Indonesia was a shambles after eight years of assault – first by the Japanese, then by the Dutch reasserting colonial authority from 1945 to 1949. The extraordinary new state that emerged to independence in 1949 was the most maritime of the maritime states of Southeast Asia, and if it was a shambles, it was a huge one. Its 17,500 islands stretched across 3,000 miles of ocean. As large as it was, most of its people were terribly poor, illiterate, unschooled, unaccustomed to either self-rule or democracy, and did not think as one country.
Indonesia was spread out geographically and divided politically. It struggled in the 1950s to balance the interests of many groups that clashed in scores of political parties within Parliament, including secular nationalists, Islamic groups, and communists. Economically, there was resentment from the dominance of large Dutch companies and ethnic Chinese. Perhaps reflecting its divisions and not wanting to choose sides, Indonesia adopted a non-aligned stance in international affairs and welcomed the leaders of fellow non-aligned states to a conference in Bandung in 1955 to celebrate this middle ground in the Cold War – including Nehru of India, Nasser of Egypt, Tito of Yugoslavia; even Zhou Enlai of China.
In 1957, the nationalist leader, Sukarno, an important leader in the struggle for independence, became president of the Republic of Indonesia. British prime minister Harold Macmillan called him “a flamboyant phoenix in fancy dress and a Field Marshall’s baton.” (Horne, 84) He held office for ten years, and emerged as the iron unifier in a country which had had 17 cabinets since 1945, and threatened to unravel into factionalism. Sukarno declared martial law, used the army to quell numerous rebellions throughout the islands, and by 1959 had developed a style of personal dictatorship called “Guided Democracy.” For the next six years, Sukarno managed a delicate balance between the army and the Indonesian Communist Party (PKI) as the country descended into chaos.
Economically, Indonesia suffered from inflation. Sukarno ordered a devaluation of the Indonesian currency, the rupiah. But confiscation of Dutch, Indian, and British assets by the army as well as anti-Chinese business measures eviscerated confidence, and reduced Indonesia’s productive capacity. Exports shrank. Disrupted plantations on Java and other population centers became unable to produce basic staples needed to support growing populations. In 1960, despite devaluations, inflation ran at a rate that doubled prices each year. Foreign companies and workers operated under increasing restrictions and scrutiny, as Sukarno aimed for economic self-reliance. Investment dried up and in the face of government price controls, a dual Indonesian economy grew up reflecting a black market.
At its worst, inflation reached an annual rate of 1000% in the middle 1960s. Roads crumbled, investment vanished, and factories operated at minimal capacity. Sukarno’s spending on trophy construction projects to support his political allies characterized this period, but added little permanent economic value. Government spending was clothed in a stream of acronyms and slogans of Guided Democracy that became part of an official ideology for civil servants to espouse, and in which students – through the 61 Indonesian universities founded in the 1960s – were indoctrinated.
Amidst economic distress at home, Indonesia launched two military “confrontations” abroad – the first (1960-1962) against Holland for recovery of West New Guinea, which it achieved in 1962; the second against the newly-formed state of Malaysia in 1963. This flamboyant foreign policy may have meant to distract, and indeed would have been of little concern to the world had not Indonesia been of such enormous size, had vast natural wealth, and lay astride strategic sea lanes. And in the mid-1960s, Sukarno concerned policy makers everywhere because Southeast Asia entered the cauldron of the Cold War and Indonesia threatened to destabilize the whole region.
The Indonesian communist party (PKI) was the strongest communist party outside China or the Soviet Union, and by 1964 it held more influence with Sukarno than the Indonesian military. The PKI, for example, encouraged the opposition to the creation of a Malaysian federation and a military response in 1963. It now unveiled a land reform program that threatened domestic and foreign property owners at the same time Sukarno began an anti-American campaign – threatening American companies with expropriation, and banning American movies and journalists. In August 1965, Indonesia withdrew from the United Nations, World Bank and the IMF, and Sukarno announced a Jakarta-Phnom Penh-Hanoi-Peking-Pyongyang Axis. All this came amidst acute economic distress, and more. In the few years before 1965, Indonesia sought the technology and expertise for an atomic bomb and worked closely with China to get it.[1] This alarmed many countries that did not wish for the proliferation of nuclear weapons in Southeast Asia, but also the Soviets who wanted to thwart the influence of China after Mao had exploded an atomic bomb in 1964 at Lop Nor. An Indonesian nuclear program also alarmed Singapore which took Sukarno’s ambitions of a “greater Indonesia” seriously, and which Malaysia was experiencing directly, fighting Indonesian troops in North Borneo. All this added up to a pressurized environment for policy makers in the United States who had to decide about American commitments in Vietnam.
In the fall of 1965 a false rumor of Sukarno’s death became the signal for a communist coup against the Indonesian army. This failed, but resulted in a bloody counter coup against the conspirators possibly supported by American and British security services. In the ensuing months, at least a half a million communists and their families were hunted down and killed, first in Java and then all across the archipelago. Tens of thousands more were imprisoned in what the CIA ranks as one of worst mass murders of the 20th century, and one of the seminal events in Indonesia’s history. Islamic vigilante groups were the main hatchet men for the killings, who saw their opening for influence within the Indonesian government. By March of 1966, the country was purged of the PKI, its leadership gone, and the communist party formally banned. Sukarno was gradually stripped of his powers by the army after the slaughter, and resigned in 1967. In 1970 he died in detention.
The man who worked most closely with Sukarno in the PKI purge was a 46 year-old general named T.N.J. Suharto who became Indonesia’s second president in 1968 and remained so for seven consecutive terms until 1998. During his tenure, Suharto put into place a program of reforms called the “New Order,” designed to furnish stability to Indonesia and to contrast with the political fractiousness of his predecessor’s rule. Like Sukarno, the new president was an autocrat. However, he was fanatically anti-communist, relied less on charisma, and certainly did not have to balance competing political forces. Suharto made Indonesia into a one-party state and a centralized economy run by and for himself and his extended family, and the 1960s begins the story of one of the world’s longest and most successful examples of nepotism.
Suharto rejected autarky. He eagerly sought western capital, and gave confidence to investors by the stability provided by the army. He enlisted the advice of a group of American-educated Indonesian economists known as the “Berkeley Mafia,” whose policies brought the country back from the brink of collapse, and put Indonesia on the road to three decades of growth. After 1969, industrial output increased sharply including steel, aluminum, cement, and clove cigarettes. A major contributor to growth also was Pertamina, the state-owned oil company formed in 1961, and consolidated with Indonesia’s gas and mining assets in 1968. Here was the complete abandonment of Sukarno’s isolationist policies because foreign companies, such as Chevron, were not only courted but needed for Pertamina’s story, which was conspicuous in its contribution to Indonesian economic growth. GDP grew at a rate of 7-10% per year in the 1970s and 1980s, ballooning as a result of the sudden increase in oil export revenue from 1973 to 1979. Indonesia was Asia’s only member of OPEC and its economy became increasingly diversified, undergirded by a diversified energy sector. Manufacturing tripled from 1967 to 2009; farming decreased by two-thirds, and a World Bank report of 1993 referred to Indonesia as an “East Asian Miracle.”
Under Suharto, Indonesia was no democracy though. Vast numbers of his opponents remained in detention for decades. He provided stability for the region in which countries such as Singapore and Malaysia could prosper, and through whose sea lanes, ships of all kinds could safely transport products to countries like a rapidly-industrializing Japan. Additionally, Suharto’s foreign policy was as calm as Sukarno’s had been excitable. He moved from a pro-China stance under Sukarno to a pro-U.S. one, just as American policymakers wound down their commitment to Vietnam. He abandoned nuclear ambitions, remained staunchly anti-communist, and reengaged with the Soviet Union only after its fall in 1991.
Indonesia graduated from OPEC in 2008. It could no longer export oil and oil products needed for its growing economy. Its exit was overdue since consumption at home had outstripped production since about 2002, and today Indonesia actually imports oil to support its economy that began to rise during our period – the late 1960s.
[1] Robert M. Corneo, “When Sukarno Sought the Bomb: Indonesian Nuclear Ambitions in the Mid-1960s,” The Non-Proliferation Review, summer 2000, pp. 31-43. China exploded its first hydrogen bomb in 1967.