How to do a reform in a 'second best world': the case of Indonesia

David Finch Lecture with Dr. Muhamad Chatib Basri.

The word of reform has become a mantra to solve many economic problems in developing countries. Nevertheless, only a few reforms have been successful. When economists are asked why, they usually blame on politics or institutional setup as the culprit. Many economic or institutional reforms often fail because the international best practices do not fit with the political or institutional setup in developing countries.

While we understand that reformers have to change the institutional set up, they are in reality often constrained with the dilemma that changing institutions requires a lot of time, whereas on the other hand politicians usually work within a limited term horizon. Economists do not have the luxury to work in an “empty space”. They have to live with political realities. Thus, the important question is how an effective reform can be produced under institutional and political constraints? This lecture will address this question and focus on Indonesia as a case study.