The Mafia Behind The Miracle

To encapsulate the paradoxical nature of life, where triumph and tribulation often march hand in hand, Charles Dickens once wrote, “It was the best of times, it was the worst of times.” These words resonate far beyond the streets of revolutionary France, echoing across time to the early years of Indonesia’s independence. For it was under the blazing spirit of Soekarno that this nation first broke the chains of colonialism, reclaiming dignity and sovereignty with a thunderous cry of “Merdeka!” Yet history, in its unforgiving candor, records not only the glory of freedom but also the shadows that followed. In the twilight of his rule, Soekarno’s dream began to fracture. Under his watch, the nation plunged into economic chaos as hyperinflation spiraled uncontrollably, deficits rocketed to unsustainable levels, debts piled high like ruins of ambition, and the country’s foreign reserves reached to the point of scarcity .

Then came Soeharto with his promise of economic stability and national development. Armed with a quiet pragmatism and an iron grip on power, he offered what the nation desperately craved: order amidst chaos. And in less than a decade, that promise began to materialize. Inflation was tamed, fiscal discipline restored, and growth surged forward like a river unblocked. Roads stretched across islands, irrigation nourished the soil, and Indonesia stood tall in achieving rice self-sufficiency, which became a symbol of newfound strength. However, behind the soaring numbers and the gleam of progress lies a question that is often overlooked. Who was the true architect behind Indonesia’s economic rise during the Soeharto era?

Berkeley, CA and The Forge

While Chile is remembered for its Chicago Boys and Argentina for its liberal technocrats under José Alfredo Martínez de Hoz, Indonesia also cultivated a cadre of foreign-trained economists who would later engineer the country’s economic direction for decades. Unlike their Latin American counterparts who often emerged directly from military or ideological networks, Indonesia’s technocrats pursued a quieter route, which began with academic merit, transnational education, and a timely intersection with political upheaval at home.

The foundation for their rise was laid in the late 1950s when Indonesian economist Soemitro Djojohadikusumo, who was then a prominent academic and policymaker, spearheaded efforts to modernize the teaching of economics in Indonesia. In collaboration with the Ford Foundation and USAID, Soemitro facilitated a program that sent promising graduates of Universitas Indonesia’s Faculty of Economics to pursue advanced degrees at the University of California, Berkeley (Indoprogress, 2010). Among those selected were Widjojo Nitisastro, Ali Wardhana, Emil Salim, Mohammad Sadli, and Subroto. At Berkeley, they were immersed in neoclassical economics, development theory, and rigorous quantitative methods. Their intellectual formation emphasized price stability, fiscal responsibility, and integration into the global economic system, which later became central to their policymaking ethos.

Upon returning to Indonesia in the early 1960s, these economists largely resumed academic and advisory roles. However, the political and economic crisis following the attempted coup of 1965 opened an unexpected window of opportunity. In the midst of soaring inflation and institutional chaos, General Suharto, who was consolidating authority under the New Order, sought credible expertise to restore economic order. The group was invited to present a recovery plan at SESKOAD, the Army’s Command and General Staff College in Bandung. Their proposals, which focused on restoring macroeconomic stability, reviving production, and reopening international cooperation, struck a chord with Suharto. He was reportedly impressed by their technical clarity, discipline, and apolitical stance (Indoprogress, 2024).

Soon after, key members of the group were appointed to strategic policymaking positions. Widjojo became head of Bappenas, Ali Wardhana took over the Ministry of Finance, and others assumed pivotal roles in trade, energy, and industry. Because of their shared academic roots, unified technocratic vision, and close access to state power, they became the dominant force in Indonesia’s economic governance throughout the New Order period. Retrospectively, this influential circle came to be known both descriptively and symbolically as the Berkeley Mafia (Ransom, 1975; Indoprogress, 2010).

In Order We Trust 

Emerging from the ruins of Soekarno’s economic collapse, the Berkeley technocrats approached governance not as an ideological crusade but as a disciplined application of liberal economic rationality to a state engulfed in hyperinflation, fiscal collapse, and global isolation. Widjojo Nitisastro, the intellectual nucleus of this group, framed his role not in terms of power but in terms of calculation and stability. He famously remarked, “Without price stability, no programme—left or right—can stand,” which signaled his conviction that rational macroeconomic foundations must precede all else ( Hill, 2000).

The early reforms introduced under Widjojo’s guidance, especially the 1967 balanced budget law, the unification of the multiple exchange rates, and the eradication of monetary financing of deficits, reflected a deep commitment to liberal fiscal and monetary discipline. These were not merely technocratic fixes. Rather, they were manifestations of a worldview that placed trust in market signals, budgetary credibility, and international integration as conditions for national rehabilitation (Booth, 1998). Inflation, which had reached a catastrophic 635% in 1966, fell to under 20% by 1970. This was an achievement praised not only by international observers but also by skeptical domestic elites who had doubted whether such a cold, measured approach could succeed in Indonesia’s volatile political climate (Hill, 2000).

Central to this rationalist approach was the technocrats’ ability to depoliticize economic decision-making. This approach turned policies into matters of logic rather than factional interest. As Richard Robison observed, “Their power lay not in their connections, but in the fact that they could make sense of the crisis when no one else could” (Robison, 1986). Through policy papers, cost-benefit analysis, and clear communication with donors, Widjojo’s team reshaped the policy environment into one where economic logic held normative authority.

During the 1973 to 1980 oil boom, their liberal rationality was again put to the test. The quadrupling of oil prices dramatically increased state revenues, which in turn posed a Dutch disease risk involving real exchange rate appreciation, a bloated public sector, and a collapse in tradables. Yet, the technocrats responded with strategic restraint. They sterilized oil windfalls, channeled funds into long-term investments such as irrigation, rural health, and fertilizer subsidies for farmers, and maintained a crawling-peg exchange rate in order to preserve export competitiveness (Booth, 2000; Basri & Hill, 2004). By 1980, the state had not only avoided macroeconomic overheating but had also achieved near self-sufficiency in rice, which was one of Soeharto’s prized goals. As Anne Booth notes, “Indonesia was one of the few oil exporters in the 1970s that did not allow its tradable sectors to deteriorate” (Booth, 1998).

Furthermore, the technocrats introduced incentives for non-oil exports such as tax rebates, bonded export zones, and tariff simplification, which began to take effect in the late 1970s. These were clear expressions of liberal economic logic. That logic relied on price mechanisms, export competitiveness, and international markets as the engines of growth rather than on import substitution or state-led industrialism. In doing so, they laid the groundwork for Indonesia’s shift to export-oriented industrialization, which would flourish in the 1980s.

When oil prices collapsed in 1982, leading to a sharp contraction in revenues and a balance-of-payments crisis, the technocrats responded not with panic but with another wave of rational liberal reform. Led by Ali Wardhana and Arifin Siregar, Indonesia introduced the PAKDE deregulation packages. These policies dismantled non-tariff barriers, devalued the currency, liberalized banking, and streamlined investment rules. “We had no other choice but to trust the market again, but on our own terms,” Siregar would later recall (Basri & Patunru, 2012). These adjustments predated IMF involvement and reflected a strong internal policy capacity rooted in liberal economic reasoning rather than external compulsion.

Despite this record, accusations that the technocrats were merely puppets of American economic interests have persisted. However, such claims often rest more on ideological discomfort than on empirical analysis and fail to account for the pragmatism and contextual adaptation that defined the Berkeley group’s policies. As Iqra Anugrah on  Indoprogress (2024) notes in its reassessment of the technocrats, “Their conservatism was not imported, but improvised; not ideological, but circumstantial. They did not worship the market—they used it.” Even at the height of liberalization, the state maintained control over key sectors, sustained subsidies for basic needs, and intervened in agriculture and credit allocation (Indoprogress, 2024; Robison & Hadiz, 2004). Their approach was closer to embedded liberalism (Rodrik, 2011).

Indeed, their rationality often clashed with both foreign and domestic expectations. Widjojo frequently rejected proposals for aggressive liberalization from the IMF and USAID, and instead argued for gradualism and institutional readiness. “We will open the economy, but not before we have the tools to survive it,” he once told a World Bank mission (Hill, 2000,). Their engagement with international institutions was therefore instrumental rather than submissive. They used global forums strategically so they could leverage aid and recognition, rather than surrender autonomy.

This posture, which embodied rationality without dogma and liberalism without submission, was what ultimately enabled Indonesia not only to stabilize its economy but also to reposition itself as a credible actor in the global economic order. The technocrats succeeded not because they imported ideas but because they domesticated liberalism. In doing so, they aligned it with the imperative of national recovery under authoritarian rule. As such, the success of their economic stewardship was not the triumph of ideology, but rather the triumph of discipline, adaptation, and strategic reason.

Built on Sand

Despite the impressive achievements of the technocrats in the 1970s, their power was ultimately fragile because it was not embedded in a formal institutional structure. As Boediono (2016) acknowledges, the technocrats were “delegated experts” who operated under the president’s patronage rather than through independent institutions. Their legitimacy rested not on legal mandates or bureaucratic entrenchment, but on the continued trust of Soeharto and the perception of competence by political elites. As a result, when political tides shifted, the technocrats had no institutional shield to preserve their influence.

This fragility became apparent in the 1980s as Soeharto began to shift his political calculus. With the economy stabilized and external threats diminished, the New Order no longer depended as heavily on technocratic rationality to maintain legitimacy. Instead, Soeharto turned increasingly toward the military and business cronies to consolidate power. As Robison and Hadiz (2004) explain, “The state began to move decisively away from technocratic governance and towards a patrimonial system of rule based on rents, monopolies, and elite coalitions.”

The shift was institutionalized in the 1983 General Guidelines of State Policy (Garis-Garis Besar Haluan Negara, or GBHN), which reoriented development goals from technocratic efficiency to political populism. The GBHN emphasized equity, rural development, and political stability, yet it lacked the earlier focus on macroeconomic discipline. In practice, this opened the door for an expansion of state-led mega-projects, politically motivated subsidies, and rent-seeking behavior. The technocrats, particularly Widjojo and Ali Wardhana, were gradually sidelined from key decision-making roles (Hill, 2000).

This marginalization was not due to a failure of competence but rather to a shift in political priorities. As Soeharto increasingly relied on military officers, Golkar loyalists, and conglomerate-linked businessmen to maintain political support, the role of neutral policy advisors diminished. According to Robison and Hadiz (2004), this transformation reflected the New Order’s deep structural preference for political loyalty over institutionalized expertise. The result was a deterioration of policy quality and a decline in long-term planning capacity.

Boediono (2016) reflects on this institutional weakness with a tone of cautious regret. He notes that “without institutional anchors, even the best policies are vulnerable to reversal.” The absence of independent technocratic bodies meant that once political winds shifted, there was no buffer to protect the policy paradigm that had brought Indonesia back from the brink in the late 1960s.

This institutional fragility carried long-term consequences. The proliferation of politically connected projects in the late 1980s and early 1990s, combined with a lack of oversight, laid the groundwork for inefficiency, corruption, and growing inequality. These problems became increasingly visible in the years leading up to the 1997–98 Asian Financial Crisis, when the collapse of investor confidence revealed the limits of Indonesia’s hybrid system of technocratic logic nested within an authoritarian, patrimonial state.

Beneath The Noise, The System Stalled

Indonesia once stood at the crossroads of collapse and reconstruction, and it was a cadre of technocrats, not ideologues, who steered the country back from the brink. Yet the influence they wielded was always precarious. Unlike the institutionalized technocracies of Singapore and South Korea, where rational planning was hardwired into the state, Indonesia’s economic brains operated in the shadow of political favor. When that favor faded in the early 1980s, so did their authority (Boediono, 2016; Robison & Hadiz, 2004). What followed was a slow unraveling: policies grew less coherent, development became politicized, and the bureaucracy once driven by calculation turned reactive and transactional.

The erosion of technocratic influence did not trigger a sudden collapse. Instead, it hollowed out Indonesia’s capacity to plan for the long term. Without an institutionally empowered class of independent policy thinkers , decision-making is tilted toward short-termism, patronage, and populism. This marked a retreat from what sociologist Max Weber famously called “rational-legal authority”, the idea that legitimacy flows from impersonal rules and technical competence, not charisma or personal ties (Weber, 1978). In its place emerged a system that answered not to logic or institutions, but to electoral calculus and elite convenience.

Indonesia’s lost decade of technocratic drift should serve as more than a footnote. It should be a warning. The examples of Singapore and South Korea demonstrate that national progress is not self-perpetuating; it is built on bedrock institutions, not just good individuals. Both countries embedded policy expertise deep within their bureaucratic DNA, which allowed them to sail through political waters with their eyes still set on the goal without losing developmental focus (Woo-Cumings, 1999). Indonesia, too, had a glimpse of that path. When Widjojo Nitisastro and his colleagues delivered stability not through ideology, but through discipline and data (Hill, 2000; Basri & Hill, 2004).

The legacy of the Widjojo generation is therefore not merely a nostalgic memory. It is a forward-looking imperative. In a world increasingly defined by global shocks, disinformation, and political volatility, Indonesia must return to policy grounded in evidence, expertise, and institutional resilience. Reclaiming technocracy is not about idolizing the past. It is about preparing for a future where governance cannot rely on personalities alone but must be anchored in systems that work. Only then we can reach the point of a durable foundation, Indonesia can truly find the basis needed for a thriving and inclusive future to take root.

References

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Rodrik, D. (2011). The Globalization Paradox: Democracy and the Future of the World Economy. Harvard.edu. https://drodrik.scholar.harvard.edu/publications/globalization-paradox-democracy-and-future-world-economy

Weber, M. (1978). Economy and society: an Outline of Interpretive Sociology. University of California Press. (Original work published 1922)

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