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Flashcards in Indonesia Deck (6)
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Early post-independence context & challenges

- inflation; cost of living incr approx 100% from 1950-1957
- foreign ownership of ecy continued = reflective of an economically weak indigenous class
- unfavourable export conditions and increase in domestic demand for resources


strategies adopted by Sukarno during GD
- economic nationalisation

1957: nationalised 300 Dutch plantations and 300 Dutch firms

1957: Dutch-owned Royal Mail Steam Packet Company (KPM) nationalised, leading to a drastic drop in inter-island shipping in Indo

Indo expelled 46,000 Dutch residents

Military supervision of Caltex and Shell

- began leaning twds China and the Left, angered Dutch and the West --> ec isolation of Indo

- intervention of military & economic mismanagement: Nasution placed military officers with less administrative experience in charge of nationalised businesses, contributing to mismanagement, inefficiency and corruption


strategies adopted by Sukarno during GD
- increased gov spending

early 1960s: military spending comprised 70% of national income. large part of national budget dedicated to the military, necessary as S was reliant on the military.

1960: S implements a haphazard 8-year development plan that severely undermined the ecy. Plan called for 12x increase in gov exp without any clear plans on how to finance it

- saddled with massive external debt of US$2.36 bil in 1965
- gov deficit in 1966 was 780x the amt in 1961
- persistent deficit spending led to massive inflation


strategies adopted by Sukarno during GD
- dealing with inflation thru reduction of money supply

Aug 1959: devalued Rupiah by 75% and reduced MS from Rp 34 bil to Rp 21 mil to deal with inflation. a misguided attempt at management.

ec crisis due to this mismanagement meant that the gov had to reverse their policy. after 6 months, MS returned to original lvl and inflation continued.

- hurt businesses of Chinese and local, wealthy and bureaucrats
- inflation hit 500% in 1965, and incr by 1500% btwn June 1965 & June 1966
- by 1966, annual inflation was calculated at 600% per year


Overview of impacts of Sukarno's ec policies

immense ec problems (inflation, unemployment, corruption)

military playing an increasingly direct role in the ecy

ideological slant threatened trade relations and aid prospects from the West

ec natl policy shifted ctrl of ecy into the hands of a select grp of local elites (Army),
while the populace was crippled by soaring costs of living, poor levels of literacy and >50% of labour in low-technology agriculture


strategies adopted by Suharto during New Order:
bringing about ec stability by re-opening Indo to Western aid and investment (1967-1970)

gain reacceptance into international by changing foreign relations

accepted IMF reform measures - adopting Open-door strategies to encourage foreign investment and ec growth with stricter regulations over corruption, high interest rates and budget restrictions

reinstated previously-confiscated British, American & Dutch enterprises

1967 Foreign Investment Law granted tax concessions and safeguards for foreign investors. Paved the way for a sharp incr in foreign investment.

1967 Inter-Governmental Group on Indonesia (IGGI) to restructure Indonesian debt by re-scheduling debt repayments. -> similar arrangement also made w the USSR

keeping interest rates high to deal w inflation
-> overseas investors and Chinese businessmen who had access to lower i/r overseas were favoured
-> HOWEVER, local indigenous business-owners were on the losing end of this policy

Technocrats (considered as a state actor) played a key role in implementing ec reforms in Indo, leading to balance btwn mkt reforms and trade protection, direct gov infl and regulation of foreign influence, and ensuring sufficient resources to modernise the ecy. Key indivs include Ali Wardhana (Minister of Finance, 1967) and Widjojo Nitisastro

- by the end of 1960s, rampant inflation had been controlled (dropped to 10%/year in 1969). also marked increases in foreign investments, exports and oil earnings, indicating rapid re-integration of Indo into the world ecy