III - Energy as a Development Resource: The Indonesian Experience

Summary

Indonesia proclaimed its independence in 1945, and after several armed clashes with the Dutch obtained international recognition in 1950. But it was only after the 1965 attempted coup d’état and a political and economic stabilization programme that Indonesia in 1969 embarked on planned economic development. Energy was already an important part of the first five-year development plan, or the first REPELITA, covering the period 1969-73.

THE FOUR REPELITAS

During the early 1960s Indonesia had already prepared to consolidate the fledgling domestic oil industry, set up in the aftermath of a series of acts of nationalization on assets of several foreign oil companies during the latter part of the 1950s. Following the turmoil of 1965-66, the Indonesian economy was opened to foreign investors, and one of the first groups of investors consisted of a few small, independent oil companies. When these companies succeeded in finding oil, the large oil companies followed suit. Oil production then steadily increased.

In the meantime, the government launched a stabilization and rehabilitation programme to improve the economy. Inflation was greatly reduced from 500-600 per cent per year during 1965-66 to less than 30 per cent within three years, and the currency was thus stabilized. Concurrently the physical infrastructure was restored and upgraded. The government gave the highest priority to agriculture, especially to food production. The textile industry was also accorded top priority. The most important policy change was on the government's own role of assuming only indirect control of the economy in contrast to the previous “Old Order” practice of direct control: the prices of only a few basic necessities remained under control. The private sector responded in a positive manner.

Investment increased and the economy grew rapidly. The basic needs of the people for food and clothing were met. Trade and industrial activity picked up. The increased oil exploration activity brought results: oil production expanded rapidly, and large reserves of gas were discovered in 1972.