Indonesia: Starting Over

Indonesia has been one of the most remarkable development success stories in the last third of the twentieth century. In the mid- 1960s, it was one of the poorest countries in the world, with a per capita income below that of many African and South Asian countries. It had experienced little economic growth for thirty years, it was on the verge of hyperinflation, it was engulfed in political turmoil, and it had begun to disengage from the world community and economy. Living standards were stagnant and about two thirds of the population lived in abject poverty….

No one at that time would have dared to imagine—much less to predict—that just thirty years later Indonesia would be regarded as a dynamic “tiger” economy, and a member of that most exclusive club, the World Bank “East Asian Miracle Economies.” The notion that Indonesia’s economy would expand six-fold over this period, and that according to World Bank projections it could become the world’s fifth-largest economy by the year 2020, would have appeared preposterous in the gloom of 1964-66. Yet that is precisely what has occurred in these three decades: economic growth has been among the highest in the world, and it has been accompanied, with a lag, by striking improvements in social indicators.”

Hal Hill, May 1997

[Very] suddenly and unexpectedly, everything collapsed [in Indonesia] in the latter half of 1997 …in the onslaught of the Asian financial crisis. The extent of the turnaround is nothing short of astounding. Economic output is expected to contract by about 15 percent, after expanding 8 percent in 1996 and 5 percent in 1997. The single-year collapse in growth is among the largest recorded anywhere in the world in the post- World War period. Millions of Indonesians, many just surviving over the poverty line during the good times, have lost their jobs. Food production has been disrupted…. Prices for many export commodities…have fallen on world markets. Investors, both foreign and domestic, have fled to safer havens. The banking system is moribund and thousands of firms are facing the prospect of bankruptcy and closure.”

Steven Radelet, September 1998

Since Indonesia’s sudden reversal of fortune, globalism interrupted, a great deal more has happened there than capital flight, currency collapse, and a tripling of the poverty rate. The regime has changed twice—the regime, not just the government—once abruptly, in a spasm of violence, once glacially, with troubled and unnerving hesitation. The first time, in late 1998, Suharto, the architect, or anyway the godfather, of both the expansion and the collapse, walked away amid wild disorder—race riots, looting, bloody clashes between students and the army, Jakarta on fire, Surakarta ransacked—leaving B.J. Habibie, his just- appointed crony vice president, haplessly behind to sort through the ruins. The second time, a protracted, vastly complicated, ultimately indecisive, but, so it seems, fair and open national election (ninety million voters, forty-eight parties, seven hundred electors) ended last autumn with the midnight designation, by …

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