Executive Summary

1. Background

1.1 1959-1965: The Guided Economy Period After Indonesia's independence in 1949, the country faced a weak economic foundation and low per capita income, with businesses and labour still partially under Dutch control. In 1957, Sukarno initiated the nationalization of foreign enterprises. In 1959, he implemented "The Guided Economy", establishing an eight-year plan aimed at achieving self-sufficiency in basic goods as the economic goal. However, due to a lack of policy experience, a sharp increase in military expenditures and corruption, inflation surged to 1,136% in 1966 (Figure 1.1). The closed economic policy led to a decline in foreign investment, stagnation of businesses and worsening poverty. Figure 1.1: Indonesia GDP growth and CPI in the Guided Economy Period (%) Source: World Bank, Tradingkey.com 1.2 1965-1997: The New Order Period In 1967, Suharto came to power and adjusted economic policies to attract foreign investment and promote the development of the manufacturing sector. The "Foreign Capital Investment Law" was introduced, offering preferential...