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How Significant and Effective has Foreign Aid to Indonesia been?

Author

Listed:
  • Anis Chowdhury

    (University of Western Sydney, Australia)

  • Iman Sugema

    (Institut Pertanian Bogor, Indonesia)

Abstract

With the improvement of relationship with the western countries after the demise of the old order regime of President Soekarno, Indonesia received a large volume of foreign aid that played a crucial role in the recovery of the economy. Indonesia remained a significant recipient of foreign aid through out the 1970s and 1980s, especially during the balance of payments crises. In addition to smoothing out balance of payments problems and providing budgetary supports, aid played an important catalyst for policy reforms that are believed to have contributed to the spectacular success of the Indonesian economy. However, no systematic study has been done so far on the effectiveness of foreign aid in Indonesia. This issue has become critical in the wake of the financial crisis of the late 1990s which turned Indonesia a heavily aid-dependent country as well as the renewed world wide debate on aid effectiveness. This paper, thus, attempts to examine the historical significance and effectiveness of aid flows to Indonesia. It finds that aid did contribute positively to economic growth, but made the government lazy in terms of domestic resource mobilisation. As a result, despite significance progress, Indonesia remained aid-dependent.

Suggested Citation

  • Anis Chowdhury & Iman Sugema, 2005. "How Significant and Effective has Foreign Aid to Indonesia been?," Centre for International Economic Studies Working Papers 2005-05, University of Adelaide, Centre for International Economic Studies.
    • Handle: RePEc:adl:cieswp:2005-05
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    File URL: http://www.adelaide.edu.au/cies/papers/0505.pdf
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    References listed on IDEAS

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    4. Hill,Hal, 2000. "The Indonesian Economy," Cambridge Books, Cambridge University Press, number 9780521663670.
    5. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
    6. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New Doubts: Revisiting "Aid, Policies, and Growth"," Working Papers 26, Center for Global Development.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ahmad Helmy Fuady, 2014. "Aid and Policy Preference in Oil-Rich Countries: Comparing Indonesia and Nigeria," WIDER Working Paper Series wp-2014-023, World Institute for Development Economic Research (UNU-WIDER).
    2. Fuady, Ahmad Helmy, 2014. "Aid and policy preference in oil-rich countries: Comparing Indonesia and Nigeria," WIDER Working Paper Series 023, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Foreign aid; economic growth; balance of payments; government fiscal behaviour.;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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