Indonesia's Economy since Independence

2. Indonesia's First Affirmative Policy: The Benteng Programme in the 1950s

2 INDONESIA’S FIRST AFFIRmATIVE POLICY: THE BENTENG PROgRAmmE IN THE 1950s1 To a much greater degree than has been the case in the other newly-independent countries in Southeast Asia, economic nationalism in Indonesia has remained a potent force until the present. Although its contemporary manifestations has in general become less aggressive and less strident than they were in the 1950s, economic nationalism remains a driving force that to a large extent still influences economic policies today. Whereas economic nationalism during the early years of independence in the 1950s was mainly directed at the 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 was mainly aimed at the perceived interference of international organizations, particularly the IMF, in the formulation of Indonesia’s economic policies. Despite the strong economic nationalism, pragmatic considerations have more often than not over-ruled ill-considered economic nationalism. In this way, pragmatic policies have often been able to mitigate the adverse economic and political effects of emotional economic nationalism. This was, as will be argued in this paper, evident when the Indonesian government in the second half of the 1950s, terminated the unsuccessful Benteng programme, its first affirmative programme to promote indigenous Indonesian entrepreneurs. Indonesia’s First Affirmative Policy 25 ECONOmIC NATIONALISm DURINg THE EARLY YEARS OF INDEPENDENCE During the early years of independence in the 1950s a basic aspiration of Indonesia’s economic nationalism was the need ‘to convert the colonial economy into a national economy’. This popular demand appealed to many Indonesians, as during the Dutch colonial period Indonesia had become an outstanding example of a colonial primary export economy. The growth dynamics of such an economy was primarily determined by the rapid expansion and diversification of primary exports at the expense of traditional economic activities (Pauuw, 1983: 9). While primary export expansion had brought some welfare to the Indonesian population, it had not laid the basis for sustained economic growth and successful transformation into a more diversified economy. Moreover, during the colonial period the production of primary commodities for export had been initiated and managed by Dutch and other Western enterprises, while the Indonesian population only played a subordinate and passive role as lessors of land and/or as unskilled, lowly-paid workers. Not surprisingly, rapid primary export expansion did not lead to a substantial increase in the skills, productivity and incomes of the Indonesian population (Paauw, 1983: 9–10). However, if economic nationalism in newly-independent countries is defined as the national aspiration to have nationals own and control the productive assets owned by foreigners or residents considered as aliens and perform the important economic functions hitherto performed by foreigners or resident aliens (Johnson, 1972: 26), the major target of Indonesia’s economic nationalism during the early 1950s was the elimination of Dutch economic dominance, particularly over the modern sectors of the economy. Under the terms of the Financial-Economic Agreement (Finec), reached at the Round Table Conference (RTC) in The Hague (23 August – 2 November 1949), the Indonesian government guaranteed that Dutch business could continue to operate in Indonesia without any hindrance. Nationalization of Dutch enterprises would only be permitted if it was considered to be in Indonesia’s national interest and only when it was mutually agreed by both parties. The amount of compensation for the nationalization of the enterprise would be decided by a judge on the basis of the real value of the nationalized enterprise (Meier, 1994: 46–7). The success of the Dutch delegation at the RTC in persuading the Indonesian delegation to agree with most of the items contained in Finec, 26 Indonesia’s Economy since Independence including the guarantees, concessions, and rights accorded to Dutch business in independent Indonesia, and the financial and trade relations between the two countries, could be attributed to the determination of the Dutch government to secure the maximum possible economic benefits from Finec (Meier, 1994: 46). In return, the Dutch were prepared to make political concessions to the Indonesians. On its part, the Indonesian delegation, led by Vice-President Hatta, was prepared, though reluctantly, to yield to the Dutch demands because it realized that for the foreseeable future Indonesia would, whether it liked it or not, still need Dutch capital and enterprise for the reconstruction of its war-ravaged economy and generate the export revenues needed to import foodstuffs and raw...