By Farabi Fakih
Postcolonial Indonesian political history cannot be understood fully without situating it within the shifting postwar American empire. The emergence of the New Order (1966-1998) at the juncture toward neoliberalism and the financialization of commodities while under technocratic developmentalist aid determined particular elite relations as managers of empire.
Introduction
The United States has always had a privileged position in Indonesia’s postcolonial history. During imminent and pivotal periods, American interjection became decisive, including the years of the Indonesian national revolution against the Dutch in late 1948. The American threat to withhold Marshall Aid to the Netherlands was widely perceived to be a decisive act that made the Dutch acknowledge Indonesian sovereignty, while, Indonesia’s long-standing military dictator, Suharto’s (1966-1998) rise was supported financially and technically by the US.
In the late 1990s, Suharto’s fall was the result of the Asian Financial Crisis and Indonesia’s integration into the American-dominated global financial system.
It was access to American dollar, either directly as aid or through commodity trade and the American financial system, that determined the entangled relationship of Indonesia with the US since the 1940s.
In this essay, I intend to place the New Order within the broader global history by situating the emergence of Suharto’s New Order state within the shifting postwar American Empire at the intersection of neoliberalism, the financialization of commodities, and technocratic developmentalist aid reconfigured Indonesian ruling elites as transnational managers of empire. [AA5]
Finance Capital Redux
The long hand of finance and its relationship to empire has been acknowledged within Marxist theories of high finance since the late 19th century. Karl Marx defined finance capital as its most developed form: as a form of fictitious capital based on its future market value. The Annales School historian Fernand Braudel noted the relation between empire and what he termed as ‘financial expansion.’
More recently, there has been growing interests in understanding the role of financialization within the neoliberal American empire. Economist Rama Vasudevan has discussed how finance transfer imperial control to the periphery. Relatedly, Leo Panitch and Martijn Konings point to the need to demystify America’s imperial finance, noting the need to look behind the neutrality of appearances. Current architecture of global finance is, according to them, rooted in American finance capital and that its political economy is constituted as part of the American imperial hegemony. Instead of looking at global finance as a neutral landscape, it in fact represented institutions determining rules of the game for other countries by determining the transaction costs of policy behaviors and decisions. Its institutional neutrality belies the role it plays in disciplining national actors of client states, including Indonesia.
Indonesia’s case represents an opportunity to understand the long hand of empire and how dollar flows recreate Indonesian politicians and bureaucrats into managers of empire.
American hegemony is constituted through agents on the ground that are both nationalist and globalist. From a revolutionary Third World state under President Sukarno, who had left the United Nations in order to create an alternative global order under what he termed as the “New Emerging Forces,” Indonesia shifted decidedly toward the West after 1965 under the military dictatorship of President Suharto and his illustrious team of Western-trained economic technocrats.
In 1968, Robert McNamara as new head of the World Bank visited Jakarta and met with President Suharto and his technocrats. This visit was historic: it was his first country visit as the President of the World Bank and, less than a year later, the World Bank created a resident mission in Jakarta as the first permanent mission of the Bank in the Third World. Indonesia was to be the showcase for the implementation of American modernization theory for the Third World.
In 1993, the World Bank policy research report titled The East Asian Miracle: Economic Growth and Public Policy celebrated the military dictatorship as one of Asia’s high performing economies which combined rapid economic growth with increasing equity. Yet, just five years later, the national financial sector would collapse, along with the regime itself.
Financial Crisis and Managers of Empire
Center-periphery relations in the American Empire is determined through the management of dollar flows. Financial crises result in changes to these management and institutions. They have its roots in the entangled relationship with global finance
This financial empire also shapes the composition, relationship, and beliefs of the managers whose job is to develop intermediary relationship with the funding sources at the metropole, either through aid institutions like the World Bank, International Monetary Fund (IMF), or the Inter-Governmental Group on Indonesia (IGGI) created in 1967 to help the Indonesian government or through international lending institutions, such as banks.
The emergence of the New Order was preceded by a fiscal and monetary crisis due to collapsing export and lack of incoming dollar flow. Key studies by Soehartono Soedargo and Mattias Fibiger provide an account of this transition. General Suharto’s government took on a looming fiscal crisis due to massive debt repayment and the need to reduce hyperinflation. A systematic fiscal and monetary policy based on a fully convertible, open capital account and a balanced budget was implemented. Development fund were provided through aid from the US, Japan, and other Western countries.
The New Order’s fiscal and monetary system was developed within the technical aid institutions in coordination with the Indonesian technocracy, a group of mostly University of Indonesia economists who had developed a strong relationship with the army. This technocratic system was created in order to develop fiscal and monetary discipline within the government and place the technocrats at the helm of Indonesian development.
Yet, this system was beset with an emerging challenge due to the Oil Boom (1973-1982), in which a competing dollar flow had emerged that was outside of the authority of the technocrats. At its peak, the oil dollar flow would represent 80% of the total country’s export and 70% of the government revenue.
The oil dollar nexus was controlled by Pertamina and its influential head, General Ibnu Sutowo. Pertamina was a major source of non-budgetary funding for President Suharto, the army and many in the government. Sutowo’s approach to development differ from that of the technocrats with their World Bank-influenced pro-poor programs. Instead, Sutowo was part of the ‘accelerationist’ technologist camp that wanted to support large-scale investment within an import-substitution industrialization program. This technologist group included several important generals and think-tank organizations
The oil dollar flow was the result of the emergence of an international Euro-dollar market which provided cheap and easy access to credit and the financialization of commodity through the emergence of an American-dominated, and some Japanese with yen-denominated, international banking as part of the transition toward neoliberalism. Global bankers visited Sutowo’s office weekly in Jakarta to offer him cheap credit. In the process Sutowo would develop strong relationship with managers in the international banking industry and the oil industry, becoming close with American policy makers, among others.
This competition between the technocrats and Pertamina would come to a head in 1975 when the company, the second largest in Asia outside of Japan at the time, fell into a credit crisis which Sutowo claimed to have been engineered by the technocrats working in conjunction with western aid organizations, like the IMF and the World Bank. In particular, the IMF imposition in 1972 denied Pertamina the ability to take on mid-term loans with maturity of one to fifteen years. A consortium of American oil banks gave a large credit with a default clause that would lead to the crisis in 1975.
The technocrats argued that the crisis was the result of mismanagement and corruption. They would take over the company, spin off its non-core investments and divert the oil money to their pro-poor programs. After the end of the Oil Boom in 1982, the technocrats would conduct a series of deregulation measures that would start with Indonesian industrialization by the late 1980s.
How do we read this mid-1970s crisis within the context of New Order as managers of empire? Both the technocrats and technologists claimed their nationalist pedigree and supported a form of development that was supported by competing dollar flows.
Both developed personal and institutional relationships with sources of dollar flows to promote the various objectives of the American empire.
At first, this competition among managers might seem strange. Yet, as Konings and Panitch have argued, the American financial-based empire’s uniqueness was through its forms of decentralized, creative forms of competing systems of finance. Both groups of managers represented legitimate forms of interaction with the empire. Both technocrats and technologists were instrumental in the integration of Indonesia’s commodity economy with global capitalism. As one of the early major American client state, Indonesia’s integration into the American empire and the subsequent clash between aid and early international finance point to its role in the emerging neoliberal structure in the 1980s. The crisis also staved off Indonesia from a potentially larger credit crisis which rocked the Third World in the 1980s.
The New Order’s emergence in the 1970s grew alongside changes associated with the emergence of international finance and the transition to neoliberalism in the 1980s. It is less a question of an external empire imposing neoliberalism on Indonesia, as much as it was the embodiment of emerging neoliberalism through its negotiation and integration of its commodities within the global circulation of capital.
Understanding the relationship between commodities, global finance, and the national power of competing transnational managers of empire becomes crucial.
Therefore, it is important to understand the American empire and how it operationalizes competing institutionalized dollar flows with the formation of competing managers within the New Order dictatorship itself. The root of American imperial action is conducted through its global finance architecture, yet, that landscape is often negotiated through competing national interlocutor that develop alongside the emergence of new kinds of state and its elites, in this case, Indonesia’s New Order variant.
Indonesia’s Position within the American Empire Today
Series of crisis changed the composition and institutions of managers of empires. The fall of the New Order under the Asian Financial Crisis had resulted in a change in the position of the technocracy. The end of Western aid has weakened the technocratic structure. In recent times under President Jokowi (2014-2024) and Prabowo Subianto (2024-present day), new forms of managerial class has emerged often with a military background and entrepreneurial/neo-developmentalist orientation. Under Jokowi, one of the primary source of dollar flow has been through Chinese and Japanese investments into infrastructure and nickel-based battery component. Jokowi’s centralization of government finance in order to invest in his ambitious infrastructure project represents an alternative source of revenue from investment beyond the traditional free-market model, which continues to be implemented under Prabowo’s presidency.
Within this period of shifting global finance and empire, understanding Indonesia’s position requires analyzing what empire means in the context of current global dollar flow and who its managers are.
Changes to global finance since the 2008 Financial Crisis and especially Covid and post-Covid induced dollar inflation has increased risk associated with the dollar flow. With Indonesia’s growing middle class, an internal source, state and oligarchy-controlled form of currency flow from investment sites in the archipelago has become more central. Oligarchic families in control of these sites, may represent greater autonomy from US empire and represent a more nationally oriented forms of development, but also increases moral hazards and potential for corruption.
The emergence of authoritarian developmentalism today harks back to the rise of the New Order authoritarian developmentalism in the 1960s and 1970s. In both cases, the architecture of global finance and dollar, or perhaps today renminbi, flows and how they shape local managers of empire point to the need to think of both the continuation of empire and the inherent transnational forms of governance of Indonesia, as a centuries old important sites of resource and imperial periphery.
Farabi Fakih is head of the Master Program at the History Department, Universitas Gadjah Mada, Yogyakarta. He has a wide research interest which focuses on understanding the governance and politics of the state, land and natural resources. He is the author of Authoritarian Modernization in Indonesia’s Early Independence Period: The Foundation of the New Order State (1950-1965).
This article is published under the sole responsibility of the author, with editorial oversight. The views expressed do not necessarily reflect those of the editorial team or the CEU Democracy Institute.
