In lieu of an abstract, here is a brief excerpt of the content:

Indonesia’s Economic Transformation 53© 2003 Institute of Southeast Asian Studies, Singapore Introduction It is a fact that Indonesia’s economic performance in the first thirty years of the New Order government had been fairly impressive. In 1969, Indonesia’s per capita income was only about US$70. By 1996, the per capita income had increased more than tenfold to US$1080. The continued economic growth in the thirty years of the New Order period had transformed the structure of the economy. Using Chenery and Syrquin’s (1975) terms, structural change takes place as per capita income rises. Booth (1998) has stated that the years from the mid-1960s to the early 1980s were notable ones in Indonesian economic history. The average annual rate of growth of GDP accelerated to more than 7 per cent per annum. This period also coincided with a significant improvement in the country’s terms of trade. However, Indonesia was confronted with a series of problems in the 1980s. The decline in oil prices after 1982 sharply reduced export earnings and budget revenues. At the peak of the oil-boom years, 80 per cent of export earnings and 70 per cent of budget revenue came from oil. As a result, the large decline in oil prices severed Indonesia’s balance of payments. The government undertook some adjustment programmes to increase economic efficiency and altered its trade regime 53 INDONESIA’S ECONOMIC TRANSFORMATION Before and During the Economic Crisis MUHAMMAD CHATIB BASRI m n 3 Reproduced from The Indonesian Crisis: A Human Development Perspective, edited by Aris Ananta (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at . 54 Muhammad Chatib Basri© 2003 Institute of Southeast Asian Studies, Singapore to be more outward-looking, making the development of non-oil and gas exports a top priority. During 1983 to 1995, the government introduced no less than twenty-four packages of economic reforms aimed at increasing economic efficiency and encouraging investment as well as non-oil exports. Along with this change of orientation, the government also shifted its investment policy from investment control to investment encouragement. This adjustment programme commenced in 1983 and was intensified following the dramatic drop of oil prices in 1986. In 1983, the government cut public investment, initiated a major re-phasing of large capital-intensive projects, devalued the rupiah, and undertook financial reforms to remove interest-rate controls and credit ceilings. In 1984-86, tax reforms were introduced to mobilize domestic resources. Finally, various trade reforms were launched to improve the trade and industrial policy regime. In 1997, however, Indonesia faced the most serious problem in its economic history. The rupiah plummeted to the lowest level in history, and the Indonesian economy experienced negative economic growth, while the banking sector was paralysed. Since 1997, Indonesia has been mired in economic crisis, with fortunes rising or falling in concert with the rupiah. The economic situation at the peak of the crisis can be outlined in the following. The Central Bureau of Statistics estimates that at the end of 1998 nearly 50 million Indonesians were living in poverty. This is an incredible number, and it reached almost the number of poor people twenty years earlier (in 1976, 54 million lived below the poverty line). The situation in the business world was no less grave. At an exchange rate of Rp8000 to the U.S. dollar, 63 per cent of the companies listed on the Jakarta Stock Exchange (JSX) possessed ratios of dollar debt to total assets of 50 per cent or more. At exchange rates of Rp10,000 or greater, more than 70 per cent of the companies were in this position (Soesastro and Basri 1998). In 1998, the per capita income fell significantly to US$640. The total value of exports also experienced negative growth (–8.6 per cent) in 1998. After failing to prevent further depreciation of the rupiah in 1997, the government gave up its managed floating exchange rate to adopt a freely floating one. The declining foreign exchange reserve, together with other deteriorating variables in the domestic economy forced the government to turn to the International Monetary Fund (IMF) with its adjustment policies. However, in the course of 1998, political disturbances delayed the programme for some time, and the domestic economic condition worsened...

Share