Economic Growth and Decolonization in Indonesia




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Economic Growth and Decolonization in Indonesia


J. Thomas Lindblad (Leiden University)


Contact

Dr. J.Thomas Lindblad, Departments of History and Southeast Asian Studies, University of Leiden, P.O. Box 9515, 2300 RA Leiden, Netherlands.

E-mail: thomaslindblad@hotmail.com


1 Introduction


The economist Hal Hill begins his authoritative survey of the Indonesian economy under Soeharto’s ‘New Order’ (Orde Baru) government with quotes from two leading development economists, who are both singularly pessimistic about the prospects for economic growth in Indonesia (Hill 1996: 1). Gunnar Myrdal’s negative assessment is understandable since he was writing his Asian Drama in the midst of the severe economic crisis that accompanied the eclipse of Sukarno’s ‘Old Order’ (Orde Lama) in the mid-1960s. More surprising is the verdict of Benjamin Higgins, who coined the expression ‘chronic dropout’ with respect to Indonesia. Higgins had spent quite a bit of time in Indonesia in the early 1950s as an advisor from the World Bank. Was his harsh verdict, akin to the epithet ‘perpetual underachiever’ which is also often heard, based on his own personal observations in the newly independent nation or was also his judgment coloured by the near-collapse of the economy in the mid-1960s? The received dismal view of Indonesia’s economic performance under Sukarno forms the logical point of departure for this contribution.

The focus here is on the 1950s after the transfer of sovereignty had taken place but before the economy began to seriously deteriorate. The true novelty in the Indonesian economy in the 1950s was the shift in control of productive assets away from the Dutch to Indonesians. Such a transition could only take place once political independence had been fully and internationally acknowledged. By 1950, the Indonesian Revolution still had to leap over from politics into economics, a situation that can at least in part be attributed to the extensive safeguards for continued operations of Dutch companies that Indonesia had committed itself in 1949. Economic decolonization forms the wider context of our discussion of macroeconomic performance.1

Indonesianisasi is a term for enhanced Indonesian control of economic resources that was introduced into the international literature by the political scientist John Sutter. He made a subtle distinction between Indonesian nationals and indigenous Indonesians (asli or pribumi) as beneficiaries of Indonesiansiasi (Sutter 1959: 2). In both public discourse and economic policy-making, there was a continuous hesitation or uncertainty whether Indonesianisasi was the exclusive domain of indigenous Indonesians or applied also to other population groups in Indonesia, notably ethnic Chinese.2 When attempting to link growth performance with economic decolonization, it is essential to look in particular to the contributions to economic growth by indigenous Indonesians. However, this is more easily said than done as no macroeconomic statistics differentiate by ethnic origin. The observations made here are by necessity drawn from circumstantial evidence.

The argument in this paper is arranged in a straightforward manner. First, the statistical record of growth performance is reviewed. The wider context of economic decolonization is then briefly sketched before discussing evidence on indigenous economic activities.


2 The statistical record


Long-run estimates of economic growth during the Sukarno period invariably paint a very bleak picture of macroeconomic performance. Using World Bank and United Nations data in combination with national statistics, Anne Booth calculates an annual growth rate of per capita gross domestic product (GDP) of only 1.0 per cent on average during the years 1950-1965 (Booth 1998:18). The assessment of Pierre van der Eng, using his own reconstruction of Indonesian national income, is even worse. According to Van der Eng, per capita GDP, expressed in constant 1983 prices, rose from Rp. 220,000 in 1949 to Rp. 245,000 in 1967, a gain of merely 0.6 per cent on average per year (Van der Eng 2002: 145). The result is scarcely better when per capita GDP is expressed in contemporary currency: an increase from Rp. 2126 in 1951 to Rp. 2324 in 1965, corresponding to an average annual growth rate of 0.65 per cent (Dick et al. 2002: 192). Population growth in Indonesia at the time was rapid at around 2 per cent per year. By implication, aggregate national income rose by 3 per cent per year at the very most during this period, which remains unimpressive considering that the nation’s economy was recovering from low levels during a long-run boom in world trade. It is necessary to look at this performance in both historical context and greater detail.

The period 1942-1949 was absolutely devastating to the Indonesian economy with three and a half years of Japanese occupation followed by four and a half years of armed struggle against the returning Dutch. It need not surprise us that Indonesia at the time of the transfer of sovereignty was poorer than at the conclusion of effective Dutch colonial rule over the entire archipelago in 1942. The interesting question is when Indonesia got back to pre-war levels.

The economist Douglas Paauw asserted that the 1938 level of income per capita had been restored by 1959, after an interlude of two decades of stagnation and subsequent rehabilitation (Paauw 1963: 189-190). Van der Eng, however, figures that the 1938 per capita GDP, Rp. 309,000 in 1983 prices, was not reached again until 1970 (Rp. 314,000 in 1983 prices), after an interlude of more than three decades. Moreover, Van der Eng argues, the peak of late-colonial economic performance was not in 1938 but in 1941 when per capita GDP reached Rp. 329,000, again as expressed in 1983 prices. Indonesia only returned to that level in 1971 (Van der Eng 2002: 172-173).

But the average growth rate for the entire Sukarno period is a highly misleading statistic. It completely disguises the difference between a relatively good performance during much of the 1950s and the poor performance in the early and mid-1960s. According to a World Bank estimate, Indonesian national income grew by 5.6 per cent per year during the period 1950-1955. A similar rate of growth, 5 per cent per year, was estimated for real net domestic product during the years 1953-1957 by the United Nations drawing on national accounts produced by the Indonesian central bureau of statistics (Booth 1998: 55-56). Allowing for rapid population growth, 2 per cent per year, these estimates imply an annual per capita income increase of 3 per cent or more during the early and mid-1950s. This result is in agreement with Van der Eng’s calculations for the 1950s. His estimates of GDP per capita, measured by gross value added, climb from Rp. 221,000 in 1950 (using 1983 prices) to Rp. 270,000 in 1957, an increase of 22.7 per cent in seven years’ time at an annual average of 3.2 per cent (Van der Eng 2002: 172). An annual growth rate of per capita income in excess of 2 per cent, to put it conservatively, compares well with the growth performance of neighbouring countries such as British Malaya and Singapore (Dick et al. 2002: 178; Booth 1998: 59; Booth 2007: 165-166).

The relatively favourable record in the early and mid-1950s was conditioned by the boom in the wake of the Korean War when demand in world markets was rising fast for Indonesia’s two chief export commodities, oil and rubber. Income estimates may be corroborated by trade figures. The value of total exports rose by no less than 60 per cent in 1951 compared to th preceding year, and settled at a stable level in 1952 of Rp. 10.6 billion or $ 930 million at the exchange rate prevailing after the devaluation in that year. A drop of more than 10 per cent occurred in 1953 and was sustained into 1954 but then the 1952 level was restored. Total exports averaged Rp. 10.5 billion over the years 1955-1957. Oil and rubber continued to predominate strongly together accounting for 57 per cent or more of total exports. Total imports declined by more than 30 per cent between 1952 and 1955 and only rose slightly again in 1956 and 1957. As a result, the balance of trade, which had displayed a small deficit in 1952 and 1953, turned into a surplus, which again forms an indication of a satisfactory macroeconomic performance (Bank Indonesia 1955: 93, 96; 1959: 128-129).

The main contributions to economic growth in the mid-1950s came from agriculture (34 per cent of total growth) and manufacturing (27 per cent), whereas mining, including oil, contributed only marginally (13 per cent), at any rate as may be inferred from the United Nations data (Booth 1998: 55-56). The heavy contribution by agriculture is explained by a rapid enlargement of production capacity in the rubber sector, among both the 700 largely foreign-owned estates and the many thousands of smallholders in Kalimantan and Sumatra. High growth rates in manufacturing underscore the massive need for rehabilitation from very low levels of output at the end of the 1940s. There is some controversy in the literature about oil’s contribution to growth. According to Van der Eng, no less than 40 per cent of total growth in the mid-1950s may be attributed to rising production at the three foreign oil companies operating in Indonesia (Royal Dutch/Shell, Caltex, Stanvac). However, as Booth has pointed out, Van der Eng relies on a post-oil boom price of oil which may have unduly inflated this sector’s contribution towards gross value added (Van der Eng 1992: 369; Booth 1998: 56).

Indonesia inherited a highly traditional economic structure from colonialism. According to the first nationwide census after independence, held in 1961, no less than 73 per cent of the labour force was occupied in agriculture against only 8 per cent in manufacturing and 18.5 per cent in services (Van der Eng 2002: 148). The sectoral composition of the labour force had undergone some interesting change in the course of the 1950s but not in the direction that one would expect, that is in the direction of industrialization and growth of the service sector. In 1953, the share of agriculture had been 61 per cent whereas the proportions of manufacturing and services had both been about 13 per cent (Mangkusuwondo 1976: 30).

Changes in the composition of the labour force are mirrored in estimates of sectoral contributions to output based on rather incomplete national income data from the early 1950s. Paauw argues that the share of labour-intensive production in output rose from 68 per cent to 76 per cent in the course of the 1950s (Paauw 1960: 209). This change in economic structure has by Booth been labelled ‘structural retrogression’, a decline of the modern capital-intensive sectors of the economy reinforcing the predominance of traditional labour-intensive modes of production (Booth 1998: 70). Peasant agriculture was becoming more important and manufacturing less important than had been the case at the end of colonial rule (Robison 1986: 64). Such a movement in the opposite direction of modernization is at variance with favourable prospects for sustained growth.

The matter becomes more complex when we consider various estimates of net domestic production at factor cost. Agriculture did indeed account for a very large proportion, 57 per cent, in the years 1952-1954 but by 1957 its share had fallen to 53 per cent while the share of manufacturing increased from 8.5 per cent to 12 per cent during the same years. In 1958, manufacturing was reported to account for 13.5 per cent of net domestic product (Mangkusuwono 1975: 13; Bank Indonesia 1966:3). To the extent that there had been a tendency towards structural retrogression in the first place, it appears that it was halted quite soon.

Even if Indonesia’s macroeconomic performance over the years 1950-1957 may be considered reasonably favourable, there were alarming signs indicating that the foundations for sustained growth were not very solid. Export earnings relied to an excessive degree on a narrow range of products, basically oil and rubber, whereas large segments of the export sector were in fact doing very poorly. The once vital sugar industry in Java never recovered and production of palm oil and tobacco on the estates in North Sumatra continuously lagged behind. The composition of imports reflected the traditional economic structure. Huge imports of rice testified to very low productivity levels in food agriculture while the high share of textiles in consumer goods imports conveyed that the gains from an industrialization strategy geared import substitution were very limited. Commodity terms of trade (export price level divided by import price level) started to fall already in 1952 and 1953 and was significantly below the 1950 level during the second half of the 1950s (Bank Indonesia 1954: 116; Bank Indonesia 1959: 182).

The year 1958 is commonly considered a turning-point in the macroeconomic trend primarily because it was the first year in which Indonesians assumed management of productive assets that then still formally had Dutch owners. Economic policies also changed dramatically at this time as Sukarno introduced his ‘Guided Economy’ (Ekonomi Terpimpin) accompanying the transition from constitutional democracy to ‘Guided Democracy’ (Demokrasi Terpimpin) (Mackie 1996: 336). The statistics offer a clear-cut picture. The annual growth rate of net national product only amounted to 1.7 per cent on average over the years 1958-1965. Since population growth was still rapid at about 2 per cent, this low average leads us to suspect that per capita incomes actually fell between 1958 and 1965 (Booth 1998: 65).

However, the evidence is less than clear-cut even for the period of very slow growth starting in 1958. According to Van der Eng’s calculations, per capita gross value added was Rp. 256,000 (in 1983 prices) in 1958 and Rp. 260,000 in 1965, or virtually the same level (Van der Eng 2002: 172). Official data on per capita GDP, in contemporary prices, similarly indicate a stagnation of per capita income rather than a steep decline. It is also worth noting that per capita GDP in 1962 was slightly higher than in 1957, Rp. 2440 against Rp. 2320 as expressed in contemporary prices. The decline only began in 1963 producing a per capita income by 1965 which was almost identical to the one that had prevailed in 1957 (Dick et al. 2002: 192). There is no doubt that macroeconomic performance during the years 1958-1965 was a lot worse than in the years 1950-1957 but even so, it is necessary to distinguish between the beginning and final years of the dismal period. This is precisely the point where macroeconomic performance and economic decolonization intersect.



  1. Balance-sheet of economic decolonization


When sovereignty was transferred to the Republic of Indonesia in December 1949, there were still very considerable Dutch economic interests in Indonesia. According to an estimate by Higgins, the ‘modern’ large-scale sector that comprised about one-quarter of the economy was dominated by Dutch firms (Higgins 1992: 51). Moreover, eight leading Dutch trading firms, including the famous ‘Big Five’(Borsumij, Internatio, Jacobson van den Berg, Lindeteves, Geo. Wehry), handled 60 per cent of all imports of consumer goods (Glassburner 1971: 78-79). Dutch capital investment was prevalent in export agriculture, trading, transport, finance, mining and manufacturing. The continued operations of the hundreds of individual companies involved were safeguarded in the Financial and Economic Agreement, Finec (Financieele en economische overeenkomst), emanating from the Round Table Conference in the second half of 1949 which laid down the conditions under which the Netherlands was prepared to acknowledge Indonesian independence. Indonesian willingness to accept such safeguards, next to taking over the sizeable debt of the former colonial government to the Dutch state, reflected the pragmatism of the young Republic’s political leadership. Virtually the sole concession by the Dutch firms was a rather vaguely worded commitment to further the promotion of Indonesian nationals into management and supervisory positions. In comparison with other former colonies in Asia, Indonesia paid an exceptionally high price for its independence (Dick et al. 2002: 171). As a result, the trajectory of economic decolonization became both difficult and dramatic.

The challenges in terms of economic policy confronting the government in newly independent Indonesia were truly formidable. Apart from the short-run urgency of raising standards of living for the rapidly increasing population, there was also the need for structural economic change with regard to both modernization and control over productive resources. Ambitious plans for an accelerated industrialization were drawn up, largely inspired by the economist Sumitro Djojohadikusumo when serving as a cabinet minister. Results were invariably disappointing since even a partial realization would have required massive injections of investment capital that was simply not available. Tax revenues usually fell short of routine government expenditures, private domestic savings were negligible and foreign investors were little inclined to commit fresh funds to Indonesia, except in the oil sector. The belated thrust towards industrialization in Indonesia only took place under Soeharto (Dick et al. 2002: 176-178; Hill 1996: 152-153).

The conspicuous continued presence of Dutch capital in key segments of the economy was seen as an anomaly in a young nation just about to assert its full independence. Two schools of thought evolved representing fundamentally different approaches to economic policy. There was the tradition of pragmatism among moderate leaders such as Vice President Muh. Hatta and Sjafruddin Prawiranegara, the first Indonesian president of the nation’s central bank. Sumitro also in principle belonged to this camp although he on occasion chose a more unorthodox stance than other moderates. The other approach was that of radical economic nationalists, for instance Ali Sastroamidjojo and Iskaq Tjokrohadisurjo, who lent a sympathetic ear to demands from mass organizations that Dutch firms be nationalized as soon as possible. The radical approach sometimes furthered anti-Chinese sentiments as witnessed by the short-lived Assaat movement in 1956. The two approaches to economic policy did not align neatly with political party allegiances although moderates often sided with Muslim parties, notably Masjumi, whereas Sukarno’s national party, PNI (Partai Nasional Indonesia) contained an increasingly militant radical faction. The Communist party exerted a considerable influence on trade unions and peasants’ organizations emerging as ncreasingly vocal advocates of a radical economic nationalism.

These two approaches took turns in influencing economic strategies chosen by successive cabinets, both in general and specifically referring to economic decolonization. Matters in the latte vein concerned three areas of attention in policy-making: control over vital institutions in the economy, promotion of Indonesians in Dutch companies and promotion of Indonesian participation in economic activities outside the Dutch firms.

The pragmatic approach prevailed, by and large, during the first four cabinets after the transfer of sovereignty, those of Hatta, Natsir, Sukiman and Wilopo (1949-1953). These cabinets secured control over key economic institutions by peaceful means, in particular by buying up shares held by Dutchmen. The central bank was acquired in 1951 with its name being changed from the Java Bank (Javasche Bank) into Bank Indonesia in 1953. The government also acquired full ownership of the national carrier Garuda, which had been set up as a joint venture with KLM. A similar arrangement failed to materialize in interisland shipping where instead a fierce competition ensued between the Dutch-owned Royal Packet Company, KPM (Koninklijke Paketvaart Maatschappij) and the newly-founded state-owned PELNI (Pelayaran Nasional Indonesia) (Lindblad 2005; Van de Kerkhof 2005b: 129-132). Several Dutch-owned firms in the public utilities, notably gas and electricity and urban transport, were also purchased by the Indonesian government. On the whole, however, these acquisitions represented a tiny proportion of the total corporate assets owned by Dutch private capital in Indonesia in the 1950s.

No targets or criteria were ever specified for the Indonesianisasi of personnel in Dutch-owned companies. The Dutch commitment had the flavour of a gentlemen’s agreement. Only after a few years did the Indonesian government take concrete measures to speed up the promotion of Indonesians into higher positions, in particular by applying a more restrictive policy when granting visa and work permits to expatriates from the Netherlands, which reinforced existing difficulties in overseas recruitment. Achievements varied a great deal across the Dutch enterprises. Major trading firms and estate companies appointed very few Indonesians into leading positions of management. A trading company such as Intenatio attempted to circumvent the obligations by restructuring the staff but the authorities were less than satisfied when it transpired that the newly created category of higher staff member consisted largely of ethnic Chinese (Van de Kerkhof 2005a: 118-121). Also the tin mining concern Billiton, entrusted with running the state-owned Bangka tin mines as well, retained Dutch managers as long as possible (Van der Kerkhof 2005b: 137-139). The same held true for the three Dutch banks still operating in Indonesia as well as the higher echelons of management at Bank Indonesia, here with the notable exception of the very apex of the hierarchy which was fully controlled by Indonesians (Lindblad 2005: 28-29).

The chief bottleneck was the acute shortage of Indonesians qualified to fulfill higher management positions, which in turn formed an important part of the colonial legacy. Even by the mid-1950s, Indonesia lagged behind former British, American and Japanese colonies in the region when it came to educational enrollment (Booth 2007: 194). Genuine accomplishments in Indonesianisasi, therefore, presupposed investments in training and education. Few Dutch companies were prepared to do so, especially since the long-run perspectives of staying on in Indonesia were uncertain. One notable exception to the rule was the capital-rich oil giant Royal Dutch/Shell which indeed invested heavily in training of Indonesian personnel and by the late 1950s could boast that Indonesians had taken over a large proportion of the higher staff functions. Similar efforts were reported by the American oil companies in Indonesia that obviously were not directly affected by decolonization.

The third policy area, the one concerning Indonesian participation in the economy, attracted the most government attention and got the widest publicity. The so-called Benteng programme was launched in 1950 and aimed at enhancing the Indonesian share in import trading by given them priority access to scarce foreign exchange and by reserving parts of the flow of consumer goods imports for them. This policy of overt positive discrimination was initially applied on a relatively moderate scale affecting only a small group of traders and a limited range of import goods. Nevertheless, uncertainties soon arose whether the designation ‘national importer’ was the exclusive prerogative of indigenous Indonesians or could apply Indonesian citizens of non-indigenous origin such as ethnic Chinese. Moderate policymakers were generally inclined to uphold the principles of non-discrimination enshrined in the Republic’s very constitution but had to admit that historical necessity warranted special protection for certain groups in society.

Radical economic nationalism prevailed during the two cabinets of Ali Sastroamidjojo and the intervening one of Harahap (1953-1957). There were intensified negotiations about the acquisition of more Dutch companies in public utilities and new regulations aimed at securing a shift of ownership of port facilities from Dutch into Indonesian hands. But relatively few deals were concluded since the Indonesian government was not prepared or in a position to pay the price that the Dutch owners demanded. Pressure from trade unions and peasant organizations for nationalization without compensation was rising, especially after Indonesia’s unilateral abrogation of the union with the Netherlands in early 1956. The conflict between Indonesia and the Netherlands about the possession of western New Guinea (today’s Papua), a matter left unresolved in 1949, escalated throughout 1956 and 1957 and a collision increasingly appeared inevitable.

Discontent with the slow pace of Indonesiansiasi of personnel in Dutch-owned firms was mounting. Dutch managers, by contrast, complained that changes in the composition of the personnel were proceeding too fast. Several Dutch firms seriously considered relocating away from Indonesia but in the end most chose to adjust to obstacles such as foreign exchange restrictions, bureaucratic interference, trade union militancy and widespread theft. Various reasons have been advanced in the Dutch-language literature to explain why the Dutch firms chose to stay on in the face of deteriorating conditions of operations. Business in Indonesia was still highly lucrative, especially when firms were reluctant to invest profits in upgrading or expanding production facilities. The scarce evidence suggests that very substantial transfers of profits out of the country took place in the 1950s, despite the elaborate regulations surrounding foreign exchange transactions (Meijer 1994: 529). Attempts to emulate the success of Dutch firms in Indonesia elsewhere almost invariably met with failure. The most important reason was psychological: the unshakable conviction that Dutchmen and Dutch knowhow were indispensable to the proper functioning of the Indonesian economy (Sluyterman 2003: 218-219).

Iskaq Tjokrohadisurjo, the militant PNI Minister of Economic Affairs in the first Ali cabinet, earned the dubious honour of turning the Benteng programme into a public scandal. Numbers of ‘national importers’ increased rapidly, anti-Chinese sentiments flourished and corruption was rampant. Already in November 1954, Vice President Hatta admitted that the vast majority of the ‘national importers’ were in fact acting as front men for Chinese and Dutch trading firms. Successive attempts at redressing the difficulties of implementation were to no avail and the programme had become meaningless when it was at long last abandoned in 1957 (Lindblad 2004: 86-89).

The final phase of economic decolonization was ushered in with the takeover of hundreds of Dutch enterprises by local trade unions in early December 1957. The actions had been preceded by Indonesia’s to draw the conflict about western New Guinea before the United Nations, an attempt to assassinate President Sukarno in the streets of Jakarta and an increasingly heated atmosphere in which Dutch firms were held responsible for everything that was going wrong (Kanumoyoso 2001: 106-107). The government acted with amazing speed placing all seized properties under direct military supervision, presumably to forestall Communist control, via the trade unions, over vial economic resources.

There is some controversy in the literature about whether Sukarno and the so-called ‘working cabinet’ of Djuanda were involved behind the scene. There is a theory that the takeovers were orchestrated by the government supported by some bragging by Sukarno years later (Gardner 1997: 142). Others emphasize the apparent lack of a blueprint of how to proceed once the government had stepped in (Kahin and Kahin 1995: 111). It seems likely that the government knew something was about to happen without being informed about the details.

Another puzzling matter is the relatively long time-lag, about one year, between the takeovers of Dutch firms and the formal decision about nationalization taken by Parliament in December 1958. This lends support to the idea that the takeover of Dutch businesses in the first place served as a means to exert pressure on the Netherlands in the ongoing conflict only late, inevitably, becoming a vehicle in the process of economic decolonization. Since most Dutch firms were actually nationalized only during the first half of 1959, a most extraordinary situation was created with Indonesians assuming management tasks in the absence of Dutch owners and supervisors. Needless to say, such a sudden transition was accompanied by difficulties and bottlenecks in operations. Yet, as Mackie has demonstrated, the takeovers and nationalization did by themselves not cause a severe drop in output or even efficiency. There was a dip in production but not for very long and a certain improvement in conditions due to less labour unrest (Mackie 1961: 340-343; Mackie 1996: 336).

The impression of a limited immediate impact of the appropriation of most Dutch business in Indonesia on the economy is borne out by the statistical evidence. Total exports fell sharply in 1958 but recovered already in 1959. Among the five chief export commodities, both rubber and tin generated more revenue in 1960 than in 1957, although output volumes were larger for smallholder rubber and smaller for estate rubber compared to the earlier year. Oil now contributed far less to total exports because of lower prices in the world market. The same held true for palm oil and tobacco where output had fallen marginally or even risen (Bank Indonesia 1958: 129-129; Bank Indonesia 1966: 109-111, 120-124). Performance in foreign trade reflected a juxtaposition of internal and external factors with consequences for both lines of production directly affected by the takeovers (estate rubber, tobacco, tin) and those not at all or scarcely affected (smallholder rubber, oil, palm oil). The sluggish performance in the late 1950s cannot be solely ascribed to economic decolonization and is not at variance with the estimate by Van der Eng that total national income did not decline between 1957 and 1959 but even rose by 4 per cent in 1960 (Van der Eng 2002: 172; cp. Booth 1998: 65).

Economic decolonization came to a conclusion in 1959 when most Dutch firms had become changed ownership and the nationalizations gained acceptance under international law as pronounced by a German court in August 1959, A key condition for such acceptance was the preparedness to pay compensation to the previous owners of the nationalized property. An agreement to that effect was reached in 1966 and payments of in total 689 million guilders took place between 1973 and 2003. This amount was considered grossly inadequate by the Dutch business companies who had claimed at least 2.7 billion guilders which was a discount from the book value of 4.5 billion guilders (De Jong and Lessing Sutherland 2004: 9, 23-24). Indonesia gained full control over its economic resources but lost access to Dutch capital, technology and management skills. Much now depended on capacities developed by Indonesians, especially indigenous Indonesians during the preceding process of economic decolonization.

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