Half a century of Indonesian economic development: Continuity and change

Abstract

Few countries have experienced such dramatic changes in economic fortunes and political governance as Indonesia since the 1960s. The world's fourth most populous nation and the ninth largest economy (in terms of purchasing power parity or PPP), it experienced more or less continuous economic decline for at least half a century prior to the mid-1960s (van der Eng 2002). By then it was one of the world's poorest countries. Two of the most influential studies of that period characterized the country as "a chronic economic dropout", in the words of Higgins (1968), the leading development economics text, and as a country with little prospect of development in the seminal socioeconomic survey of Asia by Myrdal (1968).

Then, in a remarkable turnaround, from 1966, the country achieved rapid economic development for the next three decades, such that it was classified as one of the "East Asian miracle economies" in the World Bank's (1993) major comparative study of the early 1990s. A decade and a half later, another World Bank-sponsored comparative analysis, by the Commission on Growth and Development (2008), concluded that, over the preceding century, Indonesia was one of only thirteen economies among the 150 studied to have achieved rapid economic growth for a sustained period of time. According to one analysis, by Australian Treasury staff (Au-Yeung et al. 2014), it may well be the fourth largest economy in the world by 2050.

Indonesia has also had a history of consistently proving the doomsayers wrong. The pessimism of the mid-1960s has already been referred to. Influential theories of economic dualism, backwardsloping supply curves and non-economic behaviour in peasant agriculture originated in colonial Indonesia, famously developed by J.H. Boeke. Yet this was an analytical construct reflecting a system of governance that denied the population political and economic opportunities. Continuing this theme, at the time of the country's sudden independence in 1945, many observers saw little prospect for national unity, socio-economic development, and territorial preservation.