The political economy of the asean free trade area (afta)

That was, however, the state-of-play in 1998 when the AIA was initially adopted 

and the effects of the 1997-98 financial crisis were still unfolding in the country.  Since 

then, the collapse of significant elements of Thai big businesses lent new emphasis to the 

role of FDI in spearheading growth in Thailand as the Democrat Party under then Prime 

Minister Chuan Leekpai sought to restructure the Thai economy towards greater market 

openness and competitiveness.  Hence, there was some move to de-emphasise the foreign-

ASEAN distinction in the AIA through attempts to bring forward the deadline for full 

foreign equity ownership in investment.

29

  The Deputy Secretary General of the Thai 

Board of Investment, Chakramon Phasukvanich, in fact, suggested the crisis might force 

ASEAN to play down its intra-ASEAN investment area in favour of attracting FDI from 

outside ASEAN.

30

  In the end, however, ASEAN member governments adopted a 

temporary and separate programme in March 1999 through which full foreign equity 

rights were offered to all foreign investors for a two-year period in a limited number of 

specially selected sectors, while the foreign-ASEAN distinction in the AIA was 

maintained.

31

    

 

Indonesia 

In the case of Indonesia, the support given by Ginandjar Kartasasmita, Indonesian 

Coordinating Minister for the Economy in the Habibie government for the Malaysian 

proposal vis-à-vis the AIA reflects economic nationalist thinking that envisages a key role 

for the state in directing markets to achieve national economic and political goals (Brown, 

1998: 188).  The liberal technocrats who dominated Indonesian policymaking since the 

mid-1980s had rejected these ideas.  Instead, they instituted market liberalisation and 

deregulation as the path to growth.  The Indonesian public, however, believed that these 

policies had disproportionately benefited ethnic Chinese businesses, particularly the 

conglomerates, and those belonging to the President’s family (Borsuk, 1999).  Although 

deeply resented, ethnic Chinese big businesses were a crucial link in Indonesian patronage 

politics (Habir, 1999).  They gained their dominant economic position through 

connections with politically influential persons, including military elites and especially 

President Suharto, who also lent them protection from an essentially hostile indigenous 

Indonesian society.  In turn, ethnic Chinese big businesses provided funds to the President, 

                                                 

29

 Business Times, ‘ASEAN cuts deeper into trade, investment barriers’ 8 March 1999. 

30

 Bangkok Post, ‘Region’s ministers reaffirm plan’ 6 March 1999. 

31

 Joint Press Statement, First Meeting of the ASEAN Investment Area Council, 5 March 1999. 

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which he disbursed to selected organisations and individuals in return for political support 

(Liddle, 1999a: 51).   

 

This meant that the President and government became extremely sensitive to anti-

Chinese sentiment, which indigenous business exploited through its demands for 

preferential business treatment.  Suharto had, in the past, used economic favours like 

preferential credit and import licenses to indigenous businesses during much of his tenure 

as President as a way to gain their political support, which led to the creation of a second 

corporate elite group – indigenous big business (Liddle, 1999a: 68).  With the appointment 

of the economic nationalists to influential positions in the 1994 cabinet reshuffle, the 

fortunes of indigenous big business looked set to rise further.  The economic nationalists 

quickly adopted the position that deregulation and liberalisation could be strategically 

integrated with state-driven industrial policy to develop domestic, especially indigenous 

business capabilities (Robison, 1997: 53).   

 

The political salience of indigenous (and state) capital did not end with the 

financial crisis and the fall of Suharto in May 1998.  Many Indonesians regarded further 

neoliberal reforms sanctioned by the IMF as attempts by western interests to impose a 

form of capitalism on Indonesia that would, once again, “prevent indigenous Indonesians 

from taking their rightful place at the economic table” (Habir, 1999: 202).  The 

redistributive imperative to achieve economic parity between the ethnic Chinese and 

foreign investors on the one hand and indigenous groups, particularly in business, on the 

other, remained strong.  It was, in fact, strengthened in the aftermath of Suharto’s fall, 

given the strong resentment against ethnic Chinese and foreign investment in the country.  

Both Habibie,

32

 Indonesian president in 1998 when the AIA was adopted, and Ginandjar 

had long been in favour of reducing Indonesian dependence on foreign investors and in 

weakening the dominant position of the ethnic Chinese business elite by building up state 

and indigenous businesses (Djidin, 1997: 26).  While Habibie championed state capital, 

Ginandjar championed indigenous business interests (Liddle, 1999b: 20-21).  Ginandjar’s 

open support of Malaysia’s developmental approach to the AIA emerged out of such ideas 

and the ascendance of indigenous business interests.  Nevertheless, the financial and 

political crisis in Indonesia meant that the growth imperative, particularly to attract FDI to 

                                                 

32

 Habibie had presided over Indonesia’s state-driven high-technology programme under Suharto’s tenure.  

He took over as President in 1998 when Suharto was ousted from power.   

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