Indonesia, like India, has a brand new government. Expectations are running high for the new President Joko Widodo (or Jokowi, as he is popularly known) who has promised not only to restore output growth to the high rates previously experienced before the latest downturn, but also to do so cheaply (in fiscal terms). The economic recovery is widely expected to come about through measures like ending corruption and easing the rules for doing business so as to attract new foreign investment. Meanwhile the poor are to be assisted through an expanded programme of social transfers and protection in terms of health insurance and similar measures.
How successful such a strategy will be in achieving its declared goals is yet to be seen. Yet it is important to remember that output growth per se cannot and should not be the aim, especially if it is speedily shown to be unsustainable because of reflecting boom-bust commodity or credit cycles, or if it is not associated with a sustained diversification away from primary production that is necessary for improving aggregate labour productivity and wage incomes. In this matter, there are salutary lessons to be drawn not only from other developing countries, but from Indonesia’s own experience over the past three decades. Historically Indonesia was an exporter of primary commodities, dominantly fuel as well as agricultural goods such as rubber and palm oil. In the period from 1980 to just before the East Asian crisis, however, it experienced a significant increase in the share of relatively labour-intensive manufactured goods exports. These were dominantly textiles and clothing, footwear and furniture, but there were also some “high-tech” manufactured goods such as electronic goods and components and some machinery.