INTRODUCTION

The papers in this report are the results of a study undertaken through the PECC with sponsorship from the APEC Business Advisory Committee (ABAC). As the result of agreement between the ABAC and the PECC, it was agreed that the study should look at the political feasibility of a proposal to establish a Free Trade Area of the Asia-Pacific (FTAAP) as well as alternatives that APEC could take to promote greater regional trade and investment. The authors were selected by the two parties, and since proponents and opponents of the FTAAP were included there was no unanimous consensus within the study group regarding the FTAAP issue. This overview reviews the current economic context, reviews the arguments both for and against an FTAAP, makes an evaluation regarding its political feasibility, and sketches out an outline for an APEC 2010 Trade Agenda that the author regards as a more realistic and still ambitious approach to trade liberalization, but not inconsistent with the FTAAP as a possible longer-term objective.

THE ECONOMIC CONTEXT

By standards of any other region of the world, the Asia-Pacific region is doing very well. A number of its economies, especially China and Vietnam, are achieving extraordinary growth. The performance of the U.S. economy has continued to confound pessimists, and Japan, for long the weak performer of the region, is now experiencing solidly based growth. Moreover, inflation remains low, despite commodity and fuel price spikes. Trade and investment continues to boom around the region. Since the 1994 Bogor Goals were set, trade barriers have continued to go down, with average tariffs lower in all of the sub-regions of the Asia-Pacific. Moreover, despite some protectionist sentiments in some parts of the region, the APEC economies adhere to their World Trade Organization (WTO) obligations. The WTO system enjoys high favour and continues to attract additional membership by Asia Pacific Economic Cooperation process (APEC) economies. China became a WTO member in 2001, Vietnam joined in 2006, and Russia is also seeking WTO membership.

INTRODUCTION: THE FREE TRADE AREA OF THE AMERICAS

The proposed Free Trade Area of the Americas (FTAA) has larger economic dimensions than any of the numerous subregional agreements in the Western Hemisphere or the individual bilateral free trade agreements (FTAs), grouping thirty-four of the thirty-five countries in the region that together comprise about 870 million people and constitute over one-fourth of the world's GDP (around US$14 trillion) and one-fifth of the world's trade. However, it also has important political dimensions. The FTAA has been viewed as the means to unite the Hemisphere economically, and to solidify political ties between the English-speaking and the Spanish- and Portuguese-speaking nations of the region. For this reason, the FTAA process was launched in 1994 within a broad social and political agenda (the Summit of the Americas) that is absent in the case of other subregional trade arrangements. However, even this political endorsement from the outset at the highest level has not proved enough to allow the FTAA negotiations to be brought to a successful conclusion as they were envisaged.

This paper will review the launching of the FTAA, its challenges and innovative features and the mechanics of the negotiating process, along with the reasons why the FTAA negotiations faltered and the lessons that might be learned from the FTAA experience by the members of APEC.

Placing the FTAA in a historical context, it should be recalled that the idea of a region-wide FTA was not new in the Americas in the early 1990s, having been first proposed by Simon Bolivar — the liberator of the countries of the Andean region — more than 200 years earlier. The idea was sidetracked in the nineteenth century by the independence movement of the former Spanish and Portuguese colonies and by territorial disputes. Towards the end of the twentieth century, U.S. President George H.W. Bush relaunched the concept of hemispheric free trade, under the label “Enterprise for the Americas Initiative”. In turn, this initiative was sidetracked during the debate over ratification of the North American Free Trade Agreement (NAFTA), which came into force in January 1994.

INTRODUCTION

What are the prospects for a Free Trade Area of the Asia-Pacific (FTAAP)? This paper addresses this question from the perspective of the political economy of U.S. trade policy and the current role of the Asia Pacific Economic Cooperation Forum (APEC). To preview my argument, although such an agreement may well be beneficial from a narrowly economic standpoint, the reality of U.S. trade politics, of relations between Northeast Asian economies, and of APEC's relative institutional weakness make it highly unlikely that an FTAAP will come to fruition in the short to medium term, regardless of whether the Doha Round of the World Trade Organization (WTO) is successful or not. Moreover, even the tactical use of an FTAAP to advance the WTO agenda is likely to backfire and simply further undermine prospects for successful completion of the Doha Round. Instead, I suggest that APEC should play an active role in monitoring the proliferation of bilateral trade agreements in the region and work to promote the multilateral trade agenda.

To briefly elaborate, the logic of my argument runs as follows. With respect to the current U.S. political economy of trade, two developments are of particular significance. First, the U.S. strategy of “competitive liberalization” in which it pursues bilateral and minilateral agreements, both sectorally and broadly, with the intent of stimulating the multilateral path of the WTO has fractured the domestic coalition for free trade. Ironically, in their zeal to push forward the agenda of free trade — an agenda which I share — proponents of competitive liberalization have undermined the very movement to free trade that they so ardently advocate through a politically naïve understanding of trade politics. Creating piecemeal liberalization through open sectoral agreements such as the Information Technology Agreement (ITA) and bilateral trade agreements has undercut the coalition for free trade. By giving specific industries what they wanted, this policy has left protectionists in agriculture, steel, textiles, and others in control of the trade agenda.

Political parties are a crucial part of democratic political systems. With Indonesia's return to democracy in 1999, operational controls on political parties and the ban on the establishment of new parties were lifted. Subsequent electoral reform was designed to reshape the party system by encouraging fewer, larger, parties. This chapter looks at this process from a comparative perspective, situating the Indonesian reforms in a broader Asian context. It also attempts to answer some basic questions about institutional reform. What are the trade-offs inherent in different electoral rules and party system configurations? Where does the Indonesian party system sit within the spectrum of party systems around the world? And how do trends in Indonesia compare with those elsewhere in the Asia-Pacific region?

DEMOCRATISATION AND POLITICAL REFORM

The number of East Asian regimes that can be considered to meet the basic Schumpeterian definition of democracy–governments chosen through open and competitive elections–has snowballed over the past 20 years (Schumpeter 1947: 269). While at the end of the Cold War only Japan could lay claim to being an ‘established’ East Asian democracy, the years since then have ushered in a new era of liberalisation and democratisation across the region (Lijphart 1999). Major transitions from authoritarian rule to democracy began with the popular uprising against the Marcos regime in the Philippines in 1986 and the negotiated transitions from autocratic governments in South Korea and Taiwan in 1987. They continued with the resumption of civilian rule in Thailand in 1992; the UN intervention in Cambodia in 1993; the fall of Indonesia's Soeharto regime in 1998; and the international rehabilitation of East Timor which culminated in 2001. While the 2006 coup in Thailand was a clear step backwards, today more East Asian governments are chosen through democratic processes than ever before.

INTRODUCTION

Over the past decade, Indonesia has faced a series of shocks–economic, social, political and humanitarian–that have adversely affected child welfare. The economic and social shocks resulting from the financial crisis of 1997–98 had deep effects that continue to be felt. The 2004 Aceh tsunami and the 2006 earthquake in Yogyakarta resulted in humanitarian crises in which children were especially vulnerable. Meanwhile, ongoing problems such as high infant mortality, low retention rates from primary to junior secondary school, and the issue of protection of children without parental or familial support have continued to challenge policy makers.

The transition to democracy, rarely considered for its impact on children, has also had a marked effect on child welfare and child protection. Greater commitment to human rights on the part of the national government, at least rhetorically, has seen the introduction of a range of new policies that have been influenced by international concepts of human rights. In line with this new direction, there has been a rethinking of approaches to child welfare and child protection, with the relevant policies giving serious consideration to children's human rights for the first time. There are, of course, strong contradictory trends in policy in Indonesia, particularly given the interplay (and occasional clash) of democratisation and decentralisation forces. While the national government has enacted several laws that align the policy agenda for children more closely with human rights principles, particularly those set down in the United Nations Convention on the Rights of the Child, policy and legislation at the local level is more conservative, and at times even hostile to the concept of rights-based policy for children.

While recognising the significance of local policy discourse for children's welfare and protection, I do not deal with these issues in this chapter. Rather, I aim to provide an assessment of the policy framework for children at the national level. Decentralisation has reshaped the social policy landscape in Indonesia and empowered local policy makers to an extent unimaginable a decade ago. Nevertheless, the national framework remains critical in providing an overarching framework for child welfare and protection.

THE PROCESS OF CONSTITUTIONAL CHANGE

The constitution of any country defines both the institutions by which the country governs itself and the relationship between its citizens and its institutional framework. A constitution is a fundamentally political document, establishing the rights and duties of citizens and state institutions, and reflecting also the way in which society wishes to be governed. It may therefore be expected to be the result of wide-ranging political debate. As with any process of political debate, there will be some with interests to promote or protect. It is legitimate and indeed desirable that constitutional debate should centre on long-term vision. However, it is also inevitable that particular short-term, sectoral or even venal interests will affect the course of that debate, and that a constitution will be the product of its time and environment.

The story of the constitutional amendment process undertaken by Indonesia between 1999 and 2002, and the implementation of the amended constitution, exemplifies this. Although some may have believed that there was some kind of ideal constitution which could be devised or discovered by independent technical experts, in practice that was never going to be the case. Institutional history, narrow political interests and vision on the part of some of the key players were all significant in the progress that was made and the failures and setbacks that took place. It is now over two years since the 2004 general and presidential elections– the first to take place within the framework of the amended constitution. Sufficient time has therefore elapsed to attempt an assessment of the new institutions.

THE 1945 CONSTITUTION OF INDONESIA

In its original form, the 1945 Constitution of Indonesia contained only 37 articles. It was written as a temporary text. Its pattern of state institutions was substituted in practice within three months of its promulgation, and no other nation has since copied it. Yet the 1945 Constitution has enduring emotional significance for most Indonesians as a symbol of the struggle for independence and as a founding pillar of the unitary state of the Republic of Indonesia. In the transition after 1998, not only the substance but also the symbol of ‘the 1945 Constitution’ was at stake.

Ten years ago the Asian financial crisis devastated the Indonesian economy and unleashed far-reaching political change. In the wake of Soeharto's fall there was great optimism about what democratic governance would bring for Indonesia. As with many other much anticipated and hard-fought political struggles, there was more than a little romanticism about it all, and the results achieved thus far have fallen short of the more optimistic expectations. Indeed, around the world the process of democratisation has been long and messy, and frequently marked by disappointments, setbacks and outright reversals.

In this volume we seek to take stock of both Indonesia's progress in establishing and refining a democratic framework of governance, and the extent to which this is yielding satisfactory outcomes. There will, of course, be a range of opinions on these issues within Indonesia and internationally, but two distinctive contributions that analysts can make are to help establish realistic expectations or bases for comparison, and to highlight areas where governance arrangements are not working well or where there may be scope for further refinement.

Undoubtedly, a large part of mankind's material progress may be attributed to the invention of government: a set of mechanisms for collective decision making and action for the common good. At the same time, however, the coercive power of government has very often been used for the benefit of those who exercise that power, rather than the general public they supposedly represent. Developing countries around the world have often seen coups d'état, the purpose of which is either to gain access to the potential spoils of office, or to deprive an existing government of those spoils. The stakes are so high that this is often literally a matter of life and death. In the aftermath of the attempted coup in 1965 in Indonesia, for example, hundreds of thousands of communists and their alleged supporters were murdered in order to ensure that this group would never again be a serious contender for power–and also, arguably, as a warning to others of the fate that threatened if they had any ideas about wresting power from the incoming regime.

CHANGE AND CONTINUITY IN BUSINESS–GOVERNMENT RELATIONS

An apparent paradox of the business–government relationship in Indonesia is that although business players are often powerful, the collective interests of the business sector are frequently neglected. Is business too influential, or not influential enough? Some voices from the business sector claim that they are at best ignored by the government, and all too commonly preyed upon, subject to burdensome regulation and exposed to illegal extortion by state actors. Yet the government continues to confer privileges on many business people, both in the guise of legally mandated benefits and in the form of informal forbearance and illegal collusion. These privileges almost always come at the expense of public welfare, generating economic inefficiencies and often direct costs to the taxpayer.

The basic features of this chequered relationship date back to the 1950s, and to some extent endure simply because of their self-reinforcing character. But to say that things are bad now because they have been bad for a long time does not capture the underlying conditions that led to this situation, or allow us to identify possible avenues for change. This chapter explores the extent of change in the business–government relationship in recent years. It asks why some legacies from the past have persisted and whether there are other reasons why business–government relations in Indonesia are frequently associated with suboptimal economic outcomes.

While the focus here is on explaining some enduring problems in the relationship, it is important to put Indonesia's performance in perspective. The tendency for business influence to come at the expense of public welfare, while not fixed, reflects a dynamic that confronts all countries. Some features of the Indonesian context raise the costs associated with the efforts of business to seek influence or protection, but the record in many other countries is worse. The Indonesian state has provided the basic conditions for the development of both the economy and private business (Robison 1986). The rise of private investment, particularly from the 1980s, testifies to a business–government relationship that met some minimum, but important, definitions of effectiveness (Hill 1996).

Formally launched in 2001, the decentralisation of governmental authority is one of the most important reform programs in Indonesia. Both supporters and critics of the program acknowledge that decentralisation has changed the landscape of the central–local political relationship. However, a closer examination of the effects of decentralisation reveals significant variations across the country. Recent research indicates local state capture and rampant corruption in some jurisdictions, but deepening democracy and the emergence of effective government in others. What explains these variations in outcomes across Indonesia? What conditions are shaping the experiences of local governments with decentralisation? And, at this early stage, what conclusions can we draw about the gains and losses associated with decentralisation?

In this chapter I investigate some of the factors determining decentralisation outcomes at the local level. I identify some of the gains and losses associated with decentralisation and explain the conditions shaping these. Based on an examination of how decentralisation has actually been implemented in four localities, I argue: (1) that decentralisation should be viewed as an extended process; (2) that the power and interaction of state and societal actors at the local level, as well as the penetration of national and international actors, are salient factors determining the trajectory and outcome of decentralisation in particular localities; and (3) that these interactions happen iteratively and are shaped by the local political–economic context. I focus on three districts and one municipality: the district of Bangka in the recently created province of Banka-Belitung, the district of Bantul in Yogyakarta, the district of Jembrana in Bali, and the city of Mataram (the capital of West Nusa Tenggara) in Lombok. They were chosen to highlight the wide variations that exist in the extent to which local governments have adapted to the new political framework.

Viewing decentralisation as a process that takes time to evolve–rather than as a condition that exists fully formed from the outset–allows us to explore the impact of both local actors and contextual factors in shaping the experience and outcome of decentralisation at the local level.

This chapter discusses Indonesia's main recent judicial reforms, particularly those that appear to have been designed to increase judicial independence and judicial accountability, and the teetering balance that had been struck at the time of writing. I will focus on three institutions– the Constitutional Court (Mahkamah Konstitusi), the Supreme Court (Mahkamah Agung) and the Judicial Commission (Komisi Yudisial)– and the dispute in which they were involved for much of 2006.

The United Nations' basic principles on the independence of the judiciary (UN 1985) require governments to provide conditions that enable judges to decide cases impartially, that is, ‘without any restrictions, improper influences, inducements, pressures, threats or interferences, direct or indirect, from any quarter or for any reason’ (article 2). Judicial independence requires that ‘the term of office of judges, their independence, security, adequate remuneration, conditions of service, pensions and the age of retirement … be adequately secured by law’ (article 11). The principles also require that judges be immune from civil suits for ‘improper acts or omissions in the exercise of their judicial functions’ and that their decisions not be ‘subject to revision’ (article 16). Moreover, judicial independence permits judges to be removed from office before their term has expired only for conduct that is inconsistent with their role as a judge (such as a serious criminal conviction) or that indicates that they are incapable of continuing in office (such as incompetence or illness) (article 18; see also Volcansek 1996: 9).

Judicial independence is often justified on the basis that an impartial third party is necessary to resolve disputes between individuals, entities and governments that they cannot resolve themselves (Shapiro 1981: 1, 7). If judges are not independent, then the public is unlikely to have confidence in the courts, and such confidence is essential to a legal system that depends for its effectiveness on voluntary compliance with judicial decisions (Holland and Gray 2000: 117). Moreover, many scholars accept that judicial independence is crucial to a functioning democracy, the rule of law and human rights protection. Hirschl notes the ‘growing acceptance and enforcement of the idea that democracy is not the same thing as majority rule’ and that minorities must be protected by a bill of rights, enforced by judges ‘removed from the pressures of partisan politics’ (Hirschl 2004: 1–2; see also Ginsburg 2003: 2, 96).

INTRODUCTION

In this chapter I outline what civil service reform needs to address and what it should achieve, as well as how it should be implemented to secure progress and sustainable outcomes. The chapter sets out a strategic framework for civil service reform and the objectives to be achieved under such a framework. It is written from a civil service policy-making perspective, focusing on technical solutions based on sound international practices.

I argue that there are two key paths to improved performance:increased transparency and strengthened accountability. I identify two prerequisites for a sustainable improvement in civil service performance and elaborate seven immediate and long-term objectives. All the objectives are important and need to be addressed simultaneously, although they will take varying lengths of time to be achieved. Finally, I argue that successful civil service reform requires a gradual approach, targeting selected key institutions in the early stages. This can be expanded to other targets later as reform gains momentum and good practices can be replicated.

The political dimensions attached to any reform related to the public sector workforce are barely touched on in this chapter, although these will be of utmost importance for decision makers if they decide on a comprehensive program of civil service reform. Clearly political considerations are not always favourable to achieving technical or rational objectives.

Background

The legacy of the authoritarian New Order regime can be characterised briefly as non-transparent processes, underfunded institutions, an inadequately skilled public workforce, and institutionalised corruption reflecting a self-serving and opaque administration. Today, however, Indonesian public institutions are expected to secure democracy, support a market economy and provide good governance. Experience from other countries shows that such a transformation of public institutions needs time, strong commitment, persistent effort and determined leadership. These requirements were not met in Indonesia during the first six years of post-Soeharto government. It was not until President Susilo Bambang Yudhoyono took office in late 2004 that there were indications of a strong commitment to reforms, albeit with some doubt as to the capacity of the government to see them through (see, for example, Basri and Patunru 2006: 316).