Adjustment, Growth and Income Distribution in Indonesia

Abstract

During the decade of the 1970s and until 1982 the growth performance of the Indonesian economy was very good, with GDP growing at 7.2 percent per annum. Oil exports provided the major engine of growth for the entire economy during that period. In addition, within agriculture, growth was fueled by the boom in paddy production which converted Indonesia from the largest rice importing country in the world to virtual self-sufficiency by the mid-1980s (paddy production increased at an annual rate of 7.1 percent between 1978–80 and 1983/4). The two oil price booms of 1973, and more particularly 1979, fueled a major expansion of the economy which lasted until the crisis. The predominant role of the oil sector is clearly revealed by recalling that earnings from crude oil and petroleum products accounted for two-thirds of all export earnings, one-fourth of total GNP and 70 percent of government domestic revenues in 1982. Oil prices peaked in 1982 and revenues from this sector started to contract, reducing drastically the basis and prospects for economic growth.

This chapter is based on and draws extensively on a recent volume by the author: E. Thorbecke, Adjustment, Growth and Income Distribution in Indonesia (1990). The information and statistical data presented in this chapter, unless specifically mentioned, originate in the above volume which is available from the author. A variant of this chapter was prepared for a special issue of World Development devoted to the modeling of the impact of structural adjustment on income distribution.