Berkeley Mafia - Accomplishments and Controversies

Accomplishments and Controversies

On October 3, 1966, on the advice of these economists and others, Soeharto announced a program aimed at stabilization and rehabilitation of Indonesia's economy. At the end of the Soekarno era, Indonesia's inflation rate touched a four digit number and there was rapidly growing debt. Things deteriorated in this way because the government under Soekarno spent so much money building expensive monuments, nationalizing industry, and financing the budget deficit with foreign loans and by borrowing from the Indonesian central bank (in effect, printing money). The Berkeley Mafia aimed to tackle the problem with more cautious economic policies with an emphasis on some deregulation, bringing inflation under control, and balancing the budget. The program also aimed at rehabilitation of infrastructure and development of the agriculture sector.

The new economic program was successful at stabilising the economy. The inflation rate fell from 650% in 1966 to only 13% in 1969. After Suharto became president in 1968, the members of the Berkeley Mafia team were was appointed to ministerial and senior advisory posts in Suharto's cabinet. Thus, Berkeley Mafia had a great influence on economic policy and then successfully brought Indonesia's economy into an unprecedented growth. The growth rate was high, averaging around 6.5% per year between the late 1960s to 1997 when South East Asia was hit by the severe Asian financial crisis.

The Berkeley Mafia's liberal approach towards economics were not supported by all. Within the New Order they encountered opposition from generals such as Ali Murtopo, Ibnu Sutowo and Ali Sadikin whose economic approaches were more nationalistic in nature. Some other groups, like the Hizbut-Tahrir Indonesia group, considered the Berkeley Mafia as traitors who were willing to sell the nation's assets-referring, especially, to their effort to apply privatization in Indonesia. With the beginning of the oil boom in the mid-70s, Suharto favoured the economic nationalists and as a result, the Berkeley Mafia's influence was restricted.

Suharto would turn to the Berkeley Mafia again in the mid-1980s when the price of oil began to drop and with it, Indonesia's economic growth. The Berkeley Mafia presided over the liberalization, deregulation and as result, the new growth of the Indonesian economy. Once again, the Indonesian economy began to grow again and once again, the Berkeley Mafia encountered political opposition. This time their opponents were Sudharmono and Ginanjar Kartasasmita who advocated economic nationalism as well as BJ Habibie who wanted a technology-centred economic development. Just like the previous occasion, Suharto sided with the economic nationalists and the Berkeley Mafia's power weakened.

During Indonesia's economic collapse due to financial crisis of Southeast Asia in 1997, people blamed the Berkeley Mafia and was considered them as part of the New Order regime. In the reform period, only Widjojo that still retained in the government.