Indonesia Since Independence – Economic New Order

Building its political legitimacy  upon promises to revive the moribund Indonesian economy

The new Soeharto administration wasted no time in addressing the fundamental problems of inflantion and stagnation. Americsn trained  economists were called upon to oversee the rapid reintegration of indonesia into the world economy, and in a short space of time, foreign invesment laws were liberalized, monetary controls were imposed, and western aid was sought and received to replenish the nation’s exhausted foreign exchange reserves.

These measures formed the cornerstones of Soeharto’s economic “new order,” and served to dramatically curb inflantion and set the nation on a course of rapid economic growth by the early 1970’s. Indonesia’s first five-year plan, Repelita I, was design to encourage growth by attracting foreign invesment. Most of the targets of the plan were achieved-a first wave of investors moved in to take advantage of Indonesia’s vast natural reserves of copper, tin, timber and oil, setting up facilities to extract these raw materials in Sumatera, Sulawesi,Kalimantam and Irian Jaya.

As the political stability of the region seemed more assured, a second wave investory, largerly Javanese and local Chinese, set up a wide variety of urban-based manufacturing industries. By 1975, textile manufacturing alone accounted for US$708 million worth of invesment, and the economy was rocketing.

By far the greatest benefits, however, came from oil. The story began in northern Sumatera in 1883 when a Dutch planter took shelter from a storm in a native shed and noticed a wet torch burning brightly. Inquiring about this, he was led to a nearby spring where a black viscous substance lay thick across the water. The discovery soon led to the formation of Royal Dutch Shell Company, and eventually to the establishment of Indonesia as the world’s fifth largest OPEC producer.

From a total of US$323 million in 1996, oil exports rote to US$5,2 billion in 1974, largely due to the steep OPEC price3 hikes of the early 1970s. Today oil has come to account for roughly 60 percent  of the state’s total revenues, and the flood of ptrodillars has been used to fund not only a number of capital works programmers but also a significant upgranding of the nation’s huge civil service.

The most impressive advances have been in education, particularly at the primary level. Between 1972 and 1978, no less than 26,677 primary schools were built, bringing the percentage of children enrolled from 69 to 84. Primary school teachers today account for roughly a thrid of the nation’s 2,3 million government employees.

Indonesia’s civil service though is not without its problems. Despiyte 100 percent across the-board wage hikes in the early 1970s, pay levels remain low. In 1983, over 70 percent of civil servants were receiving less than US$20 per week. Inefficiency and corruoption are the result, compounding a serious lack of expertise and training. Only 26 percent of all government employees (including teachers) have more than a junior high school education.

A different sort of problem arose within the government body responsible for the oil bonanza, state Oil and Natural Gas Corporation, Pertamina. In the early 1970s, under the direction of Colonel Ibnu Sutowo, Pertamina poured huge sums of money into projects intended to reduce Indonesia’s dependence on foreign technology and imports. These included a floating fertilizer plant to be anchored over offshore gas fields, the massive Krakatau steel mill in West Java, a three million ton tanker fleet, petrochemical and refining plants, as well as several non industrial projects such as a first class hospital, a sports stadium, a chain of hotels, an airline and a golf course.

Ibnu Sutowo’s flamboyant spending came to an abrupt halt in 1975, when Pertamina an nounced that it was defaulting on one of its foreign bank loans. Sutowo, it turned out, had recklessly borrowed money that he had no chance of repaying, clocking up over US$10 billion on foreign debts in the process! In the end, the Indonesian govrenment was saddled with one of the largest peacetime losses any country has ever suffered, and many industrial projects had to be scrapped or rescheduled.

–> Read Also : Indonesia Since Independence – Peace and Progress

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