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Problems.Of Economic Policy in Indonesia, 1950-1957 '4^ •— PROBLEMS.OF ECONOMIC POLICY IN INDONESIA, 1950-1957 '4^ •—. By: BRUCE GLASSBURNER*) The period beginning with the transfer of Dutch sovereignty over the East Indian Islands to the Government of the United S.-ates of Indo• nesia in December of 1949 and ending with the "take-over" of Dutch- owned business property in December 1957 seems clearly destined to become one of those periods of struggle and crisis which historians of the nation will analyze and re-analyze over the generations, interpret• ing and re-interpreting the known facts of the period as the perspective of time changes. We are, of course, still much too close in point of time to that period to be able to understand its historical significance at all well. It is nevertheles of great importance to make an effort to under• stand the recent past in a highly dynamic situation such as that which now exists in this new nation. It is the intent of this paper to analyze the point of view of one aspect only, namely, the making and implemen• tation of economic policy, not only because the author happens to be an economist and not an historian or political scientist, but also, because the disappointing record of economic policy during that period clearly reflects the underlying political conflict which eventually ensued in the drastic action of December, 1957 and, rather generally, makes the dra• matic attempt at re-ordering which is now in progress in the nation somewhat more easy to understand than it can be if viewed only as a series of current events. I would like to begin this analysis of the period by asserting that, from the point of view of economic policy, the years 1950-57 in Indo• nesia are best understood as years of a losing battle on the part of a very small group of pragmatically conservative political leaders against an increasingly powerful political opposition of generally radical orienta• tion. This statement, while it is my own way of putting the point, is by no means entirely original with me. The same general idea has been more or less clearly stated by six other writers. In order to give proper credit where due, and to indicate clearly the eclectic nature of the analy• tical idea used here, it will be useful to look at the statements of this general hypohesis which have been made in several analyses of the Indonesian economic and political scene which have appeared in the last few years. *) The wri'-r of thi-; paier is Associate Professor of Econonics, University of^ Ca• lifornia, Davis. From June. 1958 until June 1960. he was Chairman of the Univer• sity of California Field Staff, University of California-University of Indonesia Economics Project. This project was supported financially by the Ford Foundat'on, The writer wishes to express his grati u4e to the three supporting institutions for the opportunity to familiarize himself with the Indonesian economic and political situation. He is also graeful for the fine support and assistance of Messrs. Kenneth D. Thomas, Waglno, and Ho Ing Thong. 302 Dr. John Sut'ter, in his exhaustively descriptive study of In4onesiaD economic policy, i) sees the period as being divided into two periods which are, roughly, the periods of political ascendancy of two major factions in the s.vuggle. I'he period of the first four cabinets, from De• cember 1949, when Dr. Mohammed Hatta took office as Prime Minister, until June, 1953, when the cabinet of Mr. Wilopo fell, is referred to by Sutter as "the Masjumi period". He regards it as such in spite of the fact that Dr.. Hatta and Mr. Wilopo were not members of the Masjumi political pariy, because, in his view, during this period the dominating outlook among members of the cabinet was the "Sjafruddin-Masjumi" outlook (Mr. Sjafruddin Prawiranegara being, during this period, minister of finance and, later, the Governor of the Bank of Indonesia. He was also quite consistently the Masjumi party's outstanding spokes• man on matters of economic policy). The period following the fall of the Wilopo cabinet. Sutler refers to as "The PNI period" 2) and as having been dominated in outlook by "the less tolerant ultra-nationalist and socialist politicians". 3) Although Dr. Sutter uses these labels as major time categories, he does not dwell on their significance at length, nor does he explicitly make use of the idea of the conflict implied in the distinction as a means of analyzing the economic policies of the post-revolutionary period except very occasionally. 4) Aside from the fact that he gives this basic idea brief and casual treatment, it seems to me that he over-emphasizes the importance of the importance of the Masjumi and the quite highly conservative (by Indonesian standards) Mr. Sjafruddin. I feel that the emphasis on Sjafruddin perhaps indicates a tendency on Dr. Sutter's part to regard the leadership of the earlier period as being more con• servative in outlook than it really was. This emphasis is necessary to distinguish his two periods clearly. This is perhaps also reflected in his reference to the leadership of the "PNI period" as being in the hands of "socialist politicians", when, in fact, socialism is basic to the political ideology of virtually all shades of the Indonesian political spectrum. It might be added that the use of the party labels is unfortunate, in view of the fact t'hat by no means all members of the Masjumi party think along the lines of Mr. Siafruddin — Mr. Suklman, who was prime minister from March, 1951 to March, 1952, appears to be one major exception. Similarly, the PNI has its "economics-minded" intellectuals, who fail to fit the description of "ultra-nationalis'"" •— Mr. Wilopo and Mr. Snmanang (Wilopo's minister of economic affairs) being important examples. 1) Tohn O. S et—. Indmesianisasi. Politics in - CHiaisging Econcmy, 1940-55, Data Paper no. 36-1 Southeast Asia Program, Department of Far Ear.'ern Studies, Cor• nell University, 1959 2) PNI being the initials of the Partai Nasional Indonesia (Indonesian Nationalist r Party). 3) Sutter, op. dt, p. 1190. 4) He does speak at one point of a tendency for the two sides to cancel each other out, "and (leave the) Government on a dead center of inactivity or (following) the moderate rationalist-socialist middle course of which Diuanda and Sumitro were exponents." ibid. 303 Benjamin Higgins has suggested terminology which describes the basic antagonism somewhat better than that of Dr. Sutter. Higgins sug• gests that "economics-minded" or "development-minded" persons pro• vided leadership on the one hand, and "history-minded" persons on the other. 3) The former turn out to be essentially Western oriented, and the latter to be "a mixture of Communists and of a larger number who are nationalist, conservative (in Western terms), and isolationist", 6) The orientation, of the latter group Higgins sees as being more militantly anti foreign and more concerned for the retention of Indonesia's traditional linguistic, cultural, and religious institutions. The main advantage of this terminology over Sutter's is that the awkward connection of such atti• tudes to party labels is avoided. The disadvantage is that the termino• logy is unfair to the radicals of the left who opposed the leadership and policies of the first four cabinets. The same criticism can be made of the terminology used by John Meek, who feels that the split occurs between those emphasizing "Indonesianization" of the economy and those who emphasized economic development. '^) Meek makes the dif• ference in orientation between the two groups the center of his analysis of economic policy from 1950 to 1954, concluding, incidentally, that those interested in "Indonesianization first" achieved considerably more success than the other group, in spite of the fact that four of the five cabinets in the time period which he analyzed were led by the group that have been referred to here as pragmatic conservatives. The main point implicit in all of the writers thus far discussed, is that the group in opposition during the period 1950-57 refused to accept the basic premise of the cabinet leadership, i.e., that the main outlines of the structure of the economy, both in terms of ownership and function, had to be lived with for a relatively long period of time, and that policy had to be designed to improve its functioning. This much can be accepted as correct, but it does not follow from this that demands for "completion of the revolution" in the economy and insistence on Indonesian control over economic institutions are to be regarded as backward looking, (as they are by both Meek and Higgins). The most ambitious attempt to deal with the relationship of this conflict to economic policy is that of Hans Schmitt 3) Schmitt sees the basic cause of economic and political strife in Indonesia as stemming from the economic interests of the "bureaucratic elite" of the Indonesian com• munity, who were faced with a frustrating obstacle in the form of con• tinued domination of the industrialized-commercialized sector of the eco• nomy by foreign interests — primarily Dutch. Schmitt bases his analysis bureaucracy as a whole", i^) , j) Benjamin Higgins, Indonesia's Economic Stabilization and Development, Institute of Pacific Realtions, New York, 1957, p. 103. S) idem. 7) John Paul Meek, The Govcnimcnt and Economic Development in Indonesia 1950- 54, Ph. D. Thesis, University of Virginia, 1956, microfilmed, p. 185. i) Hans O. Schmitt, Monetray Policy and Social Conflict in Indonesia, Djakarta. 1958, multilithed. 304 It seems ... plausible to argue that extensions in the capital stock enhance the power of those who control it.
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