What lay beneath Indonesia’s façade of miracle growth during the New Order (1976-88)
In early March 1974, Indonesian President Suharto inaugurated the opening of Hotel Borobudur, a lavish 5-star hotel located in the centre of Jakarta designed to accommodate foreigners frequenting the city for business and vacation. Soon after, he attended the opening ceremony of Taman Mini, a huge educational park showcasing
traditional houses of all (then) 26 of Indonesia’s provinces. Designed to be a miniature of Indonesia’s vast archipelago, the park was symbolic of Suharto’s massive infrastructure programs throughout Indonesia, turning Jakarta into a metropolis of gleaming skyscrapers and the outer islands into hubs for various manufacturing industries. This development was possible only due to impressive economic growth and a rapid increase in government revenues throughout Suharto’s reign. However, unrealized by many, this economic marvel was a time bomb biding its time to explode.
AN ECONOMY BUILT ON BLACK GOLD
From 1971 to 1981, Indonesia’s GDP reached average growth rates of 7.7 percent—enough to be classified as one of Southeast Asia’s miracle economies. Much of this growth was due to the boom in oil prices: Indonesia’s number one export commodity. The country’s newfound status as the world’s main producer of liquefied natural gas came at a perfect time. In 1973, OPEC (of which Indonesia was a member) began its restrictions on oil exports, creating artificial scarcity and keeping prices extremely high. Six years later in 1979, the Iranian Revolution occurred. The resulting instability in the Iran-controlled Strait of Hormuz led to a disruption in global oil supply, resulting in more scarcity and sending prices even higher.
These two events meant that Indonesian companies raked massive profits from oil exports. This meant that they could hire more people, invest freely, and spend more money on purchases. The subsequent increase in government tax revenue allowed better social benefits and improved infrastructure for Indonesians to enjoy. This, in essence, was what Indonesia’s growth meant. People could finally live without having to worry about poverty because their basic needs were fulfilled. Contrast this to the hyperinflation and economic disaster of Sukarno’s final years and you begin to understand why most Indonesians tolerated Suharto’s brutal repression and violent, draconian rule.
DOES PROSPERITY JUSTIFY CRIME?
Suharto ruled with an iron grip. He utilised the armed forces (ABRI) as a political tool, using them to crush political opponents and dissidents without mercy. To instill fear, he would kill alleged criminals in mysterious Petrus murders, leaving the bodies to rot in public for people to see. This behaviour, akin to Rodrigo Duterte’s current vigilante justice policies in the Philippines, effectively turned Indonesia into a police state.
Politically, Suharto cultivated an image based on Javanese myth, creating a pseudo-cult of personality around him. He pulled the strings on media coverage, banning prominent anti-government news outlets such as Tempo and Pelita—threatening anyone who dared criticise him. This repression of political opposition has to be understood in the context of Suharto’s rise to power. Suharto violently gained power after he, then a relatively unknown Major-General, quashed an alleged coup by the Indonesian Communist Party. His repressive actions are driven by his fears of being overthrown in a similar way.
Most of the middle class knew the extent of violence that was happening. However, they tolerated this because Suharto brought them economic prosperity. Tens of millions of people were lifted up from poverty. These people were comfortable with their newfound wealth and turned a blind eye to Suharto’s crimes. If the economy were to fail, his regime would fail as well because people would not have any more reason to tolerate his behaviour. This shows a glaring truth about Suharto’s regime: his legitimacy was based on his ability to bring economic growth.
WHAT GOES UP MUST COME DOWN
When assessing a country’s economic growth, numbers don’t tell the whole story. Indonesia’s seemingly miraculous growth was a monument built on shaky foundations. The repressive political institutions created by Suharto led to unstable economic practices, meaning that any growth enjoyed during this period would not stay for long. This fundamental reality would eventually lead to Suharto’s demise.
The first potential drawback was resource-fuelled growth. Indonesia’s near-exclusive reliance on oil as an export commodity exposed a glaring problem about the way Indonesia’s economy was structured. In his book ‘Economics: The User’s Guide’, Cambridge economics professor Ha-Joon Chang writes that countries reliant solely on selling raw resources are prone to ‘resource bonanza growth’. In essence, it means that these countries focus too much on extracting resources to sell instead of finding more innovative ways to process and add value to these raw materials.
An oil refinery in Balikpapan, a major oil enclave on the island of Kalimantan, Indonesia
In the case of Indonesia, Suharto solely focused on selling oil instead of finding a way to achieve more sustained growth through diversifying exports. This meant that Indonesia’s growth was defined by the global demand for oil. Therefore when oil prices dropped in the mid-1980s, Jakarta was forced to implement risky economic policies to find alternative ways to grow the economy. These policies (such as banking deregulation and devaluing the rupiah) would plant the seeds for the coming economic crisis.
Secondly, Suharto’s corruption and horse-trading with cukongs—wealthy businessmen of Chinese descent who were granted business concessions and protection by the government—was another fundamental problem. This arrangement increased short-term growth by granting monopolies to these businessmen, who in turn used their capital and connections to generate huge profits. This in turn brought two long-term problems: high barrier to entry and ethnic tensions.
Without connections to Suharto and his cronies, small businessmen faced a high barrier to entry: they found it hard to enter and compete in markets saturated by cukongs. Because the cukongs raked immense profits while other businessmen suffered, economic inequality worsened. This is apparent in the jumping of Indonesia’s Gini Coefficient from 0.32% in 1990 to 0.36% in 1996(on a scale of 0-1), before falling down again during the Asian Financial Crisis of 1997-98.
Furthermore, this inequality laid the foundations for future tensions fuelled by anti-Chinese sentiment. The wealth gap between the Chinese businessmen and the rest of Indonesia’s population was used by anti-government groups to fan the flames of brutal identity politics and as a slogan to take down the corrupt government. These same tensions still shape Indonesian politics today—proof of how well this sentiment was utilised as a political tool.
The resulting ethnic violence, however, did not push the government to evaluate its actions and enact policies to weed out corruption. On the other hand, Suharto amped up his repressive actions, banning the respected Sinar Harapan newspaper and declaring Pramoedya Ananta Toer’s works as illegal because both were critical of the government’s corrupt practices—intensifying the bubbling resentment toward the corrupt regime.
These systemic problems were the price of Indonesia’s rapid state-sponsored economic growth. In the years to come, the middle class became less and less tolerant of Suharto’s abuses, and when the financial crisis struck in 1997, they had no more reason to support the government. Suharto’s legitimacy lied in his policies that created growth. In the end, those same policies led to his downfall.
The story of Indonesia’s delusion of growth teaches us that economic expansion does not equal economic development. Countries should focus on creating inclusive economic and political institutions that support freedom of speech and fair growth on a level playing field instead of forcing growth through violence, state-sponsored monopolies, and repression. This way, countries will be able to grant their citizens both economic and political satisfaction, allowing them to hold the state accountable for its actions. If not, prepare for a repeat of Suharto’s harrowing delusion of growth.