5 - Developmental Success? Economic Transformations in Indonesia

Summary

Bresnan's writings show that an understanding of Indonesia's economic transformation requires an examination of a complex array of events, personalities, institutions, interest groups, resources, ideas, and policies. In his 1993 assessment of the performance of the Soeharto regime, which “managed” Indonesia for about half of the Republic's existence since its independence in 1945, he praised its economic record of growth as being “well conceived and impressively pursued”. Less impressive was the effort on behalf of equity, “creatively shaped in the 1970s, on the defensive in the 1980s”. What remained to be desired was the ability of the Indonesian elite to fashion a new political consensus, “providing for a measure of power sharing beyond the executive and the army”.This was a very perceptive and fair assessment.

Little did he know that the financial crisis of the late 1990s would unravel a process of political change of unprecedented proportions that ushered Indonesia into a “great transition”. It provided a golden opportunity for Indonesians to reshape the country's political system. However, managing post-crisis economic recovery and reform has been a highly frustrating experience, especially since within a short period of seven years, Indonesia underwent four leadership changes. Bresnan was of the view that “the economy may continue to be held hostage to the social and political forces that made the crisis of 1998 so damaging in the first place”, and that make “the future of its transition still so difficult to chart”. This was another very perceptive and fair assessment.

Indonesia has experienced the most significant economic transformation during Soeharto's New Order. During the thirty-year period from 1966–96, the Indonesian economy grew by an average of 7.4 per cent per annum. In 1969, the year the First Five-Year Development Plan (Repelita I) was introduced, agriculture was still the dominant sector in the economy, contributing 36.2 per cent to the country's gross domestic product (GDP), while the share of manufacturing was only 7.6 per cent. By the end of the Fifth Five-Year Development Plan (Repelita V) in 1995, the share of agriculture had declined to 15 per cent while that of manufacturing rose to 25 per cent of GDP.