Economy Policies of Indonesia

Around the year 1968, Indonesia has elected their second president named Suharto. He was elected due to the fall of the first president named Sukarno. When Suharto was elected, he established a rule called the “New Order”. The new order was named that way to distinguish itself from Sukarno’s new order. In the mid 1960s, Indonesia’s  economic situation had reached its worst condition. The economy suffered from the chaotic political course set out by Sukarno. This is because Sukarno had spent his lifetime fighting in the political arena, and not thinking about the economy. After Suharto took over Indonesia, he made radical changes in the economic policies. The economical policies established by the New Order can be separated into three different parts; Economic Recovery, rapid economic growth and increasing government intervention, and export-led growth and deregulation.

   Under the Economic recovery, this was the first step that Suharto took. He made Indonesia back into the world economy by rejoinging the International monetary Fund (IMF), the united Nations (UN) and the World Bank. This is because Indonesia needed financial assistance and foreign aid from western countries. The second step under the Economic recovery was curtailing the hyperinflation. Suharto turned a group of economic technocrats to come up with a plan for economic recovery.

  

    The second economic policy was Rapid Economic growth and Increasing government intervention. Until the year 1982, rapid annual economic growth of at least 5% was maintained. This was because Indonesia benefited significantly from two oil booms that emerged in the 1970s. The first one began when the Petrolium exporting countries (OPEC), cut its exports drastically, causing a major rise in oil prices. Indonesia also gained benefit from the second oil boom when the Iranian revolution disrupted oil production, which causes the oil to have massive price increase. Because of these oil booms, New Order’s export earnings as well as government revenues rose steeply.

   Export – led growth and deregulation is the last economic policy established by Indonesia. Since from the early 1980’s the price of oil began to fall again. The government had to take new measures to restore macroeconomic stability. Tax law was introduced to increase revenue from non oil taxes and bank deregulation measures were taken. This deregulation improves the investment climate for private investors. This made Indonesia’s Gross Domestic Product percentage rise to nine percent per year.