Reconstruction of the National Accounts of Indonesia 1900-2000

This project is a part of a wider research project entitled 'Strategies of Economic Development in the Twentieth Century: Europe and Asia' of the N.W. Posthumus Institute for Economic and Social History. The project is also integrated into the regular research done at the universities of Leiden and the International Institute of Social History (IISH) in Amsterdam, concerning the economic history of Indonesia and the analysis of long-run economic development based on the reconstruction of historical national accounts. Moreover, it is a collaboration effort with the Asian Historical Statistics project of Hitotsubashi University Tokyo.

The research project aims at a systematic analysis of the long-run economic development of Indonesia during the twentieth century. It is based on a careful reconstruction of the national accounts of Indonesia during the late-colonial period and since independence.

The most intriguing question about the economic development of Indonesia during the twentieth century is why the country's growth performance has been so erratic and displayed such a high degree of discontinuity. Why was Indonesia at independence so poor after having experienced a comparatively impressive export-led economic expansion during several decades prior to the worldwide economic depression? Why did the economic growth performance improve so much during the New Order Government of Suharto after the dismal experiences of the Old Order Government of Sukarno? Does this erratic performance convey a fundamental structural weakness in the Indonesian economy that in turn may even help us in understanding why the country plunged into such a deep economic crisis since 1997, the worst one in the region and the worst in several decades? These questions are all connected with the fundamental question of the nature of long-run economic development in Indonesia that is addressed in this research project.

The study of the modern economic history of Indonesia, covering the period from the beginning of the twentieth century until the present day, has so far been less systematic than what the available source material would permit. Indonesia is exceptionally well endowed with rich statistical sources, especially with regard to the late-colonial period, which carry the potential of supporting a rigorous and systematic quantitative approach to vital questions concerning the economic growth performance in the long run. The gap between current historiography and available sources needs to be bridged by the appropriate methodological framework and a rigorous analysis. Such a methodological framework is provided by the reconstruction of the national accounts of Indonesia.

The research project as a whole focuses on the long-run economic growth performance of Indonesia. The position of Indonesia in the world economy has changed dramatically as a result of the variations in the country's economic growth performance. In the years 1900-1930, colonial Indonesia counted as one of the most successful export producers of primary goods achieving an impressive enlargement of foreign export volumes. In the 1950s and early 1960s, newly independent Indonesia was more often than not depicted as a 'perpetual underachiever' or 'chronic dropout', a country with incomes at the same level as in India or in war-torn South Korea, lacking prospects for much improvement. Rapid growth after the mid-1960s resulted in another change of status. In 1981 the World Bank designated Indonesia as a 'lower middle-income country' and in 1993 it was promoted to the World Bank's category of so-called HPAEs (Highly Performing Asian Economies). Since 1997, however, Indonesia has been hit more severely than any other country by the latest Asian crisis.

Methodology

Reconstructed national accounts form the prime source of information of a nation's economic development over time. The method consists of the following elements. The economy of a nation is seen as a circular flow of goods (and services). Consumers buy goods from producers and pay with the money that they have earned by supplying producers with factors of production (labour, land and capital). The circular flow of goods and money thus forms a closed system. The size of this flow is the national income or the national product (these two are identical in a closed economy). The national income (or product) can be measured at different points in the flow of goods and money, for instance as the sum of all incomes earned from supplying factors of production (wages, rent and profits) or as the sum of all expenditures (consumption and investment) or, finally, as the sum of the value added in each sector of the economy (agriculture, industry, services). Since all these measurements of the national income have the same outcome, this method is especially well studied for historical research that by necessity is based on incomplete and fragmentary information, of which the reliability is obviously often uncertain. The robustness of the estimates from fragmented source may be established by estimating national income in alternative ways and by confronting various sources at lower levels of aggregation. For example, estimates of the output of rice will have to take exports and imports into account and may be supplemented by figures on the average consumption of rice in budget surveys.

Most use will be made of the output approach, as Van der Eng has shown that the output approach, based on value added in production of goods and services, is the most appropriate one for the case of Indonesia. In his pioneering study, Van der Eng distinguishes between 17 sectors of the Indonesian economy: Food crops, Cash crops, Estate crops, Animal husbandry, Fisheries, Forestry, Mining and Quarrying, Manufacturing, Utilities, Construction, Trade, Transport and Communication, Banking and Financial Services, Housing, Public administration and defense, Other services and, finally, Oil and gas. A preliminary decision is to apply this scheme of sectorial classification but to elaborate and refine it further as the reconstruction proceeds.
The whole body of primary and processed data is made available to other researchers through a database on CD-ROM and a source publication in print. The final reconstruction serves as the chief input into a systematic analysis of economic change in Indonesia since 1900.

Sources

Among Asian economies, Indonesia is exceptionally well endowed with detailed statistics on virtually all sectors of the economy. The statistical series were originally set up by the Dutch colonial administrators. Some series run as far back as to the 1820s. The institutions responsible for the collection, compilation and publication of economic statistics were the Centraal Kantoor voor de Statistiek in the colonial period and the Biro/Badan Pusat Statistik (BPS) after independence (both may be translated as Central Bureau of Statistics). There was a considerable degree of continuity in this work that will ease the problems of linking series from the colonial period to the later period.
Summary tables for the colonial period were made available to an international community of scholars through the Changing Economy in Indonesia (1975-1996). This series is widely acclaimed among economic historians also outside the Netherlands and Indonesia. However, the raw data for these publications are, with one or two exceptions, not available in digital form. A full digitalization of the Changing Economy in Indonesia is therefore an important part of this research project.