Private sector lessons for public sector reform in Indonesia

Although the Indonesian economy grew very rapidly � averaging over 7 per cent per annum � during the three decades of the Soeharto era, it suffered a severe setback with the onset of the Asian crisis in 1997-98, and has been unable to achieve similar growth rates on a sustained basis subsequently. The year-on-year growth rate for the March quarter, 2006 was only 4.6 per cent, and this rate has fallen consistently since the end of 2004 (Manning and Roesad, 2006:146). Although most output is generated by the private sector, growth also depends heavily on the provision of complementary inputs by the public sector, most obviously physical infrastructure and an effective legal system. The fact that successive Indonesian governments have performed poorly on both these fronts provides a partial explanation for the relatively low economic growth rates of recent years.