Indonesia as an Example of Modernization

DOI: 10.20542/0131-2227-2016-4-95-104

A. Prozorovskii, Primakov Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO), 23, Profsoyuznaya Str., Moscow, 117997, Russian Federation (

Abstract. Indonesia has made significant modernization breakthrough in the 70-90-ies of the twentieth century which brought the country into a number of second-generation NICs. A variety of factors contributed to this success. First, a huge assistance of Western countries to the “New order” of Suharto, because of its anti-communist orientation. Second, the combination of import substitution and export of raw materials (oil, gas, wood). Third, the economic policy of creating industrial conglomerates operating in a wide range of industries. And at last, the maintenance of political stability, ensured by the dominance of military and intelligence agencies which played a significant role in the home policy and, also, a kind of flexible personal policy of the president. The system of bureaucratic capitalism, which existed in the country, strengthened during the years of Suharto. Balancing between the interests of different groups of military, political and business elite, Suharto for a long time kept the emerging conflicts in the “cold” condition. Thus gradually a large proportion of the Indonesian industry and finance concentrated in the hands of the president's relatives and his friends from the military, government officials and Chinese entrepreneurs. As a result, the success of modernization was too obviously intertwined with the welfare of the "family", and stability – with the preservation of an authoritarian regime. The Asian financial crisis of 1997–1998 not only weakened the economic position of Indonesia, but also led to the collapse of the Suharto’s "new order". It took almost ten years to return to its previous level of development. Democratic reforms and change of elites, which happened in this period, allowed to maintain the integrity of the country and gave an impetus to the transition from bureaucratic capitalism to oligarchic capitalism. However, the role of the state, in its renewed, more democratic forms, still stays significant in Indonesia. It has to solve a lot of problems, ranging from the struggle against corruption and the manifestations of separatism, to weakening inevitable growing imbalances in the course of modernization. 

Keywords: Indonesia, modernization, globalization, authoritarianism, bureaucratic capitalism, import substitution, developing countries, “directed democracy”, “new order” 

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For citation:
Prozorovskii A. Indonesia as an Example of Modernization. World Eonomy and International Relations, 2016, vol. 60, no. 4, pp. 95-104.

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