The Role of Oil

Abstract

Before the Second World War Indonesia’s main mineral exports were oil and tin. Together they contributed an annual average of about 29 per cent of the total gross foreign exchange earnings in the period 1936–40, with oil alone contributing 20 per cent (Ter Braake, 1944). After the war foreign exchange earnings from oil increased at a slow rate, reaching 32 per cent of the total gross foreign exchange earnings in 1966. Increased production, in part derived from offshore oil, raised these earnings to 47 per cent in 1973. The quadrupling of oil prices in late 1973 resulted in a dramatic jump in oil revenues, pushing the gross foreign exchange earnings from oil to a record total of $5.1 billion in 1974 as against $1.7 billion in 1973. The contribution of oil to total gross foreign exchange earnings increased to 71 per cent in 1974. Since then oil has contributed an average of 70 per cent to the gross foreign exchange earnings of Indonesia and more than half of its net foreign exchange earnings (Table 8.1).