Abstract
Natural resources—blessing or curse? Indonesia provides an excellent case study for an examination of this question. It is a major commodity exporter; the fourth most populous country in the world; and the world’s largest archipelagic state with huge mineral, forest, and maritime resources. Indonesia also has three distinctive features that are particularly relevant for such a study. First, with the exception of the Asian financial and pandemic crises, it has had at least moderately strong economic performance for the past half century. This distinguishes it from the majority of resource-rich developing countries, and therefore there are lessons to be learnt from its management of these boom-and-bust episodes, particularly the latter. Second, Indonesia has experienced two rather different resource booms: the first based mainly on oil and gas in the 1970s and the second based primarily on coal, palm oil, and gas over the years 2005–2011. The economic, social, and environmental impacts of these two booms have differed significantly. Third, the country experienced major regime change in 1998–1999, from the centralized, authoritarian Soeharto regime 1966–1998, which presided over the first boom, to the subsequent democratic, decentralized regime during the second boom. The very different political and institutional arrangements had important implications for the management of the boom and its distributional impacts. We examine these issues in comparative context, employing as reference points two very large natural resource exporters, Brazil and Nigeria, and Malaysia, a smaller, more dynamic East Asian comparator.
Consistent with the original resource curse literature, although the paper focuses primarily on the economic dimensions, a twenty-first-century perspective would give more attention to environmental aspects and particularly the energy transition to a low-carbon economy. In this respect, Indonesia is still in the early stages of such a transition and in the sustainable maintenance of its forest, maritime, and other natural resources.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
They also note a third country, Iceland. However, for the purposes of this paper, we focus mainly on developing countries.
- 2.
The other three developing economy exceptions are the two special cases of Asian city states and the one high-growth African economy, Botswana, noting also that ‘developing’ applies in the past tense to the city states.
- 3.
In passing, these results do indicate the sensitivity of the calculations to the treatment of extreme outliers.
- 4.
We tested for the coefficient’s statistical significance in each case. In Fig. 5.1, the coefficient is significant at 95%. However, in the case of Fig. 5.2, the coefficient is not statistically significant, even at 90%, and regardless of whether outliers are included or excluded. This is suggestive of a more general point, beyond the scope of this paper, that the power of the resource curse thesis may be weakening over time.
- 5.
See Pasaribu (2019), who examines and compares the two episodes in great detail.
- 6.
The comparative multi-country study by Gelb and Associates (1988) was one of the first detailed analyses of the aftermath of the 1970s oil boom, when many commodity exporters experienced a lost decade of debt and stagnation during the 1980s. Little et al. (1993), Chaps. 4 and 5) document this debt crisis episode in great detail.
- 7.
In passing, it is worth noting also that one of the smallest rent years was 1997. That is, commodity prices were of little economic assistance during the Asian financial crisis. As the literature on the AFC makes clear, however, there was no causal connection between these low commodity prices and the crisis.
- 8.
- 9.
Brazil has, however, subsidized diesel fuel, in some years heavily.
- 10.
Little et al. (1993, Chap. 9) survey much of this earlier literature through to around 1990, and mainly in the context of the link between trade policy and macroeconomic crises.
- 11.
See, for example, the World Bank’s Global Economic Prospects 2022: https://openknowledge.worldbank.org/handle/10986/36519.
- 12.
The attraction of the Sachs-Warner index is its binary simplicity. It does not, of course, purport to provide a detailed description of each country’s trade regimes. The regular WTO country Trade Policy Reviews provide this information. We computed alternative indicators such as trade/GDP, non-commodity trade/non-commodity GDP, and average tariff rates, but the conclusion is essentially similar, and these indicators are also subject to well-known limitations.
- 13.
One could in principle add an indicator of capital account openness, on the premise that more open capital accounts could smooth the adjustment path in response to terms of trade volatility. However, it is not clear what indicator could be used. Capital flows (relative to GDP) include both long- and short-term capital, portfolio, FDI, and concessional flows. Ideally, these various components need to be separately identified. For example, during crisis episodes—which frequently occur in the ‘bust’ episodes—there is the phenomenon of ‘firesale FDI’, that is, inward FDI attracted to the now cheaper domestic asset prices, the latter the result of the crisis and the accompanying capital flight.
- 14.
This conclusion needs to be supported with reference to detailed case studies of key institutions, including the bureaucracy (on which see, for example, ADB 2020 for a recent study), the legal system, the media, and other independent checks on government.
- 15.
One of the few exceptions that systematically explores the relationship between forest resources and oil wealth is Wunder (2003). Drawing on the Dutch Disease literature discussed above, he points that an oil boom may have a positive effect on the forests to the extent that the boom reduces the international competitiveness of other tradable sectors, including forestry. But the effects may be ambiguous. For example, the oil wealth may finance an extension of the road network, and land clearing may occur in the process of mineral exploration.
- 16.
There is a considerable literature on climate change issues and policy in Indonesia. Of particular note is the comprehensive recent analysis provided by Basri and Riefky (2023).
- 17.
See Garnaut (2019) on this point with reference to Australia.
- 18.
Recall also that Indonesia is now a net oil importer, and therefore there is a direct budgetary impost from importing oil and on-selling it on the domestic market at a loss.
- 19.
See Ida Aju Pradnja Resosudarmo (2021), ‘Lessons from the Norway-Indonesia REDD+ Break-up’, East Asian Forum, https://www.eastasiaforum.org/2021/11/10/lessons-from-the-indonesia-norway-redd-break-up/
- 20.
See, for example, the following news report: https://news.mongabay.com/2022/11/in-new-climate-deal-norway-will-pay-indonesia-56-million-for-drop-in-deforestation-emissions/
- 21.
See McCawley (1978) for a detailed analysis of the Pertamina debacle. Its debts at one stage were equivalent to 30% of GDP. It is a matter of speculation what the scale of losses could have been if left unchecked.
- 22.
- 23.
- 24.
Of course, localized conflict has been an ever-present feature of Indonesia. It was most serious in 1997–1999 following the generalized breakdown of law and order during the AFC. There have also been long-running separatist movements in the outlying and resource-rich regions of Aceh (now brought under control) and Papua. Papua is, however, a special case: although resource-abundant (principally its two huge mining operations, one in each Papua province), the fundamental grievances have been political, reflecting the manner of the region’s controversial incorporation into the Republic (Resosudarmo et al. 2014a, 2014b).
- 25.
Ironically, the government established an SWF in November 2020, after the booms had passed.
References
Asian Development Bank (2020) A diagnostic study of the civil service in Indonesia. Manila
Basri MC (2001) The political economy of manufacturing protection in Indonesia, 1975–1995 (Unpublished doctoral dissertation). Australian National University
Basri MC, Riefky T (2023) Ensuring inclusive, affordable and smooth climate transition in Indonesia (Working paper 180.5). Center for Sustainable Development, Brookings Institution, Washington, D.C.
Burke PJ, Do TN (2021) Greening Asia’s economic development. Asian Econ Policy Rev 16:22–29
Carbon Brief (2021) Analysis: which countries are historically responsible for climate change? [Online]. https://www.carbonbrief.org/analysis-which-countries-are-historically-responsible-for-climate-change/
Collier P (2007) The bottom billion. Oxford University Press, Oxford
Corden WM (1984) Booming sector and Dutch disease economics: survey and consolidation. Oxf Econ Pap 36:359–380
Corden WM, Neary JP (1982) Booming sector and deindustrialization in a small open economy. Econ J 92:825–828
Crouch H (2010) Political reform in Indonesia after Soeharto. Institute of Southeast Asian Studies
Garnaut R (2015) Indonesia’s resource boom in international perspective: policy dilemmas and options for continued strong growth. Bull Indones Econ Stud 51(2):189–212
Garnaut R (2019) Super-power: Australia’s low-carbon opportunity. Black Ink
Gelb A, Associates (1988) Oil windfalls: blessing or curse? Oxford University Press, for the World Bank
Hill H (2000) The Indonesian economy. Cambridge University Press, Cambridge
Little IMD, Cooper RN, Corden WM, Rajapatirana S (1993) Boom, crisis and adjustment: the macroeconomic experience of developing countries. Oxford University Press, for the World Bank
McCawley P (1978) Some consequences of the Pertamina crisis in Indonesia. J Southeast Asian Stud 9(1):1–27
Mackie JAC, MacIntyre A (1993) Politics. In: Hill H (ed) Indonesia’s new order: the dynamics of socio-economic transformation. Allen & Unwin, Crows Nest, pp 1–53
Pasaribu DH (2019) The Dutch disease, natural resource booms and policy adjustments: the case of Indonesia (Unpublished doctoral dissertation). Australian National University
Pasaribu D, Lahiri-Dutt K (2022) Coal reliance, human development, and gender equality: at what scale should we look for a relationship? Energy Res Soc Sci 90:1–18
Patunru AA, Pangestu M, Basri MC (eds) (2018) Indonesia in the New World: globalisation, nationalism and sovereignty. Institute of Southeast Asian Studies
Resosudarmo BP et al (2014a) Development in Papua after special autonomy. In: Hill H (ed) Regional dynamics in a decentralized Indonesia. Institute of Southeast Asian Studies, pp 433–459
Resosudarmo IAP et al (2014b) Does tenure security Lead to REDD+ project effectiveness? Reflections from five emerging sites in Indonesia. World Dev 55:68–83
Sachs JD, Warner AM (1995) Economic reform and the process of global integration. Brook Pap Econ Act (1):1–118
Sachs JD, Warner AM (2001) Natural resources and economic development: the curse of natural resources. Eur Econ Rev 45:827–838
Steckel JC, Jacob M (2021) The political economy of coal: lessons learnt from 15 country case studies. World Development Perspectives, 24
Timmer CP (1989) Indonesia: transition from food importer to exporter. In: Sicular T (ed) Food price policy in Asia: a comparative study. Cornell University Press, Ithaca, pp 22–64
Transparency International (2022) Corruption perception index [Online]. https://www.transparency.org/en/cpi/2021
UN (2021) UN Comtrade database [Online]. https://comtrade.un.org/
Warr P (1984) Exchange rate protection in Indonesia. Bull Indones Econ Stud 20(2):53–89
Wacziarg R, Welch KH (2008) Trade liberalization and growth: new evidence. World Bank Econ Rev 22(2):187–231
World Bank (2023) World development indicators [Online]. https://databank.worldbank.org/source/world-development-indicators
Wunder S (2003) Oil wealth and the fate of the forest: a comparative study of eight tropical countries. Routledge
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Additional information
This paper draws substantially on the authors’ earlier work published as “Avoiding the Resource Curse: Lessons from Indonesia”, Journal of Southeast Asian Economies, 39(3), 2022, pp. 225–250. We thank the editors of the JSEAE for permission to draw on this paper.
The principal difference between this paper and earlier JSEAE article is that the latter focused entirely on the economic dimensions of the resource curse. This version extends the analysis to consider a range of environmental issues.
For helpful comments on earlier drafts, we thank seminar participants at the Australian National University, the 2022 Australasian Development Economics Workshop (University of Sydney), and the 17th Convention of the East Asian Economic Association (Sunway University, Kuala Lumpur). We also thank Budy Resosudarmo, the JSEAE editors, and several anonymous referees.
Rights and permissions
Copyright information
© 2024 The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Hill, H., Pasaribu, D. (2024). Indonesia and the Resource Curse: Economic and Environmental Dimensions. In: Resosudarmo, B.P., Mansury, Y. (eds) The Indonesian Economy and the Surrounding Regions in the 21st Century. New Frontiers in Regional Science: Asian Perspectives, vol 76. Springer, Singapore. https://doi.org/10.1007/978-981-97-0122-3_5
Download citation
DOI: https://doi.org/10.1007/978-981-97-0122-3_5
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-97-0121-6
Online ISBN: 978-981-97-0122-3
eBook Packages: Economics and FinanceEconomics and Finance (R0)