page_title: Economic history of Indonesia
section_title: Suharto presidency
hierarchical_section_title: Economic history of Indonesia / Modern era / Suharto presidency
caption_attribution_description: English: Suharto, second President of the Republic of Indonesia, at the start of his sixth term
context_page_description: The economic history of Indonesia is shaped by its geographic location, its natural resources, as well as its people that inhabited the archipelago that today formed the modern nation-state of the Republic of Indonesia. The foreign contact and international trade with foreign counterparts had also shaped and sealed the fate of Indonesian archipelago, as Indians, Chinese, Arabs, and eventually European traders reached the archipelago during the Age of Exploration and participated in the spice trade, war and conquest.
  By the early 17th century, the Dutch East India Company, one of the world's earliest multinational companies, had established their base in the archipelago as they monopolised the spice trade. By 1800, the Dutch East Indies colonial state had emerged and benefited from cash crop trades of coffee, tea, quinine, rubber and palm oil from the colony, also from the mining sector: oil, coal, tin and copper. The colonial state would be succeeded by the Indonesian Republic after World War II.
context_section_description: Following President Sukarno's downfall, the New Order administration brought a degree of discipline to economic policy that quickly brought inflation down, stabilised the currency, rescheduled foreign debt, and attracted foreign aid and investment. (See Berkeley Mafia). Indonesia was until recently Southeast Asia's only member of OPEC, and the 1970s oil price hike provided an export revenue windfall that contributed to sustained high economic growth rates, averaging over 7% from 1968 to 1981. GDP per capita grew 545% from 1970 to 1980 as a result of the sudden increase in oil export revenues from 1973 to 1979. Due to high levels of regulation and dependence on declining oil prices, the growth slowed to an average of 4.3% per annum between 1981 and 1988. Subsequently, a range of economic reforms were introduced in the late 1980s including a managed devaluation of the rupiah to improve export competitiveness, and deregulation of the financial sector. Foreign investment flowed into Indonesia, particularly into the rapidly developing export-oriented manufacturing sector. As a result, the economy grew by an average of over 7% from 1989 to 1997.
  Such high growth, however, masked several structural weaknesses in the economy. Growth came at a high cost in terms of weak and corrupt institutions, severe public indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia's natural resources, and culture of favours and corruption in the business elite. Corruption particularly gained momentum in the 1990s, reaching to the highest levels of the political hierarchy. As a result, the legal system was fragile, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy. Banking practices were very unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restrictions all contributed to economic distortions.
caption: Under Suharto's New Order administration, Indonesia enjoyed sustained economic development (1970s to 1996).
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