Countries of the World/COUNTRYS.BIN/dp/0172/01723.txt

Text File | 1991-06-25 | 37KB | 587 lines

$Unique_ID{COW01723}
$Pretitle{239}
$Title{Indonesia
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Riga Adiwoso-Suprapto}
$Affiliation{HQ, Department of the Army}
$Subject{government
percent
economic
economy
pribumi
investment
enterprises
foreign
labor
chinese}
$Date{1982}
$Log{Bas-relief From Borobudur*0172301.scf
}
Country:     Indonesia
Book:        Indonesia, A Country Study
Author:      Riga Adiwoso-Suprapto
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3A.   The Economy

[See Bas-relief From Borobudur: Artist's rendition]

     Immense natural resources and a teeming, predominantly agrarian
population formed the setting for Indonesia's economic development, a process
characterized by the complex interplay of traditional and modern forces and
catalyzed by government commitment and investment. Substantial resources of
petroleum, natural gas, tin, copper, coal, timber, and fish, complemented by a
tradition of irrigated-rice farming and tree-crop cultivation, supported a
diversity of economic activities. Yet, because most of the population was
still employed in smallholder agriculture or in small, family-run enterprises,
the per capita gross domestic product was the equivalent of only US$474 in
1980.

     The economic goals of the Soeharto government did not differ
significantly from those of the Sukarno administration; both talked about
achieving equity between the nation's diverse rural and urban regions,
economic nationalism to favor indigenous and non-Chinese entrepreneurs, and
the balanced modernization of agriculture and industry. Sukarno, however, led
poorly administered attempts to develop the traditional rice-growing sector,
the plantations and industries expropriated from the Dutch, and the
war-damaged infrastructure, without the benefit of Western economic
assistance. By 1965, in the face of poor international prices for its exports,
political disruption at home, and confrontation with Malaysia, the nation
teetered on the verge of bankruptcy. To stabilize this situation, President
Soeharto implemented the conservative policies of a team of Western-trained
technocrats, who were willing to utilize substantial amounts of Western and
Japanese assistance and investment. The government's quick success in
reestablishing financial order positioned the economy to benefit from the
favorable international situation of the 1970s.

     Stimulated by public investment made possible by the rising revenues from
oil exports, per capita production has expanded by over 5 percent per year
since 1970-higher than the average for most developing countries. The
principal achievements occurred in the mining sector, but agriculture also
grew as the introduction of modern seeds and fertilizer revolutionized
farming. Public investment improved the transportation and communications
infrastructure as well-not only on the most densely populated islands of Java,
Madura, and Bali but also on the Outer Islands.

     The government has also improved the institutional framework for
development. Preferring a top-down approach, it gradually extended the power
of the bureaucracy to the lowest levels of the economy, where it introduced
marketing cooperatives to bolster the operations of private traders and
farmers. Supplementing this effort were the activities of state enterprises,
located strategically in almost every realm of economic endeavor, especially
in industry. The state-controlled banking system provided subsidized credit
to priority public and private enterprises. The government invited foreign
participation in selected industries and continued to solicit foreign aid and
loans. An influential national planning apparatus coordinated and managed
these multifarious efforts.

     Economic disparities persisted despite the government's efforts. The
contrasts between traditional agriculture and modern industry were still
obvious in 1982. Even in the large urban centers where modern industry and
services had developed most rapidly, there were glaring gaps between the
incomes and living standards of the wealthy elite and those of the
poverty-stricken majority. Similar discrepancies existed in the rural areas,
particularly on Java, where landlessness was endemic. Likewise, the physical
infrastructure was better developed on Java, Madura, and Bali than on the
Outer Islands. The government's promotion of transmigration from Java to the
land-rich Outer Islands, together with the influx of foreigners and Javanese
to industrial projects located in these area, heightened the disparities
between the more and the less developed islands. The most emotional issue,
however, was the popular impression that the ethnic Chinese minority continued
to dominate the modern economy.

     Economic nationalism was perhaps the single most persistent concern.
Despite Soeharto's abandonment of the stridently antiforeign rhetoric of
Sukarno and the vital contribution of foreigners to the development of the
modern economy, the government remained sensitive to criticism regarding
foreign economic activities in Indonesia. Given the long history of anti-Dutch
and anti-Chinese sentiment among a large part of the population, the fact that
some 5 percent of the nation's gross domestic product in 1980 went overseas as
payments of wages, profits, and interest on loans was potentially a source of
popular criticism. The government has therefore sought to make cooperation
with foreign partners as beneficial as possible to Indonesians.

     The government's policies, however, have evoked some criticism. Domestic
critics complained that too little investment was going to rural development,
education, and public services; that corruption was widespread; and that the
Chinese maintained their influence through collaboration with prominent
military officers in the government. Foreign critics focused on the
government's restriction of private enterprise, overcentralization, and
discretionary regulations. Nonetheless, these shortcomings could not
overshadow the positive achievements of the 1970s, when technological change
penetrated to the most remote areas of the archipelago and improved the
average standard of living.

     The prospects for the late 1980s and beyond, however, were clouded by the
undeniable fact that unemployment, rural and urban, was bound to worsen as the
pace of technological change quickened and more labor was freed from
traditional agriculture. As the nation's mineral wealth became more expensive
to exploit, government revenues would be strained. Inefficiencies, either from
corruption or from misguided subsidies, would become more costly. The main
task for the early 1980s was the construction of an industrial base that
could absorb this rapidly growing labor force.

Patterns of Development

     Since the late 1960s the Indonesian economy has grown rapidly and, by
some measures, has experienced a profound structural transformation. Data
suggest that although real national income rose significantly during the
periods of 1923-28, 1934-39, and 1953-57, the expansion since 1967 has been
unprecedented. Especially striking is the contrast between the growth in the
1970s and the economic stagnation of the 1957-67 period (see Parliamentary and
Guided Democracy, 1950-65, ch. 1). From 1960 through 1967 the real rate of
growth of the gross domestic product (GDP-see Glossary) averaged less than 2
percent per year; in only one year did it top 5 percent. On five occasions
during this seven-year period the rate of economic expansion failed to keep
pace with population growth. It was not until 1968 that the economy recovered,
finally responding to stabilization measures implemented by the new Soeharto
government. The GDP growth rate was over 11 percent that year and, as of late
1982, had not dropped below 5 percent.

     The reason for this remarkable recovery and subsequent long-term
expansion was a shift in the pattern of national expenditure away from
consumption toward productive investment. During the 1967-71 period gross