Economic history of Indonesia
[1] The economy of most of villages and polities in the archipelago initially relied heavily on rice agriculture, as well as the trading of forests products such as tropical fruits, hunted animals, plant resins, rattan and hardwood.
[4] For the fruits, there are all kinds of bananas, coconut, sugarcane, pomegranate, lotus, mang-chi-shi (mangosteen), watermelon and lang Ch'a (langsat or lanzones).
Indonesian Ancient Relics Conservation Bureau (BP3) of East Java verified that the coins dated as early as the Majapahit era.
[6]: 107 Majapahit inscriptions mention a large number of occupational specialities, ranging from gold and silver smiths to drink vendors and butchers.
Although many of these occupations had existed in earlier times, the proportion of the population earning an income from non-agrarian pursuits seems to have become even more significant during the Majapahit era.
First, the northeast lowlands of Java were suitable for rice cultivation, and during Majapahit's prime, numerous irrigation projects were undertaken, some with government assistance.
[6]: 107 The Nagarakertagama states that the fame of the ruler of Majapahit attracted foreign merchants from afar, including Indians, Khmers, Siamese, and Chinese, among others.
By the 13th century, Islam had gained its foothold in the archipelago through the establishment of Samudra Pasai in Aceh and Ternate Sultanate in the Maluku Islands.
Starting with the first exploratory expeditions sent from the newly-conquered Malacca in 1512, the Portuguese fleet began to explore much of archipelago and sought to dominate the sources of valuable spices.
With the Dutch achieving political domination throughout Java for the first time in 1830,[13] it was possible to introduce an agricultural policy of government-controlled forced cultivation.
Termed cultuurstelsel (cultivation system) in Dutch and tanam paksa (forced plantation) in Indonesian, farmers were required to deliver fixed amounts of specified crops such as sugar or coffee as a form of tax.
[15] The system proved disastrous for the local population; at its height, over 1 million farmers worked under the Cultuurstelsel and the extreme incentive for profit resulted in widespread abuses.
[17] Critical public opinion in the Netherlands led to much of the Cultivation System's excesses being eliminated under the agrarian reforms of the "Liberal Period."
The Billiton Company's tin mines off the eastern Sumatra coast was financed by a syndicate of Dutch entrepreneurs, including the younger brother of King William III.
The Dutch introduced coffee, tea, cacao, tobacco and rubber and large expanses of Java became plantations cultivated by Javanese peasants, collected by Chinese intermediaries, and sold on overseas markets by European merchants.
The government invested heavily in a railroad network (150 miles long in 1873, 1,200 in 1900), as well as telegraph lines, and entrepreneurs opened banks, shops and newspapers.
The Dutch East Indies produced most of the world's supply of quinine and pepper, over a third of its rubber, a quarter of its coconut products, and a fifth of its tea, sugar, coffee, and oil.
Journalists and civil servants observed that the majority of the Indies population were no better off than under the previous regulated Cultivation System economy and tens of thousands starved.
The sugar, tin, copra and coffee trade on which the colony had been built thrived, and rubber, tobacco, tea and oil also became principal exports.
[22] After 1900, upgrading the infrastructure of ports and roads was a high priority for the Dutch, with the goal of modernising the economy, facilitating commerce, and speeding up military movements.
Wim Ravesteijn has said that "With these public works, Dutch engineers constructed the material base of the colonial and postcolonial Indonesian state.
Thus, due to enhanced nutrition and medical supply (therefore an increase of the average height), the Indonesian economy was able to improve after the Japanese occupation.
By the time of Sukarno's downfall in the mid-1960s, the economy was in chaos with 1,000% annual inflation, shrinking export revenues, crumbling infrastructure, factories operating at minimal capacity, and negligible investment.
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.
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.
Indonesia's initial response was to float the rupiah, raise key domestic interest rates, and tighten fiscal policy.
In August 1998, Indonesia and the IMF agreed on an Extended Fund Facility (EFF) under President B. J. Habibie that included significant structural reform targets.
By November 1997, rapid currency depreciation had seen public debt reach US$60 billion, imposing severe strains on the government's budget.
Problems that continue to put a drag on growth include low foreign investment levels, bureaucratic red tape, and pervasive corruption which causes 51.43 trillion rupiah or (US$5.6 billion) or approximately 1.4% of GDP to be lost annually.
[39][40] Unlike many of its more export-dependent neighbours, Indonesia managed to skirt the Great Recession, helped by strong domestic demand (which makes up about two-thirds of the economy) and a government fiscal stimulus package of about 1.4% of GDP.
