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Indonesia In The 1980s Essay

1344 words - 6 pages

Indonesia’s industrialisation policies play an important role in supporting the achievement of high and sustained economic growth. The move towards export promotion from import substitution in the mid-1980s succeeded in restructuring the economy from agriculture to semi-industrious.
As a result, the role of industry within the economy has become increasingly important, and whilst it has been successful within its own sphere of socio-economic prosperity and sustainability, in relative terms, Indonesia has still been outperformed by the 4 ASIAN tigers. Whilst bold and decisive redirection of economic policy is effective, if the implementation and execution of new policies fails to anticipate ...view middle of the document...

The Country was in anguish, hindered by their leaders’ contempt for macro-economics and any western influence, his solution was Berdikari that Indonesians should be standing on their own two feet, and reach economic self-sufficiency, free from foreign influence. Right.

Fast Forward to 1966 and President Suharto assumed control of a poverty stricken, poor and collapsing economy, the arrival of the ‘New Order’. Almost overnight, the regime rehabbed the economy with policy directives to stimulate the economy and deliver a balanced budget. Armed with his trusted technocrats, PhD economists, in particular Wardhana, Minister of Finance from 1968-1983 and then Coordinating Minister for Finance and Industry from 1983-1988 (NB: he later held positions at the World Bank and IMF), and a group of ‘nationalists’ who believed the government should play a role in the economy, favouring indigenous businesses, Suharto proceeded to drag Indonesia out of socio-economic darkness and into the spotlight. Academics hold the view that Indonesia’s industrialisation policy for import substitution was implemented in parallel with the oil boom beginning in 1973. Between 1971-1981, economic growth averaged 7.7 percent. With the Oil boom of the 1970’s, the government’s increased revenue stream impeded on expansive fiscal policy, the technocrats advice to establish a secure market driven economy that attracted foreign investment was considered unnecessary.

Import substitution is a trade and economic policy that advocates replacing foreign imports with domestic products premised on reducing independence on foreign supply through industrialisation of the local economy. It is a common fiscal policy of economies in the global south during the 1980s. State-induced industrialisation through spending is heavily influenced by Keynesian and socialist economic thought, thought to originate with Latin American Structuralism from the 1950s to the 1980s.
The road to progress is not always so straightforward. The first 5 year plan (Repelita I – 1969-1974) designated cement and agricultural machinery as priority areas for industrialisation. To coincide with this, policy makers took aim at the fledgling automobile industry, requiring car manufacturers to switch from semi-knockdown production to full knockdown production. Considering these developments, import substitution arguably began at with economic action plans in 1969. At the close of 1973, an international oil shock, poor performance by the agricultural sector because harvests did not deliver, and the frustration of a market capped by political desire to maintain market control at the expense of foreign capital investment, culminated in riots in 1974 during the visit of Japanese Prime Minister Tanaka. The downturn in crude oil prices, peaking in 1982 forced the hand of the Ministry of Finance to reconsider industrialisation policy of import substitution. So it was not until 1982 that Suharto, with his enormous increase in...

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