Indonesia’s Economic Performance under Soeharto’s New Order

Thee Kian Wie

Senior Economist, Economic Research Centre, Indonesian Institute of Sciences (P2E-LIPI), Widya Graha 5th floor, Jalan Gatot Subroto 10, Jakarta 12190, Indonesia theekw@cbn.net.id

JEL Classification: N95, O53

Abstract

This paper describes the rapid and sustained economic growth which Indonesia achieved during the three decades of President Soeharto’s New Order rule. Rapid economic growth was accompanied by rapid social development and a steep reduction in absolute poverty. From being the ‘chronic underperformer’ in Southeast Asia in the early 1960s, Indonesia by the early 1990s had become one of the high-performing Asian economies (HPAEs). However, by the late 1980s the New Order’s political legitimacy had eroded as the regime became more blatantly corrupt and self-serving. In economic policy this was reflected by an erosion in fiscal discipline as off-budget expenditures outside the control of the Department of Finance were spent on ambitious development projects the economic viability of which were questionable. The New Order collapsed when it was unable to deal effectively with the Asian economic crisis.

Keywords:

Rapid and sustained growth, Absolute poverty, Relative inequality, Erosion of political legitimacy

Acknowledgments

This paper is a revised version of a chapter published in: Yasuba Yasukichi (ed.). Socio-Economic Development in Southeast Asia, 1970-2000. Tokyo: Keiso Shobo, 2005. (in Japanese)

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