Book contents
- Frontmatter
- Dedication
- Contents
- Preface
- Acknowledgments
- Introduction
- PART I The Early Independence Period in the 1950s
- PART II The Soeharto Era: 1966–1998
- 4 Indonesia's Economic Development During and After the Soeharto Era: Achievements and Failings
- 5 The Impact of the Two Oil Booms of the 1970s and the Post-Oil Boom Shock of the Early 1980s on the Indonesian Economy
- PART III The Asian Financial Crisis and the Global Financial Crisis
- PART IV Industrial Development
- Index
5 - The Impact of the Two Oil Booms of the 1970s and the Post-Oil Boom Shock of the Early 1980s on the Indonesian Economy
from PART II - The Soeharto Era: 1966–1998
Published online by Cambridge University Press: 21 October 2015
- Frontmatter
- Dedication
- Contents
- Preface
- Acknowledgments
- Introduction
- PART I The Early Independence Period in the 1950s
- PART II The Soeharto Era: 1966–1998
- 4 Indonesia's Economic Development During and After the Soeharto Era: Achievements and Failings
- 5 The Impact of the Two Oil Booms of the 1970s and the Post-Oil Boom Shock of the Early 1980s on the Indonesian Economy
- PART III The Asian Financial Crisis and the Global Financial Crisis
- PART IV Industrial Development
- Index
Summary
INTRODUCTION
Over the period 1974–1981 the Indonesian economy grew at a high and sustained average annual rate of 7.7 per cent. This rapid growth was to a large extent attributable to the considerable improvement in the country's international terms of trade caused by the two oil booms Indonesia experienced during the 1970s.
The first oil boom of 1973/1974 was caused by the decision of the Organization of Petroleum-Exporting Countries (OPEC), the international oil cartel of which Indonesia was a member, to quadruple the price of oil by reducing its combined oil exports. The second oil boom of 1979/1980 was caused by the temporary closure of Iran's oil industry as a result of the revolution against the Shah's regime. This closure had a great impact on world oil prices, since Iran was OPEC's second-largest oil producer and exporter after Saudi Arabia. The resulting imbalance between the world's oil supply and demand led to further doubling of the price of oil to about $30 per barrel by early 1980. In nominal terms the price of Indonesia's crude oil rose from $1.60 per barrel in 1970 to $35 in 1980 (Odell 1981: 255–56). However, in 1982 Indonesia experienced a third external shock, this time caused by a steep decline in the price of oil caused by a weakening of the world oil market which led to substantial deterioration in Indonesia's external terms of trade. This paper describes the impact of these two oil booms on the Indonesian economy, and in particular the policies which the Indonesian pursued in response to these oil booms. This paper will also describe the policies of the Indonesian government in response to the end of the oil boom in 1982.
1. The First Oil Boom, 1973–74
Even before the Saudi Arabia, the largest oil exporter, and the other Arab countries had imposed an embargo on their oil exports as punishment for America's strong support to Israel during the fourth Arab-Israeli War in late 1973, the price of oil had been inching upward from $2.93 per barrel in April 1972 to $3.70 in April 1973 to $4.75 in October 1973, before it jumped to $11.70 a barrel in April 1974 as a result of the oil embargo (Grenville 1974: 2; Arndt, 1974: 1).
- Type
- Chapter
- Information
- Indonesia's Economy since Independence , pp. 90 - 106Publisher: ISEAS–Yusof Ishak InstitutePrint publication year: 2012