General Review

A Strategy for National Development is a chain of policies and applications about National Development. National Development in Indonesia is development to achieve tangible national goals as written in the 1945 Indonesian Constitution. These are: to protect all Indonesian people and all regions of the country, to promote peace and welfare, to improve national life, and to participate in the world system on the basis of freedom, eternal peace, and social justice.

Development is not a static concept. It is continuously changing. The process of national development is a process of cultural and social change. A development that leads to an improved process which enables ongoing growth (a self sustaining process) depends on people and social structures and especially depends on national leaders. The impact of the political situation on economic growth is illustrated by the fact that, without a strong commitment to economic development by the leadership, no viable economic plan can be adopted, and the necessary pre-plan steps can not be taken.

Generally, many countries (especially developing countries) take a planned approach to development. Indonesia's Government has used Eight Year Plans (on ORLA) and Five Years Plans (on ORBA). Development planning in Indonesia involves "planning through the market". Government investment is only in social facilities, for example: roads, harbours, air ports, etc.

The Elements of Indonesian Development

Generally, there are two factors that determine the success of development activity, namely: economic factors and non economic factors. The focus of economic development activity in Indonesia's is on five elements, namely: human resources, natural resources, capital, technology, and the role of entrepreneur.

Human Resources

Indonesia is one of the five largest countries in the world if it is looked in terms of the population numbers. But there are some weaknesses in its human resources as elements of economic development on Indonesia, such as:

1. population growth is very high
2. the age of inhabitants is not favorable
3. the distribution of population is not balanced
4. quality of inhabitants is very low

These factors listed above become barriers to economic development on Indonesia. There are some programs to eliminate those barriers, such as: Family Planning Program as a solution to high population growth and the unfavorable age of inhabitants, transmigration program to solve the unbalanced spread of inhabitants,  training and education as a solution to the low quality of inhabitants. However government must give incentives to move economic activity because in villages many people need jobs, and there is "disguised unemployment".

Capital

Capital is the main resource to support national development activity. Capital resources consist of: Social Saving (Voluntary Saving), Forced Saving, Government Saving, Foreign Liabilities, Invisible Tax (Inflation) and Foreign Investment.

Indonesia still needs foreign capital support as a cost of economic development because social savings are very low because individual incomes are very small, and income tax (forced saving) is also very small. There is a vicious circle because: economic development needs an accumulation of capital, but moving economic development requires a great accumulation of capital. Economic development activity needs all resource of capital as above to be in good condition. The tax sector that is expected to become the main capital resource is actually not enough because the real sector is not growing rapidly. How can the real sector be moved? This needs investors especially foreign investors. Foreign investors need safe conditions, and local investors need funds from banks. Therefore banks must in good condition and ready to support the real sector, for example: supporting the growth of small business. The bank sector need restructuring to become healthy.

Technology

Technology development is very important for economic development because technology allows productivity to increase. There is a problem in the application of technology in Indonesia: whether to use high technology (automatic technology) or use low technology (traditional technology). The best solution is to use middle technology (neither too high nor traditional) because middle technology will increase productivity and many unemployed people can get jobs. The other problem about technology is that Indonesia still depends on others (modern countries).

The Role of Entrepreneurship

The key activity in economic development involves the entrepreneur. Economic development in Indonesia is weak because there are only a few entrepreneurs. Government has to give incentives to entrepreneurs by policy, for example by tax holidays or simple building permits. In Indonesia's present condition it needs foreign entrepreneurs.

The History of Indonesia's Development

The history of national development on Indonesia started when Indonesia gained freedom in 1945. This history can be divided into several periods, as explained below.

Period 1945 to 1949

In this period all power was used to defend Indonesia's freedom. There was no planning for national development. National development focused on military and defense activity. There were many conflicts in this period. Internal powers of Indonesia fought foreign external powers. In this period there was no economic development.

Period 1949 to 1959

In this period the were many internal conflicts, between internal powers in Indonesia. Indonesia was not planning for national development. National development focused on defending Indonesia's national unity, to be one nation and one country.

There was not economic development. National development involved politics and defense. Cabinet was only short term and often changed. Ministers need to be responsible to parliament. There was political instability and many conflicts between parties.

Period 1959 to 1966

This period is named the ORLA period. In this period there was Eight Years Planning. Many conflicts with foreign powers arose. Government had an ambition to expand the area of the country. National development focused on military activity. The President had absolute power.

Although there was supposed to be planning for national development, in reality this was not applied because of the many military conflicts with foreign powers.

Period 1966 to 1998

This period is named ORBA period. In this period there was medium term planning with a five year horizon (or REPELITA) and there was long term planning with a 25 year horizon. National development focused on economic development. In this period Indonesia's economy grew until 1998. However on the other hand the democratic system deteriorated. There was absolute government. In 1998 there was a financial crisis which grew to become a multi dimensional crisis. As a result economic development deteriorated.

Period 1998 to Present

This period is called the Reformation period. In this period there is no long term or medium-term planning. Government has changed in three times, and there is political and economic instability. There are many internal conflicts in some regions of Indonesia. National development focuses on economics, politics and law. National development needs funding, but there are insufficient funds from the elements of capital. So Indonesia need foreign funds through the IMF.

Suggestions

1. continue family planning and transmigration programs
2. develop conglomerate businesses and also develop small industry
3. clean government program
4. create Safety and Peace Conditions
5. develop justice and clear laws, etc.

Bibliography

Budiono. Teori Pertumbuhan Ekonomi, Edisi Pertama. Yogyakarta: BPFE, 1999.

Meier, Gerald M., Leading Issues in Economic Development. Second Edition. Oxford
University Press, 1970.

Meier, Gerald M. and Baldwin, Robert E. Economic Development, Theory History and
Policy. New York: John Willey & Sons, Inc., 1957.

lrawan, Suparmoko. Ekonomika Pembangunan 5th. Edition 9th printed. Yogyakarta:
BPFE, 1999.

Ketetapan MPR No. II / MPR / 1993 tentang Garis-Garis Besar Haluan Negara.
BP7 Pusat. Bahan Penataran p-4. Jakarta: BP-7 Pusat, 1994.
 

[NOTE - CPDS has edited the above paper slightly to improve its English expression, as its author usually writes in Indonesian]

CPDS Comments [Preliminary]

The above paper provides a useful insight into the multi-dimensional struggle which nation building has been (and remains) for Indonesia.

Editing an anglicized version of an Indonesian's account of that history also highlights the dangers of ignoring the cultural context. Everyone has advice for Indonesia. But for this to be helpful it is necessary to recognize that:

• advice given in a foreign language (eg English) may refer to situations and institutions which may exist elsewhere but whose meaning is different in Indonesia; or
• there may be unstated (and perhaps not even recognized) environmental preconditions for success that do not exist in Indonesia.

Kristianto correctly identifies entrepreneurs as one key economic element. However leadership in economic affairs need not only be taken by individuals establishing enterprises for personal profit. Other styles of economic leadership may be appropriate and viable in the Indonesian context, providing ways can be found to ensure that this does not provide scope to exploit political connections for private gain.

Kristianto's paper emphasizes the importance of support from national leaders in economic development (and that Indonesia's leaders have, from time to time, been unable to provide such support). However in terms of economic development, it is unlikely to be what national leaders themselves do which is most important. Rather what will be most helpful is that they make it possible for others to take economic initiatives.  

Liberal-market economists will argue against 'government economic planning' - a practice which Kristianto's paper endorses. However in a situation which is politically unstable and governments give little priority to economic issues, it is clearly 'progress' if political powers do not promote conflict and value what those involved in economic activity do.

The concept of planning 'via' the market is useful - but contains numerous traps. One of these (which Indonesia has experienced) is that government may try to manipulate the market - by determining who the major players are to be by giving special deals to people they believe will do the right thing (but who may not be the most competent, and who may exploit the situation for their own benefit).    Other traps that Queensland (for example) has had experience of involve:

• government 'assistance' to enterprises where market gaps are identified - a practice which results in inappropriate forms of support and prevents the market from developing to provide similar support (see Comments on Queensland: Leading State);
• attempts to drive market development through politically accountable institutions - which leads to inappropriate (economically unproductive) outcomes because it focuses attention on political rather than market criteria for success (eg impressing political interest groups who vote, rather than customers) (see Queensland's Biotechnology Bubble).

Kristianto's paper suggests that capital resources are the most critical. This may not be correct. It appears that there is huge potential to raise the productivity (ie economic value added) in Indonesia's economy by better access to market and technological information. This would raise incomes (and taxes) and thus provide scope for generating more capital domestically.

This is not to say that access to foreign capital is not important, but without parallel access to relevant market and technological intelligence investment will tend to result in capital intensive production. The latter may be quite efficient, but provide Indonesia with limited competitive advantage relative to other low cost producers - and thus with little scope to raise productivity.

Increasing productivity, it can be noted, is not the enemy of job creation. Employment traditionally grows fastest in sectors which are implementing cost-saving technological changes - because these changes reduce costs and the latter may then result in very significant increases in demand and production volumes.

The current 'Reformation period' is clearly one of transition, and a degree of instability. However Kristianto's paper clearly shows that Indonesia has survived such challenges before.

If the focus of national development in the Reformation period is on economics, politics and law, there is likely to be a critical requirement to also enhance civil institutions (eg organizations that provide inputs to, and support for, the political process including the civil service, associations, research institutes etc) because without these the democratic political process can be ineffectual.