Tuesday, May 30, 2023 | 08:33 WIB

A collusion that impact Indonesia’s economy


Jakarta, IO – The national rice policy has recently become a widely-discussed topic, as the price of rice fluctuates unpredictably and the Government’s rice import plan sparks controversy. This is understandable, as rice has become a strategic commodity. From the early days after Indonesia gained its independence, through the regimes of Sukarno and Suharto and up until the Reformasi era, national rice policy has been continuously changing. Some viewed it as a less important policy while others made it a top priority. Whatever the policy direction is, rice remains influential, both politically and economically. Politically, it relates to the legitimacy of the Government. Economically, it is a key component which affects price stability and inflation, which ultimately will impact the performance of the national economy. In this article, we will examine the consequences of this issue, whether it is being neglected or if it is designated a focal issue by the Government. 

There are at least three underlying problems facing the nation’s rice management. First, as mentioned before, rice is as much an economic issue as it is political. In the 1950s, failure to address the problem could bring down a cabinet. During the Suharto administration (1970-1998), achieving rice self-sufficiency was a top priority and was key to preserving economic and political stability. During “Reformasi” (2000-present), rice and other basic food commodities are being manipulated as “rent seeking” instruments. This saw the collusion between unscrupulous politicians and businessmen to extract maximum financial benefits, especially ahead of elections, including the one to be held in 2024. Second, rice is a commodity that determines a level of inflation. In the 1950s, up until the end of Sukarno administration, the Indonesian economy was mired in hyperinflation. In 1965, food prices skyrocketed by 685.36 percent, the highest compared to other expenditure groups. During the New Order and post-New Order eras, inflation, especially in the food group, was more under control, although food remained a major contributor to overall inflation. Third, Indonesia has large population (the fifth most populous nation when the Soviet Union still existed, and fourth post-dissolution of Soviet Union by the end of the 1980s). As a consequence, Indonesia is a major determinant in global price of rice. Every time Indonesia decides to import rice, the price in rice-importing countries will surge as well. 

During the 1950s, with a very limited state budget, the economy was in chaos, due to a clearly failing production sector, an acute scarcity of foreign exchange and the obvious inability to meet people’s needs. These ultimately resulted in high inflation. Prices of rice and other foodstuffs increased between 200 to 300 percent. On the other hand, tax revenues and foreign exchange from exports remained low. As a result, a budget deficit swelled, leading to the collapse of the Wilopo Cabinet, because it failed to address the issue. Meanwhile, high inflation was running rampant. It rose from 34.88 percent in 1951 to 42.17 percent in 1957. By 1961, it had reached 76.71 percent and rose further to 154.4 percent in 1962. In 1963 it fell slightly, to 128.07 percent but surged again in 1964 to 135.13 percent. It hit a level defined as hyperinflation in 1965, with foodstuff prices skyrocketing by 685.36 percent, housing 567.34 percent and apparel 3,232.56 percent. This continued on in 1966, with inflation in the three groups registering 500.23 percent, 866.34 percent, 654.76 percent and 1,128.07 percent, respectively. Economically, it was a depressing era for many people as they could not afford essentials, especially rice. With such weak purchasing power and feeble welfare, Indonesia became one of the poorest countries in the world, with a starving population. 


Latest article

Related Articles