Macroeconomic developments, policies and issues in Indonesia, 1950-2005: a review
List of Authors
  • Hossain, Akhtar

Keyword
  • Macroeconomic policies, inflation, capital flows, financial crisis, Indonesia

Abstract
  • This paper reviews the major macroeconomic developments, policies and issues in Indonesia within a political economy perspective since it gained recognition of independence from the Dutch in December 1949. It reveals that the impressive economic and social progress in this country over the past five and a half decades was not a smooth process: Indonesia, under both the Japanese occupation (1942-1945) and the nationalist-revolutionary leadership of President Sukarno (1945-1966), suffered from economic and political instability resulting in an economic and political crises in 1965. This led many observers to term the country an economic 'basket case'. The establishment of the military government under Lieutenant General Soeharto in 1966 provided the much needed economic and political stability over the next three decades (1967-1996). This turned out to be the 'golden era' of Indonesia's modem economic history when the traditional agricultural, albeit natural resource-rich, economy underwent impressive transformation into a balanced, outward-oriented industrialising economy. Then the 1997-98 currency-cum-financial crises came that lasted much longer than in other countries in the region and exposed the dark side of this country's economic miracle, which took the form of `corruption, collusion and nepotism or crony-capitalism in short.' Indonesia has slowly recovered and by 2004 moved to a higher growth path with improved economic, social and political institutions.

Reference
  • 1. Aghevli, Bijan B. and Mohsin S. Khan. 1977. Inflationary Finance and the dynamics of inflation: Indonesia 1951-72. American Economic Review 67(3):390-403
    2. Ananta, Aris and Yohanes Eko Riyanto. 2006. Riding along a bumpy road. ASEAN Economic Bulletin 23(1): 1-10.
    3. Arifianto, Alex. 2006. The new Indonesian social security law: a blessing or curse for Indonesians? ASEAN Economic Bulletin 23(1):57-74.
    4. Arndt, Heinz W. 1967. Economic disorder and the task ahead In Sukarno 's Guided Indonesia, ed.
    Tan, Tjin-kie, pp.129-140. Melbourne: Jacaranda Press.
    5. Arndt, Heinz W. 1971. Banking in hyperinflation and stabilization. In The Economy of Indonesia: Selected Readings, ed. Bruce Glassbumer, pp. 359-395. Ithaca and London: Cornell University Press.
    5. Arndt, Heinz W. 1984 The Indonesian Economy: Collected Papers. Singapore: Chopmen.
    6. Arndt, Heinz W and Hal Hill (eds). 1999. Southeast Asia's Economic Crisis: Origins, Lessons and the Way Forward. Singapore: Institute of Southeast Asian Studies.
    7. Asian Development Bank. Various Years. Asian Development Outlook Manila: ADB.
    8. Asher, Mukul G. and Anne Booth. 1992. Fiscal policy. In The Indonesian Economy During the Soeharto Era, ed. Anne Booth, pp.41-76. Kuala Lumpur: Oxford University Press.
    9. Azis, Iwan J. 2006. A drastic reduction of fuel subsidies confuses ends and means. ASEAN Economic Bulletin 23(1):114-136.
    10. Bardhan, Pranab. 1997. Corruption and development: review of issues. Journal of Economic Literature 35(3): 1320-1346.
    11. Bhattacharya, A. and M. Pangestu. 1993. The Lessons of East Asia: Development Transformation and Public Policy. Washington, D.C.: World Bank.
    12. Boediono. 2002. The IMF support program in Indonesia: comparing its implementation under three presidents. Bulletin of Indonesian Economic Studies 38(3):385-391.
    13. Boediono. 2005. Managing the Indonesian economy: some lessons from the past. Bulletin of Indonesian Economic Studies 41(3):309-324.
    14. Booth, Anne. 1990. Foreign trade and domestic development in the colonial economy. In Indonesian Economic History in the Dutch Colonial Era, ed. Anne Booth, W.J. O'Malley and A. Weidemann, pp. 267-295. New Haven, CT: Yale University Press.
    15. Booth, Anne 1998. The Indonesian Economy in the Nineteenth and Twentieth Centuries: A History of Missed Opportunities. London: Macmillan.
    16. Booth, Anne. 2000. Poverty and inequality in the soeharto era: an assessment. Bulletin of Indonesian Economic Studies 36(1): 73-104.
    17. Booth, Anne and Peter McCawley. 1981. The Indonesian economy since the mid-1960s. In The Indonesian Economy During the Soeharto Era, ed. Anne Booth and Peter McCawley, pp.1-22. Kuala Lumpur: Oxford University Press.
    18. Bresnan, J. 1993. Managing Indonesia: The Modern Political Economy. New York: Columbia University Press.
    19. Chalmers, I. 1997. Introduction. In The Politics of Economic Development in Indonesia, ed. I. Chalmers and V.R. Hadiz, pp.1-35. London: Routledge.
    20. Cho, Lee-Jay and Yoon Hyung Kim. 1991. Major economic policies of the Park administration. In Economic Development in the Republic of Korea: A Policy Perspective, ed. Lee-Jay Cho and Yoon Hyung Kim, pp.15-40. Honolulu: East-West Center.
    21. Claessen, Stijn et at 1999. Financial Restructuring in Fast Asia: Halfway There? Financial Sector Discussion Paper No.3. Washington DC.: World Bank.
    22. Cole, David C. and Betty F. Slade 1999. Comments on the IMF Report on IMF-Supported Programs in Indonesia, Thailand and Korea: A Preliminary Assessment (mimeo), 2 February.
    23. Dick, Howard. 2002. Formation of the nation-state, 1930s-1966. In The Emergence of a National Economy, ed. Howard Dick, Vincent J.H. Houben, J.Thomas Lindblad and Thee Kian Wie, pp.153-193. Sydney: Allen and Unwin.
    24. Emil Salim. 2003. Recollections of my career. In Recollections: The Indonesian Economy, 1950s-1990s, ed. Thee Kian Wie, pp.187-219. Singapore- Institute of Southeast Asian Studies.
    25. van der Eng, Pierre. 1992. The real domestic product of Indonesia, 1880-1989. Explorations in Economic History 29:343-373.
    26. van der Eng, Pierre. 2001. Indonesia's growth performance in the 20th century. In The Asian Economies in the Twentieth Century. London: Edward Elgar.
    27. van der Eng, Pierre. 1993. The Colonial 'Drain' from Indonesia, 1823-1900. Research School of Pacific Studies. Canberra: Australian National University.
    28. van der Eng, Pierre. 2004. Business in Indonesia: old problems and new challenges. In Business in Indonesia: New Challenges, Old Problems, ed. M. Chatib Basri and Pierre van der Eng. Singapore:
    Institute of Southeast Asian Studies.
    29. Feith, Herbert 1962. The Decline of Constitutional Democracy in Indonesia. Ithaca, N.Y: Cornell University Press.
    30. Feith, Herbert and Lance Castles (eds.). 1970. Indonesian Political Thinking, 1945-1965. Ithaca, New York: Cornell University Press.
    31. Gillis, M. 1984. Episodes in Indonesian economic growth. In World Economic Growth, ed. Arnold C. Harberger. San Francisco: Institute for Contemporary Studies.
    32. Glassbumer, Bruce. 1971. Economic policy-making in Indonesia, 1950-1957. In The Economy of Indonesia: Selected Readings, ed. Bruce Glassbumer, pp.70-98. Ithaca: Cornell University Press.
    33. Grenville, Stephen. 1981. Monetary policy and the formal financial sector. In The Indonesian Economy During the Soeharto Era, ed. Anne Booth and Peter McCawley, pp.102-125. Kuala Lumpur: Oxford University Press.
    34. Hatta, Mohammad. 1972. One Indonesian view of the Malaysia issue. In Portrait of a Patriot: Selected Writings by Mohammad Hatta, pp. 576-581. The Hague: Mouton Publishers.
    35. Higgins, Benjamin. 1957. Indonesia's Economic Stabilization and Development. New York: Institute of Pacific Relations.
    36. Higgins, Benjamin. 1968. Economic Development. 2th edn. New York: W.W. Norton.
    37. Higgins, Benjamin and Jean Higgins. 1963. Indonesia: The Crisis of the Millstones. Princeton, New Jersy: D. Van Nostrand Company.
    38. Hill, Hal. 1990. Indonesia's industrial transformation: Parts I and II. Bulletin of Indonesian Economic Studies 26(2):79-120 and 26(3):75-110.
    39. Hill, Hal. 1999. An overview of the issues. In Southeast Asia's Economic Crisis: Origins, Lessons and the Way Forward, ed. Heinz W. Arndt and Hal Hill, pp.1-15. Singapore: Institute of Southeast Asian Studies.
    40. Hill, Hal. 2000. The Indonesian Economy. 2nd edn. Cambridge, London: Cambridge University Press.
    41. Hollinger, W.C. 1996. Economic Policy Under President Soeharto: Indonesia's Tiventy-Five Years Record Washington: US Indonesia Society.
    42. Hughes, Helen. 1999. Corporatist (Crony) Capitalism and the East Asian Crisis. Unpublished Paper. Canberra: Australian National University.
    43. Hunter, Alex. 1971. Notes on Indonesian population. In The Economy of Indonesia: Selected Readings, ed. Bruce Glassbumer, pp.183-195. Ithaca and London: Cornell University Press.
    44. Hussain, Qaizer and Clas Wihlborg. 1999. Corporate Insolvency Procedures and Bank Behavior. A Study of Selected Asian Countries. IMF Working Paper. Washington, D.C.: IMF
    45. International Centre for the Study of East Asian Development (ICSEAD). East Asian Economic Perspectives, Various Years. Kitakyushu, Japan.
    46. International Monetary Fund. International Financial Statistics Yearbook. Various Years. Washington, D.C.: IMF.
    47. International Monetary Fund (IMF). 1995a. World Economic and Financial Surveys: World Economic Outlook (May). Washington, D.C.: IMF.
    48. International Monetary Fund (IMF). 1995b. International Capital Markets: Developments, Prospects, and Policy Issues (August). Washington, D.C.: IMF.
    49. International Monetary Fund (IMF). 1997a. World Economic and Financial Surveys: World Economic Outlook (October). Washington, D.C.: IMF.
    50. International Monetary Fund 1997b. World Economic and Financial Surveys: International Capital Markets; Developments, Prospects and Policy Issues (November). Washington, D.C.: IMF.
    51. Internationa l Monetary Fund. 1999. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment. Occasional Paper No.178, Washington D.C.: IMF.
    52. International Monetary Fund. International Financial Statistics Yearbook. Various Years. Washington, D.C.: IMF.
    53. International Monetary Fund. http://www.imforg/country information/Indonesia.
    54. Iongh, R.C. de. 1967. West Irian confrontation. In Sukarno's Guided Indonesia, ed. Tjin-ke Tan, pp.102- 114. Melbourne: Jacaranda Press.
    55. James, W.E. and S.M. Stephenson. 1993. Indonesia's Experience with Economic Policy Reform: Reversing the Conventional Wisdom about Sequencing. Discussion Paper. Jakarta.
    56. Jomo, K.S. (ed.). 1998. Tigers in Trouble: Financial Crises, Liberalisation and Crises in East Asia. London: Zed Books.
    57. Kahin, A.R. and GM. Kahin. 1995. Subversion as Foreign Policy: The Secret Eisenhower and Dulles Debacle in Indonesia. New York: New York.
    58. Komine, T. 1998. Currency Crisis and Financial Turmoil in Asia and the Potential for Future Growth. Paper presented at the International Symposium on Foreign Direct Investment in East Asia, Tokyo.
    59. Krugman, Paul. 1994. The myth of Asia's miracle. Foreign Affairs 73(Nov/Dec):62-78.
    60. Kuncoro, Ari. 2006. Corruption and business uncertainty in Indonesia. ASEAN Economic Bulletin 23(1):11-30.
    61. Lane, T. et al. 1999. IMF-Supported Programs in Indonesia, Korea, and Thailand. Occasional Paper 178, Washington, DC: IMF.
    62. Lee Khoon Choy. 1999. A Fragile Nation: The Indonesian Crisis. Singapore: World Scientific Publishing.
    63. Legge, J.D. 1972. Sukarno: A Political Biography. New York: Praeger.
    64. Lindblad, J. Thomas. 2002. The late colonial state and economic expansion, 1900-1930s. In The Emergence of a National Economy, ed. Howard Dick, Vincent J.H. Houben, J.Thomas Lindblad and Thee Klan Wie, pp.111-152. Sydney: Allen and Unwin.
    65. Lindgren, C.J. and Associates 1999. Financial Sector Crisis and Restructuring Lessons from Asia. Occasional Paper 188. Washington, D.C.: IMF.
    66. Mackie, Jamie 1971. The Indonesian economy, 1950-1963. In The Economy of Indonesia: Selected Readings, ed. Bruce Glassbumer, pp.16-69. Ithaca and London: Cornell University Press.
    67. Mackie, Jamie. 1999. Tackling the Chinese problem. In Post-Soeharto Indonesia: Renewal or Crisis? Ed. Geoff Forrester, pp.187-197. Singapore: Institute of Southeast Asian Studies.
    68. Mackie, J.A.C. and A. Maclntyre 1994. Politics. In Indonesia's New Order: The Dynamics of Socio-Economic Transformation, ed. Hal Hill, pp.1-53. Sydney: Allen and Unwin.
    69. Maddison, Angus. 1989. Dutch income in and from Indonesia, 1700-1938. In Economic Growth in
    Indonesia, 1820-1940, ed. Angus Maddison and Ge Prince, pp.15-41. Dordrecht-Holland: Foris Publications Holland.
    70. Maddison, Angus 1990. Dutch colonialism in Indonesia: a comparative perspective. In Indonesian
    Economic History in the Dutch Colonial Era, ed. Anne Booth, W.J. O'Malley and A. Weidemann, pp. 322-335, New Haven, CT: Yale University Press.
    71. Manning, Chris. 1998. Indonesian Labour in Transition: An East Asian Success Story? London and Melbourne: Cambridge University Press.
    72. Masters, Edward. 2003. The ups and downs of US-Indonesia relations. In Indonesia Matters: Diversity, Unity, and Stability in Fragile Times, ed. Thang D Nguyen and Frank-Jurgen Richter, pp.185-197. Singapore: Times Editions.
    73. McKay, Elaine (ed.). 1976. Studies in Indonesian History. Carlton, Victoria: Pitman Publishing Pty Ltd.
    74. McLeod, Ross H. 2000. Soeharto's Indonesia: a better class of corruption. Agenda 7(2):92-112.
    75. McLeod, Ross. H. 1998. Indonesia. In East Asia in Crisis: From Being a Miracle in Needing One?, ed. Ross H. McLeod and R. Garnaut, pp.31-48. London: Routledge.
    76. McLeod, Ross. H and R. Garnaut (eds.). 1998. East Asia in Crisis: From Being a Miracle in Needing One? London: Routledge.
    77. McLeod, Ross H. 2004. Dealing with bank system failure: Indonesia, 1997-2003. Bulletin of Indonesian Economic Studies 40(1):95-116.
    78. McLeod, Ross H. 2005. The struggle to regain effective government under democracy in Indonesia. Bulletin of Indonesian Economic Studies 41(3): 367-86.
    79. Montes, M.F. 1998. The Currency Crisis in Southeast Asia. Singapore: Institute of Southeast Asian Studies.
    80. Myrdal, Gunnar. 1968. Asian Drama -An Inquiry into the Poverty of Nations. Harmondsworth: Penguin.
    81. Nasution, Anwar. 2000. The meltdown of the Indonesian economy: causes, responses and lessons. ASEAN Economic Bulletin 17(2):148-162.
    82. Nguyen, Thang D. and Frank-JErgen Richter (eds.). 2003. Indonesia Matters: Diversity, Unity, and Stability in Fragile limes. Singapore: Times Editions.
    83. Paauw, Douglas S. 1960. Financing Economic Development: The Indonesian Case. Glencoe: Free Press.
    84. Paauw, Douglas S. (1963). From colonial to guided economy. In Indonesia, ed. Ruth T. McVey, pp.155-247. New Haven: HRAF Press for the Southeast Asia Studies at Yale University.
    85. Panglaykim, J. and Heinz W. Arndt. 1966. Survey of recent developments. Bulletin of Indonesian Economic Studies 4(June):1-35.
    86. Pangestu, M. and Miranda Swaray Goeltom. 2001. Survey of recent developments. Bulletin of Indonesian Economic Studies 37(2):141-171.
    87. Penders, C.L.M. 1974. The Life and Times of Sukarno. Rutherford: Fairleigh Dickinson University Press.
    88. Pomeleamo, M. 1998. The East Asian Crisis and Corporate Finances: The Untold Story. World Bank Working Paper WPS 1900. Washington D.C.: World Bank
    89. Prawiro, R. 1998. Indonesia 's Struggle for Economic Development: Pragmatism in Action. Kuala Lumpur: Oxford University Press.
    90. Radelet, Steven. 1995. Indonesian foreign debt: headed fora crisis or financing sustainable growth? Bulletin of Indonesian Economic Studies 31(3): 39-72.
    91. Radelet, Steven and Jeffrey Sachs. 1998. The East Asian Financial Crisis: Diagnosis, Remedies, Prospects. Brookings Papers on Economic Activity 1-90.
    92. Robison, Richard. 1986. Indonesia: The Rise of Capital. Sydney: Allen and Unwin.
    93. Sadli, Mohammad. 1970. Inflation, the drifting kite. In Indonesian Political Thinking, ed. Herbert Feith and Lance Castles, pp. 396-400. Ithaca, New York: Cornell University Press.
    94. Sadli Mohammad 1993. Recollections of my career. Bulletin of Indonesian Economic Studies 29(1):35-51.
    95. Sarel, M. 1997. Growth and Productivity in ASEAN Economies. IMF Working Paper WP/97/97. Washington, D.C.: IMF.
    96. Selo Soemardjan. 1988. Indonesia: A Socio-Economic Profile. New Delhi: Sterling Publishers.
    97. Sjafruddin Prawiranegara. 2003. Recollections of my career. In Recollections: The Indonesian Economy, 1950s-1990s, ed. Thee Kian Wie, pp.77-86. Singapore: Institute of Southeast Asian Studies.
    98. Subroto. 2003. Recollections of my career. In Recollections: The Indonesian Economy, 1950s-1990s, ed. Thee Klan Wie, pp.223-250. Singapore: Institute of Southeast Asian Studies.
    99. Sumitro Djojohadikusomo. 1986. Recollections of my career. Bulletin of Indonesian Economic Studies 22(3): 27-39.
    100. Sumitro Djojohadikusomo. 2003. Recollections of my career. In Recollections: The Indonesian Economy, 1950s-1990s, ed. Thee Kian Wie, pp.49-65. Singapore: Institute of Southeast Asian Studies.
    101. Sundrum, R.M. 1986. Indonesia's rapid economic growth: 1968-1981. Bulletin of Indonesian Economic Studies 23(3): 40-69.
    102. Sundrum, R.M. 1988. Indonesia's slow economic growth: 1981-86. Bulletin of Indonesian Economic Studies 24(1):37-72.
    103. Suryahadi, Asef. 1999. The economic crisis: effects and policy framework. In Post-Soeharto Indonesia: Renewal or Chaos?, ed. Geoff Forrester, pp.153-160. Singapore: Institute of Southeast Asian Studies.
    104. Syrquin, M. 1988. Patterns of structural change. In Handbook of Development Economics (Vol.1), ed. H. Chenery and T.N. Srinivasan. Amsterdam: North-Holland.
    105. Tan, Tjin-lcie. 1967. Sukamian economics. In Sukarno 's Guided Indonesia, ed. Tjin-kie Tan, pp.29-45. Melbourne: Jacaranda Press.
    106. Tan, Tjin-kie (ed.). 1967. Sukarno's Guided Indonesia. Melbourne: Jacaranda Press.
    107. Taylor, Jean G. 2003. Indonesia: Peoples and Histories. New Haven and London: Yale University Press.
    108. Thee Kian Wie. 1984. Japanese direct investment in Indonesian manufacturing. Bulletin of Indonesian Economic Studies 20(2):90-106.
    109. Thee Klan Wie 2002. The Soeharto era and after: stability, development and crisis, 1966-2000. In The Emergence of a National Economy, ed. Howard Dick, Vincent J.H. Houben, J.Thomas Lindblad and Thee Kian Wie, pp.194-243. Sydney: Allen and Unwin.
    110. Thee Kian Wie. 2003. Introduction. In Recollections: The Indonesian Economy, 1950s-1990s, ed. Thee Kian Wie, pp.1-43. Singapore: Institute of Southeast Asian Studies.
    111. Thomas, K.D. and P. Drysdale. 1964. Indonesian inflation 1951-60. Economic Record Dec.: 535-553.
    112. Usman, Marzuki. 2003. A vision of Indonesia's political future by 2020. In Indonesia Matters: Divers.ity, Unity, and Stability in Fragile Times, ed. Thang D. Nguyen and Frank-liirgen Richter, pp.223-227. Singapore: Times Editions.
    113. Vichynond, P. 1998. Management of financial flows in Southeast Asia. Paper presented at the UNUAERC Conference on 'Asia and Africa in the Global Economy', Tokyo.
    114. Wanandi, Jusuf. 2003. The Suharto regime 1967-1998: what went wrong? In Indonesia Matters: Diversity, Unity, and Stability in Fragile Times, ed. Thang D. Nguyen and Frank-Jurgen Richter, pp.17-27. Singapore: Times Editions.
    115. World Bank. 1993. The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press.
    116. World Bank. 1998. East Asia: The Road to Recovery. Washington, D.C.: World Bank.
    117. World Bank, World Development Indicators. Various years.
    118. World Bank, World Development Report. Various years.
    119. Zainu'ddin. 1976. the role of the military in Indonesian society. In Studies in Indonesian History, ed. Elaine McKay, pp. 202-236. Carlton, Victoria: Pitman (Australia) Publishing.