How did Indonesia go from a production powerhouse, with economic capabilities equal with Japan and China, to the dilapidated, corrupt, overpopulated debt hole that it is now? Indonesia was on the rise in the mid 1960's. From 1966 to 1969, inflation lowered from 660% to 19%. In 1982, foreign investments were high, as were expectations (14). Indonesia was streamlining its budget by 1982, spending the newly saved money on education (25). But the decline was beginning by 1983, when Indonesia was forced to suspend projects totaling 26 billion, as well as freezing government wages (39, 40, 42). Currently, Indonesia is a developing country, full of corruption and poverty. What happened in the middle to bring down such a high economic trajectory? Indonesia's abrupt economic decline was due to their failure of government leadership.
A major contributor to the economic decline of Indonesia were the excessive government subsidies that the government placed on valuable resources. In 81', only 15% of the country's oil productions is used domestically, but demand was rising sharply. (14) This shows that though Indonesia did have a stable fuel consumption rate at one point, the high consumption trend began early. There was a 12% increase in fuel consumption from 81' to 82', which has persisted as a yearly trend (25). This high level of increase is not sustainable, especially from a country in which 70% of budgetary revenues are from exports of oil and gas (25). Also, take into consideration the massive expenses that the government must have been making to maintain these subsidies. In 2013, the cost of subsidized fuel available to the general populace was about $1.74 per gallon, when the true cost was about $3 (Indonesia economy: Quick View - Spiraling cost of fuel subsidies may expan.) These huge expenditures cost the government a large portion of its budget, as well as enabled enormous consumption levels of Indonesia's most profitable exports.
