ABSTRACT
The contemporary orthodoxy argues that ‘politics’ is bad for financial intermediation for the poor. Political ‘interference’ in such activities leads to weak targeting, low repayment rates and institutional collapse that becomes a serious drain on the public purse. Implicitly, effective financial intermediation requires a ‘no politics’ situation in which the state steps back and a small cadre of value-neutral technocrats select neo-liberal economic policies, and efficient institutions (that have no political life) evolve from the market forces that are released. Such situations can be explored in ideal models but, as our empirical work reveals, the ‘no politics’ assumption is facile as even radical neo-liberal economic policies are the result of complex political processes. Indonesia’s dramatic liberalisation of financial markets (Vol. 2, Chapter 11) was grounded in domestic politics. It did not slip from a technocrat’s VDU into a sector in which politicians had agreed not to trespass and other political forces had evaporated. The influences of political factors cannot simply be wished away.
