Rethinking state policy choice and state autonomy in an era of financial internationalization: Comparing Taiwan and Indonesia during the Asian financial crisis

This article seeks to compare Taiwan and Indonesia with respect to their st arkly different economic consequences and state policy choices pertaining t o the Asian financial crisis until 1999. Specifically explanations are prov ided for why the two countries differed in terms of absorbing foreign capit al and the relative pace between liberalization and internationalization du ring the stage of financial internationalization prior to the crisis. Likew ise, this article explains why the two national governments diverged widely in their ability to cope with the crisis. The argument is that the decidin g factor lies in how state-capital relations in the two countries, instead of the alternative factors of path dependence and central bank independence , shape state preferences and state autonomy in order to bring about the cr oss-national variations in both stages. Theoretical implications are then d erived from the empirical findings to reflect upon the theses of embedded a utonomy and governed interdependence-two major analytic developments in the 1990s-to account for state-fed economic growth in East Asia. In doing so, this article spells out two qualifications regarding these theoretical argu ments. First is whether the state is in pursuit of public goods delivery th at stands distinct from the priorities of the private sector. Second is the potential reversal of the state's dependence on the private sector for exp ertise in sectoral policies. In addition, a fundamental reconceptualization of state capacity central to both theses is proposed as well.