Multimedia Mania/abacus-multimedia-mania.iso/dp/0021/00216.txt

Text File | 1993-07-27 | 37KB | 592 lines

$Unique_ID{bob00216}
$Pretitle{}
$Title{Indonesia
Chapter 3D.   Manufacturing and Industry}
$Subtitle{}
$Author{Riga Adiwoso-Suprapto}
$Affiliation{HQ, Department of the Army}
$Subject{percent
government
foreign
indonesia
total
exports
oil
major
facilities
indonesian
see
pictures
see
figures
}
$Date{1982}
$Log{See Plywood*0021601.scf
See Helicopter Weather Station*0021603.scf
}
Title:       Indonesia
Book:        Indonesia, A Country Study
Author:      Riga Adiwoso-Suprapto
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3D.   Manufacturing and Industry

     In the manufacturing sector the characteristics of economic dualism were
especially evident. Of some 1.3 million manufacturing firms in 1974, nearly
96 percent employed fewer than four people, and over 99 percent had fewer than
20 employees. Although the total number of enterprises has probably doubled
since then, there was no evidence in 1982 to suggest that the gap in
productivity between the small number of large-scale manufacturers and the
vast number of small firms had narrowed. Some modern firms were 40 times
more productive per worker than small-scale firms and utilized the latest
imported technology. Manufacturing enterprises were concentrated on Java,
where better transport and electric-power facilities, along with good access
to official agencies, attracted most domestic and foreign investors. Tax and
other kinds of incentives given to locate on the Outer Islands had failed to
reverse this bias toward Java, and industrial congestion and pollution were
becoming problems in such cities as Jakarta, Surabaya, and Semarang.

     The most rapidly expanding industries were those producing fertilizer,
cement, and chemical products essential to production in other economic
sectors (see table 11, Appendix). After the expansion of the petrochemical
fertilizer plant at Gresik in 1980, the country was able to produce all of the
major kinds of modern fertilizers in its state-owned facilities. Only urea
fertilizers, however, were produced in sufficient quantities, and the
completion of urea-producing facilities at Aceh in Sumatra and on Kalimantan
in 1982 and 1983, respectively, would continue the surplus for export. The
production of cement, chiefly portland cement, neared 6 million tons in 1980;
total capacity, following the addition of two new plants, rose to 8.6 million
tons. The capacity to produce petrochemicals, essential to the synthetic
textile and other industries, was to be significantly improved with the
construction of a large olefin plant at Lhokseumawe in North Sumatra Province
and a large aromatics plant at Plaju in South Sumatra Province. The
improvement of the nation's crude oil refining capacity was essential for the
supply of feedstock to these plants.

     The production of manufactures that utilized chemical inputs, such as
paper and tires, has also grown. The capacity of the existing 29 paper mills
in 1980 reached 345,000 tons, and expansion was taking place at sites in
eastern Java. Heightened demand for motor vehicle tires stimulated the
nation's highly protected private producers to expand capacity to almost 6.8
million tires. The government had strong ambitions to build a large plywood
industry capable of dominating the world market, making sawn log exports for
timber concessionaires dependent upon the latter's construction and operation
of plywood processing plants. There were only 20 plywood plants in operation
in 1979, but in late 1982 some 45 facilities were in operation or under
construction.

     The metal and machinery industry was in the early stages of development,
and the premier showcase project, the Krakatau Integrated Steel Mill in
Cilegon, has operated at a loss while construction at the plant has been
delayed. The total annual capacity envisaged for the completed mill was 2.2
million tons, which would not be achieved until around 1990. The total cost
for the project, including a massive investment in infrastructure, was over
US$2 billion. Downstream demand for metal products, which were also forged
at a number of small steel manufacturers, came from the automotive and
shipbuilding industries. The automotive industry, however, relied on imported
components for the most part, and shipbuilding capacity was growing slowly
as the construction of new dry-docking facilities at Cilacap proceeded.

     Unlike strategic industries, such as basic metals, cement, and chemicals,
light manufacturing was predominantly controlled by the private sector. The
most important light manufacturers were textile products, which have made the
country self-sufficient in fabrics. Current development concentrated on
garment manufacturing, much of the output for export, and on the development
of fiber making and spinning. Other light manufactures, such as electronic
products, were growing rapidly but from a small base.

[See Plywood: Indonesia is promoting the export of plywood rather than of
timber. Courtesy of BKPM/National Development Information Office]

Utilities and Construction

     Electricity accounted for only 7 percent of the total commercial energy
utilized in 1977, but as industry developed and efforts to construct power
lines in the suburban and rural areas progressed, this share was rising. The
Department of Mines and Energy was responsible for supervising all electricity
utilities, which included the state-run national power network, captive plants
installed at industrial facilities, a few small municipal corporations, and
some cooperative producers in the countryside. In 1980 more than
three-quarters of the public-installed capacity of 2,662 megawatts were
thermal facilities utilizing oil, natural gas and coal; the remainder were
hydroelectric facilities.

     The per capita consumption of electricity in 1981 was low, about 76
kilowatt-hours, and only 12 percent of all households on Java, 9 percent on
Sumatra, 12 percent on Kalimantan, 10 percent on Sulawesi, and 2 or 3 percent
on the remaining islands were connected. Investment plans for the 1980s
projected the total installed capacity on Java to rise from 1,891 megawatts
in 1981 to 6,460 megawatts in 1984, while the Outer Islands would increase
from 719 megawatts to over 3,100 megawatts.

     The government's desire to limit domestic oil consumption and the high
cost of coal-fired plants necessitated the development of the nation's
substantial hydroelectric resources, roughly estimated at 31,000 megawatts,
chiefly on the Outer Islands. In 1982 a major hydroelectric facility, having
an installed capacity of 600 megawatts, was being completed as part of the
industrial complex at Asahan. Another facility, having an installed capacity
of 700 megawatts, was being built at Saguling, and detailed field studies
were being conducted at three sites with a potential for 800 megawatts each.
About 26 miniature hydroelectric stations were scattered about the country,
totaling only four megawatts, but a construction program to build another 22
megawatts of capacity, chiefly on the Outer Islands, had begun.

     Researchers have identified 17 geothermal fields, having a heat value
of greater than 100 megawatts each, on Sumatra, Java, Bali, Flores, and
Sulawesi. In 1982 a 30-megawatt geothermal station was being constructed at
Kamojang on Java, and an agreement had been signed to develop a 300- to
475-megawatt facility at Salak. Most geothermal sites were in remote areas.
Indonesia had no nuclear power facilities, although a recent study proved
the feasibility of a 640-megawatt reactor. One 50-megawatt experimental
reactor was recently ordered by the government.

     Potable, piped water was available to only 40 percent of the urban
population and to about 18 percent of the rural population in 1981, and
there was a high incidence of waterborne parasitic disease (see Health, ch.
2). Government programs previously concentrated on the improvement of urban
facilities, but in Repelita III efforts were directed to provide safe water
to the residents of some 3,300 small towns in the countryside. The goal was
to provide 60 liters per person per day to 60 percent of the population in
these towns. The Department of Public Works coordinated water development
in the urban areas. Until the late 1970s local governments managed the urban
facilities, but gradually, autonomous water enterprises were being
established. The Department of Health was responsible for rural water supply
projects, which were operated by the local governments.

     The construction industry, spurred by the high level of public
investment, has grown rapidly and generated 5.7 percent of GDP in 1980. While
foreign contractors have established offices in Indonesia, the government has
granted preferential treatment to pribumi construction firms for most of its
development projects, even those financed from overseas. The housing program
under Repelita III called for the construction of 120,000 units of public
housing, half of which would be constructed by the residents themselves on
sites cleared and prepared by the government. An additional 30,000 urban
housing units would be built by private corporations utilizing public sector
loans. The program included over 80 cities, compared with that under Repelita
II covering only 17 cities. Despite achievements of the government's
construction programs, the demand for housing remained high; perhaps eight
times the number of units planned under Repelita III could be absorbed in
urban areas alone.

Infrastructure and Services

     The service sector, including transportation, communications, financial,
government, marketing, and household services, absorbed some 62 percent of
the total increase in the work force between 1971 and 1980 and over two-thirds
of new employment on Java. Not only did the service sector provide incomes for
the poor, but it was also vital to the progress of industry. The marketing
infrastructure enabled commodities produced in the outreaches of the country's
vast territory to be sold on the domestic market or internationally.

Transportation

     Road transportation provided for the majority of passenger and freight
traffic, although in certain areas railroad, river, airplane, pipeline, and
sea transportation substituted. On Java, where 31 percent of the road system
was located, road transportation was most important. About 330,000 kilometers
of roads made up the nationwide system-including some 200,000 kilometers of
village roads. In 1979 about 12,000 kilometers of highway were national
roads, 29,000 kilometers were provincial roads, and 89,000 kilometers were
district roads. About 45 percent of these roads were paved. By the early 1980s
it had become essential to upgrade the quality of roads, especially on the
Outer Islands and in the villages, where over half of the roads were damaged
and sometimes impassable.

     The need for road improvement was underlined by the rapid rise in
vehicular traffic. The total national fleet doubled during the 1975-80
period to nearly 520,000 vehicles; however, as much as 20 percent of the bus
and truck fleet was out of service at a given time. The number of motorcycles
and scooters also more than doubled to some 2.5 million in 1980.

     Urban transportation ran the gamut from electric trams built by the Dutch
to buses, jitneys, pedicabs, and pony carts, but motorized vehicles were
gradually replacing traditional forms of transportation. Consequently,
motorized traffic congestion has become a major problem, particularly in the
Jakarta area, where some 2.2 million people commuted to and from work each
day in 1982. Most passengers rode the heavily subsidized public bus system. A
major development program for Jakarta has been prepared by a Japanese aid
agency, foreseeing massive investment in the rehabilitation of the overground
railroad system. The scheme has been delayed because of opposition from
Jakarta's few trained transportation planners, who must nevertheless adopt
some plan or face serious traffic congestion in the next two decades as the
population doubles.

     The development of motorized transport has hurt the pedicab industry,
traditionally an important source of income for the poor. Some studies
indicated that Chinese entrepreneurs first built motorized fleets of various
kinds to take advantage of high urban demand. As the public bus system has
developed, however, the Chinese have left much of the taxi industry to
pribumi entrepreneurs.

     The railroad network consisted of about 4,700 kilometers of track on
Java and Madura and 2,000 kilometers on Sumatra. About 93 percent of the total
length was standard gauge of 1.067 meters; there were only 200 kilometers of
double track, mostly on Java. Until 1976 the system suffered a prolonged
decline in usage, as delayed rehabilitation and high fares hampered the growth
of ridership. From 1976 to 1980, however, ridership doubled, and freight
traffic rose by almost 40 percent as the Indonesian State Railways initiated a
major rehabilitation program. During the 1976-81 period an average of 610
kilometers of track were replaced each year along with 327,000 railroad ties.
Efforts in the 1980s will focus on improving existing facilities and adding to
the rolling stock. Additional track will be laid only near industrial or
mining projects on Sumatra.

     Maritime transportation was second only to roads in importance, although
two-thirds of the total cargo fleet was used in the transportation of
petroleum and natural gas alone. About one-quarter of the fleet was used for
interisland transportation of dry cargoes, and the remainder was used for
specialized transportation of salt, fertilizer, lumber, and materials for
offshore oil production. The interisland fleet totaled 374 vessels, having a
combined capacity of 379,000 deadweight tons in FY 1980, and it carried 4.4
million tons of cargo compared with 3.5 million tons in FY 1976. The fleet
of so-called "pioneer vessels," which carried passengers and cargo to the
Outer Islands, consisted of 31 vessels totaling 17,600 deadweight tons;
traffic on these lines grew by over 31 percent per year in the FY 1976-80
period. The oceangoing fleet numbered 58 vessels in FY 1980, having 668,000
deadweight tons of capacity, and carried 7.4 million tons of cargo, up 34
percent from FY 1976.

     There were over 300 registered ports, but 16 major ports accounted for
over half of the traffic. The government has been trying to rehabilitate these
ports and stimulate the shipping industry through a number of regulations and
construction projects. In 1982 it announced that goods purchased or sold by
official agencies or enterprises had to be transported on Indonesian liners,
and berthing fees were reduced for domestic liners. In 1980 about 35 to 40
percent of the two-way international shipping trade was government owned, and
the six major domestic shipping companies handled less than one-fourth of the
total two-way trade. Also in 1982 the government announced that the four
major ports-Tanjung Priok (Jakarta), Tanjung Perak (Surabaya), Belawan, and
Ujung Pandang-would be developed as transshipment centers for non-oil exports
to compete with Singapore, which has had the largest share of this business.
Major port construction projects were taking place at Cilacap, Surabaya, and
Jakarta, but total docking capacity in 1981 was 1.2 deadweight tons, or only
one-third of that needed for smooth port operations.

     Air transportation was dominated by the government-owned flag-ship
airline, Garuda Indonesian Airways, which has managed both domestic and
international flights since 1978. Six private airlines and other private
companies offered limited scheduled and charter services. Passenger and cargo
traffic have increased rapidly, and the distance traveled by Indonesian
carriers neared 71.4 million aircraft-kilometers in 1980, an average increase
of 8.7 percent per year since 1975 and of nearly 16 percent per year since
1970. Despite the accumulation of about US$1 billion in debt and poor
performance in the international market, Garuda added 21 wide-bodied
aircraft to its fleet of 60 jet aircraft in 1982. There were 34 important
civilian airports in 1980-two international airports (at Jakarta and at
Denpassar on Bali) that could handle Boeing 747 jets; five airports that could
land DC-10 aircraft; six having facilities for DC-8s; 13 that could handle
DC-9s; and eight smaller airports. In 1982 work was being completed on the
first stage of a new facility 20 kilometers northwest of Jakarta to replace
the Halim International Airport.

Communications, Marketing, and Other Services

[See Helicopter Weather Station: Courtesy Embassy of Indonesia, Washington DC.]

     The national postal system was the most important means of communication
for the majority of citizens, and at the end of 1980 postal services were
available in 90 percent of all subdistricts. Only 42 percent of the
subdistricts had a permanent post office; the rest were served by mobile and
rural units. In addition to posting letters and parcels, the post offices had
savings accounts and giro services.

     Telecommunications facilities improved after the completion of a domestic
satellite network, consisting of two communications satellites and 50 earth
stations, linking 26 of the provincial capitals and 14 other points with the
nation's capital. The satellite system enabled the country to expand rapidly
its telephone and television facilities. In 1980 the total capacity was nearly
600,000 line units, and there were 584 telephone exchanges; about 88 percent
of the line units were connected to automatic exchanges. The long-distance
direct connection system extended to 83 cities in 1980, compared with only
12 in 1976. In addition to the satellite system there were microwave
facilities linking Jakarta to southern Sumatra, the Lesser Sunda Islands, and
Bali. Other high-frequency radio and high-altitude systems linked the remotest
islands.

     One state-owned radio network, Republic of Indonesia Radio (RRI), and one
television network, Television Network of the Republic of Indonesia (TVRI),
dominated the electronic media. Both were controlled by the Department of
Information. There were several hundred amateur radio stations that were
allowed to transmit in circumscribed areas, such as school campuses. RRI,
which reached the widest audience, was stressing programs relating to rural
listeners. There were over 135 radio receivers per 1,000 people in 1980. TVRI
expanded its broadcasting area to 460,000 square kilometers of territory in
FY 1980, and 87 million people, mostly on Java, lived within this area. There
were over 14 television sets per 1,000 people in FY 1980, mostly in Jakarta
and the other urban areas, but nearly every village within the broadcast area
had at least one television set for public viewing; the number of sets had
quadrupled since FY 1975. In 1981 Soeharto ordered a halt to all commercial
advertising on the national network in order to diminish the sense of relative
deprivation that might affect rural viewers.

     The trend in the wholesale and retail trade has been toward
centralization, but the bulk of the nation's traders continued to be found in
small, family-run enterprises. The spread of large wholesaling operations,
either owned by private (usually Chinese) entrepreneurs or by the government,
has tended to limit the growth of employment opportunities, even in the rural
areas, according to one study of western Java. The same study also suggested
that the position of the farmers has been weakened. During 1973, for example,
a shortfall in the previous year's rice harvest prompted Chinese traders to
bid up farmer, as well as consumer, prices for rice beyond the level set by
government agents. After the strengthening of Bulog in the 1970s, however, it
was more difficult for the farmers to receive high prices in years of
scarcity.

     Because of the high tariffs on many imported items, a black market
flourished in most cities, where smuggled goods could be purchased for less
than store-bought prices. The government has, however, enforced no monopoly on
the retail sector for items other than basic staples. Widely perceived
corruption among customs officials and the inability of the armed forces to
patrol the entire coastline allowed the importation of contraband from
Singapore.

     Other services included a dynamic hotel and tourist industry that hosted
561,000 visitors in 1980, a 40 percent increase over the number in 1976.
Financial and accounting firms were found primarily in the urban areas,
especially in Jakarta, where the largest and most modern service enterprises
were located.

Foreign Economic Relations

     The major goals of government policy toward international trade and
finance were to prevent the deterioration of the balance of payments to the
critical depths reached under Sukarno and to benefit Indonesian producers as
much as possible. The achievement of these objectives did not preclude foreign
participation in the economy, but especially since the "Malari affair" of 1974
the government has been trying to reduce the nation's dependence on Japan as a
source of assistance and trade. Growing oil revenues have generally made the
task of managing the balance of payments easier than during the Sukarno years,
but other objectives have proved more elusive.

     Oil revenues have been a mixed blessing to Indonesia's balance of
payments. On the one hand, the accumulated reserves of foreign currency
brought about by the sale of oil have enabled importers to have easy access to
a variety of much-needed technology and raw materials from overseas. On the
other hand, persistent payments surpluses in the petroleum trade have left the
nation's exporters of products other than oil at a disadvantage. There has
been a tendency for the government to use its large reserves of foreign
exchange to keep the Indonesian rupiah overvalued compared with the currency
of its major trading partners, thereby reducing the attractiveness of non-oil
exports.

     Since 1970 the nation's trade balance has been positive; it was highest
in 1978 and 1979, when merchandise exports were over 170 percent of the value
of imports. The oil sector alone paid for over 100 percent of imports in 1974
and during the 1978-81 period. The services account, however, has been in
chronic deficit. The amount paid to foreigners for the provision of
transportation, communications, and financial services, and the sums remitted
by foreign companies and individuals to their homelands have exceeded those
collected by Indonesian nationals. As a result, despite the gains from oil
revenues, there have been periodic current account deficits that had to be
financed by borrowing overseas or by drawing down the reserves of foreign
currency held by Bank Indonesia (see table 12, Appendix).

     In general the government has been able to accumulate foreign reserves;
in 1981 Bank Indonesia's foreign assets were sufficient to cover more than
five months of imports. This excellent reserve position has given the
government great power over the exchange rate, which it set by applying a
formula based on a basket of the currencies of its major trading partners.
Before 1978 the rate had been kept fixed for seven years in spite of
differential rates of inflation between Indonesia and its main trading
partners. Over time the government concluded that this trend impeded the
growth of non-oil exports, which were becoming increasingly expensive relative
to the international demand for Indonesian currency. The oil trade was
conducted in foreign reserve currencies and therefore unaffected by
exchange-rate fluctuations.

     In 1978 the government enacted a 50-percent devaluation of the currency
in order to stimulate non-oil exports. Since that time the exchange rate has
been allowed to depreciate only slowly. In mid-1982 it had depreciated by
about 5 percent since the last devaluation, despite the higher change in
relative inflation levels. The downturn in demand for oil and non-oil products
was putting pressure on the nation's balance of payments. Rumors circulated
that a devaluation was imminent, but the president denied them in his annual
Independence Day address in August 1982. Instead, the government was using
other means to influence the pattern of trade.

Trade Patterns

     Since the mid-1970s the value of petroleum-product exports has
overwhelmed that of the nation's many non-oil commodities. Oil and LNG exports
represented 65 percent of the value of total merchandise exports in 1981, up
from a 50 percent share in FY 1973. The leading non-oil exports were, in order
of decreasing importance: timber, rubber, coffee, tin, fish and animal
products, palm oil, textiles and handicrafts, copper, tea, electrical
appliances, rattan, tobacco, pepper, copra, urea fertilizer, cement and
miscellaneous minerals and manufactures (see table 13, Appendix).

     By country, Japan continued to be the largest importer of Indonesian
products, mostly of oil and LNG, but also of timber, tin, and shrimp. Japan
imported 49 percent of all petroleum and gas exports and 29 percent of other
exports in FY 1980. The United States imported 18.3 percent of the value of
Indonesian exports in 1981, and members of the Association of Southeast Asian
Nations (ASEAN) imported another 12 percent of the total; almost all of the
remainder went to members of the European Economic Community (EEC) and
Australia (see table 14, Appendix).

     Although the volume of exports has grown fairly consistently-at an annual
rate of over 8 percent per year during the 1970-80 period-the prices for most
commodities remained volatile. To smooth over the worst aspects of commodity
price fluctuations, the government has affiliated itself with a number of
international commodity agreements and organizations. The most important and
effective was OPEC, to whose standards Indonesia set its basic price and
production schedule. The nation was also a party to agreements on rubber, tin,
coffee, and tea, which maintained price support schemes. Although Indonesia
generally adhered to these agreements, it fared poorly in increasing its
quotas for coffee exports because of its practice of selling to countries
outside of the agreement. In 1982 Indonesia joined a group of major
textile-exporting countries in rejecting demands for decreased quotas from EEC
importers during the third phase of the Multi-Fiber Arrangement, another
significant international trading agreement. The nation feared increased
protectionism from overseas against its textile products, the major kind of
manufactured exports.

     In the first quarter of 1982 exports of both oil and non-oil products
declined 20 percent compared with a year earlier. The value of non-oil exports
fell by some 47 percent; the major commodities contributing to the decline
were timber, rubber, coffee, and palm oil. Palm oil and timber exports were
affected by government regulations. The government wanted to utilize palm oil
for domestic consumers and had revoked 120 timber concessions for failure to
comply with regulations requiring the construction of plywood facilities and
better resource management. Other commodities suffered because of the
worldwide recession. In late 1981 the government removed or reduced export
taxes for rubber, tea, coffee, pepper, and timber; 17 decrees and
proclamations were issued in January 1982 that were designed to simplify
export payments, increase export credits, provide credit guarantees and
insurance, expand the storage of export goods on consignment, and reduce
harbor fees.

     On the import side, capital goods and raw materials accounted,
respectively, for 47 and 43 percent of the total value in 1981, and the share
of consumer products has been declining. The major capital-goods imports were
vehicles, equipment, and machinery; raw materials included chemical
preparations, paper, fertilizer, cement, iron and steel, and light petroleum
products. The chief consumption items were rice, wheat, milk products,
finished pharmaceuticals, and sewing machines. The main suppliers were Japan,
having 30 percent of the total, and the United States, with 14 percent,
followed by Australia and the ASEAN and EEC nations. The tariff structure,
which reflected the government's import-substitution strategy, favored imports
of capital goods and raw materials while discouraging nonessential consumer
goods. The most significant tariff reductions have occurred as a result of
cooperation within ASEAN, but these were incremental and excluded "sensitive"
products.

     The most controversial attempt to regulate imports came in mid-1982, when
the government announced the implementation of a so-called counterpurchase
policy. According to this regulation, all imports by government agencies or
state enterprises, excluding those directly tied to foreign aid projects, must
come from sellers who agree to buy comparable amounts of Indonesian products.
Although this practice was common among the communist nations, most of
Indonesia's major trading partners issued formal complaints over this policy.
In August 1982, however, the largest Japanese trading company signed the first
counterpurchase deal for US$128 million of products and others followed. The
enactment of the policy would slow down the pace of imports, for most were
purchased by government funds directly or indirectly. The restraining
influence on imports might help the nation manage its deteriorating balance of
payments position in 1982 but would undermine the government's policy to
become less dependent on Japan because Japanese trading companies were in the
best position to agree to the counterpurchase terms.

     In principle, Indonesia has no trade relations with Israel, China, South
Africa, Zimbabwe, or Angola-nations with which it does not have diplomatic
relations. In September 1982, however, a government spokesman admitted that
significant trade with these countries had been taking place for years through
third countries. For example, trade with China has been funneled through Hong
Kong.

Aid, Loans, and Investment

     The nation's economic growth has been made both possible and profitable
by foreign participation in the economy. During the 1965-81 period Indonesia
received roughly US$572 million in grants, publicly guaranteed overseas loans
having a grant element equivalent to some US$3 billion, and a net flow of
direct private investment totaling US$2.6 billion. Over the same period
Indonesia remitted about US$17.9 billion of wages, profits, and interest
payments to foreign partners. These absolute figures, however, conceal some
important changes in the composition and structure of foreign assistance to
the economy.

     Direct foreign aid in the form of grants has tapered off to less than 0.2
percent of all imports in 1981, from an average of about 4 percent before
1973. The grant element of medium- and long-term loans secured as part of the
external public debt has likewise fallen, from over 50 percent of new loan
commitments in the 1960s to 17 percent in 1980. Only 12 percent of the loans
committed in 1981 were set with concessional rates of interest; the rest were
at variable commercial rates. The sources of foreign aid and loans have also
changed. Although as late as 1967 nearly half of the outstanding external
public debt was owed to the Soviet Union and Eastern Europe, by 1973 the
majority came from the Western countries-particularly Japan and the United
States-and from multilateral funds. Although the nation rescheduled roughly
US$1 billion of debt with the Soviet Union and would be repaying it until the
end of the century, it received insignificant commitments from this source in
the 1970s and early 1980s.

     Private foreign investments, calculated on the very rough basis of
approvals reported by the BKPM, made up some 48 percent of all approved
investments in Indonesia during the 1967-75 period. About 42 percent of all
foreign investment came from Japan, 9 percent from Hong Kong, 4 percent from
the United States, 3 percent each from the Federal Republic of Germany (West
Germany) and the Netherlands, and smaller shares from a large number of other
countries. Foreign investments accounted for some 89 percent of all investment
in mining, 61 percent of that in the construction industry, 47 percent of that
for manufacturing, and 34 percent of that in the agriculture, forestry, and
fishing sector. During the 1976-80 period, however, foreign investment was
only 36 percent of the total approved investment, declining for all
industries except construction and hotels. The share from Japan dropped to 32
percent, that from Hong Kong rose to 14 percent, and the rest changed only
slightly from the 1967-75 average. The diminishing inflow of foreign
investment reflected the numerous restrictions placed on foreign investors in
some industries and what many foreign businesses have complained of as
unnecessary red tape. The government has streamlined procedures at the BKPM on
several occasions, but some foreigners were startled that the newly appointed
chief of this agency in 1981 was a known supporter of Sukarno's expropriation
policies.

     Since 1967 the major forum for coordinating development loans to
Indonesia has been the Inter-Governmental Group on Indonesia (IGGI), an
informal association of Western and Japanese governmental lending agencies
and international development agencies. The IGGI included, in order of their
total outstanding loan commitments at the end of 1980: Japan (25 percent); the
United States (19 percent); the World Bank (17 percent); West Germany (9
percent); the Netherlands, France, and the Asian Development Bank (5 percent
each); and Canada, Belgium, Britain, Switzerland, Italy, Denmark, Australia,
New Zealand, and Austria. About 11 percent of the total came from outside the
IGGI. The group met in Amsterdam each year, and the World Bank acted as its
secretariat. Some Indonesian critics have complained that the IGGI has had
undue influence on the nation's development planning, but the government has
maintained that its independence has not been compromised. The IGGI approved
US$1.9 billion of lending for FY 1982, almost all of it linked to specified
development projects.

                                     * * *

     The finest general survey of the economy is The Indonesian Economy During
the Soeharto Era, edited by Anne Booth and Peter McCawley, who themselves
contribute introductory and concluding chapters. Most of the contributors to
this volume also write for the Australian quarterly Bulletin of Indonesian
Economic Studies, the best source of current scholarly analysis of the
economy. Bruce Glassburner's "Political Economy and the Soeharto Regime" is
a particularly noteworthy article from this journal. Reports from the
weekly Far Eastern Economic Review and the daily Asian Wall Street Journal
give the most up-to-date coverage of the economy. Guy Sacerdoti, in
"Acrobatic Technocrats Star in an Indonesian Balancing Act" in the former
publication, provides an excellent look at economic decisionmaking in
Indonesia. William Collier's "Agricultural Evolution in Java," Benjamin
White's "Population, Involution, and Employment in Rural Java," and Mark
Poffenberger and Mary S. Zurbuchen's "The Economics of Village Bali: Three
Perspectives" give fine analyses of the diversity and intensity of rural
household economic activity.

     Articles from Cornell University's biannual journal Indonesia, such
as Richard Robison's "Toward a Class Analysis of the Indonesian Military
Bureaucratic State," render a critical, political approach to the economy.
Cornell's translation of Heri Akhmadi's Breaking the Chains of Oppression of
the Indonesian People: Defense Statement at His Trial on Charges of Insulting
the Head of State is the best single source of the point of view of groups in
opposition to Soeharto. Statistical sources on the economy abound, including
publications from the Central Bureau of Statistics, Bank Indonesia, and the
International Monetary Fund. (For further information and complete citations,
see Bibliography.)