State-owned entities as development policy tools : political economy of state activism in Indonesia

With the rapid rise of emerging economies since the 2000s, state-owned entities, such as state enterprises, development banks, and sovereign investment funds, have become prominent forces in the global economy. Despite the focus on these entities’ international influence, many are also important domestic policy tools for stimulating economic development. This thesis finds that the deployment of state-owned entities in national development strategies is an important feature of the re-strengthening state economic activism, or ‘new developmentalism’. Using the case of Indonesia, this thesis explores key characteristics of ‘developmental state capitalism’. This thesis examines the features of Indonesia’s stateowned entities as development policy tools by analysing the reforms that these entities have undergone since the 1990s and the institutional dimensions of their business systems. It also explores the government’s policy space for using these policy instruments from international, economic, and political perspectives. This thesis perceives developmental state capitalism in the second half of the 2010s as the Indonesian government’s response to economic challenges that had persisted throughout the previous decade. Past administrations had pursued ‘profitoriented state capitalism’ and development strategies that relied heavily on private sector participation. When the Joko Widodo government came to power in 2014, Indonesia was maintaining strong control over large state enterprises in diverse sectors. The government also enjoyed sufficient international and economic policy space to mobilise state enterprises. Global trading rules put few constraints on the use of state-owned entities as development policy tools, and Indonesia had a strong fiscal position. However, the government faced hurdles as domestic stakeholders attempted to influence the policy process. Pursuing developmental state capitalism required shifting important resources towards state-owned entities and reorienting these entities’ corporate strategies. During this process, politicians, bureaucrats, private competitors, and shareholders challenged and constrained the government strategy to varying degrees. Therefore, the mobilisation of state-owned entities for development purposes in democratic Indonesia can be described as ‘restrained developmental state capitalism’. Under these circumstances, efforts to sustain developmental state capitalism involved the government being responsive to stakeholder resistance and pursuing policy experimentation. The future of Indonesia’s developmental state capitalism is expected to depend on how the government manages stakeholder relations and drives policy innovation in order to explore the policy space.