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State%Capacity%and%Deregulation:%%%%%%%%%%%%%%%%%%%%%%%% The%Philippines%and%Indonesia%Compared% %

Asuncion!M.!Sebastian!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Comparative!Politics!DVS540P!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Dr.!Antoinette!Raquiza!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

April!13,!2012!

 

State!Capacity!and!Deregulation: ! The!Philippines!and!Indonesia! Com pared !

 
 

Introduction%%

Building! on! the! works! of! Fukuyama! (2004)! and! Williamson! (2003),! this! paper! discusses! state! capacity! and! deregulation—one! of! the! three! major! thrusts! of! structural!adjustment!program!(SAP),! the!two!others!being! trade!liberalization! and! privatization.!The!SAP!was!embodied!in!the!Washington!Consensus! implemented!in! Latin!America;!however,!essentially!the!same!program!was!adapted!by!the!memberM countries!of!the!Association!of!the!South!East!Asian!Nations!(ASEAN)!in!the!nineties,! which! became! a! period! of! opening! of! their! economies! to! global! trade! and! competition.!!

 
 

Using! the! deregulation! experiences! of! the! Philippines! and! Indonesia,! this! paper! argues! that! 1)! state! capacity,! specifically! its! aspect! of! organizational! design! and! management,! is! necessary! for! deregulation! programs! to! achieve! the! desired! development! goals! and! 2)! technological! innovations! resulting! from! deregulation! break!down!monopolies!and!promote!market!efficiency,!thereby!contributing!to!the! attainment!of!those!goals.!These!arguments!are!represented!in!the!diagram!below.!

 
 
State!Capacity!and!Deregulation: ! The!Philippines!and!Indonesia! Com pared ! Introduction%% Building! on! the! works! of! Fukuyama! (2004)! and! Williamson!

Scope&

Trade! liberalization,! deregulation,! and! privatization! are! different! yet! interrelated! concepts! and! are! often! implemented! together! under! the! SAP.! This! paper! focuses! only!on!deregulation,!herein!defined!as!the!“easing!of!barriers!to!entry!and!exit![into! the!market,!without]!abolishing!regulations!designed! for!safety!and!environmental! reasons”! (Williamson,! The! Washington! Consensus! and! Beyond,! 2003)! and! “are! intended! to! influence! how! firms! operate,! (having)! no! controls! over! capital! movements”! (Williamson,!Beijing!Consensus!Versus!Washington!Consensus,!2010).! Since! deregulation! does! not! involve! transfer! and/of! exchange! of! assets,! its! implementation! is! less!complicated!and!controversial,!and! its!supporting!evidence,! more!transparent!than!that!of!trade!liberalization!and!privatization.!!

 
 

The!discussion!will!not!cover!the!financial!sector,!as!Indonesia!was!way!ahead!of!the! Philippines!in!opening!its!capital!markets,!making! their!cases!incomparable.! It!will! instead! focus! on! select!industries! that! require! heavy!investment! on!infrastructure! thus! justifying! their! original! state! as! monopolistic! markets! (or! the! “natural! monopoly”! industries).! These! industries! include! air! transportation,! automobile,! telecommunications,!and!electric!power!generation.!Oil!industry!is!not!included!in! the! analysis! because! Indonesia! is! a! net! oil! exporter! while! the! Philippines,! in! contrast,!is!a!net!oil!importer.!

 
 

Rationale&for&the&Cases&

This!paper!presents!Philippines!and!Indonesia!as!cases!of!similar!characteristics!and! contexts! with! differing! results! of! implementation! of! deregulation,! with! the! latter! having!economic!and!social!performance!than!the!former.!!

 

Geographically,! both! Philippines!and!Indonesia! are!archipelagicthe! Philippines! is! composed! of! 7,107!islands!and! Indonesia,! 13,670.! (Buendia,! 2002)! Both! countries! are!also! susceptible! to!natural!calamities—typhoons!and! volcanic!eruptions!in! the! Philippines,! earthquakes! and! tsunamis!in! Indonesia.! ! These! features! pose! a!major!

challenge! to!industries! that! require! heavy!investment!in! physical!infrastructure!in! order!to!move!goods!and!service,!including!those!cited!earlier!as!part!of!this!studyair!transportation,!automobile,!telecommunications,!and!electric!power!generation.!!

 
 

Demographically,!both!countries!have!diverse!cultures,!languages,!and!religions.!The! Philippine!population!is!estimated!at!77!million!(17 th !largest!in!the!world!as!of!2002,! which! has! grown! to! 94! million! by! 2010)! with! 110! ethnoMlinguistic! and! cultural!

groups!spread!over!77!provinces!(as!of!2002,!which!has!numbered!80!in!2011).!On!

the!other!hand,!Indonesia! has!a!population!of!213!million!(4 th !largest!in!the!world!as! of! 2002,! which! has! grown! to! over! 248!million! by! 2012),! speaking! 250! languages,! spread! over! 32! provinces.! (Buendia,! 2002)! This,! combined! with! the! countries’! geographic!features,!makes!disparity!in!development!an!inevitable!problem.!

 
 

Politically! integrating! a! diverse! people! is! also! concern! for! the! government.! Historically,!neither!country!has!been!a!nation!prior!to!colonial!rule!of!the!European! countries,! which! gave! both! countries! common! experience! (or! common! enemy! for! that! matter)! that! compelled! the! people! to! unite.! The! Philippines! was! under! the!

Spanish!rule!for!more!than!370!years!(400!years!of!colonialism!to!include!American!

occupation)! while! Indonesia! was! under! the!Dutch! power! for! 350! years.! (Buendia,! 2002)! ! The! postMcolonial! state! capacity! building! for! the! two! countries! should! therefore!not!differ!much.!!

 

Consequently,! both! countries! are! characterized! by! clientelism,! patronage,! and! corruption! so! much! so! that! the! interests! of! the! government! and! those! of! large! businesses!cannot!readily!be!separated,!and!that!public!economic!policies!reflect!the! interest! of! the! few!elites.! (Ghosh,!1996)! In! the!Philippines,! the! “incredibly!corrupt! Marcos! dictatorship”! was! overthrown! by! the! Aquino! administration! that! did! not! have! the! ability! to! eradicate! the! rentMseeking! behavior! of! the! president’s! kin.! (Brilliantes,! 1993)! In! Indonesia,! the! first! family! has! “a! stake! in! almost! every! important! commodity! or! service! in! the! country”.! Thus! some! people! viewed! deregulation!as!a!test!to!the!president’s!willingness!to!sacrifice!his!and!his!family’s!

interest—the!results!were!mixed.! (Liddle,!1988)!While!in!many!cases!the!monopoly! markets! are! “natural! monopolies”,! Indonesia’s! was! known! to! be! “plastic! monopolies”! because! these!were! monopolies! only! by! the! virtue! of! being! linked! to!

the!first!family.!(Soesastro,!1989)!!

! In! the! eighties!and!nineties,! Indonesia!was!widely!known! to!be!more!corrupt! than! the!Philippines!with!its!Vice!President!admitting!that!corruption!reached!“epidemic! proportions! in! the! bureaucracy! and! the! business.”! (Bello,!
!
In! the! eighties!and!nineties,! Indonesia!was!widely!known! to!be!more!corrupt! than!
the!Philippines!with!its!Vice!President!admitting!that!corruption!reached!“epidemic!
proportions! in! the! bureaucracy! and! the! business.”! (Bello,! 2009)! Thus,! corruption!
could!not!be!blamed!for!the!Philippines’!ineffective!deregulation!and!poor!economic!
performance!in!general.!“Kung%walang%corrupt,%walang%mahirap”!may!not!hold!water!
if!various!economies!like!Indonesia!would!be!examined.!
!
However,! Philippines! and! Indonesia! also! differ! in! some! ways.! Under! the! postM
colonial! regime,! the! Philippines! adopted! the! unitary! structure! of! governance! and!
institutions! of! democracy! from! the! Americans.! However,! this! kind! of! democracy,!
opined! Lee! Kuan!Yew!of!Singapore!in!his!analysis!of!why!the!country!has!difficulty!
in! economic! takeMoff,! does! not! work! in! the! Philippines.! (Brilliantes,! 1993)! On! the!
other!hand,!Indonesia,!under! the! powerful!leadership!of! its!first!president! Sukarno,!
used!the!indigenous!village!system!of!governance,!which!espoused!functional!rather!
than!party!representation,!and!consensus!deliberation!rather!than!partisan!election.!
(Buendia,!2002)! This!kind!of!orientation!could!explain!why! the!policies,!especially!
those!under!the!second!president!Suharto!were!proMindigenous!and!protectionist!in!
nature.!!
!

As! a! reflection! of! the! countries’! political! system! and! culture,! the! Indonesian! government! as! a! whole! determined! who! the! “beneficiaries”! of! structural! adjustments! would!be! (which!were! the!conglomerates)! while!in! the!Philippines,!in! the!absence!of!a!cohesive!political!system,!patterns!of!recipients!was!“less!planned,! less! clear,! and! less! predictable…with! different! groups! (winning! some! and! losing! some)”.! (Milne,! 1992)! This,! however,! does! not!mean! that! Indonesia’s!institutional! design! (as! discussed! by! Fukuyama)! is! any! stronger! than! the! Philippines’s.! The!

former’s! dependence! on! the! power! of! its! leader,! Suharto,! rendered! the! state! unresponsive!unless!Suharto!personally!gave!approval;!thus!the!nation!was!shaken!

when!Suharto!fell!critically!ill!in!1997.!(Bird,!1997)!

 
 

In! terms! of! the! market,! Indonesia! is! different! from! the! Philippines! in! that! the! number! of! local/indigenous! firms! is! smaller! and! the! local! Chinese! are! less! well! assimilated.! In! Indonesia,! too,! it! is! a! basic! objective! to! promote! local! entrepreneurship! to! accelerate! transfer! of! the! management! of! foreignMowned!

enterprises!into!local,!private!enterprises.!(Milne,!1992)!

 
 

Theoretical%Background%

Fukuyama! (2004)! argued! that! there! was! nothing! wrong! in! the! Washington! Consensus!per!se,!only!that!as!the!states!needed!to!be!cut!back!in!certain!areasfor! example,! through! reduction! of! subsidies! and! tariff! protection,! privatization,! and! deregulationthey! also! needed! to! be! strengthened! in! others.! He! defined! state! strength! or! capacity! as! its! “power! or! ability! to! plan! and! execute! policies! and! to! enforce!laws!cleanly!and!transparently”.!The!four!main!components!of!state!capacity! are!the!following:! 1)!organizational!design!and!management;!2)!institutional!design! or!political!system;!3)!basis!of!legitimization;!and!4)!social!and!cultural! factors.!!Of! these! components,! what! is! deemed! most! appropriate! in! the! discussion! of! deregulation! is! organizational! design! and! management,! which! combines! the! discipline! of! management,! public! administration,! and! economics.! ! Moreover,! Fukuyama! recommended! that! developing! states! focus! on! this! aspect! on! state! building! because!it! can! be! “manipulated!and! built”.!Hence,! the!analysis! of! the! two! country! casesPhilippines! and! Indonesiashall! center! on! this! particular! component!of!state!capacity.!!

 

Milne! (1992),! supportive! of! Fukuyama’s! point,! asserted! that! the! nature! of! government! largely! dictates! whether! (structural! adjustment! program)! can! or! cannot! be! implemented! consistently! and! successfully.! Bello! (2009)! also! cited! the!

case!of!the!Philippines’!neighboring!ASEAN!countries:!these!states!may!have!played! a! less! aggressive! role! but! an! active! state! posture! manifested! in! industrial! policy,! protectionism,! mercantilism,! and! intrusive! regulation! was! central! in! their! industrialization.!

! In! support! of! these! authors’! argument,! this! paper! proposes! that! state! capacity! is! necessary! for!
!
In! support! of! these! authors’! argument,! this! paper! proposes! that! state! capacity! is!
necessary! for! the! scope/reduction! programs! such! as! deregulation! to! be!
effective! in! achieving! national! development! goals.! Goals! may! vary! across!
nations:! market!efficiency!as! in!the!case!of!the!Philippines;! or!development!of!nonM
oil!export!capacity!for!macroeconomic!stability!or!strengthening!of!local!enterprises!
in!the!case!of!Indonesia;!or! provision!of!quality!and!reliable!supply!of! basic!needs!to!
the!public!for!some,!for!exmaple.!!
!
Looking! back! at! the!Washington! Consensus,! following! are! the! lessons! that! can! be!
culled!from!the!experience:!1)!income!distribution!must!be!considered! (Williamson,!
The! Washington! Consensus! and! Beyond,! 2003);! 2)! the! program! should! be! done!
during! the! period! of! rapid! growth,! not! crisis! (Williamson,! The! Washington!
Consensus!and!Beyond,!2003);!3)! the!idea!of!deregulation!should!not!be! taken! too!
broadly! (Williamson,!Beijing!Consensus!Versus!Washington!Consensus,!2010);!and!
4)! having!a!government! that! delivers!is!important! (Williamson,!Beijing! Consensus!
Versus! Washington! Consensus,! 2010).! These! caveats,! which! could! very! well! fall!
under! the! banner! of! “organizational! design! and!management”,! will! be! included!in!
the!country!analyses.!
!

Bowen! and! Leinbach! (1995)! concluded! thus:! where! public! enterprise! is! natural! monopoly,! deregulation! may! not! produce! the! desired! increase! in! competition.! A! natural! monopoly! is! characterized! by! scale! economies! required! for! efficiency! and! profitability!to!recoup!huge!investments!in!capital,!thus!providing!“natural”!barriers! to! entry! of! other,! most! often! smaller,! players.! Examples! are! petroleum! refining,! tobacco! products,! glass! products,! and! nonMferrous! metals.! Other! industries! may! appear! to! be! natural! monopolies! when! in! fact! the! market! simply! happens! to! be!

relatively! small! for! a! large! firm—among! these! industries! are! professional!

equipment,!footwear,!ceramics,!and!metal!furniture.!(Hill,!2003)!!

 
 

Although! the! above! observation! on! natural! monopolies! may! not! be! completely! inaccurate,! this!paper!further!argues!that!technological!innovation!that!results! from! deregulated,! competitive! environment! breaks! down! monopolies,!

although! a! deregulated,! competitive! environment! does! not! always! produce! technological!innovation.!Innovation!allows!the!players!to! compete!in!aspects! other! than! price;!if! products! and! services! are! undifferentiated! and! players! can! compete! only!through!cutthroat!pricingwhich!shrewd!businesspeople!will!least!likely!do— then! the! industry! may! only! consolidate! into! a! duopoly,! or! at! best! oligopoly! and!

cartels,! despite! deregulation.! Perhaps,! the! role! of! technological! innovation! in! determining!the!success!of!structural!policies!is!this!paper’s!main!contribution.!

 
 

Deregulation%in%Indonesia%

The! country’s! dependence! on! oil! revenues! and! the! decline! in! world! oil! prices! in!

1986,!coupled!with!the!rise!in!interest!rates!and!the!appreciation!of!yen,!caused!the!

rupiah!to!plummet!and!Indonesia’s!foreign!debt!to!bloat.!At!this!time,!several!major! reforms! were! introduced,! including! modern! tax! system,! promotion! of! nonMoil! exports,! reduction! of! trade! barriers! or! select! products,! and! deregulation! of! select! industries! (e.g.! service! industries! remained! closed! to! foreign! investors! and! agricultural! and! handicraft! sectors! to! mediumM! and! largeMscale! enterprises,! both!

domestic!and!foreign).!(Fane,!1996)!Thus,!“Indonesian!deregulation!can!be!seen!as!a!

pragmatic! response! to! an! economic! situation…(and)! Indonesia’s! policymaking! processes! should! not! be! viewed! as! mechanical! or! unilateral”.! (Soesastro,! 1989;!

Bowen!&!Leinbach,!1995)!!

 

Further,! since! Indonesia! had! other! sources! of! credit,! it! was! not! beholden! to! the! development!agencies! for! funds;!and!because!the!adjustment!occurred!without!the! tutelage!of!the!International!Monetary!Fund!and!the! World!Bank,!it!could!afford!to!

ignore! (and! it! did)! certain! features! of! the! package! and! deregulation! remained!

minimal!(if!not!selective).!(Ghosh,!1996)!

 
 

The! eighties! were! known! to! be! Indonesia’s! “decade! of! deregulation”.! (Soesastro,! 1989)! The! country! implemented! deregulation! more! widely! than! privatization! in! promoting!market! efficiency,! for! the!latter!may! actually! mean! “! strengthening! the! market!at!the!expense!of!the!state.”! (Milne,!1992;!Fane,!1996)! In!Fukuyama’s!term,! privatization!may!mean!limiting!state!scope!while!also!diminishing!state!capacity.!!

 
 

What! was! also! surprising! was! that! while! other! countries! reacted! to! the! shock! by! imposing! exchange! controls! and! import! licensing,! Indonesia! emphasized! deregulation.! As! to! why! the! country! did! not! implement! such! open! policy! in! the! earlier!decades,!often! the!answer!given!is! “bad! times!mean!good!policies”.! (Liddle,!

1988;!Fane,!1996;!Bird,!1997)!!

 
 

Although! the! state! implemented! marketMoriented! policies! in! the! eighties! and! nineties,! up! to! Suharto’s! term! in! May! 1998,! the! state! had! remained! the! most! important! economic! actor.! These! marketMoriented! policies! were! aimed! at! “deepening! the! country’s! industrial! structure,! creating! a! heavyMindustry! nucleus! around!which!to!center!the!economy”.!This!strategy!included!the!development!of!an! automobile! industry,! an! integrated! steel! complex,! a! shipbuilding! complex,! and! an! aircraft! industry.! (Bello,! 2009)! Alongside! with! this! program! were! the! implementation!of!local!content!schemes!and!selective! tax!exemptions! intended! to! protect! individual! firms.! (Fane,! 1996)! Indonesia’s! strategic! and! selective! policies! only! show! that! the! country! did! not! adopt! structural! adjustment! lock! stock! and! barrelagain!an!indication!of!state!capacity.!

 

Indeed,! the! country’s! deregulation! policies! were! well! thought! out.! In! general,! the! state! mandates! that! the! benefits! of! deregulation! and! economic! growth! must! be! widely! and! evenly! spread,! and! that! the! development! of! the! rural! areas! should! be! considered!continuously.! (Soesastro,!1989)!In!fact,!the!economic!nationalists!(to!be!

described!in!the!next!paragraph)!feared!that!foreign!interest!may!dominate!the!key! sectors! and! that! wealth! discrepancies! between! the! conglomerates! and! the! disadvantaged! group! may! become! worse! under! deregulation.! (Hein,! 1990)! Specifically,! certain! caveats! were! highlighted:! 1)! if! singularly! pursued! to! promote! nonMoil! export,! deregulation!may!lead! to! new! distortions;! 2)!if! focused! heavily! on!

manufacturing,!it!could!lead!to!bias!against!the!agricultural!sector;!3)!deregulation’s!

initial!impact! was! on! the! psyche!level,! that! is,! business! climate! had! become!more! favorable!with!its!implementation;! and! 4)! there!is! a! need! to! assess! deregulation’s! impact! at! the! industry! or! sectoral! level,! especially! in! the! nonMtradable! markets.!

(Soesastro,!1989)!

 
 

Indonesia’s! organizational! design! and! management! capacity! is! evident! in! the! country’s!political!structure.!The!head!of!the!state!deals!with!two!competing!groups! of! advisers:! 1)! the! technocrats,! many! of! whom! are! professional! economists! that! favor! market! forces! or! neoliberalism;! and! 2)! the! economic! nationalists,! many! of! whom! are! engineers! who! promote! largeMscale,! capitalMintensive! projects! using! advance! technology.! The! latter! group! believed! that! such! projects! should! be! stateM owned! and! may! need! direct! government! subsidies! and! protection.! (Fane,! 1996)! They!argued!that!it!is!worth!paying!the!shortMterm! costs!of!protectionist!policies!to! promote!the!development!of!state!enterprises!and!indigenous!(nonMChinese!locals)! entrepreneurs! who! cannot! as! yet! compete! in! either! domestic! or! world! markets.! (Soesastro,! 1989)! It! appears! then! that! Indonesia’s! economic! development! framework!is!largely!influenced!by!the!economic!nationalists.!!

 
 

As!of!2000,!the!following!industries! in!the!country! had!been!deregulated:!petroleum! and! natural! gas! refineries,! electric! power! generation,! telecommunications,! automobile,! and! certain! agricultural! commodities.! (Asia! Pacific! Economic!

Cooperation,!2000)!!

 

Despite! the! favored! groups’! flexing! of! political! muscles! to! seize! business! opportunities,!the!economic!policy!reforms!achieved!the!development!of!a!growing!

nonMoil!export!market!at!a!minimum.! (Liddle,!1988)!According!to! Soesastro!(1989),! the!aim!of!deregulation!is!improved!economic!performance!through!a!more!efficient! resource!allocation!and!the!most!immediate!measure!of!its!success!is!the!growth!of! the! nonMoil! exports! (hitting! USD! 1! billlion! monthly! in! 1988! and! contributing! 60! percent! to! the! country’s! total! export! earnings! in! 1989).! The! country’s! gross! domestic!product! (GDP)!grew!by!5.4!percent! from!1979! to!1989!and!by!7!percent! annually! on!average! from! 1990! to! 1994.! Likewise,! poverty!incidence! decreased!in!

the!rural!area!from!40.4!percent!in!1976!to!16.4!in!1987!and!in!the!urban!area!from!

38.8! percent! to! 20.1! percent! over! the! same! period.! (Ghosh,! 1996)! With! these! figures,! one! can! conclude! that! deregulation!worked!in! Indonesia!in! propelling! the! country’s! economic!growth!and!without!necessarily!aggravating!poverty!(although! there!could!be!other!factors! that!have!influenced!the!decline!in!poverty!incidence).! In!fact,! while!there!is!a!general!perception!that!the!poor!bore!the!costs!of!structural! adjustments,! Balisacan! (1995)! cited! Indonesia! as! one! of! the! countries! whose! transition!has!not!been!antiMpoor.!

!

These! results! therefore!challenges!Williamson’s! (2003)!proposition! that!structural! adjustment!should!be!done!during!rapid!growth,!not!during!crisis.!The!whole!ASEAN! region! was! suffering! the! consequence! of! international! recessionary! trends! in! the! eighties!when!Indonesia!started!its!deregulation!policies.! (Bello,!2009)!Further,!the! outcomes! serve! as! proof! of! the! state’s! capacity! to! formulate! and! implement! appropriate!policies,!even!at!least!“during!bad!times”.!

!

Deregulation%in%the%Philippine s%

While! Indonesia’s!decision!to!adopt!structural!changes!was!deemed!pragmatic,!the! Philippines’s!was!partly!due!to! its! international!commitments!and!partly!due!to!its! own! initiative,! expecting! that! open! economy! would! lead! to! competition,! which! in! turn! would!lead! to!economic!efficiency.! (Orbeta)! With! this! difference!in!intention,! the! Philippines!was!at!a! disadvantage!in! that!it! did! not! have!as!much! freehand!as! Indonesia!to!select!and/or!calibrate!programs!that!would!suit!its!context.!!

!

Structural!adjustment!in!the!country!was!designed!to!“alter!the!balance!between!the! market! and! the! state! in! the! Philippine! economy! in! order! to! promote! economic!

efficiency”.!(Bello,!2009)!Its!implementation!was!done!in!three!phases:!1)!from!1980!

to! 1983!when! the!emphasis!was! trade!liberalization;!2)! from!1983! to!1992,!when!

debt!repayment!became!government’s!focus;!and!3)!from!1992!until!the!turn!of!the!

century,! when! freeMmarket! transformation,! rapid! deregulation,! privatization,! and! trade! and! investment! liberalization! characterized! the! economy.! Structural! adjustment!in!the!second!and!third!phases!was!seen!as!a!precondition!for!economic! growth! and! debt! repayment! as! an! “unpleasant! but! temporary! condition”.! (Bello,!

 

2009)!

 
 

Under! the! regime! of! President! Fidel! Ramos! beginning! in! 1992,! the! country’s! economic!strategy!centered!on!economic!liberalization,!with!“concerted!attacks”!on! cartels! and! monopolies.! In! his! inauguration,! the! President! explained! that! the! political! dominance! of! the! oligarchic! groups—the! country’s! dominant! commercial! families—is! the! reason! why! the! Philippines! lagged! so! far! behind! the! Asian! tigers.!

(de!Dios!&!Hutchcroft,!2003)!

 

Bello! (2009)! argued! that! the! slack! in! the! Philippines’! performance! could! not! be! attributed!to!pace!of! economic! liberalization,!as!the!country’s!startMoff!point!did!not! differ!from!its!neighbors.!Neither!could!it!be!attributed!to!nonMinterventionist!states! among!its! neighbors! because! they! are!more!intrusively!interventionists,!including! Indonesia,!than!the!Philippines.!He!cited!two!reasons!for!the!Philippines’s!belowMpar! economic! performance! thus:! 1)! the! national! priority! of! debt! repayment! that! signaled! low! purchasing! power! of! the! Philippines! as! a! market! and! thus! failed! to! attract! investors;! and! 2)! doctrinal! distortion! that! brought! indiscriminate! liberalization! instead! of! the! state! carefully! calibrating! policies—a! similar! point! raised! by! Williamson! (2003)! regarding! Washington! Consensus! in! that! the! policy! reforms! set!were! needed! by! a! particular! region! at! a! particular! time! and! that! they! were!not!an!ideological!agenda!to!be!imposed!on!all!countries!at!any!and!all!times.!!

The!reforms!led!to!improvements!in!competition!but!the!gains!were!not! as!much!as! expected,!according! to! Orbeta! (n.d.).!The!author!believed! that! this!was! so!because! the! nature! and! extent! of! deregulation! may! have! been! inadequate! and! that! the! government!continued!to!control!further!entry!and!to!regulate!prices.!These!claims! may! not! prove! accurate! because! in! 1996! Asia! Money! Magazine! considered! the! Philippines! as! “one! of! the! most! deregulated! in! Asia”! (The! Philippines! Back! in! the! Spotlight,!1996).!Besides,! the!Indonesian!government,!with!its!deliberately!selective! deregulation!and!high!level!of!regulation!even!after!the!reforms,!was!able!to!achieve! the!objectives!of!its! economic!reforms.! Orbeta!also!criticized!the!Philippines’s!local! content! requirement! as! hindrance! to! firms’! access! to! more! competitive! import! products—the! same! policy! that! worked! well! in! strengthening! the! position! of! the! indigenous!entrepreneurs!in!Indonesia.!!

 
 

In! the!end,!however,! Orbeta!pointed!out! the!country’s! two!main!challenges,!which! this! paper! supports:! 1)! too! many! implementing! agencies! results! in! lack! of! focus,! expertise,!and!accountability;!and! 2)! there!is!a! danger! that! regulators! become! too! intimate!with! the!industry! players! and! thus! become! eventually! beholden! to! them.! These!points!are!apparent!indicators!of!the!state’s!weak!capacity.!!

 
 

Sadly,! the! results! of! the! three! decades! of! structural! adjustment! were! damaged! industries!such!as!textile,!rubber,!and!ceramics,!among!others,!while!only!a!modest! level! of! exportation! in! garments! and! electronic! assembly! was! established.! (Bello,!

2009)!Aggregate!poverty!also!rose!during!the!period!while!GDP!remained!at!the!3M

percent!range!from!1988!to!1991.!(Balisacan,!1995)!

 

Deregulation%of%Select%Industries%%

What! can! be! culled! from! the! previous! discussion!is! that! Indonesia! has! been! more! successful!than!the!Philippines!in!using!deregulation!as!a!strategy!to!achieve!both!its! economic!goal!(i.e.!development!of!the!nonMoil!export)!and!social!goal!(i.e.!wide!and! even!distribution!of!benefits!of! deregulation!and!economic!growth).!The!state!was!

able!to!do!this!because!of!its!strong!capacity!to!plan!and!execute!policies,!although! not!necessarily!enforcing!laws!cleanly!and!transparently,!as!Fukuyama!defined! state! capacity.!!

 
 

However,! it! cannot! be! assumed! that! regulatory! agencies! in! all! industries! in! both! countries! have! uniform! capacities.! Although! Fukuyama! (2004)! emphasized! that! state!capacity!should!be!viewed!at!the!central!government!level!and!not!at!the!level! of! its! various! agencies,! the! implementation! issues! related! to! regulation! would! be! better! analyzed! at! the! agency! level! that! governs! the! industries.! The! following! sections! show! how! Indonesia! became! successful! in! deregulating! the! air! transport! and! automobile! industries,! and! the! Philippines! in! telecommunications;! and! how! both!did!not!quite!succeed!in!the!electric!power!generation.!!

 
 

Air&Transportation&

Many! of! the! Asian! newly! industrialized! countries! (NICs)! established! their! flag! carriers!during!the!postMwar!period.!At!the!time,!the!states!could!not! rely!on!private! capital!to!create!airlines!that!would!support!their!national!objectives;!besides,!it!was! of!ideological!importance! for!the!states,!at!least!at!that!time,!to!keep!direct!control! over! key! sectors! of! the! economy.! Further,! the! states! had! to! ensure! that! private! companies!would!not!exploit!monopolistic!profits!and!that!the!small,!less!profitable! markets,! which! are! usually! present! in! developing! economies,! would! be! served.! Ironically,! the! Philippines’s! flag! carrier! Philippine! Airlines! (PAL),! established! in!

1941,!was!the!only!privately!owned!in!ASEAN!region!put!up!by!industrialists.!Other!

Asian!countries’!flag!carriers—Thailand!(1947),!Korea!(1949),!China!(1950,!closely!

linked! to! the! Taiwanese! government),! Indonesia! (1950),! Malaysia! (1972),! and!

Singapore!(1972)were!all!stateMowned.!(Bowen!&!Leinbach,!1995)!

 

In! 1973,! PAL! was! awarded! a! domestic! monopoly! in! exchange! for! its! service! to! unprofitable! routes,! and! was! eventually! nationalized! in! 1977.! While! PAL! was! the! region’s! premier! international! carrier! in! the! early! postMwar! period,! it! was!

overshadowed! by! its! neighboring! countries! by! the! eighties.! In! 1988,! PAL’s! monopoly!was!revoked!and!in! 1992,!in!line!with!the!Aquino!government’s!thrust!to! dismantle! stateMowned! enterprises,! the! flag! carrier! was! brought! back! to! private! ownership! through! the! sale! of! shares! to! a! consortium! consisting! of! a! few! major! players! (in! contrast! to! Singapore! Airline’s! privatization! via! publicMshare! offerings! that! prevented! concentration! of! ownership! among! few! individuals).! ! (Bowen! &!

Leinbach,!1995)!No!new!entrant!in!the!market!came!until!the!midMnineties!with!the!

launching!of!Cebu!Pacific—a!classic!example!that!deregulation!does!not!necessarily! attract!new!players!or!investors.! One! may!ask!then! if!the!decision!to!nationalize!PAL! and! later! to! privatize! it,! through! sale! of! shares! to! few! individuals! at! that,! was! grounded!on!pragmatic!economic!principles.!

 
 

In! the! case! of! Indonesia,! the! state! deregulated! the! airline! industry!in! the! eighties,! opening! it! to! private! players—which! were! all! related! to! the! President’s! family— while! keeping! Garuda,! the! flag! carrier,! under! state! ownership.! However,! Garuda! remained! protected! despite! the! presence! of!multiple! carriers.! ! Until! 1989,!Garuda! was! the! only! Indonesian! carrier! allowed! to! operate! jet! aircraft.! Moreover,! other! privatelyMowned! airlines! were! not! allowed! to! undercut! Garuda! by! more! than! 15! percent,!were!restricted!to! operate!in! less!profitable!routes,!and!were! allowed!to!fly! only! three! times! for! every! seven! domestic! flights! served! by! Garuda.! (Bowen! &!

Leinbach,!1995)!

 
 

Sempati,! owned! by! a! conglomerate! controlled! by! one! of! President! Suharto’s! sons,! entered! the! Indonesian! domestic! market! in! 1989! and! the! international! market! in! 1991.! Through! its! international! operations,! the! private! company! acquired! foreign! currencies! that! enabled! it! to! acquire! DutchMmade! Fokker! aircrafts.! The! Dutch! manufacturer!in! turn! partnered!with! a!local!manufacturer! IPTN! for! production! of! certain! components! of! the! Fokker! jets.! Thus,! in! the! end,! these! private! companyM initiated! arrangements! facilitated! technology! transfer! to! Indonesia.! (Bowen! &!

Leinbach,!1995)!

 

As! pointed! out! by! Bowen! and! Leinbach! (1995),! political! leverage! in! the! airline! industry!may!come! from!two!sources:!1)!a! firm’s!political!clout!based!on!its!ability!

to!fulfill!important!government!policy!objectives!and!2)!leadership!of!the!airline!by!

politically!influential!personalities.! While! Sempati!illustrates!the!first!case,!PAL!is!an! example!of!the!second.!No!hard!data!on!these!airlines’!business!and!developmental! performances! were! provided! but! the! fact! that! Indonesia! has! overtaken! the! Philippines!in!terms!of!both!access/routes!in!the!international!flights!and!number!of! players! in! the! industry! proves! that! deregulation! has! worked! better! in! Indonesia! than!in!the!Philippines.!!

 
 

The! airline! industry! case! thus! supports! the! arguments! that! 1)! who! owns! the! enterprises! is! not! as! crucial! as! the! capacity! of! the! state! to! define! development! objectives,!set!sound!policy!framework,!and!regulate!and!2)! that! technology!plays!a! key!role!in!breaking!monopolistic!barriers!and!achieving!efficiency,!which! could!not! be!achieved!solely!through!deregulation!of!the!market.!!

 
 

Automobile&

The!Philippine!automobile!industry!suffered!the!same!fate!as!the!airline.!Despite!its! early!lead!in!the!region!in!the!sixties,!its!operations!proved!inefficient!beginning!in! the!seventies!and!by!midMnineties!it!was!overtaken!by!Indonesia’s!production,!which!

was!three!times!more!than!the!Philippines’s!output.!(Hill,!2003)!!

 
 

Indonesia,! on! the! other! hand,! protected! and! strengthened! its! deregulated! automobile! industry! through! the! national! car! policy.! The! policy! stipulated! that! producer! must! be! 100! percent! IndonesianMowned,! must! use! Indonesian! brand! name,!must! develop!local! technology,!and!must! satisfy!localMcontent! requirements!

(that!is,!from!20!percent!by!the!end!of!first!year,!to!40!percent!by!the!end!of!second!

year,!to!60!percent!by!the!end!of!third!year).!(Fane,!1996)!

 

Again,!the!same!arguments!are!supported!by!the!experience!of!the!two!countries!in! automobile!industry:!1)!ownership! of! enterprises!is!not!as!crucial!as!the!capacity!of! the!state! in!organizational!design!and!management! and,!in! this!case,! in!promoting!

efficiency!despite!protectionist!policies;!and!2)!that!technological!innovation,!more!

than!deregulation!policy! that!does!not!automatically!attract!investors,!is!crucial!in! development.!!

 
 

Telecommunications&

Prior! to! deregulation,! the! privately! owned! Philippine! Long! Distance! Company!

(PLDT)!enjoyed!a!monopoly!power!in!the!telecommunications!industry!for!65!years.!

With! the! underdeveloped! industry! then,! telephone! density! was! around! 1! percent! and! complaints! on! poor! service! quality! was! estimated! at! 17! percent! per! month,!

higher!than!Indonesia’s!9!percent.!(Abrenica!&!Llanto,!2003)!!

 
 

MercadoMAldaba! (2000)! blamed! it! on! the! misguided! policy! and! the! weak! and! corrupt!regulatory!structure!of!the!government.! The!opening!of!the!market!to!new! players! in!1991! and! subsequently! the!mandate!of!interconnection!among!networks! in! 1993! eroded! the! dominance! of! PLDT! and! created! nine! new,! privately! owned! telecommunications!companies.! The!country!was!recognized! to!be!among! the! first!

11!countries!to!allow!competition!in!the!local!facilities!and!among!the!first!14!to!deM

monopolize! the! provision! of! international! telephone! services.! (Abrenica! &! Llanto,! 2003)! The!result!was!an!increase!in!telephone! density! of! 8.07! percent! in!1997!and! in! absolute! growth! in! mainlines! from! 3.2! percent! before! deregulation! to! 18.2!

percent!after!policy!reforms.!(MercadoMAlbada,!2000)!!

 

The!emergence!of!mobile!technology!was! also! instrumental!in!breaking!the!barriers! inherent! in! telecommunications,! especially! in! archipelagic! countries! like! the! Philippines!and!Indonesia.!Since!the!digital!technology!does!not!require!landMbased! infrastructure!(i.e.! networks!of! copper!wires)! for!connection,!it!is!able!to!reach!the! farMflung! islands! and! highlands,! thus! addressing! the! ageMold! issue! of! access! to!

services! in! the! country.! Aside! from! the! absence! of! physical! barriers! in! digital! technology,! the! carrying! capacity! of! mobile! transmission! towers! is! several! times! larger! than! that! of! fixed! lines! so! that! the! service! fees! come! out! very! cheap,! thus! addressing! the!problem!of!affordability.!Finally,! the!short!message!service!(SMS!or! “texting”)! feature!of! the!mobile! technology—which!has!gone!way! too!low!with! the! unlimited! packages! offered! by! the! mobile! companies—combined! with! the! affordable! mobile! handsets—again,! a! product! of! technological! innovationhas! redefined! the! way! people! communicate.! Whatever! problems! there! still! are! in! the! fixed! line! segment! in! the! Philippines,! they! seem! to! have! been! addressed! by! the! presence! of! other! means! of! communication,! thanks! to! mobile! technology.! Today,! there! are! many! available! fixed! lines! that! remained! unsubscribed! because! of! the! presence!of!mobile!services.!

 
 

However,!this!technological!innovation!has!regulatory!implications!as!well.!With!the! process! becoming! more! complex! with! the! fastMdeveloping! technology,! regulators! also! need! to! up! their! technical! skills! to! catch! up! with! it.! Since! mobile! technology! quickly! became! popular! in! the! Philippine! market,! “regulators! faced! a! unique! challenge!in!addressing!interconnection!problems!of!mobile!carriers—prior!to!this,! no! other! market! in! the! world! had! drafted! and! enforced! rules! on! private! mobile!

carriers!(previous!experience!involve!fixed!line!carriers).”!(Mirandilla,!2007)!

 
 

Further,! mobile! technology! is! now! used! in! banking! services! in! the! Philippines,! involving! transfers! of! electronic! money—something! that! required! a! new! set! of! competence! from! the! regulators.! The! National! Telecommunication! Commission! (NTC)! is! tasked! to! regulate! the! mobile! companies! while! the! Bangko! Sentral! ng! Pilipinas! (BSP),! the! banking! sector.! The! two! agencies! agreed! that! the! BSP! would! take! the! forefront! in! regulating! mobile! banking,! which! necessitated! the! agency! to! train! its! examiners! in! handling! mobileMbased! transactions! and! processes.! In! this! aspect,! the!Philippines!showed!competence!in!its! (banking!sectorMwise)!regulatory! functions.!!

 

However,!the!same!cannot!be!said!of!the!NTC.!The!success!of!the!mobile!sector!is!not! in!any!way!indication!that!regulation!(or!the!lack!of!it)!that!created!the!problem! in! the! first! place! prior! to! policy! reforms! has!improved.!Today,! the! number! of!mobile!

players!has!declined!from!six!firms!in!2003!to!only!two!in!2012!as!a!result!of!merger!

and!acquisition.!The!mobile!industry!maybe!a!win!for!the!Philippines!because!of!the! access! and! affordable! services! the! people! now! enjoy! but! unless! regulation! is! strengthened,! the! dominant! player! PLDT! will! always! try! to! prevent! competition! either! by! squeezing! the! smaller! players! out! of! the!market! or! buying! them! out.! As! pointed!out!by! Abrenica!and!Llanto!(2003),!past!experience!shows!that!NTC!leaves! critical!issues!such!as!interconnection!points!and!charges!to!contracting!parties!that! do! not! necessarily! have! equal! bargaining! powers.! Therefore,! unless! level! playing! field!is!ensured,!the!dominant!player!will!always!protect!its!turf.!!

 

In!Indonesia,!on!the!other!hand,!although! the! government!started!loosening!its!grip!

on!the!telecommunications!industry!as!early!as!1989,!mobile!phone!players!did!not!

enter!the!market!until!1999 1 !and!duopoly!in!fixed!line!was!mandated! until!2005.! In! the! early! nineties,! the! country! engaged! in! buildMoperateMtransfer! (BOT)! schemes! with! overseas! telecommunications! companies! that! later! either! exited! the! deal! or! went!to!court.!The!failure!of!BOT!was!attributed!to!different!factors:!bureaucracy!in! the! partly! stateMowned! network! Telkom,! political!instability,! Asian! financial! crisis,! and!corruption.!(Zita)!

Indonesia’s! second! attempt! to! liberalize! its! telecommunications! industry! was!

through!privatization!in!2002—something!inconsistent!with!the!country’s!dominant!

strategy!of!deregulation!under!Suharto’s!regime—with!the!shares!of!the!two!stateM owned!companied!being!bought!by!Singaporean!government’s!investment!arm!and! a! Malaysian! firm.! Meanwhile,! the! Indonesian! Telecommunications! Regulatory!

Agency!became!operational!only!in!2004.!(Zita)!

1 Other source indicated various timelines between 1994 and 1996.

The! result:! fixed!line! density!was!estimated!at! 4! percent! while! the!mobile! density! was!at!8.1! percent! in!2003.! These! figures!earned! for! the!country! the!reputation!as!! “the! least! developed! (telecommunications)! in! Asia”.! (Zita)! These! figures! pale! in! comparison! with! the! Philippines,! where! mobile! subscribers! grew! from! 66,000! in! 1991! to!22!million!in!2003! (Sebastian,!2005)! reaching!a! density!of!35!percent;!by! 2009! mobile! density! was! already! 100! percent.! (Commission! on! Information! and! Communications! Technology! ,! 2010)! Perhaps! Indonesia! joined! the! telecommunications!bandwagon!a!bit!too!late—either!that!or!the!changing!of!guards! after! Suharto’s! resignation!in! 1998! was! too! frequent! that! the! state! was! unable! to! create!an!environment!conducive!to!new!investments.!

!

The! countries’! experience! in! telecommunications! industry! highlighted! the! role! of! technological! innovations! in! changing! the! rules! of! the! games! and! the! need! of! regulators! to! build! their!capacity!in! terms!of! technical!competence!and! facilities.! It! can! also! be! hypothesized! that! whatever! NTC! lacked! in! regulatory! capacity,! technological! innovations! in! the! mobile! market! have! made! up! for! it,! so! that! the! industry! deregulation! resulted! in! both! economic! and! social! benefits,! even! to! the! disadvantaged! groups.! Further,! the! case! proves! that! the! implementation! issues! related! to! regulation! should! be! examined! at! the! agency/industry! level! because! of! the!varying!levels!of!preparedness!and!competence!of!the!regulators,!as!exemplified! by!the!BSP!and!the!NTC.!!

!

Electric&Power&Generation&

In! the!height!of!power! failures!in! the!Philippines,! the!Ramos!administration! in! the! early! nineties! opened! the! electric! power! market! to! privately! owned! independent! power!producers!(IPPs).! In!its!intent!to!attract!investors,!the!Ramos!administration! entered! into! contracts! where! the! governmentMrun! National! Power! Corporation! absorbed! the!risks!inherent!in!such!investment! to!protect! the!private!producers— market! risk! (government! assured! purchases! of! all! energy! produced! by! the! power! generators),!supply!risk!(government!assured!purchases!all!inputs!such!as!coal!and!

oil),! and! even! foreign! exchange! risk.! The! Philippine! Center! for! Investigative! Journalism!also!pointed!out! that! the!Ramos!administration!“pushed! for! the!speedy! approval!of!some!of!the!most!expensive!deals!and!justified!signing!more!contracts.”!

(Malaluan,!2002)!

 
 

The!35! IPPs! that!entered!the!market! reported!to!have!built!an!additional!capacity!of! 8,000! megawatts,! supplying! more! than! 50! percent! of! the! country’s! need.! (Bello,! 2009)! However,! because! of! lower! installation! costs,! most! producers! preferred! petroleumMbased!facilities!even!if!they!would!entail!high!risks!in!terms!of!price!and! environmental!management.! The! high! costs! of! power! were! then! passed! on! to! the! consumers.! Hence! unsurprisingly,! the! cost! of! electricity! in! Manila! (USD0.181! per! kilowatt! hour)! is! much! higher! than! in! the! industrialized! Japan! (USD0.179! per!

kilowatt!hour)!and!the!highest!in!Asia.!(Main!Business,!2011)!

 
 

On! hindsight,! Llanto! (in! Bello,! 2009)! concluded! that! “no! government! guarantee! should! be! given! to! shield! private!investors! from! commercial! risks…(and! that)! the! government! forgot! to! deal! with! the! need! to! have! an! independent! regulatory! capacity,! leaving! regulatory! institutions! open! to! opportunistic! political! interventions.”! (This! is! the! same! reason! for! the! failure! in! the! privatization! of! the! water!sector:!lack!of!regulation.)!

 

Indonesia,!on!the!other!hand,!realized!during!the!1997!Asian!financial!crisis!that!the!

IPP! model! entails! high! price! of! electricity! for! the! endMusers! and! thus! introduced! policy!reforms.!This!move!caused! the!geothermal!power!sector! to!slow!down!such! that! by! 2005,! it! only! had! 807Mmegawatt! (MW)! capacity! from! geothermal! plants! when! its! potential! was! estimated! at! 27! gigawatt! electrical! (GWe).! By! 2003,! the! country! enacted! the! Geothermal! Law,! which! stated! that! the! government! would! engage!in!exploration!and!production,!taking!on!the!field!development!risk,!to!lower! the! power! rates.! At! the! same! time,! the! government! deregulated! the! downstream! energy! sector,! allowing! multiple! buyers! and! sellers! in! power! generation! and! distribution! and! prioritizing! the! renewable! energy! for! domestic! needs.! Despite!

these! deregulation! policies,!the!government!still!maintained!control!over!the!use!of! energy! sources! in! the! country! (Suryantoro,! Dwipa,! Ariati,! &! Darma,! 2005),! which! stood!in!stark!contrast!with!the!Philippines’s!weak!regulation.!!

 
 

In! terms! of! geothermal! capacity,! the! Philippines! has! outdone! Indonesia! with! its! 2,000MMW! power! capacity.! Indonesia! expected! to! install! 2,445MMW! geothermal!

capacity!by!2012.!(Suryantoro,!Dwipa,!Ariati,!&!Darma,!2005)!

 
 

Due! to! heavy! government! subsidy,! however,! Indonesia! has! managed! to! keep! its! rates! lower! than! that! of! the! Philippines.! Thus,! price! cannot! be! used! as! basis! for! comparison!of!the!two!countries’!performance.!!

 
 
In! terms! of! geothermal! capacity,! the! Philipp ines! has! outdone ! Indonesia! with! its! 2,000 M

As!of!2002,!the!total!energy!supply!in!Indonesia!that!stood!at!663!million!barrels!of!

oil!equivalent!(BOE)!exceeded!the!demand!at!430!million!BOE.! (Suryantoro,!Dwipa,! Ariati,!&!Darma,!2005)! Beginning! 2010!though,!Indonesia!had! started!experiencing! power!shortages!and!suffered!from!low!electrification!rate!and!uneven!distribution! of!electricity.!!

 
 

On! the! other! hand,! the! Philippines! was! expected! to! have! experienced! power! shortages! beginning! 2008! escalating! until! 2014! unless! investments! in! additional!

capacity!would!be!made!during!the!said!period.!(Department!of!Energy,!2004)!

 

Hence,!one! country! is!not!necessarily!better!than!the!other!as!far!as!electric!power! generation!is!concerned.! The!Philippines’s!loosely!regulated!energy!market! and!IPPM based! model,! and! Indonesia’s! heavily! regulated! and! subsidized! sector! with! reformed!policies!(veering!away!from!the! IPPs)! both!resulted!in!shortage! and!highM cost! of! electric! power! supply.! As! to! what! could! the! explanatory! variables! for! this! phenomenon! would! be! another! research! question! that! neither! state! capacity! or! technological!innovation!could!account!for.!!

!

Conclusion%

In! general,! Indonesia! has! been! more! successful! than! the! Philippines! in! using!

deregulation!as!a! strategy!to!achieve!both!its!economic!goal!(i.e.!development!of!the! nonMoil! export)! and! social! goal! (i.e.! wide! and! even! distribution! of! benefits! of! deregulation! and! economic! growth).! The! country!was! able! to! do! so! because! of!its! strong! state!capacity,! i.e.! organizational!design!and!management,! manifested!in!the! following:!!

  • Clear! developmental! priorities! such! as! promoting! regional! growth! (in! the! eastern! part! of! the! archipelago)! through! deregulation,! the! air! transport! policies!for!example!

  • Pragmatic!and!selective!adoption!of!the!SAP!!

  • MarketMoriented! policies! that! aimed! at! deepening! the! country’s! industrial! structure!and!that!did!not!make!open!economy!as!an!end!in!itself!

  • Conscious! promotion! of! wide! and! even! distribution! of! benefits! of! deregulation! and! economic! growth! and!initiatives! to! at!least! not! aggravate! the!wealth!discrepancies!between!the!conglomerates!and!the!disadvantaged! group!!

  • Recognition! of! the! need! to! assess! deregulation’s! impact! at! the! industry! or! sectoral!level,!especially!in!the!nonMtradable!markets!

  • Control!over!key!sectors!

  • Promotion! of! the! development! of! state! enterprises! and! indigenous! entrepreneurs!that!justified!the!country’s!protectionist!policies!!

  • Strong!regulatory!functions!despite!marketMoriented!policies!

 
 

Indonesia!proves!that!ownershipprivate!is!efficient!and!public!is!inefficientdoes! not!matter!any!more.!There!are!successful!stateMrun!or!stateMowned!enterprises!that! are! able! to! employ! effective! management,! high! corporate! autonomy,! and!

technological!innovations.!(Bello,!2009)!

 
 

Indonesia’s! performance! also! challenges! Williamson’s! argument! that! structural! adjustment!should!not!be!done!during!crisis.!The!country!did!exactly! that!and!bad! times!came!to!mean!good!policies!in!its!case.!!

 
 

The! industry! examples! in! this! paper—air! transportation,! automobile,! telecommunications,!and!electric!power!generation,!all!of!which!used!to!be!natural! monopolies—also!prove! that! aside! from!state!capacity,! technological!innovation!is! indeed! key! in! successful! deregulation.! In! the! case! of! the! Philippines,! technology! must! have! even! compensated! the! weak! regulators! in! the! telecommunications! industry.! Deregulation! in! the! banking! sector,! although! beyond! the! scope! of! this! paper,! would! not! have! been! successful! either! without! advance! information! and! communication!technology.!

 
 

It! would! be! interesting! to! know! how! the! Philippines! could! strengthen! its! state! capacity,! particularly! in! the! area! of! regulation.! Except! for! the! likes! of! the! BSP,! regulatory! agencies! in! the! country! in! general! are! criticized! for! lack! of! focus,! expertise,!and!accountability,!and!for!their!too!close!a!relationship! with!the!industry! players! that! they! tend! to! become! beholden! to! them.! However,! if! state! officials! remain!advocates!of!neoliberal!ideas—taking!the!concept!of!deregulation!as! leaving! everything!to!market!forces!and!reducing!the!state!role!to!a!minimum,! among!other! thingsthen!building!state!capacity!would!be!futile!cause.!!

 

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