Reform in Indonesia: Constraints in Implementation, A Short Note

Mohamad Ikhsan
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Mohamad Ikhsan: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)

No 202587, LPEM FEBUI Working Papers from LPEM, Faculty of Economics and Business, University of Indonesia

Abstract: This paper examines the political economy of reform in Indonesia, with particular attention to the contrast between the New Order period and the post-Soeharto democratic era. While reforms under Soeharto—such as the Instruksi Presiden (Inpres) programs—succeeded in delivering rapid poverty reduction and infrastructure expansion, post-1998 reforms have often faltered despite broad parliamentary majorities and improved macroeconomic stability. The analysis identifies seven recurring constraints to reform implementation: (i) time lags between reform costs and benefits, (ii) distributional asymmetries between concentrated losers and diffuse winners, (iii) credibility deficits, (iv) reform fatigue after the IMF era, (v) nationalist and sovereignty concerns, (vi) limited fiscal space, and (vii) weak bureaucratic capacity. The study also highlights Indonesia’s “fiscal policy trilemma†and the importance of sequencing. By prioritizing fiscal consolidation in the 2000s, Indonesia created the credibility and fiscal room necessary for later tax and infrastructure reforms. The central argument is that reform success in Indonesia has depended less on policy design than on the alignment of technocratic pragmatism, political legitimacy, and institutional credibility. The Indonesian experience demonstrates that majority rule in a democracy does not guarantee reform capacity; without credible institutions, coalitions risk degenerating into vehicles for patronage rather than engines of structural change.

Keywords: Indonesia; —; economic; reform; —; political; economy; —; fiscal; trilemma; —; Inpres; programs; —; decentralization; —; institutional; credibility; —; oligarchic; capture (search for similar items in EconPapers)
JEL-codes: H11 O23 O43 P16 (search for similar items in EconPapers)
Date: 2025-87, Revised 2025
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