Deregulation in Indonesia: Two Steps Forward, One Step Back

N the late 1970s and early 1980s, Indonesia’s economic policy became increasingly inward-looking as the government pursued a strategy of import substitution. This strategy was reversed in the mid-1980s, and during the past decade the government has liberalised direct controls on investment and greatly reduced both tariffs and import licensing requirements. But despite the clear overall trend, not all economic policies have been moving in the same deregu-latory direction. In particular, a new approach to industrial policy, which was announced in President Soeharto’s 1995 state address, has the potential to be highly interventionist. Al-though its details remain vague, early indications suggest that it will be implemented by local content schemes, special tax exemptions, and other non-tariff measures (NTMs). This article describes the overall trend towards deregulation, discusses why it was adopted, and cites some of the major examples of policy changes in the opposite directi n. Regulation, Deregulation and the Oil Boom When it acquired power in 1966, President Soeharto’s ‘New Order ’ regime was confronted by the chaos of hyperinflation, multiple exchange rates, and direct controls left behind by President Sukarno