Rethinking State Policy Choice and State Autonomy in an Era of Financial Internationalization: Comparing Taiwan and Indonesia during the

Abstract

This article seeks to compare Taiwan and Indonesia with respect to their starkly different economic consequences and state policy choices pertaining to the Asian financial crisis until 1999. Specifically, explanations are provided for why the two countries differed in terms of absorbing foreign capital and the relative pace between liberalization and internationalization during the stage of financial internationalization prior to the crisis. Likewise, this article explains why the two national governments diverged widely in their ability to cope with the crisis. The argument is that the deciding factor lies in how state-capital relations in the two countries, instead of the alternative factors of path dependence and central band independence, shape state preferences and state autonomy in order to bring about the cross-national variations in both stages. Theoretical implications are then derived from the empirical findings to reflect upon the theses of embedded autonomy and governed interdependence-two major analytic developments in the 1990s-to account for state-led economic growth in East Asia. In doing so, this article spells out two qualifications regarding these theoretical arguments. First is whether the state is in pursuit of public goods delivery that stands distinct from the priorities of the private sector. Second is the potential reversal of the state`s dependence on the private sector for expertise in sectoral policies. In addition, a fundamental reconceptualization of state capacity central to both theses is proposed as well.