From 1,000% inflation to a G20 seat: Indonesia's bumpy economic century
When Sukarno fell in the mid-1960s, prices in Indonesia were rising about 1,000 percent a year and factories barely ran. Within decades the country had become Southeast Asia's largest economy and a G20 member, though the road there passed through an oil boom, deep corruption and the 1997 Asian crash.
Independence began in ruins. Japanese occupation and fighting between Dutch and Republican forces had cut rubber exports to 12 percent and oil to 5 percent of prewar levels. The Republic founded its first state bank, BNI, on 5 July 1946, which printed ORI, forerunner of the rupiah, but old occupation and Dutch money kept circulating and the simple new notes were easy to forge. The 1950s brought more upheaval, including nationalisation of the colonial central bank into Bank Indonesia and seizure of Dutch company assets. Under Guided Democracy in the 1960s, political chaos and inexperience produced widespread poverty and hunger.
The New Order government that followed tamed inflation, steadied the currency, rescheduled debt and drew in foreign aid. As Southeast Asia's only OPEC member for many years, Indonesia rode the 1970s oil price surge, averaging over 7 percent growth from 1968 to 1981, and GDP per head rose 545 percent between 1970 and 1980. When oil slumped, growth slipped to about 4.5 percent a year until 1988; then a managed rupiah devaluation and financial deregulation pulled in factories, and growth topped 7 percent again from 1989 to 1997.
Fast growth hid rot. Transparency International ranked Suharto as highly corrupt, courts could not reliably enforce contracts, and banks lent heavily to connected insiders. When the 1997 crisis hit, the rupiah was floated and an October deal with the IMF targeted pet schemes, among them a state-backed national car and a monopoly on cloves, both tied to Suharto's family. Riots forced Suharto out in May 1998, and further IMF programmes followed under Habibie and Wahid.
Recovery came from 1999, with growth of roughly 4 to 6 percent in the early 2000s, until COVID-19 drove output down 2.07 percent in 2020. Today the economy ranks 17th in the world at market exchange rates and 7th by purchasing power. State firms hold over a trillion dollars of assets and the government caps prices of staples like rice and electricity, yet small and medium businesses generate about 61.7 percent of output. Manufacturing, long the growth engine, has shed an estimated 300,000 jobs since 2023.
Source: Economy of Indonesia
