Learning about Development: Reflections on Six Decades of Indonesian Economic Development

Indonesia’s socio-economic transformation since the late 1960s has been dramatic. In 1965, Indonesia was a very poor country. It had disengaged from the global economy, nationalised virtually all foreign property, lost control of the macroeconomy, was hardly industrialised and was politically polarised. The majority of its people lived in poverty and were malnourished. Sixty years later, Indonesia is a moderately dynamic, upper-middle-income economy, globally integrated and recognised for its development achievements, and also for its six national elections in the democratic era. Destitution has been almost eliminated. This paper surveys the literature on the Indonesian economy over this period to understand and learn from the country’s development record. It draws attention to continuities and changes, and analyses of and debates about the factors that have propelled economic development and those that have arguably retarded it. Among those that have propelled economic development are Indonesia’s growth record itself, prudent macroeconomic management, staying fairly open to the global economy, poverty reduction and holding the country together. Conversely, the continuing challenges include indifferent governance and institutional quality, environmental and natural resource management, Indonesia’s mixed record on human capital and technology upgrading, and some lagging regional development outcomes.