPPENAS (1973–82) and State Minister for State Apparatus (1973–83); as State Minister for National Development Planning as well as BAPPENAS Chairman (1983–88); and finally Minister of Finance (1988–93).

7) Saleh Afif, another UI graduate, obtained his Ph.D. from the University of Oregon and started his technocratic career as State Minister for State Apparatus and Deputy Chairman of BAPPENAS (1983–88) before being appointed State Minister for National Development Planning and Chairman of BAPPENAS (1988–93) and finally Menko (1993–98).

8) Adrianus Mooy was a Gadjah Mada graduate, and had a Ph.D. in Econometrics from the University of Wisconsin. He joined BAPPENAS in 1967, and rose up the BAPPENAS hierarchy, serving as Bureau Chief for Domestic Finance, Assistant to the Minister for Development Planning/BAPPENAS, and Deputy Chairman for Fiscal and Monetary Affairs (1983–88) before being appointed BI Governor (1988–93).

9) Rachmat Saleh, a UI graduate, joined the BI and climbed the central bank hierarchy as Represent­ative of BI in New York in 1956; Secretary to the Board of Directors of BI in 1958; Head of Research, and later Vice Director of BI, in 1961; Director of BI, 1964; and Chairman of the Directorate of Foreign Exchange Institute, Jakarta, in 1968; BI Governor (1973–83) before being appointed Trade Minister (1983–88).

10) Arifin Siregar graduated from the Netherlands School of Economics, Rotterdam, in 1956; got his Ph.D. from the University of Muenster, West Germany, in 1960; then worked as Economic Affairs Officer in the United Nations Bureau of General Economic Research and Policies in New York in 1961 and the United Nations Economic and Social Office, Beirut, in 1963. He was an Economist at the Asian Development, IMF, in 1965 and a representative of the IMF in Laos (1969–71), then joined the BI as Director in 1971, served as Alternate Governor of the IMF in Indonesia (1973–83) and finally as BI Governor (1983–88) before being appointed Trade Minister.

11) Soedradjad Djiwandono, BI Governor (1993–98), was a graduate of Gadjah Mada (1963) and had a Ph.D. from Boston University (1980). Married with a daughter of Sumitro Djojohadikusumo, the founder of the Faculty of Economics, University of Indonesia, he joined the Ministry of Finance (MOF) as a staff member of the Director General for Monetary Affairs in 1964, rose to Junior ­Minister for Trade (1988–93) under Arifin Siregar, and was subsequently appointed BI Governor in 1993.

12) IGGI (Inter-Government Group for Indonesia) was established in 1966 and was succeeded by the CGI (Consultative Group on Indonesia) in 1992 as an international framework for consultation to provide concessionary loans to the Indonesian government.

13) Mar’ie Muhammad, a UI Accounting graduate with an Islamic activist background, joined the MOF in 1970 and rose in the Finance bureaucracy to serve, from 1988–93, as Director General of Taxes before being appointed as Minister of Finance from 1993–98. Soeharto gave him the finance portfolio because he had known him since his student activist days and because he was impressed by his performance as the clean and forceful Director General of Taxes.

14) Ginandjar Kartasasmita, a Chemical Engineer graduate of the Tokyo University for Agriculture and Technology (1960–65), rose in the state secretariat bureaucracy from the G-5 of the Supreme Command as one of future Vice President Sudharmono’s lieutenants in the early days of New Order to Junior Minister for the Promotion of Domestic Products from 1965–83. He then served as Chief of the Investment Coordinating Board (BKPM) from 1985–88; as Minister of Energy from 1988–93; and finally as State Minister for National Development Planning and Chief of BAPPENAS from 1993–98. He was given the job of the BAPPENAS chief in part because he enjoyed the presidential trust and in part because he was acceptable to B. J. Habibie who was intent on increasing his bureaucratic power at the expense of the technocrats.

15) Satrio Budihardjo Joedono was born on December 1, 1940 in Pangkalpinang, Bangka. A graduate of UI (Economics), he obtained his Ph.D. in Public Administration from the State University of New York, Albany. While teaching at UI (promoted to professor in 1987) and serving as director of the Institute for Economic and Social Research (1970–78) and Dean of the Faculty of Economics (1978–82), he also served as assistant to the Minister of Trade (1970–73) and to the Minister of Research (1973–78), Assistant Minister of Research and Technology (1978–82 and 1986–88) and Assistant Minister for Industry and Energy (1988–93) before being appointed as Minister of Trade (1993–95). Known to be incorruptible, he was elected Chairman of the Board of Audit, 1998–2003.

16) Radius Prawiro, a graduate of the Nederlandse Economische Hogeschool (The Netherlands Economic High School), obtained his Ph.D. from the UI. He began his technocratic career as Governor of BI (1966–73), and served as Minister of Trade in 1973–83, Minister of Finance (1983–88), and finally Menko (1988–93).

17) What Djiwandono has to say in his memoirs is instructive. He writes: “A question that I kept being asked was, if our fundamentals were strong how come Indonesia suffered so much? To shed some light on this issue, I like to think that there is a different perception about what constitutes the macro fundamentals of an economy. I would argue that at least until the Asian crisis, macroeconomists generally thought about growth of national products, exports, current accounts, inflation rates, unemployment rates and several other macro indicators every time they talked about economic fundamentals. I would even argue that, in general, macroeconomists did not include the state of the banking sector as an important item in economic fundamentals. Banking issues have traditionally been treated as microeconomics. . . . In other words, in a macro-economic analysis, the workings and soundness of the banking sector had been assumed to be present or taken for granted” ­(Djiwandono 2004, 28).

18) Djiwandono says about the bank closure as follows: he went to President Soeharto to propose closing seven small commercial banks as a first step in December 1996. But the President did not approve the proposal and instructed Djiwandono to finalize a government decree to regulate bank closure. It was issued at the end of 1996 as Government Decree No. 68, 1996. In April 1997, he went back to the President with the proposal to close the seven banks once again. This time he approved it, but asked him to postpone execution until after the 1997 general election and the general assembly of the People’s Consultative Assembly in March 1998. The financial crisis began in July 1997 (Djiwandono 2004, 128).

19) It is useful to note what Djiwandono has to say about the conditionality and the bank closure. He writes on the IMF conditionality that “my instincts told me then that our government would not be able to fulfill the stringent conditionality that went with the stand-by arrangement” (Djiwandono 2004, 64). He also tells us about the bank closure as follows: “I was comfortable about liquidating the seven banks with the President’s approval. However, I had to admit that liquidating more than twice the number of banks really scared me” (ibid., 130).

20) To be precise Soedradjad Djiwandono never opposed a CBS because he was afraid to publicly air his difference with the President on the matter. But he says he also knew that being vague was the best technique in that peculiar environment to send a message to the President that he did not support the CBS scheme (Djiwandono 2004, 9, 19).

21) In fact all the BI managing directors except one, Syahril Sabirin, were dismissed before their terms ended (Djiwandono 2004, 3). This untimely dismissal demonstrated his intention to the public that he would punish any official for violating his unwritten rule not to embarrass his family (ibid., 12).

22) Fuad Bawazir who is of Arab descent and a Gadjah Mada graduate with a Ph.D. from the University of Maryland rose in the MOF hierarchy. Similar to Mar’ie Mohammad, he had an Islamic activist background and granted favors to Soeharto’s family members while he was Director General of Taxes before he was appointed the Minister of Finance.

23) Syahril Sabirin, a graduate of Gadjah Mada University (1968), obtained his Ph.D. in 1979 from Vanderbilt University. From 1969 to 1993, he worked at the BI, rising in the bank hierarchy and serving as section chief for current account (1982–83) and for bank development (1982–84), bureau chief of economics and statistics (1985–87) and of clearing (1987–88), and director (1988–93). He was senior financial economist at the WB (1993–96) before returning to BI as director (1997–98), and finally as governor (1998–2003).

24) Boediono was trained abroad (B.A., University of Western Australia; M.A., Monash University; Ph.D., Wharton School of Business, University of Pennsylvania) and served as deputy for fiscal and monetary affairs at BAPPENAS (1988–93) and Deputy Governor of the BI (1993–98) before being made State Minister for National Development Planning and BAPPENAS Chief in 1998.

25) Bambang Subianto, a graduate of Leuven Catholic University in Belgium, rose in the finance hierarchy to become Director General of Monetary Affairs, and was appointed the first Chief of Indonesian Bank Restructuring Agency, only to be dismissed by Soeharto after a few months.

26) Kwik Kian Gie, born in Juwana, Central Java, is of ethnic Chinese ancestry. A graduate of the Nederlandse Economische Hogeschool (The Netherlands Economic High School) Rotterdam in 1963, he worked as an investment company executive and joined the Indonesian Democratic Party (PDI). He served as a member of the People’s Consultative Assembly (MPR) from 1987 to 1992. He became the chief economic advisor to ­Megawati Soekarnoputri after her election as the Chairman of PDI in 1994. He headed the party’s research and development department until Megawati elected as Vice President before he was appointed as Menko under Abdurrahman Wahid.

27) Born in Temanggung, Central Java, on October 8, 1952, Bambang Sudibyo, a graduate of Gadjah Mada University and a Ph.D. (Business Administration) from the University of Kentucky (1985), spent most of his career at Gadjah Mada University. He joined the National Mandate Party when it was established in 1998 and served as chairman of its Economic Council before he was appointed as Finance Minister under Abdurrahman Wahid.

28) Under normal circumstances, Djunaedi Hadisumarto should have inherited the mantle from Boediono to serve as State Minister for National Development Planning and Chief of BAPPENAS. But Abdurrahman Wahid did not appoint any minister for national development planning. Djunaedi, a UI graduate and UI professor of economics, had served as Secretary General of the Ministry of Transportation and Vice Chairman of BAPPENAS under Boediono before being promoted to Chairman of BAPPENAS.

29) Rizal Ramli, a graduate of the ITB and a student activist, obtained Ph.D. in economics from Boston University in 1990. Upon completion of his graduate work, he established an economic research and publishing firm, Econit, and emerged as a critic of Soeharto’s crony Liem Sioe Liong, Freeport, and the IMF. He served as Head of the National Logistic agency (Bulog) before he was appointed as Menko from 2000 to 2001. Prijadi Praptosuhardjo, Abdurrahman Wahid confidant, is a graduate of the Bogor Institute of Agriculture (IPB) where he studied fishery. He spent his career in Bank Rakyat Indonesia (BRI) where he became friends with Abdurrahman Wahid. He was appointed as BRI director in 1992 but failed in his bid to become the bank president despite Abdurrahman Wahid’s recommendation. Instead, he was appointed Minister of Finance.

30) Dorodjatun Kuntjoro-Jakti, a UI Economics graduate, holds a Ph.D. (Political Economy) from the University of California at Berkeley, and was ambassador to the United States before being appointed as Menko under Megawati.

31) For Abdurrahman Wahid’s attempts to oust Syahril Sabirin from the BI governorship, see Fachry et al. (2003, Ch.5). It should be noted that Abdurrahman Wahid even entertained the idea of liquidating the BI to oust him and that he was supported by some of the key players in the economic policy-making in those days such as Kwik Kian Gie, Rizal Ramli, and Prijadi Praptosuhardjo.

32) Under normal circumstances, Djunaedi Hadisumarto should have inherited the mantle from Boediono to serve as State Minister for National Development Planning and Chief of BAPPENAS. A UI graduate and UI professor of economics, he had served as Secretary General of the Ministry of Transportation and Vice Chairman of BAPPENAS under Boediono before being promoted to Chairman of BAPPENAS in 1999.

33) Boediono was trained abroad (B.A., University of Western Australia; M.A., Monash University; Ph.D., Wharton School of Business, University of Pennsylvania) and served as deputy for fiscal and monetary affairs at BAPPENAS (1988–93) and Deputy Governor of the BI (1993–98) before being made State Minister for National Development Planning and BAPPENAS Chief in 1998.

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