Economic and Social Change in Indonesia

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Topic 1: European economic and political expansion in Southeast Asia in the last quarter of the 20th century resulted in the greater integration of the region into the international economy. Six ‘new’ states emerged – Indonesia, Malaya, Burma, the Philippines, Indochina and Thailand.

Discuss economic and social change in the region with reference to ONE Southeast Asian state.

Economic and social change within Indonesia


After over a quarter century of sustained economic growth, Indonesia was struck by a major economic crisis at the end of the 20th Century. This paper examines the impact of the crisis on economic and social change within the region. (Cameron 1999) The crisis, which worked its way through many of the South East Asian countries, was signified by the collapse of the Thai baht in the middle of 1997. During the second half of the year, the Indonesian central bank attempted to hold off pressure on its currency, the rupiah. Interest rates quadrupled and the rupiah depreciated by about 60%. In January 1998, the rupiah collapsed. It lost about 75% of its value in a matter of a few days. The collapse of the rupiah was followed by spiraling prices; annual inflation was estimated to be about 80% for 1998. (Fallon 1999)

The impact of the crisis in Indonesia was not confined to the financial sector. The economy went into a tailspin. Real output in 1998 was estimated to have been about 12% below its 1997 level and economic growth turned positive only in the year 2000. The crisis was accompanied by dramatic and influential political change.

This paper will describe some prominent dimensions of the social, demographic and economic changes that have been taking place in Indonesia both over the long-term and during the economic decline of the late 1990s. (Corsetti 1998) The Indonesian economy

Indonesia, the fourth most populated nation in the world, is an archipelago whose 13,000 islands are home to many different ethnic groups. The country varies a great deal in its urban and rural settlements. For example, population densities range from five people per square kilometer in the province of Irian Jaya to more than 700 people per square kilometer in Yogyakarta. The capital city, Jakarta, has been becoming increasingly important over time as the economic and political center of the country. Jakarta has been a major destination for permanent and circulatory migrants in the last three decades accounting for a quarter of interprovincial immigrants even though it represents less than 5% of the total population. (Smith 2002) While not on the same scale as Jakarta, urban centers on other islands also grew in terms of their economic activity and the size of their populations. Still, in spite of the growth of a number of urban centers, Indonesia remains a largely agricultural country. In 1986, a fifth of Indonesians worked in urban areas; this fraction had risen to a third by 1997. (Korns 1987)

Thirty years ago, Indonesia was one of the poorest countries in the world. Until the recent financial crisis, it enjoyed high economic growth rates and was on the verge of joining the middle income countries. Prior to the crisis, in terms of size, its economy was comparable to that of Malaysia, the Philippines and Thailand combined. On average, GNP per capita in Indonesia grew by 4.5% per annum from the mid-sixties until 1998. (Mann 1998) However, economic growth was far from uniform across the country with economic growth having, if anything increased over time. With the growth of industry and the service sector, the relative importance of agriculture gradually declined (from 55% of total employment in 1986 to 41% by 1997). Over the same years, industrial employment more than doubled from 8% to 19% of the labor force. Not surprisingly, employment in the formal wage sector was expanding, rising from a quarter to a third of all jobs during the same years. (Korns 1987) This expansion of the formal wage...
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