AN OVERVIEW

Trade policy is another area where a marked shift in economic policies and priorities occurred after 1966. During the first half of the 1960s Indonesia had been disengaging steadily from the international economy. Moreover, its declining trade, investment and aid relationships, such as they were, were oriented increasingly towards the then USSR, eastern Europe, and China. By 1965 the government was unable to service its hard currency debt of some $2.5 billion. In December of that year, for the first time, the central bank was unable to honour letters of credit. In 1966, debt repayments were estimated to be about $530 million, exceeding the projected official foreign exchange earnings of $430 million. Businesses were closing down because necessary raw materials and spare parts could not be imported. The public was exhorted to eat maize and other rice substitutes to reduce the nation's rice import bill. Multiple exchange rates and a proliferation of trade restrictions produced a flourishing and uncontrollable illegal trade, mainly across the Straits of Malacca. Cash crop exporters in Sumatra were unwilling to surrender their foreign exchange earnings at a ridiculously low exchange rate to an uncaring Jakarta government.

The reopening of international commercial channels after 1966, and the impact of the global economy on Indonesian development, are of great interest for a number of reasons. The government began to dismantle the maze of trade regulations quite quickly, introducing a series of major liberalizing reforms over the 1966–69 period.