Indonesia's Economy since Independence

1. Indonesianization: Economic Aspects of Decolonization in the 1950s

1 INDONESIANIZATION: ECONOmIC ASPECTS OF DECOLONIZATION IN THE 1950s1 The late Professor Harry Johnson at the University of Chicago defined economic nationalism as ‘the national aspiration to having property owned by nationals and economic functions performed by nationals’ (Johnson 1972:26). Following this definition, the force of economic nationalism in Indonesia, especially during the early independence period, can be easily understood. Economic nationalism was, and still is, reflected in the Indonesian government’s economic policies. To a higher degree than in other Southeast Asian countries, economic nationalism in post-colonial Indonesia has been, and continues to be, an important factor affecting government policy. Whereas economic nationalism during the 1950s was primarily targeted at continuing economic dominance of the Dutch and ethnic Chinese business interests, in the years following the Asian economic crisis in the late 1990s economic nationalism came to be directed primarily at perceived interference by international organizations, in particular the International Monetary Fund (IMF), in the formulation of Indonesia’s economic policies in order to handle the crisis. Despite strong economic nationalism, pragmatic considerations have more often than not overruled popular pressures of economic nationalism, particularly after the advent of the New Order government in 1966. As a result, pragmatic economic policies have often been able to offset adverse economic and political effects of virulent nationalism, except during the final years of President Sukarno’s rule.2 In the following pages the so-called ‘Indonesianization’ policies pursued during the 1950s, when economic nationalism was very strong, will be discussed. Using Johnson’s definition, ‘Indonesianization’ (indonesianisasi) is  Indonesia’s Economy since Independence understood here as efforts by the Indonesian government to transfer property, or more correctly, productive assets owned by foreigners or foreign business, especially Dutch business, or residents viewed as foreigners, in particular Indonesians of Chinese descent, to indigenous Indonesians and to transfer economic functions performed by foreigners or residents viewed as foreigners to indigenous Indonesians.The drive towards ‘Indonesianization’ involved various measures taken by the Indonesian government in the 1950s aiming at an ‘economic decolonization’ considered all the more urgent since the Indonesian government already in early 1950 realized that political independence had not been accompanied by economic independence. ‘Indonesianization’ also formed an official response to the strong appeal by several nationalist leaders, such as Sujono Hadinoto of the Indonesian Nationalist Party (Partai Nasional Indonesia, PNI), who wished ‘to convert the colonial economy into a national economy’ (merombak ekonomi kolonial menjadi ekonomi nasional) (Hadinoto 1949:1). THE POLITICAL AND ECONOmIC CONSEQUENCES OF THE ROUND TAbLE CONFERENCE With the transfer of sovereignty to Indonesia on 27 December 1949, a new phase began in the often tortuous relations between Indonesia and the Netherlands. Sovereign Indonesia could now deal with the Netherlands on an equal basis. However, during the 1950s, Indonesian-Dutch relations were marred by the lingering aftermath of the colonial relationship. While President Sukarno’s efforts from the early 1950s onwards were aimed at ‘completing the national revolution’, specifically the ‘liberation of West Irian’ (West New Guinea), still under Dutch control, the Netherlands attempted strenuously to hold on to what little was still left of its formerly vast colonial possessions (Houben 1996:160). The uncomfortable legacy of the colonial past was a direct consequence of agreements reached at the Round Table Conference (RTC) held in The Hague from late August until early November 1949 where the terms of Dutch acknowledgement of Indonesia’s independence were formulated. The Indonesian delegation at the RTC agreed to a number of controversial conditions under pressure of wanting a quick agreement with the Dutch. The expectation of substantial financial assistance from the United States also induced Indonesian leaders to make economic concessions to the Netherlands. However, concessions greatly outweighed the relatively paltry economic assistance in the form of a loan of $100 million from the United States EximBank that was at long last extended. Moreover, this loan, that had to be repaid Indonesianization 5 with interest, corresponded to only one–third of post-war credits by the same bank to the Netherlands. This was all Indonesia received after yielding to the insistence by Merle Cochran, the American observer at the RTC, that the United States government would shoulder the overseas debt bequeathed by the Netherlands Indies government to Indonesia (Kahin 1997:26). Four provisions of the RTC agreement, two political and two economic, were particularly resented by the Indonesians (Dick et al. 2002:170). The first one was that the Netherlands...