In other words, so long as the government managers who rationed capital did so with impersonal efficiency and wise forejudgment, as in the popular 1980s image of Japan's powerful industrial and financial ministry, MITI, a "repressed" strategy could work well. All too often, however, capital rationing has become politicized--capital being apportioned to powerful and favored sectors, or even those with personal ties to the leadership.
The current situation in Indonesia has underlined the latter case. Economic policy in Indonesia was firmly centralized, with "favored sectors" receiving no formal preference. "In the period since the mid-1970s, systematic political exclusion has become institutionalized, with policy decisions being shaped by bureaucrats operating in a manner largely unconstrained by organized political action from societal groups" (MacIntyre, 1993, p. 123).
Even the powerful army eschewed the sort of corruption among officers that has often been found in developing countries under military rule. According to an account in the early 1990s, "signs indicate that senior army leaders have concluded that pervasive corruption has the potential to be regime-threatening" (MacIntyre, 1993, p. 156). With the financial crisis of 1997, however, it became clear that, in Indonesia, control from the center went hand in hand with corruption at the center. It has not been "favored sectors," or army officers, who siphoned off development capital, but the Suharto family and its cronies.
On the other hand, experience in Latin America has indicated that, if "repressed" financial policies based on government intervention are prone to distortion, fuller liberalization and reduced government intervention are also no panacea.
The experience of the Southern Cone countries (Argentina, Chile, and Uruguay) with financial liberalization and internationalization played an important role in demonstrating that reduced government inte...
Financial Liberalization. (1969, December 31). In LotsofEssays.com. Retrieved 23:36, February 12, 2016, from http://www.collegetermpapers.com/viewpaper/1304062940.html