Economic History of Indonesia

Early History ( pre 16th Century )

There was no Indonesia in the Pre-Colonial Era, there were only various kingdoms that
sometimes were at peace and sometimes were at war with each other. The Indonesia that we
know of now is a result of unity from the face of a common enemy, which were the Dutch
colonizers. There were several influential kingdoms in the Indonesian archipelago during the
pre-colonial era (e.g. Srivijaya, Mataram, Majapahit). These Kingdoms traded with each
other crops such as rice and live stock for meat.
The Occupations here were:
Sailors, Ship Builders, Merchants, Farming, and Blacksmiths

The precolonial economy (16th Century)

Indonesia is luckily placed in the “Equator Line”, (which is an imaginary line that that cuts
the Earth in half from the South-North Pole, important because that means a lot of traders
from different civilizations such as the Hindu/Buddhist civs and China too, with Indonesia
acting as a Trade Port).
As time went on the economic growth in Asia increased drastically and Asian traders started
selling Spices and Herbs with a high price to western countries.
When the European Civilizations advanced they wanted more Asian products which were
Herbs and Spices, then found countries such as Indonesia to become trade partners. The
Spanish and Portuguese ( Afonso de Albuquerque ) were the first Europeans to come to
Indonesia.
Trade items included:
Rice
White sesame
Lentils
Sapan wood (useful to produce red dye)
Diamonds
and sandalwood, incense, puyang pepper, cantharides (green beetles used for medicine), steel,
turtles, tortoiseshell.

The Colonial Economy (17th – 19th Century)

Indonesia was starting to get colonized by the Dutch, the VOC, which was a private trading
company owned by the Dutch gradually took power from the Indonesian rulers and held a
strong grip on the productive parts of Java. The VOC was also actively engaged in the intra-
Asian trade. For example, cotton from Bengal was sold in the pepper growing areas. But
because of corruption and increasing competition with England the VOC came to an end in
1799.
During the eighteenth century, coffee and sugar became the most important products and Java
became the most important area.
In the nineteenth century more intense colonization started predominantly in Java where the
cultivation system was based.
The Cultivation System a.k.a Dutch Cultuurstelsel forced farmers to pay revenue to the
treasury of the Netherlands in the form of export crops or compulsory labour. ... In case of
crop failure, the people were left responsible for the loss.

Post 1945 After Colonization period

After the Indonesians fought back the Dutch to a stalemate, this problem gained international
exposure and forced the Dutch away from Indonesia. Soekarno became the first Indonesian
President. The Indonesian economy had to recover from the hardships of the Dutch and
Japanese occupation and the war for independence (1945-1949), on top of the slow recovery
from the 1930s Depression.
There was little economic growth between 1950-1957 as there was political instability and
inappropriate economic policy measures. The hesitant start of democracy was characterized
by a power struggle between the president, the army, the communist party and other political
groups.

After 1966, Indonesia’s second president Soeharto managed to restore the inflow of western
capital, brought back political stability with a strong role for the army, and led Indonesia into
a period of economic expansion under his authoritarian New Order (Orde Baru) regime
which lasted until 1997, From the 1970s onward the increased oil price on the world market
provided Indonesia with a massive income from oil and gas exports.
But in 1977 there was a financial crisis due to a lot of factors during Soeharto’s reign. The
most important part was KKN ( Korupsi Kolusi Nepotisme )

From 1998 – Present Time

Although the Indonesian economy still suffers from severe economic development problems
following the financial crisis of 1997 and the subsequent political reforms after Soeharto
stepped down in 1998.
The economy of Indonesia is the largest in Southeast Asia and is one of the emerging market
economies of the world. And Indonesia is categorized as a “ a newly industrialized country”.
Since 1999, the economy has recovered. Growth has accelerated to over 4–6% in recent
years.