Indonesia's new economic policies and non-oil export to the EC beyond 1992

This thesis examines the export-oriented strategy launched in Indonesia in early 1980s and its success in responding to changes in the global economy including the establishment of the European Single Market (ESM) beyond 1992. In so doing, the theses consider two factors. The first includes the problems of adopting the EOI strategy that involved: (1) resistance toward the policy from those who favoured the Import Substitution Industry (ISI) strategy (2) strong competition in attracting foreign direct investment (EDI) from other developing countries that adopted the EOI strategy (3) the increase in protectionism from the developed countries in entering their markets. A second element is related to the effectiveness of efforts to penetrate the ESM as well as the nature of opportunities and difficulties that confront exporters. These will largely be considered in the context of three cases’ studies involving three major EOI industries (1) the textile and clothing industry (2) the forestry products industry (3) the electronic industry. Several basic propositions will be argued. First that aspects of the complex relationship between big business groups and the state have inhibited a complete change of industrial strategy from an ISI to an EOI strategy, also argued that the slow-down of the foreign direct investment flows in early 1990s, particularly from the Asian NICs and Japan, caused by the lack of infrastructure facilities especially in two areas of energy and communication together, with competition from China and Vietnam, further undermine the EOI strategy. While the ability to attract EDI is an important factor in the success of shifting industrial strategy from an ISI to an EOI, the data assembled in the thesis, however, indicates that a number of other factors are also important. These include inconsistency in industrial policy, the slow process in the transfer of technology as well as strong competition in attracting EDI among the developing countries. In addition, it is also suggested in the thesis that both the private and the public sectors were not well prepared in their adjustment with the new economic policy. The introductions of some deregulation packages, which have improved non-oil exports, have also resulted in the loss of some major business groups that failed to anticipate the new economic strategy. Thus, it is maintained here that the introduction of the new policies has facilitated some areas of export success but, in the long term, the drive towards non-oil manufactured exports confronts very fundamental obstacles both in the form of domestic structures and increase international competition. The prospect of Indonesia joins the NICs is less likely than hoped when the deregulation policies were first introduced