Indonesia - Economic sectors



In 1998, agriculture accounted for 19.5 percent of Indonesia's total GDP, industry for 45.3 percent, and services for 35.2 percent, a quite different scenario than in decades past. For the first 20 years after independence in 1945, the agricultural sector contributed more than 50 percent of the nation's GDP from independence. There was little development of industry, and production per capita was no more than it had been when Indonesia was a Dutch colony. From 1965-74 there were few major industrial projects due to the still weak economy and a strategy of import substitution, which created more jobs.

In the early 1970s the Organization of the Petroleum Exporting Countries (OPEC) raised oil prices, greatly increasing Indonesia's export income. Indonesia used this windfall, as well as profits from high prices for tropical agricultural products in the 1970s, to build heavy industries, such as steel, and advanced technologies, such as aeronautics. By the 1980s this industrialization process allowed growing industries such as steel, aluminum, and cement production to reduce the dependence of the economy on agriculture.

These industries, especially the high-tech ones, met with only mixed success, and none of them generated the significant employment required by such a populous country. Agriculture and natural resources were still important to the economy, and Indonesia's economy was vulnerable to frequent changes in the prices of these commodities, as well as of oil and gas. Oil earnings dropped in 1982-83 from US$18.825 billion to US$14.744 billion and kept falling over the next 2 years. Non-oil exports grew but not enough to make up for the fall in earnings. As Indonesia's balance of payments became negative, the World Bank pushed Indonesia to open its markets, and beginning in the mid-1980s the government initiated reforms to boost manufactured exports in order to strengthen the economy. These measures included a currency de-valuation to help make exports competitive, export incentives, the relaxation of rules on foreign investment and trade, and an end to some monopolies, such as plastics.

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