Indonesian Economy

Figure 1.--Indonesia for most of its history had an economy based on agriculture. Chinese style paddy rice culture has been especially important. Rich soils and a tropical climate permit multiple bountiful crops annually. Here we see Bali farmers bathing their buffalo in a stream, probably taken in the 1920s. Photographer: Thilly Weissenborn (Studio 'Lux', Garoet).

The economy of what is now Indonesia has been primarily agricultural based. This has meant primarily paddy rice culture. This means connections with the peoples of Southeast Asia and China. We are not sure just when rice culture was introduced in Indonesia. But the production of an agriculture surplus drew traders to the islands and spices added to the attraction. At the conjunction of the Indian and Pacific Oceans, traders arrived including Arabs, Indians, Chinese, and others. They both traded for the agricultural abundance of the islands as well as setting up posts for trading activities beyond the islands. The early Indonesian kingdoms were established by these trading groups. Also with trade, religions were introfuced to the islands. Important pre-European kingdoms included: Srivijaya, Mataram, and Majapahit. [Reid] Much of the Chinese goods reaching the West passed through traders on the islands. Chinese traders for the most part did not sail into the Indian Ocean. Marine archeologists have found suken ships providing valuable insights into the nature of the pre-European trade. The Europeans arrived (16th century). The Portuguese were the first to arrive. The Dutch who would eventually seize control reached the islands (1596). The Spanish seized the Philippines to the north. The Europeans did not at first change the basic economy of the region, but it did change who was involved in the trade. The Europeans gradually expanded their hold on the islands, but for the most part through the 18th century were primarily concerned with trade and did not move mich beyond the various fortified trading posts. As a result the basic economy of the islands were little changed. European reports provide some information on their commercial activities, but vurtually nothing about the larger island economy which was subsistence agriculture and both local and inter-island trade. The Dutch East India Company (VOC) became a major factor for two centuries (1602-1795), but even so had only a limited number of trading posts in the vast archipelago. The Dutch presemce was focused on Java. Agriculture was expanded to coffee and rice. The VOC seized power from the Javanese rulers and gradually expanded control over the Javanese economy and trading activity. The VOC, for example sold Bengal cotton in the spice (pepper was especially important) growing areas. Vast profits were reported until competition with the English and the French Revolution resulted in the demise of the VOC. [Gaastra 2002] The French occupied the Netherlands and the British with the powerful Royal Navy seized control of the islands and other Dutch possessions. After the Napoleonic Wars, the Dutch regained control of the islands (1814). And Gradually the Dutch expanded their colonial role. This included improving the infrastructure. The economy remained, however, almost entirely agricultural. The discovery of oil in the 20th century had widespread consequences. It made the DUtch East Indies a major target for the Japanese in the Pacific War (1941-45). The Japanese heavily exploited the islands, causing a horrific famine. The American submarine campaign by 1943 , however, prevented the Japanese from using thec resources tio support their war effort. The Dutch attempted to restablish control after the War, but were eventually forced to turn over control to nationalists led by Sukarno. Like other leaders during the de-colonization era, Sukarno turned to socialist, statist enterrises. The result was economic faulure exacerbated by rampant corruption. And he was even involved in a Communist coup attempt that would have done even more economic damage. This was little changed by subsequent military rule which began with a horrific purgge of the Communists. The Asian economic crisis brought an end to military rule (1997). The resulting democratic givernment, free market reforms, and responsible public financial managemdnt has brought enormous economic progress.


Gaastra, F.S. De Geschiedenis van de VOC (Zutphen: Walburg Pers, 1991).

Reid, Anthony. Southeast Asia in the Age of Commerce, 1450-1680 Vol. I: The Lands below the Winds. (New Haven: Yale University Press, 1988).


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Created: 11:47 PM 9/12/2011
Last updated: 11:47 PM 9/12/2011