The Road to Amsterdam and beyond: Aspects of Indonesia's Stabilization Program

Abstract

A little over a year ago, the new Minister for Economic Affairs in the reshuffled Ampera Cabinet made public for the first time Indonesia's precarious foreign exchange position. The theme of that first speech set the tone for the new government's approach to economic and financial affairs, the emphasis on crisis and the difficult road ahead. A foreign debt of $2.3 billion was cited,1 and the Minister, Sultan Hamengkubuwono IX, made it clear that the country would be unable to finance debt repayment as well as finance imports for a modest rehabilitation program. In fact, a glance at the exchange earning capacity of the export sector indicates that for the next three or four years at least, Indonesia's exports will not even be sufficient to pay for imports required for what has been termed an austerity program.2 Such a program was estimated to require imports of between $600-$700 million. These imports included certain consumer essentials such as rice and textiles plus raw materials and spare parts to enable existing industries to improve present performances estimated in many cases to be as low as 25% of capacity. If the government should later decide to establish new industries, foreign exchange requirements could be higher than the figure mentioned above. On the other hand, if the government's drive to increase rice production should succeed, foreign exchange currently spent on rice imports would automatically decline (with allowance made for exchange used to import fertilizers).3 The same would apply to any successful attempt at import substitution. But if we take $650 million of imports as our benchmark for purposes of discussion, we will not be departing unduly from reality. Requirements of foreign exchange for debt servicing were estimated at $530 million in 1966, and a further $270 million in 1967. Although there is some uncertainty regarding the actual amounts, the total for 1966-1967 is