B A N K I N D O N E S I A REPORT FOR THE YEAR 1959 - 1960 * REPORT OF THE GOVERNOR OF BANK INDONESIA FOR THE FINANCIAL YEAR 1959 - 1960 B A N K I N D O N E S I A Head Office : DJAKARTA Branch Office : AMSTERDAM Representative Offices : LONDON NEW YORK Agencies : AMBON, AMPENAN, BANDJARMASIN, BANDUNG, DJEMBER, JOGJAKARTA, KEDIRI, MAKASAR,. MALANG, MEDAN, MENADO, PADANG, PAI,EMBANG, PONTIANAK, SEMARANG, SOLO, SURABAJA, TJIREBON. GENERAL REVIEW After H.E. the President decreed the re-institution of the Constitution of 1945 on July 5, 1959, the Republic of Indonesia in fact, reverted to the philosophy of the “Pantjasila” (Five Principles), born amidst the Revolution, but deviated from during these last few years. The main principles revolved around the ideas of “gotong rojong” (mutual co-operation) and “kekeluargaan” (family principle), inherently national traits, which continued to live even during the colonization period of more than three centuries. These core philosophies of ‘gotong rojong” and “kekeluargaan” ultimately crystal- lized in the present concept of “Guided Democracy”. Subsequently these changes in philosophic outlook and political concept called also for modifications in the economic field. Our economy, being an inheritance of the 19th century freefight liberalism — instead of being anchored in definite concepts logically arising from the national traits— so far remained exposed to cyclical forces and now had necessarily to be aligned to the philosophic and political concepts given form and substance already by the 1945 Con- stitution, i.e. in its general form in article 33. The words “guided economy”— Guided Economy being our present foun dat- ion—vary in meaning and content in capitalist and communist countries. The meaning and content we attach to these words are something different again and are contained in article 33 of the 1945 Constitution. As stated above, the supporting basis for said article are our private concepts of “gotong rojong ‘ and “kekeluargaan” as they have now crystallized also in our political concept of Guided Democracy. True to the Indonesian nature and identity, our economy is now based on efforts to maintain the family idea through mutual cooperation. Therefore in article 33 of the 1945 Constitution is stipulated that the State should lead and give guidance to economic activities. Broadly this implies : a. Economic activities covering the general and vital interests affecting the whole of the population should be in the hands of the State itself. The State constitutes the Indo- 1 nesian family at large and is the “gotong-rojong”entity. Hence it is only natural to surrender vital economic projects to the State. b. Other economic activities, different from a, may be carried out by non Government entrepreneurs. In like spirit, article 33 recommended entrepreneurs to join forces, say, in the shape of cooperatives that essentially represent the aspects of “gotong rojong” and “kekeluargaan”. c. Where cooperatives are either unfeasible or unwarranted, this cooperation may be sought along other lines. But here also, entrepreneurs will have to adhere to Govern- ment rulings and regulations. For instance, the Government might decide to break down the importing field— still open to private enterprises—into separate and well-defined divisions to prevent 1001 importers from working in the same line of importing activity. The concepts inherent in article 33—given new life by the Indonesian nature and identity—also appear to have become a matter of necessity because of the economic situation in Indonesia. Finally both spiritual and material factors in Indonesia point the way towards an economic concept founded on the “gotong rojong” and “kekeluargaan” principles. For launching large-scale and accelerated economic activities— to raise the living standard of the Indonesian people — we are confronted with lack of capital and skills as a result of the colonization period. Capital and skills can be easily provided by the State as the Indonesian family at large and a “gotong rojong” entity. It is a matter of economic necessity to have the State pioneer and engage in large and vital projects. Afterwards, it will also be the State’s duty to recommend and make possible the creation of private enterprises as described under b and c. In this manner, the Indonesian guided economy concept—also referred to as “In- donesian socialism”—represents the sum-total of the spiritual force and material condi- tions prevailing in Indonesia. As was the case in the field of politics where experiments in liberal democracy appeared to have failed, in the economic field also experiments in liberal economy have 2 led only to a dead-end, because the spiritual nature and material identity of Indonesia were ignored. In the economic field, the financial assistance extended by the Government to private entrepreneurs in various fields of endeavour was excessive during the period from l950 to 1960. Yet, this extensive support was largely in vain. It failed to bring about prosperity for the people, but for some individuals only. This was unfair, because the State’s funds come from the people, and it would not be proper to use the people’s money for promoting the interests of some individuals only. The national economy— replacing the colonial economic policy—in reality resulted in practice in the exercising of pressures on the Government for financial aid to some groups of private entrepre- neurs. This national economy has clearly missed its aim, since it resulted only in an economy for individuals with Government support. An Indonesian economy can only be truly called “national” if based on the Indo- nesian spiritual and material identity. The motive power of the State comes from the people, and the utilization of this force and power for the general and vital interests can only result in a just prosperity if enjoyed by the people at large. In other fields, it is expected that private entrepreneurs will become active, even though they have to adjust themselves to “gotongrojong” and “kekeluargaan”, so that maximum prosperity can be attained and justly enjoyed by all. These principles were found in great outlines in the address of the President on August 17, 1959, known as “Manipol” (Political Manifesto) and its essential points in “Usdek”. Usdek is a word made up of the initial letters of “Undang2 Dasar 1945” (The 1945 Constitution), “Sosialisme Indonesia” (Indonesian Socialism), ‘‘Demokrasi terpimpin” (Guided Democracy), “Ekonomi terpimpin” (Guided Economy), and “Kepribadian Indonesia” (The Indonesian Identity). Subsequently certain institutional modifications were necessary such as the management by the Government of certain enterprises in the fields of production, trade, transport, distribution, banking etc. To attain these modifications, the stability based on institutional traditions—no longer in line with the State principles—had to be sacrificed for the time being. These institutional changes necessarily had a strong bearing on developments in the year under report. All the difficulties in the economic sectors of production, trade, distribution, banking, as well as in the administration, such as departments, Govern- 3 ment agencies, State enterprises, and in the activities of private interests, etc. had some connection with these adjustments resulting from the re-institution of the 1945 Consti- tution as a living support for the State. I feel it necessary to emphasize the foregoing since the past year’s events and devel- opments in the economic, financial and monetary fields will be hard to understand and harder still to evaluate, should the principles and aims behind the changes not be prop- erly understood. Aside from the Revolution—in the sense of removing the old structure and im- planting a new one—now deciding our philosophy of life in all the consequences in the political, social and economic fields — the economic development in Indonesia auto- matically reflects the impact of external influences, i.e. from the part of the interna- tional trade cycle. As mentioned in Chapter IT of this Report, it is clear that in 1959, almost all countries enjoyed a rising economy, even though improvements in the living standard of countries with advanced industries appeared to be moving faster than those in countries still in the process of development. Geographically speaking, the advancements achieved by countries on the American Continent—chiefly in the Northern part—as well as on the European Continent, were greater than those on the Asian Continent—Japan ex- cepted —and the African Continent. Since the end of the recession in the fourth quarter of 1958 — this recession princi- pally affected the United States economy—industrial production in the United States and Europe maintained its high level. International trade also showed a rising trend. While the trade increase among developed countries received its initial impulse from the increasing industrial activity, the subsequent process in turn became a driving force. Trade among West European countries and the United States increased in volume, while trade among the West European countries themselves showed greater activity, all in all as a result of the trade liberalization measures, among others, made possible by the convertibility per the end of 1 9 5 8. In the meanwhile, it might be useful for me to revert here in brief to what was set forth at length elsewhere in this report. In the increase in the trade of West European countries, are found symptoms indicating that the international trade of the Common Market and other produce-yielding West European countries did not increase. 4 Aside from the phenomenon that European agricultural countries in their trade among the European countries themselves failed to show an increase proportionate to the advancement among industrial nations, the trade between West European countries and agricultural nations outside their sphere did not show an appreciable increase. Where an increase was evident, it was not equal among all countries; neither was it spread over all kinds of commodities.