Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview
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CHAPTER 5

The Determinants of Indonesia’s Non-Oil Exports

Dipak Dasgupta, Edison Hulu,andBejoy Das Gupta


INTRODUCTION

In the mid-1980s, Indonesia faced two large external shocks: a decline in the price of oil, its then principal export, and a large movement in exchange rates (i.e., the devaluation of the dollar vis-à-vis the yen) which increased its external debt. The country was then faced with the dual challenge of stabilization in the short-term and finding a new non-resource based engine for growth in the long-term. Indonesia met both challenges successfully. Among the most important factors in this was the expansion of non-oil exports.

Between 1985–86 and the crisis of 1997–98, the growth of non-oil exports was the foundation of Indonesia’s success in macroeconomic stability, rapid economic and employment growth, rising productivity, and improved external creditworthiness. Indonesia’s non-oil exports grew from about $5.9 billion in 1985, $26.6 billion in 1993—a nearly five-fold increase over 8 years. The share of non-oil exports went from about 30 percent to over 70 percent and oil and gas exports fell from $12 billion to $10 billion per annum.

The composition of non-oil exports also underwent dramatic change. Figure 1 shows the growth and diversification of non-oil exports between 1985–1993. The growth in the volume of exports also shows a wave-like pattern, as surging

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