The purpose of this paper is to investigate and elucidate the pattern of manufacturing protection in Indonesia and to distinguish a pattern of protection in crony versus non-crony sectors. The results are quite satisfactory and generally consistent with the hypothesis. The econometric results provide evidence that the role of crony capitalists and interest groups were increasingly important in influencing trade policy in 1987 and 1995.

In the light of the GH model (both the standard and the extended GH model), the results support the hypothesis that crony capitalists will manage to form a lobby to gain rent from protection. The important question to emerge from these results in how trade liberalization could take place when the role of crony capitalists was growing ever stronger in Indonesia. This study argues there is evidence that crony capitalists became involved in several exportable sectors in the 1990's and concentrated in the non-tradable services, trade and natural resources sectors where classic rent seeking behavior predominated.

Jakarta, September 23th 2003

Muhammad Chatib Basri