Indonesian industrialisation and industrial policy: Catching up, slowing down, muddling through

Abstract

This chapter provides a policy-oriented analytical narrative of Indonesian industrialization, examining the period since the 1960s but with particular emphasis on the 'reformasi era' this century. It examines here the factors explaining the slower industrial growth recorded since the Asian Financial Crisis (AFC), including the sometimes muddled debate concerning the 'deindustrialisation' issue. Indonesia's industrial ownership patterns reflect the interplay of history, policy, and industrial organisation factors. The chapter draws out some policy implications. The industrial policy debate touches upon practically every aspect of development policy, and so the orientation of our discussion is directed more to breadth than to depth. The Korean models of 'guided' industrial policy, led by dynamic, internationally oriented conglomerates, have always had great intellectual appeal. The major labour-intensive and footloose industries grew rapidly during the switch towards export orientation in the mid-1980s. Heavy industry grew quickly through to the mid-1980s in response to protection and major state investments.