Indonesia Today: Challenges of History

16 THE CHALLENGE OF SUSTAINABLE DEVELOPMENT: ECONOMIC, INSTITUTIONAL AND POLITICAL INTERACTIONS, 1900–2000

Economic development used to be thought sufficient both to improve material conditions and to pave the way to a more open and democratic society. Until recently, the progress of the West, the collapse of communism and the rise of Asia appeared to justify this confidence. The Asian crisis sowed doubt because in several countries, including Indonesia, spectacular economic development could not be sustained by fragile institutions and political systems . Economic development was therefore judged to have been too narrowly based. In the new ‘conventional wisdom’, political and institutional development should proceed simultaneously with economic development. This chapter begins by periodising Indonesia’s economic and political development during the 20th century and identifying periods of synchronised and of lopsided development. It then focuses on the dynamic interaction of economics and politics within and between periods, in particular drawing out the comparison between the New Order and the late colonial period. TRENDS AND PERIODISATION Political Periodisation Conventional historiography proposes a neat sequence of political periods by which to consider Indonesia (Table 16.1). Each of these periods has its own events, dynamics and sources and almost invariably they are studied independently , thereby avoiding many potentially interesting questions about continuity and change. Nevertheless, a periodisation determined by political rather than economic events may not be the best way to approach economic history, or to study the interaction between economic and political development. 16 THE CHALLENGE OF SUSTAINABLE DEVELOPMENT: ECONOMIC, INSTITUTIONAL AND POLITICAL INTERACTIONS, 1900–2000 Howard Dick* 200 AA/Part3 23/3/01 6:26 PM Page 200 Economic Periodisation The best way to determine an economic periodisation is to use a consistent long-term time series. A series for Indonesian GDP constructed back to 1880 has been compiled by van der Eng (1992, 2001) based on constant 1983 prices. Here I will use the series for GDP per capita with a shadow price of oil to prevent the OPEC effect from distorting the price deflator. The series clearly shows the main long-run trends, which show up as alternating upswings and downswings in Figure 16.1.1 The peaks and troughs are marked by arrows. Ignoring minor business cycles, we can distinguish the following main periods. 1884 to 1902: Stagnation A world depression resulted in falling commodity prices for Java’s huge, export-producing plantation sector, magnified by coffee blight and sugar cane disease. GDP per capita peaked at Rp 188 in 1884, briefly rising in 1899 and 1900, and falling back to Rp 186 in 1902. Prolonged stagnation gave rise to official concern about the diminishing welfare (mindere welvaart) of the Javanese population. 1902 to 1929: Upswing Economic growth accelerated up to the eve of World War I, boosted by rising commodity prices. GDP per capita levelled off at around Rp 229 during the war (1914–18), surged in 1918–19, fell back during the sudden postwar recession of 1920–22, then advanced again to a peak of Rp 290 in 1929. 1930 to 1934: Downswing The worldwide depression of the 1930s saw income per capita contract sharply from Rp 290 in 1929 to just Rp 244 in the trough of 1934. THE CHALLENGE OF SUSTAINABLE DEVELOPMENT 201 TABLE 16.1 Political Periodisation Year Period To 1942 Colonial rule 1942–45 Japanese occupation 1945–49 Revolution 1950–66 Old Order 1966–98 New Order Post-1998 Reformation AA/Part3 23/3/01 6:26 PM Page 201 1934 to 1941: Upswing From the trough of 1934, economic recovery was rapid to 1937, slackening to 1939, before the surge in wartime demand pushed GDP per capita to a new high of Rp 309 in 1941. This phase of recovery and expansion was different from the preceding period because of the contribution of import-substituting manufacturing. 1942 to 1945: Catastrophic Decline The Japanese occupation combined with drought saw GDP per capita fall to less than half its 1941 level and about a quarter below its 1880 level. 1945 to 1957: Upswing From the all-time trough of 1945, GDP per capita recovered to a peak of Rp 237 in 1957, slightly exceeded (at Rp 238) in 1960. Nevertheless, this upswing was only by way of economic recovery. Because of population growth during the interim, the peak of Rp 237/8 was barely above the Depression trough of 1934. 1958 to 1967: Downswing Economic stagnation and decline in the later years of Guided Democracy were followed by the sharp credit squeeze of...